Dipak Kumar Sen, J.
1. The facts found and/or admitted in this reference are of a short compass. Betts Hartley Huett & Co. Ltd., the asses-see, is a non-resident company with its head office in London. The assessee's business in Calcutta is mainly that of purchasing tea for its constituents abroad. In the assessment year 1963-64, the relevant previous year ending on the 31st December, 1963, the ITO found that the assessee had charged from its constituents in respect of tea purchased actual cost, commission or brokerage and also a sum of 10 paise per pound of tea on account of shipping, sampling and other miscellaneous charges, the commission charged varying between 1% and 2% on the value of the tea. In respect of despatch to head office the assessee did not charge any commission but charged all other items of expenses. The assessee contended that the sales to its head office were effected on a principal to principal basis and, therefore, there was no profit assessable under Section 9(1) of the I.T. Act, 1961. The ITO, however, held that the amount of commission which was not charged on sales to the head office accrued to the assessee's head office in London and, therefore, estimated the profit attributable to purchase operations of the assessee's London office in India through the assessee at 11/2% of the value of the tea sold and computed such profit as 7,827.
2. Being aggrieved, the assessee preferred an appeal from the assessment. The AAC accepted the contentions of the assessee and held that the ITO was not justified in adding the same amount of 7,827 as extra profit and directed deletion of the same. Similar deletions were directed to be made in respect of the subsequent assessment years 1964-65, 1965-66 and 1966-67.
3. Being aggrieved by this order of the AAC, the revenue preferred appeals to the Tribunal in respect of each of the said assessment years which were consolidated and disposed of by a common order. In the appeals, it was contended on behalf of the revenue that as commission was charged on sales to other constituents but not on the sales to the head office, the AAC was not justified in deleting the additions. It was contended on behalf of the assessee, on the other hand, that it had, in fact, earned profits on its sales to the head office though the same was somewhat less than the profit earned on the sales to outsiders. The Tribunal found that there was no plausible reason why a commission was not charged on the assessee's sales to its London office and to the extent the commission was not charged the London office did obtain a benefit. The Tribunal held that the London office did earn more because of its business connection through the assessee in India and by not paying commission this earning accrued or arose to the assessee because of its business connections in India. The Tribunal accordingly included the said amount of 7,827 in the computation of the asses-see's income as profit in respect of purchase operations carried on on behalf of the London office.
4. At the instance of the assessee, the Tribunal under Section 256(1) of the I.T. Act, 1961, has drawn up a statement of case and referred the following question as a question of law arising from its aforesaid order :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of 5,897-13-11 was includible in the computation of the assessee's income for the assessment year 1963-64 as profit in respect of sales made to its head office in London within the meaning of Section 9(1) of the I.T. Act, 1961, as applicable to that year ?'
5. Dr. Debi Pal, learned counsel for the assessee, contended at the hearing that the order of the Tribunal was erroneous inasmuch as, in the facts and circumstances, there was no scope for the application of Section 9(1) of the said Act. He contended that if the admitted position was that there was a sale from the the business unit of the assessee in India to its London head office on a principal to principal basis the fact that a lower price has been charged by the assessee to its London office did not mean that a profit has accrued to the assessee through its business connections in India. Dr. Pal contended further that in the instant case the income, if any, in fact accrued or arose in India and there was no scope for application of Section 9 which provided that certain income though not accruing or arising in India would be deemed to so accrue or arise.
6. In support of his contentions Dr. Pal cited the following decisions :
(a) CIT v. Calcutta Discount Co. Ltd.  91 ITR 3. The facts in this case were that the assessee transferred certain shares held by it to its subsidiary company at less than their book value. Though there wasno finding that the transaction was not bona fide or that the assessee had made secret profits, the ITO held that the company must be deemed to have made a profit, being the difference between the market price of the said shares and their book value. On appeal, the AAC held that without a finding that the assessee had in fact made profits in the transaction the ITO could not add any amount on the basis of a notional income. He remanded the matter to the ITO. From this order, the revenue preferred an appeal to the Tribunal challenging only the finding of the AAC that the shares could not be valued at the market price. The Tribunal rejected the appeal summarily. On a reference, the High Court held that the order of the Tribunal rejecting the application was not competent. There was a further appeal to the Supreme Court. In its judgment, the Supreme Court quoted with approval an observation of Shah J. in CIT v. A. Raman & Co. : 67ITR11(SC) decided by the Supreme Court earlier. The relevant portion of this observation is as follows (p. 13):
'But the law does not oblige a trader to make the maximum profit that he can out of his trading transactions. Income which accrues to a trader is taxable in his hands : income which he could have, but has not earned, is not made taxable as income accrued to him. By adopting a device, if it is made to appear that income which belonged to the assessee had been earned by some other person, that income may be brought to tax in the hands of the assessee, and if the income has escaped tax in a previous assessment, a case for commencing a proceeding for reassessment under Section 147(b) may be made out. Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented.'
