Judgment

S. K. DAS J. : This is an appeal by special leave from the judgment and order of the High Court of Judicature at Bombay, dated 4-3-1953, in Income-tax Reference No. 27 of 1952, by which the said High Court answered certain questions of law referred to it in the negative. The answer to those questions depends upon the true scope and effect of certain provisions of the Indian Income-tax Act (XI of 1922), hereinafter referred as the Act, regarding which there has already been a difference of opinion between two High Courts in India. Unfortunately, we have come to a conclusion different from that of our learned senior brother Bhagwati J., and we are explaining in this judgment, as briefly and clearly as we can, the grounds on which our conclusion is founded.

2. Very briefly put, the relevant facts are these. The assessee, respondent before us, is a non-resident company which has its head office in London and branches in India. It sells and publishes books and magazines in various parts of the world. For the assessment year in question, it submitted a return of income in which with regard to all publications sold in India, whether printed in India or elsewhere, a fixed percentage of what was known as the marked price was adopted as the cost of production. This, if one may so put it, was the method of accounting on which the assessee company submitted its return. The Income-tax Officer apparently accepted it and subject to certain minor modifications as respects some items of expenditure and an alleged bad debt with which we are not now concerned, assessed the assessee on an income of Rs. 82,623. The assessee appealed to the Appellate Assistant Commissioner. The latter issued a notice under S. 31 (3) of the Act against the assessee, and after hearing the assessee, enhanced the assessment of the assessee company s business income to Rs. 1,11,616. The Appellate Assistant Commissioner found:

"It is noticed that on total turnover of Rs.16,01,973 for the previous year ending 30-5-1943, the gross profit amounted to Rs. 4,09,360 working out to just about 25.5 per cent. In the case of World profit and loss account I find that the gross profit earned was £ 231,070 on total sales of £628,000 working out to over 37 per cent. The difference in gross profit is so wide that some explanation had to be called for from the appellant, especially in view of the fact that the appellants do not maintain what should be called an Indian trading and profit and loss account on the same lines as the World trading and profit and loss account. The profit and loss account maintained in India shows only the purchases at the rate at which these were charged to the Indian branches by the London head office instead of the real cost of these publications."

He was of the view that inasmuch as the fixed percentage of the marked price adopted by the assessee company as the production cost for its publications sold in India did not correctly represent the actual cost of production, the method of accounting regularly employed is such that a true figure of income, profits and gains is not deducible therefrom. He fixed the income of the assessee company on the basis of the net world profit of the assessee on its world turnover, and applying that basis to its Indian business came to the conclusion that the income of the assessee was Rs. 1,11,616. He did so presumably under the proviso to S. 13 and R. 33 of the Indian Income-tax Rules, 1922.

3. The assessee company then appealed to the Appellate Tribunal. The Appellate Tribunal remanded the case to the Appellate Assistant Commissioner, but before the remand could be decided came the decision of the Bombay High Court in K. F. Vakeel v. Commissioner of Income-tax, IT Ref. No. 21 of 1950, D/- 11-10-1950 (Bom) (A). The Tribunal then held that in view of that decision, the Appellate Assistant Commissioner had no jurisdiction to enhance the income to Rs. 1,11,616. Thereafter, the Commissioner of Income-tax, Bombay City, appel