(1.) This is an application under Article 226 of the Constitution impugning the validity of a notice of reassessment under Section 148 of the Income-tax Act, 1961, in respect of the assessment year 1959-60. The petitioner, Ganga Saran & Sons (P.) Ltd., is a private limited company which was incorporated in March, 1947, with Ganga Saran Sharma as its managing director while the other directors of the company were Deo Dutt Sharma, A.C. Agarwal and Sankarlal Sharama, For the assessment year 1948-49, the Income-tax Officer, "B" Ward, Companies District I, Calcutta, who made the assessment, disallowed a large part of the amounts claimed as deduction as payments to the directors on account of their commission, bonus and other perquisites. No appeal was filed from the assessment for this year. In the assessment for 1949-50, the Income-tax Officer again disallowed their claim for deduction of the sums paid to the directors including the managing director on account of commission and bonus. In this year the commission paid to the three directors other than the managing director was Rs. 15,674 and the bonus was Rs. 6,000 in addition to the salary paid to the directors. It should be mentioned that in addition the director, Deo Dutt Sharma, used to get a remuneration of Rs. 1,000 per month. On appeal by the company, the Appellate Assisstant Commissioner allowed the entire amount claimed to have been paid as bonus and commission to the directors of the petitioner-company. The Appellate Assistant Commissioner observed that Deo Dutt Sharma carried on the very business at Delhi in the name of Sharma Trading Company which was purchased by the petitioner-company. He gave the figures of the income assessed in the assessment of Deo Dutt Sharma in the immediately previous four years of assessment. He also found that the said director managed entirely the Delhi branch of the petitioner-company. The Appellate Assistant Commissioner concluded that considering the antecedents of this director and the part he had taken in the business of the company the entire remuneration paid to him should be allowed. Following the said decision of the Appellate Assistant Commisssioner, in the assessments for the years 1950-51 to 1955-56 the claim of the petitioner for deduction on account of payments made to its directors as remuneration were allowed in full. But, in the assessment year 1956-57, the Income-tax Officer disallowed a substantial portion of the remuneration paid to the managing director, which was substantially confirmed by both the Assistant Commissioner and the Income-tax Tribunal on appeal. A reference was made to this court under Section 66(1) of the Indian Income-tax Act, 1922, and the High Court answered the reference in favour of the assessee and held that the disallowance of a portion of the remuneration paid to the managing director under Section 10(4A) was not justified. For the assessment year 1957-58, the Income-tax Officer again disallowed Rs. 18,000 out of the managing director's remuneration and also the interest paid to the directors on the balance of their credit for undrawn remuneration in the accounts of the company. On appeal, the Appellate Assistant Commissioner held that the interest paid on the undrawn balances to the directors were an allowable expenditure and allowed the same but he sustained the disallowance of a portion of the remuneration paid to the directors. In this year the total amount of commission, salary and bonus paid to the directors amounted to Rs. 94,060. On further appeal, the Tribunal pointed out that during the accounting year, of 8,500 issued shares of the company, the managing director, G. S. Sharma, personally held 5 shares, while 3,500 shares were held by a private company which was controlled by him and his wife. The director, D. D, Sharma, held 1,703 shares. D. D. Sharma was paid a salary of Rs. 1,000 per month plus a commission of 1 per cent. on the total sales. Salary and commission at different rates were also paid to the other two directors. After elaborately considering all the circumstances the Tribunal held that the disallowance of any part of the remuneration paid to the directors was not justifiable and deleted the amount disallowed. It appears that for each of the aforesaid years of assessment elaborate statements were filed by the petitioner-company before the assessing Income-tax Officer, of the details of the expenditure incurred by the company in each year, the ledger accounts of the several directors showing the amounts of salary, commission and bonus being credited and the amounts as paid to such directors being debited and the balance carried forward to the subsequent year. It is in respect of these balances that the company paid interest to the directors which was disallowed by the Income-tax Officer but allowed by the Appellate Assistant Commissioner on appeal. It also appears that on a query from the Income-tax Officer the company by its letter dated the 10th May, 1958, furnished the Income-tax Officer with the assessment file numbers of the director, D.D. Sharma, who was being assessed at New Delhi, and also similar file numbers of Narendra Sharma and Debendra Sharma. The department appealed against the atlowance by the Appellate Assistant Commissioner of the claim for deduction of the interest paid to the directors on the balance in their account and this was also rejected by the Tribunal in respect of the assessment year 1958-59. The petitioner's assessment for the subsequent years 1959-60 to 1961-62 were completed and in these assessments the deductions claimed by the petitioner in respect of the remuneration paid to the directors were allowed in full.
(2.) A notice purported to be under Section 148 of the Income-tax Act, 1961, dated the 28th March, 1968, issued by the Income-tax Officer, Central Circle XV, Calcutta, to whom in the meantime the petitioner's assessment file had been transferred, proposing to reassess the petitioner's income for the year 1959-60 as it had escaped assessment within the meaning of Section 147 of the Act was served on the petitioner, who was directed to file its return within 30 days from the date of service. As the notice was issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, Central Calcutta, and was also issued more than four years after the end of the relevant assessment year, it must be taken that the impugned notice was intended to be one under Section 147(a) of the Act.
(3.) As repeated requests from the petitioner to the Income-tax Officer issuing the notice failed to elicit a replay stating the reasons which had led the said Income-tax Officer to believe that the petitioner's income for that year had escaped assessment, the petitioner by its letter dated the 8th April, 1968, without prejudice to its rights and contentions, asked the Income-tax Officer to treat the original return filed for the said year as the return in response to the notice under Section 148. This rule was obtained on the 11th April, 1968, calling on the respondents, (1) the Income-tax Officer, Central Circle XV, Calcutta, (2) the Commissioner of Income-tax, Central, Calcutta, (3) Income-tax Officer, "B" Ward, Companies District I, Calcutta, and (4) Union of India, to show cause why appropriate writs should not be issued to cancel, rescind and/or quash the aforesaid notice and command the respondents to forbear from taking any further action thereon.;