Agent in relation to a Non Resident [Section 163]

Section 163 lays down as to who can be regarded as an agent of the non-resident and under what circumstances he can be so treated as an agent of the non-resident. This Section empowers the ITO to treat any person in India as an agent and hence a representative assessee (special cases) in relation to a non-resident for the purposes of the Act, provided he is one who belongs to any one of the categories enumerated in section 163(1)(a), (b), (c) and (d). A person who, whether a resident or non-resident, has acquired by means of transfer, a capital asset in India from the non-resident, is also an agent for the purposes of the Act. These persons virtually are not agents appointed by the non-resident. But they are appointed as such by the ITO.

Section 163(2) refers to an opportunity of hearing to be given to a person before he can be treated as agent of the non-resident. It is mandatory that before a person is declared an agent within the meaning of section 163, he must be given an opportunity of being heard by the ITO as to his liability to be treated as such. That is expressly so enacted in subsection (2) of section 163.

Text of section 163

163. Who may be regarded as agent

(1) For the purposes of this Act, “agent”, in relation to a non-resident, includes any person in India—

(a) who is employed by or on behalf of the non-resident; or

(b) who has any business connection with the non-resident; or

(c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or

(d) who is the trustee of the non-resident,

and includes also any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India :

PROVIDED that a broker in India who, in respect of any transactions, does not deal directly with or on behalf of a non-resident principal but deals with or through a non-resident broker shall not be deemed to be an agent under this section in respect of such transactions, if the following conditions are fulfilled, namely:—

(i) the transactions are carried on in the ordinary course of business through the first-mentioned broker; and

(ii) the non-resident broker is carrying on such transactions in the ordinary course of his business and not as a principal.

^[1][Explanation : For the purposes of this sub-section, the expression ‚business connection‛ shall have the meaning assigned to it in Explanation 2 to clause (i) of sub-section (1) of section 9 of this Act.]

(2) No person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the ^[2][Assessing Officer] as to his liability to be treated as such”.

KEY NOTE

1.   Inserted by the Finance Act, 2003, with effect from 01.04.2004.

2.   Substituted for “Income-tax Officer” by the Direct Tax Laws (Amendment) Act,1987, with effect from 01.04.1988.

Who may be regarded as agent

An ‘agent’ is a person who agrees and is authorized to act on behalf of another. This another person is known as ‘Principal’ who authorizes and empowers the agent as his representative to carry out his legal acts. When the agent and the principal mutually agree, an ‘agency relationship’ starts between them. This relationship empowers the agent to carry out business transactions on behalf of the principal. Infect while dealing with the third parties, the agent steps into the shoes of his principal and all his legal acts are binding on the principal. An agent can be an individual, a company or any association of individuals. The document which empowers the agent is known as ‘Power of Attorney’, which is executed by the principal in favour of the agent. When the power of attorney relates to a particular transaction and for a specific purpose, it is known as ‘Specific Power of Attorney’. Whereas, when power of attorney relates to transactions in general, it is known as ‘General Power of Attorney’. The power of attorney may or may not be registered.

Section 163 does not define an agent but only provides as to who would be included in the term of the agent in relation to a non-resident. Therefore, to find out the definition of the term ‘agent’, the provisions of the Indian Contract Act, 1872, have to be looked. Section 182 of the Indian Contract Act defines the agent as a person employed to do any act for another or to represent another in dealing with third person. For the appointment of an agent, it is not necessary that there must be a written authority.

The group of sections 160 to 163, contains a complete machinery for assessment and recovery of tax from a person who is an "agent" within the meaning of section 163.

A harmonious reading of sections 160 to 163 would show that :

(i)      In order to become liable as a representative assessee, a person must be situated such as to fall within the definition of a representative assessee;

(ii)     The income must be such as is taxable under section 9;

(iii)    The income must be such in respect of which such a person can be treated as a representative assessee;

(iv)    The representative assessee has a statutory right to withhold sums towards a potential tax liability;

(v)     Since the liability of a representative assessee is limited to the profit of representative assessee, there can be multiple representative assessees in respect of a single non-resident entity - each being taxed on the profits or gain relatable to such representative assessee.

An agent enjoys all the powers of the principal and binds the principal for all his legal acts

An agent enjoys all the powers of the principal and binds the principal for all his legal acts. He can sue the third parties in the name of the principal and has a right to get reimbursement for the expenses incurred by him related to the business. But at the same time, an agent should act as per the powers vested in him and should act in the best interests of his principal. He should maintain proper accounts of all transactions and submit them to the principal.

