Ajit K.Sengupta, J. - (1.) The Tribunal has referred the following question of law to this court under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1965-66 : "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that proceedings initiated by the Income-tax Officer under Section 147 of the Income-tax Act, 1961, were illegal ?"
(2.) Shortly stated, the facts leading to the question are as under : The assessee, Union Carbide Corporation (hereinafter referred to as "the U.C.C.") is a corporation existing under the law of the State of New York in the U. S. A. and is a company within the meaning of Section 2(17)(ii) of the Income-tax Act, 1961. It has been assessed in the status of a non-resident company. In the past, jurisdiction over the Union Carbide Corporation lay with the first Income-tax Officer, Non-resident Refund Circle/Bombay, who made assessments on it for and up to the assessment year 1965-66. The jurisdiction was then transferred to the Income-tax Officer, B-Ward, Companies Dist. IV, Calcutta. The Union Carbide Corporation rendered technical services to Union Carbide India Ltd. (hereinafter referred to as "the U.C.I.L.") under two separate technical service agreements. One is dated November 7, 1950, and relates to the manufacture of electric batteries. The second relates to the manufacture of chemicals and plastics and was executed on November 1, 1956. The Union Carbide Corporation received technical service fees from the Union Carbide India Ltd. The technical service fees received from the Union Carbide India Ltd. were not included in the total income but these fees were regularly and consistently shown by the assessee year after year in the part of the return showing exempted receipts. Thus, for the assessment year 1965-66, the assessee showed in section 'F' of the return Rs. 8,16,000 as the technical service fees in respect of batteries and Rs. 5,77,416 in respect of chemicals and plastics. The original assessment for 1965-66 was completed by Shri R. Kannan, Income-tax Officer, Bombay, who, however, did not include these service fees in the total income. The present Income-tax Officer at Calcutta was, however, of the opinion that the action of the Income-tax Officer who made the said original assessment was wrong in so far as it related to technical service fees.
(3.) At this stage, it may be useful to recall that, for the assessment year 1962-63, the Union Carbide Corporation claimed a loss said to have arisen out of the contracts for rendering technical services to the Union Carbide India Ltd. This claim was rejected by the then Bombay Income-tax Officer, Shri R. Krishnan, who observed in the assessment order for that year that the technical services were rendered by the assessee to the Indian company mostly outside India and not in India. Therefore, he held that there was no loss arising in India in relation to the services rendered by the Union Carbide Corporation to the Union Carbide India Ltd.;