M.C. Chagla, C.J.
1. The question that arises for decision in this reference is whether the assessee is liable to payment of Excess Profit Tax in respect of sales of goods manufactured in Raichur and sold in British India. The assessee is a firm resident in British India and it is registered with the Income-tax authorities under Section 26A of the Indian Income-tax Act. The assessee has three mills in Bombay and one in Raichur in Hyderabad (Dn.) State. They purchased groundnuts and then converted them into oil in their mills and sold it. In this reference we are concerned only with regard to the mill in Raichur. Oil is manufactured in this mill but some of it is sold in British India, Now being a resident in British India as far as income-tax is concerned there is no question that the assessee is liable with regard to his income whether it accrues to him within or without British India. But the position is different under the Excess Profits Tax Act (XV of 1940). Under Section 5 that Act is made applicable to every business of which any part of the profits made during the chargeable accounting period was chargeable to income-tax by virtue of the provisions of Section 4(1)(b)(i) and (ii) of the Indian Income-tax Act. Therefore, this Act would have applied to the profits of a business even if those profits accrued or arose outside British India. But there is a proviso to this section with which we are concerned and that is the third proviso which enacts that the Act shall not apply to any business the whole of the profits of which accrue or arise in a Native State. That is not the case here and that is not the contention of the assessee. Then we come to the second part of the proviso, viz.
Where the profits of a part of a business accrue or arise in an Indian State, such part shall, for the purposes of this provision, be deemed to be a separate business the whole of the profits of which accrue or arise in an Indian State, and the other part of the business shall, for all the purposes of this Act, be deemed to be a separate business.
2. The assessee's contention is that the profits of a part of his business accrued in Raichur and to that extent that part of the business should be treated as a separate business and profits of that business should be deemed to accrue or arise in the State of Hyderabad. Now it is important to note that the scheme of the Excess Profits Tax Act is that all the businesses of an assessee are treated as one business. Therefore, although the assessee in this case has three mills in Bombay and one in Raichur and the assessee also sells oil in British India, as far as the Excess Profits Tax Act is concerned all the businesses must be looked upon as one business. This fact has considerable importance when we have to construe and to give proper interpretation to the expression used in the proviso, viz. 'a part of a business.' Whether such a part of the business is in contra-distinction to the business as contemplated by the Excess Profits Tax Act which is not one business of the assessee but all the businesses of the assessee rolled into one. Three conditions are necessary before the second part of the third proviso can apply : (1) there must be a part of the business, (2) there must be profits accruing or arising to that part of the business, and (3) that part must be carried on in an Indian State. Now the contention of Mr. Kolah for the assessee is that the business of the assessee consists in manufacturing oil and in selling it, and manufacturing oil is a separate independent part of his business. It is true that both these parts constitute one business but profits do accrue and arise as far as manufacture of oil is concerned and profits also arise and accrue as far as the sale of oil is concerned. It is impossible to say that at the stage where the manufacture of oil is completed no profits would have accrued or arisen in respect of that business. A man who just sells oil may buy it in the market and the profits that may accrue to him would be the difference between the selling price and the cost price; but if he were to get the goods direct from the factory, then the position would be different. More profits undoubtedly would accrue to him and it could not be stated that all these profits accrued only with regard to the sale of that particular commodity. A part of the profits must accrue or arise with regard to the manufacture of that particular article. The contention of the Advocate General on the other hand is that the business of the assessee is one comprehensive integrated business. His business is to manufacture oil for the purpose of selling it and profits only accrue or arise when oil is sold at the place where it is sold and at the time when it is sold, and till the sale is effected no profits would have accrued or arisen in respect of the assessee's business. The Advocate General has also contended on behalf of the Commissioner that manufacturing oil is not a part of the assessee's business. According to him as the business of the assessee is both manufacturing and selling oil in order that a part of the business should be carried on in any particular place it must be a part of the whole. It must be both manufacturing and selling, and inasmuch as at Raichur the assessee is merely manufacturing and not selling oil, according to the Advocate General no part of the business of the assessee functions at Raichur. Apart from the authorities, and I shall presently refer to the cases cited at the bar, I see no reason why a plain grammatical construction should not be placed upon the expression 'a part of a business.' I should have thought that when a businessman sells an article the acquiring of it is by no means an insignificant part of his business, and if he manufactures it with a view to sell it that certainly is not only a part but also a very important part of his business. Therefore, I have no doubt in my mind that the activity that the assessee carries on in Raichur is certainly a part of the business of the assessee. The next question is whether profits accrue or arise to that part of the business. There can be no doubt that if the manufactured article was sold to a third person at Raichur, not only profits would arise but would be immediately ascertainable. The mere fact that in this case the manufacturer does not immediately sell it to a wholesale dealer but acts as a wholesale dealer himself does not prevent or preclude profits accruing or arising to that part of the assessee's business which deals with the manufacture of the article. A very similar question came up for consideration before the Privy Council in Commissioners of Taxation v. Kirk  A.C. 585. Their Lordships there had to construe the Land Income-tax Assessment Act of 1895 passed by the Colony of New South Wales. There ore was extracted from the soil of the New South Wales Colony and was put in a merchantable condition and then sent to the Colony of Victoria for sale. The question that fell for determination was whether from the mere extraction of the ore and putting it into a merchantable condition it could be stated that any income accrued to the assessee company in the colony of New South Wales.
