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

- **Citation:** [1969] 2 S.C.R. 55
- **Court:** Supreme Court of India
- **Decided:** 1968-09-10
- **Case number:** Civil Appeal Nos. 1769 to A 1771 of 1967
- **Bench:** J. C. Shah, V. Ramaswami, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-bangalore-v-the-union-of-tile-exports-bangalore-4565
- **Pages:** 5

## Headnote

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 Beypore and sent to Bangalore when
the
hundis together with the invoices and shipping documents were handed
over by the assessee to a bank at Bangalore.
Pursuant to the letter of
credit opened by the purchaser in Ceylon, payments were made by the
aforesaid bank to the assessee.
In income tax proceedings for the assess·
ment years 1951-52, 1952-53, and 1953-54 the' assessee claimed that since
its registered office was in Bangalore and as the agency agreement with
the purchaser at Colombo was entered into in Bangalore the entire in ..
come shou1d be treated as in.come accruing or 'arising in Part B State
and concession regarding rates and allowances as provided in Part
B
States (Taxation Concessions) Order, 1950 should be allowed to it. The
income tax authorities and the Tribunal decided against the assessee. The
High Court however held that since the profits were received in Part B
State at Bangalore, it could not be said that the entire profit accrued or
arose within the meaning of cl. (a) of sub-s" (1) of s. 4 of the Jncometax Act, 1922 in the taxable territories other than Part B State. According to the High Court
the profits arose at Bangalore, Feroke, and
Ceylon, of which only PeToke was in the taxable territories, and therefore,
the assessee was entitled to the concession under the order in respect of
the profits that could be apportioned under s. 42(3) of the Act to the
business operations conducted in Bangalore and Ceylon. The Revenue
appealed to this Court contending that hardly any activity took place
of such a nature as could be said to give rise to accrual of profits at
Bangalore.
HELD : The conclusion which the High Court arrived at must be
upheld.
The making of contracts pursuant to which all the subsequent activity
in respect of the execution of those contracts took place resulting in
profits to the assessee was an integral part of the entire selling operations.
The contracts in the present case having been entered into at Bangalore
it could not be said that no part of the business activity which produced
the profits took place there. [53 HI
56
SUPREME COURT REPORTS
[1969] 2 s.c.R.