Conditions for treating Agent in Relation to a Non Resident

The terms of section 163 show that there are two such conditions. They are,

(a)              firstly, that the non-resident must be a non-resident in the accounting year, and,

(b)             secondly, that there must exist in the accounting year a relation between the non-resident and the proposed agent of any one of the several types enumerated in that section. Either the proposed agent

(i)               must be employed by or on behalf of the non-resident; or

(ii)             he must have a business connection with the non-resident; or

(iii)           the non-resident must be in receipt of some income whether directly or indirectly from or through the proposed agent, or the proposed agent must be a trustee of the non-resident.

Assessment of non-residents through Agents [Section 163]

Section 163 of the Act provides that any person in India can be treated as representative assessee of a non-resident if such person is employed, or has a business connection or has made payments to non-resident or is the trustee of the non-resident. Under section 161, assessment or reassessment proceedings can be initiated against such representative assessee for the income of the non-resident. A non-resident may be assessed to tax in India either directly or through agents. Persons in India who may be treated as  ‘agent’ of a non-resident are:—

(i)   Employee or trustee of the non-resident;

(ii)  Any person who has any business connection with the non-resident;

(iii) Any person from or through whom the non-resident is in receipt of any income;

(iv) Any person who has acquired a capital asset in India from the non-resident.

A broker in India who has independent dealings with a non-resident broker acting on behalf of a non-resident principal is, however, not treated as an ‘agent’ of the non-resident, if the transactions between the two brokers are carried on in the ordinary course of their business.

Before any person is treated as an ‘agent’ of non-resident he is given an opportunity of being heard and any representation from him in the matter is considered.

If a person is assessed as an agent, he may retain out of any money payable by him to the person residing outside India on whose behalf he is liable to pay tax (the principal), a sum equal to his estimated liability. In case of any disagreement between the principal and the agent regarding the amount to be retained, the agent may secure from the Assessing Officer a certificate stating the amount to be retained pending final settlement of the liability, and the certificate obtained will be his warrant for retaining that amount.

A person from whom non-resident receives any income, directly or indirectly is an Agent [Section 163(1)(b)]

Under section 163(1)(b), a person with whom the non-resident has any business connection is deemed to be an agent of the non-resident. The definition is inclusive. It also includes a person from whom the non-resident receives any income directly or indirectly.

Section 163(1)(c) requires only that the non-resident should receive income directly or indirectly from or through any person in India

The expression ‘directly or indirectly’ does occur in many provisions of the Act. Sometimes a circuitous way may be designed to escape from the charging provisions of the act and normally in fiscal matters unless the statute empowers the authorities to look into the substance of the matter the form of the transaction alone may be decisive, and income may escape assessment. So power is sometimes given to find out the substance as well, and the expression ‘indirectly’ connotes that. When a power is given to find out whether anybody is benefited indirectly it is open to the authorities or the court to look at the real nature of the transaction and determine the tax liability.

No doubt, the assessment in respect of the income coming under section 9 is made on the assessee. But it is only a ‘representative assessee’ within the meaning of sections 160 to 163. It is open to the department to assess the non-resident itself in respect of this income. When the department has any doubt as to the person who is or will be deemed to be in receipt of the income, protective or alternative assessments are permitted. This is a well-established method of assessment in the income-tax law.

Representative Assessee under Section 163(2) and Natural Justice

As per the provisions of section 160, the agent of the non-resident is regarded as a representative assessee. Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income, but any such assessment shall be deemed to be made upon him in his representative capacity only, and the tax shall be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him.

Before any person is treated as an ‘agent’ of non-resident he is given an opportunity of being heard and any representation from him in the matter is considered [Section 163(2)]

As ordained by section 163(2), no person can be treated as the statutory agent of the non-resident, unless he had an opportunity of being heard given by the Assessing Officer as to his liability for being treated as such. Until and unless such an agent is afforded a reasonable opportunity of hearing, he cannot be fastened with any liability whatsoever.

Foreign agents of Indian exporters

A foreign agent of an Indian exports operates in his own country and no part of his income arises in India. His commission is usually remitted directly to him and is, therefore, not received by him or on his behalf in India. Such an agent is not liable to income-tax in India on the commission.

Notification No. SO 1904(E) [No. 37/2016 (F. No. 370142/12/2016-TPL], Dated 27.05.2016

Subject : Section 163 of the Finance Act, 2016 - Equalisation Levy - Notified date on which Chapter viii of said act shall come into force

In exercise of the powers conferred by sub-section (2) of section 163 of the Finance Act, 2016 (28 of 2016), the Central Government hereby appoints the 1st day of June, 2016 as the date on which Chapter VIII of the said Act shall come into force.

