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High Court Of Calcutta
SABYASACHI MUKHERJI
KASHMIR AGENCIES PVT.LTD. - Appellant
Versus
INCOME-TAX OFFICER - Respondent
C. W. 426 Of 1971
Decided On : 12/18/1975
INCOME TAX - Reopening of assessment - Conditions precedent - Disclosure of primary facts - Whether failure to draw proper inference from disclosed facts amounts to failure to disclose relevant facts - Income-tax Act, 1961 (43 of 1961), Ss. 147(a), 148.
Fact of the Case:
The petitioner, a company, was appointed as the managing agent of Messrs. Kashmir Ceramics Ltd. under an agreement dated 24th February 1962, entitling it to a remuneration of 10% of the net profit of the managed company. Due to the managed company's inability to work and earn profit, the petitioner did not receive any remuneration. The petitioner surrendered the provisions of the agreement ab initio in 1968. During the original assessment for the assessment year 1964-65, the petitioner disclosed all relevant documents and material facts, including the agreement and the managed company's financial स्थिति. The assessing officer disallowed deductions claimed by the petitioner on account of management expenses, holding that there was no operation of the managing agency during the relevant year. The Income-tax Officer later issued a notice under Section 148 of the Income-tax Act, 1961, seeking to reopen the assessment for the assessment years 1964-65 and 1965-66, based on the reasoning that the petitioner had earned minimum remuneration of Rs. 50,000 per year under the agreement, which had escaped assessment due to misrepresentation of facts.
Finding of the Court:
The court held that the Income-tax Officer had materials for believing that the income of the assessee had escaped assessment or had been under-assessed for the relevant assessment year. However, the court found that there was no omission or failure on the part of the assessee to disclose fully or truly all materials or relevant facts. The primary and relevant facts for determining whether the income had accrued or the minimum remuneration had accrued to the assessee were the terms and conditions of the agreement and whether the managed company had done any business or had earned any profit. These factors were indisputably disclosed. Therefore, it could not be said that there was any failure or omission on the part of the assessee to disclose the basic or primary facts.
Issues: 1. Whether there were materials for the Income-tax Officer to believe that the income of the assessee had escaped assessment or had been under-assessed due to any failure or omission on the part of the assessee to disclose fully or truly all relevant and material facts. 2. Whether there was any omission or failure on the part of the assessee to disclose fully or truly all materials or relevant facts.
Ratio Decidendi: The court held that the conditions precedent for issuance of the notice under Section 148 of the Income-tax Act, 1961, were not fulfilled in the instant case. The primary facts for determining whether the income had accrued or the minimum remuneration had accrued to the assessee were disclosed. Therefore, it could not be said that there was any failure or omission on the part of the assessee to disclose the basic or primary facts.
Final Decision: The court set aside the impugned notice dated 29th July 1970, and quashed any assessment made pursuant to the said notice.
( 1 ) THE assessments for the assessment years 1964-65 and 1965-66, made under the provisions of the Income-tax Act, 1961, were sought to be reopened by the notice dated the 29th of July, 1970, issued under Section 148 of the Income-tax Act, 1961. The said notice is the subject-matter of challenge in this application under Article 226 of the Constitution. The petitioner is a company. During the material times, the petitioner was acting as the managing agent of Messrs. Kashmir Ceramics Ltd. The petitioner had entered into an agreement with the said Messrs. Kashmir Ceramics Ltd. , dated the 24th of February, 1962. According to the agreement the petitioner was entitled to a remuneration of 10 per cent. of the net profit of the said Messrs. Kashmir Ceramics Ltd. It further appears that the said Messrs. Kashmir Ceramics Ltd. could not work from 1962-63 and mostly all the expenses incurred in construction were capitalised. The petitioner's case is that the petitioner did not earn or receive any remuneration from Messrs. Kashmir Ceramics Ltd. and finally the provisions of the agreement were surrendered by the petitioner ab initio in 1968. The petitioner states that at the time of the original assessment which was made on the 13th of March, 1969, for the assessment year 1964-65, the petitioner had produced all the relevant documents and disclosed all the material facts. A reference to the original assessment order makes it clear that the fact that the petitioner had been appointed as the managing agent of Messrs. Kashmir Ceramics Ltd. by an agreement dated the 24th of February, 1962, was brought to the notice of assessing officer. Indeed, the said agreement was placed before the assessing officer and the clauses of the said agreement were scrutinised. The fact that for the relevant assessment year Messrs. Kashmir Ceramics Ltd. did not earn any profit because it had ceased production due to dispute with the Jammu and Kashmir Government was also brought to the notice of the assessing officer. The company had claimed deduction on account of certain expenses for management of the managed company. Those deductions were disallowed and the reasons for disallowance were stated, inter alia, as follows :"as per the agreement the company was appointed managing agents of Kashmir Ceramics Ltd. , Kathua. The agreement gives the details of the duties to be performed by the managing agents. A scrutiny of this deed of agreement reveals that the duties assigned to the managing agents could be performed only if the factory continued the manufacturing process. There is nothing in the agreement which makes it obligatory on the part of the managing agents to mariage the affairs of the company if it ceases to manufacture. In fact this was the plea taken by the Kashmir Agencies Pvt. Ltd. while refusing any commission to the managing agents during the period April 1, 1963, to March 31, 1968. Therefore, in my opinion, there was no operation of the mananing agency during the accounting year 1963-64. Consequently, the expenses claimed by the company cannot be allowed. "
( 2 ) THE reasons for reopening for the relevant assessment year were produced before me and the said reasons read as follows :"this company was appointed as the managing agent of Kashmir Ceramics Ltd. , Jammu, for a period of 20 years with effect from February 1, 1962, on the strength of an agreement dated March 19, 1962. As per Clause 4 of the managing agency agreement the managing agents were entitled to remuneration for their services commission at 10% of the net profits of the managed company. It was further provided in the agreement that in the case of absence or inadequacy of profits in any year the managing agent would be entitled to a minimum remuneration of Rs. 50,000. It was also provided that the said commission would be due to the managing agency yearly and every year during the continuance of the agreement and would be payable immediately after the accounts
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