Holding

The letters issued under FERA are irrelevant for Section 147 purposes; the ITO lacked jurisdiction to issue the Section 148 notices, and all such notices are quashed.

Summary

Coca‑Cola Export Corp., a wholly‑owned non‑resident subsidiary of the Coca‑Cola Company, claimed deductions for pro‑rated home‑office expenses and service charges paid in US dollars. The Income‑Tax Officer (ITO) disallowed portions of these deductions and later issued notices under Section 148 of the Income‑Tax Act to reopen assessments for several years, relying on (i) alleged improper foreign‑exchange loss claims and (ii) two Government letters (May 4 1973 and Nov 6 1974) that capped remittances to 80% of export earnings under the Foreign Exchange Regulation Act (FERA). The Delhi High Court quashed the notices on the first ground but left it to the ITO to decide whether the letters constituted a basis for reopening on the second ground. The Supreme Court held that the letters, issued under FERA, are not "information" within the meaning of Section 147 and therefore cannot justify a reassessment; consequently the ITO lacked jurisdiction to issue the Section 148 notices. All the notices were quashed, the High Court’s order set aside, and the appeals were allowed with costs.

Issues considered

The letters issued under the Foreign Exchange Regulation Act, imposing a ceiling on remittances, constitute 'information' within the meaning of Section 147 of the Income‑Tax Act for the purpose of reopening assessments.
Whether the Income‑Tax Officer has jurisdiction to issue a notice under Section 148 based on such letters.
Whether a notice under Section 148 must specify whether it is issued under clause (a) or clause (b) of Section 147.
Whether the High Court erred in leaving the matter to the Income‑Tax Officer to determine the effect of the letters.

Legislation cited

Foreign Exchange Regulation Act, 1947s. 23, s. 5
Foreign Exchange Regulation Act, 1973s. 56, s. 9
Income Tax Act, 1961s. 147, s. 148, s. 256(2)

Subjects

Income TaxReassessmentSection 147Section 148Foreign Exchange Regulation ActNon‑resident companyHome office expensesService chargesJurisdictionRemittance ceiling

Judgment

A THE COCA-COLA EXPORT CORPORATION
v.
INCOME TAX OFFICER AND ANR.

MARCH 30, 1998

B [SUJATA V. MANOHAR AND D.P. WADHWA, JJ.]

Income Tax Act, 1961--Section 147-Reopening of-Income escaping
assessment-Assessee a non-resident company-Remitting pro-rated home
office expenses and service charges in U.S. Dollars-Letters issued by
C Government of India placing ceiling on such remittance under FERA-
Remittances qf the counts such as imports, profits, Head Office Expenses,
Service Charges to overseas branches-Allowed to the extent of 80% of total
export earnings--Such letters issued made basis of issuance of notice under
Section 147 of the Act--Held, such letters cannot constitute information for
D initiating re-assessment of proceedings.

Re-assessment-- Notice under Section 148 of Income Tax Act need not
specifY whether action is contemplated under clause (a) or (b) of Section-
147.

E Re-assessment proceedings-Jurisdiction of High Court-Exercise of-
Held, High Court not justified in leaving the matter with ITO to decide the
question of effect of the two letters iss(1ed by Central Government of India
placing ceiling on remittance under FERA.

Foreign Exchange Regulation Act, 1973-Jurisdiction of Income Tax
F Officer-Inherent lack of--Bar Imposed under FERA-ITO has no jurisdiction
to start re-assessment proceedings on the basis of bar imposed under FERA.

The appellant is a wholly owned subsidiary of Coca Cola company
having its main office at New York referred to as 'Home Office' with branch
G office at New Delhi. Its whole area of operation is divided into 4 Zones and
14 areas with regional offices and expenses incurred by them are termed as
service charges which are borne by branch offices. There are thus Home
office expenses and service charges which are to be distributed on pro-rata
basis on different branches on the basis of their exports and are met in US
DoUars. For the assessment years 1967-68, 1968-69 to 1973-74 Income-Tax
H Officer re-examined the claim and disallowed 5% of Head Office expenses
528
COCA-COLA EXPORT CORPN. v. l.T.O. 529
and 3% of service charges. Thereafter, on 05.01.1979, ITO issued notice A
under Section 148 for re-opening assessment based on two grounds. First
ground was that in regular assessment, notional loss on exchange resulted
from re-translation of outstanding dollar liability into Indian Rupees at the
end of the year at then prevailing rate of exchange has been wrongly allowed.
On this ground the appellants's claim on losses on exchange by re-translation B
which though disallowed by ITO was allowed by Income Tax Appellate Tribunal.
Further proceeding taken by Revenue by way of appeal and reference was
decided against the Revenue. The assessment, therefore, stood concluded on
same facts and law on the subject. It would not be reopened as no condition
existed requisite for reopening the concluded assessment.

