Commissioner Of Income-Tax, West Bengal-I, Calcutta v. Simon Carves Lmited

— RTARTA, afraal atret-l, HARAT |aa| oe atena araa fafaes (The Commissioner of Income-tax, West Bengal,Calcuttacm Simon Carvas Limited) (17 ae, 1976) (Ito Tao Wo BAT, Mo Tao aeatfear ate Haat fag) genn zaq wea, 1922——faan 33-—aa, aTat afaeral at arora at qefeai--sraat afereret BTza faaa & sfeafan ata cefaadt Fa feetcH asaat at oz g--sa fran % mila wate & ae afamer ata ea R satrard aerat afaerd Afadanfirere fafga frat vot Q-—zafewer wtsatT mraaxafafraa,1961° (1961Ft43)——ETeT147(@)——faaten & ee we meals’ Ae fratcrogyH ats vera ge at aa ag are amr ae Baegat faateor ate fafirsafee & ag at cat feet wertarenafer a at at Gat are ge arr at sare ae aaa faut ag 1959-60area i & faraataeqatat faa ad 31 Ard, 1959 at ara a tat ar frettedaeadt 21 araat afrartt Aaa faufeT31 ATH,1960FFTafanin gaitfaati her A areare HA art ua afrarat21,49,169 wa at Ha ara oe fearar) ale5 Aara, 1962 aT arrat afer + area afafare, 1961 at are147(@) & afta artarfeat sree at wiz 29 Geet, 1964FT% 69,85,097 WF at Ea arr ox Fratergot fear, wa: Percrears ana ait Gftater& ang antsa ® dra wat gacH aro ot fe ae faite & aay arrax afyardt A gewATafaBeI, 1922 % fare 33 % aia a as amar a us+eT arr ar aa fe. qaftatwr aa aaa aaa afar set frre & afta at wé om oa cefe a wear att attefag art ot fraffedt at cit & age mam (ait) * aname enraet feat aor at fe arer 147(@) % ata faaieoGa: TRE HWS aT aH ahead at aread fart afaafeareft at araat afeard at cata arinfeat ¥ amar atva tafe at aftafad wet at ate ofeamfiar adt aRh yea:mre 1e A age am (attr) 3 ag afafraifia farfe arr147(@)% ate ariaifeat afar a wit maaATAaferardt qafrater ariarfedt% arora at omafern cafe aetmitt AHA AT ae: Ta ote ATT BT ot) asa Fare faq art ox wat ag afafratitr fear fe qafaatererafent % areet afsard aa faaizeF aoaae danaFemo ge wet awaaT| Used feat a Feo oy Sea TATAyas oer fafase fear vor fe aa ofreco are ag afafratfca|feat atat dre at fe arrax afafiam, 1961at aT 147(@)& salt qafrater aa aaa areet afrerd art fararactt% fran 338% mama area at va cafa & ze adt arara free fe qa frator F aqaeo fear wata ateoe fraaraatt& wate stwaata arora at fet aranfers cafe st saatagt AHA AT| Bra TATA A sa wet BT Tut faaifedt Fqa a usa fart & feesfear faafareweawars A aha Ft TE atte afer Hw ex,. ara at emseafafauifta—somq acat 2 fe afe gay. wee, from 1922 A sfeafar aT fram wa 33 va 28 axAmdt& Tt oreee afer at am, anit ar afaenstat ara HU FT va fare H sferfaa dia owgfaat Ha feetGH at WIAst ge sre eMwa Prater eat ana qaETabrare at fratfedtat ada aat aoea ® fapBRT z4q Bee, 1922 % faan 33 % vfeafed dt ocatrayTa feet cH at aTat we ora at) caf® at F gearPafeafamed aut h catmare arratafar# frre 33 aver faderhiverea caraarATfeat war St g a aie fear va aA faderfieere att ag faa at ei eet ® oe faw ars sharara vel ¢ ff son afrarat & fatarfirere ar ofa or earreraait & war vat fear 31 ag aera At vat fear war & feaay oleae feat whet tq & Tha gat AT) Saaaa seva @ fe see arr aft ae cafe cat ot fred ofermacqedfratfedt & fac va afer at aaa H frerax ax afres setgat at ot fe feet oer cafe at aoa & ofermmeaqey goerar,eTa 4g sat wa agt él fear farmer war fH ar) farerfirnrc ar area fire ofa gx POTTaEATarfrasorafeat ar sah FU J ACar Hea F ses fare eTPe rertraget ét 8, art ata afar) aati ag aihadt azara, 7STS Bay aT aT = fH aE A Tar az faet fratfafiraera ey & a7 Z, WITSereTet teat arfen, at at saz ara stSe Ta sa J art vel wer arfar st ag era ar fe fraissft cera fear wat att ag aa waa & fH afe 2 seraused fram & far weafes grass ar & vie afurracaeyfratfeat & sft acafies sfraa et & ood ahs BT MayeFaeeT TT GAs ae Hag ama ora aise fe TAA asfarerfaart at wat ofa ak aiaacna Of & qe fear&t (Ft10)- qe Prater & ara arrat afsart arr fer war weafataw gfe & wat area ar aie feet wadt F areata waiTi Ta area FH fedt vadt ar ware se CORIGME Esewerfe ag raat frat& eet ee aT FT ara agiZI Frater & gt ora are araett Hott fe 1961 ae afer at COMMISSIONER OF INCOME-TAX, WEST BENGAL-I, CALCUTTA . SIMON CARVES LMITED August 17. 