Decided on March 27,1935



- (1.) THIS is a reference made by the Commissioner of Income-tax under Section 66 (2) of the Indian Income-tax Act, 1922, and it raises a question of considerable importance, and not, I think, easy to answer.
(2.) THE facts out of which the question arises are not in dispute. THE assessee carries on business in Bombay as a broker in cotton, silver and other commodities, and he also as a regular business enters into contracts on his own behalf for the sale and purchase of such commodities with persons in British India and also with persons outside British India, particularly in New York and Liverpool; which are the places with which we have to deal on this reference,, During the year of assessment, which is the year terminating on March 31, 1934, the assessee made a profit of Rs, 11,54,830 from the business of buying and selling commodities outside British India, and the question is whether he r is liable to be assessed in respect of this sum. The actual questions raised by the Commissioner are : (1) Whether in the circumstances of the case all the profits and gains which accrued and arose to the assessee from the business of future delivery contracts entered into with parties outside British India in which no delivery was ever taken or given or any part of such profits and gains can be said to have accrued or arisen in British India ; and (2) Whether as regards that part of the said business of future delivery contracts in which delivery had been actually taken or given outside British India, the profits or gains which accrued can be said to have accrued wholly or partly in British India. In my opinion no distinction in law exists between the classes of business referred to in the two questions. It makes no difference whether the contracts of sale and purchase were followed, or intended to be followed, by actual delivery of the commodities ; or, whether the contracts of sale and purchase were intended to be closed, and were closed, by corresponding contracts of purchase and sale, so as to result merely in payment of differences. In either case the nature of the contract in law is the same. Nor do I think there was any essential difference between the business conducted in New York and the business conducted in Liverpool, and I think the Commissioner has not correctly appreciated the rules of the Liverpool Cotton Exchange to which he refers. In the case of business contracted both in New York and Liverpool the essential features were the same. The assessee in Bombay instructed by telegram a broker in New York or Liverpool to buy or to sell commodities, and the broker accepted the instructions either in New York or Liverpool, as the case may be, and entered into the requisite contracts with third parties on the foreign exchange, and notified the assessee accordingly.
(3.) IT is admitted that the profits arising from this class of business during the year of assessment have not been received in British India, and the question is whether these profits accrued or arose in British India. That question depends on the construction of Section 4 (1) of the Indian Income-tax Act, which provides : 4.(1) Save as hereinafter provided, this Act shall apply to all income, profits or gains, as described or comprised in section 6, from whatever source derived, accruing, or arising, or received in British India, or deemed under the provisions of this Act to accrue, or arise, or to be received in British India. There is no question here of the profits being deemed to accrue or arise in British India, the question is whether they did in fact accrue or arise in British India. Now it is clear that the words " accruing or arising " extend the scope of the tax to income which may not be received in British India, and that if moneys are earned by 'carrying, on a business or by exercising a profession, in;

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