VEERASWAMI, J. - The assessee, C. G. Krishnaswami Naidu, was, for the assessment year 1946-47, assessed as an individual to income-tax. He was ordinarily resident at Madras and his method of accounting was mercantile. The accounting year relevant to the assessment year ended January 1, 1946. The assessee claimed that a sum of Rs. 1,24,004 represented income accrued to him in the State of Mysore as it was then constituted and as such was exempted from the tax under section 14(2) (c) of the Income-tax Act. This claim was not accepted by the revenue authorities except the Appellate assistant Commissioner. On a reference to this court of the question whether the sum of Rs 1,24,004 is income that accrued or arose to the assessee in British India within the meaning of section 4(1) (b) (i) of the Indian Income-tax Act, it answered in favour of the assessee and found that the income in that sum accrued to the assessee in the Mysore State and not in British India. The supreme Court, on appeal by the Commissioner of Income-tax, Madras, considered that the question in that form was not properly framed and, though this court as a matter of fact had held that the income arose in the Mysore State, inasmuch as that was not the question which had been referred to it, it had no power to decide a question of referred to it. By consent of the parties before it, the Supreme Court set aside the judgment of this court and reformulated the following question and remitted them to this court for its decision :
'(i) whether the whole or any part of the assessees income of Rs. 1,24,004 referred to in paragraph 7 of the statement of the case accrued or arose to the assessee in the State of Mysore (as it was before 1950) and exempt from tax for the assessment year 1946-47 under section 14(2) (c) of the Indian Income-tax Act ?
(2) If only a part of such income accrued or arose to the assessee in the State of Mysore, what is the quantum therefore ?
These question have accordingly come before us. In our opinion, for the reasons we shall presently state, the first of them should be answered in favour of the assessee, and on that view the second question does not call for an answer.
One S. Krishna Ayyar, a resident of Madras and a building contractor, had undertaken various contracts under the Central Public Works Department and the other authorities at several place in the former British India and the Indian States. The assessee entered into as many as twelve financing agreement with him on which we are concerned with two, one relating to financing Krishna Ayyar in respect of construction of R. A. F. hutted accommodation at Kolar, and the other, construction of similar accommodation at Yelahanka. The terms of these two agreements were substantially identical. These agreements were dated October 20, 1942, and April 23, 1943, respectively. By these agreements the assessee undertook to advance to Krishna Ayyar up to a maximum limit of Rs. 1,00,000 which may be required by the latter for obtaining, executing and completing the works at Kolar or Yelahanka. Krishna Ayyar agreed to repay the assessee the advances made under the agreements in the first instance from and out of the moneys received or receivable from the Mysore authorities under the bills submitted to them from time to time for work done. One of the stipulations in the agreement was that Krishna Ayyar should not deal or part with or utilise any of the monies received or receivable under the bills otherwise than in repayment of the advances, save and except with the consent of the assessee. Krishna Ayyar further agreed to execute promissory notes or securities in favour of the assessee in respect of amounts advanced to him from time to time and not to encumber or charge his properties or do anything which might prejudicially affect the assessee. Clause 5 in one of the agreements, which is similar in the other, said that, in consideration of the advances to be made by the assessee, Krishna Ayyar agreed to repay to him the advances made from time to time and also pay a sum calculated at 10 per cent. on the total value of the works executed and completed and for which bills were submitted to the Mysore authorities. Under this clause, the amount payable was to be calculated only on the bills as finally passed and accepted for payment by the concerned Mysore authorities. One other matter which the agreements provided for was that the assessee should have the right to inspect and look into the accounts of the Krishna Ayyar to ascertain, check or verify the amount of the bills finally passed from time to time as payable to Krishna Ayyar in respect of the work specified under the agreements. The assessee was to have no right to question or dispute the amount of the bills the finally passed by the authorities or agreed to by Krishna Ayyar and the amounts payable to the assessee under the agreements were to be computed on the accounts of the bills so settled and agreed to by Krishna Ayyar. The final bills under these two agreements were submitted and accepted by the Mysore authorities in the case of Kolar on December 28, 1945, and the other case, on December 29, 1945. The accounts of Krishna Ayyar in relation to the commission payable to the assessee were looked into and settled at Madras on June 15, 1946, and the same adjusted in his books. In the statement of the case it has been stated that, till such adjustment, the commission was not actually paid as such to the assessee.
