TMI Blog1971 (9) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... 1955, it entered into an agreement with Kailash Nath Agrawal. The agreement recited that it was not in a position to continue the selling agency in accordance with the wishes of the British India Corporation and that it owed Rs. 8,39,351 to the said corporation, and that in the circumstances the corporation desired its resignation from the selling agency and to appoint instead Kailash Nath Agrawal or a business unit controlled by him. The amount owed by the petitioner to the corporation was to be liquidated by the corporation by retaining out of the commission earned by the new selling agent a specified amount to be adjusted against those dues from time to time. On the same day, March 23, 1955, the petitioner informed the corporation of the agreement and tendered its resignation as sole selling agent. Simultaneously, Kailash Nath Agrawal also wrote to the corporation on March 23, 1955, referring to this agreement and requested the corporation to appoint M. K. Brothers, a firm of which he was a partner, as sole selling agent. The corporation, on that same day, communicated its acceptance of the petitioner's resignation and of the terms contained in the agreement for the appointment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to assess the petitioner under section 41(1) of the Income-tax Act, 1961, in respect of that amount for the assessment year 1960-61. The petitioner challenged the proceedings by a petition under article 226 of the Constitution. The proceedings were quashed on the ground that the Income-tax Officer had failed to apply his mind as to what should have been the true "previous year" in which the amount fell for consideration. On July 27, 1968, the Income-tax Officer issued a fresh notice under section 148, this time for the assessment year 1961-62. It is not disputed by the respondents that the proceedings so initiated are intended to tax the amount of Rs. 3,92,200 in the hands of the petitioner. The entire argument before us on behalf of the respondents is that the petitioner is liable to tax in respect of that amount either under section 41(1) or section 28(ii)(c) of the Income-tax Act, 1961. The petitioner disputes the application of those two provisions and contends in addition that there was no jurisdiction in the Income-tax Officer to initiate the proceedings under section 148. The first question is whether the Income-tax Officer acted within his jurisdiction in initiating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing off of the bad debt by the corporation. After weighing the material carefully it seems to as that the respondents have failed to establish that the conditions of section 147(a) are satisfied. In the circumstances, we hold that upon the record before us no justification has been shown by the respondents for initiating the impugned proceeding by the notice dated July 27, 1968, and consequently that proceeding must be held to be without jurisdiction. Alternatively, if it is considered as a proceeding referable to section 147(b), then having regard to the period of limitation of four years prescribed by section 149(1)(b) the proceeding is barred by time. Even if we assume that the conditions of section 147(a) are satisfied, is the petitioner liable to tax in respect of the amount of Rs. 3,92,200 under section 28(ii)(c) or section 41(1) ? The petitioner contends that neither provision of the Act of 1961 can be invoked, because, if at all, it is the Indian Income-tax Act of 1922 which can be applied. The respondents, on the contrary, say that the Act of 1961 applies because of section 297(2)(d)(ii), which provides: "297. Repeals and savings.-(1)...... (2) Notwithstanding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable to his total income for the three years immediately preceding the previous year in which the compensation or other payment was due or received." Can the amount of Rs. 3,92,200 written off by the corporation in its books be said to be "compensation or other payment due to or received by" the petitioner ? The amount represents part of the larger sum of Rs. 5,50,000 due from the petitioner to the corporation. It has not been paid by the petitioner, and the agreements and the communications of March 23, 1955, contemplated its liquidation by M. K. Brothers. Apparently, that was not found possible and, therefore, the corporation wrote off the amount as a bad debt. We fail to see how this can be construed as compensation or other payment due to or received by the petitioner. Neither was it due to or received by the petitioner nor was it compensation or other payment at or in connection with the termination of the sole selling agency formerly held by the petitioner. Learned counsel for the respondents has been unable to satisfy us that the provisions of section 10(5A) are attracted. As regards section 10(2A), it provides: "Where for the purpose of computing profits or gains ..... X X X X Extracts X X X X X X X X Extracts X X X X
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