ASSAM OIL COMPANY Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) These are two applications for leave to appeal to. the Supreme Court against the order of a Division Bench of this court dated 7th December, 1973, passed in two appeals, namely, Appeals Nos. 189 and 196 of 1971.

(2.) Petitioner is a company Incorporated under the appropriate laws of the United Kingdom and has its principal place of business in India at Digboi in the State of Assam. On 29th November and 30th November, 1965, the petitioner-company received three notices issued under Section 148 read with Section 147 of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for the assessment years 1957-58, 1958-59 and 1959-60, respectively, whereby the petitioner was called upon to furnish the returns of its income for the said assessment years on the ground that the Income-tax Officer, respondent No. 1, had reason to believe that the income of the petitioner for the said assessment years had escaped assessment. Thereafter, the petitioner made various correspondence with the income-tax department and having regard to the correspondence, the petitioner apprehended that the Income-tax Officer was seeking to reopen the assessments of the petitioner for the said assessment years with a view to reconsider the question of admissibility of the entire London management fee claimed and allowed by the Income-tax Officer in the original assessment for the said assessment years. Thereafter, the petitioner moved an application under Article 226 of the Constitution against the said notice and obtained a rule nisi on 6th January, 1966, being Matter No. 6 of 1966. The petitioner received four notices dated 30th March, 1970, under Section 148 of the Act for the assessment years 1953-54, 1954-55, 1955-56 and 1956-57 on 1st of April, 1970, and moved another application under Article 226 of the Constitution and obtained a rule nisi on 17th June, 1970, being Matter No. 292 of 1970. Both the rules came up for hearing before a single judge of this court and the learned judge made the rules absolute on the ground that the conditions precedent for assumption of jurisdiction under Section 147 of the Income-tax Act have not been fulfilled. Revenue being aggrieved by the said order preferred two appeals. A Division Bench of this court allowed the appeals and set aside the judgment and order of the learned judge. The appeal court observed that the correspondence showed no doubt that the Income-tax Officers were trying to get materials in support of the claim for deduction of the allocation by the assessee-company. In doing so at different stages asking for various materials which would help the Income-tax Officer to ascertain the basis of the allocation claimed as deduction and also the system by which such allocations were made by the London company, all the endeavours of the Income-tax Officer and successive incumbents to that office were met by the assessee-company by pleading non-existence of such materials at all. The fact that a certificate of the auditor was given regarding the assessment year 1963-64 may reasonably enable the Income-tax Officer to deduce that such auditor's certificate in respect of the year 1957-58 and the other orders relevant for reopening were existing and it was possible for the assessee to furnish such materials at the relevant time of assessment of each of those years. That non-disclosure clothed the Income-tax Officer with jurisdiction for issuing notice under Section 148 on the ground that there is reason to believe that income has escaped assessment or has been under-assessed due to nondisclosure of material facts by the assessee. That is a jurisdictional fact which the Income-tax Officer has found for himself by way of deduction from what happened in the year 1965 during the assessment for the year 1963-64. In the present case the reason to believe which is relevant under Section 147 is based on new fact of the existence of the auditor's certificate which existence was secluded by the assessee so much so that it has amounted to non-disclosure of the material facts.

(3.) It appears from the report of the Income-tax Officer, which has been referred to in the judgment of the learned trial judge, that the Income-tax Officer pointed out that for the assessment year 1963-64 it was found from the report of the London auditors that the management fee charged by Burmah Oil Co. Ltd., London, was about 10 per cent. of its total administrative charges and the auditors certified the percentage as reasonable. The report continues that a perusal of the earlier records of the assessee reveal ed that in the years prior to the assessment year 1963-64 it had been claiming by way of London management fee amounts far in excess of the 10 per cent. certified by the auditors as reasonable. The assessee-company was, therefore, required to produce similar certificates for the earlier years but it had failed to do so on the ground that no records were maintained by the parent-company on the work relating to the assessee's affairs. The allocation of London management fee was thus arbitrary and devoid of any basis and was only a means of avoiding taxation by debiting excessive sums by way of management fees unrelated to the extent of services rendered. By reason of the assessee's failure to disclose the correct facts its income had been found to have escaped assessment and sanction to reopen the same was, therefore, requested.