Finance Act, 2003 - Circular No. 7/2003, Dated 05.09.2003

7. Definition of the term ‘business connection’

7.1 Under the existing provisions contained in sub-section (1) of section 9, all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situated in India, is deemed to accrue or arise in India. The term 'business connection' has also been referred to in section163 in relation to an agent. This term has, however, not been defined in the Income-tax Act.

7.2 In order to remove doubts regarding the expression 'business connection', and to align the provisions of the Act with those of the DTAAs, the Finance Act, 2003 has inserted two new Explanations to clause (i) of the said sub-section, clarifying that the expression 'business connection' will include a person acting on behalf of the non-resident, who :—

(i)    has and habitually or regularly exercises in India an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or

(ii)   has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or

(iii)  habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident.

7.3 The “business connection”, however, will not include cases where the business activity is carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business.

7.4 It has been further clarified that where a broker, general commission agent or any other agent works mainly or wholly on behalf of the non-resident or on behalf of such non-resident and other non-residents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non-resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status.

7.5 It has been further explained that where a business is carried on in India through a person referred to in clauses (a), (b) and (c) of Explanation 2, only so much of income as is attributable to the operations carried out in India, shall be deemed to accrue or arise in India.

7.6 These amendments will take effect from 1st April, 2004, and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years.

Quashes Moin Qureshi’s assessment as representative of French Architect Jean Louis Deniot

Delhi ITAT rules in Assesse's favour, sets aside additions of over Rs.3 Cr. in the hands of Assessee made in the capacity of a representative of Mr. Jean Louis Deniot and his associated entities viz., Cabinet Jean Louis Deniot and Design-39 Inc.; During the search proceedings conducted on AMQ Group, it was found that Mr. Jean Louis Deniot, a French architect and designer, and his associate entities had provided services for designing/decorating a farmhouse of the Assessee-Individual; Revenue held that Mr. Jean Louis Deniot had business connection in India and had received income directly/indirectly from the Assessee, which was not offered to tax and held Assessee to be representative Assessee under Section 163 considering the various conversations between Assessee and Mr. Jean Louis Deniot through emails which were seized during the search and accordingly held income of earned by Mr. Jean Louis Deniot and his two entities to be taxable in the hands of the Assessee under Section 163 by framing assessments under Section 153C; ITAT observes that CIT(A) upheld the validity of the assessment proceedings under Section 153C and also upheld the additions on merit; Notes that as per Section 153C, one of the important jurisdictional requirement is that the seized document on the basis of which jurisdiction is being assumed must belong to the person other than the searched person i.e. the non-resident being assessed to tax in the hands of a representative assessee, accepts Assessee’s contention that the seized document did not belong to Mr. Jean Louis Deniot thus, jurisdiction requirement under Section 153C was not met; Observes that the documents seized alleged to be belonging to person other than the searched person (Mr. Jean Louis Deniot and his entities in this case) were: (i) Hard disk and its contents (ii) Printouts of emails retrieved from the hard disc where name of Jean Louis Deniot/ entities is mentioned and also payments to these individuals/entities is mentioned and (iii) Invoices sent by Jean Louis Deniot/ associate entities; Observes that: (i) the hard disk was recorded in the panchnama of a AMQ Group company and thus, could not be held to be belonging to Mr. Jean Louis Deniot in absence of any office/premises in India, (ii) the exchange of mail may be between Mr. Jean Louis Deniot and employees of AMQ, “but the mails found in inbox or outbox of the AMQ group employees would belong to the respective employee(s) and not the nonresident.” and (iii) invoice raised by Mr. Jean Louis Deniot on Assessee and his wife would be the property of the Assessee and not Mr. Jean Louis Deniot; Relies on jurisdictional High Court ruling in Pepsico India Holdings v. ACIT (2015) 370 ITR 295 : (2014) 270 CTR 467 : 50 Taxmann.com 299 (Del.) and holds, “none of the seized material mentioned in the satisfaction note belongs to the nonresident individual/entity and hence the jurisdictional requirement for assumption of jurisdiction under section 153C is not met. Thus, the order passed under section 153C…has to be quashed.” Even on merits, ITAT observes that CIT(A) categorically held that Mr. Jean Louis Deniot is a non-resident individual in India and resident of France which attracts Article 15 of India-France DTAA (Independent Personal Services); States that as per Article 15, income accruing to resident of France is not liable to tax in India who has not stayed in India for a period of more than 180 days, remarks that “if the said non-resident had stayed in India for 183 days or more during the relevant assessment year, automatically his status would not remain that of a non-resident….section 163 would no longer remain applicable.”; ITAT relies on jurisdictional High Court ruling in Comverse Networks System India (P) Ltd. v. CIT (2014) 369 ITR 40 : 271 CTR 36: 226 Taxman 108 : 48 Taxmann.com 1 (Del.) where it was held that a person who is not a non-resident for relevant Assessment year cannot be taxed through a representative assessee by invoking Section 163 and directs the Revenue to delete the addition so made in the hands of the Assessee as Representative Assessee under Section 163. [In favour of assessee] (Related Assessment years : 2009-10 to 2011-12 & 2014-15) – [Moin Akhtar Qureshi, Representative Assessee of Jean Louis Deniot v. ACIT(C) [TS-328-ITAT-2022(DEL)] – Date of Judgement : 27.04.2022 (ITAT Delhi)]

