Judgment Case ID: 6045

Judgment:
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. 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 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 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 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 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 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 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 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.

Summary:
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 section 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 section 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 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 sections 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 section 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 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. 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]