P L D 1957 (W (PLP)

WAHIDUDDIN, J.

This judgment will dispose of Reference No. 69 of 1947 and References Nos. 2 and 3 of 1948. The facts out of which these references have arisen are that in the account year ending 28th of July 1942, assessment year 1943-44, the petitioner Mr. Pokardas Meghraj in Bombay was appointed the selling agent of Cambay State Mills. The State Mills were leased out to Rai Bahadur Rayja Bhushan Seth, Hiralal Kalyanmal and Seth Sohemal Kamal Kumar. The lessees approached the petitioners for financial help, and it was in consideration of this that they were appointed the sole agents of the goods manufactured by the Cambay State Mills. Two agreements dated 6th May 1941 the petitioner agreed to lend and advance such sum of money as loan as may from time to time be required by the lessees for the working of the said mill not exceeding at any time the aggregate sum of 2 lacs. The lessees were to pay interest at the rate of 6 per cent. per annum and such interest was payable after six months. Under clause 12 of this agreement the assessees were entitled to demand payment of the amount due at Bombay besides other places. It will thus be noticed that the payment of the amount advanced and the interest due was contemplated primarily to be paid at Bombay. Another agreement between the parties was entered into on the same day. The important terms of this agreement are reproduced below :- "(1) The firm shall advance to the Borrower and the Borrowers shall borrow from the firm a sum of rupees (2) The Borrowers shall pay to the firm interest on the said sum of rupees one lac at six percent per annum and such interest shall be paid every six months ; in default of payment of any six monthly instalment of interest the Borrowers shall pay to the firm compound interest with rests taken every six months. (3) The period of the said loan of rupees of one lac shall be three years subject to the provisions of clause 8 hereof. (4) In consideration of the firm making the said loan of rupees one Lac to the borrowers the borrowers shall appoint the firm the sole selling agents of the borrowers for a period of three years from the date hereof if the borrowers shall so long continue to be lessees of and work the said Mills under the said lease or otherwise for such period as the borrowers shall run the said mills as such lessees for the purpose of effecting sales of the cloth and yarn manufactured by the borrowers in the said Mills on the terms and con ditions hereinafter contained :- (e) The selling price of various kinds of cloth and yarn manufactured by the borrowers in the said Mills shall be fixed by the borrowers and communicated to the firm and the firm shall sell the same Ex-Mill delivery in consultation with the borrowers as to the price deliveries, quantities and other terms. Upon every such sale by the firm the firm shall make out a contract between the firm as selling agents of the Borrowers and the purchaser in the form prescribed by the borrowers from time to time and the firm shall immediately thereafter sent a copy of such contract to the Borrowers. (f) The firm shall be responsible to the borrowers for the due fulfilment by the Purchasers of all contracts made by the firm with them either for ready or forward sales and also for the consequence breach of contract by the pur chasers and for the loss or damage arising therefrom to the borrowers provided that there shall be no default on the part of the borrowers in manufacturing or giving deliveries of any class of goods required or sold under the contract or in compliance with the stipulations therein contained for which default the borrowers alone shall be responsible and in case of any breach on the part of borrowers of any contract with a purchaser the borrowers shall keep the firm indemnified against all claims for damages and pro ceedings thereof against the firm by such purchaser and all costs charges and expenses relating thereto or otherwise suffered by the firm. (g) The firm shall guarantee to the borrowers the solvency of the purchasers with whom the firm shall enter into any contract for sale of the said goods either for ready or forward delivery and shall be responsible to the borrowers for any loss arising to the borrowers by reason of the insolvency or bankruptcy of any purchaser to whom the goods are sold or for any other cause whatsoever. (h) The borrowers shall allow to the purchasers under any contract entered into by the firm with them credit for payment of the price of goods taken delivery of by them under such contract for such number of days as is customary or usual at the various centres for which the said goods are sold without in any way affecting the liabilities of the firm for due discharge and fulfilment of the said contract by the purchasers as hereinabove provided. Provided however that if the firm shall make any such payment to the borrowers earlier than the expiry of the period of credit the borrowers shall allow to the firm interest on all such payment at the rate of six per cent per annum from the respective times of their having been made till the expiry of the period credit the borrowers shall allow to the firm interest on all such payments at the rate of six per cent per annum from the respective times of their having been made till the expiry of the period credit for the