No opportunity of being heard was provided to agents who were holding power of attorney on behalf of assessee, there being non-compliance with provisions of section 163(2), assessment order was not valid

The assessee, a non-resident Indian, sold his immovable property for certain sum. Since said property was sold by two agents on behalf of the assessee, the Assessing Officer made protective addition in hands of such agents.

Held that nothing had been brought on record to prove that any opportunity of being heard was provided to agents who were holding power of attorney on behalf of the assessee. This was a clear non-compliance with section 163(2). Further, the Assessing Officer had made protective addition in the hands of both the agents and no substantive addition had been made. For a protective addition to stand for, there has to be a substantive addition. Therefore, the order passed under section 144/147 was not valid and needed to be quashed. [In favour of assessee] (Related Assessment year : 2007-08) – [Mohammad Rajiv Hakeem v. ITO (2017) 88 taxmann.com 813 : 58 ITR(T) 79 (ITAT Lucknow)]

Assessee voluntarily filed original return and revised return on behalf of non-resident company as its agent/representative-assessee, provision of section 149(3) was not applicable

The assessee company was a representative of a non-resident company ‘F’. It filed return as representative assessee. Said return was revised on 28.11.2006 claiming entire income as exempt in view of article 7 of DTAA between India and U.K. Subsequently, the Assessing Officer issued notice under section 148 on 31.03.2010 and completed the reassessment. The assessee contended that the reassessment on it as an agent under section 163 was beyond time-limit prescribed under section 149(3).

Held that since the assessee-agent filed original return and revised return on behalf of non-resident company, it waived off privilege of being heard. Further time-limit provided under section 149(3) would not apply and thus the reassessment was valid. [In favour of revenue] (Related Assessment year : 2005-06) – [ADIT (International Taxation), Dehradun v. Oil & Natural Gas Corporation Ltd. (2016) 68 taxmann.com 422 : (2015) 39 ITR(T) 11 (ITAT Delhi)]

Assessment on ‘agent valid despite subsequent order against non-resident; Parallel proceedings not ‘simultaneous’

Mumbai ITAT reverses CIT(A) order, upholds assessment on national carrier Air India (‘assessee’) under section 163 in capacity of an agent;  Assessee was assessed in representative capacity with respect to compensation payment of US $22.4 million made to non-resident Carbijet Inc. upon termination of aircraft wet lease; ITAT reproduces vital para from Supreme Court ruling in Claggett Brachi  wherein the apex court  held that  When he (i.e Assessing Officer ) taxes the income in the hands of the assessee directly, he loses his right to tax the same income in the hands of the agent, and vice versa when he taxes the same income in the hands of both of them, the assessment which is done at a later point of time ceases to be valid in the eyes of law.”;  ITAT interprets the Supreme Court ruling to mean that there cannot be any 'inherent preference' on whom to first proceed against & that when the Assessing Officer taxes the same income in the hands of both agent & non-resident, the assessment done later is invalid; Tribunal notes that in present case, date of assessment on Air India (March 27, 2003) in representative capacity was a day earlier than assessment on non-resident directly (March 28), therefore,  the assessment in the hands of Air India, in the representative capacity, cannot be said to be legally unsustainable.”; Terms as 'erroneous' the CIT (A)’s frequent use of words 'simultaneous assessment', observes ‘... While the process of assessment may be simultaneous and somewhat parallel in approach, the assessment is not simultaneous.’;  However, with respect to validity of subsequent assessment in the hands of non-resident directly, ITAT holds that in terms of Section 166, direct assessment on principal or direct recovery from principal is permissible even when the assessment is made in the name of agent under section 163, relies on Calcutta High Court ruling in Ganesh Chandra Dhar; ITAT rules that  whether the assessment is made on the agent under section 163 or on the principal himself, the rights of recovery from the principal remain intact anyway”, however clarifies that  to the extent the income tax authorities can recover the taxes, the liability of Air India shall correspondingly stand exonerated”. - [DDIT v. Air India Ltd. - as an agent of Carbijet Inc. [TS-186-ITAT-2016(Mum)] – Date of Judgement : 05.04.2016 (ITAT Mumbai)]

