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PETITIONER: CLAGGETT BRACHI CO.LTD., LONDON

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, A.P.

DATE OF JUDGMENT26/04/1989

BENCH: PATHAK, R.S. (CJ) BENCH: PATHAK, R.S. (CJ) MISRA RANGNATH

CITATION:  1989 AIR 1472            1989 SCR  (2) 731  1989 SCC  Supl.  (2) 182 JT 1989 (2)   273  1989 SCALE  (1)1133

ACT:     Indian Income Tax Act, 1922/Income Tax Act 1961: Section 23(3)/Section 147-149--Reassessment consequent on change  in method      of     computation      of      profits--Whether permissible--Original  assessment made on  agents--Reassess- ment--Whether could be initiated against assessee.

HEADNOTE:     The appellant-assessee, a non-resident sterling company, carrying on business of purchase and sale of tobacco, on its own  and  for  commission, effected  purchases  through  its Indian agents. The agents filed returns of income on  behalf of  the assessee for the assessment years 1959-60 and  1960- 61.  The Income-tax Officer completed the assessment to  tax under s. 23(3) of the Indian Income-tax Act, 1922.     However, in the course of assessment proceedings for the assessment year 1962-63, the Income-tax Officer noticed that there  was a mistake in computing the overhead  expenditure. Therefore, in the opinion that income had escaped assessment for the two assessment years he issued notices to the statu- tory  agents, under s. 148 of the Income-tax Act, 1961,  but dropped  the proceedings, upon the agents’ objection to  the issue  of the notice of reassessment on the agent of a  non- resident assessee after the expiry of two years from the end of the relevant assessment year.     Thereupon the Income Tax Officer issued notice  directly to  the  assessee. The assessee filed returns for  both  the years  under  protest. Rejecting the  assessee’s  contention that  it  could  not he served with the  notices  since  its agents  had already been proceeded against, the  Income  Tax Officer  made  reassessments  on the assessee  for  the  two assessment years.     The appeals filed by the assessee were dismissed by  the Appellate  Assistant  Commissioner. In  second  appeal,  the Income-Tax  Appellate Tribunal held that  the  reassessments were without jurisdiction, as they were proceeded on a  mere change  of  opinion of the Income Tax Officer and  that  the assessee could not he proceeded against directly as the 732 assessments were made originally on the agents.     On a reference made at the instance of the Revenue,  the

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High  Court held that reassessments were not made due  to  a mere change of opinion of the Income Tax Officer, but pursu- ant  to  information  received subsequent  to  the  original assessments from the records of the . subsequent  assessment year that the overhead expenses related to the entire  busi- ness,  including the business as commission agents, and  not merely to the business of purchase and sale of tobacco,  and that  there  was nothing to prevent the Income  Tax  Officer from proceeding directly against the assessee and re-assess- ing  it  for the two assessment years, when  he  found  that reassessment  proceedings  could not be  taken  against  the agents.     In the appeal before this Court, on behalf of the asses- see,  it  was contended that the Income Tax Officer  had  no jurisdiction  to take proceedings under ss. 147 and  148  of the income-tax Act because the conditions pre-requisite  for making the reassessments were not satisfied, and it was  not open  to the Income Tax Officer to take assessment  proceed- ings  against  the  assessee when he  had  taken  assessment proceedings against the Indian agent. Dismissing the. appeals,     HELD:  1.  The Income Tax Officer came to  realise  that income  had escaped assessment for the two assessment  years when he was in the process of making assessment for a subse- quent assessment year. While making that assessment, he came to  know  from the documents pertaining to  that  assessment that  the overhead expenses related to the entire  business, including  as  commission agents, and not  confined  to  the business  of purchase and sale. The attention of the  Income Tax  Officer was not directed by anything before him at  the time  of original assessment to the fact that  the  overhead expenses  related  to the entire business.  In  the  circum- stances,  there is no doubt that the case fails  within  the terms of cl. (b) of s. 147 of that Act and there was  justi- fication for initiating the proceedings for reassessment for the two assessment years in question. [736A-D]     2. It is open to an Income Tax Officer to assess  either a  non-resident assessee or the agent of  such  non-resident assessee.  But if an assessment is made on one there can  be no assessment on the other. [736E] 733     Therefore,  in the instant case, if the  assessment  had been made on the Indian agent, the assessment could not have been  made on the assessee. However, the  reassessment  pro- ceedings  commenced  on  the agent were barred  by  time  by reason of s. 149(3) of the Act. The issue of notice under s. 148  of the Act to the agent after the expiry of  two  years from  the end of the relevant assessment year is  prohibited by  the statute. Hence, the assessment  proceedings  against the agent have to be ignored, and cannot operate as a bar to assessment proceeding directly against the assessee.  [736F- G]

