Yahya Ali, J.
1. This is a reference made by the Income-tax Appellate Tribunal under Section 66(1) of the Indian Income-tax Act at the instance of the assessee and the question referred is:
Whether in the circumstances of the case, the provisions of Section 42(3) are applicable to the profits on the sale of gold effected in British India by the assessee, a non-resident Hindu undivided family, in such manner as to override the provisions of Section 4(1)(c) and render only such portion of such profits assessable as are attributable to operations carried out in British India.
2. We may say at the outset that the frame of the question struck us at first sight as being not quite happy in view of the reference therein to Section 42(3) overriding the provisions of Section 4(1)(c). But after having heard the arguments we feel convinced that the question, for the reasons we shall state later, has been rightly framed.
3. The applicant is a non-resident and he has been carrying on business in gold and silver in Secunderabad outside British India. He used to purchase gold at Secunderabad and to sell the major portion of it at Bombay through brokers in that line. The rest of it used to be sold in Hyderabad itself, a small portion of it being sold locally at Secunderabad. The Bombay brokers with whom the assessee was in touch would telegraphically intimate to the assessee the current prices of gold in Bombay and thereupon advices would be sent from Secunderabad notifying to them the quantity of gold that would be available for sale at those rates. Soon thereafter gold would be sent to Bombay through a representative of the assessee who would get it assayed in the mint and give the same to the broker who after selling it paid the sale proceeds to the assessee's agent. Upon these facts the contention raised on behalf of the assessee was that the source of the business was in Hyderabad and that the purchases and other activities were also in Hyderabad. What was done in British India consisted only in the delivery of the gold and the receipt of the price. The assessment relates to the year 1941 -1942 and during the accounting period the total turnover of gold was Rs. 11,20,119 and out of this the sales at Bombay to British Indian buyers were for Rs. 6,68,666 yielding a profit of Rs. 7,346. The Income-tax Officer assessed the said profits to tax on the basis of the same having accrued or arisen in British India, since the profits accrued from the sale of gold in Bombay. On appeal before the Appellate Assistant Commissioner, it was contended that the sales took place in Secunderabad where orders were placed and the prices were fixed at that place under the contract. Upon those premises it was argued that the profits from these sales did not accrue or arise in British India. An alternative suggestion was also made before the Appellate Assistant Commissioner that the appellant being a non-resident was only trading with British India and not in British India and that consequently profits attributable to transactions in British India fell to be taxed under Section 42(3) on the basis of allocation of operations. These contentions were rejected by the Appellate Assistant Commissioner and an appeal was brought against this order before the Income-tax Appellate Tribunal. There also the same two contentions were raised, but the assessee gave up before the Tribunal the first contention, namely, that the profit from the Bombay sales of Rs. 7,346 did not accrue or arise in British India. He confined himself to the second contention relating to the applicability of Section 42(3). The Tribunal did not accept this contention and dismissed the appeal. An application was made before the Tribunal under Section 66 and in that application the two questions that were sought to be referred were the following:
(i) Whether on the facts of the case, the sales effected to the Bombay commission merchants took place in British India or at Secunderabad and whether the Income was income earned in British India and governed by Section 4(1) of the Act, or
(ii) Whether the profits derived from the sales made from Secunderabad to commission agents in British India are profits or gains deemed to have accrued or arisen in British India within the meaning of Section 42(1) and assessable under Sub-section (3) of Section 42.
4. In spite of his having given up the first contention before the Tribunal and the Appellate Assistant Commissioner he repeated it in his application under Section 66. In answer to this application the Commissioner filed a reply and in that reply he pointed out that the first question did not arise from the order of the Bench under Section 33(4) and the assessee did not raise any objection before the Tribunal to the finding of the Appellate Assistant Commissioner that the sales of gold were effected in British India and that the income of Rs. 7,346 accrued or arose in British India. In paragraph 2 of the reply the Commissioner further pointed out that the argument relating to the second contention before the Bench, namely, as to the applicability of Section 42(3) proceeded on the accepted basis that the sales of gold. actually took place in British India and that consequently the income from those sales accrued or arose in British India. In the statement of the case after setting out all that had happened before the Appellate Assistant Commissioner and before the Tribunal at the earlier stages, it is specifically mentioned that the contention relating to the income arising in British India was definitely given up before the Tribunal. It is only in consequence thereof that the reference was made only as to the applicability of the provisions of Section 42(3) and the question was framed in the specific manner in which it has been cast to emphatically bring out the position taken up by the assessee that the enactment of Section 42(3) has the effect of overriding the provisions contained in the earlier part of Section 4(1)(c) and renders only such portion of the profits assessable as are attributable to operations carried out in British India.
