Claggett Brachi Co. Ltd., London Vs. Commissioner of Income-tax, A.P.
EmailAppeal: Civil Appeal Nos. 208 and 209 (NT) of 1975
Petitioner: Claggett Brachi Co. Ltd., London
Respondent: Commissioner of Income-tax, A.P.
Apeal: Civil Appeal Nos. 208 and 209 (NT) of 1975
Judges: R.S. PATHAK, CJI. & RANGANATH MISRA, J.
Date of Judgment: Apr 26, 1989
Head Note:
INCOME-TAX ACT, 1961:
Sections 147, 148 and 149(3) – AYs 1959-60 and 1960-61 – Re- assessment – Conditions pre-requisite – While making subsequent assessments, the ITO realised that income escaped assessment for the two earlier assessment years – Held that the case fell under section 147(b).
INCOME-TAX ACT, 1961:
Sections 147, 148 and 149(3) – AYs 1959-60 and 1960-61 – Re- assessment – Notice served on the agent of the assessee found barred by reason of section 149(3) – Validity of the re- assessment proceedings initiated directly against the assessee upheld.
JUDGEMENT:
PATHAK, CJI.:
1. 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 1959-60 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?
2. 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 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 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 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 assessee for its business in India at 16,760, taking the total sales of tobacco at 534031 and the sales of Indian tobacco at 448590. The Income Tax Officer computed the loss at 5652, and one-half of this amount namely 2826 (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/-.
3. 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 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 160 (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 assessment years. The Income-Tax Officer upheld the objection and dropped the proceedings.
4. 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.
5. 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.
6. 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.
7. 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 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 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 cl.(b) of s.147 of the Act, and that, therefore, the High Court is right in holding against the assessee.
8. 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 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, 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 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.
9. In the result the appeals fail and are dismissed with costs.
1. 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 1959-60 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?
2. 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 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 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 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 assessee for its business in India at 16,760, taking the total sales of tobacco at 534031 and the sales of Indian tobacco at 448590. The Income Tax Officer computed the loss at 5652, and one-half of this amount namely 2826 (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/-.
3. 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 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 160 (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 assessment years. The Income-Tax Officer upheld the objection and dropped the proceedings.
4. 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.
5. 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.
6. 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.
7. 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 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 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 cl.(b) of s.147 of the Act, and that, therefore, the High Court is right in holding against the assessee.
8. 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 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, 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 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.
9. In the result the appeals fail and are dismissed with costs.