A person in respect of whom an agent is sought to be made a representative assessee, does not attain status of non-resident during relevant accounting period, provisions of section 163 cannot be invoked in such a case

One ‘F’ was an employee with the assessee-company. In respect of the assessment year 2003-04, the said ‘F’ had submitted his return of income. From the assessment order pertaining to ‘F’, it was evident that his residential status had been indicated as – ‘R & OR’ which means ‘Resident & Ordinarily Resident’.

It was an admitted position that ‘F’ who was no longer in the employment of the assessee became a non-resident subsequently.

On 16.03.2010 a show cause notice was issued to the assessee for treating it as the representative agent under section 163(1)(c) in respect of the ‘F’ for the assessment year 2003-04.

Pursuant to said notice, the assessee sent a reply in which it was pointed out that the said ‘F’, when he was working with the assessee pertaining to the assessment year 2003-04, was not a non-resident but was a resident and he had been assessed as such as pointed out above. In this backdrop, it was submitted by the assessee that it could not be treated as a representative agent under section 163(1)(c).

The Assistant Commissioner having rejected said explanation, held the assessee to be a representative assessee in respect of 'F' for the assessment year 2003-04. The revision petition filed by the assessee was dismissed. On writ:

Held : It is noted from the decision in Abdullabhai Abdul Kadar v. CIT (1952) 22 ITR 241 (Bom.), that the material and relevant period to be considered is not the date of the appointment of the statutory agent, but the period covering the year of account. In that case, during the accounting period, the non-resident was alive and, therefore, it was held that the department was within its right in appointing the assessee as a statutory agent on 27.06.1946 notwithstanding the fact that the non-resident had died on 26.03.1946.

Despite the fact that the Revenue argued to the contrary, it is opined that the same logic would apply in the present case also. The relevant accounting year is the previous year ending on 31.03.2003 which pertains to the assessment year 2003-04. At that point of time ‘F’ was not a non-resident. Therefore, in relation to that accounting period the assessee cannot be appointed as a representative assessee. This is notwithstanding the fact that subsequently ‘F’ attained the status of a non-resident and that when he was a non-resident the notice under section 163(2) were issued. The relevant period for consideration would be the relevant accounting period which in this case happened to be the year ending on 31.03.2003.

Section 160(1)(i) makes it clear that the expression ‘representative assessee’ has to seen ‘in respect of the income of a non-resident’. It is obvious that when one construes the expression ‘income of a non-resident’ it has reference to income in a particular previous year/accounting year. The income of that year must be of a non-resident. If that be so, the agent of the non-resident or the deemed agent under section 163 would be the representative assessee. The assessee is not an agent of ‘F’.

Section 163(1)(c) talks about the person from or through whom the non-resident ‘is in receipt of any income, whether directly or indirectly’. As seen from the decision in Abdullabhai Abdul Kadar’s case (supra) that the income bears reference to the accounting year for which the statutory agent is to be appointed. In the present case, the year in question is the year ended on 31.03.2003. During that year ‘F’ was not a non-resident. Therefore, the assessee cannot even be regarded as a deemed agent under section 163(1)(c) of the said Act.

Consequently, the assessee cannot be considered to be the representative assessee of ‘F’ in respect of the assessment year 2003-04 (relating to the previous year ended on 31.03.2003). As a result, the writ petition is allowed and the impugned order is set aside. [In favour of assessee] (Related Assessment year : 2003-04) -  [Comverse Networks Systems India (P) Ltd. v. CIT (2014) 369 ITR 40 : 271 CTR 36 : 226 Taxman 108 : 48 taxmann.com 1 (Del.)]