payment thereof. (i) If the goods sold under any contract are not taken delivery of by the purchaser on the due date of delivery under the contract the firm shall pay to the borrowers (whether the purchaser has made any payment or not to the firm) the purchase price of the said goods immediately on the expiration of the usual or customary period of credit allowed to the purchaser and if not so made the same shall carry interest against the firm at the rate of six per cent per annum. (j) Unless otherwise instructed by the firm the borrowers shall despatch the goods sold under any contract made by the firm to the purchaser thereof direct and the borrowers shall draw on the firm for the price of the goods so despatched. (k) The borrowers shall not be entitled to sell any goods direct to say dealer without reference to the firm and to receive payment thereof direct from such dealer. In all cases in which the borrowers shall sell the goods direct to any dealer the firm shall be entitled to full commission as hereinafter provided in respect of all direct sales by the borrowers and shall not in any way be responsible for the due performance of the contract by the dealer or for payment by him of the moneys thereunder nor shall the firm be in such cases deemed to have guaranteed the solvency of such dealer. (l) In consideration of the firm carrying out all the obligations herein the borrowers shall allow to the firm by way of remuneration for their services as such selling agents a commission in respects of all contract entered into by the borrowers either directly or through the firm or by the firm for the borrowers calculated at the rate of one per cent on the sale of cloth and such commission shall be payable by the borrowers to the firm every six months. (m) At the end of every six months an account shall be taken of all goods sold by the borrowers either directly or through the firm or by the firm for the borrowers and all moneys becoming payable by the borrowers to the firm by way of commission and interest shall be immediately paid thereafter. (p) The borrowers shall at their own expense provide suitable premises in Cambay for the residence and office of the firm. (9) The firm shall keep separate proper books of the accounts as the selling agency business as are usually kept by the selling agents and borrowers shall pay to the firm all costs, charges and expenses of such books and of the keeping the said accounts and the borrowers shall have at all reasonable times access to such books of account and shall be at liberty to take such extracts therefrom as they may think fit. (5) If the said lease in favour of borrowers is terminated before the expiry of the said period of three years or if the borrowers cease to run the said Mills or if the borrowers are or either of them is adjudicated insolvent or if these presents are terminated for any other reason whatsoever the Borrowers shall immediately thereafter repay to the firm the said sum of Rupees one Lac or so much thereof as shall for the time being remain unpaid together with all interests thereon and all moneys for commission or interest remaining due notwithstanding anything to the contrary hereinabove provided. The firm shall be entitled to demand such payment either in Bombay or at Cambay or at Indore or at such other place in India as the firm may think fit. (6) If any question of difference shall arise between the parties hereto or their respective representative or between one of the parties hereto and the representatives of the other touching these presents or any clause or thing herein contained or the construction thereof or touching any matter in any way connected with or arising out of these presents or the operation thereof or the rights, duties or liabilities of either party in connection with the premises the matter in difference shall be referred to arbitration in Bombay in accordance with provision of the Indian Arbitration Act one thousand nine hundred and forty or any statutory modification or re-enactment thereof for the time being in force. As witness the hands of parties the day and year first hereinabove written." It will thus be seen that under this agreement the assessees not only were to receive interest on the amount advanced as loan but also were to receive by way of remuneration for their services as selling agents a commission in respect of contracts at the rate of 1 per cent. on the sale of yarn and at the rate of 20/0 on cloth. According to the facts stated by the Income tax Appellate Tribunal the following further facts emerge. The interest and commission amounted to Rs. 72,450 in the year of account. It was admitted before the Appellate Assistant Commissioner by the assessees representative that loans were advanced by the assessees to the lessees in British India and that interests and commission was also receivable in British India. It was also found that the interest and commission has been deducted by the assessees from sale proceeds of the cloth realized in British India before remitting them. All the contracts for the sale of goods by the. assessees appear to have been made by the assessees in British India. It was also not proved that the assessees had an office at Cambay. The petitioners contested the inclusion of Rs. 72,450 shown as interest and commission towards profits in the