TMI Blog1970 (8) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... r deduction of the sums paid to the directors including the managing director on account of commission and bonus. In this year the commission paid to the three directors other than the managing director was Rs. 15,674 and the bonus was Rs. 6,000 in addition to the salary paid to the directors. It should be mentioned that in addition the director, No Dutt Sharma, used to get a remuneration of Rs. 1,000 per month. On appeal by the company, the Appellate Assistant Commissioner allowed the entire amount claimed to have been paid as bonus and commission to the directors of the petitioner-company. The Appellate Assistant Commissioner observed that Deo Dutt Sharma carried on the very business at Delhi in the name of Sharma Trading Company which was purchased by the petitioner-company. He gave the figures of the income assessed in the assessment of Deo Dutt Sharma in the immediately previous four years of assessment. He also found that the said director managed entirely the Delhi branch of the petitioner-company. The Appellate Assistant Commissioner concluded that considering the antecedents of this director and the part he had taken in the business of the company the entire remuneration p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r accounts of the several directors showing the amounts of salary, commission and bonus being credited and the amounts as paid to such directors being debited and the balance carried forward to the subsequent year. It is in respect of these balances that the company paid interest to the directors which was disallowed by the Income-tax Officer but allowed by the Appellate Assistant Commissioner on appeal. It also appears that on a query from the Income-tax Officer the company by its letter dated the 10th May, 1958, furnished the Income-tax Officer with the assessment file numbers of the director D.D. Sharma, who was being assessed at New Delhi, and also similar file numbers of Narendra Sharma and Debeendra Sharma. The department appealed against the allowance by the Appellate Assistant Commissioner of the claim for deduction of the interest paid to the directors on the balance in their account and this was also rejected by the Tribunal in respect of the assessment year 1958-59. The petitioner's assessment for the subsequent years 1959-60 to 1961-62 were completed and in these assessments the deductions claimed by the petitioner in respect of the remuneration paid to the directors we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y had claimed that one Deo Dutt Sharma, manager of Delhi branch of the company, was paid salary, commission, bonus and perquisites by the company. The, total amount of such payment was claimed to be ; Rs. 27,000 per year. It was stated that Deo Dutt Sharma was paid a salary of Rs "12,000 per year, commission at the rate of 1% on the sales of the Delhi branch, annual bonus equal to three months' salary and fixed perquisites of Rs. 480 per year. Between 1st April, 1949, and 31st March, 1962, the company was given deduction on account of such payments to the said Deo Dutt Sharma amounting to Rs. 3,51,000. (b) After these assessments of the company for the said period were completed, the assessment file of the company and the various persons connected with the company were brought together and compared. Certain facts emerged from the perusal of all the files which were not known at the time of the assessments which are stated hereunder. (c) The said Deo Dutt Sharma is the brother-in-law of Ganga Saran Sharma, the managing director of the company. The company was really a one-man show of the said Ganga Saran Sharma. (d) After centraalisation of the files of this group it was found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emuneration paid to these directors restored. It further appears from the annexures to the affidavit-in-reply, which had set out all the relevant facts, that, at the time of the filing of the petition, the petitioner was not aware of the reasons for the issue of the notice under section 148, though in each year, on and from the assessment year 1956-57, statements giving details of the remuneration paid to Sri Deo Dutt Sharma by way of salary, commission and bonus was being filed before the Income-tax Officer together with the copies of the ledger accounts of the said Deo Dutt Sharma in the books of the company showing the opening balance, the amount credited, the amount debited, the balance carried forward in each year, etc. So, the allegation of fact that the balance of the remuneration was merely credited to Deo Dutt Sharma and was not paid to him was not known to the department is not correct. In spite of a very valiant effort made by Mr. Sen to sustain the impugned notice, I am of the opinion that this rule should be made absolute and the purported notice under section 148 should be quashed Mr. Sen submitted that, though the failure to disclose any material facts necessary fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been under-assessed. The second condition is that he must have reason to believe that such 'under-assessment' had occurred by reason of either, (i) omission or failure on the part of an assessee to make a return of his income under section 22, or (ii) omission or failure on the part of the assessee to disclose fully and truly all the material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer acquires jurisdiction to issue a notice under the section. But the legal position is that, it there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under section 34. Whether these grounds are adequate or not is not a matter for the court to investigate. In other words, the sufficiency of the grounds which induced the Income-tax Officer to act is not a justiciable issue. It is of course open for the assessee to contend that the Income-tax Officer did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exist." Mr. Sen relied on the aforesaid observation for his contention that at this stage there has been nor decision as to whether there has actually been any failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. That would be decided at the time of the assessment. The only point for consideration of the High Court now is whether there was any reason for the Income-tax Officer to come to the belief that the petitioner has been allowed excessive relief due to nondisclosure of some material facts. A reference was also made to a decision of the Andhra Pradesh High Court in the case of Seetharantamma. In that case the assessee received large amounts of cash and ornaments from Seetha Devi, the wife of the Gaikwad of Baroda. Those were not included originally in her assessment for the relevant years as the Income-tax Officer accepted the assessee's explanation that these were gifts made on account of natural love and affection. Subsequently, it was discovered that the assessee had rendered certain services to Seetha Devi and the Income-tax Officer started proceedings for reassessment for including these amounts in the income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er on which he formed the prima facie belief that the assessee had omitted to disclose fully or truly all material facts and in consequence of such nondisclosure, the income had escaped assessment. I am afraid the facts of that case have no bearing on the facts of the present case. As I have already pointed out, both in the previous years and also in the subsequent years of assessment, the Income-tax Officer had been persistently trying to disallow sometimes the whole, and sometimes a substantial part of the remuneration credited to the directors of the petitioner company on the ground that such remuneration was not justified by business reasons or, in other words, the expenditure was not incurred for the purpose of the petitioner's business. All such attempts had failed as in appeals either before the Appellate Assistant Commissioner or the Tribunal the petitioner had obtained relief and the entire deductions have been deleted. In one of these years the matter came up before this court on a reference and this court held that the remuneration paid to its directors by the petitioner-company could not be disallowed under section 10(4A) or, in other words, such remuneration was neit ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
