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K.T. Kubal and Co. Pvt. Ltd. Vs. Commissioner of Income-tax, Bombay City I - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 30 of 1961
Judge
Reported in[1963]49ITR433(Bom)
ActsIncome Tax Act, 1922 - Sections 34(1)
AppellantK.T. Kubal and Co. Pvt. Ltd.
RespondentCommissioner of Income-tax, Bombay City I
Appellant AdvocateS.P. Mehta, Adv.
Respondent AdvocateG.N. Joshi, Adv.
Excerpt:
.....made assessment orders - action against assessee for reassessment cannot be sustained. - - desai as commission, the claim was allowed by the income-tax officer and was affirmed by the appellate assistant commissioner as well as by the tribunal. 3,000. the appeal for the balance taken to the appellate assistant commissioner failed. 2,887. the appeal taken by the assessee to the appellate assistant commissioner for the balance failed. the appeal taken by the assessee for the balance to the appellate assistant commissioner failed. ' 7. the application made by the assessee under sub-section (1) of section 66 also, failed. this they knew for the first time when the tribunal so observed in its order of date december 1, 1953. this being fresh information, which has come into the..........m. desai by way of commission. accepting the statement of the assessee that it was paid to b. m. desai as commission, the claim was allowed by the income-tax officer and was affirmed by the appellate assistant commissioner as well as by the tribunal. in 1948-49, the assessee claimed an amount of rs. 14,352. before the income-tax officer, two statement were made. in the beginning, it was alleged by the assessee that the said commission was calculated at the rate of half anna and one anna on certain orders in order to enable b. m. desai to meet such payments to customers in securing orders. subsequently, the assessee company changed the above explanation and stated that the said amount of rs. 14,352 was paid by it to b. m. desai at the rate of half anna per keg and one anna per drum. no.....
Judgment:

Tambe, J.

1. On a direction given by this court under sub-section (2) of section 66 of the Income-tax Act, the Income-tax Appellate Tribunal has referred to us the following two questions :

'1. Whether on the facts of the case the observations made in the Tribunal's appellate order relating to the assessment years 1949-50 to 1952-53 amounted to information in the possession of the Income-tax Officer within the meaning of section 34(1)(b) to entitled the Income-tax Officer to reopen the assessment for the tax years 1949-50 to 1952-53 under the said section and

2. Whether on the facts and in circumstances of the case the Appellate Tribunal was justified in not allowing the commission paid to Mr. B. M. Desai as an admissible expenses under section 10(2)(xv) ?'

2. We are here concerned with the four assessment years 1949-50 to 1952-53, the relevant account years being the calendar years 1948 to 1951. The question in substance that arises for consideration is whether the assessment orders, in which certain amount paid to one B. M. Desai by way of commission were allowed to the assessee, are liable to be reopened under section 34(1)(b) of the Act, in consequence of certain observations made by the Tribunal in its appellate orders. The assessee is a private limited company, in which the majority of shares are held by one Mr. K. T. Kubal and his two brothers, and the business carried on by the assessee is manufacturing different kinds of condiments, tin drums and kegs. One B. M. Desai is an employee of the assessee and his salary is Rs. 165 per month. He also holds 8 shares in the company out of its total of 128 shares. The company was incorporated on 1st January, 1945. It appears that every year in the relevant account years to assessments years 1947-48 to 1952-53, certain amounts are shown in the books of account of the assessee as having been paid to B. M. Desai by way of commission. In 1947-48 and in all the assessment years, the assessee claimed deduction in respect of the said payments of commission. In 1947-48, the assessee claimed a sum of Rs. 2,159 being the amount shown to have been paid to B. M. Desai by way of commission. Accepting the statement of the assessee that it was paid to B. M. Desai as commission, the claim was allowed by the Income-tax Officer and was affirmed by the Appellate Assistant Commissioner as well as by the Tribunal. In 1948-49, the assessee claimed an amount of Rs. 14,352. Before the Income-tax Officer, two statement were made. In the beginning, it was alleged by the assessee that the said commission was calculated at the rate of half anna and one anna on certain orders in order to enable B. M. Desai to meet such payments to customers in securing orders. Subsequently, the assessee company changed the above explanation and stated that the said amount of Rs. 14,352 was paid by it to B. M. Desai at the rate of half anna per keg and one anna per drum. No commission was paid on masala. The Income-tax Officer did not accept the explanation of the assessee and disallowed the whole claim for Rs. 14,352. In the appeal taken by the assessee against this order, the Appellate Assistant Commissioner allowed the claim of the assessee to the extent of Rs. 3,000. Against the disallowance of the balance, the assessee took a further appeal to the Tribunal, and it appears that B. M. Desai happened to be present before the Tribunal, and in the course of the hearing of the said appeal for assessment year 1948-49, it has been stated in the statement of the case that the following facts were established :

