1998 P T D 3612

[231 I T R 200]

[Supreme Court of India]

Present: Mrs. Sujata V. Manohar and D. P. Wadhwa, JJ

COCA-COLA EXPORT CORPORATION`

Versus

INCOME-TAX OFFICER and another

Civil Appeals Nos. 4074 to 4076 and 1089 to 1091 of 1985, decided on 30/03/1998.

(Appeals by special leave from the judgment and order, dated December 18, 1984, of the Delhi High Court in C.W.Ps. Nos.308, 309 and 377 of 1979 and 1566 and 1568 of 1982).

Income-tax--

----Reassessment---Jurisdiction---Indian branch of foreign company incurring liability to pay home office and service charges in dollars to foreign company---Assessments completed allowing deductions for home office and service charges---Letters issued by Government of India limiting dollar remittances under provisions of Foreign Exchange Regulation Act ---Income-tax Act and Foreign Exchange Regulation Act operate in different fields-- Letters are not "information in possession of I.T.O." for purposes of reopening income-tax assessments---Indian Foreign Exchange Regulation Act, 1947---Indian Foreign Exchange Regulation Act, 1973---Indian Income Tax Act, 1961, Ss.147 & 148---[Coca-Cola Export Corporation v. S.C. Tewari, ITO (1986) 158 ITR 439 partly reversed]

The appellant was a wholly owned subsidiary of Coca-Cola Company, a company incorporated in the U.S.A. It had its main office at New York, called the home office. The appellant had a branch office at New Delhi which was declared a company under section 2(17)(iv) of the Income Tax Act, 1961, and assessed as a non-resident. The basic ingredients for the Coca-Cola concentrate were sold by the holding company exclusively to the appellant for further manufacture of Coca-Cola concentrate and beverage bases for its branches in various countries including that in India. For administrative convenience the whole area of operation of the appellant had been divided into four zones and 14 areas with district and regional offices. Different branches of the appellant including the Indian branch exported their products to different countries and for that necessary services were rendered by the district and regional offices. The expenses borne by the district and regional offices, called service charges, were borne by different branches of the appellant. The home office expenses and the service charges were distributed pro rata on different branches on the basis of their exports and were met by the branches in US dollars. The Indian branch primarily maintained accounts in respect of its liability for payment of pro rated home office expenses and service charges in US dollars as the liability was to be discharged in US dollars only. At the same time the Indian branch also maintained accounts in respect of these liabilities in rupees as the accounts of the business carried on by it were generally in rupees. The accounting year of the appellant was the calendar year. While making the assessments for the assessment years 1967-68 to 1973-74, the Income-tax Officer disallowed only a nominal 5 percent out of the pro rated home office expenses and 3 percent out of the pro rated service charges. On January 5, 1979, the income Tax Officer issued separate notices to the appellant for reopening the assessments for the assessment years 1971-72, 1972-73 and 1973-74 under section 148 of the Income Tax Act, 1961. Two grounds were mentioned for reopening the assessments for the assessment years 1971-72 and 1973-74. The first of these was that in the regular assessment notional loss on exchange which resulted from retranslation of the outstanding dollar liability into Indian rupees at the end of the year at the then prevailing rate of exchange had been wrongly allowed, and that only the actual loss suffered on remittance of foreign currency should be allowed. The second was that in the regular assessments, the Income-tax Officer had wrongly allowed excess deduction of pro rated home office expenses and service charges and that the deduction which was permissible could only be allowed to the extent mentioned in letters, dated May 4, 1973, and November 6, 1974, of the Government of India, Department of Economic Affairs, to the appellant. According to these letters with effect from January 1, 1969, the appellant was permitted to remit only 80 percent of all export earnings by way of home office expenses, and 10 percent by way of service charges, within the said overall ceiling of 80 per cent. For the assessment year 1972-73, the only ground mentioned in the notice was excess allowance of deduction of home office expenses and service charges. For the assessment years 1967-68 to 1969-70, reassessment proceedings were also initiated under section 147(a) of the Act and notices, dated February 24, 1982, were issued to the appellant. The only ground recorded by the Income-tax Officer for the these years was identical in terms relating to the allowance of foreign exchange loss recorded by the appellant op re-translation of the outstanding dollar liability at the end of the relevant accounting year at the then prevailing rate of exchange. The appellant filed writ petitions against the notices. The High Court held the reopening of the assessments for the assessment years 1967-68 to 1969-70 and 1971-72 to 1973-74, so far as they were based on the first ground, viz., wrong deduction of foreign exchange loss, invalid, being of the view that this point was already concluded, as this issue had been the subject-matter of the assessment proceeding for the assessment year 1967-68, which was decided against the Revenue right up to the stage of the Appellate Tribunal, that even a reference under section 256(2) of the Act was refused by the High Court and the Revenue did not take the matter further to the Supreme Court, and that, therefore, the conditions precedent for assessment under section 147(a) of the Act were not satisfied. To the extent the notices were based on the second ground, the High Court held the reopening valid and left it to the Income-tax Officer to make enquiry whether the deductions which had been allowed and which were in excess of the limit fixed by the two letters were legal or not. However, in spite of having held unsustainable the only ground on which the notices for the assessment years 1967-68 to 1969-70 were issued, the High Court only partly allowed the writ petitions for these years. On appeals to the Supreme Court in respect of all six years:

