Case: Sutlej Cotton Mills Limited Vs. Commissioner of Income Tax

These appeals relate to chargeability of business profits tax under the Business Profits Tax Act, 1947, for the accounting period April 1, 1946, to March 31, 1947The appellant, hereinafter referred to as the assessee, was having a textile mill in what was known as British India at the relevant time. The cloth manufactured at the mill of the assessee was sold in British India as well as in some of the former Indian States. Under section 42(3) of the Indianx Act, 1922 (hereinafter referred to asthex Act), out of the total business profit made by the assessee in the Indian States, a part was attributed to the assessees manufacturing operations carried on in British India and it was deemed as income accruing and arising in British India. The remaining part of the profit arising in the Indian States was attributed to its merchanting operations in the said States under section 14(2) (c) of thex Act and the same was exempted fromx unless it was brought into British India. In thex assessment for the assessment year8 covering the accounting period April 1, 1946, to March 31, 1947, out of the total profits earned by the assessee in the Indian States, the manufacturing portion of the profits was determined at Rs. 4, 72, 778 and the merchanting portion of the profits was determined at Rs. 5, 67, 206 and, on that basis, Rs. 4, 72, 778 was included under section 42(3) of thex Act in computing the business income of the assessee. During the aforesaid accounting period, a total amount of Rs. 9, 01, 363 was remitted by the assessee from the Indian States to British India. While making thex Officer held that remittance to the extent of Rs. 1, 18, 754 should be treated to have come out of the income which accrued or arose in the Indian States in the same period and the remaining part, viz., Rs. 7, 82, 609, should be treated to have come out of the income which accrued or arose in the Indian States prior to the accounting period. Thex Officer did not include these sums in his computation of the assessees British Indian business profits but included the same in the assessees total income under the head Other sourcesWhile making assessment for the purpose of business profits tax, thex Officer took into consideration the materials and information contained in the correspondingx proceedings and adopted the assessees business profits as computed in the saidx assessment. He, however, included the entire amount of Rs. 5, 67, 206 which was computed to be the amount of merchanting profits arising in the Indian States in that period for assessing the income of the assessee for the purpose of chargeability of business profits tax. The said assessment was upheld in appeal by the Appellate Tribunal. The assessee submitted an application before the Appellate Tribunal for reference of the questions of law arising out of the order dated May 13, 1958, passed by the Appellate Tribunal and, on that application, the Appellate Tribunal, by order dated February 13, 1959, referred the following question to the High Court for consideration under section 66(1) of theWhether, on the facts and in the circumstances of this case, the profits earned outside the taxable territories and brought into the taxable territories during the chargeable accounting period ending on March 31, 1947, were assessable under the Business Profits Tax Act? *The assessee moved the High Court under section 66(2) of the Indianx Act, 1922, and, on the said application, the High Court passed an order dated February 22, 1961, directing the Appellate Tribunal to draw up and submit a statement of the case relating to question No. 4 with the amendment as directed in the said order of the High Court. In pursuance of the said order of the High Court, the Appellate Tribunal on December 7, 1962, referred the following question for the consideration of the High CourtHaving regard to the materials and documents on record, did the Tribunal err in law in holding(a) that the amount that was remitted or deemed to have been remitted was covered by the quantum of foreign profits made by the company in the relevant period(b) that there was no material before them showing that the remittance was made out of profits made prior to the accounting period? *Both these references were heard together and decide by the High Court by judgment dated May 7, 1965. The High Court answered the questions referred against the assessee and in favour of the Revenue. Feeling aggrieved by the said decision, the assessee had filed these appeals after obtaining a certificate from the High Court

Reasoning: The High Court was also not right in rejecting the contention raised by the assessee in this regard on the view that the assessee never raised the point before the revenue authorities that any portion of the profits in the Indian States out of which the sum of Rs. 9, 01, 363 was remitted to British India was made before the chargeable accounting period and as such the said question could not be taken into consideration. The order dated May 13, 1958, passed by the Appellate Tribunal shows that a contention was raised on behalf of the assessee that the remittances made from Indian States to British India were made out of profits made prior to the accounting period but the said contention was not accepted by the Appellate Tribunal on the view that there was no material before them showing that the remittances were out of profits made prior to the accounting periodIn that view of the matter, the High Court was not justified in answering the questions referred to it against the assessee. Since the matter has not been properly considered by the Appellate Tribunal in the light of the relevant material, namely, the orders passed in the proceedings for assessment ofx for the assessment year48 covering the same accounting period, which material was before the Appellate Tribunal, the finding recorded by the Appellate Tribunal is defective in law. The questions of law referred to the High Court cannot be answered in view of the defective finding recorded by the Appellate Tribunal without considering the relevant material on record. In these circumstances, we consider that the best course is for the Appellate Tribunal to rehear the appeal and, after considering all the relevant material including the orders passed in the proceedings for assessment ofx for the assessment year48 covering the same accounting period, record a finding with regard to the amount remitted by the assessee from the Indian States to british India out of the amount of merchanting profits arising in the Indian States during the accounting period April 1, 1946, to March 31, 1947The judgment and order of the High Court dated May 7, 1965 is, accordingly, set aside and the answers recorded by the High Court are vacated.