- (1.)AT the instance of the assessee the Tribunal referred the following question to the High Court : "Whether in the circumstances of the case the commission, this, Rs. 88,065, received by the assesses company from the United Salt Works and Industries, Ltd., accrued in the State of Cutch or In British India." Chagla, C.J. : - The assesses before us is a joint stock company incorporated in Bombay and they are the managing agents of the United Salt Works and Industries, Ltd., which company also is incorporated in Bombay.
(2.)THE assessee company was appointed the managing agents under the managing agency agreement, dated 1st June 1944, and in this reference we are concerned with the assessment year 1945 -46, the relevant previous year being the year ended 30th September 1944. During the year of account the United Salt Works and Industries, Ltd., made a profit of Rs. 10,12,402 from its business at Aden and a profit of Rs. 7,61,165 from its business at Kandla. The Tribunal took the view that the total commission payable to the assessee company amounted to Rs. 2,10,815 and out of that Rs. 1,22,750 was attributable to the Salt Works at Aden and Rs. 88,065 was attributable to the Salt Works at Kandla.
In this reference we ace only concerned with the sum of Rs. 88 065, and the narrow question that we have to consider is whether this sum accrued or arose at Kandla or it accrued and arose in British India, because if it accrued and arose in Kandla, it is common ground that it was never brought into British India and as the amount accrued and arose in a Native State, under Section 14(2)(c) the assessee would not be liable to pay any tax on that amount. Under the managing agency agreement the assessees were entitled to a commission at the rate at is per cent. per annum on the annual net profits of the company. The agreement also provided that in any event they were entitled to a minimum of Rs. 30,000 per annum. The agreement also provided that such portion of the commission as shall be attributable to the net profits of the company arising or accruing in an Indian State shall he payable and be paid to the said agents in such Indian State, unless and until the said agents otherwise direct in writing, and with regard to the minimum commission of Rs. 30,000 the agreement provided that half of such minimum commission shall be payable and be paid to the agents in such Indian Sate or States where during such year the company may have carried on any part of the business. In my opinion, this provision with regard to the income in an Indian State merely provides for the mode of payment. Under Article 83 of the articles of association power is given to the board of directors to allot to such member or members of their body as they think fit the supervision of any specified department or departments of the company, or any company under the management of the company and any director to whom the supervision of any department has been allotted shall personally attend to and supervise the work of that department and shall manage and control the affairs of the department allotted to him but subject nevertheless to the control and supervision of the board of directors. Pursuant to this article, the board of directors of this company passed a resolution on 1st June 1944, whereby they delegated Yuvraj Maharaj Kumar Shree Madansinghji to guide the company's operations in the State of Kutch, and it is not disputed that the Salt Works at Kandla were attended to and the business supervised by Yuvraj Maharaj Kumar Shree Madansinghji during the year of account.

(3.)WHAT is contended before us by Mr. Kolah is that the business at Kandla was attended to by Madansinghji and, therefore, the profits that arose out of that business at Kandla accrued at Kandla, and as the profits accrued at Kandla, therefore, the commission attributable to those profits must also be taken to have accrued or arisen at Kandla. Mr. Kolah further argued that even though the head office of the company may be is Bombay, even though the board of directors may have the power and the right to control the business of the assessee company, if in fact and in actuality a particular business was done not in Bombay but else where, then the profits attributable to that business must be considered to have accrued or arisen in that part where the business was carried on. Mr. Kolah has relied on various authorities which, as I shall presently point out, have more to do with the question of the residence of the company rather than with the question with which we are concerned as to where the profits of a particular company arise or accrue. The question of residence as far as our law is concerned is to be found in Section 4A(c), and one of the conditions which makes a company resident in British India in any year is if the control and management of its affairs is situated wholly in British India in that year, and Mr. Kolah's, argument is that the control and management contemplated by this section is not dejure control and management, but de facto control and management, and the whole of Mr. Kolah's argument is that as in the year of account the control and management of the Kandla affairs of the company was de facto not in British India but in Kutch, therefore, the profits of that business must be considered to have accrued and arisen in Kutch. Mr. Kolah has relied on and decision of the House of Lords, Mitchell v. Egyptian Hotels, Limited, 1915 AC 1022 : (84 LJ KB 1772). There the company was incorporated in England. It had two hotels which were both situated in Egypt and a local board was appointed by an amendment of the articles of association of the company which managed the hotels in Egypt and on these facts the House of Lords came to the conclusion that the company was assessable to tax only in respect of the profits remitted to England and not in respect of the profits which were not so remitted. It is important to note that the basis of taxation in England, as far as the profits of a company are concerned, is the place where the business is carried on by the company. If the business is carried on not in England but abroad, then its profits are taxed only to the extent of these being received in England, and therefore in this case the House of Lords had to consider where the actual control of the company was in order to determine where the business was carried on. But no question arose or could arise under the English law as to where the profits of the company had accrued or arisen. Similarly, in Bhimji Naik v. Commissioner of Income -tax, Bombay, 47 Bom LR 187 : (AIR 1945 Bom 271), Sir Leonard Stone, Chief Justice, and Kania, J., as he then was, were also considering the residence of a firm where one of the partners Mr. Naik was in Bombay and the other partners were in South Africa, and what they there laid down was that residence was to be determined by de facto control and management and not by de jure control and management, and according to those two learned Judges, although the partnership agreement gave powers of supervision and control to Mr. Naik, still, as the de facto control of the business was in South Africa, they held that the company was not resident.