Thommen, J. - (1.) These appeals by the assessee arise from the judgment dated 7-5-1965 of the Calcutta High Court. The question relates to the assessment for the years 1945-46, 1946-47 and 1947-48 under the Indian Income-tax Act, 1922 (hereinafter referred to as "the Act"). The assessee was a company resident in British India during the relevant years. It had a cotton mill in British India. The cloth manufactured by the mill was sold in British India as well as in the native States. In the assessment for 1944-45, it had been held that, for the sales effected in the native States, 1 / 3rd of the profit was, in terms of S. 42(3) of the Act, deemed to have accrued to the assessee in British India. This profit was considered as the profit attributed to the manufacturing part of the business carried out in British India, although the sales were effected in the native States. On the same basis, assessment in terms of Section 42(3) was made in respect of the assessment years 1945-46, 1946-47 and 1947-48. In addition to the deemed income in British India, the assessee was assessed under Section 14(2)(c) of the Act in respect of certain sums remitted to British lndia from the native States.
(2.) The assessee's contention that 1/ 3rd of the income having been assessed under S. 42(3) of the Act as income deemed to have accrued in British India, no further assessment should be made under S. 14(2)(c) of the Act with respect to profits brought into British India, was rejected by the Income-tax Officer as well as by the Appellate Assistant Commissioner. On further appeal, the Income-tax Appellate Tribunal also held that there was no substance in that contention. The Tribunal stated - "........the assessment of profits brought into British India from a Native State under S. 14(2)(c) is on a distinct and separate footing from the assessment of Native States profits which are deemed to have accrued in 'British India under S. 42....."
(3.) The assessee raised an additional contention for the first time before the Tribunal. That contention was that the remittances made to British India had to be taken as having first come out of profits "deemed to have accrued in British India" and brought to tax under S. 42(3), and only the excess remittances, if any, could be taken as having come out of the remainder profits exempted from tax under S. 42. The assessee pointed out that 1/3rd of the profits having been already charged under S. 42(3), by reason of the legal fiction contained in that sub-section, any amount brought into British India up to the extent of 1/ 3rd should be presumed to be that which was attributable to that 1/3rd which had already suffered tax, and the balance remittance, if any, alone should be taxed under S. 14(2)(c) of the Act. In other words, according to the assessee, if the remittances made to British India in any accounting year exceeded the amount taxed under S. 42(3) of the Act, then it was only so much of that excess which could be taxed under S. 4(2) of the Act. The Tribunal did not accept this contention. However, it stated - ".......... it appears to us that the common sense point of view would be that the remittances to British India include both the assessed as well as the exempt profits in the same proportion in which those existed in the Native State...........It therefore appears to us that the correct view would be to apportion the remittances over the assessed and the exempt parts in the same proportion as these existed in the total profits made in the Native State. As such proportion was one-third and two-thirds, the remittances would be similarly split up. Thus 1/3rd of the remittances has come out of profits assessed under S. 42. On this basis these additions made by the income-tax Officer and confirmed by the Appellate Assistant Commissioner will have to be reduced by one-third of such remittances." ;