1978 (2) TMI 30 - HC - Income Tax

Attributable To, Concessional Rate, Higher Rate, In Part, Indian State, Original Assessment, Reopening Assessment

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 34(1)(b) of the Indian Income Tax Act, 1922 for the assessment year 1951-52.
2. Justification for apportionment of profits to the purchases effected in Part A and Part C States for the assessment years 1951-52 and 1952-53.

Issue-Wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 34(1)(b) for 1951-52:
The primary contention was whether the Income Tax Officer (ITO) was justified in reopening the assessment under Section 34(1)(b) based on new information. The ITO initially assessed the profits as Part B State income at a lower rate. Later, he proposed to the Commissioner of Income-tax (CIT) that the profits related to purchases in Part A and C States should be taxed at full Indian rates, leading to the reopening of the assessment. The assessee argued that all relevant information was already provided during the original assessment, and therefore, the reopening was invalid. The Tribunal found that the ITO was aware of the purchases in India during the original assessment, and no new information justified the reopening. The court held that the reopening of the assessment was not valid as the ITO's action was based on an afterthought and not on new information.

2. Justification for Apportionment of Profits to Purchases in Part A and Part C States for 1951-52 and 1952-53:
The ITO attempted to apportion profits to the purchases made in Part A and Part C States, arguing that these purchases contributed to the profits and should be taxed at full Indian rates. The Tribunal found no material evidence suggesting that the purchases were made systematically or through an agency, which would justify such apportionment. The Tribunal noted that the purchases were incidental and not part of a systematic operation. The court upheld the Tribunal's findings, emphasizing that there was no basis for apportioning profits to the purchases made in Part A and Part C States. The court referred to Section 42 of the Act and relevant case law, concluding that the assessee's activities did not constitute "operations" within the meaning of Section 42(3) and thus did not warrant apportionment of profits.

Conclusion:
The court answered the first question for the assessment year 1951-52 in the negative, ruling that the reopening of the assessment was invalid. The second question for 1951-52 and the only question for 1952-53 were answered in the affirmative, ruling that there was no justification for apportioning profits to the purchases made in Part A and Part C States. The judgment favored the assessee, and there was no order as to costs.