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Bally Jute Co. Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 63 of 1977
Judge
Reported in[1986]158ITR736(Cal)
ActsIncome Tax Act, 1961 - Section 147
AppellantBally Jute Co. Ltd.
RespondentCommissioner of Income-tax
Respondent AdvocateB.K. Naha, Adv.
Excerpt:
- .....act, 1961, the income-tax officer noticed payment of salary of rs. 12,972 to smt. kamala devi saboo, wife of sri t. c. saboo, who was found to be in the top employment of the assessee-company. on being asked to explain the nature of duties performed by the lady and her qualifications which would enable her to perform the duties, the assessee by its letter dated february 11, 1969, to the income-tax officer submitted that smt. kamala devi saboo was working in the field of labour welfare and labour relations and her duties included welfare and social work among the workmen and their families. the income-tax officer, however, observed that the assessee did not come forward with any evidence regarding the duties alleged to have been performed by the lady who had been in the.....
Judgment:

Ajtt K. Sengupta, J.

1. This is a reference under Section 256(2) of the Income-tax Act, 1961, for the assessment years 1961-62 to 1968-69.

2. In the course of the assessment proceeding for the assessment year 1967-68, which was completed under Section 143(3) of the Income-tax Act, 1961, the Income-tax Officer noticed payment of salary of Rs. 12,972 to Smt. Kamala Devi Saboo, wife of Sri T. C. Saboo, who was found to be in the top employment of the assessee-company. On being asked to explain the nature of duties performed by the lady and her qualifications which would enable her to perform the duties, the assessee by its letter dated February 11, 1969, to the Income-tax Officer submitted that Smt. Kamala Devi Saboo was working in the field of labour welfare and labour relations and her duties included welfare and social work among the workmen and their families. The Income-tax Officer, however, observed that the assessee did not come forward with any evidence regarding the duties alleged to have been performed by the lady who had been in the employment of the assessee for the last six or seven years. The Income-tax Officer also did not find any evidentiary value in the letter dated February 20, 1968,written by Sri Jagannath Rao, Member, Bally Jute Mills Working Committee. The assessee failed to produce any evidence regarding the actual services rendered by the lady and, moreover, the said letter was, according to the Income-tax Officer, written on a date when the enquiries against the assessee were already afoot. In these circumstances, he decided to treat the payment as of ex-gratia nature and disallowed the sum of Rs. 12,972 in the assessment for the assessment year 1967-68.

3. Assessment for the assessment year 1968-69 was similarly completed under Section 143(3) of the Income-tax Act, 1961, and salary paid to Smt. Kamala Devi Saboo at Rs. 6,480 was disallowed in the said assessment.

4. In respect of the assessment years 1961-62 to 1966-67, the Income-tax Officer passed his reassessment orders, after reopening the respective assessment proceedings by issuing notices under Section 148, disallowing the salaries paid to Smt. Kamala Devi Saboo as under :

Assessment yearSalary paid

Rs.1961-627,0311962-639,5621963-6412,7501964-6512,7501965-6612,9671966-6712,972

5. The Income-tax Officer reopened and completed assessments for the aforesaid years on the ground that the fact that the payments of salaries made to the lady were not dictated by commercial considerations was not disclosed at the time of the original assessments which necessitated action under Section 147 for which notices under Section 148 were issued. Relying upon his discussions made in the assessment order for the assessment year 1967-68 and observing that the lady was also in the employment of M/s. Birla Jute Mfg. Co. Ltd., a sister concern, disallowance of salaries paid to the aforesaid lady were made.

6. Being dissatisfied, the assessee company preferred appeals to the Appellate Assistant Commissioner for all the assessment years. It was contended before him that the Income-tax Officer was not justified in disallowing salaries paid to Smt. Kamala Devi Saboo and that, in any case, he should not have disallowed the whole amount. A reference was made to the letter written by Sri Jagannath Rao and the assessee's representative placed reliance on the Appellate Assistant Commissioner's orders in the cases of M/s. Kesoram Industies & Cotton Mills Limited and M/s. India Linoleums Ltd., as in these cases too, salaries paid to various ladies for similar workdone by them had been either fully allowed or partly allowed. After appraising the evidence, the Appellate Assistant Commissioner held that the Income-tax Officer was not justified in wholly disallowing the salary paid to the lady. He then proceeded with the consequential issue whether the salary paid to her was laid out wholly and exclusively for the purpose of the assessee's business. After taking into account the facts that Smt. Kamala Devi Saboo was the wife of Sri T. S. Saboo, a top executive of the assessee company and a man of eminence in the Birla organisation, that she did not attend before the Income-tax Officer to answer regarding the duties performed by her and that the salary paid to her appeared to be disproportionately high considering the nature of the service rendered by her and the salaries paid to other employees who were working full time, the Appellate Assistant Commissioner was of the view that it would be fair and reasonable to allow the salary as revenue expenditure as under :

