- (1.) THIS is a reference by the Income-tax Appellate Tribunal, Bombay, under section 66 (1) of the Indian Income-tax Act No. XI of 1922 (hereinafter referred to as the Act) for answering the following two questions: (1) Whether on the facts and circumstances of the case, the action under Section 34 (1) (b) of the Act is valid in law? (2) Whether the apportionment of the asses-see's total income between part A and Part B States on the basis of purchase operations carried out in the taxable territories is valid in law?
(2.) THE facts which are not in dispute and which have given rise to the said questions, are that Messrs. Rajshri Pictures Private Ltd. , Jaipur, hereinafter referred to as the assessee, is a private limited company, having its registered office at Jaipur. It carried on business as a film distributor and an exhibitor. For the assessment year 1951-52, the income pf the assessee was assessed according to Section 23 (3) of the Act on the 30th May, 1952. During the said assessment proceedings, the assessee stated before the Income-tax Officer that profit on the sale of the pictures named "sheesh Mahal". "n, A. Tarzan", "parbat-ki-Rani" accrued, arose and was received at Jaipur as the contracts for sale were executed at Jaipur and the payments were also received at that place. As Jaipur was capital of Rajasthan and Rajasthan was a Part B State, the profits on the sale of the said pictures were subjected to the rates of tax as applicable to income arising in Part B state. Subsequently, the Income-tax Officer, with the previous approval of the commissioner of Income-tax, Delhi, issued a notice under Section 34 (1) (b) of the act intimating the assessee that, according to his information, the assessee had earned considerable income in Part A State since the said films were purchased by the assessee in Part A State and part of his income accrued out of those purchases. The rates of tax payable in Part A States were higher as compared to the rates of income prevailing in Part B States. He, therefore, re-assessed the income of the assessee and it was held by him that 50% of the profits earned on the sale of the pictures should be deemed to have accrued of the purchase operations made in Part A State. Accordingly, the allocation of the income arising in Pact A and Part B States was altered and the assessment was revised on the said basis. It was observed by the Income-Tax Officer in his revised order dated the 28th March, 1957 that the total profits earned by the assessee during the relevant year from the sale of the pictures amounted to Rs. 3,15,180/-and that since purchase operations created a major interest for earning profits in the assessee's line of business, the percentage of profit' that could be deemed to have accrued in Part A State could be conveniently estimated at 50% of the profits earned by him out of the sale. It was accordingly held by him that a profit of Rs. 1,57,590/- should be deemed to have accrued in Part A State. Aggrieved by this order the assessee filed an appeal before the Appellate Assistant commissioner of Income-tax, Jaipur Range, and it was urged that proceedings initiated by the Income-tax. Officer under Section 34 (1) (b) of the Act were bad in law as the said provisions (of Section 34 (1) (b) of the Act) were not attracted. It was also contended that the estimate about 50% profits, accruing in Part A State, made by the Income-tax Officer was arbitrary, excessive and capricious. The first contention was repelled but the second contention was partly allowed and the profits accruing in Part A State were reduced to 331/2%. The assessee filed a second appeal before the Appellate Tribunal, Bombay and raised the same objections. The Appellate Tribunal also dismissed the first objection, but partly allowed the second objection and the estimate of the profits on account of purchase operations in Part A State was reduced to 121/2%. The assessee was not satisfied with the decision of the Appellate Tribunal and hence the said two questions have been formulated and refered by the Appellate Tribunal at his request.
(3.) REGARDING the first question, it is urged by learned counsel for the applicant (assessee) that when the Income-tax Officer passed his first order on the 30th of may, 1952, all the information necessary for purposes of assessment was in his possession, that no fresh information either of fact or of law, came to his knowledge thereafter and so the provisions of Section 34 (1) (b) of the Act were not attracted and his fresh assessment dated the 28th March, 1957 was without any jurisdiction.;