Indian company cannot be treated as agent of foreign company without giving opportunity of hearing and passing order under section 163

It is a settled principle of law that before treating a person as an agent under section163, it is necessary for the Assessing Officer to issue a notice to the concerned person informing him of his intention to treat that person as the agent of a non-resident and to pass an order under section163 treating him as an agent of the non-resident only after hearing such person in the matter. In the case on hand, it is seen that no order was passed by the Assessing Officer under section163 treating TESA as an agent of the assessee company for A.Y. 2002-03. Consequently, the notice under section 148 dated 31-3-2005 issued by the Assessing Officer to TESA, on behalf of the assessee company, is bad in law and all subsequent proceedings culminating in the passing of the order of assessment would not pass the test of judicial scrutiny. In this view of the matter, the order of assessment passed under section 143 read with section 147 for assessment year 2002-03, based on the invalid notice issued under section 148 is cancelled. This ground of appeal raised by the assessee is allowed. [In favour of assessee] (Related Assessment year : 2002-03 – [Suez Tractebel S.A. v. DCIT (International Taxation) [2013] 143 ITD 614 : 35 taxmann.com 419 (ITAT Bangalore)]

Notice under section 148 was issued treating assessee as an agent of foreign company, but assessee was in fact an agent of an employee of said foreign company, notice was faulty

Issue involved : “Whether notice under section 148 treating the assessee as an agent of the foreign company was defective in view of the show cause notice in terms of section 163 proposing to treat the petitioner as an agent of IVO” ?

Assessee-company purchased machinery from a foreign company. Foreign company deputed Mr. Ivo Perica, its employee, for erection and installation of said machinery in India. IVO received payment for the work done in India. But he did not pay the tax in India.

Assessing Officer, however, holding a prima facie belief that the petitioner was liable to be treated as an agent of Mr. Ivo Perica in terms of Section 163(1) of the Act, issued a show-cause notice on 15.03.2002 to file reply within seven days why the petitioner should not be treated as an agent of Mr. Ivo Perica under Section 163 of the Act and the tax liability of such person be not recovered from the said petitioner. In such notice, it was mentioned that the payments made by the petitioner-company to the foreign company included the cost of the personnel. Thereafter, the Assessing Officer issued another notice under section 148 to assessee treating it as an agent of foreign company.

It was pointed out that Mr. Ivo Perica had not offered the income earned by him arising in India for taxation in Germany. Since Mr. Ivo Perica was employed in India, on such receipts, he was liable for taxation and since the petitioner-company was liable for paying taxes connected with execution of the order, it was also liable for paying taxes on behalf of Mr. Ivo Perica.

The petitioner-company opposed such notice by filing a detailed reply dated 25.03.2002. In such reply, it was stated that even if Mr. Ivo Perica’s salary during employment in India, may be taxable in India, the petitioner-company cannot be held liable for the same as he was not an employee of the company.

Held : There is a vital defect in the notice itself. IVO and the foreign company were two different entities. The terms of payment between the petitioner and the foreign company were vitally different from those between the assessee and IVO. It can, however, not be denied that the foreign company and IVO were legally completely in different position vis-a-vis the assessee. Under the circumstances, the impugned notice was wholly defective. The defect cannot be treated as one of curable nature. The same goes to the very root of the matter and would strike at the Assessing Officer’s jurisdiction to issue the notice. Therefore, the impugned notices are required to be quashed. [In favour of assessee] Assessment year 1999-2000 – [Arvind Mills Ltd. v. ACIT (2013) 263 CTR 247 : (2012) 211 Taxman 158 : 27 taxmann.com 209 (Guj.)]

In case of person treated as agent of non-resident under section 163, no assessment can be made after expiry of two years from end of relevant assessment year

On basis of documents seized during search carried out at petitioner's premises on 17.09.2007, petitioner was issued a notice dated 22.11.2010 stating that it was an agent of a Bermudian company in respect of capital gains arising to that company on transfer of its own shares in previous year relevant to assessment year 2005-06. Thereafter, by impugned order accrual of capital gains in hands of Bermudian company was proposed to be assessed in hands of petitioner under section 163 for assessment year 2005-06. In view of provisions of section 149(3) no assessment, reassessment or re-computation could take place in instant case after 31.03.2008, i.e., after expiry of a period of two years from end of relevant assessment year and, therefore, assessment proceedings initiated in pursuance of notice issued on 22.11.2010 were barred by limitation. Since what was sought to be brought to tax as capital gains were capital gains alleged to accrue to Bermudian company, provisions of section 153B would have no application. [In favour of assessee] (Related Assessment year : 2005-06) – [Ingram Micro India Ltd. v. DCIT (2012) 347 ITR 221 : 247 CTR 262 : 208 Taxman 172 : 20 taxmann.com 206 : [TS-738-HC-2011(BOM)] (Bom.)]

