HUKAM CHAND MILLS LTD. INDORE versus COMMISSIONER OF INCOME TAX, BOMBAY

Citation: [1976] 3 S.C.R. 712 · Decided: 19-03-1976 · Supreme Court of India · Bench: HANS RAJ KHANNA · Disposal: Appeal(s) allowed

Judgment (excerpt)

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B 
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712 
HUKAM CHAND MILLS LTD. INDORE 
v. 
COMMISSIONER OF INCOME TAX, BOMBAY 
March 19, 1976 
[H. R. KHANNA AND P. K. 9osWAMI, JJ.J 
I11con1e Tax Act 1922-Sales effected by a•Conzpany in erstwhile stat-;;in 
British Jndia-Deterntination of the quantunl of profits on the sales effected in 
British India and the basis of apportionment of the profits in the absence of 
any statutory or fixed forn1ula should be based on relevant niaterial. 
The assessec appellant is a public limited company owning 
textile Mills at 
Indore and carrying on the business of manufacture and sale of textiles. Dur-
ing the assessment year 1942-43, it effected in British India the following 
categories of sales viz. (a) sales canvassed by the company's representatives 
amounting to l{s. 6,46,02-8, (b) sales can\rassed through brokers and agents in 
British India Merchants and their brokers during their visit at Indore amount-
ing to Rs. 2,86,224 and (iv) Sales to BritisJl Indian Merchants at the 
time 
of their own or their brokers visit at Indore amounting to Rs. 2,55,916/-. 
Jn 1968(1) S.C.R. 47, on an appeal, by Revenue, arising out of a reference 
u/s 66(1) of the Income l'ax Act, this court held that the income by way of 
the Sales of Rs. 14,80,059/- in respect of the appellant company \\'as income 
"accrued or c.1ose" within British India and a proportionate part of it was 
assessable to Indian Incon1e Tax. This court remitted the case to the High 
Court to ans\ver the reference regarding the correctness of the determination 
of the profits on the sale.s computed by the Tribunal by application of Ru~ 
33 and also \vhether 1/3 of the profits so determined could be said to accn1e· 
or arise in British India, which the High Court answered in favour of the 
Revenue. In the appeals before this Court it was found that the High Court 
had not taken into account the relevant circun1st::inces for answering the refer-
ence since it was contended by both the parties that Rule 33 was not appli-
cable to the facts of the case. 
As per the directions, the Tribunal submitted 
a supplementary staten1ent of the case wherein it found ( 1) that in respect of 
the sales canvassed by the companies representatives and through brokers and 
agents amounting to Rs. 9,37,919 it was just and equitable to apportion 15% 
of th:.; profits said to have arisen and accrued in British India and (ii) that 
in respect of the saJes to British Indian f\.1erchants and/or their brokers during 
their visit at Indore amounting to Rs. 5,42,140/-. 7! per cent of the profits 
could be said to have accrued and arisen in British India. 
As the profits were 
found to represent 31.12 per cent of the turnover, 
the profits in respect 
of 
rhe turnovt~r of- Rs. 9,37.919 were calculated at the rate of 4-! per cent 
(i.e. 
151/(, of 31.12 per cent) which amounted to Rs. 42,200/-. Similarly the pro-
fits in respect of the turnever of 5,42,140/- @ the rate of 2!00 (7! per cent of 
31.12 per cent) amounted to Rs. 12,200. The total profits for the 
ye8.r 
1942-43 was Rs. 54,400 (Rs. 42,200+ 12,200). according to the Tribunal. 
G 
.1\ccepting the appcah:, the Court, 
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HELD : (i) The question as to what proportion of the profits of the sales 
in the four categories arose or accrued in British India is essentiallv one of 
fact depending upon the circumstances of the case. 
In the absence of some 
statutory or other fixed formula; any finding on the question of proportion in-
volves same element of guess work. 
The endeavour can only-be to be approxi-
mate and there cannot in the very nature of things be great precision and ex-
actness in the matter. 
As long as the proportion fixed by the Tribunal is 
based upon the relevant material. it should not be disturbed. [716C-D] 
(ii) In the instant case, the profit which arose and accrued in British India 
to the assessee-appellant for the assessment year 1942-43 was Rs. 54,400. It 
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HUKAM CHAND MILLS LTD. v. C.I.T. (Khanna, !.) 
713 
is just and equitable to apportion 15% of the profits of sales in categories 
(a) and (b) and 7t per cent of the profits of sales in categories (c) and (d) 
as accruing or arising in British India. [716D-E] 
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1062-1066 
(NT) of 1970, 
A 
From tbe Judgment and Order dated tbe 31st January/ls! Feb-
ruary 1968 of tbe High Court of Judicature at Bombay in Income-
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Tax Reference No. 5 of 1961. 
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S. T. Desai, A. K. Verma 

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