BHAGWATI, J. - (1.) THIS reference arises out of proceedings for the assessment to income -tax of the assessee for the assessment year 1948 -49. The assessee is private limited registered under the Dhrangadhra State Companies Act, 1939, and carries on business as an authorized dealer of the products of Dhrangadhra Chemical Works Limited at Dhrangadhra. During the relevant period Dhrangadhra was a native Indian state outside what was then know as British India. The assessee was thus a nonresident for the assessment year with which we are concerned. During the financial year 1947 -48, which was the relevant previous year for that assessment year, the assessee effected to the sales of the aggregate value of Rs. 40,58,445 out of which sales to the extent of Rs. 6,63,545 were made to buyers in Native India States while the balance of the sales aggregating to Rs. 33,94,900 were made to the British Indian buyers. These sales to British Indian buyers were again divisible in to the categories : (1) sales to the extent of Rs. 5,30,460 were such that in the bills in respect of those sales there was a request that the sale proceeds should be paid by 'demand draft on Rajkot'; and (2) so far as the remaining sales were concerned, neither the mode nor the place of payment was the specified in the bill in respect of those sales since the sale proceeds were received by the assessee in advance of the sales. The goods which formed the subject matter of these sales were sent by rail from Dhrangadhra to various places in British India. The prices charged were f.o.r. Dhrangadhra and the railway receipts were taken in the name of the buyers and were either agents. The sale proceeds in respect of the first category of sales where the payment was required 'by the demand draft on Rajkot' where in fact received by the assessee by cheques sent by buyers through post to the assessee in Dhrangadhra. The assessee being a non -resident company, its liability to British Indian tax depended upon its of income within British Indian under section 4(1)(a) of the Income -tax Act 1922. According to the assessee on part of its income was received in the British Indian and the assessee, 1922. The Income -tax Officer, Surendranagar, was however, prima facie of the opinion that the sale proceed in respect of the sales effected to British India and merchants were received by the assessee in British India and that profit embedded in those sale proceeds must, therefore, be regarded as received by the assessee in British India and hence, taxable under section 4(1)(a). He, therefore, issued a notice to the assessee under section 34(1)(a) on 27th March, 1957, and served it on the assessee on 28th March, 1957. By the notice the assessee was required to submit a return within thirty -five days, i.e., on or before 2nd May, 1957. On 22nd April, 1957, assessee requested the Income -tax Officer to grant extension of time up to the end of May, 1957. It does not appear from the record whether such extension of time was granted, but we are told by Mr. S. P. Mehta, learned advocate appearing on behalf of the assessee, that in fact such extension of time was granted. But even if that be sum the return was not filed by the assessee within the extended time but was filed but was filed as late as 3rd June, 1957. No objection was taken at that time by the assessee to the jurisdiction of the Income -tax Officer, Suredranagar. The Income -tax Officer, thereafter, went into the merits of the case and by his letter dated 13th February, 1958, wrote to the assessee saying that in some specific instances of sales there were clear directions to remit the sale proceeds from Part A States and there was, therefore, a strong presumption that such directions must have existed in respect of all payments from Part A States. The assessee replied by its chartered accountants letter dated 18th February, 1958, denying the correctness of the presumption of the Income -tax Officer, that directions must have existed in respect of all objection to the jurisdiction of the Income -tax Officer on the ground that by reason of entry 78A in the notification dated 1st July, 1952, issued under section 5(6), it was the Income -tax Officer, Central Circle IV, Delhi, who had jurisdiction to assess the assessee and not the Income -tax Officer, Surendranagar. Thereafter there was some further correspondence between the Income -tax Officer and the assessee, but it is not necessary to refer to it in any detail since it does not throw any light on the question before the Income -tax Officer its books of account and bill books in respect of sales effected by it during the year of account. The Income -tax Officer on this material came to the conclusion that the sale proceeds were sent by British Indian buyers to the assessee by cheques and demand drafts through post pursuant to an express or implied request from the assessee and the post office, therefore, acted as agent of the assessee in the matter of transmission of the cheques and demand drafts and since the cheques and demand drafts were posted in British India and the profit of Rs. 1,56,808 embedded in the sale proceeds was accordingly taxable under section 4(1)(a). The Income -tax Officer also negatived the objection of the assessee as to jurisdiction on the ground that the objection raised a question as to the place of assessment and not having been raised within the time prescribed in section 64(3), it could not be entertained by him. The jurisdiction of the Income -tax Officer to act under section 34(1)(a) was also challenged but that was also negatived by the Income -tax Officer. The Income -tax Officer accordingly made an assessment on the assessee bringing to tax the profit of Rs. 1,56,808 embedded in the sale proceeds received from British Indian buyers.