Though the terms of the agreement did not specify where the advances were to be made, actually the assessee and Krishna Ayyar opened a joint current account in the Bangalore City branch of the Bank of Mysore Ltd. with Rs. 20,000 sent by a bank draft from Madras on October 14, 1942, out of the assessees Madras funds. There is no dispute that the assessee had no independent fund or resources in the Mysore State till then. The bank account so opened is said to have been augmented from time to time by cash from Madras into which also duly went all the cheques from the Central Public Works Department payable to Krishna Ayyar for the works completed by him under the Kolar and Yelahanka contracts. It is again seen from the statement of the case that at least further sums amounting to Rs. 61,680 had been sent from Madras to the said bank account before December 31, 1942. The assessee deputed his agent stationed in Mysore state who toured all the work spots in the state to look after the financial needs at these places. All the advances of money made to Krishna Ayyar under the two agreement were in the Mysore State. The assessee himself maintained no accounts but for his purposes of his advances and commission he relied on the account books of Krishna Ayyar himself. The bank account at Bangalore disclosed withdrawals by the assessee, Rs. 30,000, Rs. 40,000 and Rs. 50,000 on May 25, 1945, August 13, 1945, and January 3, 1946, respectively, which he invested in fixed deposits with the United Commercial Bank Ltd., Bangalore, and the Indian Overseas Bank Ltd., Bangalore. We find from the statement of the case that these fixed deposits are not identified with the commission income due to the assessee and earned by him under the two agreements during the previous year.
The assessee maintained that the two sums of money, namely, Rs. 66,257, relating to Kolar contract, and Rs. 57,747 relating to Yelahanka contract, accrued to him as commission in the State of Mysore but not remitted into the former British India and accordingly the entire sum was exempt under section 14(2) (C) of the Income-tax Act. The Income-tax Officer did not agree with him and held that the entire accrued to him in British India. His reasons were, the two agreements to finance Krishna Ayyar were entered into in Madras, the advances for Kolar works were made by the assessee to Krishna Ayyar in Madras, the assessee could claim repayment of the advances and the financing commission in British India and as a matter of fact the financing commission was settled with Krishna Ayyar at Madras where the entries for the commission were passed in his books. But the Appellate Assistant Commissioner took a contrary view and directed the exclusion from the taxable income the total sum of Rs. 1,24,004, in the view that the right to receive commission depended on the execution of the work by Krishna Ayyar in Mysore State and the acceptance of the works and the passing of the final bills by the Central Public Works Department, Bangalore and all the operations which yielded income were in Mysore State. He reasoned further that the assessees source of his commission was the execution of the works at Kolar and Yelahanka and that, unless they were executed and the contractor received payments for them, or some profit was made therefrom, the assessee would not get commission at all. He, therefore, held that the financing commission accrued or arose to the assessee in Mysore State where the derived it. The Tribunal, in the appeal of the Commissioner of Income-tax, did not accept that reason but agreed with the Income-tax Officer. The Tribunal said that the essential business of the assessee for the purpose of the appeal was financing and that the sole element of such business being fluid resources to provide capital and bankers intuition to choose ventures which it called as the personal factor, the assessee did not satisfy either of the elements; and that further as the financing agreements were conceived and brought about independently of other financing agreements with Krishna Ayyar, the cause of action on the two agreements would be only at Madras; the agreements did not stipulate that the finance was to be arranged by the assessee only from the funds of his in the Mysore State; the execution of the contracts was in Madras; and that these facts pointed to the income having accrued in Madras. it considered that the activities relating to the performance of the agreement at Mysore did not make any difference to the place of accrual, neither the opening of the joint account in Mysore nor the actual advance being there. The Tribunal in essence thought that the financing commission flowed out of the contracts and, as the contracts had been executed at Madras, the place of accrual should be regarded as Madras. This court, upon a reference under section 66(1), came to the conclusion that, in view of the provisions of the written agreements, subsidiary or ancillary arrangements made by the assessee and Krishna Ayyar for the banking of the funds at Mysore, the restraint placed by the agreement of Krishna Ayyars right to operate on the banking account and the factual freedom the assessee secured for himself to pay himself both the advances and the commission from out of that banking account, it was clear that the commission was payable to the assessee when the bills were passed, which meant that he was entitled to receive commission where the bills were passed, that is, in Mysore State. In answering the question this court said that the right to receive Payments towards 10 per cent. commission accrued to the assessee in Mysore State and not in British India. The Supreme Court, on the appeal by the Commissioner of Income-tax, observed :
