COMMISSIONER OF INCOME TAX Vs. JAGDISH MILLS LIMITED

JUDGEMENT

(1.) This is a reference under sec. 66(1) of the Indian. Income Tax Act 1922 The assessee in this case was a non-resident company running a textile Mill in the then Baroda State during the relevant accounting year 1944. The assessment year in question is the year 1945-46. The assessee submitted. its return of income and on 24th March 1950 was assessed to Tax. The assessee company had sold certain goods to the Textile Commissioner Bombay and had also sold certain goods to Shri Ambica Mills Ltd. The payments in respect of these goods had been made by cheques drawn on banks in British India. The Income Tax Officer took the view that as these payments were made in British India they attracted the incidence of tax having regard to the provisions contained in sec. 4(1)(a) of the Income Tax Act The assessee being aggrieved by the order passed by the Income Tax Officer preferred an appeal therefrom to the Appellate Assistant Commissioner. The principal ground urged by the assessee related to the income alleged to have been received in British India by reason of the payments made as aforesaid. The Appellate Assistant Commissioner passed an order on 31st March 1959 whereunder he has sought to rope in income which could be deemed to have accrued to the assessee in British India by reason of certain purchases of goods made by the assessee in British India having regard to the provisions contained in sec. 4(1)(c) and sec. 42 of the Income Tax Act. In the course of his decision he has observed as follows :

(2.) He held that be was competent to make an enhancement of tax on this account as the Income Tax Officer had taken into account this particular source of income of the assessee viz. the income from its business as a textile Mill and directed the Income Tax Officer to compute the total income of the assessee in the light of the observations made by the Appellate Assistant Commissioner in connection with the income which accrued do the assessee in view of the purchases made by the assessee in the taxable territories. The jurisdiction of the Appellate Assistant Commissioner to act in the manner aforesaid law challenged before the Tribunal. The Tribunal lade an order on 8th June 1960 reversing the order of the Appellate Assistant Commissioner. The Tribunal took the view that the decision of the Appellate Assistant Commissioner was contrary to the judgment of the Bombay High Court in Shapoorji Pallonji Mistry v. Commissioner of Income-Tax reported in (1958) 34 I. T. R. page 342. The Tribunal in the course of its decision observed that if the Income Tax Officer had considered the question of any profits accruing or arising to the assessee from the purchases made in India then only would it have been open to the Appellate Assistant Commissioner to go into that question and that admittedly in the instant case the Income Tax Officer had never considered this matter. In the circumstances the Tribunal held following the aforesaid decision that the Appellate Assistant Commissioner had no power to go into the question as to the income accruing or arising from the purchase operations carried out in British India much less the quantum thereof. The commissioner of Income-Tax being aggrieved by the aforesaid decision applied to the Tribunal for referring the question of law which arose out of the decision of the Tribunal to this Court. The Tribunal has accordingly submitted for our decision the question following :-

(3.) The Commissioner had desired that the question should be altered so that it may run in terms following :