Held, allowing the appeals, that the two letters in question were issued under the provisions of the Foreign Exchange Regulation Act and dealt with remittance of foreign exchange outside India. Any contravention of these letters would entail prosecution under section 56 of the Foreign Exchange Regulation Act, 1973, and under section 23 of the Foreign Exchange Regulation Act, 1947. The embargo so placed by these two letters on the foreign remittance to be made abroad by the appellant had nothing to do with the amount of disallowances under the Income-tax Act. If any remittance of foreign exchange had been made in excess of the prescribed limit from January I, 1969, it was 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, could not be a ground for the Income-tax Officer to assume jurisdiction to start reassessment proceedings either under section 147(a) or section 147(b) of the Act on the ground that it would be "in consequence of information" in his possession in the shape of these two letters. Both the Acts---the Income-tax Act and the Foreign Exchange Regulation Act---operate in different fields. The two letters were wholly irrelevant and could not be treated as information to the Income-tax Officer to initiate reassessment proceedings. Therefore, there was inherent lack of jurisdiction in the Income-tax Officer to issue 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 were liable to be quashed.

Coca-Cola Export Corporation v. S.C. Tewari, ITO (1986) 158 ITR 439 partly reversed.

Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC) and Kantamani Venkata Narayana & Sons v. First Additional ITO (1967) 63 ITR 638 (SC) ref.

H.N. Salve, Senior, Advocate (S. Ganesh and Mrs. A.K. Verma, Advocates for M/s. JBD & Co., Advocates with him) for Appellant.

T.L.V. Iyer, Senior Advocate (T.C. Sharma, Ms. Neelam Sharma and B.K. Prasad, Advocates with him) for Respondent.

JUDGMENT

D.P. WADHWA, J.---These appeals are from the judgment, dated December 18, 1984, of the Division Bench of the Delhi High Court (see (1986) 158 ITR 439) dismissing the writ petitions of the appellant for various assessment years. In these writ petitions, the appellant had challenged notices issued under section 148 of the Income Tax Act, 1961 (for short, the "Act"). Civil Appeal No.4074 of 1985 pertains to the assessment year 1969-70 and Civil Appeals Nos.4075 of 1985 and 4076 of 1985 to the assessment years 1967-68 and 1968-69, respectively. Civil Appeal No.1089 of 1985 pertains to the three assessment years 1971-72, 1972-73 and 1973-74. For the assessment year I 970-71, there are two appeals and these are Civil Appeals Nos. 1090 of 1985 and 1091 of 1985. While for each assessment year there was a separate writ petition in the High Court for the assessment year 1970-71, there were two. The reason for two writ petitions for the assessment year 1970-71 was that while the first writ petition challenged the notice under section 148 of the Act, the second was filed as by that time the Income-tax Officer had completed the assessment and, thus, there was a challenge to the assessment itself.

The appellant is a wholly' owned subsidiary of the Coca-Cola Company which is a company incorporated under the laws of the United States of America having its headquarters at Atlanta, Georgia, U.S.A. The appellant has its main office at New York referred to as the "home office". The appellant had a branch office at New Delhi which had been declared as a company under section 2(17)(iv) of the Act by the Central Board of Direct Taxes. It is being assessed to income-tax as a non-resident company in India since it was established in the year 1.958. The Coca-Cola Company, the holding company, manufactures certain basic ingredients like "7-X" for the manufacture of Coca-Cola concentrate and other beverage bases in its factories in the U.S.A. and in London. These basic ingredients are sold by the holding company exclusively to the appellant for further manufacture of Coca-Cola concentrate and beverage bases for its branches numbering 23 spread in various countries including that in India.

