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3. Apportionment of Net Profits

96. It is impossible to lay down a general rule in connection with the apportionment of part of the net profits of the branch to the deficitary parent, or vice versa.

When an enterprise operates at a total loss, no profit will be allocated to the Indian branch if, for instance, the enterprise consists only of a buying establishment outside N.E.I., and a selling organisation in this country. If, however, there is only one buying establishment outside this country, but several selling establishments in N.E.I. and various other countries, it is quite possible that some profits will be allocated to the East Indian branch, even when the whole enterprise has been working at a loss. This is perfectly logical in view of the fact that possibilities for making profits vary considerably in the different markets. In cases like these, the only way to arrive at satisfactory conclusions is to make an exhaustive analysis of the business itself and a careful comparison with similar enterprises carrying on their business in this country. The above problem is still in its initial stages of development.

97. When the enterprises concerned possess only a wholesale buying organisation within N.E.I., whose profit is calculated by considering a certain commission on the buying as East Indian profit because a more reliable method is lacking, it is conceivable that a certain amount of profit is assessed as having been realised in this country, while the total result of the enterprise would be negative. This gives an example of the undesirable consequences to which this system may lead.

98. With regard to foreign enterprises carrying on agricultural or mining activities in this country, which manufacture the raw products into finished articles and sell them in foreign countries, the East Indian profit can justly be taxed where the business in its entirety is working at a total loss on account of losses sustained in the manufacture abroad of the raw material, or in the sale abroad of the finished product. The East Indian profit would be delimited by the price obtainable for the raw product in the world markets.

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