Judgment

BHAGWATI, J. : This is an appeal from the judgment and order of the High Court of Judicature at Madras upon a reference made by the Income-tax, Appellate Tribunal under Section 66(1) of the Indian Income Tax Act, 1922. The Appellant company, the assessee is incorporated in the United Kingdom under the English Companies Act and has its registered office in London. It owns a Spinning and Weaving Mills at Pondicherry in French India where it manufactures yarn and cloth. Messrs, Best and Co. Ltd, Madras have been appointed the agents of the assessee under an agreement dated the 11th July 1939 and have been invested with full powers in connection with the business of the assessee, in the matter of purchasing stock, signing bills and other negotiable instruments and receipts and settling, compounding or compromising any claim by or against the assessee.

The yarn and cotton manufactured in Pondicherry were sold mostly in British India and partly outside British India. In the accounting years 1941 and 1942 all the contracts in respects of the sales in British India were entered into in British India and the deliveries were made and payments received in British India. In regard to th