M.N.Roy, J. - (1.) The petitioner, M/s. Export Enterprises Private Ltd., is an existing private limited company within the meaning of the Companies Act, 1956 (for convenience, the petitioner would hereinafter be referred to as the "said company"). It has been stated that the said company at all material times carried on and still they are carrying on business dealing with imported materials under import licences, which were previously sanctioned in favour of Maharajkumari C. Pheunkhang, sister of the Chogial of Sikkim, by the Govt. of India for the purpose of enabling the said Maharajkumari and her family to enter into the business, and trade and to earn some income for the benefit of the family. The said company has stated that the same was virtually dependent upon the said Maharajkumari initially, for using the import licences granted in her favour, and subsequently through her in the name of the said company.
(2.) It has further been stated that the said Maharajkumari was a director of the said company and as part of her duties, she used to undertake movements between different towns of India and outside, that apart, it has been stated that although the registered office of the said company was in Calcutta, the said Maharajkumari normally resided in Gangtok (Sikkim) and Kalimpong. It was also the case of the said company that in the past the said Maharajkumari had never charged any travelling expenses up to Calcutta and she was being paid a salary of Rs. 1,000 per month initially but as during the period of 1968-69 she found the work to be extremely heavy and tiresome, the directors and the shareholders of the said company were requested informally in the first instance by her to increase the remuneration by adding a further sum of Rs. 1,000 per month and a share of profits. She also requested for facilities for medical treatment on the amounts which would be actually spent if any illness occurred during the course of her duties as a director of the said company. On such request, on or about 8th January, 1970, the said company passed a resolution whereby an increase in the remuneration of the said Maharajkumari, by adding in her salary 10% of the net profits, was granted. Apart from that, the board of directors of the said company also sanctioned to her medical expenses on the actual basis. Such resolutions, according to the said company, were duly approved. It was the case of the said company that due to the extra strain suffered by the Maharajkumari in the middle of January, 1970, she had some trouble with her left arm and initially she was required to be entered in a nursing home in Calcutta for treatment. After a few days thereafter, it was suspected that there may be a case of the loss of limb and so she, accompanied by one of her doctors and relations, was flown to the U.S.A. to receive further treatment. On such treatment in the U.S.A. the Maharajkumari got cured of the ailment but her left arm had to be amputated. The said company has stated that the same was regularly assessed to income-tax under the I.T. Act and the application which is now being considered relates to the assessment year of 1971-72 for which the relevant accounting year would be the year ending 31st March, 1971. For such assessment year, it has also been stated that the said company was duly assessed under Section 143(3) of the I.T. Act, 1961 (hereinafter referred to as the "said Act") by Shri S. Bhattacharjee, who computed a loss of Rs. 4,208 and calculated the total amount refundable at Rs. 88,357. It was the case of the said company that while making such assessment the said ITO allowed the director's medical expenses of Rs. 1,76,755 apart from doctor's bills, air passage for the director of the said company and the attending physician and so also hotel and other bills and charges totalling an amount of Rs. 1,42,643 in respect of the assessment year 1970-71. The said company has further stated that at the time of the original assessment for the assessment years 1970-71 and 1971-72, the said company's authorised representative duly appeared before the ITO concerned and produced along with other particulars as were asked for, the details of medical expenses incurred in India and abroad during the year ended 31st March, 1970, and the ITO concerned, on a due consideration of all the necessary materials as produced, concluded the assessments for the years in question.
(3.) It has been stated by the said company that while filing the return for the assessment year 1971-72, a letter dated 11th September, 1971, was sent to the ITO concerned stating that as per the last year's (returns) deduction had been claimed on account of the medical expenses of the director, viz., the said Maharajkumari, and for such purposes a detailed statement of the necessary expenses, for consideration of the ITO concerned, was also filed. At that, the said company received two notices both dated 22nd February, 1976, issued by the ITO concerned, respondent No. 1, under Section 154 of the said Act for the assessment years 1970-71 and 1971-72 whereby the said officer asked the said company to show cause why the concerned order of assessment should not be rectified as, in his opinion, there was a mistake apparent from the record. It has also been stated that, thereafter, the said respondent passed two orders both dated 5th July, 1976, under Section 154 of the said Act and thereby disallowed the medical expenses. In fact, a sum of Rs. 1,69,882 was disallowed for the relevant assessment year 1971-72 against which a sum of Rs. 1,76,755, as mentioned above, was ordinarily allowed in the year under Section 143(3) of the said Act. As such, for both the assessment years 1970-71 and 1971-72, the said company preferred two appeals before the AAC and those appeals were decided against the said company by a consolidated order dated 1st May, 1975, and being aggrieved by such order, the petitioner duly preferred an appeal before the Income-tax Appellate Tribunal. It should be noted here that in the course of hearing the Maharajkumari produced an order dated 16th May, 1977, by the said Appellate Tribunal which allowed the appeals and cancelled or set aside the order made by the ITO and initial Tribunal.;