5. Having regard to the history set out above, we have no difficulty in holding that the assessee is precluded from putting forward the contention at this stage before us that the profits in question did not accrue or arise in British India. The argument throughout and up to the present stage had been on the footing that the profits did accrue or arise in British India, but, none the less Section 42(1) was attracted and it was necessary for the Income-tax authorities to determine that portion of the profit which is attributable to the operations carries out in British India.
6. To meet this singular contention it will be necessary to set out Section 4(1)(c) and Sections 42(1) and 42(3). Section 4(1)(c) reads:
Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which....if such person is not resident in British India during such year, accrue or arise or are deemed to accrue or arise to him in British India during such year.
7. Section 2(1) runs thus:
All income, profits or gains accruing or arising, whether directly or indirectly, through or from any business connection in British India, or through or from any property in British India, or through or from any asset or source of income in British India, or through or from any money lent at interest and brought into British India in cash or in kind, or through or from the sale, exchange or transfer of a capital asset in British India, shall be deemed to be income accruing or arising within British India, and where the person entitled to the income, profits or gains is not resident in British India shall be chargeable to income-tax either in his name or in the name of his agent, and in the latter case such agent shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income-tax.
8. Section 42(3) is in these terms:
In the case of a business of which all the operations are not carried out in British India, the profits and gains of the business deemed under this section to accrue or arise in British India shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in British India.
9. It will be seen that Section 4((c) deals with two classes of cases. The first category consists of profits accruing or arising in British India to non-residents. The second category consists of profits which are deemed to accrue or arise to nonresidents in British India. It was not necessary for the Legislature to make any provision in the statute to explain the first part of the provision dealing with profits accruing or arising to non-residents, but it was necessary to indicate what kind of profits should be deemed to accrue or arise for the purposes of Sub-section (c) of Section 4(1) and those provisions are found inter alia in Explanations 2 and 3 to Section 4, Section 2(6-C) and Section 42. It is hardly necessary to point out in this connection that ' when a person is deemed to be something, the only meaning possible is that whereas he is not in reality that something, the Act of Parliament requires him to be treated as if it were '--see Commissioner of Income-tax, Bombay v. Hongkong Trust Corporation, Ltd. (1930) 4 I.T.C. 312. Likewise when certain profits are deemed to be profits for the purpose of a fiscal provision, they are not in reality profits, but they have to be deemed so for the specific purposes of the statute. Section 42(1) comprises a number of sources or connections through or from which the profits may accrue or arise; they are deemed to be income accruing or arising within British India and will be chargeable to income-tax, if the person entitled to the income is a nonresident, either in his name or in the name of his agent. With regard to cases to which Section 42(1) applies, Sub-section (3) of that section provides that if the business consists of a number of operations carried out in British India, the profits and gains of the business deemed under Section 42(1) to accrue or arise shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in British India.
10. Mr. Subbaraya Aiyar had an insurmountable difficulty to face, having regard to the contentions raised at the earlier stages, in contending that the profits did not accrue or arise in British India. It was not possible for him to exclude the applicability of the first part of Section 4(1) and when that part applied, there was no further need to invoke the applicability of the second part dealing with profits which are deemed to accrue or arise in British India. It is to meet the situation that he put forward the startling proposition that the effect of the enactment of Section 42 was to merge all cases of income directly accruing or arising in British India into the latter category mentioned in Section 4(1) other words his contention is that by creating the category of profits mentioned in Section 42, virtually the first part of Section 4(1)(c) was abrogated, since, according to him, even profits which directly accrued or arose in British India fell to be treated under Section 42 as profits deemed to have accrued or arisen in British India. The proposition has only to be put in that form to be rejected brevi manu as utterly unsustainable, and being opposed to the entire scheme of the Act. With regard to profits which have accrued and arisen, a distinction is made in the Act between residents and non-residents. It is provided, in the case of residents that all income which accrues or arises whether within or without British India is taxable. In the case of non-residents, income which accrues or arises or is deemed to accrue or raise in British India alone is taxable (apart from cases covered by Section 4(1)(a) which apply to residents and non-residents alike) and it is only to define in what cases income, profits and gains are deemed to accrue or arise that provision is made in Section 42 and in other sections. We may here refer to the observations of Sir Iqbal Ahmad, G.J., in Hira Mills, Ltd. v. Income-tax Officer, Cawnpore (1946) 14 I.T.R. 414:
We think on construction alone that it is quite clear that the relief afforded by Section 42, Sub-section (3), applies only to a case in which the profits and gains are deemed under Section 42 to accrue or arise in British India, and not to a case in which they actually so accrue or arise or are received in British India.
11. The question is therefore answered accordingly. The applicant will pay to the Commissioner the costs of this reference Rs. 250.