INDIAN OIL CORPORATION versus INCOME TAX OFFICER, CENTRAL CIRCLE V, CALCUTTA & ORS.

Citation: [1986] 2 S.C.R. 1107 · Decided: 08-05-1986 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Appeal(s) allowed

Judgment (excerpt)

.. 
INDIAN OIL CORFOKATION 
v. 
1NCt14K TAX OFFICER, CEITTRAL CIRCLE V, 
CALCU'ITA & 'ORS. 
MAY 8, 1986 
[R.S. PATHAK AND SABYASACHI MUKHARJI, JJ.] 
1107 
Income Tax Act, 1961 - S.147(l)(a) -
Income 
escaping 
assessment -
Initiation of proceedings for reassessment -
-tNecessary conditions - What are. 
The 
assessee at the relevant time was 
a 
company 
incorporated under the laws of the United Kingdom, and had its 
·-L principal place of business in India. The assessee was all 
r along assessed under the Indian Income Tax Act, 1922. 
The 
·assessee had claimed deductions every year of certain expenses 
tamounting to L 1,00,000 or over as administrative charges 
incurred by the Burmah Oil Company Limited of London for 
management and secretarial work carried on on behalf of the 
assessee in London. L 1,00,000 represented approximately 40% 
of the head office expenses of the London Company which, 
according to assessee, was a reasonable allocation having 
regard to the work done by the London Office on behalf of the 
assessee. As similar organisational work was done in London 
¥through the London Company, the London office was managing 
several companies and debiting prorata to the companies whose 
affairs they were managing and thereafter the assessment was 
completed on that basis • 
,~ 
During the assessment for the year 1953-54, the assessee 
had furni$hed in support of its claim for London Management 
expenses, certificate from the London 
Auditors that the sum 
'\specified in the certificate was reasonable having regard to 
tbe records and materials produced before the auditors , which 
was about 10% of the total administrative expenses incurred by 
the Burmah Oil 
Company Limited, 
London. 
The Income-Tax 
Officer found that such expenses debited actually in the 
earlier years were far in excess of this percentage. The 
~ assessee was, 
therefore, 
required to furnish a similar 
certificate for each of the assessment years 1957-58, 1958-59 
.. and 1959-60. 
No 
such certificates were produced by the 
assessee and by three notices dated November 25, 1965 under 
A 
B 
c 
D 
E 
F 
G 
H 
• 
A 
B 
c 
D 
E 
F 
G 
H 
1108 
SUPREME COURT REPORTS 
[1986] 2 S.C.R. 
s.148 of the Income-tax Act 1961, the Income Tax Officer 
notified that he had reason to believe that the assessee' s \ 
income chargeable to tax for each of the said assessment year 
had escaped assessment within the meaning of s. 147(a) and he 
proposed to reassess the income for the said years and the 
assessee was required to furnish the returns. 
The assessee challenged the said notices under Art. 226 
of the Constitution on the ground that there was no material 
to reopen the assessments. A Single Judge of the High Court"t 
quashed the notices and held that all the facts in possession 
of the assessee were placed before the taxing authority prior 
to making of the assessment; that it was 
for the taxing 
authority either to accept the claim or to reject the claim 
either wholly or in part; that after having accepted the claim1" 
in spite 
of 
non-production 
of 
the 
relevant 
auditors' 
certificate which was asked for at one stage the revenue could~ 
not later turn round and say that the income of the assessee 
had escaped assessment or been under-assessed due to the 
failure of the assessee to disclose those very auditors' 
reports and that the under assessment, if any, was due to the 
laches of the Revenue and not due to any act or omission on 
the part 0f the assessee. 
In the appeal filed by the Revenue, the Division Bench'!' 
set aside the decision of the Single Judge, upheld the notices 
and held that the assessee had failed to disclose; (1) the 
basis of allocation of expenses; (2) correspondence between 
t 
the London principal and the assessee company on the relevant 
subject; 
(3) 
existence of 
auditors' 
certificate 
fixing~, 
percentage that would be reasonable for allocation in respect 
of 
the 
subsidiary 
companies 
including the assessee and, 
therefore, there were prima fade materials to form the belief f 
that there was failure and omission in the part of the' 
assessee to disclose fully and truly all the relevant and 
material facts which led to the escapement of income or under 
assessment of income of the assessee company. 
Allowing the appeals of the appellant-Corporation to ,.. 
this Court, 
HELD: 
1. 
To confer jurisdiction under clause (a) of 
s.147 of the Income Tax Act, 1961 beyond the period of four 
INDIAN OIL CORPN. v. I.T

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