3. March 18. The Supreme Court from which the appeal was preferred to the Privy Council took the view that the assessee company had no assessable income in the colony of New South Wales. The Privy Council reversed the decision of the Supreme Court. It is important to note that under the Land Income-tax Assessment Act of 1895, which governed the rights of the parties, the income which had to be considered was not an income deemed to be arising or accruing but actually arising or accruing. The question that the Privy Council considered was whether on the facts of the case before it any income accrued or arose to the assessee company in the Colony of New South Wales. The argument in favour of the appellants was that income only arose or accrued at the end where the manufactured articles were sold, namely, in the Colony of Victoria. This argument was rejected by the Privy Council. Reading the judgment of Lord Davey it is clear that the Privy Council took the view that some part at least of the business of the assessee was carried on in New South Wales. At p. 592 Lord Davey says as follows:
At first sight it seems startling that the ultimate result in the form of profit of a business carried on.in the colony is not to some extent taxable income there.
Then it is pointed out in the judgment that there are four processes in the earning or production of income of the company : (1) extraction of the ore from the soil, (2) conversion of the crude ore into a merchantable product, (8) sale of the merchantable product, and (4) receipt of the moneys arising from the sale. It is emphasized that all these processes are necessary stages which terminate in money, and the income is money resulting less the expenses attendant on all the stages. Their Lordships of the Privy Council then pointed out the fallacy of the judgment of the Supreme Court and of the Tindal's case In re Tindal (1897) 18 N.S.W.L.R. 378 which they followed in that case in leaving out of sight the initial stages and fixing their attention exclusively on the final stage in the production of income. That is exactly the fallacy which the Income-tax Department is guilty of in the present case. They want to leave out of sight completely the initial stages of the production of oil and they want to fasten their attention exclusively on the final stage which is the sale of oil by the assessee in British India.
