1971 (8) TMI 87 - HC - Income Tax

High Court upholds validity of reassessment proceedings under Income-tax Act, 1961, finding new information justifies reassessment.

Commissioner Of Income-Tax, AP Versus Claggett Brachi And Co. Limited

Commissioner Of Income-Tax, AP Versus Claggett Brachi And Co. Limited - [1975] 100 ITR 46 Issues Involved:1. Validity of reassessment proceedings under Section 148 of the Income-tax Act, 1961.2. Legality of initiating reassessment proceedings directly against the principal when the original assessment was made on the agent.Issue-Wise Detailed Analysis:Issue 1: Validity of Reassessment Proceedings under Section 148The Tribunal questioned whether the reassessment proceedings initiated under Section 148 were justified, given that the reassessment was based on a change in the method of computing profits. According to Section 147(b) of the Income-tax Act, 1961, two conditions must be satisfied for reassessment:(a) The Income-tax Officer must have information in his possession.(b) In consequence of that information, he must have reason to believe that income chargeable to tax had escaped assessment.The Tribunal believed that the reassessment was merely a change of opinion by the Income-tax Officer. However, the High Court disagreed, stating that the reassessment was based on new information derived from the assessee's returns for the year 1962-63. This information revealed that the overhead expenses were attributable to the entire business, including commission activities, and not just the purchase and sale of tobacco. This constituted 'information' under Section 147(b), justifying the reassessment.The High Court referred to several precedents to support its decision, including:- Maharaj Kumar Kamal Singh v. Commissioner of Income-tax: Information can include facts and law.- Commissioner of Income-tax v. A. Raman & Co.: Information can come from external sources and need not be new if it was not previously considered.- R. B. Bansilal Abirchand Firm v. Commissioner of Income-tax: Information from external sources like Tribunal decisions can justify reassessment.- Assistant Controller of Estate Duty v. Mir Osman Ali Khan Bahadur: Information includes knowledge derived from external sources.- V. S. L. Narasimha Rao v. Assistant Controller of Estate Duty: Information can come from subsequent records.- Salem Provident Fund Society v. Commissioner of Income-tax: Mistakes apparent on the face of the record can constitute information.Applying these principles, the High Court concluded that the conditions for invoking Section 147(b) were met, and the reassessment proceedings were justified.Issue 2: Legality of Initiating Reassessment Proceedings Directly Against the PrincipalThe second issue was whether reassessment proceedings could be initiated directly against the principal when the original assessment was made on the statutory agent.Under Sections 160 and 161 of the Income-tax Act, the statutory agent of a non-resident is treated as a representative assessee and is liable to assessment in his own name. Section 149(3) limits the issuance of reassessment notices to agents of non-residents to within two years from the end of the relevant assessment year. In this case, since the two-year period had elapsed, the Income-tax Officer issued notices directly to the principal.The High Court found no legal basis for the argument that reassessment proceedings could not be initiated against the principal if the original assessment was made on the agent. Sections 160(2) and 166 allow for direct assessment of the principal, even if the original assessment was on the agent. The High Court also noted that reassessment constitutes a fresh assessment, giving the department the option to proceed against either the agent or the principal.The High Court dismissed the assessee's reliance on Commissioner of Income-tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory and Commissioner of Income-tax v. Kanpur Coal Syndicate, as these cases dealt with different contexts and did not apply to the present facts.In conclusion, the High Court held that reassessment proceedings could be initiated directly against the principal, even if the original assessment was made on the agent, and answered both questions in favor of the department. The parties were ordered to bear their own costs of the reference.