Claggett
Brachi Co.Ltd., London Vs. Commissioner of Income-Tax, A.P
[1989] INSC 140 (26
April 1989)
Pathak,
R.S. (Cj) 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--Reassessment--Whether could be initiated against assessee.
HEAD NOTE:
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 statutory 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 nonresident 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 High Court held that
reassessments were not made due to a mere change of opinion of the Income Tax
Officer, but pursuant to information received subsequent to the original
assessments from the records of the . subsequent assessment year that the
overhead expenses related to the entire business, 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-assessing 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 assessee, 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 proceedings 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 subsequent 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 circumstances, there is no doubt that the case fails within
the terms of cl. (b) of s. 147 of that Act and there was justification 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 proceedings
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. [736FG]
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 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 holding that the re-assessments being only
consequent on a change as to the method of computation of the profits the
initiation of proceedings 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 company 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 195960
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 computed 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
commission 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 overhead 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 substituted 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 assess735 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 rejected 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. Accordingly,
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 business,
including the business as commission agents, and not merely to the business of
the purchases and sales of tobacco. 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 Officer has no jurisdiction to take proceedings
under ss. 147 and 148 of the Income-tax Act because the conditions prerequisite
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 proceeded on the basis that in consequence of
information in his possession he had reason to believe that income chargeable
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 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 pertaining 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 assessee 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 assessee. However, the facts show
that the re-assessment proceedings 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 proceedings when he was made aware of that prohibition. The
assessment 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 question in favour of the Revenue.
In the
result the appeals fail and are dismissed with costs.
N.P.V.
Appeals dismissed.
Back