- (1.) THIS is a reference under Section 66 (1) Income tax Act but in view of certain decisions of the supreme Court it is not necessary for us to give our reasons at any length.
(2.) THE assessee was assessed to income tax on his status of an individual and as a resident in british India. The assessee carried on business in cloth in Ajmer in British India which was the head Office and at two branches at Kishangarh in an Indian State. These branches made purchases of cloth in British India for sale inside the State. The purchases made were of considerable amount. In the assessment year 1942-43 the total cloth purchased in British India was for Rs. 1,24,118/- and in the next year 1943-44 for Rs. 1,91,148/ -. The Income-tax Officer considered that purchase of cloth in British India for sale outside amounted to part of the operations for making profits, being carried out in British India, and applying the provisions of section 42 (3), Income-tax Act added 10 per cent, on the total value of the purchase in the first year and 121/2 per cent, in the subsequent year to assessable income of the assessee in the relevant years. The case ultimately came up to the Tribunal which reduced the rate to 7 per cent, and 9 per cent, but upheld the rest of the order.
(3.) AT the suggestion of the assessee the following question was referred to us for decision: "whether purchase of goods in British India for the purpose of sale outside British India can be rightly considered as one of the operations contemplated by section 42 (3) of the Indian income-tax Act, 1922?";