'The payment of the amount was not made to him for any services rendered by him' and that 'the amount represented secret commission in the nature of illegal gratification which had to be passed on to others in the course of securing orders.'

3. Now, even though these facts were established, the Tribunal only rejected the claim of the assessee for the balance. In respect of the allowance of Rs. 3,000 the Tribunal in its appellate order observed : 'The Appellate Assistant Commissioner appears to have been reasonable in allowing the claim to the extent of Rs. 3,000.' It would be pertinent to mention that this appeal was disposed of by the Judicial Member, Mr. M. B. Samarth, and the Accountant Member, Mr. P. C. Malhotra. This order of the Tribunal is of dated November 27, 1950. Now in the assessment year 1949-50, the assessee claimed a deduction of the amount of Rs. 12,112. The statement of the case does not show that any fresh statement was made before the Income-tax Officer at this stage. On the basis of the order of the Appellate Assistant Commissioner allowed deduction to the extent of Rs. 3,000. The appeal for the balance taken to the Appellate Assistant Commissioner failed. The assessee took a further appeal to the Tribunal. The Tribunal has disposed of the appeals in respect of the four assessment years 1949-50, 1950-51, 1951-52 and 1952-53 by one order. We will therefore refer to the Tribunal's order later. In the assessment year 1950-51, the assessee claimed a deduction of Rs. 5,925 by way of commission to B. M. Desai. It appears that during the course of the assessment proceedings before the Income-tax Officer, a letter dated February 7, 1951, written by B. M. Desai to the assessee was placed before the Income-tax Officer. The said letter was written by Desai to the assessee in consequence of the inquiry made by the Income-tax Officer relating to these commission. In this letter, Desai had stated :

'I have to state that it was necessary for me to pay certain amounts to persons in charge to secure business. The total amount paid by me in this way according to the notes I have made comes to Rs. 1,000. I am not in a position to give the names of the persons to whom that amount was paid for obvious reasons. The balance of the amount of commission I have retained with me as my remuneration for securing orders.'

4. Now, even though the claim made by the assessee was that barring Rs. 1,000 the rest of the amount was paid by the assessee to Desai by way of commission, the Income-tax Officer by his order dated February 28, 1951, did not allow any amount by way of commission paid to Desai. On appeal by the assessee, the Appellate Assistant Commissioner, however, allowed deduction to the extent of Rs. 2,963. The assessee took a further appeal. In 1951-52, the assessee claimed a deduction to the extent of Rs. 5,774 on the same ground. By his order dated October 27, 1951, the Income-tax Officer allowed a sum of Rs. 2,887. The appeal taken by the assessee to the Appellate Assistant Commissioner for the balance failed. The assessee took a further appeal to the Tribunal. In 1952-53, the assessee claimed a deduction of Rs. 5,878 on the same ground. By his order dated August 30, 1952, the Income-tax Officer allowed the deduction to the extent of Rs. 2,939 and rejected the rest of the claim. The appeal taken by the assessee for the balance to the Appellate Assistant Commissioner failed. He took further appeal to the Tribunal. Now, all these appeals were heard by the Accountant Member, Mr. Dalal, and the Judicial Member, Mr. Aggarwal, on December 1, 1953. Dealing with the case of the assessee for the year 1949-50, for the disallowance of Rs. 9,112 out of Rs. 12,112 claimed by the assessee as deduction on account of the commission paid to B. M. Desai, the Tribunal observed.