The second ground was based on letters issued by the Government
c
laying down ceiling on allowance remittance facilities to the extent of 80%
of the total export earning which was governed under provisions of FERA.
Moreover, it is pertinent to mention that assessment was already completed
for those years for which notices were issued under Section 148 of the Act
on the basis of the said two letters. D
The High Court quashed the notices under Section 148 of the Act
against which the Revenue filed Special Leave Petition which was dismissed
by this Court.

However, the appellants approached the High Court to quash and pre- E
empt the enquiry being made by the ITO on the basis of the two letters. The
High Court while dismissing the writ petitions left it to the ITO to make
enquiry as to whether the deductions which had been allowed were in excess
of the limit fixed by the said two letters were legal or not.

In this appeal, it was contended that the High Court erred in leaving F
the decision to ITO and there was failure on the part of the High Court to
exercise its jurisdiction which it manifestly did possess.

Allowing this appeal, this Court
HELD : 1. The embargo so placed by the two letters issued by the G
Central Government on the ground of foreign remittance to be made abroad
by appellant has nothing to do with the amount of allowance under the
Income-Tax Act. If there is any contravention of these letters, it will be for
Reserve Bank or Central Government to take action or to grant permission
as provided under FERA. That, however, cannot be a ground for ITO to H
530 SUPREME COURT REPORTS (1998] 2 S.C.R.

A assume jurisdiction to start re-assessment proceeding under Section 147.
These letters are, therefore, wholly irrelevant and cannot be related as
information to ITO to initiate assessment proceedings. Thus, 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
B escaping assessment either under clause (a) or clause (b) of Section 147 of
the Act and hence all the notices under Section 148 of the Act are quashed.
[541-G-H; 542-A]
2. A Government decision of a later date originating from a different
department exercising powers under separate law could not be used to reopen
already completed assessments on the ground that it is "in consequence of
C information in Income-Tax Officer's possession." [539-C)

3.· The High Court erred in not exercising its jurisdiction, by leaving
the matter with Income Tax Officer. The High Court was to examine if the
Income-Tax Officer possessed jurisdiction to correctly invoke the provisions
D of Section 147 of the Act in that these two letters issued by Central
Government, provided material for him to initiate the re-assessment
proceedings and did these constitute information to give him a reason to
believe that income chargeable to tax had escaped assessment. [541-D)

4. The Notice ofre-assessment under Section 148 of the Income-Tax
E Act need not specify whether action is contemplated under Clause (a) or (b)
of Section 147 of Act. [542-C)

Kantamani Venkata Narayana and Sons v. First Additional Income-
Tax Officer, (1967) 63 ITR 638, relied on.

Calcutta Discount Co. Ltd v. ITO, Co. Distt.,-1 3 Calcutta & Anr.,
p (1961) 41 ITR 191, cited.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4074 of·
1985 Etc.

From the Judgment and Order dated 18.12.84 of the Delhi High Court
G inC.W.P.'No.1568of1982.

H.N. Salve, S. Ganesh and Mrs. A.K. Verma, for Mis. JBD & Co. for the
Appelll!nt.

T.L.V. Iyer, T.C. Sharma, Ms. Neelam Sharma and B.K. Prasad for the
H Respondents.
COCA-COLA EXPORT CORPN. v. l.T.O. [D.P. WADHWA, J.] 531
The Judgment of the Court was delivered by A
.""( D.P. WAD HWA, J. These appeals are from the judgment dated December
18, 1984 of Division Bench of the Delhi High Court dismissing 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 4074/85 pertains to assessment B
year 1969-70 and CAs 4075/85 and 4076/85 to assessment year 1967-68 and
~ 1968-69 respectively. Civil Appeal 1089/85 pertains to 3 assessment years -
1971-72, 1972-73 and 1973-74. For the assessment year 1970-71, there are two
appeals and these are CAs 1090/95 and 1091/85. While for each assessment
year there was separate writ petition in the High Court, for assessment year
1970-71, there were two. Reason for two writ petitions for the assessment year
c
1970-71 was that while the first writ petition challenged the notice under
Section 148 of the Act, 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.
D
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
E
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 1958. The Coca-cola Company, the holding
company, manufactures certain basic ingredients like '7X' for the manufacture
of Coca-cola concentrate and other beverage bases in its factories in U.S.A.
and in London. These basic ingredients are sold by the holding company F
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 the administrative convenience the whole area of operation of the
G
appelland 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 H
532 SUPREME COURT REPORTS (1998] 2 S.C.R.