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 208  and 209 (NT) of 1975.     From  the Judgment and Order dated 4th August,  1971  of the  Andhra Pradesh High Court in Reference Case No.  12  of 1968.            K.B. Rohtagi for the Appellant.           V.  Gauri  Shankar and Ms. A. Subhashini  for  the Respondent.           The Judgment of the Court was delivered by

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   PATHAK, CJ. These appeals by special leave are  directed against  the  judgment of the High Court of  Andhra  Pradesh answering  the following two questions of law in  favour  of the Revenue and against the assessee:                  1. Whether the Tribunal was right in  hold-               ing that the re-assessments being only  conse-               quent on a change as to the method of computa-               tion of the profits the initiation of proceed-               ings  under s. 148 for each of the  assessment               years 1959-1960 and 1960-61 was justified?                  2. Whether the Tribunal was right in law in               holding that the original assessment for  each               of  the years having been made on the  agents,               the  re-assessment  proceedings could  not  be               initiated against the assessee direct?     The appellant assessee is a non-resident sterling compa- ny  whose business consists in the purchase of tobacco  from India and its sale outside. The tobacco is sold directly  on the  assessee’s own account and for commission on behalf  of others. The purchases of tobacco were 734 effected through the British India Corporation Ltd., Guntur, who were appointed agents of the assessee under s. 43 of the Indian Income-tax Act, 1922. For the assessment years  1959- 60 and 1960-61, the agents filed returns of income on behalf of  the  assessee.  The Income-tax  Officer,  Guntur,  after examining  the balance-sheet and profit and loss account  of the  assessee for the relevant previous years, the  calendar years  1958  and 1959, completed the  assessments  under  s. 23(3) of the Indian Income-tax Act, 1922. For the year 1.958 the  gross profit on the sale of Indian  tobacco,  including commission,  was shown in the balance-sheet and  profit  and loss  account  of the assessee at 11,108.  As  the  assessee carried  on business not only in India but in other  places, the Income Tax Officer worked out the proportionate overhead expenses of the assesse for its business in India at L16,760                                                 - taking  the total sales of tobacco at L534031 and the  sales                                  - of Indian tobacco at L448590. The Income Tax Officer comput-                 - ed  the  loss at L5652, and one-half of this  amount  namely             - L2826  (Rs.37680) was taken as the adjusted loss, being  the    - percentage  attributable  to  the  purchasing  operation  in India.  On the same basis for the assessment  year  1960-61, after setting off the income against the previous loss,  the total loss was found to be Rs.96,482.     Subsequently,  in the course of  assessment  proceedings for  the  assessment year 1962-63, the  Income  Tax  Officer appears to have noticed that a mistake had been committed in the  computation  of the over-head expenditure.  The  return filed on behalf of the assessee for that year had  disclosed that the over-head expenses were attributable to the  entire business of the assessee, including the business as  commis- sion agents, and not merely for the business of purchase and sale  of  tobacco. The Income Tax Officer believed  that  he ought  to  have first computed  the  proportionate  overhead expenses  in  relation to the total profits  by  taking  the proportion  which the profits bore to the total  of  profits and commission, and then worked out the proportionate  over- head  expenses  for the profits arising out  of  the  Indian sales. On that basis he determined that the adjusted profits would  be L160 (Rs.2253), and this would have to be  substi-

