TMI Blog1978 (2) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... 14th October, 1955, profits were estimated by the ITO and assessed by him as being Part B State income and at a lower rate. Subsequently, the ITO considered that action under s. 34(1) of the Act was called for and he, therefore, put up a proposal for the same to the CIT. The relevant portion of the said proposal reads as under : " Purchases of stores and raw materials were effected in Part A and C States and accordingly the profits accrued in relation to the purchasing operations done in Part A and C States. Such profits are estimated at Rs. 1,00,000 which have come to be included in Part B State income and assessed at a lower rate and, therefore, action under s. 34(1)(b) is called for. " The Commissioner gave the necessary sanction and the ITO issued a notice, on 31st March, 1956. From the figures furnished by the assessee in the said reassessment proceedings the ITO found that the assessee had made purchases in Part A and Part C States during the year of a total sum of Rs. 1,11,19,117 on account of cotton, yarn, fibre, coal, diesel oil, machinery and stores. Deducting certain capital purchases, according to the ITO, purchases on revenue account amounted to Rs. 73,74,241 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effected in Part A and Part C States and was justified. For the assessment year 1951-52 it was further contended that the ITO was justified in taking action under s. 34(1) of the Act. In respect of both the said assessment years the Tribunal held that there was no material to suggest that the assessee effected these purchases in circumstances that permitted of an apportionment. There was nothing to show that the purchases were made in India systematically and that " it was not a mere incidental circumstance, viz., that the assessee having its factory in the midst of the Indian provinces, some of the purchases were effected there also ". There was no agency employed by the assessee for selective purchases. There was also nothing to suggest that the assessee was able to make a higher margin of profits on account of its purchases in India. Accordingly, the Tribunal held that there was no basis for apportionment of the profits ratewise. For the assessment year 1951-52, the Tribunal further held that as all the facts were already before the ITO he was not justified in initiating reassessment proceedings. The Tribunal, therefore, disallowed both the appeals. The two questions for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply to cases where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the ITO. Mr. Pal relying on the above, therefore, contended that, due to such oversight, inadvertence or mistake, the ITO in his original assessment applied the concessional rate and, therefore, the matter could be validly reopened under s. 34. This case of oversight or inadvertence or mistake appears to be an after-thought and was not the case of the ITO who made the reassessment order. At no earlier stage, this case was urged on behalf of the revenue. We are, therefore, unable to accept the contentions of Mr. Pal and hold that the reopening of the assessment for the assessment year 1951-52 is not valid. On the second question, common to both the assessment years, Mr. B. L. Pal, drew our attention to s. 42 of the Act and in particular to sub-ss. (1) and (3) thereof which read as under : " (1) All income, profits or gains accruing or arising, whether directly or indirectly, through or from any business connection in the taxable territories, or through or from any property in the taxable territories or through or from any as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he judgment of the Supreme Court in the above case of Anglo-French Textile Ltd. (No. 2) [1953] 23 ITR 101. The facts in that case were that the assessee was a foreign company owning a spinning and weaving mills in Pondicherry in French India. The assessee appointed agents who purchased cotton for the said mills. The question was, whether any portion of the purchase attributable to the portion of the cotton purchased in British India could be apportioned under s. 42(3) of the Act. The Supreme Court in its judgment referred to the decision of the House of Lords in Commr. of Taxation v. Kirk [1900] AC 588 (PC), wherein it was held that where income was in part derived from the extraction of ore from the soil of New South Wales Colony, and from conversion of the crude ore into a merchantable product in that colony, such income was assessable under the New South Wales Land and Income-tax Assessment Act of 1895, notwithstanding that the finished products were sold exclusively outside the colony. Lord Davey, while delivering the judgment, inter alia, observed as follows : " There are four processes in the earning or production of this income -(1) the extraction of ore from the soil ; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a higher margin of profit by reason of such purchases in India. None of these findings have been challenged by the revenue and as such it was not open to the revenue to claim apportionment in the face of such findings. Dr. Pal drew our attention to the observations of the Supreme Court in the Anglo-French Textile Co.'s case [1953] 23 ITR 101 at pages 107, 108 as follows : " Distribution of profits on different business operations or activities ought only to be made for sufficient and cogent reasons and the observations made here are limited to the facts and circumstances of this case. In a case where all that may be known is that a few transactions of purchase of raw materials have taken place in British India, it could not ordinarily be said that the isolated acts were in their nature 'operations' within the meaning of that expression. In this case the raw materials were purchased systematically and habitually through an established agency having special skill and competency in selecting the goods to be purchased and fixing the time and place of purchase. Such activity appears to us to be well within the import of the term 'operation' as used in section 42(3) of the Act. It ..... 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