A 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 report of the
auditor, are distributed pro-rata basis on different branches on the basis of
their exports and are met by the branches in US Dollars. The Indian branch
B primarily maintains accounts in respect of its liability for payment of pro-rated
Home Office expenses and service charges in US Dollars as the liability is to
be discharged in US 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 its are generally in rupees. It is stated that this
C 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 services charges for the
D 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 T""-

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
E going through the details furnished by the Indian branch, the Income Tax
Officer disallowed 5 per cent out of the pro-rated Home Office expenses and
3 per cent out of the pro-rated service charges in that year. Felt aggrieved by
the disallowance of the deductions so made, the appellant preferred an appeal
before the Appellate Assistant Commissioner. The appeal was, however,
dismissed. Similar was the position of disallowance of 5 per cent out of the
F pro-rated Home Office expenses and 3 per cent out of the pro-rated service
charge in the assessments 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 1970-7 I and he also disallowed 5
G per cent and 3 per cent 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, I 972-73 and 1973-74 under Section 147(a)
H of the Act. After recording discussions for reopening assessments the Income-
COCA-COLA EXPORT CORPN. v. I.T.O. [D.P. \V ADHWA. J.] 533

tax Officer said he had "reasons to believe that on account of the assessee's A
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 re-opening the assessments for these years while for the
assessment year 1972-73 only second of these two grounds was mentioned. B
The grounds were:
~
l. 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
c
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 the rate of exchange is to press the mercantile principle too D
··~ far and to 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 or remittance of foreign currency should E
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 F
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
G
(2) above was mentioned for re-opening the assessment being the
..i-- 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 re-assessment proceedings H

•
534 SUPREME COURT REPORTS [1998] 2 S.C.R.

A 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 recorrJed by the appellant on re-translation
of the outstanding dollar liability at the end of the relevant accounting year
B 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 I, 1969. As a
c 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 l 966-6 7 to 1969-70 was suffered due to actual purchase and remittance
of US Dollars in that year. There was no fluctuation in exchange rates through
out the year 1968 (previous year for the assessment year l 969- 70) no loss on
D exchange due to exchange ofre-translation of dollar liability at the end of year
had been claimed in that year.

On June 6, 1966 devaluation of rupee vis-a-vis US dollar took place.
Because of the adjustment earlier having been made in terms of the then
E 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 year of the 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 !aches as notice
F issued under Section I[ 48 of the Act was being challenged in the year 1979.
The High Court also noticed that the re-assessment had been made and the
appellant had already availed 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 years 1970-71
G and that he would not press the present appeals, i.e., Civil Appeal Nos. 1090/
85 and 1091/85, pertaining to assessment years 1970-71 and he would like to
withdraw the same leaving all the questions open for the Appellate Tribunal
to decide. We need not, therefore, go into the merit of the dispute in these
two appeals and, as prayed, would dismiss the same as withdrawn.

H The High Court quashed the notices under Section 148 of the Act for

•
COCA-COLA EXPORT CORPN. v. 1.T.O. [D.P. WADHWA, J.J 535
all the six years (assessment years 1967-68 to 1969-70 and 1971-72 to 1973- A
,-<: 74) so far as they were based on the first ground, viz., wrongly deduction of
foreign exchange loss. The High Court was of the view that the Income-tax •
Officer sought to re-open the assessment on this point which was already
concluded and held that condition precedent that re-assessments under
Section 147(a) of the Act were satisfied. The High Court noticed that on this B
first ground record would show that the Income-tax Officer in re-opening the
~
assessment was in fact really seeking to re-open the issue which was the
subject matter of assessment proceeding for the assessment year 1967-68,
which was decided against the Revenue right upto 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 c
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 the 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 D
~'I"
stood concluded on the same facts and law on the subject, would not be re-
opened as no condition existed requisite for re-opening 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 !Reome-
E
tax Officer was fully aware of the particular system of accounting being
followed by the appellant. It is not necessary to refer to 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 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 first F
ground was the only ground given by the Income-tax Officer for re-opening
tlie 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 Comt in the review petitions
filed by the appellant by force the appellant had filed the appeals in respect
G

,f-
of 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 : H
536 SUPREME COURT REPORTS [1998] 2 S.C.R.