For administrative convenience the whole area of operation of the appellant had been divided into four zones and 14 areas with district and regional offices. Different branches of the appellant including the Indian branch export their products to different countries and for that necessary services, which are required are rendered by the district and regional offices. The branch offices have no staff or any other arrangement to render services to the purchasers of their products. These district and regional offices have no income of their own and the expenses they incur are termed as services charges and are borne by different branches of the appellant. There are thus home office expenses and the service charges by the zonal and area offices and also the district and regional offices. These are, as per the report of the auditor, distributed pro-rata basis on different branches on the basis of their exports and are met by the branches in U.S. dollars. The Indian branch primarily maintains accounts in respect of its liability for payment of pro rated home office expenses and service charges in U.S. dollars as the liability is to be discharged in U.S. dollars only. At the same time the Indian branch also maintains accounts in respect of these liabilities in rupees as the accounts of the business carried on by it are generally in rupees. It is stated that this practice of pro-rating home office expenses and service charges is followed by multinational companies having branches in different countries and is an international accepted practice.

The Income-tax Officer accepted the system followed by the Indian branch for pro-rating the home office expenses and service charges for the assessment years 1959-60 to 1966-67. For the assessment year 1967-68, the income-tax Officer re-examined afresh the claim of the Indian branch for deduction of pro-rated home office expenses and service charges. The Income-tax Officer considered the details of the miscellaneous expenses which according to him were likely to include expenses disallowable under the Act and after going through the details furnished by the Indian branch, the Income-tax Officer disallowed five percent out of the pro-rated home office expenses and three percent out of the pro-rated service charges in that year. Feeling aggrieved by the disallowance of the deductions so mile, the appellant preferred an appeal before the Appellate Assistant Commissioner. The appeal was, however, dismissed. Similar was the position of disallowance of five percent out of the pro-rated home office expenses and three percent out of the pro rated service charge in the assessment for the assessment years 1968-69 to 1973-74. The question regarding the deduction of the pro-rated home office expenses and pro-rated service charges was again examined afresh and in detail by the Income-tax Officer in the assessment year 1970-71 and he also disallowed five per cent and three percent, respectively out of home office expenses and service charges as in the preceding years.

On January 5, 1979, the Income-tax Officer issued separate notices under section 148 of the Act to the appellant for reopening the assessment for the assessment years 1971-72, 1972-73 and 1973-74 under section 147(a) of the Act. After recording discussions for reopening assessments the Income-tax Officer said he had "reasons to believe that on account of the assessee's failure or omission to disclose fully and truly all material facts necessary for its assessment for the year, its income chargeable to tax has escaped assessment". For the assessment years 1971-72 and 1973-74-two grounds were mentioned for reopening the assessments for these years while for the assessment year 1972-73 only the second of the these two grounds was mentioned. The grounds were:

(1)In a mercantile system of accounting it is open to credit or debit the revenue account as and when income or expenditure accrues irrespective of the fact as to whether such income or expenditure is actually received/paid during the accounting period. But once the revenue account is so debited or credited on accrual basis subsequent adjustments thereto can be made only when the income or expenditure accounted for on accrual basis is actually received or paid. To make adjustment in respect of income or expenditure frequently with every fluctuation in the rate of exchange is to press the mercantile principle too far and the work out purely accounting profits or losses. In the regular assessment notional loss on exchange resulted from re-translation of the outstanding dollar liability into Indian rupees at the end of the year at the then prevailing rate of exchange has been wrongly allowed. Only the actual loss suffered on remittance of foreign currency should be allowed

(2)In the regular assessment the Income-tax Officer wrongly allowed excess deduction of pro-rated home office expenses and service charges. The deduction, which was permissible could only be allowed to the extent mentioned in letters, dated May 4, 1973, and November 6, 1974, of the Government of India, Department of Economic Affairs, to the assessee.

For the assessment year 1972-73, only ground (2) above was mentioned for reopening the assessment being the excess allowance of deduction of home office expenses and service charges. The ground had not been recorded as foreign exchange loss but had been claimed or allowed in that year.

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 retranslation of the outstanding dollar liability at the end of the relevant accounting year at the then prevailing rate of exchange.

