1971 (12) TMI 18 - HC - Income Tax

Manufacture was outside the taxable territory but sale was within the taxable territory - All amounts except that received by cheques drawn by buyers in British India and collected through assessee s bankers in Indian State are received in British India and therefore such items of income are liable to tax Whether Tribunal rightly held that the point regarding the jurisdiction raised by the assessee-firm was an objection regarding the place of assessment and that no appeal could lie to the Appellate Assistant Commissioner and the Tribunal on the point held that objection to the jurisdiction was actually an objection to the place of assessment which could not be raised in an appeal to the Appellate Assistant Commissioner or the Appellate Tribunal

Issues Involved:
1. Jurisdiction of Income-tax Officer
2. Place of assessment
3. Receipt of income in taxable territory

Detailed Analysis:

1. Jurisdiction of Income-tax Officer:
The primary issue was whether the Income-tax Officer, Ajmer, had the jurisdiction to issue a notice under section 34 of the Indian Income-tax Act, 1922. The Tribunal found that the Income-tax Officer, Ajmer, issued the notice under the misapprehension that he had jurisdiction due to Notification No. 44 dated July 1, 1952, which was intended for pending assessments before the merger of Indian States. However, the assessment in question was not pending at that time, rendering the notice invalid. The case was subsequently transferred to the Income-tax Officer, Central Circle III, Delhi, but this transfer did not rectify the initial lack of jurisdiction. The Tribunal held that the objection regarding jurisdiction was essentially an objection regarding the place of assessment, which under section 64(3) must be determined by the Commissioner. The Commissioner's decision, even if erroneous, became final as no appeal against it was provided under sections 30 or 33 of the Act.

2. Place of Assessment:
The Tribunal held that the place of assessment is more a matter of administrative convenience than jurisdiction. According to section 64(3), any question regarding the place of assessment must be determined by the Commissioner, and such a decision is not subject to appeal. This was supported by precedents from Wallace Brothers & Co. Ltd. v. Commissioner of Income-tax and Rai Bahadur Teomal v. Commissioner of Income-tax, which emphasized that objections to the place of assessment cannot be raised in appeals against the assessment. The High Court concurred with this interpretation, affirming that the Tribunal was correct in holding that the objection regarding jurisdiction was essentially about the place of assessment, and no appeal lay to the Appellate Assistant Commissioner or the Tribunal on this point.

3. Receipt of Income in Taxable Territory:
The second question concerned whether the sales and receipt of income occurred in the taxable territory. The Tribunal considered six items totaling Rs. 3,41,297. The analysis for each item was as follows:

- (a) Rs. 35,615: Deposited in cash by buyers in the assessee's bank accounts in British India.
- (b) Rs. 9,000: Deposited by buyers in cash in the assessee's bank accounts in Bombay.
- (c) Rs. 3,000: Composed of Rs. 2,000 paid in cash to a partner's father in Bombay and Rs. 1,000 received in cash by another partner in Bombay.

Items (a), (b), and (c) were considered income received in the taxable territory under section 4(1)(a) of the Act, which includes income received in the taxable territories by or on behalf of a person.

- (d) Rs. 14,919: Cheques drawn by buyers in British India and collected by the assessee's agents in non-taxable territory. The Tribunal assumed these cheques were sent at the assessee's request by post, but this assumption lacked evidence. The High Court found that the Tribunal erred in including this amount as income received in the taxable territory, agreeing with the Delhi High Court's decision in S. Zoraster & Co. v. Commissioner of Income-tax that the burden of proof lies with the revenue.

- (e) Rs. 2,55,313: Received by "hundis" drawn on buyers in British India, sent through the assessee's bankers in Udaipur to their branches in British India. The bank advanced money against these "hundis" before their realization.
- (f) Rs. 23,450: Received by "hundis" drawn by buyers and discounted by the assessee's bankers at Udaipur.

For items (e) and (f), the High Court held that the bank's role in advancing money or crediting accounts in the non-taxable territory did not change the fact that the income was received in the taxable territory. The High Court disagreed with the Madhya Pradesh High Court's reasoning in Commissioner of Income-tax v. Shivnarayan Harigopal, aligning instead with the Supreme Court's decision in Seth Pushalal Mansinghka (P.) Ltd. v. Commissioner of Income-tax and Commissioner of Income-tax v. Bhopal Textiles Ltd., which clarified that the bank acted as the assessee's agent, and the income was received in the taxable territory.

Conclusion:
The High Court answered the first question affirmatively, holding that the Tribunal was correct in treating the jurisdictional objection as an objection regarding the place of assessment, which is not appealable. For the second question, the High Court concluded that except for the item of Rs. 14,919, the Tribunal rightly held that the sales and receipt of income occurred in the taxable territory, making the income liable to tax. There was no order as to costs.

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