'The question as framed is confined to the point whether the income arose in British India. Such a question is clearly idle because under section 4(1) (b) (ii) as already stated, in spite of the income not accruing in British India. the assessee might be liable in respect of it. The real question is, and on this point the parties are agreed, whether the income arose in the Indians State of Mysore as it was constituted at the relevant time and that is why the claim to exemption was, as has already been seen, actually made by the assessee under section 14(2) (c) of the Act as it then stood.... The assessee would under this provision be entitled to exemption if it is found that the income arose in the State of Mysore. The High court no doubt held that the income so arose. But that was not the question which had been refereed to it and admittedly it had no power to decide a question not referred to it.'
It may be seen that the assessment order proceeded on the basis that the entire income in question accrued to the assessee in British India and that, as such, was chargeable to tax under section 4(1) (b) (i) of the Income-tax Act. If the situs of the income is not in British India but without the table territories, even then the income would be chargeable to tax under section 4(1) (b) (ii), as the assessee is a resident of Madras, unless the income falls within the purview of section 14(2) (c) of the Act. section. 3 is the charging section and says that tax shall be charged for any year at the rates specified for that year by any Central Act in respect of the total income. Section 4 provides, subject to the other provisions, what the total income of any previous year of any person would consist of. Such income, as the section provides, will include all income, profits and gains from whatever source derived, which, if such person is resident in the taxable territories during such year, accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year of accrue or arise to him without the taxable territories during such year or having accrued to arisen to him without the taxable territories before and after the specified dates, are brought into or received in the taxable territories during such year. These provisions clearly proceed on the assumption that the income, profits and gains have a situs. How the situs has to be determined, the section does not indicate. Where profits or income accrue or arise will therefore have to be determined according to the general principles of law and in the light of the particular facts. It has been held that 'accrue or arise' in section 4 have more of less a synonymous sense and income or profits are said to accrue of arise where the right to receive them comes into existence with a corresponding liability to pay the same. Where and when such a right or liability comes into existence is a question of fact-perhaps a mixed question of fact and law. Decided cases, some of which we will presently examine, do not lay down any general principles of guidance capable of uniform application. When we talk of situs of accrual of commission for money lent, it is first necessary to have a precise idea of what exactly is the nature of such commission. It seems to us that the 10 per cent. commission have which has to be calculated on the gross amount of the final bills submitted and accepted is in the nature of compensation or return for the advances of money made by the assessee. Though in form the commission is not interest, substantially that is its nature and interest is the return or recompense or compensation paid for the use, actual or deemed, of the money had and received as loan. It is implicit in the concept of such compensation or interest that there is a contract or agreement entered into, either in writing or orally, stipulating for payment and return of the loan and the rate of interest that the loan will bear. Where the contract to lend and the actual lending are at one and the same place, no difficulty as to situs of accrual of interest of commission may arise. But where the links in the chain of a lending transaction in which money is paid and received with interest on an understanding or under agreement are in different places, the question may then be whether the situs of accrual of interest or commission is at one or other places where some or more of the links in the chain existed or are to be found. The answer would depend upon which of these links constitute the essence of the transaction from the point of view of accrual of interest or commission. On that view it appears to us that, although the place of contract is an important factor in the context, in a money-lending transaction the decisive factor would be the place where the money is actually lent, irrespective of where it came from. This is because, without actual advance, no commission or interest can accrue or arise. It is equally true that, without an agreement to lend, there may not be a lending transaction, but the agreement may stop short of performance. We do not think that the actual place of user of the money lent may have a bearing in deciding the situs. A money-lender, who is a resident of a particular place, may lend money to a third party who may take the money lent to overseas and make use of it. It cannot, in our opinion, be said that in such a case the situs of accrual of commission or interest on such money is the place where the money is used. There may be cases where conceivably the terms of an agreement of lending may decide the suits of interest. In our opinion in this very case the two agreements which were executed at Madras contain terms which throw light upon where the commission accrued of arose. As already noticed the commission was to accrue and to be computed on the submission of final bills of works carried out and acceptance of the same by the Mysore authorities. This activity was undoubtedly in the Mysore state.