The second ground relating to the deduction of home office expenses and service charges was not mentioned for these three years obviously because the letters of the Government of India (Ministry of company Affairs) referred to above, related to the period on and after January 1, 1969. As a matter of fact, the loss on exchange of rate claimed by the appellant and allowed by the Income-tax Officer in the regular assessment for the assessment years 1966-67 to 1969-70 was suffered due to actual purchase and remittance of US dollars in that year. There was no fluctuation in exchange rates throughout the year 1968 (previous year for the assessment year 1969-70) no loss on exchange due to exchange of re translation of dollar liability at the end of year had been claimed in that year.

On June 6, 1966, devaluation of the rupee vis-a-vis the US dollar took place Because of the adjustment earlier having been made in terms of the then foreign exchange rates the appellant re-translated the liability in terms of the foreign exchange subsequent to 1966 onwards. This was done because the closing of the year of account of the appellant was December.

For the assessment year 1970-71, the two writ petitions filed by the appellant were dismissed by the High Court on the ground of laches as the notice issued under section 148 of the Act was being challenged in the year 1979. The High Court also noticed that the reassessment had been made and the appellant had already availed of the remedy of appeal under the Act. Mr Salve, learned counsel for the appellant, submitted that the appeals were pending before the Income-tax Appellate Tribunal for the assessment year 1970-71 and that he would not press the present appeals, i.e., Civil Appeals Nos. 1090 of 1985 and 1091 of 1985, pertaining to the assessment year 1970-71 and he would like to withdraw the same leaving all the questions one for the Appellate Tribunal to decide. We need not, therefore, go into the merits of the dispute in these two appeals and, as prayed, would dismiss the same as withdrawn.

The High Court quashed the notices under section 148 of the Act for all the six years (assessment years 1967-68 to 1969-70 and 1971-72 to 1973-74) so far as they were based on the first ground viz., wrong deduction of foreign exchange loss. The High Court was of the view that the Income-tax Officer sought to reopen the assessment on this point which was already concluded and held that the conditions precedent for reassessment under section 147(a) of the Act were not satisfied. The High Court noticed that on this first ground the record would show that the Income-tax Officer in reopening the assessment was in fact really seeking to reopen the issue which was the subject-matter of the assessment proceeding for the assessment year 1967-68, which was decided against the Revenue right up to the stage of the Appellate Tribunal and that even reference under section 256(2) of the Act was refused by the High Court. The Revenue did not take up the matter further to the Supreme Court. In the assessment year 1967-68, the appellant had claimed losses on exchange by re-translation in terms of US dollars, which though disallowed by Income-tax Officer were allowed by the Income-tax Appellate Tribunal. Further, proceedings taken by the Revenue by way of appeal and reference were decided against the Revenue. The assessments, which, therefore, stood concluded on the same facts and law on the subject would not be reopened as no condition existed requisite for reopening the concluded assessment. After the assessment for the assessment year 1967-68 became final, the Income-tax Officer continued to allow the loss on exchange for subsequent years. The High Court said that it was obvious that the Income-tax Officer was fully aware of the particular system of accounting being followed by the appellant. It is not necessary to refer to the other reasons given by the High Court in questioning the notices issued under section 148 on the first ground as we find that against this part of the judgment of the High Court, the Revenue had come up to this Court in special leave petition, which was dismissed. What, however, is surprising that in spite of the fact that the first ground was the only ground given by the Income-tax Officer for reopening the assessment for the assessment years 1967-68 to 1969-70 and the High Court had quashed the notices under section 148 of the Act, yet the writ petitions pertaining to these three years were dismissed. In spite of the fact having been brought to the notice of the High Court in the review petitions filed by the appellant, by force the appellant had filed the appeals in respect of the these three assessment years as well.

At this stage it is appropriate to set out the two letters, dated May 4, 1973, and that, dated November 6, 1974, of the Department of Economic Affairs as under:

"New Delhi 4-5-1973

M/s Coca-Cola Export Corporation,

14-A Nizamuddin West,

New Delhi-13

Gentlemen:

Please refer to your various letters addressed to Government and to the applications made to the Reserve Bank of India for permission to remit abroad profits, head office expenses, etc., pending for the year ended December 1969, and onwards.

2.Government have reviewed the remittance facilities on different counts afforded to your corporation in the past and have decided subject to your acceptance in writing, that the continuance of remittance facilities to your corporation will now be subject to the following conditions

(a)Remittance facilities during the year 1969 to the end of March, 1972, on all counts (imports, profits, head office expenses, service charges to overseas branches, etc.) to the Indian branch of Coca Cola Export Corporation will be allowed at 80 percent of total export earnings brought in by it during these years.

