TMI Blog1970 (3) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... The expenses of these departments are allocated over all Dunlop factories partly on the basis of volume of production in each factory and partly on the basis of specific services rendered. Clause 5 of the inter-company agreement between the petitioner-company and the Indian company, which is relevant in this connection, provides as follows : " All costs and expenses incurred by the English company in connection with the communication of information, processes and inventions and/or the grant of any licences as aforesaid and/or the giving of any advice or assistance provided for hereunder by the English company to the Indian company shall be paid by the Indian company. The Indian company shall also pay to the English company a proportionate part of the costs and expenses (including salaries and general research and development expenditure) incurred by the English company in the acquisition, discovery and development of such information, processes and inventions. Such proportionate part of the said costs and expenses shall be mutually agreed or failing agreement shall be fixed by the said Messrs. Whinney Smith Whinney. " The petitioner-company has been assessed for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correspondingly became substantially higher. They are, however, being allocated and charged to all factories on a strictly proportionate basis. " Similarly, for the assessment year 1949-50, the Income-tax Officer, District III, Calcutta, by his letter dated the 17th October, 1951, made a similar query with regard to the liaison expenditure of the Indian company. The Indian company by its letter dated the 2nd November, 1951, submitted a similar explanation. It appears that similar queries were made by the Income-tax Officer, from the Indian company with regard to the liaison expenditure for the assessment years 1951-52 and 1952-53 and the Indian company submitted substantially the same explanation. With regard to the assessment year 1956-57, it appears that the Income-tax Officer raised a similar question by its letter dated the 4th February, 1957, and the Indian company by its letter dated the 23rd February, 1957, reiterated its earlier contentions. For the assessment year 1962-63, in respect of the Indian company, the Income-tax Officer by its letter dated the 24th October, 1962, raised the following query : " Is there any agreement for technical purchases and charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dates of payments of the amounts. In reply to this letter the petitioner on the 16th November, 1963, wrote to the Income-tax Officer reiterating its earlier contentions and stating that similar payments have been made by them for every year. For the assessment year 1963-64, the Income-tax Officer, A-Ward, Companies District-III, Calcutta, made similar queries by his letter dated the 20th November, 1964, and the Indian company answered the queries in a similar fashion by its letter dated the 5th December, 1964. By a letter dated the 1st March, 1965, the Income-tax Officer, A-Ward, Companies District-III, Calcutta, informed the Indian company that certain remittances had been made to the petitioner-company as technical fees for the years 1957 to 1963. The Indian company was called upon under section 201(1) of the Income-tax Act, 1961, to pay the taxes as shown in a table appended to the said letter. By a letter dated the 6th March 1965, the Indian company pointed out that the assumption that the amounts remitted to U. K. represented income chargeable to tax under the Indian Income-tax Act wholly unwarranted both on facts and in law. Thereafter, the petitioner-company recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter was addressed by Messrs. Ford, Rhodes, Parks Company in connection with all the notices for 1950-51 to 1961-62 reiterating its earlier contentions. The material portion may be quoted below : " Presumably your notices have references to the amounts received by Dunlop Rubber Company Ltd., U.K., from Dunlop Rubber Company (India) Ltd., in respect of research and development expenses incurred by the former in U.K. As you are aware and as your records will bear out, the question of taxability of this item has been gone into in the past on numerous occasions in several years in connection with the assessments of both the Indian company and the U.K. company. (It should also be borne in mind that the Income-tax Officer making the assessments on these two companies was the self-same Income-tax Officer). On those occasions in reply to specific queries raised by the Income-tax Officer, full particulars relating to the item, indicating both the nature and the basis thereof were furnished and the Income-tax Officer after due consideration of all relevant materials came to the conclusion that the amounts were not liable to tax in the hands of the U.K. company. It is precisely on this b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount received by your petitioner from the Indian company by way of contribution to the expenditure incurred by your petitioner for maintaining its research organisation in U.K. was also considered by the Income-tax Officer in the assessment of your petitioner-company. As already pointed out, the Income-tax Officer assessing your petitioner-company and the Indian company was the same person and he had full knowledge of the circumstances under which the said payments were made by the Indian company to the U.K. company. As it will appear from various documents, the said question was considered repeatedly in the course of the assessment proceedings for the several years in question and the Income-tax Officer made elaborate investigation into the said affair. Shri P. Padmanabha, Income-tax Officer, on December 12, 1957 sent a letter to Messrs. Ford, Rhodes, Parks Company, 64, Stephen House, Dalhousie Square, Calcutta, Chartered Accountants, dealing with the income-tax affairs of your petitioner by which the Income-tax Officer