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    - tuted  in  place  of the loss of Rs.37,680  arrived  in  the original  assessment,  Similarly  for  the  assessment  year 1960-61  the Income Tax Officer realised that  the  original assessment  would  have  to be varied  accordingly.  In  the opinion  that  income  had escaped assessment  for  the  two assessment  years 1959-60 and 1960-61, he issued notices  on 18 January, 1964 under s. 148 of the Income Tax Act, 1961 to the  statutory agents. The agents contested the validity  of the  notices and contended that in view of s. 149(3) of  the Act no notice of re-assessment could be served on the  agent of  a  non-resident assessee after the expiry of  two  years from the end of the relevant assess- 735 ment  year. The Income-Tax Officer upheld the objection  and dropped the proceedings.     Thereupon the Income Tax Officer issued notice under  s. 148 for the two assessment years directly to the assessee to their  London  address on 29 February,  1964.  The  assessee filed  returns on 19 August, 1964 for both the  years  under protest,  contending that it could not be served with  those notices  inasmuch  as the Income Tax  Officer  had  already, proceeded against its agents. The Income Tax Officer reject- ed  the objections and made re-assessments on  the  assessee for the two assessment years.     The  appeals filed by the assessee before the  Appellate Assistant Commissioner were dismissed, but in second  appeal the  Income-Tax  Appellate Tribunal took the view  that  the re-assessments proceeded on a mere change of opinion on  the part of the Income Tax Officer and, therefore, were  without jurisdiction,  and further as the assessments had been  made originally  on the agents it was not open to the Income  Tax Officer to proceed directly against the assessee. According- ly, the Appellate Tribunal allowed the appeals and set aside the re-assessments made on the assessee.     At  the instance of the Revenue, the Appellate  Tribunal referred  the two questions of law set forth earlier to  the High  Court of Andhra Pradesh for its opinion. On the  first question  the High Court held that it was not a mere  change of opinion on the part of the Income Tax Officer pursuant to which  he made the re-assessments, but that the  Income  Tax Officer had received information subsequent to the  original assessments  from the records of the  subsequent  assessment year that the overhead expenses related to the entire  busi- ness,  including the business as commission agents, and  not merely to the business of the purchases and sales of  tobac- co.  On the second question the High Court held  that  there was nothing to prevent the Income-tax Officer, when he found that  re-assessment proceedings could not be  taken  against the  agents, from proceeding directly against  the  assessee and re-assessing it for the two assessment years.     Two points have been urged before us by learned  counsel for the assessee. It is contended that the Income Tax  Offi- cer  has no jurisdiction to take proceedings under  ss.  147 and  148 of the Income-tax Act because the  conditions  pre- requisite  for making the reassessments were not  satisfied. The re-assessments were made with reference to cl. (b) of s. 147  of the Act, and apparently the Income Tax Officer  pro- ceeded  on the basis that in consequence of  information  in his possession he had reason to believe that income  charge- able to tax had 736 escaped  assessment for the two assessments years. From  the material  before us it appears that the Income  Tax  Officer came  to realise that income had escaped assessment for  the

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two  assessment years when he was in the process  of  making assessment  for a subsequent assessment year.  While  making that assessment he came to know from the documents  pertain- ing to that assessment that the overhead expenses related to the  entire  business including the business  as  commission agents and were not confined to the business of purchase and sale. It is true, as the High Court has observed, that  this information  could  have  been acquired by  the  Income  Tax Officer if he had exercised due diligence at the time of the original assessment itself. It does not appear however, that the  attention  of the Income Tax Officer  was  directed  by anything  before him to the fact that the overhead  expenses related  to the entire business. The information derived  by the  Income Tax Officer evidently came into  his  possession when taking assessment proceedings for the subsequent  year. In  the  circumstances, it cannot be doubted that  the  case falls within the terms of cl. (b) of s. 147 of the Act,  and that, therefore, the High Court is right in holding  against the assessee.     The second point urged before us is that when the Income tax Officer had taken the assessment proceedings against the Indian agent of the assessee it was not open to him to  take assessment  proceedings against the assessee. It is open  to an Income Tax Officer to assess either a non-resident asses- see or to assess the agent of such nonresident assessee.  It cannot  be disputed also that if an. assessment is  made  on one there can be no assessment on the other, and  therefore, in  this case if the assessment had been made on the  Indian agent the assessment could not have been made on the  asses- see. However, the facts show that the re-assessment proceed- ings commenced on the agent were found to be barred by  time by reason of s. 149(3) of the Act. The issue of notice under s. 148 of the Act to the agent after the expiry of two years from  the end of the relevant assessment year is  prohibited by the statute. The Income Tax Officer dropped the  proceed- ings when he was made aware of that prohibition. The assess- ment  proceedings taken by him against the agent have to  be ignored and cannot operate as a bar to assessment proceeding directly  against the assessee. On this point also the  High Court has taken the correct view when it answered the  ques- tion in favour of the Revenue. In the result the appeals fail and are dismissed with costs. N.P.V.                    Appeals dismissed. 737