IRANEE B B Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a combined reference. One question has been referred to this Court by the Tribunal under sub-s. (1) of s. 66 of the Act and the other question has been referred on a direction issued to the Tribunal by this Court under sub-s. (2) of s. 66 of the Act. Facts giving rise to this reference in brief are :

(2.) WE are here concerned with the asst. yr. 1947-48, the relevant previous year being the calendar year ended on 31st Dec., 1946. The assessee, Shri B. R. Iranee, proprietor of M/s C. M. Karanjia & Co., has been carrying on a fairly large business of export and import both in Hongkong and Bombay. He was formerly residing in Hongkong and came to India on 29th June, 1941, leaving an employee to look after his business there. Similar business was started by the assessee in Bombay in March, 1941, and one Mr. K. M. Vazifdar, an employee of the assessee, was looking after the Bombay business. From 29th June, 1941, till about 9th June, 1946, the assessee remained in India. Thereafter for a short time he went to Hongkong and again returned to Bombay some time in September, 1946. The assessee was, for the first time, assessed in the asst. yr. 1942-43. In that assessment, i.e., the asst. yr. 1942-43, the assessee claimed a set-off for the alleged losses incurred by him in respect of the business conducted by the Hongkong branch. This claim, however, was not allowed by the ITO. In appeal the AAC in his order dt. 1st July, 1948, dealing with this claim of the assessee observed :

(3.) THIS question we will number as question No. 1. THIS brings us to the other aspect of the case. As already stated, the assessee had returned from Hongkong to Bombay on 29th June, 1941, leaving an employee to look after the business there and had already started similar business in Bombay in March, 1941. For the first time he was assessed in the asst. yr. 1942-43 and during the years 1943-44 to 1946-47 he was assessed as a resident. Coming to the relevant asst. yr. 1947- 48, the previous year being the year ending on 31st Dec., 1946, the assessee resided in India for about 8 months during the said year. On 9th June, he went on a short visit to Hongkong and had returned to Bombay some time in September, 1946. In the relevant accounting year the business in Hongkong had been restarted after it had been temporarily closed during the operation of the war. The ITO asked the assessee to produce books of account relating to the Hongkong business. These books, however, were not produced by the assessee and he was, therefore, assessed in respect of that income on an estimate basis. The ITO estimated the income from the Hongkong business at Rs. 1 lakh. The amount, however, was further increased by the order of the AAC but with that amount we are not here concerned. The case then came up before the Tribunal in second appeal, and on this aspect of the case, various contentions were raised by the assessee before the Tribunal. In the first instance it was contended that the income of the business of the Hongkong branch was not liable to be included in the total income of the assessee. The Tribunal, however, found that during the accounting year relevant to the asst. yr. 1947-48, the assessee was a " resident but not ordinarily resident " in the taxable territories, but the Hongkong business was controlled by the assessee in India and, therefore, the income of the Hongkong branch was liable to be included in the total income of the assessee under the second proviso to sub-s. (1) of s. 4 of the Act. The other contention raised before the Tribunal was that the Departmental authorities ought to have estimated the income for the period of control and not for the entire year. In this case since the assessee resided in India only for 8 months out of 12 months, roughly 2/3rds of the income should only be brought to tax in India. THIS contention was not accepted by the Tribunal for the following reasons :