Alfred Henry Lionel Leach, C.J.
1. The assessee in this case is the manager of a joint Hindu family which exports goats and sheep from this country to Colombo and sells them there at a profit. For the year 1936-37 the assessee was assessed to income-tax by the Income-tax Officer, Tuticorin Circle, on a total income of Rs. 16,412 which included a sum of Rs. 15,139 found to be the profits made in Colombo and remitted to British India. The Income-tax Officer's order of assessment was revised by the Commissioner of Income-tax, who assessed the income at Rs. 31,384. Included in this amount was the figure of Rs. 9,000 which the Commissioner said was the amount of profit which had accrued to the assessee in British India from this business. The Commissioner considered that the assessee had bought the animals at lower prices than those disclosed in his invoices when shipping them to Colombo. The assessee objected to an assessment on this basis and asked the Commissioner to state a case to this Court. The Commissioner refused, but was compelled to do so by an order of this Court, dated the 17th October, 1939. In pursuance of this Court's direction the Commissioner has referred the following question:
Are the Income-tax authorities entitled in law to increase the petitioner's assessment by Rs. 9,000 as being profits made in British India for the year 1936-37?
2. In his order revising the assessment the Commissioner gave the following reasons for holding that the assessee had made profits in British India : (i) the assessee had agents for the purchase of goats and sheep within the Presidency but he himself had exercised 'a certain amount of supervision' and this had its value; and (ii) there was usually an element of profit involved in F.O.B. prices and in this case the profit had not been included in the profit shown by the Colombo books. These are the only two reasons which the Commissioner gave for holding that the assessee had made a profit of Rs. 9,000 in British India in the year of assessment. The reasons for the inclusion of this sum of Rs. 9,000 given by the Commissioner in making the reference are of a nebulous character and what it comes to is that the Commissioner considered that the assessee had made more profit than he had shown and he formed in his own mind an estimate of what that profit was. The Commissioner was not called upon in this case to exercise his best judgment within the meaning of Section 23(4). To say that the goats and sheep shipped from this country to Colombo left it with an increased value because the assessee had supervised his agents is going too far. The second reason given by the Commissioner is also fallacious. Because exporters, when they sell at F.O.B. prices, include in those prices their profit does not mean that in a case like the present one profit is included. When this case is examined it is manifest that the prices at which the animals were invoiced to Colombo would make no difference in the calculation of the profits made by the assessee. There is no evidence for the year of assessment that the assessee charged his Colombo office greater amounts than the cost to put the animals on board the steamers, but assuming that the invoices had been inflated that would Hot make any difference. The profit made by the assessee could only be calculated on what the goats and sheep actually cost him and the amounts at which they were actually sold in Colombo. The figures in the invoices, whether inflated or deflated, would not matter. We can see no justification whatsoever for the Commissioner for increasing the assessment by this figure of Rs. 9,000, or by any figure as estimated profits made in British India.
3. When a business is of this simple nature--the business we have here is the buying in one place of animals for human consumption and the selling of them in another place--the profit arises only at the place of sale. This was the effect of the decision in The Secretary, Board of Revenue (Income-tax), Madras v. The Madras Export Company (1922) 44 M.L.J. 290 : I.L.R. 46 Mad. 360 : 1 I.T.C. 194 and there is an express ruling by the Lahore High Court in Jiwan Das v. The Commissioner of Income-tax, Lahore I.L.R.(1929) Lah. 657 : 4 I.T.C. 40 , that profits derived from the sale in a foreign country of goods purchased in British India are not assessable to income-tax when the profits have not been received or brought into British India. Mr. Sesha Ayyangar, on behalf of the Commissioner of Income-tax, has suggested that this can no longer be regarded as the true position in law by reason of the decision of the Privy Council in The Commissioner of Income-tax, Bombay v. Chunnilal B. Mehta (1938) L.R. 65 IndAp 332 : I.L.R. (1938) Bom. 752 : I.T.R. 521 but it is clear that this is not the effect of the judgment of the Judicial Committee. There the question was whether a person who was carrying on business in Bombay and dealing in cotton in Europe and America could be assessed to income-tax on his profits made abroad. There is a vast difference between that case and the case now before us and the cases which do apply are The Secretary, Board of Revenue (Income-tax), Madras v. The Madras Export Company (1922) 44 M.L.J. 290 : I.L.R. 46 Mad. 360 : 1 I.T.C. 195 and Jiwan Das v. The Commissioner of Income-tax, Lahore I.L.R.(1929)Lah. 657 : 4 I.T.C 40 . For these reasons I would answer the question referred in the negative and award costs to the assessee in the sum of Rs. 250. The assessee is also entitled to the refund of his deposit.
4. It is necessary to draw attention to another matter connected with this reference. When the case came before this Court on the question whether the Commissioner should be compelled to state a case it appeared that the Income-tax authorities were contending that the assessee's assessment might be increased by the Rs. 9,000 on the ground that it represented profits remitted to British India as well as on the ground that the amount represented profits which had accrued in British India. The figure at which the assessee had been assessed included the profits remitted from Colombo, and the Court asked Mr. Sesha Ayyangar to make it clear whether his real contention was that the Rs. 9,000 should be included as profit made in British India. He said that this was his contention and as the Court was not prepared in the circumstances of this case to allow the alternative argument to be put forward it directed that the statement of the case should be confined to that question alone. Instead of obeying the direction of the Court, which he was bound to do, the Commissioner in the last paragraph of the reference has said that the main question to be decided is whether the amount was assessable to tax or not and the question whether it comes under the one basis or the other is really of no consequence so long as it comes under one of them. Consequently he asked the Court to consider the other ground. Although we agree with Mr. Sesha Ayyangar that the Commissioner meant no disrespect, his failure to follow the directions of this Court can only be described as improper.
5. I agree.
Patanjali Sastri, J.
6. I agree.