Law:

Section:

Section 147 of the Income-tax Act, 1961 - Income escaping assessment - Position prior to 1-4-1993 - Assessment year 1959-60 - Whether loan by managing agent to managed company and interest paid thereon, did not require sanction of company by special resolution or approval of Central Government - Held, yes - In original assessment of assessee i.e., (managed) company, interest paid on loan obtained from managing agent was allowed as permissible deduction - Thereafter, company passed special, resolution authorising payment of interest on such loan - Whether in view of aforesaid legal position, there was no failure to disclose all material facts necessary for assessment, and therefore, Income-tax Officer was not justified in reopening assessment - Held, yes FACTS The assessee-company was managed by the managing agent, who had advanced loan to the assessee company. In the original assessment, the interest paid on that loan to the managing agent, was allowed as permissible deduction. The assessee-company thereafter convened an extraordinary general meeting of its shareholders and a special resolution was passed authorising the payment of interest and steps were also taken to obtain the approval of the Central Government, for such payment. The Income-tax Officer initiated proceedings under section 147, for the relevant assessment year, against the assessee on the ground that its income had escaped assessment and that fact was known to him by reason of the information that the company had passed a special resolution authorising payment of interest. In spite of the opposition of the assessee, the Income-tax Officer completed the assessment by adding back the amount of interest paid by the assessee-company to its managing agents. The AAC, set aside the assessment order on the ground that the reopening of the assessment was not justified under section 147, as there was no failure to disclose all material facts necessary for the assessment, resulting in income escaping assessment. The order of the AAC was affirmed the Tribunal. On reference : HELD Neither sanction of the company by a special resolution nor approval of the Central Government was necessary for granting of a…

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