Law:

Section:

JUDGMENT Tambe, J.-This is a reference made by the Income-tax Appellate Tribunal (hereinafter referred to as the Tribunal) under section 66(1) of the Indian Income-tax Act (hereinafter referred to as the act). The Assessee is a limited company registered under the Indian Companies Act (VII of 1913) and has its registered office at Bombay. The main business of the assessee company is the manufacture of locomotive boilers and locomotives. For the purpose of its manufacturing activities, the assessee company had to make purchases of plant and machinery, etc., in various countries including the United States of America. The assessee company had appointed M/s. Tata Inc., New York, as its purchasing agents in the United States. In the year 1946 the assessee company with the sanction of the Exchange Control Authorities sent a remittance of $33,850 to its purchasing agents, Messrs. Tata Inc. of New York for purposes of purchasing capital goods in the United States of America and meeting other expenses connected therewith. In connection with the survey and setting up of the factory of the assessee-company, representatives of Baldwin Locomotive Works, Philadelphia, U.S.A., used to visit India. The assessee made available funds to such representatives for the purpose of meeting their expenses in India. The assessee company was appointed as the sole selling agents of the Baldwin Locomotive Works for the sale of their products in India and in connection with the sale of the products of Baldwin Locomotive Works in India, the assessee had to incur expenses on their behalf in India. The funds so made available to the representatives of the Baldwin Locomotive Works and the expenses incurred by the assessee on behalf of the Baldwin Locomotive Works in India were reimbursed to the assessee by the Baldwin Locomotive Works of U.S.A. by paying the amounts due to the assessee's selling agents, Tata Inc., in New York. The amounts so paid by the Baldwin Company to the Tata Inc. with the previous permission of the Reserve Bank of India were retained in the assessee's account with the Tata Inc. for the purchase of capital goods. Now, as already stated, the Baldwin Company had appointed…

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