requested the said Ford, Rhodes, Parks Company to send its comments on the taxability of the buying commission and the technical fees paid by the Indian c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income-tax department, each and every allegation made in paragraph 29 of the petition is denied and the submissions contained therein are disputed." In paragraph 6 of the affidavit, the letter dated the 24th December, 1957, mentioned in paragraph 30 of the petition is admitted but the other statements are denied. On the basis of the above pleadings, Dr. Pal invites me to hold that there is no effective denial of the allegations made by the petitioner with regard to the consideration of this item in the original assessment proceedings. He draws my attention to the fact that it is not the case of the income-tax department that the original assessing officers did not know the primary fact with regard to the receipt of this income by the petitioner-company or that it could not be discovered by the original assessing officers. As I have said there is no affidavit by any of the original assessing officers. In paragraph 5 of the affidavit of Basu, it is denied that the admissibility of these amounts were considered by the Income-tax Officers. It is not said that the officers did not know this fact. In my view, there is lot of substance in this contention. As I have said in some of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in my view, to insist on a mere formality and an empty ritual. If the Income-tax Officer did know about this receipt, I do not think that the petitioner-company can be charged with any omission or failure to disclose this fact. After all, it is a matter of substance and not of mere form. It would be appropriate at this stage to deal with some of the authorities relied upon by Dr. Pal. The first case to be considered is the well-known decision of the Supreme Court in the case of Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calcutta. At page 200 of the report, the following passage occurs : " The words used are 'omission or failure to disclose fully and truly all material facts necessary for his assessment for that year'. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the prima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to a decision of the Madras High Court in the case of Gordon Woodroffe and Co. v. Income-tax Officer, Madras. After dealing with the Supreme Court's decision in the case of Calcutta Discount Co. Ltd. v. Income-lax Officer, Jagadisan J. observed as follows : " Shortly stated, the legal position that emerges is this. The assessee is bound to be quite candid in the matter of placing all materials and facts before the department without in any way trying to hoodwink the authority and to escape taxation. Equally, the department is bound to discharge the statutory duty of making a proper assessment by examining with care and caution the materials that have been made available. Provided that the assessee has done all that he could or need do in the matter, the assessing authority cannot act perfunctorily with the hope and expectation that any error which he might commit by not making a proper assessment can, subsequently, be rectified by resorting to the machinery under section 34 of the Act. " This decision, in my view, lays down a very important test. Has the assessee tried to hoodwink the authorities and thereby escape taxation ? In the facts of this case, the answer must be in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hutments or the municipal assessments upon the land or the butments, were, primary facts which had to be disclosed as necessary for his assessment. The duty cast upon the assessee to make a full and true disclosure of all material facts does not absolve the Income-tax Officer from performing his duty to apply his mind and make intelligent inquiry, especially when, as here, the primary facts were before him, on the basis of which he might have pursued inquiry and found out other relevant facts. " Lastly, reference was made to a decision of the Gujarat High Court in the case of Bhanji Lavji v. Commissioner of Income-tax as an authority for the proposition, if income escapes assessment as a result of an erroneous view of the Income-tax Officer, section 34(1)(a) of the old Act could not be invoked. My attention was also drawn to an unreported decision of a Division Bench of this court in Income-tax Reference No. 44 of 1965, in the case of Commissioner of Income-tax v. Kallu Babu Lalchand delivered on the 12th February, 1969. In delivering the judgment, Sabyasachi Mukharji J. observed as follows : " It is clear, therefore, that even though there might not have been a disclosu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 34(1)(a) of the old Act which corresponds to sections 147(1)(a) and 148 of the Act. Mr. Dipak Sen on behalf of the revenue contends that the two companies were different juristic entities and hence, even assuming that the Income-tax Officer had knowledge in connection with the assessment of the Indian company, that knowledge cannot be imputed in the case of the petitioner-company so as to absolve it from the liability to disclose this income in the course of its own assessment. He further contended that even assuming that the department in connection with a particular assessment year had taken the view that this receipt was not taxable in the case of the petitioner-company, the assessee had no right to presume or take it for granted that the same view would prevail in the subsequent years. Mr. Sen stressed the proposition of law that the principles of estoppel do not apply to income-tax proceedings in respect of subsequent assessment years It is undoubtedly correct that the Indian company and the petitioner company are two different assessees. But, can the knowledge of the same Income-tax Officer about the same fact be put in two water-tight compartments in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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