'B. M. Desai who is working as an accountant, it is admitted, does not canvass for the company's goods; he is not a salesman and it was also admitted that this sum of Rs. 12,112 was secret commission paid by the company, through him, to outsiders. No names and addresses of the persons who received this commission have been supplied and, in our opinion, the Income-tax Officer should not allowed even Rs. 3,000, which is also part of the secret commission. Rs 9,112 have been rightly disallowed.'

5. In respect of similar claims made by the assessee for the remaining three assessment years, the Tribunal rejected them on the same ground as the one given for rejection of the appeal for 1949-50. Now, on the basis of the observation made by the Tribunal in this order that the Income-tax Officer could not have allowed even Rs. 3,000 which was also a part of the secret commission, the Income-tax Officer, after recording the reasons and obtaining the sanction, issued notices to the assessee under section 34(1)(b) of the Income-tax Act. The reason recorded by the Income-tax Officer for reopening assessment for the year 1949-50 are in the following terms :

'The Income-tax Appellate Tribunal in their order dated December 1, 1953, have opined that Rs. 3,000 allowed out of the secret commission ought not to have been allowed.

6. Similar reasons with appropriate figures were given for the remaining three years. Before the Income-tax Officer, the assessee raised two contentions, that there was no information in the possession of the Income-tax Officer in consequence of which he had reason to believe that chargeable profits had escaped assessment, and as such initiation of action under section 34(1)(b) was not validity made. The alternative contention was that the assessee's claim to deduct the said sums under section 10(2)(xv) accepted either by the income-tax authorities or by the Tribunal. The reason given by the Tribunal for rejecting the first contention of the assessee is in the following terms :

'It was submitted by him (assessee) that there was no information in the possession of the Income-tax Officer in consequence of which he had reason to believe that certain allowance is found to be wrongly made then to that extent, chargeable profits escape assessment or at least chargeable profits have been under-assessed. Again from the facts narrated at considerable length, it will be seen that the original assessments were made on the basis of certain facts and information being correct but in the course of appellate proceedings before the Tribunal, these facts and information itself came into the possession of the Income-tax Officer as a result of the Tribunal's order on December 1, 1953. We are, therefore, of the opinion that the action under section 34(1)(b) has been properly initiated for each of these four years.'

7. The application made by the assessee under sub-section (1) of section 66 also, failed. As already stated, the Tribunal has now referred the aforesaid questions of law under section 66(2).

8. Mr. Mehta appearing for the assessee contends that there was no fresh information which was not there before the income-tax authorities when they made the assessment for the years 1949-50 to 1952-53, and which has come to the knowledge of the Income-tax Officer in consequence of the Appellate Tribunal's order of date December 1, 1953. All that has happened is that on the same set of facts which were before the income-tax authorities, the Tribunal has taken a different view of the matter at different times. Mr. Mehta further contends that the observations also are merely obiter. In the assessments for the years 1949-50, 1950-51 and 1952-53 certain amounts were allowed as deduction by the Income-tax Officer himself, and the allowance was affirmed by the Appellate Assistant Commissioner in appeals. In 1950-51, though the Income-tax Officer had rejected the assess's claim in toto, the Appellate Assistant Commissioner had allowed the deduction to the extent of Rs. 2,963. Only the assessee had taken appeal against the disallowance of the balance of his claim. No appeal was taken by the Income-tax Officer against the order of the Appellate Assistant Commissioner and, therefore, the amounts already allowed by the Income-tax Officer were not the subject-matter of appeals before the Tribunal, and therefore the Tribunal had no jurisdiction to investigate into these matters. What the Tribunal could not have done by making an order in appeal, the Tribunal cannot do by directing reopening of the assessment under section 34. He referred in to a decision of this court in Puranmal Radhakishan and Company v. Commissioner of Income-tax.

