1. These appeals are by certificate from the common judgment of the Mysore High Court on the following question of law which were referred by the Income-tax Appellate Tribunal under section 66(1) of the Income-tax Act, 1922, hereinafter called 'the Act.'
'(1) Whether, on the facts and circumstances of the case, the income of the assessee did not arise in Bangalore (Mysore State) in respect of sales effected by the assessee to the Burma Teak Trading Co. Ltd., Colombo
(2) If the answer to the above question is in favour of the assessee, then whether on the facts and circumstances of the case of the assessee is entitled to the concession under the Part B States (Taxation Concessions) order, 1950 and
(3) Whether, on the facts and circumstances of the case the aportionment of profit of business is called for pursuant to the assessee's trading activities in Bangalore (Mysore State) ?'
2. The assessee is a firm carrying on business in Bangalore in the Mysore State. It was appointed as the sole selling agent for Ceylon except Jaffna Peninsula and the town of Trincomalee for the purpose of marketing selling or distributing Lotus Brand tiles and ridges manufactured by M/s. Modern Tile & Clay Works of Feroke.
3. According to an agreement dated August 10, 1949, between the parties all prices quoted by the manufacturer were to be f.o.b. Beypore port and for loading into country crafts; the right to charter or engage vessels was to be with the agents. Beypore is in the taxable territory as also Feroke where the tile manufacturers carried on their business. One of the employees of the assessee stayed at Calicut during the season to supervise the operation of delivery of articles and to engage vessels. The bills of lading were obtained by the assessee's representative at Beypore and sent to Bangalore where the hundis together with the invoices and shipping documents were handed over by the assessee to the Indian Overseas Bank Ltd., Bangalore. Pursuant to the letter of credit opened by the Burma Teak Trading Co. Ltd., Colombo, which was the purchaser, payments were made by the aforesaid bank to the assessee. It is unnecessary to state the details about the profits which the assessee made during the relevant assessment years 1951-52, 1952-53 & 1953-54. The assessee claimed that since its registered office was in Bangalore and as the agency agreement with the purchaser at Colombo was entered into in Bangalore the entire income should be treated as income accruing, or arising in Part B State and concession regarding rates and allowances as provided in Part B States (Taxation Concessions) Order, 1950, hereinafter called the 'Order', should be allowed to it. The income-tax authorities as also the Appellate Tribunal decided against the assessee. It was held that hardly any activity took place at Bangalore in the matter of earning the profits from the transactions in question.
4. The High Court was of the view that, since the profits were received in the part B State, namely, Bangalore, it could not be said that the entire profit accrued or arose within the meaning of clause (a) of sub-section (1) of section 4 of the Act in the taxable territories other than Part B State. After referring to section 42(3) of the Act and certain decisions of this court, it was observed that the business operations which produced profits were carried out at three different places, i.e., Bangalore, Feroke and Ceylon. Therefore, the portion of these profits must be held to have accrued in all these places. The only profits which could be deemed to have accrued in the taxable territories other than Part B State were those that could be said to have accrued at Feroke. The profits that could be attributed to the business operations at Bangalore could not be deemed to have accrued in the taxable territories other than the Part B State nor could it be said that the profits that had accrued at Ceylon could be deemed to have accrued in the taxable territories other than Part B States. The answers which were returned to the questions were as follows :--
'(1) The profits of the assessee in respect of the sales effected by it to Burma Teak Trading Co., Colombo, did not entirely arise in Bangalore (then a Part B State), it arose in Bangalore, Feroke and Ceylon.
(2) The assessee was entitled to the concession under the Order in respect of the profits that could be attributed towards business operations conducted in Bangalore and Ceylon.
(3) Apportionment of profits of business was called for pursuant to the assessee's trading profits.
5. The sole point which has been raised before us by the learned Attorney-General, who appears for the appellant, is that hardly any activity took place of such a nature as could be said to give rise to accrual of profits in Bangalore. It is pointed out that admittedly the manufacturing concern from where the tiles had to be sent to Colombo was in Feroke in British India and that the goods were also delivered f.o.r. Beypore, which was in British India. The assessee's agent resided in British India and supervised all the operations there.
6. Our attention has been invited to the findings of the Tribunal which, inter alia, were that the assessee purchased the goods at places outside Bangalore and the sales were also effected in Ceylon; the assessee continued to retain its title to the goods till they were delivered to the Ceylonese buyers on their accepting the documents and bills of exchange forwarded through the bank in that country. The sale operations were carried out in Ceylon and the profits attributable to those transactions accrued and arose only in Ceylon which was outside the taxable territories. The essential question, according to the learned Attorney-General is, whether any part of income accrued or arose at Bangalore. According to the learned counsel for the respondent, it was clear that the profits accrued at Bangalore where the assessee's registered office was situate and where the contracts were entered into by the assessee for the sale and purchase of the goods and where moneys were received. At any rate the profit producing operations could not be said to have been confined only to places in the taxable territories because without the contracts no further steps could be taken in carrying out the transactions and the contracts indisputably were entered into at Bangalore. It is urged that the assessee's business activity came within the scope and ambit of paragraph 4(l)(iii) of the Order and therefore it was entitled to the concessions provided in paragraphs 6, 6A and 7 of that Order. Section 42(3) of the Act lays down that when profits accrue or arise from a business all the operations of which are not carried out within the taxable territories those profits must be deemed to have accrued or arisen in several places where the business operations were carried out and the total profits earned will have to be apportioned on reasonable basis amongst the several operations and tax should be levied only on that portion of the profits which are deemed to have accrued or arisen within the taxable territories.
7. If it be held, as indeed it must be held, that the making of contracts pursuant to which all the subsequent activity in respect of the execution of those contracts took place resulting in profits to the assessee, is an integral part of the entire selling operations, there can be no escape from the conclusion at which the High Court arrived. The appeals consequently fail and they are dismissed with costs (one hearing fee).
8. Appeals dismissed.