1976 [H. R. KHANNA, R. S. SARKARIA AND JASWANT SINGH, JJ.] Income-tax (11 of 1922) ss. 34 and 42, Income-tax Act (43 of 1961) s. 147 and Income-tax Rules, 1922, r. 33 corresponding to r. 10 of 1962 Rules--One of the methods mentioned in r. 33 applied for asse.\Slncnt-Higher tax liability if another method in rule adopted-If a case of income escaping assess1nent. Section 42, Income-tax Act, 1922, provides for assessing the income, profits gains deemed to accrue or arise in the taxable territories to a person not resident in the ta•xable territories. Rule 33 of the 1922-Rules is made for computing the profits and gains of business deemed to accrue or arise in India in cases where the income tax officer finds that the provisions of s. 42 do not provide sufljcient criteria. The rule mentions three methods and it would be. open to the income-tax officer to select and apply one of the three methods mentioned in the rule. · The assessee-respondent in the present case, is a non-resident company carry-ing on business as construction engineers both in India and in other parts of the world. The Income-tax Officer found that s. 42 of the 1922-Act did not provide sufficient criteria for computing- the profits and gains of the assessee deemed to accrue or arise in India and, therefore, assesseed the income applying one of the three methods mentioned in r. 33. As it resulted in lower tax liability, his successor initiated proceedings und•<ir s. l47(b), Income.tax Act, 1961, adopted another method contemplated by r. 33. and assessed the income nt a higher figure. The_ Appellate Assistant Commissioner, the Tribunal and High Conrt held that in making the reassessment the Income-tax Officer could not depart from the method of computation followed in the original assess-ment, and adopt an alternative method· of computation though permitted by the rule. In appeal to this Conrt, it was contended that the lower tax liability in the original assessment showed that it was a case of escaped assessment and as such s. 147 of the 1961-Act was attracted. Dismissing the appeal, HELD : It is open to the Income-tax Officer at the time of making the original assessment to adopt one of the three methods mentioned in r. 33 for computing the taxable income of the assessee. From the mere fact that the method selected by him resulted in lower . tax liability compared to the liability which would have resulted from the adoption of another method under the rule, it would not follow that the discretion was not exercised by the Income-tax Officer in a proper and judicious manner, and that it would be a case of income escaping assessment. [212 E-F] -(1) 'The discretion to choose one of the methods in r. 33 onght to be exercised by the Income-tax Officer in a proper and judicious manner. In the present case, there is nothing to show that the discretion was not so exercised by the Income-tax Officer, nor was it suggested that he was actuated by any oblique motive. The Income-tax Officer ordering reassessment does not sit as a Conrt of appeal over the officer making the original assessment, nor is it open to him to substitute his own opinion regarding the method of computation of the income especially when the method of computation adopted at the time of original assessment was permissible in law. The taxing authorities exercise quasi-judicial powers, and in doing so, they must act in a fair and not a partisan manner. Although it is part of their duty to ensure that no tax, which is legitimately due from an assessee, should remain unrecovcrcd, they 388 seaan arrarerafacia fast =»:[1977] 3 Ao fo To art 147(a@) # sfeafan &, wach wr arg wea sree St ela St Taeat frat chonaet ara frat a ee mat FATA MITTguard ® at Fema aA watB aren wee gt ata1 aeircaa fate Her aren are fafirn afte Foaat aerai atc fret vadt & aren afer a at set area Car vat gitat fe aac afufram, 1961a wre i47(@) ar 1922 #qeA are34(1)(@) A aka & geeaT aTqafaater @t ara 2% arat sraat afaared wa fate atar. qraat afvardt & soe ater earFH ET A ae ATpeat21a & gafrater a orem 2X ara array afaardHTara 1 frat wa Frater fear at seit wa sfreatira wet Fiee wrt att 2, fate wo a wafe wa fate & ana aTTeae tamara sefafafa at afFwa 21re aa fea@nouar at are cafe wea% ofeormeaed ay at Tea 7ora at we aidt,dH aaa FH frator F qa: wren fag aay saratfaa adl seem1)(4trii)|.fafza adtett afaafcat : 1973 at fafa sitet Wear 1313.