Judgement

BOSE J.: The following question was referred to the High Court of Madras by the Income-tax Appellate Tribunal under S. 66(1) Income-tax Act, 1922:

"Whether on the facts and in the circumstances of the case when an assessment has been made under section 23(1) of the Indian Income-tax Act, determining the assessee company s income as nil and when proceedings under section 34 were subsequently started to assess the income which the Income-tax Officer believed to have escaped assessment the assessee company is entitled to claim that the loss of profits and gains (including depreciation allowance) sustained by it in the previous year should be determined in the course of such proceedings."

2. We are concerned in this case with the assessment year 1941-42. The assessee is the Anglo-French Textile Company, a company which is incorporated in the United Kingdom. It owns spinning and weaving mills at Pondicherry in French India and manufactures yarn and cloth there. The raw materials necessary for the manufacture, or at any rate much of it, such as cotton, used to be purchased in what was then the British India, through their agents Best & Company Ltd., of Madras. The bulk of their