4. This decision of the Privy Council was considered both by the Calcutta High Court and the High Court of Madras with contrary results. Both the Courts were considering Section 4 of the Act before it was amended. There was a proviso to Sub-section 2 of that section which exempted from tax income arising or accruing in a State in India from land from which any annual payment of money or kind is made to the State. In the Calcutta case, In the matter of Mohanpura Tea Company, Ltd.  2 Cal. 201 the assessees were a limited company having their registered office at Calcutta owning a tea estate in an Indian State. They grew and manufactured tea in this estate and then sent it to Calcutta and sold it there. The assessees claimed exemption in respect of their agricultural income under the proviso to Section 4(2). The Calcutta High Court held that the whole of the income of the assessees from the sale of the tea accrued or arose in British India where the tea was sold and not in the Indian State where tea was grown and manufactured. Panckridge J. in delivering judgment of the Court considered the Privy Council case, and, with great respect, the only way he distinguished the Privy Council case was by suggesting that the liability to tax under the New South Wales Act depended not on whether the income accrued or arose in the New South Wales Colony but whether it accrued or arose from a source in that Colony. Now every income must have a source and income accrues or arises at the place where its source is situated. As soon as income has arisen or has resulted from a particular source then it can be stated that income has accrued or arisen and, therefore, naturally accrual of the income must be at the same place as the source of that income. The Madras High Court took a contrary view and applied the Privy Council case in Comm. of Income-tax, Madras v. Mathias : 5ITR435(Mad) . There the assessee resided in British India and owned coffee plantations in the Mysore State. Harvested crops were brought in British India in their raw state to be dried and cured in the factories of the selling agents of the company and were sold there by the selling agents and the sale proceeds were received and retained by the assessee in Mangalore. When question arose whether the whole or any part of the income derived by the assessee from the products of his coffee estates from Mysore were exempt from tax under the second proviso to Section 4(2), the Court held that the income was exempt from tax under that proviso, as the income accrued or arose in the Mysore State. The Madras case went before the Privy Council and it is reported in Commr. of Income-tax v. Diwan Bahadur S.L. Mathias (1938) 7 I.T.R. 48, P.C. The Privy Council took the view that income was received in British India and, therefore, the proviso to Section 4(2) had no application. They, therefore, decided that it was not necessary to consider this particular question which the Madras High Court had decided. In their judgment they have put both the sides of the question and left the matter at large. Their Lordships say that the business operations could not be arbitrarily cut into two, but they must be regarded as a whole. That is the argument as put forward by the Advocate General. The other argument is so stated by their Lordships (p. 53):
On the other hand, upon the question whether the profits and gains accrued or arose in British India, it may be that the fact that coffee was grown in Mysore is by no means to be disregarded notwithstanding that it was sold in British India especially if it be true that it was sold without further process of a manufacturing character. For the moment it is enough to say that it may be so, without examining the matter and without prejudice to either view.
5. There is another case of the Allahabad High Court, to which our attention was drawn by the Advocate General, and that is the case of Hira Mills Ltd., Cawnpore v. Income-tax Officer, Cownpore (1945) 14 I.T.R. 417. In that case the question arose as to the liability of a non-resident to pay tax in respect of the income of a business carried on by him of manufacturing cloth at Ujjain in the Gwalior State. Cloth was sent to Cawnpore in British India and the goods were sold there by the assessees and the sale proceeds were collected by them also. The case could have been disposed of on the short point that the profits and gains derived from the sales were assessable to tax as they had been received in British India by or on behalf of the assessees. But the Court consisting of Sir Iqbal Ahmed C.J. and Braund J. went on to consider the point which really did not arise at all for their decision, viz. whether the income had accrued or arisen to the assessees in British India, and the view they took was that although the cloth had been manufactured in Gwalior inasmuch as the sales had been effected in Cawnpore the income had accrued or arisen in British India. With respect, I prefer the view of the law as laid down by the Madras High Court.
6. The Advocate General has attempted to distinguish the Privy Council decision by contending that in the case of income-tax it is an individual who is assessed and the question that arises is whether income accrues or arises to the assessee. But, says he, we are here considering Excess Profits Tax and the Excess Profits Tax Act does not tax an individual but it taxes the business and, therefore, the question whether income accrues or arises to a business is very different from the question whether income arises or accrues to the assessee. With respect, I really fail to see what real or substantial distinction there is between the two positions. It is true that the Excess Profits Tax Act taxes business, but that means that the only source it taxes is the profits or gains of a business, whereas the Income-tax Act taxes all sources of income of an assessee. But even so even under the Excess Profits Tax Act it is the assessee who is taxed in respect of his income in a business. The Advocate General has relied on a decision (Walchand & Co., Ltd. v. Hindustan Construction Co., Ltd. : AIR1944Bom5 where Beaumont C.J. (at p. 955) considered the scheme of the Excess Profits Tax Act. He points out that there was a vital distinction between the two taxes. This is how he describes the distinction. 'Income-tax is a tax on all income with certain exceptions, whereas excess profits tax is a tax levied only on certain profits of the owner of a business.' It is the owner of the business who is taxed in respect of his business.
