1998 (3) TMI 7 - SC - Income Tax

Foreign exchange remittance restriction letters and income-tax reassessment u/s147/s.148-letters not 'information'; notices quashed.

Whether reassessment under s.147(a)/(b) could be validly initiated on the basis of two letters issued under the Foreign Exchange Regulation Act ... Challenge to notices issued under section 148 - Reassessment proceedings - Foreign Enterprise - failure to disclose fully and truly all material facts bearing on the assessments and consequent escapement of income from assessment and tax - payment of pro-rated home office expenses and service charges in U. S. dollars - HELD THAT:- 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. Having examined the matter threadbare after entertaining the writ petitions in exercise 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 interests of the economic development of the country and for that purpose regulation of certain payments, dealings in foreign exchange and securities, transactions indirectly affecting foreign exchange, etc. Reference in this connection be made to the preamble of the 1973 Act or even to the 1947 Act. The embargo so placed by these two letters on the ground of foreign remittance to be made abroad by the appellant has nothing to do with the amount of disallowances under the Income-tax Act. As already seen above the letter dated November 6, 1974, allows remittances within the overall ceiling of 80 per cent. of export earnings applicable to the remittances of the Indian branch of the appellant on all counts. The assessments for the years 1971-72 to 1973-74 were already completed before the issuance of this letter. If any remittance of foreign exchange had been made in excess of the prescribed limit from January 1, 1969, that will be for the Reserve Bank or the Central Government to take action or to grant permission as may be provided under the Foreign Exchange Regulation Act, 1973. That, however, cannot be a ground for the Income-tax Officer to assume jurisdiction to start reassessment proceedings either under section 147(a) or 147(b) of the Act on the ground that that will be 'in consequence of information' in his possession in the shape of these two letters. Whatever amount be payable in respect of home office expenses or service charges by the Indian branch to its principal office abroad as allowed by the income-tax authorities under the Income-tax Act, the remittance can only be permitted under the provisions of the Foreign Exchange Regulation Act by the Reserve Bank of India. Both Acts---the Income-tax Act and the Foreign Exchange Regulation Act---operate in different fields. We may also notice that when the notices under section 148 of the Act were issued, these did not specify whether action was being contemplated under clause (a) or clause (b) of section 147 of the Act. The notices merely said that 'there was reason to believe that the income of the assessee in respect of which it was assessable/chargeable to tax for the assessment years in question had escaped assessment' within the meaning of section 147 of the Act. In view of the decision of this court in Kantamani Venkata Narayana and Sons v. First Addl. ITO [1966 (10) TMI 50 - SUPREME COURT] it is neither necessary nor imperative that a notice under section 147 of the Act must specify under which of the two clauses (a) or (b) it has been issued. In this view of the matter the two letters were wholly irrelevant and could not be treated as an information to the Income-tax Officer to initiate reassessment proceeding. We are, therefore, of the opinion that there was inherent lack of jurisdiction in the Income-tax Officer to issue the notices under section 148 of the Act on the basis of any income of the appellant escaping assessment either under clause (a) or clause (b) of section 147 of the Act. All the notices under section 148 of the Act are quashed. The impugned judgment dated December 18, 1984, of the High Court of Delhi is set aside and the appeals are allowed with costs. Issues: Whether notices issued under section 148 of the Income-tax Act, 1961, read with section 147, to reopen completed assessments for specified assessment years on the basis of (i) alleged excess allowance of foreign exchange loss by re-translation and (ii) two governmental letters limiting remittances (May 4, 1973 and Nov 6, 1974) constituted 'information' giving the Income-tax Officer reason to believe that income had escaped assessment and hence whether the reassessment notices were valid.Analysis: The Court analysed the statutory requirements for invoking section 147/148 namely that the Income-tax Officer must have 'information' which gives him reason to believe that income chargeable to tax has escaped assessment and examined whether the two governmental letters and the prior allowance of exchange losses supplied such information. The Court considered (a) that the governmental letters arose under foreign exchange regulation law and imposed remittance ceilings enforceable under the Foreign Exchange Regulation Act, (b) that those letters related to remittance/foreign-exchange permissions and not to the legal permissibility under the Income-tax Act of the deductions already allowed in assessment orders, and (c) that reopening assessments on the basis of those letters would improperly conflate regulatory limits on remittance with the merits of income-tax allowance. The Court also noted that for certain earlier years the question of allowance of re-translation exchange loss had been finally adjudicated against Revenue, and that there was no fresh material justifying reassessment. The High Courts restraint in allowing only a limited inquiry as to excess over regulatory ceilings was found to be insufficient, and the Supreme Court held that the letters were irrelevant as 'information' to invoke reassessment jurisdiction; therefore the Income-tax Officer lacked jurisdiction to issue the impugned notices under section 148 for the years in question.Conclusion: The notices under section 148 read with section 147 were quashed as issued without jurisdiction; the appeals are allowed. The decision is in favour of the assessee.