Having regard to the fact therefore that the assessee removed funds from Madras and banked them at Mysore in a joint account and advanced moneys to Krishna Ayyar from time to time as required by him at Mysore and the final bills were all submitted, passed and accepted at Mysore by the authorities there, resulting in the accrual of commission to the assessee, we come to the conclusion that the situs of accrual of the commission was at Mysore. In our view, though the place of execution of the two agreements was at Madras, this is not conclusive of the situs. What is more important, as it appears to us is the actual performance of these agreements, namely, the actual advances of money made at Mysore from time to time and the submission of final bills and acceptance of the same at Mysore. It was only when the advances were actually made at Mysore, the liability to pay commission arose. But under the terms of the two agreements, the accrual of commission was conditioned upon the submission of final bills and the acceptance thereof. It is true the agreements did not indicate where this was to be, namely, the submission of final bills and acceptance of the same. But, on facts, these activities were, or must have been, contemplated by the parties, all in Mysore and the commission must be held to have accrued when the moneys were lent from time to time at Mysore and the final bills were submitted from time to time and accepted by the Mysore authorities. The situs of accrual of commission must, therefore, be held to be at Mysore.
On behalf of the assessee our attention was invited to Commissioner of Income-tax v. Anamallais Timber Trust Ltd., Commissioner of Income-tax v. Modern Theatres Ltd., E. D. Sassoon & Co. Ltd. v. Commissioner of Income-tax and Commissioner of Income-tax v. Ashokbhai Chimanbhai. Before adverting to some of these cases, we would first notice Commissioner of Income-tax v. Chunilal B. Mehta. That was a case of an assessee resident in British India, making profits derived from contracts made for purchase and sale of commodities in various foreign markets-Liverpool, London, New York and elsewhere outside British India. The assessee disputed his liability to tax on those profits of the ground that they were not profits accruing or arising in British India. The Privy Council, agreeing with the High Court, accepted that view of the situs of accrual of the profits. The main feature noticeable in this case is that both the execution of contracts and the performance thereof were outside British India. The privy Council negatived the contention for the revenue that the mere fact that the profits made in that case depended on the exercise in British India of Knowledge, skill and judgment on the part of the assessee and upon instructions emanating from British India justified the conclusion that the profits arose or accrued in British India. The Privy Council pointed out that it made no difference for the purpose whether the transactions where dealings in goods or dealings in differences. The Privy Council also considered that there was no necessity arising out of the general conception of a business as an organisation that profits of the business should arise only at one place, namely, the place of central control of the business.
Commissioner of Income-tax v. Anamallais Timber Trust Ltd. was related to profits arising out of sale of goods. The assessed there had entered into contracts with the Supply Department of the Government of India for the supply of sized timber. The contracts provided that the timber was to be delivered f. o. r. Chalakudi or two other railway stations in the Indian State. The Government deputed a inspector to inspect the timber at Chalakudi and on such inspection he had to certify and issue a note that the goods answered the description in the contract. The timber thereafter was loaded in wagons at the siding of the assessee-company for transport by rail. Payment under the contract was to be made by the Controller to Military Accounts, Poona, though no place of payment was specified in the contract. The actual receipt of the money by the assessee was at the Imperial Bank at Trichur in the Indian State. This court held that, although the formation of the contract was in British India, inasmuch as the manufacture and sale of the goods were carried out entirely at Chalakudi outside British India, profits from the sale of the timer accrued or arose to the assessee outside British India and were received by it outside British India. This case therefore lays down that, though the place of execution of contracts for sale of goods may be an important factor in deciding the situs of accrual of profits, it is not decisive by itself, and, on the place of performance, namely, the place of delivery of goods under the terms of the contract and the place of receipt of money, constituted the place of accrual of profits arising out of the sale of goods.