A "New Delhi: 4.5.1973
Mis. Coca-cola Export Corporation,
14-A, Nizamuddin West,
New Delhi-13.
Gentlemen:
B
Please refer to your various letters addressed to Government and
to the applications made to the Reserve Bank of India for pennission '1-
to remit abroad profits, Head Office expenses etc, pending for the year
ended December, 1969 and onwards.

C 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:-
D
(a) Remittance facilities during the year 1969 to the end of March, 72,
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% of total export earnings brought
in by it during these years.
E
(b) From April 72 onwards, the remittance facilities on all counts as
stated in para (a) above will be allowed to the extent of 80% of the
exports consisting of company's own items of production.

(c) Imports as mentioned above of ingredients will include imports not
F only against Actual Users Licences but also import replenishments
and C.G. licences.

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

(e) If at the end of a calender 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.

H 3. As regards service charges, the amount payable to your overseas
COCA-COLA EXPORT CORPN. v. l.T.0. (D.P. WADHWA, J.] 537

Branches in relation to your exports of concentrates to their territories A
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.
B
• Yours faithfully,
~ Sd/- Raj K. Nigam
Director (Investment)"
"New Delhi, the 6th Nov., 1974
The Coca-cola Export Corporation, c
14, Nizamudding West,
New Delhi-110013.
Sub: Your remittances on account of profits, Head Office expenses,
service charges etc.
D
Gentlemen,
~T

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 E
that this matter has since been considered by 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 I. I. I 969, the remittance of service charges by the
Indian branch of the Coca-cola Export Corporation to the other F
overseas branches of the Corporation will I:ie subject to an independent
ceiling of 10% 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% of export
earnings applicable to the remittances of the Indian branch on all G
counts (as referred to in this Ministry's letter dated 4.5.1973) .
.... _,>- (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 H
_.'
538 SUPREME COURT REPORTS [1998] 2 S.C.R.

A Indian branch of the Coca-cola Export Corporation should furnish
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.
B
The remittance facility allowed to your company on all counts is
. to review from time to time.
su b~ect ~
.

Kindly acknowledge receipt of this letter.

c Yours faithfully,

Sd/- (D.N. Bhargava)

Under Secretary to the Govt. of India."
D
The second ground for reopening the assessments for the assessment
y' -
years 1971-72, 1972-73 and 1973-74 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
E 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 th1;1t 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 Income-tax Officer
F 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 that the continuance of remittance
facilities to the appellant would now be the subject to the conditions set out
in the para. In sub-para (d) of para 2 of this letter it is mentioned that
G remittance facilities would be calculated on cash basis and that for the
calculation ofremittances each year, the accounting of 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 concentrates to their territories
H shall be subject to an independent ceiling which would be communicated to
COCA-COLA EXPORT CORPN. v. l.T.O. [D.P. WADHWA, J.] 539
the appellant separately. By the letter dated November 6, 1974 papa 3 of the A
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 B
I2, 1973 and September, 8, 1973 while the notices under Section 148 of the
Act were issued on January 5, I979. It is difficult to appreciate how a
Government decision of a later date originating from a different department
exercising powers under separate law could not be used to reopen already
completed assessments on the ground that it is "in consequence of information c
in his (Income-tax Officer) possession".

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, 194 7 (since repealed and re-enacted as the Foreign
Exchange Regulation Act, I 973 with effect from January I, 1974). Section 9 D
oft he 1973 Act (Section 5 of I 947 Act) provides that save as may be provided
~'y
in and in accordance with any geperal or special exemption from the provisions
of this sub-section (i) 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 an embargo for making any payment to or for the credit of any
E
person residing outside India except as may be permitted by the Reserve
Bank. 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 in pursuance to its application made to the Reserve
Bank of India for permission to remit abroad profits. Head Office expenses etc. F
pending for \he year ended December, I 969 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 fo the appellant would be subject to the
conditions mentioned in that letter. The letter permitted remittances within
overall ceiling of 80 per cent of export earnings., This reason, therefore, has G
been stated for reopening the assessment on the ground that deduction had
/" been claimed on these two counts namely, Home Office expenses and service
charges, in excess of the ceiling limits a.1d the said excess had thus escaped
a:;sessment. 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 H
540 SUPREME COURT REPORTS [1998] 2 S.C.R.

