Civil Appeal Nos
1062 1066 NT of 1970
From the Judgment and Order dated the 31st January1st February 1968 of the High Court of Judicature at Bombay in Income Tax Reference No 5 of 1961
section T Desai A K Verma Mrs and J B Dadachanji for the Appellant
B Sen and section P Nayar for the Respondent
The Judgment of the Court was delivered by KHANNA J
This judgment would dispose of five civil appeals No 1062 to 1066 which arise out of references under section 661 of the Indian Income tax Act 1922 made at the instance of the assessee appellant
The assessee appellant Hukam Chand Mills Ltd Indore is a public limited company
It owns a textile mill at Indore and carries on the business of manufacture and sale of textiles
These appeals have a long history and are concerned with the income of the appellant during the calendar years 1941 1942 1944 1945 and 1946 the relevant assessment years for which were 1942 43 1943 44 1945 46 1946 47 and 1947 48
In those years the assessee effected sales of textiles to merchants in the then British India
Question which arose for consideration was as to what part of the income arising out of those sale transactions accrued or arose in British India
As the questions of law involved in each of the appeals were identical the facts relating to the assessment year 1942 43 only were taken into consideration
According to the finding of the Income tax Officer in that year the price of the textiles sold by the assessee in British India aggregated to Rs 1480059
This amount consisted of the following four categories a Sales in pursuance of business canvassed by company s represen tatives in British India also described as item 3 Rs 646028 b Sales to British Indian merchants through brokers and agents in British India also described as item 4 Rs 291891 c Sales to British Indian merchants and brokers during their visit to Indore also described as item 5 Rs 286224 d Sales to British Indian merchants at the time of their own or their broker s visit at Indore also described as item 9 Rs 255916 _____________ TOTAL Rs 1480059 Profits from those sales were held at 3112 per cent to amount to Rs 460560
Profits attributable to operations carried out in British India were held by the Appellate Assistant Commissioner to be one third of Rs 460560 ie Rs 153520
In doing so the Appellate Assistant Commissioner acted upon the analogy of rule 33 of the 714 Indian Income tax Rules 1922
We need not set out the finding of the Income tax Officer
The Tribunal substantially agreed with the Appellate Assistant Commissioner
At the instance of the assessee the following two questions were inter alia referred to the High Court 2 Whether on the facts and in the circumstances of the applicants  case the Tribunal was right in holding that in respect of sales of Rs 1480059 the profit was correctly determined by application of rule 33 and one third of the profits so determined could be said to accrue or arise in British India  3 Whether on the facts and in the circumstances of the applicants  case the Tribunal was right in holding that a proportionate part of the profits determined on sales grouped under items 3 4 5 and 9 in the assessment order by the application of rule 33 was assessable to income tax The High Court answered question No 3 in favour of the assessee
In view of its finding on question No 3 the High Court did not answer question No 2
The Commissioner of Income tax then came up in appeal to this Court and the decision of this Court is reported in   This Court held that the answer to question No 3 should be in the negative as the property in goods passed to the purchaser in British India and proportionate part of the profits of these sales accrued in British India and as such was assessable to Indian income tax
The case was remitted to the High Court to answer question No 2 in accordance with law
On remand the High Court held that the profits were correctly determined by the application of rule 33 and one third of the profits so determined could be said to arise or accrue in British India
When the matter came up in appeal before this Court it was found that the High Court had not taken into account the relevant circumstances for answering question No 2
It was also stated by counsel for both the parties that rule 33 was not applicable to the facts of the case
This Court accordingly directed the Appellate Tribunal to submit a supplementary statement of the case to this Court
Supplementary statement of the case has now been received
The Tribunal found that in respect of the sales in categories a and b amounting to Rs 937919 it was just and equitable to apportion 15 per cent of the profits said to have arisen and accrued in British India
Regarding sales in categories c and d for a total amount of Rs 542140 the Tribunal held that 7 12 per cent of the profits could be said to have accrued and arisen in British India
As the profits were found to represent 3112 per cent of the turnover the profits in respect of the turnover of Rs 937919 comprised in categories a and b were calculated at the rate of 4 12 per cent ie 15 per cent of 3112 per cent
The profits in British India were thus found to be Rs 42200
Profits accuring 715 and arising in British India in respect of sales turnover of Rs 542140 comprised in categories c and d at the rate of 2 14 per cent 7 12 per cent of 3112 per cent were found to be Rs 12200
The total profits accruing or arising in British India to the assessee company in the assessment year 1942 43 were thus worked out to be Rs 54400
The above finding of the Tribunal has been arrived at on consideration of the facts of the case
The modus operandi in respect of the sales of various categories was found by the Tribunal to be as under a Sales of Rs 646028 i The assessee s paid representatives at Bombay canvassed the sales on behalf of the assessee to merchants in British India
ii The orders were sent by British Indian merchants to the assessee at Indore
iiiThe assessee accepted the orders at Indore prepared the contracts and signed them at Indore and forwarded the same to customers in British India
iv The customers signed the contracts in British India