Commissioner of Income-tax v. Modern Theatres Ltd. was under the Excess Profits Tax Act, and, here again, the contract for distribution of films was entered into in British India, but the films were actually put in possession of the exhibitor for purposes of exploitation in the Indian States. The assessee did not part with the pictures until the amount was paid to it at the time of the delivery of the films in the Indian States. It was held by this court that the profits of the business accrued wholly in the Indian States and were exempt under the third proviso to section 5 of the Excess Profits Tax Act. This was upon the footing that nothing accrued to the assessee until the film was put in possession of the exhibitor with a view to exploit the same and this was put in possession of the exhibitor with a view case also illustrates that the place of execution of an agreement may not be decisive, but the activities connected with the performance of the terms of the agreement may point to where the profits accrued or arose. It may be that the principles governing the situs of accrual of profits arising out of sale of goods may not be applicable to transactions of money-lending, which are of a different nature, but they do assist the assessee in his contention that a place of execution of a contract need not necessarily be decisive of the place of accrual of profits.
On behalf of the revenue Mr. Balasubrahmanyan contended, (i) that the entire income accrued in British India because all the operations yielding income took place at Madras; (ii) in any case, at least part of the income accrued in British Indian and the operations in Mysore were practically negligible; (iii) if it is held that the profits accrued wholly or in part in Mysore, still such income should be treated as having been brought into British India; and (iv) in any event if the income is to be held as having accrued in part in British India and in part in Mysore, there should be apportionment to the quantum of that part accruing in British India. On his first contention learned counsel says that the two facts. namely, that the contracts to lend were executed in Madras, and the commission payable to the assessee was settled in Madras, coupled with the fact that the assessee, a resident of Madras, carried on money-lending business from there, justified this court holding that the whole of the income arose in British India. According to this contention, the performance of the contract at Mysore by actually lending money there, and the submission of the bills and acceptance thereof in Mysore have no significance on the situs. Learned counsel would say that submission of the bills and acceptance thereof, and the computation of the commission payable to the assessee did not pertain to accrual of the commission to the assessee, but only to the computation or the mode of computation of the quantum of compensation payable to the assessee. This only had the effect of postponing the computation, he says, and the bills and their acceptance were not a condition precedent to the accrual of income to the assessee. He adds that the source of income was the agreements to lend and not the bills which were only sources of income under the works contracts. We agree that the situs of accrual of the commission payable to the assessee cannot be decided from the situs of accrual of the profits to the contractor. It is also true that the final bills and acceptance thereof served to compute the total commission payable to the assessee. But, in our view, that is not the only effect of the provision in the contracts relating to commission being payable on the gross amounts of final bills submitted and accepted. As we already indicated, not only the computation of the total commission depended on those bills, but also the accrual of the commission. The agreements were specific that the amount payable to the assessee should be calculated only on the bills as finally passed and accepted for payment by the concerned authorities. While we accept the contention for the revenue that the commission for the assessee accrued when moneys were advanced, we are also of the view that the accrual was made conditional upon the submission of bills and passing of the same. Without the bills being submitted and accepted by the concerned authorities, there can be no question of any commission accruing to the assessee on the terms of the agreements. If, for instance, the concerned authorities rejected any of the bills, to that extent, the accrual of commission would be affected. That shows that the importance of the bills lay not merely in the computation of the quantum of commission. Having regard to the nature of the money-lending transactions, the commission payable for the money had and received and the conditions for its accrual, we are unable to accept the contention for the revenue that the place of execution of the two agreements or of settlement of the commission should be decisive of the place of accrual of the commission payable to the assessee. The mere fact that the assessee was a resident of Madras and was carrying on money-lending business from Madras also, as it seems to us, is not also conclusive of the situs. The situs of accrual of commission depended, in this case, on the place of performance of the contract, namely, the actual lending of money, which was in Mysore and the conditions for liability to commission.
