Dipak Kumar Sen, J. - (1.) The material facts relevant to this reference are, inter alia, as follows : Turner Morrison & Co. Ltd., the assessee, is a 100% subsidiary of Hungerford Investment Trust Ltd., a non-resident company. The assessee entered info an agreement in writing with one Messrs Geoffrey Turner & Co. Ltd., another non-resident company incorporated in the U.K., on July 11, 1961, under which the assessee employed the said foreign company as its agent in the United Kingdom and other parts of Europe for the purposes of the assessee's business in India. The service to be rendered by the said foreign company as agent of the assessee were set out in the said agreement in writing. The agreement provided that the agent would receive from the assessee as remuneration in respect of the services rendered in terms of the said agreement an annual fee at the rate of 12,000 per annum to be paid by the assessee to the agent in sterling in London in four equal quarterly instalments each year. The agreement further provided that the same would continue for a period of five years from January 1, 1961.
(2.) In terms of the aforesaid agreement, the assessee paid to its foreign agent 12,000 in the calendar year 1961.
(3.) The assessee was assessed to income-tax for the assessment year 1962-63, the relevant accounting period ending on December 31, 1961. In the assessment proceedings, the assessee claimed a deduction of the said amount of 12,000 paid to its London agent under the said agreement. It was found that during the relevant period, the arrangement between the assessee and its London agent was that the assessee would also pay to its agent 4,000 from Pakistan. Though the assessee actually got permission from the Reserve Bank of India to remit 12,000 from India, the assessed, in fact, did not obtain permission to remit 4,000 from Pakistan. It was found further that during the relevant period, the assessee received from its London agent three motor vehicles being Rover cars of the value of 4,000 which was arranged for by the said London agents of the assessee in violation of the Foreign Exchange Regulation Act. Proceedings were taken by the Directorate of Enforcement against the assessee and a fine was levied.;