Pathak, C. J. - (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:
(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 overhead 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 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 year. The Income-tax Officer upheld the objection and dropped the proceedings.;