Deb, J. - (1.) This reference under Section 256(2) of the I.T. Act, 1961, arises out of the assessment proceedings for the assessment year 1964-65 for which the previous year ended on December 31, 1963. The assessee is a company. The company carries on the business of distributing petroleum products. Its business was carried on in India, Burma and Pakistan. In the annual report, the directors of the company stated, inter alia, as follows : " Since the arrangements for the acquisition by the Revolutionary Government of Burma of the oil companies' investments and marketing assets in that country have been fully completed, and the company has received the final instalments of the agreed price in December, 1963, and April, 1964, the directors now recommend a special distribution to the ordinary shareholders...... The company did not trade in Burma during 1963 and operations were limited to winding up the affairs of the Rangoon branch. "
(2.) Though the directors stated in the aforesaid report that the " company did not trade in Burma during 1963 and operations were limited to winding up the affairs of the Rangoon branch ", the company nevertheless claimed in the assessment proceedings that the loss sustained by it in Burma was an allowable deduction. Therefore, the ITO, in his letter dated September 24, 1964, to the company wrote as follows : " The company appears to have suspended its activities in Burma from 1-1-1963, vide the report of the directors to the shareholders at page 4. If this is the correct position then the expenses claimed under business in respect of the Rangoon branch, will not be allowable as no trading operations were carried on during the year. It is, therefore, proposed to disallow the loss computed in the Rangoon branch and ignore also the profits under the head ' Business '. You are requested to furnish your views on this point. "
(3.) The company replied by its letter dated October 29, 1964, as follows : " While, broadly speaking, it is correct to say that the company did not trade in Burma during 1963 and operations there were limited to winding up of the affairs of the Rangoon branch, the company did nevertheless ' carry on ' business in Burma in the year 1963 inasmuch as the company continued to sell certain of its trading stocks, mainly lubricants and greases. Furthermore, the company continued to maintain an establishment for the purpose of finalising the outstanding affairs--mostly pertaining to the business. It should be appreciated that in the case of an Indian company, unless the remittance of the profits of the foreign Branch has been effected, the trading will not be complete and such remittance can take place only after all outstanding matters including accounting, taxation, etc., have been settled. ";