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Dunlop Rubber Company Ltd. Vs. Income-tax Officer a-ward and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 531 of 1966
Judge
Reported in[1971]79ITR349(Cal)
ActsIncome Tax Act, 1922 - Sections 34(1), 148, 195(2) and 201(1)
AppellantDunlop Rubber Company Ltd.
Respondentincome-tax Officer "a"-ward and ors.
Appellant AdvocateD. Pal, Adv.
Respondent AdvocateDipak Sen, Adv.
Cases ReferredSudhir Kumar Bhose v. Income
Excerpt:
- t.k. basu, j.1. the petitioner is a company incorporated in the united kingdom. the petitioner-company has a subsidiary in india, viz., messrs. dunlop rubber company (india) ltd. (hereinafter referred to as 'the indian company'), which is incorporated under the indian companies act and has its registered office at 57b, free school street, calcutta.2. the indian company does not maintain any research organisation in india. the petitioner-company maintains in the united kingdom extensive technical research and similar departments which function as servicedepartments for the entire dunlop organisation throughout the world. the expenses of these departments are allocated over all dunlop factories partly on the basis of volume of production in each factory and partly on the basis of specific.....
Judgment:

T.K. Basu, J.

1. The petitioner is a company incorporated in the United Kingdom. The petitioner-company has a subsidiary in India, viz., Messrs. Dunlop Rubber Company (India) Ltd. (hereinafter referred to as 'the Indian company'), which is incorporated under the Indian Companies Act and has its registered office at 57B, Free School Street, Calcutta.

2. The Indian company does not maintain any research organisation in India. The petitioner-company maintains in the United Kingdom extensive technical research and similar departments which function as servicedepartments for the entire Dunlop organisation throughout the world. The expenses of these departments are allocated over all Dunlop factories partly on the basis of volume of production in each factory and partly on the basis of specific services rendered.

3. Clause 5 of the inter-company agreement between the petitioner-company and the Indian company, which is relevant in this connection, provides as follows :

' All costs and expenses incurred by the English company in connection with the communication of information, processes and inventions and/or the grant of any licences as aforesaid and/or the giving of any advice or assistance provided for hereunder by the English company to the Indian company shall be paid by the Indian company. The Indian company shall also pay to the English company a proportionate part of the costs and expenses (including salaries and general research and development expenditure) incurred by the English company in the acquisition, discovery and development of such information, processes and inventions. Such proportionate part of the said costs and expenses shall be mutually agreed or failing agreement shall be fixed by the said Messrs. Whinney Smith & Whinney.'

4. The petitioner-company has been assessed for the assessment years 1950-51 to 1961-62 in the status of a non-resident company by several Income-tax Officers. The income of the petitioner-company assessable in those years was mainly from dividends from the Indian company. According to the petitioner, Messrs. Ford, Rhodes, Parks and Company, a firm of chartered accountants, were representing the petitioner-company in the assessment proceedings for the said several years.

5. In the assessment proceedings for several years of the Indian company, the question of admissibility for the purpose of deduction of the contribution made by the Indian company to the. expenditure incurred by the Indian company on account of research which was described as ' liaison expenditure ' was, according to the petitioner, considered by the Income-tax Officer o' several occasions.

6. For the assessment year 1947-48, the Income-tax Officer, Companies District III, Calcutta, by a letter dated the 17th November, 1948, asked the Indian company to furnish, inter alia, the information and particulars regarding the liaison expenditure which was increased from Rs. 20,676 in the year 1945 to Rs. 1,18,955 in the year 1946 and the reasons therefor.

7. The Indian company by its letter dated the 2nd December, 1948,informed the Income-tax Officer, inter alia, as follows :

' With regard to the increase in liaison expenditure, we give below the explanation obtained by us recently from Dunlop Rubber Co. Ltd., London,and which has been accepted by the Reserve Bank of India for remittance purposes:

' The Dunlop Rubber Company Ltd. maintains in the United Kingdom extensive technical, research and similar departments which function as service departments for the entire Dunlop organisation throughout the world. The expenses of these departments are, consequently, allocated over all Dunlop factories partly on the basis of volume of production in each factory and partly on the basis of specific services rendered to the Dunlop Rubber Co. Ltd. by each of the overseas subsidiaries.' This arrangement has been operating since long before the war, but during the war years the charges were not increased from the year 1939 figure because during that period technical, etc., departments were primarily engaged on work for the war effort. On the termination of hostilities the research, technical and liaison activities were increased considerably, and the expense involved correspondingly became substantially higher. They are, however, being allocated and charged to all factories on a strictly proportionate basis.'

