9911796707
TMI Blog1986 (5) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... ch challenge was upheld by the learned single judge of the High Court and the notices in question were quashed. The Revenue being aggrieved preferred appeals before the Division Bench of the High Court. The Division Bench of the High Court reversed the findings of the learned trial judge and the notices were upheld. Hence, these appeals. The assets and liabilities of the erstwhile Assam Oil Co. have since then vested in the Indian Oil Corporation and on an oral application having been made on behalf of the assessee, we have directed that the name of the Indian Oil Corporation be substituted. The assessee at the relevant time was a company incorporated under the appropriate laws of the United Kingdom and had its principal place of business at the relevant time in India at Digboi in the State of Assam. It carried on business, inter alia, in oils and lubricants. As the years involved were prior to the introduction of the Act in question, the assessee was all along assessed under the provisions of the Indian Income-tax Act, 1922 (hereinafter called " the 1922 Act"). In its assessment under the 1922 Act, the assessee had claimed deductions every year of certain expenses amounting to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the trading account for 1952. The assessee, by its letter dated December 9, 1953, informed the Income-tax Officer that the assessee's London principals had advised them that the total expenses of the London office for 1952 amounted to pounds 2,75,000 of which pounds 2,55,000 was charged out to the subsidiary companies for services rendered by the parent company. It was further informed that by far the bulk of these head office expenses was comprised of salaries and office rents paid, and apart from comparatively negligible amount of work not connected with the subsidiary companies, the whole of the head office expenses might reasonably be allocated to the subsidiary trading companies. The Assam Oil Co.'s share of the amount charged out was pounds 1,00,000, i.e., approximately 40% and the London office advised so. It was communicated to the assessee that this amount was a " reasonable allocation having regard to the amount of work done on behalf of the assessee-company ". It was further stated that the Assam Oil Co. was the largest of the trading subsidiaries and in addition was by far the major oil producing company in the group. In short, the amount, according to the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asking the assessee to explain the basis of allocation of pounds1,10,000 for the year 1953. The Income-tax Officer drew the attention of the assessee to the fact that the assessee had written that there was no correspondence with the parent company on this matter. The assessee was asked to explain the basis of the allocation and how it was fixed at pounds1,10,000 for the year 1953. The assessee was further asked to explain the item " purchase of plant and machinery " in the list of services rendered by the head office in addition to the service of central administration and overall control. By another letter dated January 3, 1958, the Income-tax Officer informed the assessee that the assessee had not written what the assessee's London office had to say about the basis on which the amount of pounds10,000 claimed as a deduction from the Indian profits, was arrived at. The Income-tax Officer further informed the assessee that in the absence of the required particulars, he would have to disallow a part of the expenses claimed and also to capitalise a portion of the remaining part as relating to purchase of plant and machinery. To this, the assessee, by its letter dated January 16, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, the Income-tax Officer, another incumbent, namely, S.S.M. Islam, by a letter dated October 8, 1956, asked for the details of the services rendered and to send a copy of the correspondence between the assessee and the parent company regarding fixation of the amount of the London charges. The assessee on July 12, 1957, by a letter objected to the suggestion that London office charges were not allowable and pointed out that they had always been allowed in the past. In any event, the assessee asked for time to furnish the details. On January 16, 1959, Shri D. G. Pradhan, Income-tax Officer, completed the assessment for the assessment year 1955-56 allowing the claim for London charges in full. On the same day, Shri Pradhan completed the assessment for the assessment years 1956-57 and 1957-58 and allowed the London charges in full. For the assessment year 1959-60, the assessee wrote on July 27, 1961, to the Income-tax Officer pointing out that it did not incur any London office expenses as such. The Burmah Oil Co. Ltd. which had employed all the staff, incurred all the expenditure and passed to each subsidiary company a charge which was based on the proportion of the total work car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed before the taxing authority prior to the making of the assessment. It was held that it was for the taxing authority either to accept the claim or to reject the claim either wholly or in part. After having accepted the claim in spite of the non-production of the relevant auditors' certificate which was asked for at one stage, it was held that the Revenue could not later turn round and say that the income of the assessee had escaped assessment or been underassessed due to the failure of the assessee to disclose those very auditors' reports. The learned judge felt that the underassessment, if any, was due to the laches of the Revenue and not due to any act or omission on the part of the assessee and notices under section 148 had to be quashed. In answer to the rule nisi issued, the respondent-Income-tax Officers who affirmed the affidavits-in-opposition were not the Income-tax Officers who had made the original assessments nor were they the Income-tax Officers who had issued notices for the reassessment. The respondent-Income-tax Officers who affirmed the affidavits-in-opposition could only make the statements on the basis of the information collected from the records