HUKAM CHAND MILLS LTD. INDORE vs. COMMISSIONER OF INCOME TAX, BOMBAY

CIVIL APPEAL No. 1062/1970Supreme Court[1976] 3 S.C.R. 71219 March 1976Bench: 2 JudgesAuthor: HANS RAJ KHANNA, P.K. GOSWAMI B5 pages
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What were the facts?

The assessee, Hukam Chand Mills Ltd. Indore, a public limited company, manufactured and sold textiles. For the assessment year 1942-43, it effected sales in British India totaling Rs. 14,80,059, categorized as (a) sales canvassed by company representatives (Rs. 6,46,028), (b) sales through brokers/agents in British India (Rs. 2,91,891), (c) sales to British Indian merchants visiting Indore (Rs. 2,86,224), and (d) sales to British Indian merchants during their visits to Indore (Rs. 2,55,916). The Supreme Court had previously held that a proportionate part of these sales income was assessable to Indian Income Tax and remitted the case to determine the quantum of profits and apportionment. The Tribunal, in a supplementary statement, apportioned 15% of profits for categories (a) and (b) and 7.5% for categories (c) and (d) as accruing in British India, resulting in total profits of Rs. 54,400.

What did the Supreme Court hold?

The Supreme Court held that the question of profit apportionment is essentially one of fact, depending on the circumstances, and in the absence of a fixed formula, some guesswork is involved, aiming for approximation rather than exactness. The Court found that the Tribunal's apportionment, based on relevant material, should not be disturbed. Specifically, the Court held that it was just and equitable to apportion 15% of the profits for sales in categories (a) and (b) and 7.5% for sales in categories (c) and (d) as accruing or arising in British India. The total profit arising and accruing in British India for the assessment year 1942-43 was determined to be Rs. 54,400. The Court accepted the appeals, discharged the High Court's answer to Question No. 2, and provided the operative directions for apportionment. No issue was expressly left undecided.

What were the issues?

1. Whether, on the facts and in the circumstances, the Tribunal was right in holding that in respect of sales of Rs. 14,80,059, 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 (Question No. 2 referred to the High Court)? 2. Whether, on the facts and in the circumstances, 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 (Question No. 3 referred to the High Court)? Assessee's Contentions: The assessee contended that Rule 33 was not applicable to the facts of the case. The assessee also argued that the determination of profits and apportionment should be based on relevant material. Revenue's Contentions: The revenue contended that a proportionate part of the profits from the sales accrued or arose in British India and was assessable to Indian Income Tax. The revenue supported the High Court's answer in favour of the revenue on the question of apportionment.

Which sections of the Income-tax Act were involved?

Section 66(1)

AI-generated summary — verify with the full judgment below

A B c D E F 712 HUKAM CHAND MILLS LTD. INDORE v. COMMISSIONER OF INCOME TAX, BOMBAY March 19, 1976 [H. R. KHANNA AND P. K. 9osWAMI, JJ.J I11con1e Tax Act 1922-Sales effected by a•Conzpany in erstwhile stat-;;in British Jndia-Deterntination of the quantunl of profits on the sales effected in British India and the basis of apportionment of the profits in the absence of any statutory or fixed forn1ula should be based on relevant niaterial.

The assessec appellant is a public limited company owning textile Mills at Indore and carrying on the business of manufacture and sale of textiles. Dur- ing 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 l{s. 6,46,02-8, (b) sales can\rassed through brokers and agents in British India Merchants and their brokers during their visit at Indore amount- ing to Rs. 2,86,224 and (iv) Sales to BritisJl Indian Merchants at the time of their own or their brokers visit at Indore amounting to Rs. 2,55,916/-.

Jn 1968(1) S.C.R. 47, on an appeal, by Revenue, arising out of a reference u/s 66(1) of the Income l'ax Act, this cou

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