v The contracts were signed on company s forms
vi The contracts bore British Indian stamps
b Sales of Rs 291891 i The brokers in British India described as freelance brokers transmitted the offers to the company at Indore
ii The offers were made to the company on the brokers  own forms
iiiThe brokers were not engaged by the assessee company and such orders were placed by the brokers in the normal course of their business
iv The customers signed the contracts in British India
c Sales of Rs 286224 i These sales were made to British Indian merchants who went to Indore to negotiate and place orders
ii The orders were accepted at Indore
iiiThe contracts bore British Indian stamps
iv The customers signed the contracts in British India
d Sales of Rs 255916 i These sales were made to British Indian merchants on their or their brokers  personal visits to Indore
716 ii The offers were taken direct at Indore
iiiContracts for such sales were made in the same manner as stated hereinbefore
 The Tribunal also gave a finding that the assessee maintained an organisation in British India that that organisation was interested in bringing to the notice of the British Indian merchants brokers and consuming public the goods manufactured by the assessee company and that the ground work for sales effected in these groups was done in British India
Nothing has been urged before us either on behalf of the assessee appellant or on behalf of the revenue respondent to assail the finding of the Tribunal in the supplementary statement of case
The question as to what proportion of the profits of the sales in categories a b c and d arose or accrued in British India is essentially one of fact depending upon the circumstances of the case
In the absence of some statutory or other fixed formula any finding on the question of proportion involves some element of guess work
The endeavour can only be to be approximate and there cannot in the very nature of things be great precision and exactness in the matter
As long as the proportion fixed by the Tribunal is based upon the relevant material it should not be disturbed
We accordingly accept the appeals discharge the answer given to question No 2 by the High Court and hold that the profit which arose and accrued in British India to the assessee appellant for the assessment year 1942 43 was Rs 54400
We also hold that it is just and equitable to apportion 15 per cent of the profits of sales in categories a and b as accruing or arising in British India and 7 12 per cent of the profits of sales in categories c and d as accruing or arising in British India
The parties in the circumstances shall bear their own costs
SR Appeals allowed


Summary:
The assessee appellant is a public limited company owning textile Mills at Indore and carrying on the business of manufacture and sale of textiles
During the assessment year 1942 43 it effected in British India the following categories of sales viz a sales canvassed by the company s representatives amounting to Rs 646028 b sales canvassed through brokers and agents in British India Merchants and their brokers during their visit at Indore amounting to Rs 286224 and iv Sales to British Indian Merchants at the time of their own or their brokers visit at Indore amounting to Rs 255916 
In 19681 SCR 47 on an appeal by Revenue arising out of a reference us 661 of the Income Tax Act this court held that the income by way of the Sales of Rs 1480059 in respect of the appellant company was income accrued or arose within British India and a proportionate part of it was assessable to Indian Income Tax
This court remitted the case to the High Court to answer the reference regarding the correctness of the determination of the profits on the sales computed by the Tribunal by application of Rule 33 and also whether 13 of the profits so determined could be said to accrue or arise in British India which the High Court answered in favour of the Revenue
In the appeals before this Court it was found that the High Court had not taken into account the relevant circumstances for answering the reference since it was contended by both the parties that Rule 33 was not applicable to the facts of the case
As per the directions the Tribunal submitted a supplementary statement of the case wherein it found 1 that in respect of the sales canvassed by the companies representatives and through brokers and agents amounting to Rs 937919 it was just and equitable to apportion 15 of the profits said to have arisen and accrued in British India and ii that in respect of the sales to British Indian Merchants andor their brokers during their visit at Indore amounting to Rs 542140 
7 12 per cent of the profits could be said to have accrued and arisen in British India
As the profits were found to represent 3112 per cent of the turnover the profits in respect of the turnover of Rs 937919 were calculated at the rate of 4 12 per cent ie 15 of 3112 per cent which amounted to Rs 42200 
Similarly the profits in respect of the turnover of 542140  the rate of 2 14 7 12 per cent of 3112 per cent amounted to Rs 12200
The total profits for the year 1942 43 was Rs 54400 Rs 4220012200 according to the Tribunal
Accepting the appeals the Court  HELD i The question as to what proportion of the profits of the sales in the four categories arose or accrued in British India is essentially one of fact depending upon the circumstances of the case
In the absence of some statutory or other fixed formula any finding on the question of proportion involves same element of guess work
The endeavour can only be to be approximate and there cannot in the very nature of things be great precision and exactness in the matter
As long as the proportion fixed by the Tribunal is based upon the relevant material it should not be disturbed
716C D ii In the instant case the profit which arose and accrued in British India to the assessee appellant for the assessment year 1942 43 was Rs 54400
It 713 is just and equitable to apportion 15 of the profits of sales in categories a and b and 7 12 per cent of the profits of sales in categories c and d as accruing or arising in British India
716D E