Full Judgment Text
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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
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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]
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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