Assessment yearSalary allowed

Rs.1961-625,0001962-636,0001963-647,2001964-657,2001965-667,2001966-677,2001967-687,2001968-694,800

7. The assessee company felt aggrieved at the Appellate Assistant Commissioner's decision disallowing a portion of remuneration paid to Smt. Kamala Devi Saboo for the assessment years 1961-62 to 1968-69 and preferred appeals before the Appellate Tribunal. Before the Tribunal, an additional ground was taken as regards the validity of the initiation of the proceedings under Section 147 for the assessment years 1961-62 to 1966-67. The Tribunal admitted the additional ground and remanded the same to the Appellate Assistant Commissioner for his decision after taking into account the facts as already available on record. The Tribunal thereafter proceeded to decide the appeal on merits. After considering the facts and circumstances of the case, the Tribunal did not find any merit in the contention raised by the assessee. The Tribunal, thereafter, dismissed the appeals subject to the admission of the additional ground for the assessment years 1961-62 to 1966-67.

8. On the aforesaid facts, the following questions have been referred to this court for the assessment years 1961-62 and 1963-64 to 1968-69:

' 1. Whether, on the facts and in the circumstances of the case, the Tribunal having remanded the appeal to the Appellate Assistant Commissioner of Income-tax to decide the validity of the proceeding under Section 147 of the Income-tax Act, 1961, was competent to decide the question of allowability of the salary paid to Srat. Kamala Devi Saboo

2. Whether, on the facts and in the circumstances of the case, the disallowance of salaries paid to Smt. Kamala Devi Saboo was justified in law

3. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that Smt. Kamala Devi Saboo did not render adequate services commensurate to her salaries and, therefore, the salary paid to her was not laid out and expended wholly and exclusively for the purpose of the assessee's business was perverse and in excess of and beyond the scope of enquiry under Sections 28 and 37 of the Income-tax Act, 1961?'

9. For the assessment year 1962-63, the following two questions have been referred to this court;

' 1. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that Smt. Kamala Devi Saboo did not render adequate services to the assessee company was without evidence and contrary to evidence on record and perverse in law

2. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that Smt. Kamala Devi Saboo did not render adequate services commensurate to her salaries and, therefore, the salary paid to her was not laid out and expended wholly and exclusively for the purpose of the assessee's business was perverse and in excess of and beyond the scope of enquiry under Sections 28 and 37 of the Income-tax Act, 1961?'

10. It is true that the Tribunal admitted the additional ground as regards the validity of the proceedings under Section 147 of the Act and remanded the matter to the Appellate Assistant Commissioner restricting his investigation into the facts as already available from the records. But that did not take away the jurisdiction of the Tribunal to decide the issue on merits. If the Appellate Assistant Commissioner decides the question as regards the validity of the proceedings under Section 147, the aggrieved party would have the right to move the Tribunal once again. Thus, the issue remanded by the Tribunal to the Appellate Assistant Commissioner can be decided independently of the question on merits. We are, therefore, of the view that the Tribunal was competent to decide the question of allowability of the salaries paid to Smt. Kamala Devi Saboo even though the additional ground regarding the validity of the proceedings under Section 147 was remanded to the Appellate Assistant Commissioner.

11. As regards the allowability of the salary paid to Srat. Kamala Devi Saboo, the Tribunal held as follows :

' From the orders of the authorities below and the contentions raised before us, the allowance or disallowance of the expenditure claimed by the assessee company in the computation of its total income would depend upon the provisions of Section 37 of the Income-tax Act, 1961 (analogous to Section 10(2)(xv) of the 1922 Act). The lady resigned in 1968. She was paid salaries of varying amounts as mentioned earlier in this order for the different assessment years involved. It looks strange that the assessee company had no internal evidence to substantiate that the lady who was allowed that much of salary from year to year actually rendered adequate services commensurate to her high salaries. It had to depend upon external evidence and the learned counsel for the assessee contended that the income-tax authorities should have made necessary enquiries before discarding the external evidence so produced in support of the lady's services rendered to the assessee company. Thus, in our opinion, the assessee had no case over and above the relief given by tjie Appellate Assistant Commissioner in his consolidated order. '

12. Having regard to the aforesaid findings of the Tribunal, we are of the view that the Tribunal was justified in sustaining the disallowances made by the Appellate Assistant Commissioner.

13. In the premises, we answer the first and second questions for the assessment years 1961-62 and 1963-64 to 1968-69 in the affirmative and the third question for the said assessment years in the negative and in favour of the Revenue.

14. We answer both the questions for the assessment year 1962-63 in the negative and in favour of the Revenue.

15. There will be no order as to costs.

Dipak Kumar Sen, J.

16. I agree.


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