## Text

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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 Beypore and sent to Bangalore when
the
hundis together with the invoices and shipping documents were handed
over by the assessee to a bank at Bangalore.
Pursuant to the letter of
credit opened by the purchaser in Ceylon, payments were made by the
aforesaid bank to the assessee.
In income tax proceedings for the assess·
ment years 1951-52, 1952-53, and 1953-54 the' assessee claimed that since
its registered office was in Bangalore and as the agency agreement with
the purchaser at Colombo was entered into in Bangalore the entire in ..
come shou1d be treated as in.come accruing or 'arising in Part B State
and concession regarding rates and allowances as provided in Part
B
States (Taxation Concessions) Order, 1950 should be allowed to it. The
income tax authorities and the Tribunal decided against the assessee. The
High Court however held that since the profits were received in Part B
State at Bangalore, it could not be said that the entire profit accrued or
arose within the meaning of cl. (a) of sub-s" (1) of s. 4 of the Jncometax Act, 1922 in the taxable territories other than Part B State. According to the High Court
the profits arose at Bangalore, Feroke, and
Ceylon, of which only PeToke was in the taxable territories, and therefore,
the assessee was entitled to the concession under the order in respect of
the profits that could be apportioned under s. 42(3) of the Act to the
business operations conducted in Bangalore and Ceylon. The Revenue
appealed to this Court contending that hardly any activity took place
of such a nature as could be said to give rise to accrual of profits at
Bangalore.
HELD : The conclusion which the High Court arrived at must be
upheld.
The making of contracts pursuant to which all the subsequent activity
in respect of the execution of those contracts took place resulting in
profits to the assessee was an integral part of the entire selling operations.
The contracts in the present case having been entered into at Bangalore
it could not be said that no part of the business activity which produced
the profits took place there. [53 HI
56
SUPREME COURT REPORTS
[1969] 2 s.c.R.
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1769 to
A
1771 of 1967.
•
Appeals from the judgment and order dated December 17,
1963 of the Mysore High Court in I.T.R.C. Nos. 6 of 1959 and
3 of 1960.
C. K. Daphtary, Attorney-General, V. A. Seyid Muhammad,
B
R. N. Sachthey and B. D. Sharma, for the appellant (in all the
,_
appeals).
S. T. Desai, Bhuvanesh Kumari and Ravinder Narain, for the
respondent (in all the appeals).
The Judgment of the Court was delivered by
Grover, J. These appeals are by certificate from the common
judgment of the Mysore High Court on the following questions
of law which were referred by the Income tax Appellate Tribunal
under s. 66(1) of the Income tax Act, 1922, hereinafter called
the Act.
" ( 1) Whether, on the facts and circumstances of
the case, the income of the assessee did not arise in
Bangalore (Mysore State) in respect of sales effected
by the assessee to the Burma Teak Trading Co., Ltd.,
Colombo?
( 2) If the answer to the above question is in favour
of the assessee, then whether, on the facts and circumstances of the case, the assessee is entitled to the concession under Part B States
(Taxation Concessions)
Order, 1950? and
( 3) Whether, on the facts and circumstances of the
case, the apportionment of profits of business is called
for pursuant to assessee's trading activities in Bangalore
(Mysore State) ?"
The assessee is a firm carrying on business in Bangalore in
Mysore State. It was appointed as the sole selling agent for
Ceylon except J aflina Peninsula and the town of Trincomalee for
the purpose of marketing, selling or distributing Lotus Brand
tiles and ridges manufactured by M/s. Modern Til!'l & Clay Works
of Feroke.
According to an agreement dated August 10, 1949 between
the parties all prices quoted by the manufacturer were to be
F.O.B. Beypore Fort and for loading into country crafts; the
right to charter or engage vessels was to be with the agents.
Beypore is in the taxable territory as also Feroke where the tiles
manufacturers carried on their business.
One of the employees
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C.I.T. v. TILE EXPORTS (Grover, J.)
57
of the assessee stayed at Calicut during the season to supervise the
operation of delivery of articles and to engage vessels.
The bills
of lading were obtained by the assessee's representative at Beypore
and sent to Bangalore where the hundis together with the invoices
and shipping documents were handed over by the assessee to the
Indian Overseas Bank Ltd., Bangalore.
Pursuant to the letter
of credit opened by the Bunna Teak Trading Co. Ltd., Colombo,
which was the purchaser, payments were made by the aforesaid
bank to the assessee.
It is unnecessary to state the details about
the profits which the assessee made during the relevant assessment
years 1951-52, 1952-53 & 1953-54.
The assessee clainied that
since its registered office was in Bangalore and as the agency
agreement with the purchaser at Colombo was e~tered into in
Bangalore the entire income should be treated as income accruing
or arising in Part B State and concession regarding rates and
al!owances as provided in Part B States (Taxation Concessions)
Order, 1950, hereinafter called the "Order", should be allowed to
it.
The income-tax authorities as also the Appellate Tribunal
decided against the assessee.
It was held that hardly any activity
took place at Bangalore in the matter of earning the profits from
the transactions in question.
The High Court was of the view that since the profits were
received in Part B State, namely, Bangalore, it could not be said
that the entire profit accrued or arose within the meaning of cl.
(a) of sub-s. ( 1) of s. 4 of the Act in the taxable territories other
than Part B State.
After re.ferring to s. 42(3) of the Act and
certain decisions of this Court it was observed that the business
operations which produced profits were carried out at three different places i.e., Bangalore, Feroke and Ceylon.
Therefore the
portion of these profits must be held to have accrued in all these
places.
The only profits which could be deemed to have accrued
in the taxable territories other than Part B State were those that
could be said to have accrued at Feroke. The profits that could
be attributed to the business operations at Bangalore could not
be deemed to have accrued in the taxable territories other than
the Part B State nor could it be said that the profits that had
accrued at Ceylon could be deemed to have accrued in the taxable territories other than Part B State.
The answers which were
returned to the questions were as follows : -
"(1) The profits of the assessee in respect of sales
effected by it to Bunna Teak Trading Co., Colombo
did not entirely arise in Banp:alore (then a Part B
State), it arose in Bangalore, Feroke and Ceylon.
(2) The assessee was entitled to the
concession
under the Order in respect of the profits that could be
L2 Sup. CI/69-5
58
5pPREME COURT REPORTS
[1969) 2 S.C.R.
attributed towards
business operations conducted in
A
Bangalore and Ceylon.
( 4) Apportionment of profits of business was called
for pursuant to the assessee's trading profits.
The sole point which has been raised before us by the learned Attorney General who appears for the appellant is that hardly
any activity took place of such a nature as could be said to give
:&iie to accrual of profits in Bangalore.
It is pointed out that
admittedly the manufacturing concern from where the tiles had to
be sent to Colombo was in Feroke in British India and that the
goods were also delivered F.0.R., Beypore which was in British
India.
The assessee's agent resided in British India and supervised all the operations there.
Our attention has been invited to the findings of the tribunal
which inter alia were that the assessee purchased the goods at
places outside Bangalore and the sales were also effected in Ceylon; the assessee continued to retain its title to the goods till they
were delivered to the Ceylonese buyers on their accepting the documents and bills of exchange forwarded through the Bank in that
country.
The sale operations were carried out in Ceylon and the
profits attributable to those transactions accrued and arose only
in Ceylon which was outside the taxable territories.
The essential question, according to the learned Attorney General is, whether any part of income accrued or arose at Bangalore.
According to the learned counsel for the respondent it was clear that the
profits accrued at Bangalore· where the assessee's registered office
was situate and where the contracts were entered into by the
assessee for the sale and purchase of the goods and where moneys
were received.
At any rate the profit producing operations could
not be said to have been confined only to places in the taxable
territories because without the contracts no further steps could be
taken in carrying out the transactions and the contracts indisputably were entered into at Bangalore.
It is urged that the
assessee's business activity came within the scope and ambit of
paragraph 4 ( 1) (iii) of the Order and therefore it was entitled to
the concessions provided in paragraphs 6, 6A and 7 of that Order.
Section 42(3) of the Act lays down that when profits accrue or
arise from a business all the operations of which are not carried
out within the taxable territories those profits must be deemed to
have accrued or arisen in several places where the business operations were carried out and the total profits earned will have to be
apportioned on reasonable basis amongst the several operations
and tax should be levied only on that portion of the profits which
are deemed to have accrued or arisen within the taxable territories.
If it be held, as indeed it must be held, th!!t the making of
contracts pursuant to which all the subsequent activity in respect
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c.I.T. v. TILE EXPORTS (Grover, J.)
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of the execution of those contracts took place resulting in profits
to the assessee, is an integral part of the entire selling operations,
there can be no escape from the conclusion at which the High
Court arrived. The appeals consequently fail and they are dismissed with costs.
(one hearing fee).
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Y.P.
Appeals dismissed •
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