and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the Income-tax Officer might have received and on that basis reopened the assessment. The learned single judge was of the view that this might have been a good ground for action under clause (b) of section 147 of the said Act, but it could not be treated as good ground for reopening under clause (a) of section 147 on the ground that there was failure or omission on the part of the assessee to disclose fully and truly all relevant and material facts. It is true as the learned judge accepted the position and was reiterated here that if on the records it appeared that there were some materials to form the belief that there was omission or failure on the part of the assessee to disclose fully and truly all relevant and material facts, the initiation of the proceedings under clause (a) of section 147 cannot be questioned. Aggrieved by the said decision of the learned trial judge, as mentioned hereinbefore, the Revenue had challenged the decision before the Division Bench of the Calcutta High Court. The Division Bench after setting out the relevant facts and the contentions and after referring to the judgment of the learned trial judge and to the correspondence, observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason to believe that the income, profits or gains chargeable to tax had been underassessed or escaped assessment; the second was that he must have reason to believe that such escapement or underassessment was occasioned by reason, so far as relevant for the present purpose, to disclose fully and truly all material facts necessary for the assessment of that year. Both these conditions are conditions precedent to be satisfied. See, in this connection, the observations of this court in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191. The obligation, therefore, of the assessee primarily was to disclose fully and truly all material and relevant facts; that the obligation was only of disclosing the basic facts but not obligation to disclose what inference had to be drawn from such facts. It was further observed by Hidayatullah J., as the learned judge then was, that the mere production of evidence before the Income-tax Officer was not enough and there might be an omission or failure to make a full and true disclosure, if some material for the assessment lay embedded in that evidence which the assessee could uncover but did not. If there was such a fact, it was the duty of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y them. Two days later, i.e., on February 2, 1955, the Income-tax Officer issued a notice under section 34(1)(a) of the Indian Income-tax Act, 1922, seeking to include the sum of Rs. 1, I 0,000 in the hands of the family itself. The Tribunal, being satisfied that the notes encashed by the five members belonged to the Hindu undivided family, had held that the notice issued was valid. On reference, the High Court held that the notice issued on February 2, 1955, was not valid, since it was found that when the first assessment was made, the primary facts necessary for reassessment of the family were in the possession of the Income-tax Officer ; that these facts came into his possession not by virtue of any disclosure made by the family but were discovered by him otherwise; that at the time of the first reopening of the assessment of the Hindu undivided family and of the individual members, the question of assessment of the entire amount represented by the high denomination notes was under direct consideration; that it was open to the Income-tax Officer to assess both the amounts of Rs. 19,000 and Rs. 1,10,000 in the hands of the Hindu undivided family at that stage; and that the escape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147, there must be reason to believe that there was failure or omission on the part of the assessee to disclose fully and truly all primary facts. See, in this connection, the observations of this court in the case of Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax [1971] 82 ITR 147. But reason to believe is not the same thing as reason to suspect. As is well-settled now by the several authorities of this court and of several High Courts, there must be materials to come to the conclusion that there was " omission or failure to disclose fully and truly all material facts necessary for the assessment of the year ". It postulates a duty on every assessee to disclose fully and truly all material facts necessary for the assessment. Therefore, the obligation is to disclose facts; secondly, those which are material; thirdly, the disclosure must be full and, fourthly, true. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, for computing or determining the proper tax due from the assessee, it is necessary to know all the facts which help the assessing authority in coming to the correct conclusion. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving regard to the magnitude of the work done by the London company but that would be a matter of opinion and an inference drawn from the amount of the work in co-relation to the amount debited. The facts, viz., what was done, what was being claimed by the London office and the difficulties in producing the accounts or the opinion of the auditors for which the Income-tax Officers had called upon the assessee, were all known to the Income-tax Officers at the time of making the original assessments. In spite of the same, the Income-tax Officer chose to assess the assessee in the manner he did. The opinion of the auditors for the assessment year 1963-64 that ten per cent. would be reasonable charges might be good information for which the assessment of the assessee could be reopened under clause (b), but, on this basis alone, it could not be said that the assessee had failed to disclose fully and truly all basic facts at the time of the original assessment of the relevant assessment years. There was no evidence or allegation that such an opinion was there available with the assesseecompany at the time of the original assessments. Even if such an opinion, as opinion evidence be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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