Judgment

GAJENDRAGADKAR, C.J.I.: When this appeal was argued before a Division Bench of this Court on October 23, 1964, it was urged on behalf of the appellant, the Keshav Mills Co. Ltd., that in view of the present decisions of this Court in The New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax, (1960) 1 SCR 249: and The Petlad Turkey Red Dye Works Co. Ltd. v. Commr. of Income-tax, (1963) Supp 1 SCR 871: the appeal must be allowed and the case sent back to the Bombay High Court for disposal in accordance with the principles laid down in the latter decision. At that stage, the learned Attorney-General for the respondent, the Commissioner of Income-tax, Bombay North, Ahmedabad, urged that he wanted this Court to reconsider the said two decisions. He fairly conceded that if the said two decisions were to be followed, the appeal would have to be allowed and sent back as suggested by the appellant. The learned Judges constituting the Division Bench took the view that an opportunity should be given to the learned Attorney-General to press his contention, and so, they directed that the appeal be placed before a Bench of five Judges. Thereafter, this appeal came on for hearing before the Constitution Bench on November 5, 1964. On this occasion again, the same contentions were raised on behalf of the appellant and the respondent, respectively. Mr. Palkhivala for the appellant urged that it would be inappropriate to reconsider the recent decisions on which he relied, and he argued that on the merits, the view taken by this Court in the said two decisions was sound and correct. On the other hand, the learned Attorney-General contended that he wanted this Court to reconsider the said two decisions, and he pointed out that the matter was of importance, and so, the appeal should be referred to a larger Bench in view of the fact that the decision in the case of the Petlad Co. (1963) Supp 1 SCR 871(supra) was unanimous decision of a Bench consisting of five Judges of this Court. It was under these circumstances that the Court directed that the appeal should be placed before a Special Bench of seven Judges. That is how it has come on for a final decision before a Bench of seven Judges; and the only point which has been raised for the decision of the Special Bench is whether the two decisions in question should be reviewed and revised.

2. Let us begin by stating the relevant facts leading up to the main point of controversy between the parties. The appellant is a company registered in the Baroda State as it then was. The assessment year with which the proceedings giving rise to this appeal are concerned is 1942-43 (the accounting year being calendar year 1941). During the said year, the appellant was a non-resident. It carried on business manufacturing and selling textile goods in the Baroda State. The operations in relation to all sales of goods manufactured by the appellant s Mill were completed at the appellant s premises at Petlad on the footing of ex-Mill delivery in every case.

3. It appears that on March 22, 1947, the Income-tax Officer, E.P.T. Circle, Ward B. Ahmedabad, passed an order under Ss.23 (3) and 34 of the Indian Income-tax Act, 1922 (No. 11 of 1922) (hereinafter called the Act ) and held that sale proceeds in respect of the sales aggregating each of the following three items were received by the appellant in British India. These items were:

(i) Sale-proceeds actually received in the accounting Year through M/s. Jagmohandas Ramanlal and Co. Rs. 12,68,460

(ii) Sale-proceeds through British Indian Banks through Drafts Rs. 4,40,878

(iii) Sale proceeds collected by collecting cheques on British Indian Banks and Hundis on British Indian Shroffs and Merchants Rs. 6,71,735

It is with this last item that the present appeal is concerned.

4. Aggrieved by the order thus passed by the Income-tax Officer, the appellant preferred an appeal before the Appellate Assistant Commissioner of Income-tax, Ahmedabad Range. The Appellate Auth