1994-VIL-246-BOM-DT

Equivalent Citation: [1995] 213 ITR 739, 124 CTR 51, 80 TAXMANN 348

BOMBAY HIGH COURT

Date: 14.10.1994

AIR INDIA

Vs

VK. SRIVASTAVA COMMISSIONER OF INCOME TAX & ORS.

BENCH

Judge(s)  : S. M. JHUNJHUNUWALA., M. L. PENDSE 

JUDGMENT

The judgment of the court was delivered by

M. L. PENDSE J. ---Air India, a corporation incorporated under the Air Corporations Act, 1953, appointed Ludovico Reister, a highly qualified chef, from September 23, 1969, to September 22, 1973, in the flight kitchen of the corporation. Section 10(6)(vii) of the Income-tax Act, 1961, exempts the income earned by a foreign technician in India subject to the conditions specified in that section. Section 10 of the Act, inter alia, provides that for computing the total income of a previous year of any person, the remuneration due to or received, chargeable under the head "Salaries" for services rendered as a technician in the employment of the corporation shall not be included provided the remuneration in pursuance of the contract of service in the case of a technician who has special knowledge and experience in industrial or business management techniques, is received by him during the period of six months commencing from the date of his arrival in India. In the case of any other technician, such remuneration is received during the 36 months commencing from the date of arrival in India. The expression "technician" is defined under the Explanation and means a person having specialised knowledge and experience in constructional or manufacturing operations or industrial or business management techniques. The section also requires that the employment of such person is approved by the Government of India.

On May 15, 1970, the petitioners had applied for approval of the contract of service with Reister and the Government of India conveyed the approval by letter dated June 26, 1970. Initially, the approval was for a period of one year commencing from September 23, 1969. The approval was subsequently extended from time to time till September 22, 1973. It is not in dispute that Reister left the country on September 22, 1973, after obtaining clearance from the income-tax authorities. Till the time of departure of Reister, the assessment for the assessment years 1973-74 and 19 74-75 was not completed and, therefore, the petitioners furnished a bank guarantee to the income-tax authorities undertaking to bear the tax liability, if any.

By order dated October 23, 1974, the Income-tax Officer, Foreign Section, Bombay, completed the assessment of Reister for the assessment years 1973-74 and 1974-75 accepting the income-tax returns filed by Reister. The income-tax due in pursuance of the assessment order was paid by the petitioners.

By two notices dated February 28, 1978, addressed to Reister and delivered to the petitioners, the Income-tax Officer called upon them to show cause why the proceedings should not be adopted in accordance with section 147(b) of the Act. Respondent No. 2 claimed in the notices that there was reason to believe that Reister's income chargeable to tax for the assessment years 1973-74 and 1974-75 had escaped assessment within the meaning of section 147 of the Act. Pursuant to the notices, the petitioners filed returns, inter alia, protesting that respondent No. 2 had no jurisdiction to reopen the completed assessment and in any event the petitioners were not agents, of Reister. The petitioners complained that respondent No. 2 issued notices only on the basis of the audit objection and that fact is not sufficient to exercise jurisdiction. The contention raised by the petitioners was not accepted and the draft assessment orders were issued by respondent No. 2. The Income-tax Officer proposed to assess the petitioners in a total income of Rs. 4,63,558 for the assessment year 1973-74 and Rs. 2,99,334 for the assessment year 1974-75. The Income-tax Officer by order dated March 24, 1979, amended the order to correct certain mistakes. The petitioners, feeling aggrieved, approached the Inspecting Assistant Commissioner and the Assistant Commissioner directed the Income-tax Officer to complete the assessment. The petitioners preferred appeals before the Commissioner of Income-tax (Appeals) against the order of reassessment for the two assessment years. The appeals were dismissed as incompetent and further appeals to the Income-tax Appellate Tribunal also ended in dismissal on the ground of maintainability. The petitioners thereafter made representations to the Central Board of Direct Taxes but the Board informed the petitioners that it is not possible to interfere with the matter.

The petitioners then preferred a petition under section 264 of the Act before the Commissioner of Income-tax to challenge the validity of the reassessment order. The Commissioner of Income-tax by the impugned order dated December 31, 1985, rejected the petition holding that the reassessments are not hit by the Supreme Court decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 in view of the legal opinion given by the Ministry of Law and which is binding on all the Departments of the Government of India. The order passed by the Commissioner of Income-tax is under challenge in this petition filed under article 226 of the Constitution.