assessment. Their contention before the Appellate Assistant Commissioner was that neither these amounts were received in British India nor they accrued o arose in British India, and as such this income was not taxable. Both the Appellate Assistant Commissioner and Income-tax Appellate Tribunal repelled this contention and held that the commission and interest accrued in British India and not in Cambay. They also held that the Commission and interest were received in British India. The assessees were vitally affected by these orders in respect of Income-tax assessment and E. P. T. assessment and therefore they moved the Income-tax Appellate Tribunal by two separate applications namely E. T. A. No. 287 of 46-47 and E. P. T. A. No. 285 of 46-47 to state the case and refer as many as 10 questions of law under section 66 (1) of the Indian Income-tax Act to the Chief Court of Sind. The Income-tax Tribunal by order dated 27th June 1947 refused to refer all other questions and referred only one question of law in E. P. T. appeal. The relevant portion of the said order is reproduced below :- "The Tribunal by its orders disposed of two common contentions raised on behalf of the assessee in these appeals. One of the contentions was that the Income-tax authorities should not have applied the proviso to section 13 of the Indian Income-tax Act to the case. It was found by the Tribunal that in respect of his five shops the assessee was not able to prove the accuracy of the opening and closing stocks and that the profit disclosed was too low consider ing the market conditions. The Tribunal therefore agreed with the Appellate Assistant Commissioner that in respect of these shops the assessee's income fell to be computed under the proviso to section 13 of the Indian Income-tax Act. In practically all the cases where the question is whether or not a proviso to section 13 applies it is always a question of fact and not a question of law. Under section 13 of the Indian Income-tax Act, if the Income-tax Officer is of opinion that the method of accounting regularly employed by the assessee is such that the true profits cannot be determined therefrom, the Income-tax Officer, is required to make the computation of the assessee's income upon such basis and in such manner as he may determine.- The question whether profits were received in British India by or on behalf of the assessee is a question of fact, whereas whether the income accrued or arose in British India or outside British India is a question of law. In so far as the Income-tax appeal is concerned, the finding of the Tribunal that the interest and commission were received in British India is a finding of fact. On that finding the assessees appeal on the point whether or not the sum of Rs. 72,450 was liable to be included in the assessee's income fell to be dismissed. No question of law therefore arises out of the Tribunal's order in R. A. A. No. 52 (Sind) of 1945-46. We therefore dismiss the Application No. 237 of 1946-47. The question whether the interest and com mission accrued outside British India falls to be considered only in the E. P. T. appeal. The question of law that we hereby refer to the High Court is : Whether on the facts stated above, did the income of assessee, in the chargeable accounting period, from interest and commission accrue or arise in British India or outside British India ? " It is under these circumstances that Reference No. 69 of 47 has come before us for consideration. Being dissatisfied by the abovementioned order, the assessee preferred two other applications under section 66 (2) Income-tax Act, namely Civil Reference No. 2 of 48 and Civil Reference No. 3 of 48 to the Chief Court of Sind, calling upon the Income-tax Appellate Tribunal to state the case and refer all questions of law set out in para. 12 of their application on the matter of Income-tax Assessment for the assessment year 43-44. The said questions are reproduced below :- (1) Whether in the circumstances of the case, the proviso to section 13 of the I. T. Act is applicable even though the assessee firm had kept regular, complete, closed and adjusted accounts working out therein income, profits and gains in accordance with the mercantile method of accounting ; If the answer to the above question be in the affirmative- (2) Whether there was any evidence to support the finding that the figures of opening and closing stocks at the two shops at Sukkur and the shops at Delhi, Amritsar and the head office shop at Karachi were not correctly entered in the account books. If the answer to both the above questions (1) and (2) above be in the afrmative- (3) Whether there was any evidence to support the findings of fact that the assessee firm earned gross profit at 12% on sales made by the Karachi head office shop and not at 7.17010 as disclosed by the closed, completed and adjusted accounts ; (4) Whether there was any evidence to support the findings of fact that the assessee firm earned gross profit at 9010 on sales made by the shop at Delhi in the name of Pokardas Menghraj and not at 3.30/0 as disclosed by the closed, completed and adjusted accounts ; (5) Whether there was any evidence to support the findings of fact that the assessee firm earned gross profits at 10010 on sales made by the shop at Amritsar in the name of Pokardas Menghraj and not at 5.160/0 