8. Similarly, for the assessment year 1949-50, the Income-tax Officer, District III, Calcutta, by his letter dated the 17th October, 1951, made a similar query with regard to the liaison expenditure of the Indian company. The Indian company by its letter dated the 2nd November, 1951, submitted a similar explanation.

9. It appears that similar queries were made by the Income-tax Officer, from the Indian company with regard to the liaison expenditure for the assessment years 1951-52 and 1952-53 and the Indian company submitted substantially the same explanation.

10. With regard to the assessment year 1956-57, it appears that the Income tax Officer raised a similar question by its letter dated the 4th February, 1957, and the Indian company by its letter dated the 23rd February, 1957, reiterated its earlier contentions.

11. For the assessment year 1962-63, in respect of the Indian company, the Income-tax Officer by its letter dated the 24th October, 1962, raised the following query :

' Is there any agreement for technical purchases and charges incurred by the company If so, a copy of the agreement may please be furnished together with a copy of the calculation sheet.'

12. In answer to the aforesaid query, the Indian company by its letter dated the 10th December, 1962, in paragraph 11, set out Clause 5 of the inter-company agreement which I have set out hereinabove.

13. Thereafter, the Income-tax Officer, E-Ward, Companies District III, Calcutta, addressed a letter to the Indian company. This letter is important for our purpose and the material portion is set out hereinbelow :

' Sub.: Deduction of tax at source from payment to non-residents--payment of technical fees by you to a non-resident company--regarding. Sir,

Information has been received that you have been remitting technical fees to your parent company (which is a non-resident company) without deducting any tax therefrom or without obtaining any certificates under Section 195(2) from this office to the effect that there is no liability on your part to deduct tax.

I would, therefore, request you to furnish me the following particulars : (i) Amount of technical fees paid to the non-resident and the date of payment during the financial year 1962-63. (ii) Tax deducted therefrom, if any. (iii) If no tax has been deducted, reasons therefor. May I request a reply by July 15, 1963 '

14. On the 16th July, 1963, the Indian company replied to the above letter of the Income-tax Officer, the material portion whereof is set out below :

' With reference to your letter dated 6th July, the replies to the queries raised are as follows :

(i) A sum of Rs. 24,55,730.08 was remitted on 8th February, 1963, to the non-resident on account of technical research and development expenditure.

(ii) No tax was deducted therefrom.

(iii) The payment is in reimbursement of technical research and development expenditure, subject to a ceiling of 0.67% of our turnover, and as such tax is not deductible therefrom. '

15. In reply to this letter of the Indian company, the Income-tax Officer addressed a further letter on the 30th August, 1969, stating therein that no certificate under Section 195(2) of the Income-tax Act appears to have been issued in respect of the sum of Rs. 24,55,730.08. Certain other details were asked for including the details as to whether similar payments have been effected for earlier years without deduction of tax at source and the dates of payments of the amounts.

16. In reply to this letter the petitioner on the 16th November, 1963, wrote to the Income-tax Officer reiterating its earlier contentions and stating that similar payments have been made by them for every year.

17. For the assessment year 1963-64, the Income-tax Officer, A-Ward, Companies District-III, Calcutta, made similar queries by his letter dated the 20th November, 1964, and the Indian company answered the queries in a similar fashion by its letter dated the 5th December, 1964.

18. By a letter dated ttie 1st March, 1965, the Income-tax Officer, A-Ward, Companies District-Ill, Calcutta, informed the Indian company that certain remittances had been made to the petitioner-company as technical fees for the years 1957 to 1963. The Indian company was called upon under. Section 201(1) of the Income-tax Act, 1961, to pay the taxes as shown in a table appended to the said letter.