Mr. Balasubrahmanyan brought to our notice Hiralal Kalyanmall, In re Commissioner of Income-tax v. K. R. M. T. T. Thiagaraja Chetty & Co. and E. D. Sassoon & Co. Ltd. v. Commissioner of Income-tax. But we do not think that, on the view we have taken, they are of assistance to him. Those cases turned upon the particular facts. As we held, the entire income in this case accrued in the State of Mysore
The second contention of Mr. Balasubrahmanyan is that the profits, having regard to the facts of this case, should be taken distributively in relation to the place of accrual. He says that, as some of the activities resulting in the profits have accrued in British India, that part of the profits attributable to such activities in British India should be taken to have accrued or arisen there. In support of his contention learned counsel principally relies on Commissioner of Income-tax v. Ahmedbhai Umarbhai & Co., Anglo-French Textile Co. Ltd. (No. 2) v. Commissioner of Income-tax and Anglo-French Textile Co. v. Commissioner of Income-tax. Each of these cases related to manufacture and sale of certain resident in British India, carried on the business of manufacturing and selling groundnut oil. The oil was manufactured in its mills at Raichur and it was sold partly in Raichur and partly in Bombay. The assessees contention was that part of the profits derived from sales in British Indian of the oil manufactured at Raichur was attributable to the manufacturing operations at Raichur, and that such profits should be excluded from assessment to excess profits tax under the third proviso to section 5 of the Excess Profits Tax Act, 1940. The revenue authorities maintained that the manufacturing operations carried on at Raichur did not constitute a part of the assessees business within the meaning of the third proviso to section 5, and that even if such operations could be regarded as part of the business, the profits derived from sales in Bombay could not be said to have accrued or arisen in that State. The Supreme Court held that the activity which the assessees Carried on at Raichur was a part if their business within the meaning of the third proviso to section 5, that the profits of a part of the business, namely, the manufacture of oil in their mills at Raichur, accrued or arose at Raichur and that such profits were not assessable to excess profits tax under the third proviso to section 5. This decision no doubt recognised the principle of distributive situs of accrual. But it would seem that, for application of this principle, it is necessary to ascertain whether than part of the business which is capable of being treated as on separate unit in Hyderabad State had given rise to the income or profits sought by the assessee to be exempted from taxation in that case. Where manufacturing was a distinct business activity, as distinguished from trading activity, the Supreme Court considered that the whole profits did not necessarily arise from the sales or at the place of sale, and the profits could be apportioned between manufacturing and trading activities. Patanjali Sastri J. (as he then was) was not, however, prepared to hold, if we may say so, that there was any justification, apart from section 42, to lay down a general principle of apportionment based on distributive process.
Anglo-French Textile Co. Ltd. (No, 2). Commissioner of Income-tax was no doubt a case under the Income-tax Act, but it involved section 42. In this case again apportionment was allowed, and a portion of the profit attributable to the purchase of cotton in British India was apportioned under section 42 and brought to tax.
The principle of apportionment was once again considered by the Supreme Court in Anglo-French Textile Co. commissioner of Income-tax, and in this case, though it was concerned with section 42(1) and (3) of the Income-tax Act, the Supreme Court clearly laid down that the principle of apportionment did not merely depend upon section 42, but was supportable or general principles quite apart from that section. Observed the Supreme Court :
'The above passage is also sufficient in our opinion to establish that the apportionment of income, profits or gains between those arising from business operations carried on in the taxable territories and those arising from business operations carried on without the taxable territories is based not on the applicability of section 42(3) of the Act, but on genera; principles of apportionment of income, profits or gains. That was really the ratio of the judgment of the majority in Commissioner of Income-tax v. Ahmedbhai Umarbhai & Co, and any attempt to distinguish that case from the present one by having resort to the statutory provisions of the Excess profits Tax Act is really futile.'
