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1. The question referred for our decision is:

"Whether in the circumstances of the case the whole of the profits from the supply of sheep and goats to the military authorities accrued or arose in an Indian state and hence is exempt from liability to excess profits tax by virtue of the proviso to S. 5 of the Excess Profits Tax Act?"

The facts are these. The assessee is a registered firm carrying on business as manufacturers and sellers of bone meal with their head office at Katpadi near Vellore and depots in many other places in British India. In May 1942, the assessee entered into a contract with the military authorities for the supply of live goats and sheep in weekly instalments at an agreed price. The assessee deposited a sum of Rs. 10,000 with the military authorities in British India as a guarantee for the due performance of his obligations under the contract under which deliveries had to be effected over a considerable period of time. The contract was entered into in British India. The goats and sheep were purchased by the assessee in large quantities in Mysore. They were transported to Cochin State and put on board a ship provided by the military authorities at Ernakulam, the cost of these operations being borne by the assessee and included in the price contracted to be paid. The Tribunal found, and this finding of fact is binding upon us, that the assessee maintained an establishment and an office at Ernakulam for attending to the transport and loading of goats and sheep on ships. The assessee sent his bills for the goats and sheep supplied by him, to the military authorities at Poona who paid the price by cheques drawn in favour of the assessee on the Imperial Bank at Vellore. No payment was made to the assessee outside British India in respect of the contract. The Income of the assessee computed for the chargeable accounting period included a sum of Rs. 50639 as profits derived from the supply of goats and sheep. The revenue authority assessed this sum to excess profits tax on the ground that the whole of the profits arose or accrued to the assessee in British India. According to the assessee the whole of the profits arose out of British India in the State of Mysore where the goods were bought and in Cochin state where they were delivered. In this Court Mr. Rama Rao Sahib, for the Commissioner of Excess Profits Tax, argued that a portion of the profits attributable to the business operations of the assessee outside British India was not taxable but the rest of the profits was liable to excess profits tax. According to him, the business operations outside British India' should be deemed to be a separate business under the third proviso to Section 5 of the Excess Profits Tax Act and its profits alone exempted from tax.

In the light of the foregoing statement of the law we hold that the purchase of goats and sheep in Mysore, their transport to Cochin and the loading of the goods on board the ship provided by the military authorities at Ernakulam form a separate section or part of the business of the assessee, a part separable from the rest of the business. These operations together constituted a part of the business and a part which was carried on outside British India in Mysore and Cochin State. The assessee's office at Ernakulam was in charge of these operations. The buying of goats and sheep at Mysore and their sale at Ernakulam might itself produce a profit without reference to the contract entered into in British India. Entering into the contract with the military authorities in British India, supervision of the performance of the contract from British India and the realisation of the price payable for the goods delivered at Katpadi In British India where the head office of the firm was situate, could be treated - as constituting a separate part of the business of the assessee.