A ground that they were in fact not spent or were not properly attributable to
Indian branch and said that aspect was no longer open for assessment. At
the same time the High Court held that it was certainly open to the Income- 'r,
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
B 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: "but then in that case the decision would not be on the
merits of allowance of the evpenses in general, but on totally different aspect
C and only on the sole ground of a legal bar having been placed in terms of
these two letters":. High Court sounded a caution in the matter and imposed
limitation saying that because 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 merits on other grounds. High Court did not want to ~ecord its
final decision about the failure to disclose fully and truly all material facts
D bearing on the assessments and consequent escapement of income from
assessment and tax. It said that a perfectly good alternative remedy was thus
available under the statute where all the questions raised by the appellant
could be examined in detail. High Court also said that the matter as to exact
scope and ambit of these two letters were awaiting decision at the appellate
E stage before the income-tax authorities and that in 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.
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 the two letters would be dismissed and it would be open to the
F Income-tax Officer to make enquiry whether the deductions 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
G Court has wrongly addressed itself to the issue involved in the writ petitions
on the question of interpreting 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
decisions of this Court as to when the Income-tax Officer can assume
H jurisdiction under Section 147 of the Act. We. however, think that it is not
COCA-COLA EXPORT CORPN. v. I.T.O. [D.P. WADHWA, J.] 541
necessary for us to refer to any of those decisions as law is well settled on A
the subject starting from Calcutta Discount Co. ltd v. Income-tax Officer,
Companies Distt-1. Calcutta, and anr., ( 1961) 41 ITR 191. 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 but 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 I 48 of the Act on that ground
B.
will be within the period of limitation. Again, we do not think 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 thereadbare after entertaining the writ petitions in exercise
of its jurisdiction under Article 226 of the Constitution and after granting full C
relief for the assessment years I 967-68 to I 969-70 and partly for the assessment
years I 97 I-72 to I 973-74 the High Court was not justified in staying its hands
and leaving the matter with the Income-tax Officer to decide the question of
effect of the two letters. The High Court was to examine if the Income-tax
Officer possessed jurisdiction to correctly invoke the provisions of Section
I 4 7 of the Act in that were these two letters provided material for him to D
initiate the re-assessment 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 Foreign Exchange Regulation Act and deal with
remittance of foreign exchange outside India. Any contravention of these E
letters would entail prosecution under Section 56 of I 973 Act and under
Section 23 of 1947 Act. Foreign Exchange Regulation Act contains stringent
provisions for conservation of the foreign exchange resources of the country
and the proper 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 F
exchange, etc. Reference in this connection be made to the Preamble of the
1973 Act or even to 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 per cent of export earnings applicable to the G
re-mittances of the India branch of the appellant on all counts. The assessments
for the years 1971-1972 to 1973-74 were already complete before the issuance
of this letter. If any remittance of foreign exchange having been made in
excess of prescribed limit from January I, 1969 that will be for the Reserve
Bank or the Central Government to take action or to grant permission as may H
542 SUPREME COURT REPORTS [1998] 2 S.C.R.

A 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 will so "in consequence to information" in his possession in
the shape of these two letters. Whatever amount be payable in respect of
B 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, remittance can only be permitted under the provisions of the Foreign
Exchange Regulation Act by the Reserve Bank of India. Both Acts-Income
Tax Act and Foreign Exchange Regulation Act -operate in different fields.

C We may also notice that when 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. Notice merely said
that "there was reasons to believe that the income of the assessce in respect
of which it was assessable/chargeable to tax for the assessment years in
question had escaped assessment" within the meaning of Section 14 7 of the
D Act. In view of the decision of this court in Kantamani Venkata Narayana
and Sons v. First Additional Income-Tax Officer, (1967) 63 !TR 638, it is
neither necessary nor imperative that a notice under Section 14 7 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
E could not be treated as an information to the Income-tax Officer to initiate re-
assessment proceeding. We are, therefore, of the opinion that there was
inherent lack of jurisdiction in the Income-ta)!: Office 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.
F All the notices under Section 148 of the Act are quashed.

!mpugncd judgment dated 18.th December, 1984 of the High Court of
Delhi is set aside and the appeals are allowed with costs.

N.J. Appeals allowed.