UNION CARBIDE INDIA LTD Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) In this application under Article 226 of the Constitution the petitioner challenges notices under Section 148 of the Income-tax Act, 1961, issued in respect of assessment years 1958-59, 1959-60 and 1962-63. The said notices were issued on the ground that the petitioner-company had enjoyed benefits under Section 15C of the Indian Income-tax Act, 1922, which the petitioner was not entitled to in the relevant assessment years. It would be necessary to advert to the facts in detail later on. For the assessment year 1962-63 it has been stated by the petitioner that no relief under Section 15C had been claimed or granted. Therefore, there cannot be any question of reopening of the assessment for the said assessment year on the aforesaid ground. The fact that in respect of the assessment year 1962-63 no relief under Section 15C had been granted has been accepted by the learned counsel for the revenue. Learned counsel has further stated that the revenue did not wish to proceed with the said notice under Section 148 of the Income-tax Act, 1961, for the assessment year 1962-63. It is, therefore, not necessary to consider the question of the assessment year 1962-63. The petitioner is a manufacturing company engaged in the manufacture and sale of electric dry batteries, chemicals and plastics and carbon products. The manufacture of electric dry batteries in India is undertaken by a division or department of the petitioner-company known as National Carbon Company, shortly called " Natco ". Zinc strips are incorporated in dry batteries and these strips not only form the metal casings of batteries but function as the negative electrodes of batteries. The said zinc strips which are incorporated into dry batteries manufactured by Natco are integral parts of the dry batteries sold by the petitioner. The petitioner set up a new and separate division or department for the production of zinc strips. The new manufacturing division is known as " Metals and Ores Company ", shortly called " Metco ". For this the petitioner erected a factory at Alipur which went into production in 1956. For manufacturing zinc strips, zinc spelter, which constitutes the basic raw materials for these strips, is imported by the petitioner from abroad. Zinc spelter so imported is first processed by Metco by including certain additives and the processed material is then rolled into zinc sheets and cut by Metco into shapes and sizes suitable for incorporation into the batteries manufactured by " Natco". The bulk of Metco's production is passed on to "Natco" for incorporation into the dry batteries that are manufactured and sold by the petitioner. Metco also sells processed zinc strips to other manufacturers of dry batteries as zinc strips have other commercial applications. These strips are sold to the third parties engaged in the production of addressograph plates and lithographic plates. Such sale, however, of Metco's production to third parties constituted a small proportion of Metco's production. The larger portion of Metco's production was utilised by " Natco ". The petitioner claimed in the relevant assessment year that Metco was an industrial undertaking which qualified for tax relief under Section 15C of the Indian Income-tax Act, 1922. The petitioner accordingly claimed relief under Section 15C of the Act in respect of the profits earned by "Metco" relative to the four assessment years, 1958-59 and 1961-62, and such relief was allowed by the income-tax authorities. As mentioned hereinbefore for the assessment year 1962-63 no relief had been claimed under Section 84 of the Income-tax Act, 1961, corresponding to Section 15G of the Indian Income-tax Act, 1922, in respect of the profits earned by Metco and as such no relief was granted. As mentioned hereinbefore the revenue has stated that it would not proceed with the said notice in respect of the said assessment year. It is the case of the petitioner that on a due consideration of all the relevant materials and evidence the Income-tax Officer was satisfied about the claim, of the petitioner in respect of the profits earned from " Metco " and allowed relief in respect of the said four years, being assessment years 1958-59 and 1961-62 under Section 15C of the Income-tax Act, 1922.

(2.) On the 20th March, 1967, the petitioner received two notices dated 20th March, 1967, signed by Shri S. K. Roy, the then Income-tax Officer, issued under Section 148 of the Income-tax Act, 1961, in respect of the assessment years 1958-59 and 1962-63. It appears from the said notices that the notice for the assessment year 1958-59 was issued after obtaining the-necessary satisfaction of the Commissioner of Income-tax, West Bengal III. Thereafter, the petitioner received another notice dated 26th March, 1968, in respect of the assessment year 1959-60 issued by the Income-tax Officer, Shri P. R. Rao. From the correspondence preceding the issuance of the said notices and subsequent thereto, and the affidavit-in-opposition it appears that the notice was issued on the ground that the petitioner had been wrongly granted relief under Section 15C of the Indian Income-tax Act on the sales made by " Metco " to " Natco " or in other words in respect of inter-departmental transactions. Upon the receipt of the said notices the petitioner moved this court under Article 226 of the Constitution challenging the issue of the said notices on the ground that there were no materials for the Income-tax Officer to issue the said notices and all the necessary particulars and primary facts were fully disclosed at the time of the original assessments and there had been no omission or failure on the part of the petitioner to disclose the primary and relevant facts.

(3.) The petitioner obtained a rule nisi. The affidavit-in-opposition on behalf of the respondents was filed by one P. R. Rao, the Income-tax Officer, which was affirmed on 5th of June, 1969. It would be necessary to set out the relevant portion of the said affidavit. In paragraph 5 of the said affidavit the said deponent states :