as disclosed by the closed, completed and adjusted accounts ; (6) Whether there was any evidence to support the finding of fact that the assessee firm earned gross profit at 10% on sales made by the shop at Sukkur in the name of Pokardas Menghraj and not at 6.140/0 as disclosed by the closed, completed and adjusted accounts; (7) Whether there was any evidence to support the finding of fact that the assessee firm earned gross profit at 100/0 on sales made by the shop at Sukkur in the name of Dwarkadas Naraindas and not at 4.8010 as disclosed by the closed, completed and adjusted accounts ; If the answers to questions (4) to (7) in the affirmative- (8) Whether in view of the enhancement of the value of the closing stock for the assessment year 1942-43 through the adoption of higher rates of gross profit other than those disclosed by the accounts, the value of the opening stock for the assessment year 1943-44 should have been increased to the same extent and the profit for the purpose of the assessment for that year decreased accordingly ; (9) Whether there were any finding of fact by the Tribunal to support its conclusion that the income of Rs. 72,450 in respect of the Cambay Mills accrued and arose in British India ; (10) Whether was any evidence to support the finding that the said income of Rs. 72,450 accrued and arose in British India." Out of them, questions No. 1 to 8 are identical to those raised and discussed in References Nos. 1 and 4 of 1948 (P L D 1957 Karachi 61). We have carefully considered this aspect of the case in the said references and for the reasons given therein, we hold that these questions being questions of fact and based on sufficient material, the Income-tax Appellate Tribunal was perfectly justified in refusing to state the case and refer these questions to this Court for opinion. We are also not inclined to accede to the request of the applicants to require the Income-tax Tribunal to refer the question whether the amount of Rs. 72,450 was received in British India. In fact, from the questions reproduced above this question was not at all raised and asked to be referred to this Court for decision. The order of the I. T. Tribunal however shows that this question was considered by them and they finally refused to refer it to Court. The contention of the learned counsel for the applicant in this reference is that no commission and interest, was actually received in British India. Merely book entries were made and for this reason it cannot be said that the amount was actually received in British India. It is urged that according to clause (4) Sub-Clause (m) of the said agreement, the interest and commission is only payable after settlement of accounts and there being no finding that at any time there was any such settlement of account between the parties, the Income-tax authorities were not justified to hold that the interest and commission was received in British India. The relevant provision of the Income Tax Act for consideration in this connection will be section 4 (1) (a) and section 14 (2) (c). They read as follows: "4 (1) (a) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which-(a) are received or are deemed to be received in (British India) during such year, or" 14 (2) (c). The tax shall not be payable by an assessee in respect of any income, profits or gains accruing or arising to him within (an India State), unless such income, profits or gains are received or deemed to be received in or are brought into (British India) in the previous year by or on behalf of the assessee, or are assessable under (section 12-B or) section

42. In the present case there is no difficulty in interpreting the words "received" or "deemed to be received." The con tention of the learned counsel that the amount of commission and interest were actually not received in British India is not correct. According to the terms of the agreement the sale price, of the goods supplied to the purchasers, was to be received by the petitioners and they were to pay these amounts to the lessees within the due date. This is an admitted fact that the petitioners before giving sale price to the principals used to deduct the amount due to them as commission and interest. They had complete control over the sale proceeds and by deducting such amount they were not merely making book entries but actually received the amount. Even if it be assumed for the sake of argument that these were only book entries then also the amounts in question will A be considered as "received." Their Lordships of the Federal Court in The Ramkola Sugar Mills Ltd. v. The Commissioner of Income-tax, Punjab and N.-W. F. P. Lahore (P L D 1955 F C 418) considered a similar question and observed :- "By paying with the dividend income the debt due to the foreign company at Hamira, the appellant company at Nawanshahr made available to itself the amount which 'it would have otherwise been obliged to send to the foreign company at Hamira. True, it was done by book entry, but the money was the dividend-income received by the agent of the Nawanshahr appellant-company which the company was entitled to receive in the course of the business at Nawanshahr." and held- "That Rs. 75,000 was income received by the Nawanshahr company within the meaning of sections 4 (1) and 14 (2) (c) of the Income Tax Act." This decision is binding on us, and it will serve no useful purpose to consider other authorities holding contrary view to this question. Even otherwise, as this question was not raised and asked to be referred to this Court, the applicant is not entitled to raise it before us. Under the circumstances, the Income Tax Appellate Tribunal was justified iii refusing to state a case and refer this question for the decision of the Court. The only other question that remains for consideration is the only arising from Reference No. 69 of

