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Dr. H. Habicht and Another Vs. Makhija and Another - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberWrit Petition No. 560 of 1980
Judge
Reported in(1984)39CTR(Bom)136; [1985]154ITR552(Bom); [1984]17TAXMAN56(Bom)
Acts Income Tax Act, 1961 - Sections 10(6), 147 and 148
AppellantDr. H. Habicht and Another
RespondentMakhija and Another
Excerpt:
- - 1 for the assessment years 1975-76 and 1976-77 were completed by the ito by an order dated november 26, 1976. the petitioners produced before the ito the entire set of government approval as well as the application submitted by petitioner no. the ito was satisfied that the provision of s. 1 is clearly erroneous. shri dastur complained that the notice under s. shri dastur submits that the ito was clearly in error in inciting the proceedings because of the information received from the audit department, and in support of the submission reliance is placed on the decision of the supreme court in indian and eastern newspaper society v. in view of the decision of the supreme court, it is obvious that the ito was clearly in error in initiating the proceedings for reopening the assessment......the meaning of s. 10(6)(vii) of the i.t. act, 1961 (hereinafter referred to as 'the act') the central government accorded approval to the appointment of petitioner no. 1 from december 23, 1970 onwards from time to time, petitioner no. 1, accordingly, came to india on february 6, 1971, and took up the employment with petitioner no. 2. by reason of the approval, petitioner no. 1 was entitled to exemption under s. 10(6)(vii)(a)(ii) for a period of one year in respect of entire remuneration received by him for one year in respect of entire remuneration received by him for one year commencing from february 6, 1971. the government granted further approval from time to time. ultimately, on february 5, 1974, total exemption from february 5, 1974, total exemption from income-tax granted to.....
Judgment:

Pendse, J.

1. Petitioner No. 1 is a national of a Federal Republic of Germany and is a resident of Germany, while the second petitioner is a company incorporated under the Companies Act and carries on business at Bombay. Petitioner No. 1 is a technician with specialised knowledge in the manufacture of pharmaceuticals. By various applications made from time by the second petitioner and addressed to the Central Government, a request was made for according approval to the appointment of petitioner NO. 1 In the employment of petitioner No. 2 in a capacity which would render him a 'technician' within the meaning of s. 10(6)(vii) of the I.T. Act, 1961 (hereinafter referred to as 'the Act') The Central Government accorded approval to the appointment of petitioner No. 1 from December 23, 1970 onwards from time to time, petitioner No. 1, accordingly, came to India on February 6, 1971, and took up the employment with petitioner No. 2. By reason of the approval, petitioner No. 1 was entitled to exemption under s. 10(6)(vii)(a)(ii) for a period of one year in respect of entire remuneration received by him for one year in respect of entire remuneration received by him for one year commencing from February 6, 1971. The Government granted further approval from time to time. Ultimately, on February 5, 1974, total exemption from February 5, 1974, total exemption from income-tax granted to petitioner No. 1 became entitled to exemption from payment of tax on the income-tax paid on the salary by his employer-petitioner No. 2.

2. Petitioner No. 2 accordingly by letter dated January 15, 1974, applied to the Central Government seeking approval for petitioner No. 1 to continue employment for a period of two years. The Central Government by letter dated July 19, 1974, granted such approval for one year. Thereafter, the petitioners sought further approval from the Central Government for a spell of two more years. The Central Government granted the approval by letter dated July 24, 1977. Further approval was granted by the Central Government till June 30, 1977, but prior to that date on May 18, 1977, petitioner No. 1 left the service and returned to West Germany. The assessments of petitioner No. 1 for the assessment years 1975-76 and 1976-77 were completed by the ITO by an order dated November 26, 1976. The petitioners produced before the ITO the entire set of Government approval as well as the application submitted by petitioner No. 2 to obtain such approval. The ITO was satisfied that the provision of s. 10(6)(vii) of the Act had been satisfactorily complied With. Respondent No. 1, the ITO, issued notice dated March 10, 1980, under s. 148 of the Act and informed petitioner No. a that the ITO wished to reassess the income for the assessment years 1975-76 and 1976-77, as he had reason to believe that income chargeable to tax for the relevant assessment years had escaped assessment within the meaning of s. 147 of the Act. The notice does not recite the grounds or reasons which prompted the ITO to initiate the action. The petitioners have filed the present petition in this court under article 226 of the Constitution of India on April 25, 1980, to challenge the legality of the action of respondent No. 1. Shri Dastur, learned counsel appearing on behalf of the petitioners, submitted that initiation of proceedings under s. 148 of the Act by respondent No. 1 was wholly without jurisdiction. The learned counsel urged that the condition precedent for exercise of jurisdiction did not exist and the action of respondent No. 1 is clearly erroneous. Shri Dastur complained that the notice under s. 148 does not disclose any ground or reasons for exercise of jurisdiction, nor were such reasons furnished to the petitioners in spite of request. On behalf of the respondents. the return dated April 21, 1981, sworn by V. U. Kamat, First Income-tax Officer, Salaries Branch II, Bombay, has been filed and it is claimed that provisions No. 1, because the provisions are attached only if approval from the Government of India is obtained before the first day of October of the relevant assessment year. It is further claimed that the ITO who made the assessments for the assessment years 1975-76 and 76-77 was not aware of the circular deed May 8, 1977, issued by the CBDT, and proceeded to complete the assessment in spite of the fact that the approval was received subsequent to October 1 of the relevant assessment year. In paragraph 16, it is claimed that the impugned notices were issued under s. 147(b) of the Act in consequence of information from the audit department which came into the possession of the ITO after the original assessment. Shri Dastur submits that the ITO was clearly in error in inciting the proceedings because of the information received from the audit department, and in support of the submission reliance is placed on the decision of the Supreme Court in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) . The Supreme Court observed that the opinion of an internal audit party of the Income-tax Department on a point of law cannot be regarded as 'information' within the meaning of s. 147(b) of the Act for the purpose of reopening the assessment. In view of the decision of the Supreme Court, it is obvious that the ITO was clearly in error in initiating the proceedings for reopening the assessment. The submission of Shri Dastur that the mere fact that the ITO was not aware of the circular of the Board is not sufficient to reopen the assessment is also correct. The approval from the Government of India was received subsequent to October 1 of the relevant assessment year, but that was not due to any fault of the petitioners. In my judgment, the initiation of proceedings by respondent No. 1 by issue of notice under s. 148 is entirely without jurisdiction and the action of respondent No. 1 deserves to be quashed.

3. Accordingly, the petition succeeds and the rule is made absolute in terms of prayer (a) of the petition. There will be no order as to costs.


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