7. I must frankly confess that the question we have been considering is not free from doubt or difficulty and much can be said on the side supported by the Advocate General, but if such a situation arises, then it is clear that the duty of the Court is in a case of a reasonable doubt to put such a construction upon a taxing statute as is most beneficial to the subject. It is also clear that all charges upon a subject must be imposed by clear and unambiguous language because in some degree they operate as a penalty. (See Maxwell on the Interpretation of Statutes, 9th edn., p. 291, paragraph 2). Therefore, if we have any reasonable doubt as to the proper construction to be put upon the third proviso to Section 5 of the Excess Profits Tax Act, we must construe it in such a manner as is most advantageous to the subject and to the assessee.
8. The question as framed does not really bring out the controversy between the parties and, therefore, we would frame the question thus:
Whether on the facts as stated above profits of a part of the business of the assessee accrued or arose in an Indian State?
To that our answer will be in the affirmative. As to what profits arose from that part of the business is a matter to be ascertained by the Department. The Commissioner must pay the costs of this reference.
9. The facts giving rise to this reference as found by the Tribunal are these. The assessees are a resident firm. Their business consists of manufacturing and selling oil and they have three mills in Bombay and one mill at Raichur in the Hyderabad State for manufacturing oil. The Income-tax Officer ascertained the income arising to the assessees from the Raichur Mill. Part of the oil produced in that mill was sold outside British India and part of it was sold in British India. In respect of sales in British India the contracts were made by the assessees' Bombay office, the deliveries were made by the Bombay office, and the payments were also received by the Bombay office. The Income-tax Officer held that the profits on sales made in British India accrued or arose in British India both for the purpose of income-tax and excess profits tax. There is no doubt at all that he was right in so far as the Income-tax Act is concerned, because by reason of the assessees being resident, their income under Section 4(1)(b), whether it accrued in British India or outside, was chargeable to income-tax.
10. But in respect of the assessment to excess profits tax, it is contended by the assessees that the third proviso to Section 5 of the Excess Profits Tax Act applies; and that inasmuch as the oil which was sold in Bombay was manufactured at Raichur in the Hyderabad State, profits of a part of the business accrued or arose at Raichur and such part must be treated as a separate business within the meaning of the third proviso, The relevant part of the third proviso to Section 5 is as follows:
Provided further that.where the profits of a part of a business accrue or arise in an Indian State, such part shall, for the purposes of this provision, be deemed to be a separate business.
11. Now, in order that this proviso should apply, there are three conditions which ought to be satisfied as laid down in the proviso itself : (1.) that there must be a part of a business (2) that such part must produce profits, and (8) that the profits must accrue or arise in an Indian State.
12. Taking first the first condition, it is a common place to say that carrying on of any business involves a number of operations. It is the case of the Advocate General that the meaning to be assigned to the words 'part of a business' in this proviso is not the ordinary dictionary meaning of the word 'part', viz. a portion only. He says that all the requisite operations constituting a business, only quantitatively less than the whole business, can alone form a part of the business. In other words, a part of the business must be a complete cross section of the whole business and not merely one or more of the operations of that business. Applying this to the facts of the case before us, it is his case that if both the manufacture and sale of oil did in part take place outside British India, as it undoubtedly did, in respect of oil manufactured and sold outside British India that is a part of the business. But if only manufacture, which is one of the operations of the business, takes place outside British India, that is not a part of the business. I see no justification for so restricting the meaning of the word 'part' in this proviso. The normal meaning of the word is 'a portion' in whatever way carved out and I have no doubt in my mind that any of the operations that go towards a complete business are a part of that business.
13. The contention of the Advocate General becomes the more untenable when one looks at the second proviso to Section 2(5) of the Excess Profits Tax Act. That proviso states:
Provided further that all businesses to which this Act applies carried on by the same person shall be treated as one business for the purpose of this Act.
14. Now, under this proviso you may have several businesses of a totally different character carried on by the same person and they all together constitute one business for the purposes of the Excess Profits Tax Act, If the contention of the Advocate General is right, even if one of these different businesses, in the ordinary sense of the term, was wholly carried out in a Native State, it would still not be a part of the whole business in the sense of being a cross section of all the businesses which together constitute one business under the Excess Profits Tax Act. I am, therefore, of the opinion that the manufacture of oil was part of the business of the assessee firm.
