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Commissioner of Income-tax, Bombay City Vs. Central Provinces Railway Company Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 27 of 1969
Judge
Reported in(1979)9CTR(Bom)247; [1979]119ITR161(Bom)
ActsIncome Tax Act, 1961 - Sections 147 and 148
AppellantCommissioner of Income-tax, Bombay City
RespondentCentral Provinces Railway Company Ltd.
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateR.J. Kolah, Adv.
Excerpt:
- - 147 of the act on the ground that there was no failure to disclosed all material facts necessary for the assessment, resulting in income escaping assessment......would require the sanction of the managed company by a special resolution and also approval of the central government. the assessee-company thereafter convened an extraordinary general meeting of its shareholders and a special resolution was passed authorising the payment of interest and steps were also taken to obtain the approval of the central government, for such payment. the central government ultimately regularised the payment from 1956 to 1962 september. 4. the question whether the granting of loan by managing agents also requires the approval of the company by a special resolution and also approval of the central government was considered by the bombay high court, and in suit no. 196 of 1962, decided by me, i took the view that sanction of the company by a special resolution and.....
Judgment:

Kantawala, C.J.

1. At the instance of the revenue, the following question has been referred to us for our determination :

'Whether, on the facts and in the circumstances of the case, the assessment for the year 1959-60 could be validly reopened under section 147(b) of the Income-tax Act, 1961 ?'

2. The Central Provinces Railway Company Limited, the assessee, is a public limited company managed by Killick Industries Ltd. The assessment in dispute is the reopening of the assessment under s. 147 of the I. T. Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 1959-60 and the corresponding previous year is the year ended September 30, 1958. The first assessment for the year was completed on July 23, 1959, on a total income Rs. 6,45,634. In arriving at this figure of total income, an amount of Rs. 270 was allowed as permissible deduction on account of interest payable by the assessee-company to its managing agents, Killick Industries Limited.

3. Some time in February, 1962, the Bombay Chamber of Commerce circulated a copy of the opinion of the Company Law Administration to the effect that payment of interest of the managed companies to their managing agent in respect of moneys advanced by the latter would require the sanction of the managed company by a special resolution and also approval of the Central Government. The assessee-company thereafter convened an extraordinary general meeting of its shareholders and a special resolution was passed authorising the payment of interest and steps were also taken to obtain the approval of the Central Government, for such payment. The Central Government ultimately regularised the payment from 1956 to 1962 September.

4. The question whether the granting of loan by managing agents also requires the approval of the company by a special resolution and also approval of the Central Government was considered by the Bombay High Court, and in Suit No. 196 of 1962, decided by me, I took the view that sanction of the company by a special resolution and also approval of the Central Government was not necessary in respect of a loan granted by a managing agent to the managed company.

5. On March 10, 1964, the ITO initiated proceedings under s. 147 of the Act for the assessment year 1959-60 against the assessee on the ground that its income had escaped assessment and that fact was known to him by reason of the information that the company had passed a special resolution authorising payment of interest. In spite of the opposition of the assessee, the ITO completed of the assessment by adding back the amount of Rs. 270, being the amount of interest paid by the assessee-company to its managing agents.

6. In an appeal by the assessee before the AAC, he set aside the assessment order on the ground that the reopening of the assessment was not justified under s. 147 of the Act on the ground that there was no failure to disclosed all material facts necessary for the assessment, resulting in income escaping assessment. The order of the AAC was affirmed in further appeal by the revenue to the Tribunal. The Tribunal held that knowledge of some information of somebody does not constitute information so as to justify the reopening of assessment under s. 147(b) of the Act. According to the Tribunal, the assessment could not be reopened either under s. 147(a) or s. 147(b).

7. It is from this order of the Tribunal that the above question has been referred to us for our determination. Mr. Joshi, on behalf of the revenue, urged that the AAC and the Tribunal were in error in taking the view that no income had escaped assessment and there was no case for the reopening of assessment either under s. 147(a) or s. 147(b) of the Act. He submitted that they were in error in taking the view that the issue of a notice under s. 148 could not be upheld.

8. The reopening of the assessment for the year in question was sought to be justified on the ground that payment of interest of Rs. 270 by the assessee to the managing agents was not legal. So far as that part of the question was concerned, much before the reopening proceedings were initiated under s. 147, in Suit No. 196 of 1962 I had taken the view that neither sanction of the company by a special resolution nor approval of the Central Government was necessary for granting of a loan by a managing agent to the managed company. If the loan by the managing agent to the managed company was proper and legal, then the payment of the amount of interest cannot be open to challenge, in the present case, on the footing that such payment of interest of Rs. 270 by the assessee to the managing agent was not legal, as it was without the sanction of the company by a special resolution or of the approval of the Central Government. As for initiation of these proceedings, in Suit No. 196 of 1962, a clear view was taken by me, sitting as a single judge of the court, that such a loan by a managing agent to the managed company did not require the sanction of the company by a special resolution or the approval of the Central Government; there was no question of any part of the income of the company escaping assessment.

9. In the result, the question referred to us is answered in the negative. Each party will bear its own costs.


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