SABYASACHI MUKHARJI, J.

( 1 ) IN this reference under Section 256 (1) of the I. T. Act, 1961, the following questions have been referred to this court:"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Additional Commissioner of Income-tax legally invoked the provisions of Section 263 (1) of the Income-tax Act, 1961 ?"

( 2 ) WHETHER, on the facts and in the circumstances of the case, and having regard to the fact that the assessee is a sterling company maintaining accounts in pound sterling, the Tribunal was right in holding that the written down value of the fixed assets should be determined on the basis of the rate of exchange with reference to the date of contract or the date of delivery or the date of payment for the assessment years 1967-68, 1968-69, 1969-70 and 1970-71 ?" 2. This reference arises out of four assessment years, viz. , assessment years 1967-68, 1968-69, 1969-70 and 1970-71. In order to appreciate the questions, it would be necessary to refer to certain facts.

( 3 ) THE assessee-company is engaged in the business of supply of electricity. The assessment years concern the previous year ended on 31st March of each year respectively. The assessee is a sterling company incorporated on the 15th January, 1907, with its registered office in England. Clauses 140 to 144 of the articles of association, as adopted by a special resolution passed on the 9th November, 1949, speak about the keeping of the accounts of the company. Clause 140 of the articles of association states that the director should cause to be kept such books of account as were necessary to comply with the provisions of the statute. Clause 141 of the articles of association provides that books of account were to be kept at the office or such other place within Great Britain as the directors think fit and shall always be open to the inspection of the directors. No member, other than a director, should have any right of inspection of any account or book or document of the company except as conferred by the statute or authorised by the director's or by ordinary resolution of the company. Clause 142 of the articles of association stipulated that the directors should from time to time, in accordance with the provisions of the statute, cause to be prepared and to be laid Before a general meeting of the company such profit and loss account, balance-sheet, if any, and reports as might be necessary. Clause 135 of the new articles of association adopted by a special resolution passed on the 31st October, 1969, stated that subject to the proviso to Section 147 (3) of the Companies Act, 1948, the books of account should be kept in, the head office or such other place as the directors think fit and should always be kept open to inspection by the members. No member other than a director should have any right of inspection of any accounts or books or documents of the company except as conferred by the statute or authorised by the directors.

( 4 ) THEREFORE, admittedly, the assessee is a sterling company maintaining accounts in sterling at its registered office in England. At the annual general meeting of each year, it laid before its shareholders the profit and loss account, described as revenue account and net revenue account, and the balance sheet--all expressed in pound sterling. In the proceedings for the assessment to tax, for the assessment year under reference, the ITO, after looking into the surplus and revenue account kept in sterling and after considering the inadmissible expenses and after allowing the depreciation, development rebate and profit under Section 41 (2) of the Act, converted the resultant sterling figure into a rupee figure and determined the net profit or business income in rupees. In order to appreciate the contentions and controversies raised in this case, it may not be inappropriate to refer to any one of the assessment orders as an illustration. We may refer to the assessment orde

Click Here to Read the rest of this document