1961 (11) TMI 86 - HC - Income Tax

Summary

Issues Involved:

1. Lawfulness of assessment under Section 34(1) of the Income Tax Act.
2. Lawfulness of assessment on the company on specific income amounts for the years 1944-45 to 1946-47.

Issue-wise Detailed Analysis:

1. Lawfulness of assessment under Section 34(1) of the Income Tax Act:

The court first addressed whether the Income Tax Officer had jurisdiction to initiate proceedings under Section 34(1)(a) of the Income Tax Act. It was established that the assessee did not file any returns under the Indian Income Tax Act for the relevant years. The Income Tax Officer, upon discovering that part of the income had escaped Indian Income Tax, obtained the appropriate sanction and initiated proceedings. The court held that there was an escapement of income tax, and thus, the Income Tax Officer had undoubted jurisdiction to initiate proceedings under Section 34(1)(a) of the Act. The court rejected the contention that the payment of tax to the Mysore Government satisfied the liability to Indian tax, stating that the liability to Indian tax is fixed by statute, and the assessee would only be entitled to relief from double taxation in accordance with arrangements between the two governments. The first question was answered in the affirmative and against the assessee.

2. Lawfulness of assessment on the company on specific income amounts:

The court then considered the second question, which pertained to the lawfulness of assessing the company on specific income amounts for the years 1944-45 to 1946-47. The court categorized the transactions into four types and focused on the second and fourth categories, as the assessee did not contest the first and third categories.

A. Sales involving hundis purchased by banks in Bangalore:

The court analyzed whether the profits from sales involving hundis purchased by banks in Bangalore should be considered to have arisen in Bangalore or British India. The court concluded that the bank purchasing the hundis at a discount did not mean the price of the goods was received at Bangalore. The bank was not an agent for collection but rather a holder in due course of the hundis. The court emphasized that the property in the goods passed to the buyer only upon payment or acceptance of the hundis, which occurred in British India. Therefore, the profits accrued in British India, making them liable to tax. The court also referenced relevant legal principles and precedents to support its conclusion.

B. Direct sales to the Government of India:

The court examined the transactions involving direct sales to the Government of India, where the payment was made by cheques sent by post. The court considered whether the post office acted as the agent of the buyer or the seller. Based on the facts, the court concluded that there was an implied request by the assessee for the Government to send cheques by post, making the post office the agent of the assessee. Consequently, the payment was deemed to have been made at New Delhi, where the cheques were posted, and thus within the taxable territories. The court referenced Supreme Court decisions to support this conclusion.

In conclusion, the court answered the second question in the affirmative and against the assessee, upholding the lawfulness of the assessment on the company on the specified income amounts. The assessee was ordered to pay the costs of the department, with advocates' fees set at Rs. 250.