Law: Income Tax Act, 1961

Section: 37,40,40(c),147,147(b)

Income-tax--Business-----expenditure--Company---Surtax---Liability incurred for payment of surtax---Not allowable---Indian Income Tax Act, 1961, S.37. (b) Income-tax--- ----Capital or revenue expenditure---Extra amount payable due to fluctuation in rate of exchange---Extra amount paid constituted capital expenditure--­Indian Income Tax Act, 1961, S.37. (c) Income-tax--- ----Reassessment---Information that income had escaped assessment--­Omission to consider application of S.40(c)---Audit` party pointing out omission---Note of audit party would constitute "information"---Reopening justified---Indian Income Tax Act, 1961, S.147(b). (d) Income-tax--- --Reassessment---Scope of reassessment---Original assessment reopened only as regards certain items of income---Matter attaining finality in. original assessment cannot be reagitated---Indian Income Tax Act, 1961, S.147. (e) Income-tax--- ----Business expenditure---Ceiling on expenditure---Managing Director's remuneration---Bonus payments of earlier years---Liability to pay arose only after Government approval---Approval by Central Government in November, 1973---Bonus payment to be taken into account in previous year ending on 31-3-1974 for purpose of ceiling of expenditure under S.40(c)--­Indian Income Tax Act, 1961, S.40(c). Held, (i) that the payment of surtax was not an allowable expenditure. Smith Kline & French (India) Ltd. v. CIT (1996) 219 ITR 581 (SC) fol. (ii) that the additional amount paid due to fluctuation in the exchange rate constituted capital expenditure. CIT v. Elgi Rubber Products Ltd. (1996) 219 ITR 109 (Mad.) fol. After the completion of the original assessment, the audit party pointed out that salary payment to the Managing Director was not limited as provided for under section 40(c) of the Income Tax Act, 1961. The assessment was reopened. The Tribunal upheld the reopening. On a reference: Held, that information of the audit party that the Income-tax Officer had omitted to consider the application of section 40(c) of the Act would constitute information enabling him to reopen the assessment under section 147(b) of the Income-tax Act. All the officers below including the Tribunal came to the…

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