(b)From April, 1972, onwards the remittance facilities on all counts as stated in para. (a) above will be allowed to extent of 80 percent of the exports consisting of company's own items of production.

(c)Imports as mentioned above of ingredients will include imports not only against actual user's licences but also import replenishments and C.G. licences.

(d)The remittance facilities will be calculated on cash basis. For the calculation of remittances each year, the accounting of value of exports will be on cash basis instead of accrual basis.

(e)If at the end of a calendar year the company is left with any unused remittance eligibility calculated as in (a) and (b) above, it will be added to the company's eligibility in respect of the next year.

3.As regards service charges, the amount payable to your overseas branches in relation to your exports of concentrates to their territories shall be subject to an independent ceiling, which will be communicated to you separately.

4.Please acknowledge receipt and let us have your confirmation as asked for above.

Yours faithfully,

Raj K. Nigam,

Director (Investment),

New Delhi, the 16th November, 1974.

The Coca-Cola Export Corporation,

14-A, Nizamuddin West,

New Delhi-110 013.

Sub: Your remittance on account of profits, head office expenses, service charges, etc.

Gentlemen,

Please refer to this Ministry's letter of even No., dated 4th May, 1973, on the above subject in para. 3 of that letter it was mentioned that the remittance of service charges by you to your other overseas branches in relation to your export of concentrates to their territories will be subject to an independent ceiling. I am directed to inform you that this matter has since been considered by the Government and it has been decided that the remittance of these service charges will be allowed on the following terms and conditions:

(i) With effect from January 1, 1969. the remittance of service charges by the Indian branch of the Coca-Cola Export Corporation to the other overseas branches of the corporation will be subject to an independent ceiling of 10 percent of the export earnings from exports of concentrates to the territories of the said other overseas branches of the corporation. These remittances will be within the overall ceiling of 80 percent of export earnings applicable to the remittances of the Indian branch on all counts (as referred to in this ministry s letter, dated May 4, 1973).

(ii)In determining the export value, the amount to be adjusted for replenishment and cash assistance will be in accordance with the general policy followed in respect of other exports.

(iii)While claiming remittances on account of service charges, the Indian branch of the Coca-Cola Export Corporation should furnish a satisfactory proof to the effect that the service cost attributed to the Indian branch has been arrived at on the basis of an equitable distribution of the total cost between the Indian branch and all other entities concerned, i.e., the branch importing the concentrate and other supplying office(s) if any.

The remittance facilities allowed to your company on all counts is to review from time to time.

Kindly acknowledge receipt of this letter.

Yours faithfully,

O.N. Bhargava,

Under Secretary to the Government of India."

The second ground for reopening the assessments for the assessment years 1971-72 and 1972-73 are these two letters, dated May 4, 1973, and November 6, 1974, of the Department of Economic Affairs in the Ministry of Finance, Government of India, allegedly laying down the ceiling on remittances on account of home office expenses and service charges expenses when in the assessment orders excess deductions on these two counts had been permitted than allowed by these two letters. It is thus the claim of the Revenue that to that extent the income has escaped assessment on account of over deduction of head office expenses and service charges. If we see these two letters there appears to be hardly a ground for the Income- tax Officer to reopen the assessment. Para. 2 of the letter dated May 4, 1973, states in clear terms that the Government had reviewed the remittance facilities on different counts afforded to the appellant in the past and had decided, subject to acceptance in writing of the appellant the continuance of remittance facilities to the appellant would now be subject the conditions set out in the para. In sub-para (d) of para. 2 of this letter it is mentioned that remittance facilities would be calculated on cash basis and that for the calculation of remittances each year the accounting of the value of exports would be on cash basis instead of accrual basis. Para. 3 of the letter refers to service charges and it is stated that the amount payable by the appellant to its overseas branches in relation to its export of the concentrates to their territories shall be subject to an independent ceiling which would be communicated to the appellant separately. By the letter dated November 6, 1974, para. 3 of the earlier letter, dated May, 4, 1973, is explained and Government decision as to how remittances of the service charges would be allowed was communicated to the appellant.

It may be noticed that assessments for the assessment years 1971-72, 1972-73 and 1973-74 were respectively completed on January 23, 1973, March 12, 1974, and September 8, 1973, while the notices under section 148 of the Act were issued on January 5, 1979. It is difficult to appreciate how a Government decision of a later date originating from a different Department exercising powers under separate law could be used to reopen already completed assessments on the ground that it is "in consequence of information in his (Income-tax Officer) possession".