15. The next contention I have to consider is whether such part produced profits. Of course, the Advocate General contends that no profits are produced until the oil is sold; and that, therefore, it could not be predicated that there were any profits made merely by the manufacture of oil. He further contends that it may well happen that in a given case the oil is sold at a loss; and in that case the manufacture in any event would not result in a profit. To my mind, there is a fallacy in this argument. It is perfectly true to say that no profits are made until the oil is sold; but that merely fixes the time when profits are made. It does not follow therefrom that profits are made merely by the act of sale. The act of sale is the culminating process of the whole business; and it would be undoubtedly laying an undue emphasis on this final act or process to say that all the profits were attributable to that operation only. Part of the process which enabled the assessees to sell the oil was the manufacture of the oil; and to my mind a portion of the profits must necessarily be attributable to the manufacture of the oil when profits are made. It is not necessary that they should be so attributable at the time when the goods are manufactured, because it may well happen that the business makes no profits at all, in which case there would be no profits of manufacture.
16. Taking next the third condition, where did the profits attributable to the manufacture accrue or arise? No doubt, the profits are realised at the place where the oil is sold, that is in British India; and to the extent to which these profits are attributable to the sale it cannot be disputed that they accrue or arise in British India. But to the extent to which such profits are attributable to the manufacture of oil, I cannot see how they can accrue or arise at any place different from the place where the manufactured article came into existence. I am, therefore, of opinion on a reading of the third proviso of Section 5 as it stands, and uninfluenced by any authority, that all the three conditions are in fact satisfied.
17. I am fortified in the opinion that I have arrived at by a decision of their Lordships of the Privy Council, on which the assessees have relied, reported in Commissioners of Taxation v. Kirk  A.C. 588. In this case certain companies in New South Wales extracted ore from their mines in New South Wales and converted it into a merchantable product. The product was then exported from New South Wales and actually sold at Melbourne and other places. The question that arose was whether under the Land and Income-tax Assessment Act of 1895, which applied in New South Wales, income from this business arose in New South Wales. The Supreme Court of New South Wales, following a previous decision of the same Court in In re Tindal (1897) 18 N.S.W.L.R. 378, held that it did not. Their Lordships of the Privy Council reversed this decision. Lord Davey in delivering judgment pointed out that the Supreme Court had thought in Tindal's case that the income was not earned in New South Wales because the finished products were sold exclusively outside the colony. His Lordship then proceeded to observe that there were four processes in the earning or production of the income, (1) the extraction of ore, (2) its conversion into a merchantable product, (3) the sale, and (4) receipt of price. Lord Davey then proceeded to say (p. 592):
All these processes are necessary stages which terminate in money, and the income is the money resulting less the expenses attendant on all the stages.
18. Further on Lord Davey states (p. 593):
So far as relates to these two processes, (viz. the first two) therefore, their Lordships think that the income was earned and arising and accruing in New South Wales.
19. His Lordship then proceeded to point out the fallacy in the judgment of the Supreme Court in In re Tindal by stating that the fallacy consisted in leaving out of sight the initial stages, and fastening their attention exclusively on the final stage of the production of the income. I read this case as an authority for the proposition that where any business involves the carrying on of more than one process, some profit is attributable to each of such processes; and that such profit accrues or arises at the place where the process is completed irrespective of the place where the ultimate profits are realised.
20. The Advocate General has relied on a decision of the Calcutta High Court reported in In the matter of Mohanpura Tea Company, Ld.  2 Cal. 201. In this case the assessee company had tea estates in an Indian State; but the tea was brought into British India and sold in British India. The Calcutta High Court, in a reference under the Income-tax Act, held that the income accrued or arose in Calcutta and not in the Indian State. In coming to this conclusion Panckridge J. who delivered the judgment states (p. 125):
In the present case, what was received in or brought into British India was not income, profits and gains, but manufactured tea. Indeed, until the manufactured tea had been sold at a profit in Calcutta it can hardly be said that there were any income, profits and gains.
21. Apparently, the Tribunal, in the case before us, has taken an identical view, because they in their judgment held : 'in the present case what was received or brought into British India was the manufactured article. It did not include any income, profits or gains. The profits and gains only accrued after the sale had taken place.'
