BEAUMONT, C.J. - This is a Reference made by the Commissioner of Income-tax under Sec. 66(2) of the Income-tax Act. The assessees are a firm trading in Bombay, and they do a good deal of business in cotton and other commodities. The profits on which they have been assessed, as they say wrongly, in this case, were derived from certain contracts for the purchase and sale of cotton placed on the New York Exchange during the year of assessment, which is the year 1934-35. It was held by this Court in Chunilal Mehtas case, : AIR1935Bom423 , that where a broker of Bombay makes profit out of contracts placed by him with a broker on a foreign exchange, the profits are made out of the contracts which the broker on the foreign exchange carries through, and those profits do not accrue or arise in British India. But the Commissioner of Income-tax is of opinion that this case should be dealt with on different footing, because the contract entered into by the assessees and the brokers was in the first instance entered into with brokers in Bombay, who themselves placed the orders on the New York Exchange. It is apparent, therefore, that it is important to know what were the terms of the contract between the assessees and the brokers in Bombay. Unfortunately that contract is not in writing, and the findings of the Income-tax Officer are a little vague. But, at any rate, we have this to go upon. We have the fact that certain brokers in Bombay, Messrs. Sarupchand Prithiraj, placed orders with brokers in New York for the purchase of forward cotton. The brokers in New York notified Messrs. Sarupchand Prithiraj that they had carried out the contracts of purchase on certain terms. Then we have orders from Sarupchand Prithiraj, the brokers in Bombay, directing cotton bales to be sold, and subsequent notification from the New York brokers as to the terms on which the bales had been sold. Then we have a statement of account delivered by Sarupchand Prithiraj to the assessees dealing with the sale and purchase of cotton bales which formed part of the cotton bales to which the orders placed by Sarupchand Prithiraj in New York applied. So that apparently Sarupchand Prithiraj directed purchase or sale of bales not only for the assessees, but for other clients. There are two statements of account which are relevant, between Sarupchand Prithiraj and the assessees. Those are Exhibit H and Exhibit N. Exhibit H shows a profit of 29,000 dollars on the sale and purchase of 2,000 bales of cotton for March 1934, and Exhibit N shows a profit of 8,500 dollars on 4,000 bales of cotton bought and sold for May 1934. It further appears from Exhibit J that the 29,000 odd dollars due as shown in Exhibit H was actually paid by Sarupchand Prithiraj to the assessees through the National City Bank of New York in dollars and the 8,500 dollars as appears from Exhibit M, was similarly paid in New York to the assessees, and the moneys have been allowed to remain in New York. It is plain from those transactions, which are evidence by written documents, that there must have been contract between the assessees and Sarupchand Prithiraj for the purchase and sale of the bales in respect of which the profits were actually paid over to the assessees. The Income-tax Officer in dealing withe the terms of the contract between the assesses and Sarupchand Prithiraj did so by reference to his finding for the year 1932-33 in respect of contracts which seems to have been in somewhat different terms. But I think his finding really comes to this. He thinks that in all probability there was a written contract between the assessees and Sarupchand Prithiraj, though he says that the parties deny that. But he says there must at any rate have been some contract, and if it was not in writing, it must have been oral, and he then obtains from Sarupchand a form of contract which they usually enter into, and he assumes that the contract with the assessees if made orally, was upon the usual terms of Sarupchand Prithirajs contracts. I am certainly not prepared to say that there is no evidence on which the Income-tax Officer could properly arrive at treat finding, which, I think, is probably correct. At any rate it seems to me perfectly plain from the documents we have got that the assessees must have instructed Sarupchand Prithiraj to enter into transactions for them on the New York Exchange. Sarupchand Prithiraj, as the documents show, dealt directly with the brokers, and ultimately a profit is derived, and, in my opinion, as between the assessees and Sarupchand Prithiraj, the profits are derived on the contract made with Sarupchand Prithiraj, and the profits were actually paid on that contract, and as that contract was made in Bombay (whether or not the moneys were to be paid in Bombay seems to me immaterial), and resulted in profits, it seems to me those profits accrued or arose in British India, and that the case is quite different from Chunilal Mehtas case, in which there was no contract made in Bombay under which any profits arose or could have arisen. The learned commissioner has referred two questions. The first one is, in the circumstances of the case, would it be correct (a) to treat the profit of 20,042.50 dollars and 8,500.40 dollars as having accrued or arisen in British India or (b) to deem it to have so accrued or arisen, within the meaning of Section 4(1) of the Act Then there is a second question as to whether those two items of profits should be treated as having been received in British India within the meaning of the above Section 4(1) of the Act. In my opinion the answer to question (1) (a) should be in the affirmative, and the other questions do not therefore arise. Assessees to pay the costs of the Commissioner of Income-tax on the Original Side scale to be taxed by the Taxing Master less Rs. 100.
BLACKWELL, J. - I am the same opinion. Mr. Munshi for the assessees has contended that the true inference to be drawn for the statements in the case and from the documents is that the assessees were undisclosed principals, and that they could have enforced in New York against the brokers employed by Sarupchand Prithiraj the contracts which those brokers made In New York. In my view it is impossible to say that there was no evidence upon which the Commissioner came to his conclusion that the contracts with the New York brokers were between Messrs. Sarupchand Prithiraj and themselves and not the assessees, and that the New York brokers recognised Messrs. Sarupchand Prithiraj only If there was evidence upon which the Commissioner could so hold, it obviously disposes of Mr. Munshis submission that the true inference was as he suggests. That was a question of fact for the Commissioner to decide on the evidence before him. Moreover the Commissioner states that it was an admitted fact that Messrs. Sarupchand Prithiraj of Bombay were responsible to the assessees only, that all profit earned was payable in Bombay by the latter to the assessees and that it was agreed that any dispute and regards the contract entered into was to be adjudicated only by the High Court or the Court of Small Causes, Bombay. Mr. Munshi has submitted that there was no evidence that such admissions were made. But we must, I think, assume that the Commissioner of Income-tax certainly would not have stated that those facts were admitted facts unless there had been statements or evidence before him that they were in fact admitted. Consequently on the findings of the Commissioner it is obvious that the only profits and losses receivable and payable were receivable and payable by the assesses out of the contracts made in Bombay by them with Sarupchand Prithiraj, and no to otherwise. On the findings, they had nothing whatever to do with the manner in which the instructions which they gave in Bombay were carried out in New York. They had no right to look to the brokers in New York for payment of any profits in New York, and they were not liable to the brokers in New York for any losses incurred. On the Commissioners finding it seems to me plain that Question 1 (a) must be answered in the affirmative. In view of the answer to this question, I think it unnecessary to deal with the other questions.
Reference answered accordingly.