The Act now repealed

Section 5 of the Act, on the true construction of which depends the decision of the appeal is in these terms:

“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 its provisions of sub-cl. (i) or sub-cl. (ii) of Sub-cl (b)of sub- cl. (1) of S. 4, Income- tax Act 1922, or of cl. (c) of that sub-section.”

In other words, the Act brings within its ambit all income in the case of a person resident in British India which accrues or arises or which is deemed to accrue or arise to him in British India during the accounting year, as also all income which accrues or arises to him without British India during each year ; and if such person is not resident in British India during that year, then all income which accrues or arises or is deemed to accrue or arise in British India during such year. If S. 5 of the Act stopped short at that stage, it is undoubted that in the case of the respondent who is a resident in British India all his income, no matter where it arose, within British India or without British India, would be chargeable to excess profits tax just in the same way as it is chargeable to income tax under the Indian Income-tax Act. The whole of his income arising in Raichur has legitimately been taxed under that Act.

 Section 5, however, has three provisos which limit its scope and take certain incomes outside its ambit. The first proviso is to the following effect:

“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 not ordinarily resident in British India unless the business is controlled in British India.”

This exception has no bearing to the facts of the present case. The second proviso is in these terms:

“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.”

30. This proviso also concerns a person not resident in British India and does not touch the present case. It, however, furnishes a clue to the meaning of the following proviso inasmuch as it attracts the application of S.42, Income-tax Act, to the case of a non-resident and contemplates the apportionment of income between part of a business controlled in British India and a part not so controlled. Sub-section (3) of S.42, Income-tax Act, enacts this:

“ In the case at a business of which all the operations are not carried out in British India, the profits and gains at the business deemed under this section to accrue or arise in British India shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in British India.”

 Under the second proviso by reason of the application of S. 42 (3), Income-tax Act, if the manufacturing business of the assessee was in British India and all his sales took place in Raichur, then excess profits tax could only be chargeable on such profits as world really be attributable to his manufacturing operations in British India and the manufacturing operations would be treated as part of the business of the assessee under the proviso. It is proviso 3 to which the controversy in the cases to limited and this proviso is in these terms

“ provided further that this Act shall not apply to any business the whole at the profits of which accrue or arise in an Indian State, and where the profits of part of business accrue or arise in an Indian State, such part shall, for the purposes of this provision, be deemed to be a separate business the whole of the profits at which accure or arise in an Indian State, and the other part of the business shall, for all the purposes of this Act, be deemed to be a separate business,”