- - ATATAT at we we AIXGo ANN ANN 1966 % worat fae aear 208A wera Gea ATATAT® arte7 faaeaz, 1972 are facia ate orem F faeg at we we areal Bt az a Bt az a az a a areal Bt az a Bt az a az a att ato Glo TAT, AIT F AIX“meraoo at site &oo at site & at site & site & &_gaitmere ho feet ta[Heute] AT A Tho,Go ANN ANNafare afar.TT “meraoo at site &oo at site & at site & site & & sitet a site 8 at wae flo ATAoftBo Uo mer erat at are zB ar faeryeararferafara Wao WIXo Brat F fear carare anafactt MARCMA A TATA aat TE ail TAHT THAwarren & freefee Hg feak srTer wT A wT A A Ter wT A wT A A wooFm mraat afaford F ate fee ae cs faded frafafas wea at sat fratfet-ooett & cae Fak user faa¥ fer feat “aot are & weal ait afefeafeal at care F eaefaseF fae ag ofafraifa aor de ot f&arret atafrag, 1961 Bt are 147(a) % aha gafaaterae arr araat afaard froma& fot 33° Farearmat at ga cafe & ge agt ara or feat feWa fratAY aaron fear war a ate vw franracht(araezt franrael, 1962 % fan 10% qemMa) % aehittwnat ary”:|et wart arom at feet arqefeon ref A aaa adi waar«2. AE ATAAT Pare ay 1959-60% adr FS faaay fat at 31 ATH,1959.8% ware at mat atamar wert f1 arrac.afeard+ wat Prater 31 ars, 1960fretted afraion sitter & er H areare azh aret usTYarrat 21,49,169 afrartWa 3 Ft arma. Ha ara afefean, ax FEAT 1961 aT (fa 5 AaTaY, cae 19627 TTTatatrry ser war 2) at arr 147(@) # aie arialTea FT X29 Bat, 1964 Ft 69,85,097 eTH aT a ATAat fretwr cot fear| "3. et frater ana fratiedt § aadae &fafaafaaent & onnfts sofort & serra afer araae at feastRee Bt TAH A ww alae enige oe aad st sat ferenteta fafaés % ara at we dt| sa dad at aaa frat3eTATS seatteet frorat at-va are at ofawea fear wat at ot fegeara eta fafees are amt 18( 3a)* watt. He TT HCH area F a aad at.) gree afeers4a oa afaera.are st aay 533,164 BIT at | wer afer am “artttad saat % agar”. 16,16,005 wat aati a 390 0 weaaa saree fase ofaat[1977]3 THe fro To 4, Gatrater artarfeat A ATTK afearat st Tesfafafad att FT AT-—||re (i) ara a fratfedt at gat are fafaa afaerat & ga gat ae cfna set atfe ara FH aet FEafaare at ondt at ate ee ware eft Tava HBTit TWA: SA ATAT FT ATS sfana, fra® at[F][ GE]FT:wat frat war at area & at we afarF wee Aar ate ae frutfedt at ga ara a afenfaa fear STAT:a; at cerr ofeaiad Bt art wafert at; (ii) waa (iii) ara ® He sarT aT frateT ATT 4(1)(*) s gota waite ® mare Te feat aTAT aT,” Sar fe vex wet war 2, fratfedt at ga am qafratet cPOTTET 69,85,097 Bra aafer BW Te at1 FT AA aywen waar FA ® fae sane afrars F eatge arat afaatat aad ATT 533,164 eTa wantFt, stat fe ae frateT% feat vat att wear afaeah at atat BART afaare 4qafrater ariarfeat # fratheatt art 64,51,933 wt waaThesAaa Prater & ant ate qafeater % ama dais aT FAa at ea ae H aren oT fH ae fratet F AAT AHSafirert X geen daa Bea, 1922 % fran 33 ¥ mata a Teeqoat a va cate A ata at wa fR Tafrater HC TATmraat afrarer X set fran & adtast ae Cw WT qgla aTaraATtoSe_ must a,Jso at the same· time not act in a manner which indicates that the scales are weighted against the assessee. It is not correct to say that unless the authorities exercise the power in a manner most beneficial to the revenue and consequently most adverse to the assessee, they should be deemed not to have exercised their discretion in a proper and judicious manner. [213C, 212G] (2) The original order of the first Income-tax Officer was a legally correct order and was not vitiated by any error. The a·bsence of an error would justify the inference that it is not a case of income escaping assessment. There is necessarily