First we need to assume that there is not a perfect seal at the bottom of the container so that fluid can seep in and out.
The pressure in the h section will drop until the difference between it and the atmospheric pressure is enough to support the column of water below it.
- $P_1 = P_{atm}$?
No. Consider what happens as you stretch H. At about 10 m or so (depending on salt / fresh water) $P_1 = 0$ and the h is a vacuum unable to lift any more than 10 m. This is the principle of operation of the mercury barometer with the advantage of a much more convenient tube length due to the density of mercury (13.6 times that of water, if my school memory is correct).
- What happens when $h \approx H$?
The same principle applies until $P_1$ reaches zero.