1970 (3) TMI 22 - HC - Income Tax

Duty to disclose facts - assessee, Indian company - whether the notice for reassessment can be issued to the parent company especially if the Indian Company has been giving the similar information for several years - no omission or failure on the part of the petitioner-company so as to justify action under sections 147 and 148

Issues Involved:
1. Admissibility of liaison expenditure as deductible.
2. Reopening of assessments under Section 147/148 of the Income-tax Act, 1961.
3. Alleged failure to disclose material facts fully and truly.
4. Taxability of technical fees received by the petitioner-company.
5. Validity of notices issued under Section 148.

Issue-wise Detailed Analysis:

1. Admissibility of Liaison Expenditure as Deductible:
The Indian company made contributions to the petitioner-company for technical research and development expenses incurred in the UK. These expenses were allocated based on production volume and specific services rendered. The Income-tax Officer queried the liaison expenditure for several years, and the Indian company provided consistent explanations, stating that these were reimbursements for technical research and development expenses. The Income-tax Officer accepted these explanations, and the expenses were allowed as deductions in the Indian company's assessments.

2. Reopening of Assessments under Section 147/148 of the Income-tax Act, 1961:
The petitioner-company received several notices under Section 148 for reassessment of income for the years 1950-51 to 1961-62. The petitioner-company, represented by Messrs. Ford, Rhodes, Parks & Company, filed returns under protest and requested the reasons for reopening. The Income-tax Officer responded that the payments received as "technical aid reimbursement" represented taxable income that escaped assessment due to the petitioner-company's failure to disclose material facts fully and truly.

3. Alleged Failure to Disclose Material Facts Fully and Truly:
The petitioner-company argued that there was no omission or failure to disclose material facts. It emphasized that the same Income-tax Officer assessed both the Indian company and the petitioner-company, and he was fully aware of the payments made for technical research and development. The petitioner-company contended that the primary facts were known to the assessing authority, and there was no need for further disclosure. The court noted that the income-tax department did not provide affidavits from the original assessing officers to refute the petitioner's claims.

4. Taxability of Technical Fees Received by the Petitioner-Company:
The petitioner-company maintained that the technical fees received were reimbursements for expenses incurred and not taxable income. The court observed that the same Income-tax Officer handled the assessments of both companies and was aware of the payments. The Indian company was not required to deduct tax at source under Section 195(2) of the Act, indicating that the payments were not considered taxable in the hands of the petitioner-company.

5. Validity of Notices Issued under Section 148:
The court held that there was no omission or failure on the part of the petitioner-company to disclose material facts. The primary facts were known to the Income-tax Officer, and the reassessment notices were not justified. The court relied on several precedents, including the Supreme Court's decision in Calcutta Discount Co. Ltd. v. Income-tax Officer, which emphasized that the duty to disclose does not extend beyond the full and truthful disclosure of all primary facts. The reassessment proceedings were deemed invalid as they were based on a mere change of opinion rather than any new material facts.

Conclusion:
The court concluded that there was no omission or failure by the petitioner-company to disclose material facts, and the reassessment notices under Section 148 were invalid. The court issued a writ of mandamus directing the respondents to recall, cancel, and withdraw the impugned notices and a writ of prohibition restraining the respondents from taking any action based on these notices. The application succeeded, and the rule was made absolute, with no order as to costs.

← Previous Next →