19. By a letter dated the 6th March, 1965, the Indian company pointed outthat the assumption that the amounts remitted to U.K. represented incomechargeable to tax under the Indian Income-tax Act was wholly unwarrantedboth on facts and in law.

20. Thereafter, the petitioner-company received several notices issued under Section 148 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), in respect of the assessment years 1950-51 to 1961-62. The said notices were all received in three sets, the first set relating to the assessment years 1957-58 and 1961-62 in February and March, 1966, the second set relating to the assessment years 1958-59, 1959-60 and 1960-61 in May, 1966, and the third set relating to the assessment years 1950-51 to 1956-57 in August, 1966.

21. After receipt of the said notices for the assessment years. 1957-58 and 1961-62, Messrs. Ford, Rhodes, Parks & Company addressed a letter to the Income-tax Officer on 20th April, 1966, stating, inter alia, as follows :

' (A) We fail to understand why these notices under Section 148 havebeen issued in respect of the assessments for the above years. Although wehave filed the returns as desired, you are hereby requested to take note thatthese have been filed under protest.

(B) We are of the opinion that no reassessments are called for in ourcase and we would be obliged if you can let us have the reasons recordedby the learned Commissioner of Income-tax or any other authoritiesauthorising you to issue such notices under Section 148.

(C) If these proceedings are initiated with reference to the attempt toreassess the reimbursement of technical expenses made to the assessee, wehave to state that we repeatedly drew your attention to the queries raisedfrom time to time by the taxing officer in this regard. For your information we point out that these queries were raised not only with reference tothe Indian company but also on the assessability of the assessee, namely,the U.K. company, on these receipts. Letters have been issued fey theassessing officer querying as to why these receipts could not be: assessed inthe hands of the U.K. company. All the information and explanationscalled for have been duly furnished to the then tax officer concerned,satisfying that the payments by the Indian company to the U.K. companyare not taxable.

(D) We would further inform you that after satisfying himself with the informations and explanations furnished, the taxing officer completed the assessments as per incomes returned. In the circumstances, we hope you will agree that there is no case for issuing any notices for reassessment. '

22. On the 16th September, 1966, a similar letter was addressed by Messrs. Ford, Rhodes, Parks & Company in connection with all the notices for 1950-51 to 1961-62 reiterating its earlier contentions. The material portion may be quoted below :

' Presumably your notices have references to the amounts received by Dunlop Rubber Company Ltd., U.K., from Dunlop Rubber Company (India) Ltd., in respect of research and development expenses incurred by the former in U.K. As you are aware and as your records will bear out, the question of taxability of this item has been gone into in the past on numerous occasions in several years in connection with the assessments of both the Indian company and the U.K. company. (It should also be borne in mind that the Income-tax Officer making the assessments on these two companies was the self-same Income-tax Officer). On those occasions in reply to specific queries raised by the Income-tax Officer, full particulars relating to the item, indicating both the nature and the basis thereof were furnished and the Income-tax Officer after due consideration of all relevant materials came to the conclusion that the amounts were not liable to tax in the hands of the U.K. company. It is precisely on this basis that these items had not been included in the assessment of the U.K. company. '

23. By that letter the reasons for the reopening of the assessments were requested to be furnished,

24. On the 26th September, 1966, the Income-tax Officer, A-Ward, Companies District III, Calcutta, addressed a letter to Messrs. Ford, Rhodes, Parks & Company. The material portion of the letter is as follows :

'The proceedings in question were initiated after fulfilling due requirements of the relevant provisions of the Income-tax Act, 1961. The asses-see, under the law, is not entitled to ask for the material on the basis of which such proceedings were initiated .... However, in order that the assessee may not have any grievance that the department acted without proper consideration of the matter, you are hereby informed that the payments received by the assessee-company from Dunlop Rubber Co. of India Ltd. for the various years for which action under Section 147 has been initiated and purported to have been received as ' technical aid reimbursement ' represented taxable income in the hands of the assessee. Such income escaped assessment in the assessments already made for failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessments within the meaning of Section 147. Such income was not shown in any part of the returns including Section ' D ' which is meantfor showing incomes which an assessee claims to be non-taxable for any reason. It is not correct to say that such receipts were considered by the Income-tax Officers who made the assessments and such receipts were not brought to tax after due consideration of the relevant materials.'

25. These notices issued to the petitioner-company under Section 148 of the Act for the assessment years 1950-51 to 1961-62 are challenged before me in this application.

26. Dr. Debi Pal appearing on behalf of the petitioner-company urges that there has been no omission or failure on the part of the petitioner-company to disclose fully and truly all material facts relating to its assessments for the assessment years 1950-51 to 1960-61. As such, the proceedings for reopening of the assessment by virtue of the impugned notices is not warranted in law. Reference is made in this connection to the statements in paragraph 29 of the petition, which are as follows :

'The question of the admissibility of the amount received by your petitioner from the Indian company by way of contribution to the expenditure incurred by your petitioner for maintaining its research organisation in U.K. was also considered by the Income-tax Officer in the assessment of your petitioner-company. As already pointed out, the Income-tax Officer assessing your petitioner-company and the Indian company was the same person and he had full knowledge of the circumstances under which the said payments were made by the Indian company to the U.K. company. As it will appear from various documents, the said question was considered repeatedly in the course of the assessment proceedings for the several years in question and the Income-tax Officer made elaborate investigation into the said affair. Shri P. Padmanabha, Income-tax Officer, on December 12, 1957, sent a letter to Messrs. Ford, Rhodes, Parks & Company, 64, Stephen House, Dalhousie Square, Calcutta, Chartered Accountants, dealing with the income-tax affairs of your petitioner by which the Income-tax Officer requested the said Ford, Rhodes, Parks & Company to send its comments on the taxability of the buying commission and the technical fees paid by the Indian company.'

27. In paragraph 30 of the petition it is stated that Messrs. Ford, Rhodes, Parks & Company by its letter dated the 24th December, 1957, sent its comments and stated that the technical fees received by the petitioner did not constitute income but were merely the reimbursement of expenses incurred in connection with the research work performed abroad.

28. It is to be noted at this stage that there is no affidavit filed by any of the Income-tax Officers who assessed either the petitioner-company or the Indian company for the assessment years 1950-51 to 1961-62 in these proceedings before me. A specific challenge has been thrown by the petitioner stating that the question of taxability of this income which is nowsought to be roped in by reopening the assessments were gone into by the appropriate Income-tax Officers in the different years. It is the further case of the petitioner that the same officer was assessing both the Indian company and the petitioner-company for the relevant assessment years. Obviously, the only persons who could have effectively challenged or controverted these allegations, if they were not true, were the assessing officers of the respective years. They, however, as I have already said, have chosen not to come before me with any statement on oath.

29. The only affidavit that has been filed on behalf of the income-tax department is an affidavit of Chandi Das Basu, affirmed on the 6th January, 1967. He is the Income-tax Officer. 'A' Ward, Companies District III, Calcutta, who has issued the impugned notices. On a purusal of the original assessment orders of the Indian company which are on record it appears that this gentleman did not make any of the orders of assessment for the assessment years which are now sought to be reopened in the case of the petitioner-company.

30. At paragraph 5 of the affidavit of Basu, the following statement occurs:

'With regard to paragraph 29 of the petition it is denied that the question of admissibility of the amounts received by the asscssee from the Indian company by way of contribution to the expenditure incurred by the assesssee for maintaining the research organisation in the United Kingdom was considered by the Income-tax Officers for the assessments of the assessee-company as alleged or at all or there was any occasion to do so. Save as aforesaid and save what appears from the records of the income-tax department, each and every allegation made in paragraph 29 of the petition is denied and the submissions contained therein are disputed.'

31. In paragraph 6 of the affidavit, the letter dated the 24th December, 1957, mentioned in paragraph 30 of the petition is admitted but the other statements are denied.

32. On the basis of the above pleadings, Dr. Pal invites me to hold that there is no effective denial of the allegations made by the petitioner with regard to the consideration of this item in the original assessment proceedings. He draws my attention to the fact that it is not the case of the income-tax department that the original assessing officers did not know the primary fact with regard to the receipt of this income by the petitioner-company or that it could not be discovered by the original assessing officers. As I have said there is no affidavit by any of the original assessing officers. In paragraph 5 of the affidavit of Basu, it is denied that the admissibility of these amounts were considered by the Income-tax Officers. It is not said that the officers did not know this fact.

33. In my view, there is lot of substance in this contention. As I have said in some of my judgments this type of affidavit is practically useless.

34. The person who has affirmed this affidavit has no knowledge of what transpired in the course of the original assessment proceedings in the relevant years of assessment. I have therefore to proceed on the footing that the same Income-tax Officer was dealing with both the cases of the Indian company and the petitioner-company in the respective years. It is on record that Messrs. Ford, Rhodes, Parks & Co. were representing both the petitioner company and the Indian company in the course of the assessment proceedings. After all, this is a case of a non-resident who is acting through its agents, a reputable firm of chartered accountants in Calcutta. I have the solemn testimony on oath by Mr. Vaidyanathan, an officer of the firm, that this question was gone into by the Income-tax Officers at the time of the original assessments.

35. Even assuming that this fact was only brought to the, notice of the Income-tax Officer in the case of the assessment of the Indian company for which there is ample material on record, once the identity of the officer assessing the two companies is established, it must necessarily follow that the Income-tax Officer is imputed with the knowledge that the Indian company is paying this particular sum by way of liaison expenses to the petitioner company as its contribution for research and development. From the correspondence it is obvious that year after year this amount is being investigated in the hands of the Indian company, no doubt for the purpose of deciding its admissibility as expenses and this amount is being allowed as expenses of the Indian company in each and every year.

36. I have already referred in extenso to the correspondence on the question of liability of the Indian company to deduct tax on this payment under Section 195(2) of the Act. That question can only arise if the amount is taxable in the hands of the petitioner company as a non-resident. After correspondence it appears that the Indian company was held not liable to deduct any tax on this amount. This can only postulate that this amount was found to be not taxable in the hands of the petitioner-company.

37. In that state of affairs, to insist that the petitioner-company must include this income in its return, or at least in Part D of the return which seems to be the grievance of the income-tax department is, in my view, to insist on a mere formality and an empty ritual. If the Income-tax Officer did know about this receipt, I do not think that the petitioner-company can be charged with any omission or failure to disclose this fact. After all, it is a matter of substance and not of mere form.

38. It would be appropriate at this stage to deal with some of the authorities relied upon by Dr. Pal. The first case to be considered is the well-known decision of the Supreme Court in the case of Calcutta Discount Co, Ltd. v. Income-lax Officer, Companies District I, Calcutta, : [1961]41ITR191(SC) . At page 200 of the report, the following passage occurs ;

' The words used are ' omission or failure to disclose fully and truly all material facts necessary for his assessment for that year '. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to araw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable.'

39. At page 201 of the report, the following passage occurs :

' Does the duty, however, extend beyond the full and truthful disclosure of all primary facts In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn.'

40. Relying on the above passages it is contended that the crucial question is : Does the Income-tax Officer know the primary fact That knowledge, as the Supreme Court has pointed out, may be derived from disclosure by the assessee, or inferences from facts disclosed or ' otherwise '. There is nothing to prevent the Income-tax Officer, once he is put upon enquiry to investigate or collect certain other facts from whatever sources they may be available. Applying this principle, if the Income-tax Officer in the course of the assessment of the Indian company knew about the receipt of this amount by the petitioner-company, the same officer could certainly have discovered this fact ' otherwise ' or to bring his knowledge as to this amount to bear on the assessment of the petitioner-company apart from disclosure by the petitioner-company in the course of its own assessment proceedings. But the primary consideration, as the Supreme Court has pointed out, is that once the primary facts are before the assessing authority he requires no farther assistance by way of disclosure. It is difficult to see how there can be an omission to disclose what the Income-tax Officer already knows. To insist on such a mechanical formula, in my view, would be importing an obligation which could not have been intended to be east on an assessee when such drastic powers of reopening the assessments were vested in the taxing authorities by a fiscal statute.

41. Reference is next made to a decision of the Madras High Court in the case of Gordon Woodroffe and Co. v. Income-tax Officer, Madras, [1964] 51 I.T.R. 12 (Mad.). After dealing with the Supreme Court's decision in the case of Calcutta Discount Co. Ltd. v. Income-tax Officer, Jagadisan J. observed as follows :

' Shortly stated, the legal position that emerges is this. The assessee is bound to be quite candid in the matter of placing all materials and facts before the department without in any way trying to hoodwink the authority and to escape taxation. Equally, the department is bound to discharge the statutory duty of making a proper assessment by examining with care and caution the materials that have been made available. Provided that the assessee has done all that he could or need do in the matter, the assessing authority cannot act perfunctorily with the hope and expectation that any error which he might commit by not making a proper assessment can, subsequently, be rectified by resorting to the machinery under Section 34 of the Act.'

42. This decision, in my view, lays down a very important test. Has the assessee tried to hoodwink the authorities and thereby escape taxation In the facts of this case, the answer must be in the negative.

43. The next case to be noticed is another decision of the Madras High Court in the case of E.M. Muthappa Chettiar v. Commissioner of Income-tax, [1964] 53 I.T.R. 642 (Mad.). At page 650 of the report, the same learned judge, as in the earlier case, Jagadisan J., observed as follows :

' It is the duty of the assessee to reveal the major facts which have a bearing on the assessment to be made. He must of course make a clean breast of all the sources of his income and the income derived therefrom. He must not hide any books of account or documents which would help the computation of the income. He is not expected to do more than this. He cannot delve into the mind of the Income-tax Officer and try to fathom it and predicate what are the material facts in the view of the officer. The facts must be such that if taken into account, they would have an adverse effect on the assessee by the passing of a greater assessment than the one actually made. The rule of full and true disclosure of material and necessary facts should not be so fastidiously construed as would enable the department to say that non-disclosure of a fact which may have a remote bearing on the assessment attracts the section, as the assessing officer would have material use of it to charge the assessee more than what he did. The Income-tax Officer cannot certainly fall back on the section to make good his deficiencies in the first completed assessment. Cases sought to be brought within Section 34(1)(a) should strictly fall within that provision and it is for the department to show that the necessary conditions for the exercise of jurisdiction are fully present. The department is not at liberty to take bold of any and every circumstance, call it non-disclosure of material facts and set the machinery of reassessment in motion. If this were to be permitted there is every danger of this provision of law being used as an instrument of oppression against the assessee. The true position is that if the Income-tax Officer was left in the dark in respect of basic and crucial facts, relevant to the assessment, he has jurisdiction to reopen the assessment and pass orders of assessment. '

44. Reference is next made to a decision of the Bombay High Court in the case of S.M. Dahanukar v. Commissioner of Income-tax, [1968] 69 I.T.R. 504 (Bom.). At page 511 of the report, Kotval C. J. observed as follows :

' We do not think that the facts such as the area of the hutments or the municipal assessments upon the land or the hutments, were primary facts which had to be disclosed as necessary for his assessment. The duty cast upon the assesses to make a full and true disclosure of all material facts does not absolve the Income-tax Officer from performing his duty to apply his mind and make intelligent inquiry, especially when, as here, the primary facts were before him, on the basis of which he might have pursued inquiry and found out other relevant facts. '

45. Lastly, reference was made to a decision of the Gujarat High Court in the case of Bhanji Lavji v. Commissioner of Income-tax, [1967] 63 I.T.R. 1 (Guj.) as an authority for the proposition, if income escapes assessment as a result of an erroneous view of the Income-tax Officer, Section 34(1)(a) of the old Act could not be invoked.