47. As stated above, the following question of law has been referred to us for answer "Whether on the question stated above did the income of assessee in the chargeable accounting period from interest and commission accrued or arose in British India, or out side British India ?" Mr. Parmanand, counsel for the petitioner, contend ed that his client was selling agent for Cambay Mills and in that capacity, according to the terms of the agreement, the goods were to be sold " ex-mill delivery " and therefore the sales and delivery of goods were completed at Cambay and nowhere else. It was also urged that under the terms of the agreement at the end of every sit months an account was to be taken of the goods sold by the lessees and all the amounts found including commission and interest was payable thereafter. According to him, it has not been found as a fact by the Appellate Income-tax Tribunal that any such accounts were ever taken and then the amount was- deducted by the petitioner. He asserted that the source of the commission was the sale which was completed at Cambay and therefore the profits if any accrued or arose there. The fact that the interest and, commission .was deducted at Bombay will not in any way affect the matter. The learned counsel has sought protection, under section 5 of the E. P. T. Act and urged that Cambay being an Indian State, the assessee is exempted from paying E. P. T. on the income that accrued or arose there: Section 5 of the E. P. T. Act reads as follows: " This Act shall apply to every business of which any part of the profits made during 'the chargeable accounting period is chargeable to income-tax by virtue of -the provision of sub-clause(i) or sub-clause (ii) of clause (b) of sub section (1) of section 4 of the Indian Income-tax Act, 1922, or of clause (c) of that subsection : Provided that this Act shall not apply to any " business the whole of the profits of which accrue or arise without (British India) where such business is carried on by or on behalf of a person who is resident but riot ordinarily resident in (British India) unless the business is controlled in India ; Provided further that where the profits of a part only of a business carried on by a person who is not resident in (British India) or not ordinarily so resident accrue or arise in (British India) or are deemed under the Indian Income tax Act, 1922, so to accrue or arise, then except where the business being the business of a person who is resident but not ordinarily resident in (British India) is controlled in India, this Act shall apply only to such part of the business, and such part shall for all the purposes of this Act be deemed to be a separate business: Provided further that this Act shall not apply to any business the whole of the profits of which accrue or arise in (British India) ; and where the profits of a part of a business accrue or arise in (Indian State) such part shall, for the purposes of this provision, be deemed to be a separate business the whole of profits of which accrue or arise in (Indian State) and the other part of the business shall for all the purposes of this Act, be deemed to be a separate business." This section has three provisos and the learned counsel for the assessees claims exemption under the third proviso and submits that the income relates to business the whole of the profits of which accrued and arose in Indian State. In support of this contention, he has placed reliance on an authority reported in Hira Lai Kalyanmal v. Commissioner of Income- tax, Bombay (A I R 1943 Bom. 98). On behalf of the Income-tax Department, it was contended that the place where the profits accrued or arose is to be determined on the facts of each case. It was contended that in the case under reference sales were effected at Bombay, sale profits were received at Bombay, the assessees' shop was at Bombay and commission and interest were deducted and received at Bombay, and, therefore, the profits accrued and arose there Mr. Aziz, counsel for the department, places reliance on another authority reported in The Commissioner of Income-tax Bombay v. Sarupchand Hukamchand (A I R 1931 Bom. 236). There is no doubt that the question where the income accrued or arose should be determined on the facts of each case. In the circumstances of a particular case it may accrue or arise at the place of source or may accrue or arise elsewhere. The interpretation of the words "accrued " or 'arose' has been the subject-matter of several judicial decisions and no conclusive test when or where income can be said to accrue or arise has been indicated. Fry, L. J., in 21 Q. B. D. 51 at page 59 while interpreting these words observed as follows " In the first place, I would observe that the tag is in respect of 'profits or gains arising or accruing'. I cannot read those words