an element of error which becomes in cases of income escaping assess-ment mentioned ins. 147(b) of Act of 1961 manifest in the tight of subsequent information received by the Income-tax Officer. In the present case, no income has escaped assessment due to oversight, inad~rtehce or a mistake committed by the first Income Tax Officer. Therefore, the case would not fall within the ambit of s. 147(b) of the 1961-Act ors. 34(l)(b) of the 1922-Act. [213A-BT CrvrL APPELLATE JuRiSDICTION: Civil Appeal No. 1313 of 1973. (From the Judgment and Order dated 7-9-1972 of the Calcutta High Court in Income Tax Reference No. 208 of 1966). and M. N. Shroff for the V. P. Raman, Addi. Solicitor Genl. Appellant. K. Ray and D. N. Gupta, for the Respondent. D The Judgment of the Court was delivered by KHANNA, J. This appeal on certificate, by the Commissioner of Income-tax, is against the judgment of the Calcutta High Court where-by the High Court answered in a reference under the Income-tax Act the following question in favour of the assessee-respondent and against the revenue : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in making the reassessment under section 14 7 (b) of the Income-tax Act, 1961, the Income"tax Officer could not depa_rt from the method of computation permitted in Rule 33 of the Income-tax Rules and followed in the original assessment, and adopt an alternative method of computation also permitted under the said Rules (con:esponding to Rule 10 of the Income-tax Rules, 1962) ?" The matter relates to the assessment year 1959-60, the correspond-ing financial year for which ended on M<!rch 31, 1959. The assessee is a non-resident company carrying on business as construction engi-neers. The Income-tax Officer made the original assessment on May 31, 1960 on a total income of Rs. 21,49,169. On November 5, 1962 the Income-tax Officer initiated proceedings under section 147(b) of the Income-tax Act, 1961 (hereinafter referred to as the Act) and completed the assessment on February 29, 1964 on a total income of Rs. 69,85,097. At the time of the original assessment the assessee filed the return H of income along with the auditor's certificate of the trading results of the various contracts. One of those contracts was in respect of work at Durgapur with the Hjndustan Steel Ltd. In respect of that work the assessee filed a provisional estimate of incot?e whic~ was a!rived at "by calculating the income that could be attnbutable m relat10n to the tax deducted under section 18(B) by the Hindustan Steel Ltd." The Income-tax Officer computed the income from that contract at Rs. 5,33,164. The income from the other contracts was computed at Rs. 16,16,005 ~'as per audited statements." In the reassessment proceedings the Income-tax Officer purported to find as under : (i) That the assessee's outlay in India to the total out-lay in various contracts represented a fair index .of operations carried out in India and as such 60 per cent of the profits attributable to sterling payments and claimed to be exempt related to operations in c India and fell to be included in the assessee's total income; (ii) that the figure of depreciation: required to be changed; and (iii) that some portion of the income had to be assessed under section 4( 1) (A) on receipt basis. gant Pe ont oe faratfedd at aire & aerae ATTA _(adtr)® ara 3g aaaea fear war at fe aver 147(@) >spite Frater qa: sreer aed wT mraat afaarad Bt aTtatefrat afeanfeat & at ate arene aferaat qaoharard arterial# a@rmat esa cafe at ofeafar wer aT ate africaaa ot at aaa:aaarg ve atwera art (iit)9 4aoe ag oufafratfa fear fe ar 147(@). & afta araarfeatafer at we amac afaardt qalrater wrraiagt A aaa ATamafers tafe agt aTAT AHAT AT| Wa: Tad AAA RAT Heft 1 gah ary at ware amar (atta) A ae Aa eaaat fatfe arnt afanrtt & far aT BY 22,23,231 BIT ATTT HOTraratfad ata ate faatfedt at ta Gaday F art Ho ars Aratavat at|| 6. afaaen B® aan aia F frat Y az tH fear fewea wmsa (atta) & far ag