TMI Blog1998 (3) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 1969-70 and Civil Appeals Nos. 4075 of 1985 and 4076 of 1985 to the assessment year 1967-68 and 1968-69, respectively. Civil Appeal No. 1089 of 1985 pertains to the three assessment years 1971-72, 1972-73 and 1973-74. For the assessment year 1970-71, there are two appeals and these are Civil Appeals Nos. 1090 of 1985 and 1091 of 1985. While for each assessment year there was a separate writ petition in the High Court, for the assessment year 1970-71, there were two. The reason for two writ petitions for the assessment year 1970-71 was that while the first writ petition challenged the notice under section 148 of the Act, the second was filed as by that time the Income-tax Officer had completed the assessment and, thus, there was a challenge to the assessment itself. The appellant is a wholly owned subsidiary of the Coca-Cola Company, which is a company incorporated under the laws of the United States of America having its headquarters at Atlanta, Georgia, U. S. A. The appellant has its main office at New York referred to as the "home office". The appellant had a branch office at New Delhi which had been declared as a company under section 2(17)(iv) of the Act by the Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... afresh the claim of the Indian branch for deduction of pro-rated home office expenses and service charges. The Income-tax Officer considered the details of the miscellaneous expenses which according to him were likely to include expenses disallowable under the Act and after going through the details furnished by the Indian branch, the Income-tax Officer disallowed five per cent, out of the pro-rated home office expenses and three per cent. out of the pro-rated service charges in that year. Feeling aggrieved by the disallowance of the deductions so made, the appellant preferred an appeal before the Appellate Assistant Commissioner. The appeal was, however, dismissed. Similar was the position of disallowance of five per cent. out of the pro-rated home office expenses and three per cent. out of the pro-rated service charge in the assessment for the assessment years 1968-69 to 1973-74. The question regarding the deduction of the pro-rated home office expenses and pro-rated service charges was again examined afresh and in detail by the Income-tax officer in the assessment year 1970-71 and he also disallowed five per cent and three per cent., respectively, out of home office expenses an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t had been claimed or allowed in that year. For the assessment years 1967-68 to 1969-70 reassessment proceedings were also initiated under section 147(a) of the Act and notices all dated February 24, 1982, were issued to the assessee. The reasons recorded by the Income-tax Officer for these years were identical in terms relating to the allowance of foreign exchange loss recorded by the appellant on re-translation of the outstanding dollar liability at the end of the relevant accounting year at the then prevailing rate of exchange. The second ground relating to the deduction of home office expenses and service charges was not mentioned for these three years obviously because the letters of the Government of India (Ministry of Company Affairs) referred to above, related to the period on and after January 1, 1969. As a matter of fact, the loss on exchange of rate claimed by the appellant and allowed by the Income-tax Officer in the regular assessment for the assessment years 1966-67 to 1969-70 was suffered due to actual purchase and remittance of US dollars in that year. There was no fluctuation in exchange rates throughout the year 1968 (previous year for the assessment year 1969 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the assessment year 1967-68, the appellant had claimed losses on exchange by re-translation in terms of US dollars which though disallowed by the Income-tax Officer were allowed by the Income-tax Appellate Tribunal. Further proceedings taken by the Revenue by way of appeal and reference were decided against the Revenue. The assessments, which therefore stood concluded on the same facts and law on the subject, would not be reopened as no condition existed requisite for reopening the concluded assessment. After the assessment for the assessment year 1967-68 became final, the Income-tax Officer continued to allow the loss on exchange for subsequent years. The High Court said that it was obvious that the Income-tax Officer was fully aware of the particular system of accounting being followed by the appellant. It is not necessary to refer to the other reasons given by the High Court in questioning the notices issued under section 148 on the first ground as we find that against this part of the judgment of the High Court, the Revenue had come up to this court in special leave petition, which was dismissed. What, however, is surprising that in spite of the fact that the first ground w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egards service charges, the amount payable to your overseas branches in relation to your exports of concentrates to their territories shall be subject to an independent ceiling which will be communicated to you separately. 4. Please acknowledge receipt and let us have your confirmation as asked for above. Yours faithfully, Raj K. Nigam Director (Investment). New Delhi, the 6th November, 1974. The Coca-Cola Export Corporation, 14A, Nizamuddin West, New Delhi-110 013. Sub. : Your remittances on account of profits, head office expenses, service charges, etc. Gentlemen, Please refer to this Ministry's letter of even No. dated 4th May, 1973, on the above subject. In para 3 of that letter it was mentioned that the remittance of service charges by you to your other overseas branches in relation to your export of concentrates to their territories will be subject to an independent ceiling. I am directed to inform you that this matter has since been considered by the Government and it has been decided that the remittance of these service charges will be allowed on the following terms and conditions : (i) With effect from January 1, 1969, the remittance of service ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the continuance of remittance facilities to the appellant would now be subject to the conditions set out in the para. In sub-para (d) of para 2 of this letter it is mentioned that remittance facilities would be calculated on cash basis and that for the calculation of remittances each year, the accounting of the value of exports would be on cash basis instead of accrual basis. Para 3 of the letter refers to service charges and it is stated that the amount payable by the appellant to its overseas branches in relation to its export of concentrates to their territories shall be subject to an independent ceiling which would be communicated to the appellant separately. By the letter dated November 6, 1974, para 3 of the earlier letter dated May 4, 1973, is explained and Government decision as to how remittances of the service charges would be allowed was communicated to the appellant. It may be noticed that assessments for the assessment years 1971-72, 1972-73 and 1973-74 were respectively completed on January 23, 1973, March 12, 1973, and September 8, 1973, while the notices under section 148 of the Act were issued on January 5, 1979. It is difficult to appreciate how a Government dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or assessment. At the same time, the High Court held that it was certainly open to the Income-tax Officer to examine whether expenses on these two counts had exceeded the ceiling permitted by the Reserve Bank of India and as to what would be its effect. It said that if in pursuance of this examination the expenses already allowed had exceeded and in law that was not permissible in the opinion of the Income-tax Officer, it would no doubt be open to him to scale down these expenses on these two heads from the amount that had already been allowed. The court observed (page 451) : "But then, in that case, the decision would not be on the merits of allowance of the expenses in general, but on a totally different aspect and only on the sole ground of a legal bar having been placed in terms of the letters". The High Court sounded a caution in the matter and imposed a limitation saying that permitting reopening to be done in terms of the two letters was not to broaden in unlimited manner the enquiry so as to embrace it on the merits on other grounds. The High Court did not want to record its final decision about the failure to disclose fully and truly all material facts bearing on the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercise of its jurisdiction under article 226 of the Constitution and after granting full relief for the assessment years 1967-68 to 1969-70 and partly for the assessment years 1971-72 to 1973-74 the High Court was not justified in staying its hands and leaving the matter with the Income-tax Officer to decide the question of the effect of the two letters. The High Court was to examine if the Income-tax Officer possessed jurisdiction to correctly invoke the provisions of section 147 of the Act in that did these two letters provide material for him to initiate the reassessment proceedings and did these constitute information to give him a reason to believe that income chargeable to tax had escaped assessment. We have seen above that these two letters have been issued under the provisions of the Foreign Exchange Regulation Act and deal with remittance of foreign exchange outside India. Any contravention of these letters would entail prosecution under section 56 of the 1973 Act and under section 23 of the 1947 Act. The Foreign Exchange Regulation, Act contains stringent provisions for conservation of the foreign exchange resources of the country and the proper utilisation thereof in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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