as meaning 'received by'. If the enactment were limited to profits and gains, 'received by' the person to be charged, that limitation would apply as much to all Her Majesty's subjects as to foreigners residing in this country. The result would be that no income-tax would be payable upon profits which accrued but which were not actually received, although profits might have been earned in the kingdom and might have accrued in the kingdom. I think, therefore, that the words 'arising or accruing' are general words descriptive of a right to receive profits." In Commissioner of Income-tax Bombay Presidency v. Bansilal Motilal (A I R 1930 Bom. 381), the following remarks have been made in respect of these words :- Marten, C. J., observed " Now in the first place I think it clear that the use of the word 'or' means what it says, and that accordingly the two expressions 'accruing or arising' are different from the expression received' and are intended to catch income which would not necessarily be received in British India. I also think that these expressions 'accruing or arising' indicate some origin or source of growth for the income in question. Thus Murray's Dictionary defines 'accrue' to mean: '(inter alia) arise or spring as a natural growth specially interest. To grow or arise as the produce of money invested.' ". Blackwell, J., observed " I respectfully agree with these expressions of opinion by these learned judges, which are equally applicable to the words used in section 4 (1) of the present Act. I think that the words 'accruing or arising' are used with reference to the place from which the income is derived and the use of the word 'source' in the expression 'from whatever source derised' confirms me in this opinion. In the present case the interest is derived from a loan which was made in British India, that loan, as to the principal being repayable in British India, and I entertain no doubt that the interest accruing due upon, or 'arising from, that loan accrues or arises in British India." It would thus appear that the learned judges have interpreted these words in a different manner on different occasions. It will, therefore, be necessary in the present case to find out where the income actually accrued or arose. The findings of facts, as given in the statement of facts are :- (1) that there was no shop of the petitioner at Cambay State, (2) that all the contracts for the supply of goods appeared to have been made by the Assessee in British India, (3) that the sale proceeds were received at Bombay,, (4) that the commission and interest was deducted at Bombay, from the sale proceeds. Moreover it further appears from the agreement that the petitioner was not entitled to the commission immediately on the supply and delivery of the goods ex-mill. They had to perform certain other duties. The petitioners were to be responsible for the due fulfilment by the purchasers of all contract and for the loss or damage arising from its breach. They had to guarantee to the lessees the solvency of the pur chasers. If the goods sold were not taken delivery of by the purchasers they were to pay the purchase price of the goods immediately on the expiration of the credit allowed to their principals The lessee was to draw on the petitioners for the price of the goods so despatched. It was in consideration of the petitioners carrying out all these obligations that they were allowed by way of remuneration for their services as such selling agents a commission in respect of all the contracts. They were also to maintain at Bombay accounts of the transactions concluded through them and their principal was to pay for the expenses of maintaining such accounts. Under clause 5 of the agreement in certain circumstances the amount due to the assessees was payable at Bombay. Even the arbitration of disputes between the parties was to take place at Bombay. From all these acts taken together it is apparent that the source of income of commission and interest was the work carried on at Bombay. This conclusion is further strengthened by the fact that the commission and interest was in fact deducted and received at Bombay. It is not shown that the amount deducted and received at Bombay re presented any sales outside British India. Presumably it could not be so. We have carefully examined the authorities cited by the parties. In The Commissioner of Income-tax Bombay v. Sarupchand Hukamchand (A I R 1931 Bom. 236), the assessees were carrying on business in Bombay, etc., as general agents of Hukamchand Mills, Ltd., they were entitled to a commission of 10/0 sub sequently increased to 1 % on all clothes produced by the Mills. Under the terms of the agreement, the assessees started a shop at Bombay to sell cloth produced by the mill and they were entitled to a commission on all sales effected by them but commission was not deducted and received at Bombay but at Indore. The Income-tax Department assessed them in respect of remuneration earned by them on the sales effected by the Bombay shop. The question involved was whether this income accrued or arose in British India within the meaning of section 4 of the Income-tax Act. Beaumont, C. J., made the following observations: " The only question raised in this reference is whether the assessees are liable to be assessed on the commission payable to them in