K.L.Roy, J. -
(1.) The petitioner is a company incorporated under the U. K. Companies Act and has its principal place of business of India at Digboi in the State of Assam. It carries on business, inter alia, in oils and lubricants. In its assessment under the Indian Income-tax Act the petitioner claimed deduction of certain expenses as administrative charges incurred by the Burma Oil Company Ltd. of London as the London management fee payable by the petitioner and debited in its account. It appears that from the assessment year 1951-52, the question of allowance of this claim was being discussed 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 record 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 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 done on behalf of the petitioner. Apparently, the taxing authority was satisfied with this explanation and no further questions were raised regarding the allowances of the claim for deduction. Again, for the assessment year 1954-55, the said query was raised by the Income-tax Officer, Dibrugarh, in regard to the claim of 1,10,000 debited in the account under the head "London office charges". Similar query was raised for the assessment year 1955-56 by the said Income-tax Officer by his letter dated 8th October, 1956, regarding a similar claim for deduction of 1,10,000 and requiring the petitioner to let the Income-tax Officer know the details of the services rendered and asking for the copies of the correspondence bet ween the petitioner and the parent-company regarding the fixation of that amount. By its letter dated 14th November, 1956, the petitioner supplied the said Income-tax Officer with details of the services rendered by the London company and further stated that the charge of 1,10,000 represented its share of the salary, wages, fees, rates, rent and taxes, insurance and other expenses incurred at the head office. The next letter is dated 19th June, 1957, from the Income-tax Officer, Central Circle V, Calcutta, to whom the petitioner's file had in the meantime been transferred. In this letter one of the items on which information was asked for was as follows :
"You have stated that you do not have correspondence with the parent-company in the matter of allocation of London office charges. Please explain the basis of the allocation and how it was fixed at 1,10,000 for the year 1953."
(2.) There was a further communication from the respondent-Income-tax Officer to the petitioner-company dated 3rd January, 1958, in which, inter alia, the respondent had stated that, as the petitioner had not yet informed him as to what its London office had to say about the basis on which the amount of 1,10,000 had been arrived at, in the absence of the required particulars the respondent would have to disallow a part of the expenses claimed and also to capitalise a portion of the remaining part as relating to purchase of plant and machinery. In its reply dated the 16th January, 1958, the petitioner informed the respondent that it was not in a position to add to the explanations given in respect of the London office charges as it did not have any office or staff in London. The procedure for fixing the charge was explained as follows :
(3.) 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 proportion to the time which has been spent on the various companies' affairs, etc.;