A bar is imposed by the two letters on the amount of remittances to be made above. This bar in any case is under the provisions of the Foreign Exchange Regulation Act, 1947 (since repealed and re-enacted as the Foreign Exchange Regulation Act, 1973, with effect from January 1, 1974). Section 9 of the 1973 Act (section 5 of the 1947 Act) provides that save as may be provided in and in accordance with any general or special exemption from the provisions of this subsection (1) of section 9 which may be granted conditionally or unconditionally by the Reserve Bank, no person in, or resident in, India can make payment to or for the credit of any person resident outside India. This section places and embargo for making any payment to or for the credit of any person residing outside India except as may be permitted by the Reserve Bank. The High Court has noticed that it was apparent that in pursuance of this, that letter was written by the Government of India, dated May 4, 1973, to the appellant informing it that m pursuance of' its application made to the Reserve Bank of India for permission to remit abroad profits head office expenses, etc., pending for the year ended December, 1969, and onwards the Government has reviewed the remittance facilities on different counts afforded to the appellant and have decided, subject to acceptance in writing by the appellant, that the continuance of remittance facilities to the appellant would be subject to the conditions mentioned in that letter. The letter permitted remittances within an overall ceiling of 80 percent of export earnings. This reason, therefore, has been stated for reopening the assessment on the ground that deduction has been claimed on these two counts, namely, home office expenses and service charges, in excess of the ceiling limits and the said excess had thus escaped assessment. The High Court was of the opinion that reassessment could not be resorted to for the purpose of reopening the details of those expenses on the ground that they were in fact not spent or were not properly attributable to the Indian branch and said that that aspect was no longer open for assessment. At the same time, the High Court held that it was certainly open to the Income-tax Officer to examine whether expenses on these two counts had exceeded the ceiling permitted by the Reserve Bank of India and as to what would be its effect. It said that if in pursuance of this examination the expenses already allowed had exceeded and in law that was not permissible in the opinion of the Income-tax Officer, it would no doubt be open to him to scale down these expenses on these two heads from the amount that had already been allowed. The Court observed (page 451): "But then, in that case. the decision would not be on the merits of allowance of the expenses in general, but on a totally different aspect and only on the sole ground of a legal bar having been placed in terms of the letters". The High Court sounded a caution in the matter and imposed a limitation saying that permitting reopening to be done in terms of the two letters was not to broaden in unlimited manner the enquiry so as to embrace it on the merits on other grounds. The High Court did not want to record its final decision about the failure to disclose fully and truly all material facts bearing on the assessments and consequent escapement of income from assessment and tax. It said that perfectly good alternative remedy was, thus, available under the statute where all the questions raised by the appellant could be examined in detail. The High Court also said that the matter as to the exact scope and ambit of these two letters were awaiting decision at the appellate stage before the Income-tax Authorities and in that view of the matter it did not think fit to give expression to any opinion as to the scope of these two letters as that would seriously prejudice either the appellant or the Revenue. The High Court, therefore, held that the writ petitions in so far as these sought to quash and pre-empt the enquiry being made by the Income-tax Officer on the basis of two letters would be dismissed and it would be open to the Income-tax officer to make enquiry whether the deduction which had been allowed and which were in excess of the limit fixed by these two letters were legal or not.

Mr. Salve, learned counsel for the appellant, submitted that the High Court has wrongly addressed itself to the issue involved in the writ petitions on the question of interpreting the effect of the two letters. He said 'that it was not correct for the High Court to leave the decision to the Income-tax Officer and that there was failure on the part of the High Court to exercise its jurisdiction which it manifestly did possess. Mr. Salve also referred to a few decision of this Court as to when the Income-tax Office can assume jurisdiction under section 147 of the Act. We, however, think that it is not necessary for us to refer to any of those decisions as law is well settled on the subject starting from Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC). In the present case what we find is that though proceeding for each assessment initiated by the Income-tax Officer was under section 147(a) of the Act the High Court considered the same to be one under section 147(b) of the Act without further examining the question if notices under section 148 of the Act on that ground will be within the period of limitation. Again, we do not thinly that we need to delve into this field as we find the High Court erred in not exercising its jurisdiction when the facts were all there and law clear on the subject. 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 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 property 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 percent 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 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 provision 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 year in question had escaped assessment" with the meaning of section 147 of the Act. In view of the decision of this Court in Kantamani Venkata Narayana & Sons. v. First Additional I.T.O. (1967) 63 ITR 638 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 proceedings. 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.

M.B.A./1859/FC Appeals allowed.