vil 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
KB 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 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 section 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 section 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 section 233 of the Indian Income tax Act 1922
For the year 1958 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 11108
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 L16760 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 Rs37680 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 Rs96482
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 Rs2253 and this would have to be substi tuted in place of the loss of Rs37680 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 section 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 section 1493 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 section 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 sections 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 section 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 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 section 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 section 1493 of the Act
The issue of notice under section 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
NPV Appeals dismissed


Summary:
One Darbar Harsurvala by virtue of a declaratory decree made in 1884 had the hereditary right of collecting grass firewood timber etc
from Gir Forest in the erstwhile state of Junagarh
This right devolved on his son Jiva Vala
The State by an agreement dated 10th August 1914 agreed to pay Rs3500 every year to Jiva Vala and on his demise to his heirs in lieu of the right to collect grass firewood etc
In January 1965 the revenue authorities issued a notice to the Respondents successors in interest of Harsurvala that the right to receive the aforesaid amount had come to an end on the coming into force of the Gujarat Surviving Alienations Abolition Act 1963 and asked them to refund the amount paid to them for the year 1963 64
The respondents filed a de claratory suit for a declaration that they continued to enjoy the right to receive Rs3500 hereditarily and for an injunction restraining the State from recovering the amount already paid to them
The Trial Court dismissed the suit
On appeal the District Judge allowed the appeal holding that the right to receive the amount annually had not come to end
The High Court confirmed the decree passed by the District Judge
The State came up in appeal by special leave against that judgment of the High Court
Allowing the ap peal this Court
HELD The Gujarat Surviving Alienations Abolition Act 1963 was passed with the object of abolishing certain alien ations which were not affected by the earlier enactments which had been enacted for the abolition of various kinds of alienations in the State of Gujarat
690G 688 The Act is included in the Ninth Schedule to the Consti tution as Item No 33
692F Sub clause d of clause 3 of section
2 of the Act having been specifically excluded the said clause does not receive the protection of Article 31 B of the Constitution of India
692G The 1963 Act should be construed as having the effect of bringing about the extinguishment of the right in an estate for the purpose of better management of the forest area keeping in view the interests of the people of the State in general and of the people living in or around the Gir Forest in particular
696C In order to treat a particular law as a part of an agrarian reform contemplated under article 31 A1 it is not necessary that on the land which is the subject matter of the said law actual cultivation should be carried on
695E In the instant case the right which the family of the respondents possessed was the right to collect grass fire wood and timber etc
from the Gir Forest and that right had already been surrendered under the agreement dated 10 8 1914 by the said family in lieu of the annual payment of Rs3500
The right which was being enjoyed by the predeces sor in interest of the respondents was a pasture
693C D The extinguishment of the right to receive a certain amount in lieu of the right to remove timber grass etc
from a forest area therefore formed part of the process of agrarian reform contemplated under article 31 A1 as there was clear nexus between the agreement to pay the amount and the rights arising out of the forest area
695H 696A The respondents are entitled to the payment of whatever compensation is payable under the Act notwithstanding the provisions of Article 14 and 19 and Articles 31 of the Constitution of India
696E F State of Kerala  Anr
vs The Gwalior Rayon Silk Manu facturing Wvg Co Ltd etc
  referred to