7. In this judgment, the Supreme Court made the following further observations :
'It is a well accepted principle of law that an assessee can so arrange his affairs as to minimise his tax burden. Hence, if the assessee in this case has arranged its affairs in such a manner as to reduce its tax liability by starting a subsidiary company and transferring its shares to that subsidiary company and thus forgoing part of its own profits and at the same time enabling its subsidiary to earn some profits, such a course is not impermissible under law.'
(b) CIT v. National and Grindlays Bank Ltd. : 72ITR121(Cal) . In this case, this court construed Section 42(1) of the Indian I.T. Act, 1922, and held that where both money was advanced and the interest was pay-able thereon abroad there was nothing by which the interest earned could be connected with the taxable territory in India.
(c) CIT v. R.D. Aggarwal and Co. : 56ITR20(SC) . In this case the Supreme Court construed the meaning of the expression 'business connection' with reference to Section 42 of the Indian I.T. Act, 1922. The relevant observations of the Supreme Court are as follows (p. 24):
'The expression ' business ' is defined in the Act as any trade, com-merce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture, but the Act contains no definition of the expression 'business connection' and its precise connotation is vague and indefinite. The expression 'business connection' undoubtedly means something more than 'business'. A business connection in Section 42 involves a relation between a business carried on by a non-resident which yields profits or gains and some activity in the taxable territories which contributes directly or indirectly to the earning of those profits or gains. It predicates an element of continuity between the business of the non-resident and the activity in the taxable territories : a stray or isolated transaction is normally not to be regarded as a business connection. Business connection may take several forms : it may include carrying on a part of the main business or activity incidental to the main business of the non-resident through an agent, or it may merely be a relation between the business of the non-resident and the activity in the taxable territories, which facilitates or assists the carrying on of that business. In each case the question whether there is a business connection from or through which income, profits or gains arise or accrue to a non-resident must be determined upon the facts and circumstances of the case.'
8. Mr. B.L. Pal, learned counsel for the revenue, drew our attention to Section 9 of the I.T. Act, 1961, as it stood at the relevant time :
'The following incomes shall be deemed to accrue or arise in India--(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source' of income in India, or through or from any money lent at interest and brought into India in cash or in kind or through the transfer of a capital asset situate in India ;
Explanation.--For the purposes of this clause-
(a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India ;
(b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export:
Provided that the non-resident has no office or agency in India for this purpose and the goods are not subjected to any kind of manufacturing process before being exported from India.......'
9. Mr. Pal contended that the facts found in the instant case fulfilled all the requirements of the section as follows :
(a) There was a business connection between the head office of the assessee in London and the business unit of the assessee in India.
(b) On the assessee's selling its goods to its head office in London without charging any commission, an income arose indirectly to the assessee through its business connection in India from goods purchased in India.
(c) The operations even if it be held to be confined to purchase of goods in India for export would not escape the liability imposed by the section as the non-resident assessee had a business office or agency in India. He submitted that the assessee had entered into transactions with its head office on a commercial basis and could not claim any concession for the transactions.
10. It appears to us that both the assessee and the revenue had been proceeding on the basis that the transaction between the London head office of the assessee and its unit in India was a transaction as between principal and principal. If this position is accepted then it cannot be held that any income arose in favour of the assessee either directly or indirectly, the gain in the London head office being offset by the loss incurred in the Indian branch. The decision in Calcutta Discount Co. Ltd. : 91ITR8(SC) could not be distinguished by Mr. Pal and if we apply the principles in the facts of the present case it has to be held that by the forgoing of the commission by the assessee on the supply to the head office no extra profit or income accrued in favour of the assessee.
11. We note, however, that the parties all along did proceed under a misconception. In law there cannot be a valid transaction of sale between the branch office of the assessee in India and its head office in London. It is an elementary proposition that no person can enter into a contract with oneself. Debiting or crediting one's account cannot alter this legal position. If one unit of a business does not debit any commission to another unit of the same business, then it is difficult to follow how any saving has been effected by the business.
12. For the reasons given above we answer the question referred in the negative and in favour of the assessee. There will be no order as to costs.
C.K. Banerji, J.
13. I agree.