Merely because a person is an agent or is to be treated as an agent under section 163, it would not lead to an automatic conclusion that he becomes liable to pay taxes on behalf of non-resident rather it would only mean that he would be treated as representative assessee

Agent of Whether merely because a person is an agent or is to be treated as an agent under section 163, it would not lead to an automatic conclusion that he becomes liable to pay taxes on behalf of non-resident rather it would only mean that he would be treated as representative assessee. Liability of such a representative assessee arises only if eventualities stipulated in section 161 are satisfied. First petitioner was a company incorporated in USA. It had been assessed to tax in India over last several years in respect of its income-taxable in India, as a non-resident. Second petitioner was a company incorporated in Mauritius that held shares of group companies and had a wholly owned subsidiary in India called, ‘GECIS’ which was registered under Companies Act, 1956 and was respondent No. 4. Entire share capital of GECIS was acquired by second petitioner along with certain individuals as nominee shareholders in 1998 with approval of Foreign Investment Promotion Board. Second petitioner was a wholly owned subsidiary, through various intermediate holdings of first petitioner. Department served a notice upon respondent No. 4 treating it as a representative assessee of petitioner No. 1, and sought to bring within tax net purported income generated by petitioner No. 1 as capital gains arising from transfer of shares of respondent No. 4 which were held by petitioner No. 1. Petitioner, thus, filed instant petition challenging legality and validity of notices issued under section 163 vide which respondent No. 1 proposed to treat respondent No. 4 as an agent of first petitioner and make an assessment on respondent No. 4 as a representative assessee of first petitioner. An agent can only be a representative-assessee as regards income in respect of which alleged agent has business connection and/or from or through directly and/or indirectly income was received. No case was made out by department that in respect of transfer of shares to third party, respondent No. 4 had any role to play, and in such a situation, merely because those shares related to respondent No. 4 company, that would not make respondent No. 4 as agent qua deemed capital gain purportedly earned by petitioner No. 1. Therefore, instant petition was to be allowed. [In favour of assessee] – [General Electric Co. v. Deputy Director of Income-tax (2012) 347 ITR 60 : (2011) 243 CTR 417 : 201 Taxman 341 : 13 taxmann.com 26 (Del.)] 

At stage of treating a person in India as agent of non-resident, liability to tax of non-resident need not be established and only any of parameters laid down in section 163(1)(a) to (d) is to be satisfied

At stage of treating a person in India as agent of non-resident, liability to tax of non-resident need not be established. If any of parameters laid down in section 163(1)(a) to (d) is satisfied, then person in India can be regarded as agent of non-resident. There is no bar for proceeding under section 163 when non-resident, on whose behalf a person in India is regarded as agent, has already submitted to jurisdiction of Assessing Officer by filing a return of income or participating in proceedings before Assessing Officer. A company of UK, namely, ARL was engaged in business of providing spares and component support for aircraft to aircraft operators. Pursuant to an agreement with assessee, ARL was to provide aircraft components to assessee at its operating base. This process involved obtaining faulty components from assessee in exchange of component in good condition and repair or overhaul faulty components. ARL filed return of income for assessment year 1998-99 declaring income at nil. Assessing Officer taking view that ARL had a permanent establishment [PE] in India assessed income of ARL that accrued to it in India to tax. Tribunal held that ARL had no PE in India and, therefore, income from business that accrued to it in India could not be taxed. However, it remanded to Commissioner (Appeals) issue of taxability of consideration attributable to right to use replacement component under article 13(3)(b) of India UK DTAA. When aforesaid assessment proceedings against ARL were pending, Assessing Officer issued a notice under section 163 to assessee and taking view (i) that assessee had a business connection with ARL, and (ii) that ARL was in receipt of any income directly and indirectly from assessee, treated assessee as agent under section 163(1)(b) and/or 163(1)(c) of ARL. Commissioner (Appeals) proceeded to examine as to whether receipt by ARL from assessee was income chargeable to tax in India and held that Assessing Officer was wrong in treating assessee as an agent of ARL. Since (i) business of ARL was supply of spare parts for aircrafts, and (ii) assessee utilized services of ARL in its business in India, these facts were sufficient to justify conclusion that there was a business connection between assessee and ARL within meaning of sections 163(1)(b) and 9(1)(i). Since assessee made payment to ARL for services rendered by it in India, ARL was in receipt of income from assessee and, therefore, provisions of section 163(1)(c) were also attracted in instant case. Therefore, order of Assessing Officer treating assessee as agent of ARL was justifiable. [In favour of revenue] (Related Assessment year : 1998-99) – [ADIT v. Jet Airways (India) (P) Ltd. (2012) 148 TTJ 298 : 50 SOT 543 : 19 taxmann.com 37 (ITAT Mumbai)]