9. Mr. Joshi, on the other hand, contends that these assessments were made by the Income-tax Officer on the basis of the representations made by the assessee that the commissions were in fact paid to Mr. Desai and not to others by way of secret commission. The Income-tax Officers were not aware, at the time they made assessments, that these amounts represented secret commissions paid by the assessee to others. This they knew for the first time when the Tribunal so observed in its order of date December 1, 1953. This being fresh information, which has come into the procession of the Income-tax Officer the Income-tax Officer was perfectly justified in reopening the assessment under section 34(1)(b) of the Act. We find it extremely difficult to accept Mr. Joshi's contentions, in view of the facts of this case narrated in detail above. It is not in dispute that to enable the Income-tax Officer to reopen an assessment under section 34(1)(b), it necessary to established that the Income-tax Officer had come into possession of some information which was not available to him at the time when he made the assessment orders, and that the fresh information shows that the income chargeable to tax has either escaped assessment or has been under assessed. In the instant case, the fresh information claimed to have been in possession of the Income-tax Officer after the orders of assessment were made is that the amounts paid by way of commission to Desai were not really paid to Desai, but were only shown to have been paid to Desai, and in fact they were paid to other by way of secret commission. Now, the only material on record on which the Tribunal has observed that these amounts represented payments of secret commission appears to be statement of B. M. Desai recorded by the Tribunal in dealing with the case relating to the assessment year 1948-49. Mr. Joshi has not been able to point out to us any other material on record on which the aforesaid observation of the Tribunal in its order of December 1, 1953, are based. Now, the statement of Desai that payment of amount was not made to him for any service rendered by him and that the amount represented secret commission, in the nature of illegal gratification which had to be passed on to others in the nature of illegal gratification which had to be passed on to others in the course of securing orders, was made, as paragraph 5 of the statement of the case shows, in the course of hearing of the appeal before the Tribunal for the assessment year 1948-49. That appeal was decided by the Tribunal, as paragraph 3 of the statement also has been incorporated by the Tribunal in its order dated November 27, 1950. In paragraph 2 of the order, it is observed :

'Mr. Desai who was present before us admitted that the payment of the amount was not made to him for any service rendered by him, but that, in fact, the amount represented secret commission in the nature of illegal gratification which had to be passed on to others in the course of securing orders. In the first instance, therefore, the payment is not made to Mr. Desai for any service rendered by him. Secondly, the company has not been able to prove to whom the payment was made, on the ground that the names of the payee could not be divulged. It has, therefore, not been proved to be a business expenditure incurred by the assessee company. The claim of the assessee is unsustainable. The Appellate Assistant Commissioner appears to have been reasonable in allowing the claim to the extent of Rs. 3,000.'

10. Now, in the assessment year 1948-49, as already stated, the deduction of the amount claimed on this count was to the extent of Rs. 14,352. The Appellate Assistant Commissioner allowed only Rs. 3,000, and had the appeal before the Tribunal related to the disallowance of the balance of the claim. This order of the Tribunal was before the Income-tax Officer. It is true that it was not before the Income-tax Officer when he made the assessment for the year 1949-50, but it was before the Appellate Assistant Commissioner when he dealt with the appeal. The Income-tax Officer had allowed the deduction to the extent of Rs. 3,000, though the deduction claimed by the assessee was to the extent of Rs. 12,112. Even though the Appellate Assistant Commissioner could have enhanced the assessment by including in the income Rs. 3,000, the Appellate Assistant Commissioner has not done so, but has affirmed the deduction to the extent of Rs. 3,000. The aforesaid order of the Tribunal relating to the assessment year 1948-49 was before the Income-tax Officer when he made the original assessments for the assessment years 1950-51, 1951-52, 1952-53. This being the position on record, it can hardly be stated that any additional information has come in the possession of the Income-tax Officer, which was not in his possession when the assessment orders were made. It is, therefore, difficult to sustain the action taken against the assessee for reassessment. All that has happened is that even though the statement made, which is reproduced above, was made by Mr. Desai before the Tribunal, dealing with the appeal relating to assessment year 1948-49, the Tribunal thought it reasonable to allow the deduction to the extent of Rs. 3,000. In fact, the Tribunal in its order of November 27, 1950, so observes. But when appeals relating to the four assessment year in question were heard by a different Bench of the Tribunal, on the same material it was considered that no deduction should have been allowed at all. In short, what has happened is change of opinion by the Tribunal on the same material which was before the income-tax authorities when they made the assessment orders.

11. Our answer to the first question, therefore, is in the negative. In view of our answer to the first question, it is not necessary to record any answer to the second question. The Commissioner shall pay the costs to the assessee.

12. Question answered in the negative.


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