ADDITIONAL COMMISSIONER OF INCOME TAX Vs. FARASOL LIMITED

JUDGEMENT

(1.) THIS reference has been made under Section 256(1) of the Income-tax Act, 1961 ("the Act"), by the Tribunal, Jaipur Bench, Jaipur.

(2.) FARASOL Ltd. ("the assessee") is a foreign company having its management and control outside India. By order of the Central Board of Direct Taxes dated December 5, 1964, the assessee has been treated as a company for the purpose of the Act. The assessee submitted a tender for shallow drilling in Jaisalmer area to the Oil and Natural Gas Commission. The formal intimation of the acceptance of the said tender was given to the assessee by the Oil and Natural Gas Commission on October 11, 1963. The formal contract was executed on February 17, 1964, and the actual drilling operations were started in the, month of December, 1964. As a special case, the assessee was permitted by the Company Law Board to prepare its accounts for the period of 15 months covering the period from September 10, 1964, to December 31, 1965. The assessee submitted its return for the aforesaid period relevant to the assessment year 1966-67 wherein it declared a net loss of Rs. 5,84,746. In the said return, the assessee claimed deduction of a sum of Rs. 2,36,007 paid by it as interest to banks outside India, i.e., in Paris, on loans taken by the assessee. The assessee also claimed deduction of a sum of Rs. 3,50,172 on account of expenses. The assessee also claimed depreciation on various items of machinery and furniture.

(3.) FEELING aggrieved by the order of the Tribunal, two reference applications were submitted under Section 256(1). Reference Application No. 111(Jp.) of 1972-73 was submitted by the Additional Commissioner and Reference Application No. 116 (Jp.) of 1972-73 was submitted by the assessee. On the basis of the aforesaid applications, the Tribunal has referred the following questions for the decision of this court: