T. K. BASU J. - In this application the petitioner, The Hong - Kong and Shanghai Banking Corporation, challenges several notice issued under section 148 read with section 147 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). Covering assessment years 1950-51 to 1960-61. The notices are impugned on the usual ground that there was no omission or failure on the part of the assessee to disclose all material facts relevant for its assessment during the respective assessment years and consequently the notices are without jurisdiction and void.
The facts which are relevant for the purpose of appreciation this contention may be briefly noted.
The petitioner - bank is a word - wide organisation having its branches in several countries including India, the United Kingdom and the United State. Being an exchange bank there are certain expenses which are incurred in the United Kingdom and the United States offices of the bank with can be said to be referable to transactions which originated in India. In the course of the assessment for the assessment year 1950-51, for the first time the petitioner claimed a deduction of a proportion of the expenses of its head office, London office and the U. S. A. offices, respectively, referable to the Indian offices., It appears from paragraph 5 of the petition that upon such claim being made, one K. N. Banerjee, the then Income-tax Officer, had various discussion with the petitioner representatives both verbally as well as in writing. The Income-tax Officer called for and the petitioner submitted various details in support of the petitioners claim including the breaks-ups of the relative expense, the Indian offices profit and loss account and balance-sheet as well as the world profit and loss account and balance-sheet and all other documents and information asked for. The resilient correspondence states with a letter dated the 22 nd January, 1951, written by the Income-tax Officer to the manager of the petitioner raising this specific question and ending with the letter of the petitioner to thee Income-tax Officer dated the 19th April 1951, dealing with this aspect to the matter and are to be collectively found in exhibit B to the petition.
It appears that this question was gone into in considerable detail between the Income-tax Officer and the representatives of the petitioner - company which according to paragraph 6 of the petition were one Mr. G. R. Crooks of Messrs. Price, Waterhouse, Peat & Co., Chartered Accountants, and one Mr. E. C. Hutchinson, an officer of the petitioner.
Thereafter, on the 23rd April, 1951, i.e., four days after the date of the letter written by the petitioner, the Income-tax Officer passed an order of assessment for the years 1950-51 under section 23 (3) of the Indian Income-tax Act, 1922 (now repealed). The opening paragraph of the short assessment order is significant in the context of the present contention advanced on behalf of the petitioner and may be set out hereinbelow :
'Mr. G. R. Crooks of Price, Waterhouse, Peat & Co. and Mr. Hutchinson of the bank attended with whom the assessment was discussed. Details called for have been furnished. The income shown in the return appears to have been correctly computed except that Rs. 4,18,586 should have been deducted in place of Rs. 4,21,981 being proportion of head office, London office and U. S. A. office expenses applicable to Indian offices (vide computation as per assessees letter dated 19-4-1951)....'
It may be noted in this connection that with the letter of 19th April 1951, sent by the petitioner, which I have mentioned above, a calculation sheet which is an enclosure to that letter is to be found at pages 36-37 of the petition. This calculation sheet contains a kind of formula which wa accepted by the Income-tax Officer in making the assessment.
This method of computation as is clear from the order of assessment was accepted by the Income-tax Officer as a correct mode of computation.
For the subsequent assessment year 1952-53, the order assessment if passed by the then Income-tax Officer, Shri G. B. Seth. The opening paragraph is in the following terms :
'Return filed At 23 (2) stage Mr. F. H. Hill of Price, Waterhouse, Peat and Co. attends and information on specific points are discussed with him. The assessment is farmed as below...'
In the rest of the comparatively longer assessment order there is no discussion on the question of the deduction in respect of the Indian proportion of head office expenses. This must be because the basis on which the deduction was allowed by the Income-tax Officer in the previous year on the assessees own computation was allowed in this particular year by the Income-tax Officer.
Similarly, for the assessment year 1953-54 there is no discussion on this aspect presumably because the deduction was allowed on the same basis.
In appears that in concession with the assessment for the assessment year 1954-55 the matter was again raked up by the then Income-tax Officer. This is clear from the fact that on the 27th November, 1958, the manager of the petitioner-company addressed a letter to the Income-tax Officer which is in the following terms :
Income-tax Assessment Year 1954-55. Our Accounting Year 1953.
As requested by you at the hearing on 4th November, we attach notes on the items regarding which you required clarification.
We trust these notes will explain the position to your satisfaction.'
The note referred to in the letter is to be found at page 87 of the brief and is in the following terms :
'Re : Deduction of proportion of hear office, London and U. S. A. offices expenses.
For ready reference copies of correspondence exchanged between the Income-tax Officer, Companies District I, Calcutta, and the bank in 1951 in course of assessment of tax of assessment year 1950-51 are attached. The position as stated in these letters and accepted by the Income-tax Officer remains the same for the current year; hence, there is no reason for any change in the system and method of assessment and the formula adopted for calculation of the proportion of expenses.'
Thereafter, the Income-tax Officer completed the assessment for the assessment year 1954-55. The opening paragraph of the assessment order is in the following terms :
'Return of income filed admitting a total income of Rs. 16,36,311. After a scrutiny of the statements and information filed along with the return of income and obtaining further information on specific points and discussing the position with Shri Mondal, legal adviser of the bank, and Mr. Hill of Price, Waterhouse, Peat & Co., who appeared on behalf of the bank, the assessment is completed as under...'
There is no discussion on this question in the assessment order obviously because the claim as made by the petitioner was allowed as deduction by the Income-tax Officer. This state of affairs continued year after year till the assessment year 1960-61 up to which year the deduction on the basis of the formula submitted by the petitioner in the assessment year 1950-51 was allowed by the Income-tax Officer.
The subsequent correspondence between the parties is not really material for the purpose of this application save the impugned notices under section 148 read with section 147 which I have mentioned above.
In the original affidavit which was filed in answer to the rule by Ranabir Prasad Dobe affirmed on the 29the November, 1965, which contains only the recital of the respective sectarians of the Income-tax Act, hardly any material was disclosed apart from the statement of paragraph 11 to the following effect :
'11. With regard to paragraph 26 of the petition I state that the petitioner had suppressed the fact the proportion of New York and London expenses claimed in India were also claimed by the petitioner before the tax authorities of the respective countries as expenses incurred in the respective countries of earning the income countries. This fact first came to my knowledge on receipt of the letter of the petitioner dated 3rd April, 1965.'
It is to be noted that this officer, Dobe, was neither the officer who passed the original order of assessment nor the officer who issued the impugned notices. Having regard to this fact and having regard to several decisions of this court including some of my decisions where it has been held that these affidavits are really useless, leave was asked fro to file a further affidavit and such leave was granted by me subsequently. Another affidavit has been affirmed by Sailesh Kumar Chakravarty, the Income-tax Officer, 'C' Ward, Comp, Dist. III, on the 28th May, 1970. Before I deal with this affidavit I must record, as pointed out by Dr. Debi Pal appearing on behalf of the assessee, that there is a statement in paragraph 4 to the following effect :
'I passed the assessment order in the assessment years 1957-58 to 1960-61.'
Turning to the records, however, it appears that this statement is an absolutely false statement. Mr. Suhas Sen, appearing on behalf of the revenue, tendered an apology on behalf of the deponent for this obviously untrue statement an apology on behalf of the deponent for this obviously untrue statement in the affidavit. Having regard to this fact, I do not propose to pursue this matter any further. The affidavit of Chakravarty in paragraph 2 endeavours to set out the details of the grounds on which the reopening of the assessments pursuant to the impugned notices are sought to be justified. The reason which are to be recorded fro the purpose of reopening the assessments were also produced before me and copies whereof have been tendered by consent of parties as part of the records. Since the recorded reasons are before me, I do not propose to deal with the statements in the affidavit of Chakravarty.
I may mention that the recorded reasons for the different assessment years are almost identical and, by way of a specimen, the recorded reasons for the assessment year 1950-51 may be set out below :
'Reasons for reopening the assessment proceedings :
(1) From the assessment year 1950-51 the assessee represented that in addition to the supervision charges incurred by the head office in Hong-kong, the London and New York branches of the bank also incurred supervision charges on behalf of Indian branches, and got such claim accepted by the dept.
(2) For the assessment year 1962-63 (the assessment is pending) the assessee has claimed the following deduction on this score :
Expenses incurred on behalf of India
by London branch
by U.S.A. branch
(3) On enquiry it is learnt that the assessee has already claimed these expenses, in the respective foreign countries, as having been incurred for earning the income in those countries. The assessees claim for the deduction, a second time of the same expenses in India, is untenable and is a clear case of misrepresentation.
(4) The figures of such expenses doubly allowed for earlier years are not readily available. From the material on record a rough estimate is as under :
53-54 to 59-60}
Rs. 5,00,000 for each year
60-61 to 61-62}
Rs. 6,50,000 for each year
(5) I have, therefore, reason to believe that by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment income of Rs. 6,50,000 charged to tax for this assessment year has escaped assessment.
(6) The assessee has credited a sum of Rs. 30,57, 608 to the profit and loss account in India. But for the purpose of computation of income the account has been debited on the plea that the credit represents subsidy from head office. I have reason to believe that the credit to the profit and loss account in India is clearly profit received in India which has also escaped assessment.
(Sd.) A. V. Kasbekar,
I. T. O., C-Ward, C-III/Cal.'
Dr. Pal for the petitioner strongly relies on the first paragraph of the recorded treason where it is stated that for the assessment year 1950-51, the assessee represented that, in addition to the supervision charges incurred by the head office in Honkong, the London and New York branches and got such claim accepted by the department. This is an admission according to Dr. Pal, on behalf of the revenue authorities that not only was the fact that the assessee was contending that certain supervise charges were being incurred by the London and New York branches of the bank in connection with Indian work was within the knowledge of the Income-tax Officer in the respective years of assessment buy also of the fact that the officer accepted the contention of the assessee as true and correct. This is evident from the fact that in the very year in which this question came up, i.e., the assessment year 1950-51, as I have already indicated, the assessees own calculation as to the formula was accepted by the income-tax department. The only ground for reopening, it seems, is an alleged misrepresentation. According to the Income-tax Officer seeking to reopen the assessment, the assessee misrepresented the facts in suppressing the fact that is had also claimed these expenses in the respective foreign countries. This facts again is disputed in the affidavits and it is submitted that only a small part of it has been claimed in the assessments in the other countries. It is not necessary for me in this application to go into this controversy, because I am really concerned with the question whether the primary facts as to the assessees claim that these expenses were being incurred by the London and New York branches was within the knowledge of the Income-tax Officer.
Dr. Pal in this connection drew my attention to a recent decision of the Supreme Court in the case of Commissioner of Income-tax v. Hemchandra Kar : 77ITR1(SC) . The relevant passage occurs at pages 4-5 of the report and is as follows :
'Whether has to be seen is whether the Income-tax Officer could have reasons to believe that due to omission or failure on the part of the assessee do disclose fully and truly all material facts necessary for his assessment, there has been escarpment of income. The High Court rightly relied on the observations in the majority judgment in Calcutta Discount Co. Ltd. v. Income-tax Officer : 41ITR191(SC) that in every assessment proceedings the assessing authority will for the purpose of computing or determining the proper tax, require to known 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 facts disclosed or otherwise, the assessing authority has to draw 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. Therefore, the duty of disclosing all the primary facts lies on the assessee. The primary facts were admittedly within the knowledge of the Income-tax Officer at the time when he completed the first reassessment under section 34.'
Dr. pal submits that the facts of the case before the Supreme Court are on all fours with the facts of the present case. He stated that it is implossible for the assessee to find out as to what facts, apart from the primary fact, the assessing authority would consider to be relevant. It is for the assessing authority to make intelligent enquiries and find out what it considers relevant fact. If the Income-tax Officer in the course of his original assessment proceedings considered the question whether the claim for deduction which was being made in the Indian assessment was a relevant fact, surely the Income-tax Officer could have made the necessary enquiries from the assessee to ascertain the position. It was pointed out that elaborate enquiries were made by the Income-tax Officer, Banerjee, in connection with the assessment for the assessment year 1950-51. While several aspect of this question were examined, this point never came up and no query was adressed to the assessee in this connection. Dr. Pal stressed the expression used in the Calcutta Discount Companys case : 41ITR191(SC) , viz., 'the primary facts in his possession whether on disclosure by the assessee or discovered by him on the basis of facts disclosed or otherwise'. According to Dr. Pal this fact on which reopening is now sough to be justified could easily have been ascertained by the Income-tax Officer on the basis of the facts disclosed by the assessee or otherwise.
Reference was next made to another decision of the Supreme Court in the case of Commissioner of Income-tax v. Bhanji Lavji : 79ITR582(SC) . The relevant observation which occurs at pages 588-89 is as follows :
'Counsel for the Commissioner contended that in any event the assessee had in the assessment of income for the year 1949-50 not disclosed all the primary facts. Counsel contended that the statement before the Income-tax Officer was a bare statement about the receipt of interest from Messrs. Shamji Kalidas and Company and there was no reference to the account with the Bank of India Ltd. There is no substance in this contention. The assessee had invited the attention of the Income-tax Officer to the previous assessment proceedings and also had invited his attention to the fact that, on the interest, received, tax at maximum rate was charged. Of the bank account there was no express reference. But we agree with the High Court that since the factual position having remained unaltered in the assessment year 1949-50, there was no non-disclosure of material facts necessary for assessment of the income. The Income-tax Officer was fully aware of the assessment proceedings for the years 1947-48 and 1948-49 and in his order he expressly referred to those proceedings. Being aware of the earlier proceedings and the reasons for passing the previous order, if the Income-tax Officer passed an order in effect holding that there was no income of the assessee chargeable to tax, the Income-tax Officer cannot seek to reassess the income on the ground of failure to disclose fully and truly the facts necessary for assessment.'
Strong reliance was placed by Dr. Pal on my own decision in the case of Dunlop Rubber Co. Ltd. (London) v. Income-tax Officer : 79ITR349(Cal) . After referring to certain decision of other High Courts, I came to the following conclusion at page 363 of the report :
'The trilogy of the Bombay, Madras and Gujarat cases, which I have referred 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 fro action under section 34 (1) (a) of the old Act which corresponds to sections 147 (1) (a) and 148 of the Act.'
In the cases mentioned above, I took the view that if the Income-tax Officer has come to know of a fact even in cognition with the assessment proceedings of another company who was not the assessee in that case, the assessee was not under any obligation to disclose that fact to the officer which he already knew. Dr. Pal submitted that the present case stood on a much stronger footing because the officer had come to know all the primary facts in connection with the assessment of the assessee itself. It was further pointed out the Gujarat case which I have mentioned in my judgment has been since affirmed by the Supreme Court in the case which I have noticed a little earlier in Commissioner of Income-tax v. Bhanji Lavji : 79ITR582(SC) .
In my view, Dr. Pals contention is sound and should be accepted. I fail to see what other fact the assessee could have disclosed in the original assessment proceedings. Mr. Suhas Sen, appearing for the revenue in the first place contended that the proper enquiry at this stage is whether there is material in the possession of the Income-tax Officer on the basis of which he formed the belief that there is an omission. Whether there is an actual omission or not is not to be enquired into at this stage. This proposition of law was not disputed by Dr. Pal and I am of the view that it cannot be disputed. At this stage of the reopening of the proceedings I am only concerned with a prima facie belief by the officer that the matter requires investigation by way of reassessment proceedings. In course of the reassessment it may very well transpire that there has been no omission or failure. Consequently, the formation of belief at this stage must be necessary tentative or prima facie.
The next contention of Mr. Sen was that the assessees statement that the same expenses were being wholly and exclusively incurred for the purposes of its offices both in India and in England and the United States was a false statement and if that was a false statement in the original assessment proceedings the income-tax authorities were entitiled to reopen the assessment.
I do not think that this is a correct way of looking at it. Here the assessee wa making a claim for a deduction on a certain basis. Whether the claim for deduction was sustainable or not, it was for the assessing authority to decide. The assessing authorities might have, if they had made the necessary enquiries, found out that the same claim was being made for deduction in other countries also. The officer might have thought that on this ground the claim should be disallowed. But that was surely a matter which the assessing authority could find out upon intelligent enquires. I do not think that the assessee can in fairness be saddled with the obligation to disclose all manner of facts other than primary facts which the assessing authority may or may not consider relevant.
Mr. Sen sought to derive some inspiration from a judgment of the Supreme Court in the case of Commissioner of Income-tax v. Chidambaram Chettiar : 80ITR467(SC) . Mr. Sen relied on a single sentence at page 472 of the report :
'It is true that the Income-tax Officer could have made further enquiry into the matter but the fact that he did not make any further enquiry does not take the case out of section 34 (1) (a) particularly when the assessee had failed to place truly and fully all the material facts before him.'
With great respect I do not think that Hedge J. in the above observation intended to lay down an absolute proposition that even when there was no omission or failure on the part of assessee, a mere failure on the part of Income-tax Officer to make further enquiries would justify reopening under section 34 (1) (a) of the old Act. In other words, the observation as to the failure of the Income-tax Officer in the above sentence of the judgment of Hegde J. is to be understood in the context of the fact that, according to the Supreme Court, there was an omission or failure on the part of the assessee to disclose primary facts in the facts of that case. Consequently, this observation is of no assistance to the revenue in the present case.
Mr. Sen also relied on a decision of the Madras High Court in the case of K. P. Arthanariswamy Chettiar v. First Income-tax Officer : 84ITR51(Mad) . The following observation at page 59 of the report was relied on by Mr. Sen :
'It would be just putting a premium on dishonesty if it were to be held as a matter of course that all statement given by the assessees, even if they are false, must be deemed to be sufficient material within the meaning of section 147 (a), which would disentitle the Income-tax Officer to reopen the same even if he finds on subsequent discovery that such material is false and such material is untrue and not full.'
This decision again is distinguishable from the facts of the present case. This is because, as I have already said in the instance case, I do not think that the assessee was making any false statement. If a specific question was put to the assessee whether it had claimed this deduction in the assessment in the other countries and the assessees answer was in the negative then undoubtedly it would have been a false statement by the assessee. But, since no such specific enquiry was made by the Income-tax Officer, I do not see how the assessee could be said to have made nay false statement. This decision of the Madras High Court is, therefore, of no assistance to the revenue.
This disposes of all the contentions raised on behalf of the parties.
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 and cancel the notices dated the 4th May, 1965, and the 1st July, 1965 respectively, issued under section 148 of the Income-tax Act, 1961, for the assessment years 1950-51 to 1960-61, and to forbear from giving effect thereto in any manner whatsoever.
There will be no order as to costs.
Operation of the order is stayed for 8 weeks from date.
Interim order granted herein will continue for the same period.