COMMISSIONER OF INCOME-TAX, BANGALORE vs. THE UNION OF TILE EXPORTS, BANGALORE

CIVIL APPEAL No. 1769/1967Supreme Court[1969] 2 S.C.R. 5510 September 1968Bench: 3 JudgesAuthor: J.C. SHAH, V. RAMASWAMI, A.N. GROVER5 pages
AI SummaryDismissed

What were the facts?

The assessee, a firm operating in Bangalore (a Part B State), was the sole selling agent for tiles manufactured in Feroke, British India, for sale in Ceylon. Contracts were entered into in Bangalore. Prices were quoted F.O.B. Beypore Port. An employee at Calicut supervised loading, and bills of lading were obtained at Beypore. Invoices and shipping documents were sent to Bangalore, where the assessee handed them to a bank. Payments were received in Bangalore via a letter of credit. For assessment years 1951-52, 1952-53, and 1953-54, the assessee claimed income accrued in Bangalore, entitling it to concessions under the Part B States (Taxation Concessions) Order, 1950. Income tax authorities and the Tribunal rejected this. The High Court held profits arose in Bangalore, Feroke, and Ceylon, allowing concessions for profits apportioned to Bangalore and Ceylon operations under Section 42(3) of the Income-tax Act, 1922. The Revenue appealed.

What did the Supreme Court hold?

The Supreme Court upheld the High Court's conclusion. It held that the making of contracts, pursuant to which all subsequent activity leading to profits took place, was an integral part of the entire selling operations. Since these contracts were entered into at Bangalore, it could not be said that no part of the business activity producing the profits occurred there. Therefore, the assessee was entitled to the concession under the Part B States (Taxation Concessions) Order, 1950, in respect of profits apportioned to business operations conducted in Bangalore. The Court found that profits arose in Bangalore, Feroke, and Ceylon, and apportionment under Section 42(3) was indeed called for. The appeals were dismissed.

What were the issues?

1. Whether, on the facts and circumstances, the income of the assessee did not arise in Bangalore (Mysore State) in respect of sales effected to Burma Teak Trading Co., Ltd., Colombo, turning on Section 4(1)(a) of the Income-tax Act, 1922. 2. If the answer to the first question is in favour of the assessee, whether the assessee is entitled to the concession under the Part B States (Taxation Concessions) Order, 1950. 3. Whether, on the facts and circumstances, the apportionment of profits of business is called for pursuant to the assessee's trading activities in Bangalore (Mysore State), in light of Section 42(3) of the Income-tax Act, 1922. Assessee's contentions: The assessee argued that since its registered office was in Bangalore and the agency agreement was entered into there, the entire income should be treated as accruing or arising in the Part B State, entitling it to concessions. It also contended that profit-producing operations could not be confined to taxable territories as contracts, indisputably entered into at Bangalore, were essential for subsequent steps. The assessee relied on paragraph 4(1)(iii) of the Part B States (Taxation Concessions) Order, 1950. Revenue's contentions: The Revenue contended that hardly any activity took place in Bangalore that could be said to give rise to the accrual of profits. It pointed out that manufacturing was in Feroke, goods were delivered F.O.R. Beypore, and the assessee's agent resided and supervised operations in British India. The Tribunal had found that sales were effected in Ceylon and profits attributable to those transactions accrued there.

Which sections of the Income-tax Act were involved?

Section 4(1)(a),Section 42(3),Section 66(1)

AI-generated summary — verify with the full judgment below

• • , • 8 COMMISSIONER OF INCOME-TAX, BANGALORE v. THE UNION OF TILE EXPORTS, BANGALORE September 10, 1968 [J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.J Indian Income-tax Act, 1922 s. 4(l)(a)-Place of accrual of income-Contracts entered into Bangalore in Part B State and profits re~ ceived there-Subsequent operations in British India and Ceylon-Conces~ sion under Part B States (Taxation, concessions) Order, 1950 whether could be claimed in resp.ect of business activity at Bangalore-Apportion~ C ment of profits under Indian Income-tax Act, 1922 s. 42(3). D E H The assessee firm carried on business at Bangalore in the State of Mysore, which at the relevant time was a Part B State. It was appointed as the sole selling agent for certain areas in Ceylon in respect of tiles and ridges manufactured by the principal at Feroke in British India.

According to the agreement between the parties all prices quoted by the manufacturer were to be F.0.B. Beypore Port situated in taxable territory.

Chartering and loading of vessels was done by one of the assessee's employees stationed at Calicut. The bills of lading were obtained by the assessee's representative at

The order continues below.

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