respect of the sales of cloth at the Bombay shop. Now, as I pointed out, under section 16, the assessees might have deducted the commission on the sales of the shop so as to make all moneys payable in respect of that commission payable to them in Bombay. Of course, if they had done that the income would have been received in British India and no question would have arisen. It is admitted by the Advocate General that in fact they did not do that. The money was all sent to Indore and the commission was paid there. The question that we have determined is whether the commission payable to the assessees is in respect of the sale of cloth by the Bombay shop is income which accrues or arises in British India within the meaning of section 4, Income-tax Act. The fact that the commission might have been segregated and paid in British India seems to me to have an important bearing upon the question. Mr. Coltman, on behalf of the assessees, says that the right to commission accrues or arises under the agreement and nothing else. He says that the whole of the proceeds of sale from the Bombay shop and any other shop owned by the company are paid in the normal course of business to the company in Indore and his clients get a commission out of the whole amount and, therefore, the commission accrues or arises in Indore which is outside British India. On the other hand, the Advocate-General says that the nature of the business carried on by the assessees, so far as it is material for the present purpose, is that they are carrying on the business of selling agents for the shop in Bombay, that they sell goods in Bombay and they get a commission in respect of the proceeds of the sale, and that, therefore, their commission accrues and arises in Bombay. There is not, I think, any authority which is of much assistance Mr. Coltman, presses with the decision of this Court, in Commissioner of Income-tax v. Bansdal Motilal (A I R 1930 Bom. 381), in which it was held, the question there being whether the interest received by the assessee at Hyderabad on Government of India promissory notes enfaced for payment at Hyderabad treasury can be deemed to accrue in British India, that the words 'accruing or arising' were more extensive than 'received' and that you have to look to the source from which the income arises. That case is quite different upon the facts from the present case, and does not help us to determine the source of the income with which we have to deal. I think this case is near the line, that there is a good deal to be said for the arguments on both sides, but upon the whole, I prefer the arguments of the learned Advocate-General. I think that this income being commission upon sales made in Bombay does accrue or arise in British India, and none the less so because as a matter of practice between the parties it is paid in Indore, and the ultimate right to it arises under an agreement made in Indore. " Barlee, J. while considering this question made the following observation :- " We have to see whether the commission of one and a quarter per cent earned by the assessees on the sale of goods through the Bombay shop 'accrued, arose or was received' in British India. The words 'accruing or arising' have been the subject of interpretation recently in this Court in Commissioner of Income-tax v. Bansilal Motilal, where it was decided that they indicate some origin or source of growth for the income in question' and that the words are used with reference to the place from which the income is derived and that the use of the word `source' in the expression 'from whatever source derived' confirmed that view. It is conceded, therefore, that we have to find the source of the income earned by the assessees through the Bombay shop, and two theories have been put before us. Mr. Coltman has argued that we must look for the source of this income in the agreement since without the agreement between the assessees and the company they could not have recovered anything at all. On the other hand the learned Advocate-General asks us to look to the shop in British India and the sales there as a true source. It seems to me that the latter view is the one which we must accept . Of course, the term, 'source' can be interpreted in several ways, in the same way as the word 'cause' can be defined as the material cause, the final cause, or the immediate cause, and so on. But here I am of opinion that we must look to the material source of the income and not to what perhaps may be called a metaphorical source. In fact the shop was the actual source of the gross profits of the sales, and, as the whole must contain the part, it seems to me that the source of the profits earned by the assessees under the agreement was the Bombay shop and must be looked upon as arising in British India." We are in complete agreement with these observations. In such cases one must look into the material source of income and not to metaphorical source. In the present case also the actual source of commission was the obligation carried out by the petitioners at Bombay, the income received at Bombay and, therefore, in these circumstances, the income must be looked at to have accrued or arisen in British India. The authority cited by the learned counsel for the assessee, A I R 1943 Bom. 98, stands on a different footing. The assessees in that case