Relying on these decisions, Mr. Balasubrahmanyan argues that that portion of the commission attributable to that part of the activities resulting in the commission, namely, execution of the contracts in Madras, carrying on of the money-lending business in Madras and settlement of commission in Madras, should be treated to have accrued in Madras. In our view, this contention cannot be given effect to. Apportionment on the basis of distributive situs can only apply to cases where the connected business and their relative or related activities are such as are capable of being regarded as separate and distinct operations. Where in the nature of things, a business or transaction is incapable of surgical dissection, it will, in our view, be very artificial to apply to it the doctrine of apportionment. In fact, in Pudukottah Co. Ltd. v. Commissioner of Income-tax, this court, after referring to the three decisions of the Supreme Court, expressed the view :
'The forgoing statement of the principle makes it clear that the accrual or earning of profits, in respect of which apportionment is made, will be restricted only to a case of manufacture, which has the effect of increasing the inherent valued of the goods... The observations of Mukherjee J. in Ahmedbhai Umarbhai & Co.s case shows beyond doubt that the Supreme Court, when they enunciated the rule as to apportionment of accrued profits, had in view only the cases of goods which had been manufactured and subsequently sold.'
In the present case, we find it difficult to extend and apply to it the doctrine of apportionment, for, though there may be several links in the chain of a lending transaction, all of them, as we think, form a composite indissoluble whole, and those links, without the others, cannot be regarded as a distinct activity or a severable business for the purpose of apportionment of a profits. The main steps in lending are agreement to lend, actual lending, accrual of interest or commission and repayment or recovery of both of them, and it is impossible to attribute, from a practical point of view, any part of the income to any one or more only of the activities. By no means can any of these elements taken separately be treated as having an independent significance or existence or as contributing to the accrual of profits. In the case of a money-lending transaction, the only view possible is that all these links form a whole which cannot be cut up artificially so as to apply the doctrine of apportionment. In any case, money-lending transaction is not comparable to the business of manufacture and sale of goods, and we are unable to extend the doctrine of apportionment to a case of money-lending. Accordingly, the second contention for the revenue fails.
The third contention of Mr. Balasubrahmanyan is based on the language of section 14(2) (c), which is as follows :
'14. (2) The tax shall not be payable by an assessee... (c) in respect of any income, profits or gains accruing or arising to him within an Indian State, unless such income, profits or gains are received or deemed to be received in or are brought into British India in the previous year by or an behalf of the assessee...'
Learned counsel, on this language, argues that since section 14(2) (c) does not use the expression 'having accrued' as section 4(1) (b) (iii) does, there could, in fact, be remittance if it is before accrual of income, and that all that is necessary is that the income should have been received in the previous year. On the other hand, for the assessee it is contended that remittance and accrual, for the application of section 14(2) (c) latter part, should be in the previous year, and that, unless that happens, the exemption should apply. We are of the view that the word 'receipt' is related to 'accruing or arising' in section 14(2) (c), and that the income received and brought into British India in the Previous year should be income, profits or gains accruing or arising to him in the previous year. Actually, on facts, it appears that only three amounts were received in the previous year, namely, Rs. 45, on October 19, 1945, Rs. 2,129 on December 29, 1945, and Rs. 250 on January 3, 1946, totaling a sum of Rs. 2,424. There was another sum of Rs. 35,775 received in Madras on April 3, 1945, but the relative entry shows that this was return of capital. All that can be said, therefore, is that exemption under section 14(2) (c) may not be available in respect of a sum of Rs. 2,379, because a sum of Rs. 45 was received before the accrual of the commission in the previous year. In other respects, the third contention for the revenue cannot succeed.
As we have held that the whole of the commission accrued in Mysore, the last contention for the revenue does not arise. We may also point out that the necessary facts are not before us which will reflect upon the quantum, even if we were of the view that any part of the commission accrued in British India.
We answer the first question referred to us in favour of the assessee, and, in view of this, the second question does not require an answer. The assessee will be entitled to his costs. Counsels fee Rs. 250.