(2.) THE assessee thereafter carried the matter in appeal to the Appellate Assistant Commissioner. The same two preliminary objections which were urged before the Income -tax Officer were also urged before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner negatived the objection as to the jurisdiction of the Income -tax Officer broadly on two grounds, namely, (1) that the objection was really an objection to the place of assessment and was, therefore, covered by section 64(3) and, since it was made beyond the time limit prescribed by that section, the Income -tax Officer was right in not entertaining it; and (2) that in any event this question could not form the subject matter of appeal before him under section 30. The objection to action under section 34(1)(a) was raised in a slightly different form and the argument was that the notice under section 34(1)(a) having been served on the assessee on 28th March, 1957, no order of assessment could be made after 27th March, 1958, and the order of assessment made on 7th April, 1958, was, therefore, invalid. But the short answer given to this argument by the Appellate Assistant Commissioner was that having regard to section 34(3) as it stood at the time when the notice under section 34(1)(a) was issued, there was no bar of limitation and the assessment could be completed after 27th March, 1958. The Appellate Commissioner thus negatived both preliminary objections of the assessee, but on the merits he took the view that there was nothing to show that any part of the sale proceeds were received by the assessee in British India and he accordingly annulled the assessment. The revenue thereupon preferred an appeal to the Tribunal. Before the Tribunal the assessee sought to support the order of the Appellate Assistant Commissioner on the ground decided against it, namely, that the Income -tax Officer, Surendranagar, had no jurisdiction to assess the assessee by reason of Entry 78A in the notification dated 1st July, 1952. The Tribunal, however, rejected this ground and in addition to the reasons given by the Appellate Assistant Commissioner, the Tribunal gave a further reason, namely, that the burden of showing facts necessary to bring the case within entry 78A was on the assessee and the assessee had failed to discharge that burden as no facts relating to the control or exercise of the affairs of the company relating to the period 1st September, 1939, to 31st March, 1946, were placed before the revenue authorities to determine the applicability of section 78A. The Tribunal then examined the merits of the case and held that, so far as the sale proceeds to the extent of Rs. 5,30,460 were concerned, since there were instructions in the bills that the sale proceeds should be paid by 'demand drafts on Rajkot,' the case fell within the ratio of the decision of the Supreme Court in Shri Jagdish Mills Ltd. v. Commissioner of Income -tax, and the sale proceeds must be regarded as having been received in British India where the demand drafts were posted. In regard to the balance of the sale proceeds the Tribunal held that 'in the absence of any express or implied request to make the payment at a particular place in any particular manner, where the assessee requires or accepts the cheques sent by post then the post office which is the normal agency for such purposes will be employed in respect of such transmission of cheques and the post office will be the agent of the assessee and accordingly treated the balance of the sale proceeds as having been received in British India. The Tribunal, in the result, set aside the order of the Appellate Assistant Commissioner and restored that of the Income -tax Officer bringing the profit embedded in the sale proceeds to tax under section 4(1)(a). The assessee being dissatisfied with this decision of the Tribunal made an application for a reference, but the application was rejected and the assessee, therefore, moved this court under section 66(2) and this court, by consent of parties, made an order requiring the Tribunal to refer certain questions of law for the opinion of this court. Hence the present reference.
(3.) OUT of the nine questions which have been referred to us, the first five relate to the objection to jurisdiction based on Entry 78A in the notification dated 1st July, 1952, questions Nos. 6 and 7 raise the point of assessability of the profit embedded in the sale proceeds of Rs. 33,94,900 received from British Indian buyers, question No. 8 embodies the challenge to the validity of the proceedings under section 34(1)(a) and question No. 9 raises a point as regards the correctness of a statement made in the order of the Tribunal. Mr. S. P. Mehta, learned advocate appearing on behalf of the assessee, stated before us that he was not pressing questions Nos. 8 and 9 and it is, therefore, not necessary for us to go into those questions. We will accordingly confine our attention only to the other questions which arise before us.;