- (1.) This is a case referred to the High Court by the Income-tax appellate tribunal of Allahabad under section 66(1) of the Income-tax Act.
(2.) The reference actually covers three cases relating to the same company which has been contesting its assessments for the assessment years 1940-41, 1941-42, 1942-43, the accounting years being those ending on the 31st of March, 1940, the 31st of March, 1941, and the 31st of March, 1942. The company in question is Messrs. J. Webb Sons and Co. Inc. of Philadelphia in the united states of America, its business being the manufacture of carpets. The company is represented in India by an agent named Shamji Mal of Amritsar and its only business in India has been the purchase of wool as raw material for use in the manufacture of carpets. The method by which the Income-tax payable by the company for the period in question has been assessed is as follows. The company through its agent in each year filed returns showing no income as liable to tax on the ground that no sales were made in British India but only purchases, and no profit and loss account or balance sheet of the company was filed before the Income-tax Officer for any of the years. The only figures available were those of the actual purchases of wool made in this country which amounted to Rs. 22,88,709 Rs. 7,65,202 and Rs. 15,26,298 during the respective accounting periods. The Income-tax Officer on the basis of these figures calculated the profits by simply taking a percentage of them, and then, after deducting the sums proved to have been incurred as expenditure, multiplied the resulting figure by four in order to arrive at the companys would income. The Income-tax Officers percentage figures were 7 1/2 per cent., 12 1/2 per cent, and 15per cent. for the respective years, but these percentages were reduced in appeal to 5 per cent., 7 1/2 per cent, and 7 1/2 per cent.
(3.) The assessee company has, however, throughout maintained that it is not liable to any income-tax in this country in which its business simply consists of the buying of raw material and it accordingly put in an application under section 66(1) of the Income-tax act before the Tribunal for the stating of a case and referring it to the high court on the point of law. The questions which the company proposed should be referred to the High Court have been somewhat modified by the Tribunal in its order of reference and in their final form they are as follows :- 1. Is mere purchase of raw material an operation within the meaning of section 42(3) of the Act 2. Can any profit arise out of mere purchase of raw material 3. Whether there was any material before the tribunal to hold what proportion of the profits could be reasonably attributable to the acts of purchase of the assessee in British India ;