MALIK, J. - (1.)-
(2.)THE facts of this case are very simple. Messrs. Ram Lal Bechai Ram, a trading undivided Hindu family, had their head office together with a cloth shop at Semohi in the Jaunpur district in British India. THEy maintained also a branch cloth shop at Bhadohi in the Benares State. THEy were the residents of Jaunpur in British India. In their books at Bhadohi the firm maintained an account in the name of their own Semohi shop. Conversely in the Semohi books they had similarly an account in the name of the Bhadohi shop. From time to time goods were sent from one shop to the other. In the year in question, that is, in the assessment year 1938-39 it was found that cloth worth Rs. 65,203-13-9 was sent from the Bhadohi shop to the Semohi shop. THE invoice price of these goods was not, however, their cost price to the Bhadohi shop but is included a profit margin equal to the profit that the Bhadohi shop would or might have derived from its customers in Bhadohi had the cloth been actually sold by that branch to customers in Benares State. In other words its own head branch in British India was notionally treated by the Bhadohi branch as its trading customer in the ordinary course of business. THE Semohi shop remitted to its Bhadohi branch in the course of the same year sums amounting to Rs. 59,175-13-0 only, leaving a credit balance of Rs. 6,028 in favour of Bhadohi in the Semohi books.
The Income-tax Officer accepted the Semohi books as correct and assessed the assessee as regards the income derived from the sale of goods at Semohi on the basis of the entries made in the account books. The Income-tax Officer, however, did not accept the Bhadohi books to be correct and made a best judgment assessment and came to the conclusion that the total profit earned by the Bhadohi shop was Rs. 9,573. As the whole of the invoiced purchase price of Rs. 65,203-13-9 had not been transmitted by the Semohi shop to the Bhadohi in the course of the year, the Income-tax Officer held that the balance of Rs. 6,028 must be taken to be a profit which had accrued without British India and, in the sense that as goods or money it was still in British India, had been brought into British India within the meaning of Section 4(2) of the Indian Income-tax Act (XI of 1922) before its amendment by the Indian Income-tax Amendent Act (VII of 1939). After having held that Rs. 6,028 out of the assessed profits of Rs. 9,573 was thus brought into British India, the Income-tax Officer went on to hold that the assessee had not given him any satisfactory information as to where he had kept Rs. 3,545, the balance of the assessed profit, after allowing for the above Rs. 6,028. In the absence of any information by the assessee the Income-tax Officer held that he was justified in presuming that the whole of the profit earned outside British India was received in British India. The Income-tax Officer thus assessed the assessee on the whole sum of Rs. 9,573 which, he held, was the profit earned outside British India.

The assessee appealed against this assessment under Section 30 of the Act. The Appellate Assistant Commissioner by his order dated March 25, 1942, held that no money had been transmitted from Bhadohi to Semohi, that only goods had been sent from one shop to the other and that the sum of Rs. 6,028 represented nothing but the price of goods which remained unpaid by the Semohi shop to the Bhadohi shop. Relying on the decision of their Lordships of the Privy Council in Commissioner of Income-tax, Bombay v. Ahmedabad Advance Mills Ltd., he held that the amount was not taxable. He allowed the assessees appeal and directed that the whole of the sum of Rs. 9,573 should be excluded from assessment.

(3.)THE Income-tax department appealed against this decision before the Tribunal which held that the goods brought into British India were stock-in-trade which was meant to be resold at the first available opportunity, that they were not a capital asset and the decision of the Privy Council in the case of the Ahmedabad Mills was thus distinguishable. THE Tribunal allowed and restored the order of the Income-tax Officer and held that the sum of Rs. 9,573 was taxable under Section 4(2) of the Act as profits made outside British India and brought into British India.
The assessee then applied under section 66(1) of the Act for the statement of a case to this Court and formulated a question of law which reads as follows :-

Whether, in the circumstances of the case, the Income-tax Officer has rightly included in the income liable to tax the amount of Rs. 9,573 on account of profits earned at Bhadohi in Benares State on the ground that though the said income accrued or arose in Benares State it was received or brought into British India within the meaning of section 4(2) of the Act.

This application was opposed by the department, but on October 24, 1942, the Income-tax Appellate Tribunal referred to us the following question for opinion :-