TMI Blog1970 (7) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... cussed between the petitioner and, the taxing authority. For instance, in its letter dated the 20th February, 1953, to the Income-tax Officer, Dibrugarh, who was then making the petitioner's assessments to income-tax, it was explained that the London charges represented the charge made by the Burma Oil Company for management and secretarial work carried out on behalf of the petitioner in London and the charge was for certain services rendered by the London company. The said Income-tax Officer by his letter dated the 19th December, 1952, required the petitioner to furnish a schedule in respect of the London charges and also to let him know if any reserve had been debited to this account. By its letter dated 9th December, 1953, the petitioner recorded the discussion held between the Commissioner of Income-tax, Central, Calcutta-cum Assam, and the petitioner-company relating to the London office charges amounting to pound 1,00,000 and explained that the said amount represented approximately 40% of the head office expenses of the London company and that it had been advised by its London office that the amount represented a reasonable allocation having regard to the amount of the work d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny office or staff in London. The procedure for fixing the charge was explained as follows : At the end of the year, Burmah Oil Co. Ltd estimates how much of the total expenditure it has had to incur to co-ordinate the activities of all the group companies is applicable to each company. This is not allocated on any fixed mathematical basis, but in proprortion to the time which has been spent on the various companies affairs, etc. The last letter in this series is the letter by the respondent-Income-tax Officer to the petitioner in respect of the assessment years from 1954-55 onwards dated 26th December, 1958, asking the petitioner to obtain the relevant certificate from the head office auditors regarding the reasonableness of the expenses allocated by the Burmah Oil Co. Ltd. to the petitioner for supervision and control of expenses incurred in the U.K. Thereafter, some time in January, 1959, the assessments for the years 1953-54 to 1958-59 were completed by the respondent-Income-tax Officer. The assessments for the years 1957-58 and 1958-59 were made more or less on the basis of the profit and loss account of the petitioner for these years, in which the London officer charges h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner and by three several notices all dated 25th November, 1965, purported to be under section 148 of the Income-tax Act, 1961, the respondent-Income-tax Officer notified the petitioner that, as he had reason to believe that its income chargeable to tax for each of the aforesaid three years had escaped assessment within the meaning of section 147 of the Act, he proposed to reassess the income for the said years and required the petitioner to deliver, within 30 days from the date of the service of the notice returns in the prescribed form. The notice also mentioned that it 'was being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, Central, Calcutta. The form of the notices shows that the notices were issued under section 147(1)(a) of the said Act. Before I deal with the cause shown to this rule, it would be interesting to notice the different Income-tax Officers who had made the assessments, issued. the impugned notices and showed cause to this rule. The assessments for the years 1957-58 and 1958-59 were made by Sri D. G. Pradhan and that for 1959-60 was by Sri G. P. Gupta while the notices under section 148 were issued by Sri P. S. Gopala Kri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable The assessee-company was, therefore, required to produce similar certificates for the earlier ears but it had failed. to do so on the ground that no records were maintained by the parent-company on the work relating to the assessee's affairs. The allocation of London management fee was thus arbitrary and devoid of any basis and was only a means of avoiding taxation by debiting excessive sums by way of management fees unrelated to the extent of the services rendered. By reason of the assessee's failure to disclose the correct facts its income had been found to have escaped assessment and sanction to reopen the same was, therefore, requested. The amount of London management fee debited in excess is shown at pound 1,13,000. As the petitioner was similarly informed by the respondent's letter dated 21st October, 1965, that he considered the assessee's claim for deduction of the London management expenses in the past years to be excessive in the light of the London auditor's report for the assessment year 1963-64, I must accept that the respondent-Income-tax Officer's reasons for believing that the assessee's income had been under-assessed for the aforesaid three years have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, the conditions precedent necessary for the assumption of jurisdiction was absent and the impugned notices were bad. He submitted that the question of the allowances of the London management expenses had cropped up again and again in each year of assessment from 1953-54 onwards and discussions had been held between the Income-tax Officer concerned and the petitioner company culminating in a conference held between the Commissioner of Income-tax, Central, and the representative of the petitioner-company where the position had been discussed threadbare. The petitioner had explained again and again that it debited the amount which was allocated to it by the Burmah Oil Co. Ltd., London, as its share of the general management expenses of the London office of the latter company attributable to the services rendered to the petitioner-company. As it had no office or staff of its own in London, it accepted and paid the amount demanded by the Burmah Oil Co. Ltd. In some of these years a certificate of reasonableness from the London auditor was also demanded but the petitioner expressed its inability to procure such certificate within the time asked for and the assessments were completed w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rficial to the formation of his belief. If that was the only question involved, I might have come to the conclusion that the absence of the relevant certificates from the London auditors might lead the Income-tax Officer to the belief that excessive allowance had been granted in respect of the London management charges. But, as pointed out by the Supreme Court in the aforesaid case the Income-tax Officer must have reason to believe that the underassessment was also due to the failure of the assessee to disclose all the material facts. In the light of the correspondence disclosed in the petition, it cannot be said that there was any such failure on the part of the petitioner. All the facts in its possession were placed before the taxing authority. It was for the taxing authority either to accept the claim or to reject it wholly or partly. After having accepted the claim even in spite of the non-production of the relevant auditor's certificates, the department cannot now turn round and say that its income bad escaped assessment or been under-assessed due to he failure of the petitioner to disclose those very auditor's reports. As pointed out by Dr. Pal, the assessing officer could ..... X X X X Extracts X X X X X X X X Extracts X X X X
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