22. The case of Commissioners of Taxation v. Kirk  A.C. 588 was cited before their Lordships of the Calcutta High Court; but their Lordships proceeded to distinguish it on the ground that under the Act applicable in New South Wales the liability to tax depended not on whether the income arose or accrued in New South Wales, but on whether it arose or accrued from a source in New South Wales. Their Lordships proceeded to point out that the place where income accrues or arises is by no means necessarily the place where the source from which it accrues or arises is situated. With very great respect to their Lordships of the Calcutta High Court, they ignored the plain words of the judgment of Lord Davey who held that the income 'was earned and arising and accruing in New South Wales' and not that it arose from a source in New South Wales. With respect, therefore, I am unable to agree with the decision of the Calcutta High Court on which reliance has been placed by the Advocate General.
23. This decision was dissented from by the Madras High Court in the case of Commr. of Income tax v. Mathias : 5ITR435(Mad) . In this case, the assessees had a coffee plantation in Mysore State. Green coffee was brought into British India, dried, cured and sold in Mangalore. The question was whether the income from the sale of coffee arose in Mangalore or in the Mysore State. The Madras High Court held that the income arose in the Mysore State. Their Lordships pointed out that if after the receipt of green coffee in Mangalore it had gone through a manufacturing process, it may well have been that profits attributable to that manufacturing process accrued or arose in British India. But they held on the evidence that such processes as were gone through in British India were only processes which were ordinarily employed by the cultivator to render the produce fit to be taken to the market; and, therefore, the whole of the income was agricultural income and exempt from taxation. With respect, I agree with the decision of the Madras High Court and hold with them that the case of Commissioners of Taxation v. Kirk applied to the facts of the case before them. This case went up to the Privy Council and is reported in Commr. of Inc. Tax v. Diwan Bahadur S.L. Mathias (1938) 7 I.T.R 48. Their Lordships held that even assuming that the income in respect of this coffee accrued or arose in Mysore, it was taxable under Section 4(1) of the Income-tax Act as it was received in British India in the same year. Their Lordships did not, therefore, think it necessary to decide whether any part of the income arose within British India. At p. 53 of the report Sir George Rankin pointed out the rival contentions of the parties and then proceeded to state:
.upon the question whether the profits and gains accrued or arose in British India, it may be that the fact that the coffee was grown in Mysore is by no means to be disregarded notwithstanding that it was sold in British India especially if it be true that it was sold without further process of a manufacturing character. For the moment it is enough to say that it may be so, without examining the matter and without prejudice to either view.
24. His Lordship then referred to Kirk's ease but proceeded to state that for the purposes of determining that particular case it was not necessary for their Lordships to decide whether Kirk's case was rightly applied by the Madras High Court or was correctly interpreted by the Calcutta High Court in the case that I have above referred to.
25. Reliance is also placed by the Advocate General on a decision of the Allahabad High Court reported in Hira Mills, Ltd. Cawnpore v. Income-tax Officer, Cawnpore (1945) 14 I.T.R. 417. In this case, goods manufactured in Gwalior were sold in Cawnpore. The Allahabad High Court held that the profits and gains were actually received by or on behalf of the assessee in British India and were, therefore, assessable under Section 4(1)(a) of the Act. But their Lordships proceeded to observe in their judgment (p. 425).
We feel it right to add, as was obviously intended by the case and since it has formed the sole subject for argument before us, that such profits and gains derived from sales made at Cawnpore by the assessee's salesman of the goods manufactured by the assessee at Ujjain must be calculated without allowing any apportionment of that profit as between the period prior to the moment of export from Gwalior and the moment subsequent to that export.
26. Now, so far as the actual case was concerned, since the case fell within Section 4(1) of the Indian Income tax Act, undoubtedly all these profits were taxable in India and, therefore, I do not read this case as any authority for the proposition that no portion of the profits of this business accrued or arose in the Gwalior State. This case, therefore, in my opinion, does not help the Advocate General.
27. The result, therefore, is that the profits of a part of the business of the assessee, viz. that of manufacturing oil in their mill at Raichur, accrued or arose to them at Raichur in the Hyderabad State; and such part must be treated as a separate business within the meaning of the third proviso to Section 5 of the Excess Profits Tax Act. I, therefore, agree that the question as re-framed by us should be answered in the manner indicated by my Lord the Chief Justice.