Shri Dastoor, learned counsel appearing on behalf of the petitioners, submitted that respondent No. 1 was in error in not granting relief in exercise of the powers under section 264 of the Income-tax Act. Learned counsel urged that it is now well-settled by the decision of the Supreme Court in Indian and Eastern newspaper Society v. CIT [1979] 119 ITR 996 that the Income-tax Officer has no jurisdiction to reopen the assessment proceedings under section 147 of the Act by acting in pursuance of an audit objection. Learned counsel also submitted that the claim of the respondents that Reister was not a technician within the meaning of section 10(6)(vii) of the Act was erroneous. Shri Dastoor further submitted that the Commissioner of Income-tax declined to exercise jurisdiction only on the ground that the Central Board of Direct Taxes had expressed the opinion and which has been confirmed by the Ministry of Law. It was urged that while exercising quasi-judicial powers, the Commissioner of Income-tax should have ignored the opinion of the Ministry of Law and determined the claim in accordance with law. We find considerable merit in the submission urged by learned counsel.

It is now well-settled by the decision of the Supreme Court that it is not permissible to exercise jurisdiction under section 147 of the Act on the basis of an objection raised by the auditor. The Income-tax Officer cannot reach the conclusion that there was reason to believe that the income for assessment was not shown properly, merely because the auditor has raised some objection. In the present case, it is not in dispute that the completed assessments of Reister were reopened only because of the auditor's objection. Consequently, the reopening of the completed assessments was without jurisdiction and the order of reassessment cannot be sustained. Shri Jetley, learned counsel for the Department, submitted that Reister was not a technician in accordance with the expression set out in the Explanation to section 10(6)(vii) of the Income-tax Act. Learned counsel urged that the term "technician" means a person having specialised knowledge and experience in manufacturing operations and it is not possible to accept the claim that Reister who was a chef had special knowledge of manufacturing operations. The submission overlooks that the agreement with the Reister was approved by the Government of India under section 10 of the Act and as long as that order was not revoked, it, is not open to claim that Reister was not a technician within the meaning of section 10 of the Act. The impugned order sets out that as the Income-tax Officer had doubts about whether the term "technician" is applicable to the Reister, reference was made to the Central Board of Direct Taxes who in their turn referred the issue for opinion to the Ministry of Law, Government of India. The order then sets out the opinion expressed by the Ministry of Law. The Ministry of Law felt that Reister will not come in any of the categories mentioned in section 10(6)(vii) of the Act and, therefore, he is not a technician. The Commissioner of Income-tax observed that as the issue has been decided by the Ministry of Law which is competent to interpret law and whose legal opinion is binding on all the Departments of the Government of India, it is necessary to accept the opinion. The observations of the Commissioner of Income-tax are entirely erroneous. The Supreme Court in the decision in Bengal Iron Corporation v. CTO [1993] 90 STC 47 observed :

" Clarifications/Circulars issued by the Central Government and/ or the State Government represent merely their understanding of the statutory provisions. They are not binding upon the courts. It is true that those clarifications and circulars were communicated to the concerned dealers but even so nothing prevents the State from recovering the tax, if in truth such tax was leviable according to law. There can be no estoppel against the statute. The understanding of the Government, whether in favour or against the assessee, is nothing more than its understanding and opinion. It is doubtful whether such clarifications and circulars bind the quasi-judicial functioning of the authorities under the Act. While acting in a quasi-judicial capacity, they are bound by law and not by any administrative instructions, opinions, clarifications or circulars. Law is what is declared by the Supreme Court and the High Court, to wit, it is for the Supreme Court and the High Court to declare what a particular provision of the statute says, and not for the executive.

In our judgment, the Commissioner of Income-tax had failed to exercise jurisdiction by placing blind reliance upon the opinion expressed by the Ministry of Law. In our judgment, the opinion was not correct because it was not permissible to reopen the completed assessment in pursuance of an audit objection and, consequently, the issue whether Reister was a technician or not could not have been examined. In these circumstances, the order passed by the Commissioner of Income-tax, on December 31, 1985, is required to be set aside and the petitioners are entitled to the relief.

Accordingly, the petition succeeds and rule is made absolute in terms of prayer (b). There will be no order as to costs.

 

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