aiafaatiza wer earaifaawét at fe —-(i)wiaataieert, at aiafaagat are147 (@) H wata wraaifeat sreea Herat ary afaacfear segwetft; aie (ii) aarae araaet (attr) F frafredt at ard FFa welfaat Hae HTH Tae HS1 TIT Mae Bl aTaT HlaHTT+ ag afafratfer fear fe arr 147(@)% aatt wetarfeaifafirara wr & sree at ag at 1 fetta mare a aaaafanen % agra art (ait) 8 azar si Fl az Aa artafratfa ma faatena arae we daar at cafes sent aa wen,1922 % fam 33 % adttsama A a qamekar Aaqaré we gaft ur wea wafers aftat1 afsatr F azafafrattea frat fe Dal & cafsat vata =f cafae aeaanerot ana at fe aa fake & ana frag 33 % ofa fagm afrat fafase arerx It wet at ATTA, HWA F BIE aa Esafaaen & fear a qafatenardatieat A araaq alentaa fra F waATT TW ATA & éy & ge aét aHar: at:giant X ag fade fear fe “aeoar at adit cafe at aaaiagt at fe aa faater Fo maare we at, Ca fresh aaratst 3mala wat gu fad rather seca aT ah, Target dat 7gefya waaay ar sarkta fear arar aife, gatraten frat caravaa/ ay7, Umer fafase fare fear Ft wat Te a It ga HI wet Bqt aT Used WaT fant TT17 M of Law/77—27: 392 seaam amare favia afast = [1977] 3 Bao fo Go % faces Fat Ft ana seq cgravaa 4 ‘wet gs ar’ geal Fma & ofa faa feat ar ate ag aa onze for at— EK K cee tet ara ufasa ¢ fre fratfeat wzwiaartal & aart Fame Vt ware ar TT He ooferarfeateateryat aaa at ataTd A aa TEJ 1 zazmeal F gaa mia a Gay aa afasa ad} at ancdt faaax fafa arr waatfed frat caft ar maa Ht atat afacfsa a feat wat at1 sa aaa aoafafeara ded vata * ata woda al otfart ae odtfaaa walt fram 33 ar WaT at Te UH wa TafaaT ATAU HW Bl Huda at ws at} wa: ag teteel ee aT aT HHT aat ¢ fea Tafaater ariarigata wart at earftr & aeata adh arar ware” 8. gare ana avian F faery watwerarzart A seqarava & facie ox orate fear et wie ag acta dt fe goaararaa & far ag afafeatfea sear waa at fe seta ATAATfrac & wet gf ara at area at at ae fart faaifet-seat at miea ay TX ae aH fear efH sea wareSe ATATAT«WAT HT ae SI| 9. im at 7g aetel oe fear at Fad adna saat* ofa fade ae car saaifaa stm1 efosaa seenfaq tac,1922 # are 4(1)(a) ¥ waar va afafran B soared Fmatt. tet eu, fret aferoat fadt ca ad at ga am ® -mead fed at ala 8 qed ag aa ara, ara weoafaaiT2 ot fe va zat @ ga ag F cheat va seas eiar seaal ar wladt waar GqMs EU AAs a wale Cat aafsr vaay ® eta aude satat fratoF ataa 1922 aawaeBY are 42 HT Saar(1) H wee aiF ayagsuara feat vat & fe wceaa dal at fedt areard ara &arama FAT Tas Wemera: aT Tas: seNT war Mewar AAarat aa ara, ara waa ara HUT aal F wer Mew The total income of the assessee, as already mentioned, was determined as a result of reassessment to be Rs. 69,85,097. In arriving at the figure of the total income the l:lcome-tax Officer estimated the iJ.1come in respec~ of Durgapur contract to be Rs. 5,33,164 as had been done in the original assessment. Regarding the other contracts, the Income-tax Officer determined the income of the assessee in reassessment pro-ceedings to be Rs. 64,51,933. The difference in the income computed at tlie time of the original assessment and at the time of reassessment was due to the fact that the Income-tax Officer at the time of original assessment adopted one method of computation under rule 33 of the Income-tax Rules, 1922 while the Income-tax Officer making reassess-ment adopted another method under that rule. On appeal it was submitted before the Appellat~ Assistant Com-missioner on behalf of the assessee that the action of the Income-tax Officer in reopening the assessment under section 147(b) was without jurisdiction and th~t the Income-tax Officer had no jurisdiction to change the method of computation as originally adopted in the revised proceedings. The Appellate Assistant Commissioner held that the proceedings under section 14 7 (b) were bad and that the Income-tax Officer could not adopt an alternative method of computation in the ;reasseS$ment proceedings. He, therefore, allowed the appeal. The Appellate Assistant Commissioner at the same time observed that the Income-tax Officer would be