Case: Claggett Brachi Co.Ltd., London Vs. Commissioner Of Income-Tax, A.P

overhead expenses for the profits arising out of the Indian sales. On that basis, he determined that the adjusted profits would be 160 pounds (Rs. 2, 253), and that 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. Being of the opinion that income had escaped assessment for the two assessment years 1959-60 and 1960-61, he issued notices on January 18, 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 149(3) of the Act, no notice of reassessment could be served on the agent of a non-resident assessee after the expiry of two years from the end of the relevant assessment year. The Income-tax Officer upheld the objection and dropped the proceedings. 3. Thereupon the Income-tax Officer issued notice under section 148 for the two assessment years directly to the assessee to their London address on February 29, 1964. The assessee filed returns on August 19, 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 reassessments on the assessee for the two assessment yearsThe 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 reassessments proceeded on 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 reassessments made on the assessee. 4. 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 mere change of opinion on the part of the Income-tax Officer pursuant to which he made the reassessments, 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 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 reassessment proceedings could not be taken against the agents, from proceeding directly against the assessee and reassessing it for the two assessment years 5. 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 sections 147 and 148 of the Income-tax Act because the conditions prerequisite for making the reassessments were not satisfied. The reassessments were made with reference to clause (b) of section 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 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 clause (b) of section 147 of the Act, and that, therefore, the High Court is right in holding against the assesseeThe 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 nonresident assessee or to assess the agent of such non-resident 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, facts show that the reassessment proceedings commenced against the agent were found to be barred by time by reason of section 149(3) 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 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 proceedings 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. 6.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]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 clause (b) of section 147 of the Act, and that, therefore, the High Court is right in holding against the assesseeThe 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 nonresident assessee or to assess the agent of such non-resident 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, facts show that the reassessment proceedings commenced against the agent were found to be barred by time by reason of section 149(3) 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 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 proceedings 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