P.N.SHINGHAL, J. - (1.) THE first of these two references has been made under S. 66(1) and the second under S. 66(2) of the IT Act of 1922, hereinafter referred to as the Act. Reference No. 6 of 1962 has been made by the Tribunal (Delhi Bench "C") on an application of the assessee in respect of the following four question : "(1) Whether the proceedings initiated under S. 34(1)(a) were barred by the period of limitation ? (2) Whether it could be said that the assessee had business connections in British India within the meaning of S. 42(1) of the IT Act ? (3) If the answer to question No. (2) is in the affirmative, then whether the mere purchase of the goods could be said to be an operation within the meaning of S. 42(3) of the IT Act ? (4) Whether any profit could be attributable to and deemed to arise on mere purchase of the goods ?"
(2.) AS the Tribunal refused to refer the fifth question relating to the adoption of the rate of the profit attributable to the act of purchase of the goods by the assessee in British India, the assessee moved this Court and obtained a direction on August 31, 1962, for the reference of that question as well to this Court. This is how reference No. 45 of 1962 has been made in respect of the following question which we have numbered as question No. (5) for facility of reference : "Whether, on the facts and circumstances of the present case, 20per cent of the profit could be reasonably attributable to the acts of purchase of the assessee in British India ?" As both the reference relate to the same business transactions of the assessee and pertain to the assessment year, we shall dispose them of together.
(3.) THE assessee is the Bikaner Textile Merchants Syndicate Ltd., Bikaner, which was a company incorporated in the former Bikaner State. The company was a non -resident company which commenced its business in October, 1946, and the present dispute relates to its first assessment for the asst. year 1948 -49 covering the accounting period ended on Dewali 1947. The company was formed because there was acute scarcity or cloth in the then Bikaner State in the year 1946 -47 and it was required to operate in accordance with the scheme formulated in letter No. 4113 dated November 6, 1946, of the Minister of Civil Supplies, Government of Bikaner, which was circulated to all concerned by the Director of Civil Supplies under his endorsement No. 375 -T dated November 16, 1946. The scheme set out in that letter was that the quota of cloth allotted to the State of Bikaner by the authorities concerned in British India would be procured by a syndicate of wholesalers which had already been formed into a joint stock concern. It was stipulated that the syndicate would sell the cloth procured by it to retailers at 12 per cent above the mill price, but that a part of that income would be apportioned under various heads enumerated in the scheme, leaving a net profit of 1.5 per cent to the syndicate. It was one of the conditions of the scheme that eight experienced and influential merchants belonging to the syndicate would work as its active partners and would receive 1 per cent as commission from the syndicate by way of remuneration for going to the producing centres to bring the quota allotted to the State from the different stations. One of the eight wholesalers was to be nominated as the "importer". Thus far, the facts are not in dispute. It is also not in dispute that the company purchased cloth in British India worth Rs. 39,72,079 during the assessment year in question and that those purchases were confined to the following parties, as follows :;