justified in computing the income to be Rs. 22,23,231 and that tl}e assessee had no objection to such a revision. In appeal before the Tribunal the department urged that the Appellate Assistant Commissioner was not justified in holding that the Income-tax Officer (i) had no jurisdiction to start proceedings under section 14 7 (b) of the Act; and (ii) that the Appellate Assistant Commissioner had erred in allowing deductions in the income of the assessee. The Tribunal held on the first ground that proceedings under section 147(b) had been validly initiated. Regarding the second ground, the Tribunal observed in agreement with the Appellate Assistant Commissioner that the mode of computation adopted in the original assessment was one permitted under rule 33 of the Income-tax Rules 1922 and that the mode adopted in reassessment was another alternative method. The tribunal held that both the methods being permissible, it could not be said that any mistake was committed in computing the income at the time of the original assessment on a particular basis adopted with reference to rule 33. In the opinion of the Tribunal, the Income-tax Officer could not in reassessment pro-ceedings depart from the method of computation adopted in the original assessment. The Tribunal directed that the reassessment be made "adopting the same method of computation as in the original assessment subject to any adjustments which may be justified such as excess depreciation being charged in the account and so on." ra TSAT SA are BT TAT TTA Ae TYNt Te tat aa, aayar afaearat at gnare cafaa ga aa ar fread tet ¢ wal Fzat wae ara F gaat gah afeat Bara TF aaae A Teaavy| are 42 a srarer (3) H aqare TH areareBY TMTAfaaat aa afer aude dat a aa st add F FAFIRATReg are Badia aera Gal F saat ar Heat ee aHne ara ot afar Raa TY ara ae afeara slit fas areof gfaa wa Boag araT aT ama at fe a Heaa aal A at TEafearat F sa aT HRHT STAT aT MTT ET s|10. aa aa a frathetiseadt afaatrsethrati %eqarea F aan fasa F eg aral[A][ Hreare][ feat][ BAT][ AT]Gar sata dat & fe wiaet alae A ae cat fe1922 9Gye at ar 42 Bwager saeFR aF seAT aTMaqa eu aad ae arai alt afaarat at dara F faq vatafagia saahaa aawea J1qaqa 1922 ait weaFfaa 33 at mamea fra war ary saat fase Catraedafefeafa at arma wea H fac AT aarae wal FAIL«AT ATae g—| efEay Ta arma a fad aeax< afsard atwagz at fe wuaa ada % arex frara wet arafratsafsa FT yeaeta: at Taare: Huda aa A feat areartaravqoS aeTAeR aT sa A waaT Huda aat A aTfeat accfa B® arera & ar va arafa AatHUTAaat F Prat arfea waat weal % ala H ATETA qat saa atSTH TT Gare St TE HI AHA AT eT HST A HUTetal Hag Ee WETE =— Ee WETE =— WETE =— =—“In anycase in whichtheIncome-tax officeris ofopinionthat the actual amount of the income, profitsor gains accruing or arising to any person residingoutthrough or from any business conection inthe taxableof the taxable territories: whether ‘directly or indirectlyterritoriesor throughor from any asset or sourceofincome in the taxable territories, or through or from any ‘siiat Hag Ee WETE =— Ee WETE =— WETE =— =— «Fae 394yeaan waratay facta ofast =.[1977] 3 Fao Fao qo Hare we feet aa-ofa & rege F at sae Tea.at saaa grt aret ara, arat ar afaarat at aveatarwae afafafeaa aal at at aadt § aat waar & frarorerates Tat ara, arat ar afsaral Ht THA ST THTMEAT AT FAT AA ara stad F sar sforma 7x aT fHmaneomfaare afeagad art, aT Cat waa ot fretva afer F areaF Fa aval F sfa (TA arastdara area aay afafaaygoat& azar aTarent) ag marae at otf sa gare MAA aT Vayaaa aret srftaat ar areare at aa sofaal & via Tarfret ax tat Ofte & at arzax afrarel saqad aAafeafat at ar aaa” Ta wT aT wre Fa oe, fas fie carer arg araea adt & favasraea fear wart & fe va feat area a, fredfe arra<afar at ag ua et fe aude dat & aex wer are fetenter ay Wea: aT Tea: HUT sat A feet wreard ararae AeA A Al Ga ataea F GAT MAA May SA aret Aa,aray at afaarat at areatan wan afatateaa agt at oT rad2, aract & frater F sorry cat aa, arat ar atwaralat waa farafatad ea a