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High Court Of Calcutta
M. N. Roy
EXPORT ENTERPRISES PVT.LTD. - Appellant
Versus
INCOME-TAX OFFICER, b WARD - Respondent
Civilrule 11590 (W) Of 1976
Decided On : 02/11/1982
INCOME TAX - Reassessment - Director's medical expenses allowed in original assessment - Subsequent disallowance - Reopening of assessment under Section 147(b) of the Income Tax Act, 1961 - Whether permissible - Held, yes.
Fact of the Case:
The assessee company had claimed medical expenses of its director in the assessment year 1971-72. The ITO allowed the expenses in the original assessment. However, upon receiving information from the Revenue Audit that the expenses were not allowable under Section 40(a)(v) of the Income Tax Act, 1961, the ITO issued a notice under Section 148 of the Act to reopen the assessment. The assessee challenged the reopening, contending that there was no new information or escaped income on the date of the notice.
Finding of the Court:
The court held that the reopening of the assessment under Section 147(b) of the Income Tax Act, 1961, was permissible. The court relied on the decision of the Supreme Court in R. K. Malhotra, ITO v. Kasturbhai Lalbhai, wherein it was held that the opinion of the Revenue Audit department could be treated as "information" within the meaning of Section 147(b) of the Act.
Issues: Whether the reopening of the assessment under Section 147(b) of the Income Tax Act, 1961, was permissible.
Ratio Decidendi: The court held that the reopening of the assessment was permissible because: * The ITO had recorded reasons for the reopening, namely, that there was an erroneous application of law with regard to the director's medical expenses, resulting in non-assessment of income. * The information received from the Revenue Audit department constituted sufficient information to assume jurisdiction under Section 147(b) of the Act. * The date of initiation of the reopening was prior to the decisions of the Supreme Court in Indian and Eastern Newspaper Society v. CIT and R. K. Malhotra, ITO v. Kasturbhai Lalbhai, which held that the opinion of the Revenue Audit department could not be treated as "information" within the meaning of Section 147(b) of the Act.
Final Decision: The court held that the reopening of the assessment was permissible. The rule was made absolute with no order as to costs.
( 1 ) THE petitioner, M/s. Export Enterprises Private Ltd. , is an existing private limited company within the meaning of the Companies Act, 1956 (for convenience, the petitioner would hereinafter be referred to as the "said company" ). It has been stated that the said company at all material times carried on and still they are carrying on business dealing with imported materials under import licences, which were previously sanctioned in favour of Maharajkumari C. Pheunkhang, sister of the Chogial of Sikkim, by the Govt. of India for the purpose of enabling the said Maharajkumari and her family to enter into the business, and trade and to earn some income for the benefit of the family. The said company has stated that the same was virtually dependent upon the said Maharajkumari initially, for using the import licences granted in her favour, and subsequently through her in the name of the said company.
( 2 ) IT has further been stated that the said Maharajkumari was a director of the said company and as part of her duties, she used to undertake movements between different towns of India and outside, that apart, it has been stated that although the registered office of the said company was in Calcutta, the said Maharajkumari normally resided in Gangtok (Sikkim) and Kalimpong. It was also the case of the said company that in the past the said Maharajkumari had never charged any travelling expenses up to Calcutta and she was being paid a salary of Rs. 1,000 per month initially but as during the period of 1968-69 she found the work to be extremely heavy and tiresome, the directors and the shareholders of the said company were requested informally in the first instance by her to increase the remuneration by adding a further sum of Rs. 1,000 per month and a share of profits. She also requested for facilities for medical treatment on the amounts which would be actually spent if any illness occurred during the course of her duties as a director of the said company. On such request, on or about 8th January, 1970, the said company passed a resolution whereby an increase in the remuneration of the said Maharajkumari, by adding in her salary 10% of the net profits, was granted. Apart from that, the board of directors of the said company also sanctioned to her medical expenses on the actual basis. Such resolutions, according to the said company, were duly approved. It was the case of the said company that due to the extra strain suffered by the Maharajkumari in the middle of January, 1970, she had some trouble with her left arm and initially she was required to be entered in a nursing home in Calcutta for treatment. After a few days thereafter, it was suspected that there may be a case of the loss of limb and so she, accompanied by one of her doctors and relations, was flown to the U. S. A. to receive further treatment. On such treatment in the U. S. A. the Maharajkumari got cured of the ailment but her left arm had to be amputated. The said company has stated that the same was regularly assessed to income-tax under the I. T. Act and the application which is now being considered relates to the assessment year of 1971-72 for which the relevant accounting year would be the year ending 31st March, 1971. For such assessment year, it has also been stated that the said company was duly assessed under Section 143 (3) of the I. T. Act, 1961 (hereinafter referred to as the "said Act") by Shri S. Bhattacharjee, who computed a loss of Rs. 4,208 and calculated the total amount refundable at Rs. 88,357. It was the case of the said company that while making such assessment the said ITO allowed the director's medical expenses of Rs. 1,76,755 apart from doctor's bills, air passage for the director of the said company and the attending physician and so also hotel and other bills and charges totalling an amount of Rs. 1,42,643 in respect of the assessment year 1970-71. The said company has further stated that at the time of the original asses
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