Harries, C.J. - (1.) This is a Reference made by the Appellate Tribunal, Bombay Bench, under Section 66 (1), Income-tax Act stating a case upon the following question: "Whether in the circumstances of the case and having regard to the fact that the applicant company is 'Resident in British India,' Section 42 has been validly invoked."
(2.) The assessee was a limited liability company having its head office at Calcutta and a factory at Okara in British India where cloth was manufactured. The cloth so manufactured was sold by the assessee on a wholesale basis both within and without British India. During the year of account, the assessee had three selling offices in certain Indian States. The goods sold at these centres were sent out from the factory at a profit margin of 9 per cent, on cost.
(3.) The Income-tax Officer dealing with the assessment for the relevant year came to the conclusion that on the facts which I have set cut the provisions of Section 42, Income-tax Act, were applicable and he made an allocation of profits under Section 42 (3) on the basis that 50 per cent, of the profit made on sales effected in Indian States outside British India was attributable to the business operations carried on in British India. (It is to be observed that there is a serious misprint in line 24 at page 1 of the paper-book. "Sales effected in British India" should read, "Sales effected outside British India.");