ofvafad at ot aadt g—7 (1) 38 HTT Vana aT Maya sa ary mrad F—gaasfara om ot femraae afar stadaaa, aT money lent at interest and brought into the taxable terri-‘tories,incashorin kindcannotbe ascertained, theamount of such income, profit or gains for the purposesof assessmenttoincome-taxmaybecalculatedonsuch percentage of the turnover so accruing orarising asthe Income-taxofficer mayconsider to be reasonableor onan amount which bears the proportion to the totalprofits of the business of such person (such profits beingcomputed in accordance with the provisions of the IndianIncome-tax Act) as the receipts so accuring or arising beartothetotalreceiptsof the businessor in such othermanner asthe Income-taxofficer may deem suitable.” (ii) Tat wen oe faaar va eater F HIATT FTea wat B xfs (Ga wat A aaa area aseafifran & sealB® aqare st arett) agl wqATTata fe ga ware gear ar Taae gt aret weftaT Bitare at Ha oThtaat B oft S; ATA (iii) fret wear wat Ofs & gt araaT afaare At the instance of the revenue, the question reproduced above was referred to the High Court. The High Court, while answering the D question against the revenue, referred to the connotation of the words "escaped income"and observed " .... it means an income which the assessee has succeed-ed in getting away with or has eluded observation or search or notice of the tax authorities. In other words, it cann0t mean an item of income which has not been taxed by purus-E ing a method approved by law. In the instant case, the excess income was not taxable under the third method bnt it has become taxable by following another method sanctio1rnd by the same rule, namely, rule 33. This is not, therefore, a case of escaped income which has not been brought into the orbit of taxation in the reassessment proceedings." F In appeal before us learned Additional Solicitor General has assailed the judgment of the High Court and has contended that the High Court was in error in holding that the instant case was not one of income escaping assessment. As against that, Mr. Ray on behalf of the assessee_~respondent has canvas~ed for the correctness _of the view taken by the High Court. Before dealing with the contentions advanced, it may be apposite to refer to_ the relevant provisions. According to section 4 ( 1 )( c) of the Indian Income-tax Act, 1922, subject to the provisions of that Act, the total income of any previous year of any {>erson i~clu~ks all income, profits and gains from whateve~ s~urce ~enved which if such person is not resident in the taxable te~ntones .du~mg such year, acc!ue or arise or are deemed to accrue or anse to him m the taxable ternto-H ties during such year. Sub-sectio~ ( 1) of section 42 o~ the Act. of 1922, inter alia, provides that all mcome, profits or gams acci:umg or arising, whether directly or indirectly, through or from any b?smess connection in the taxable territories, shall be deemed to be mcome accruing or arising within the taxable tertitories, and where the person entitled to the income, profits or gains is not resident in the taxable territories, shall be chargeable to income-tax either in his name or in the· name of his agent. According to sub-section (3) of section 42, in the case of a business of which all the operations are not carried out in the taxable territories, the profits and gains of the business deemed under this section to accrue or arise in the taxable territories shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in th~ ~axable territories. The assessee-respondent in the present case carried on business as construction engineers both . in India and other parts of the world. The Income-tax Officer, it seems, found that the provisions. of section 42 of the Act of 1922 did not provide sufficient criteria for computing the profits and gains of business deemed to accrue or arise in India. Resort was accordingly had to rule 33 of the 1922 Rules. The above rule has been made to meet such an eventuality, and read~ as under