46. My attention was also drawn to an unreported decision of a Division Bench of this court in Income-tax Reference No. 44 of 1965, in the case of Commissioner of Income-tax v. Kallu Babu Lalchand, [1969] 73 I.T.R. 138 (Cal.), delivered on the 12th February, 1969, In delivering the judgment, Sabyasachi Mukharji J. observed as follows:

' It is clear, therefore, that even though there might not have been a disclosure by the assessee of this income in its return, inasmuch as the assessee was contending at that time that it was not the income of the Hindu undivided family, all the primary facts relating to this income were known to the Income-tax Officer. These were in his possession, either on disclosure by the assessee or by discovery by him on the basis of the facts disclosed or otherwise. That is clear from the original assessment order itself. If that is the position, then the question arises, has there been an omission in this case to disclose fully and truly All primary facts necessary for the purpose of assessment It was contended before us by Mr. B.L. Pal that there has been such an omission inasmuch as the assessee could have, if it so wanted, included this item in Part VII in its returns. Dr. Debi Prasad Pal, learned advocate for the assessee, on the other hand, contends that there is no such statutory obligation on the part of the assessee to include it in Part VII of its return. He draws our attention to the decision of this court in the case of Sudhir Kumar Bhose v. Income-tax Officer, [1968] 69 I.T.R. 446 (Cal.). It is not necessary for us to decide in this case whether it was obligatory or necessary for the assessee to disclose this income in Part VII of its return. For our purpose it suffices to hold that these facts were known to the Income-tax Officer at the time of the original assessment. In that view of the matter there has been no omission' or failure to disclose in terms of Section 34(1)(a) of the Income-tax Act, 1922. '

47. This decision appears to be a clear authority for the proposition that there cannot be an omission to disclose what the Income-tax Officer already knows, although it might not have been put in in the return of the assessee. With respect, I follow this principle and hold that there is no omission or failure on the part of the petitioner-company in the facts and circumstances of the present case.

48. The trilogy of the Bombay, Madras and Gujarat cases, which I have referred to hereinabove, clearly cast the duty on the Income-tax Officer to exercise due care and caution and to make intelligent enquiries. The cases lay down that a failure to make such an enquiry or making a perfunctory enquiry at the time of the original assessment does not justify proceedings for reassessment. Further, a mere change of opinion of a successor officer is no ground for action under Section 34(1)(a) of the old Act which corresponds to Sections 147(1)(a) and 148 of the Act.

49. Mr. Dipak Sen on behalf of the revenue contends that the two companies were different juristic entities and hence, even assuming that the Income-tax Officer had knowledge in connection with the assessment of the Indian company, that knowledge cannot be imputed in the case of the petitioner-company so as to absolve it from the liability to disclose this income in the course of its own assessment. He further contended that even assuming that the department in connection with a particular assessment year had taken the view that this receipt was not taxable in the case of the petitioner-company, the assessee had no right to presume or take it for granted that the same view would prevail in the subsequent years. Mr. Sen stressed the proposition of law that the principles of estoppel do not apply to income-tax proceedings in respect of subsequent assessment years.

50. It is undoubtedly correct that the Indian company and the petitioner-company are two different assessees. But, can the knowledge of the same Income-tax Officer about the same fact be put in two water-tight compartments in the case of assessment of these two assessees As I have said, I think it is a matter of substance and not of mere form. Further, this is not a question of the department changing its view. It appears that the question of taxability of these receipts in the hands of the petitioner-company had been gone into as would appear from the correspondence with the Indian company with reference to Section 195(2) of the Act. Those proceedings appear to have been dropped on the satisfaction of the income-tax authorities that these amounts were not taxable in the hands of the petitioner-company.

51. Taking into account the entire conspectus of the facts and circumstances of this case, there has been, in my view, no omission or failure on the part of the petitioner-company so as to justify action under Sections 147 and 148 of the Act.

52. The contention of the petitioner, therefore, succeeds and the impugned notices are struck down.

53. In the result, this application succeeds and the rule is made absolute. There will be a writ in the nature of mandamus directing the respondents to forthwith recall, cancel and withdraw the impugned notices under Section 148 of the Act for the assessment years 1950-51 to 1961-62 issued by the respondent No. 1 and set out in annexure 'O' to the petition. There will also be a writ in the nature of prohibition restraining the respondents from giving effect to or taking steps on the basis of the notices in any manner whatsoever.

54. There will be no order as to costs.


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