HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax, Madras
Civil Appeal No. 12 of 1952
[1953] SCR 454 ·
Indian Income-tax Act 1922 sections 42(1), 42(3), 66(1)
Sources & disclosures includedDownload original judgment / order
4-judge bench · Mehr Chand Mahajan J. · S.R. Das J. · Vivian Bose J. · N.H. Bhagwati J.
01 · Facts of the case
A United Kingdom company manufactured yarn and cloth at Pondicherry in French India. Although it made no sales in British India during the accounting year 1939, all cotton purchases were systematically made there through Best & Co. under a broad agency agreement. The agents used commercial skill to select quantities, qualities, times and prices. The officer treated this as a business connection and attributed ten per cent of the company’s net income of Rs. 2,81,176 to the Indian operations. The Tribunal and High Court upheld the assessment.
02 · Discussion by the Hon’ble Court
The Court rejected the proposition that profits could arise only from sale. Following the reasoning in Ahmedbhai Umarbhai, purchase, manufacture and sale could contribute to business profits. But not every activity qualified as an operation under section 42(3): it had to be a well-defined business operation under accepted commercial understanding. The habitual purchases through an established, skilled agency satisfied that test. Continuous business relations between the Indian profit-contributing agent and the foreign company also constituted a business connection. Isolated or casual purchases were expressly distinguished.
03 · Judicial decision
Both referred questions were answered in the affirmative: the company had a business connection in British India and profits could reasonably be attributed to its cotton purchases there. The appeal was dismissed with costs. The ten-per-cent attribution arose on these facts; the judgment did not prescribe a universal attribution rate.
04 · Outcome / in whose favour
Revenue, on business connection and attribution of profits to the established purchasing operations.
05 · AKHB REVIEW POINT
Examine the agency agreement, continuity of dealings and substantive purchasing functions before treating procurement as a profit-contributing operation. Preserve the Court’s express distinction between an established skilled agency and isolated purchases. The historical section 42 analysis must not be transposed into present legislation or treaty rules without checking their text and later law.
Source & verification
Download original judgment / order · Open cited source rendition
All 10 PDF pages read. No assessment year is explicitly fixed here beyond the stated accounting year 1939; avoid inferring one from the earlier 1939–40 assessment narrative.
Statutory scope
Historical Indian Income-tax Act, 1922 provisions; no present statutory equivalence or current-law clearance is asserted.
Later treatment
Source checked 2026-10-18. Subsequent treatment and current-law applicability have not been comprehensively checked.
Page references identify the supplied PDF; paragraph references identify the judgment unless stated otherwise.
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AI disclosure & professional disclaimer
This AKHB research note was prepared with AI assistance from an identified primary report. Independent human review is not represented.
General legal and tax research only; not legal or tax advice. Verify the complete judgment, applicable statutory version and subsequent treatment before reliance. The AKHB REVIEW POINT is editorial analysis, not the Court’s holding. No current-law clearance is claimed.