were the managing agents and also selling agents of the textile Mill of Indore. They had to open a shop at Indore and Bombay. At both these shops clothes and yarn produced by the Mill were to be sold. There was no dispute in respect of sales effected at Bombay shop, and the income-tax on the commission earned there was duly paid. The dispute relates to sales effected at Indore shop. Accord ing to the statement of the case, the sales took place at the Indore shop on F. O. R. terms on the Bombay merchants. To recover sale proceeds the Indore shop drew hundies on the Bombay merchants which were in due course accepted and honoured. The proceeds of these hundies were received by the assessees at Bombay. The omission, however, was never deducted at Bombay but was actually received at Indore. Kania, J., on these facts observed as follows : " On those facts it is argued on behalf of the Commis sioner that the commission at one per cent. on those gross sale proceeds either accrued or arose in British India, or was received in British India, 33 Bom. L R 382, was relied upon in this connexion. The facts as reported in that case clearly show that the sales were effected there by the assessees in Bombay to Bombay merchants, and the sale proceeds were all recovered in Bombay. Therefore, not only the contract of sale but the sale took place in Bombay in that case. On these facts, the Court found the income accrued in British India. In the present case those two vital factors are wanting. The sales took place at Indore and the property in the goods also passed to the Bombay merchants as soon as the goods were railed at Indore. Therefore, the sale was completed at Indore. It was on these facts that the learned judges held: "that the amount of the commission was not assessable to income-tax as the source of the commission was the sale which took place at Indore, and not the receipt of the sale proceeds. The commission was payable even though the proceeds of the sale were not actually received in case the company voluntarily realised purchasers from their obligation to pay. The commission could not be said to have accrued or arisen at the place where the purchase monies were received." There is a vast difference between the facts of that case and the case before us. The principles of law laid down in this authority are not applicable on the facts of the present case. The observations made in that case were based on the finding that the sales were effected in all respects at Indore. On the other hand, in the present case the findings are that the sales were effected at Bombay, all obligations were carried out at Bombay, commission was deducted at Bombay and interest was payable and deducted at Bombay. The contention of the learned counsel for the assessees that the commission due to the agent could only be determined after the account is taken, is also not well founded. Suppose no account is taken even after six months, although in fact certain amounts have been received by the parties concerned, can such a party avoid payment of income-tax ? In our humble opinion the answer will be in the negative. In Commissioner of Taxes v. Melbourne Trust, Ltd., (A I R 1914 P C 230), Lord Dunedin observed: " As regards the question when a profit is earned, their Lordships' view is that a profit can be said to be earned when it is dealt with as a profit. In ordinary cases this synchronises with the realisation of the sums which swell the assets of the person or company and which entering the account, go to bring out the balance which is deemed profit." Why this ordinary test should be departed from in particular case ? The assessee was maintaining account of sales at Bombay. They knew the amount due to them as commission in respect of such transactions and deducted it before remitt ing the sale price to their principal. The amount deducted by them was the amount that accrued or arose to them as commission in respect of those transactions. The assessee has not shown that something was returned back to the principal. The position in such cases is that every receipt of money during the year contributes to the quantum of the profits. In our opinion the contention that the profits could only accrue or arise after six months account is made up, is not correct. In our judgment, in the circumstances of this case it is abundantly clear that the income derived in this manner cannot be said to have accrued or arisen anywhere else, but at Bombay. The material source from which it arose was the obligations carried out wholly at Bombay. There is not the slightest evidence on record that the petitioners played any important part to carry out their obligations at Cambay. We will, therefore, in answering the question referred to us, hold that the said income of the petitioners from interest and commissions accrued or arose in British India. The above answer is on the assumption that all the contracts for the supply of goods were made at Bombay. If, however, the Assessee is able to establish some contracts; to have been entered into at Cambay State, then a commission in respect of them will not be considered to have accrued or arisen in British India. For the reasons given above, References No. 2 and 3 of 194$ are dismissed with costs. The petitioners also to pay costs of Reference No. 69 of 1947. A. H. References answered.