Assessee purchased a plot of land from late ‘S’ and after death of ‘S’ legal heirs of ‘S’ gave general power of attorney to assessee to complete said transaction, assessee could not be treated as representative assessee of legal heirs of 'S' under section 163

One ‘S’ sold her land to assessee. The transaction was carried out by an irrevocable power of attorney given by ‘S’ to assessee. ‘S’ expired in 1995, and thereafter his legal heirs also gave general power of attorney to assessee. Late ‘S’ did not file any return of income in respect of capital gain arising out of the transfer of the above land and also interest income earned on the above money. All the legal heirs of late ‘S’ were residing outside India. In the above circumstances, the assessee was treated as representative assessee of legal representatives of late ‘S’ and assessment was made accordingly. On appeal, the Commissioner (Appeals) cancelled the assessment holding that power of attorney given by legal heirs of late 'S' was also in consequence of the original transaction entered into by the assessee and late ‘S’ and, therefore, the assessee could not be made legal representative/agent of the non-resident, i.e., legal heirs of late ‘S’.

Held that the assessee was treated as representative assessee of legal heirs of late ‘S’. However, who were the legal heirs of ‘S’ was not specified. The only connection between the assessee and ‘S’ was that the assessee purchased a plot from her and she had given power of attorney to the assessee to complete the sale transaction. Admittedly, late ‘S’ was not a non-resident. Considering the totality of the above facts, neither section 160(1) nor section 163(1) was applicable. Therefore, the order of the Commissioner was to be sustained. [In favour of assessee] (Related Assessment years : 1994-95 and 1995-96) – [ITO v. Siddharth S. Patel (2012) 25 taxmann.com 420 : (2011) 12 ITR(T) 653 (ITAT Allahabad)]

Income deemed to accrue or arise in India – Sale of shares by Mauritius Co. – 100% USA parent. – Taxable if object is to acquire the Indian assets

The argument that section 163 applies only with respect to income “deemed to accrue or arise” in India under section 9 and not to income “accruing or arising” is not acceptable. Pursuant to CIT v. Eli Lilly and Co. (India) Pvt. Ltd. (2009) 312 ITR 225 (SC), the income accruing or arising in India to NCWS, USA on transfer of a capital asset situate in India, (shares of Idea Cellular) is deemed to accrue or arise in India to NCWS and can be assessed either in the hands of NCWS or in the hands of the payer as agent of the non-resident under section 163;

The argument that the Assessing Officer having issued a NOC under section 195(2) permitting Aditya Birla Nuvo to remit the sale proceeds without TDS could not recover the tax from the payer by treating it as agent is not acceptable because the said order was obtained by “suppressing material facts” relating to the circumstances in which the shares of Idea Cellular were issued in the name of AT&T Mauritius. As the payer had obtained the section 195(2) Certificate by making a representation which was incorrect to its knowledge, it could not claim that the section 195(2) Certificate was validly issued. Further, the proceedings under section 163 & 195 operate in different fields;

Capital gains accruing or arising to the non-resident on transfer of a capital asset situate in India being taxable in the hands of non-resident, can be taxed in the hands of the non-resident under section 163 read with section 9 as the income accruing to the non-resident falls within the category of deemed income specified in section 9. - [Aditya Birla Nuvo Ltd. v. Deputy Director of Income Tax (International Taxation) &Anr (2011) 242 CTR 561 : 200 Taxman 437 : 59 DTR 1 (Bom.)]

Proceedings under section 163 are only intended to ensure that a person can be regarded as a representative assessee only on existence of certain conditions. - (Related Assessment year : 2001- 020) – [Hindalco Industries Ltd. v. DCIT - Appeal Number : Appeal No: ITA Nos. 3667 and 4684/Mum/2005, 6923/Mum/2006 - Date of Judgement : 14.05.2010 (ITAT Mumbai)]

On a plain reading of section 163(2) it appears that when an order adverse to assessee/agent is passed by Assessing Officer, then a written order is required to be made; however, if there is no objection by agent to continuing proceedings on behalf of assessee, no specific order needs to be passed by Assessing Officer

On a plain reading of section 163(2) it appears that when an order adverse to the assessee/agent is passed by the Assessing Officer, then a written order is required to be made. However, if there is no objection by the agent to continuing the proceedings on behalf of the assessee, no specific order needs to be passed by the Assessing Officer. This is also apparent from the language of section 163(2) which does not provide for a specific or written order to be passed by the Assessing Officer. If a person filing a return as an agent of the assessee is not accepted as an agent for further proceedings, then the Assessing Officer must pass an order so that the agent or assessee can file an appeal. But, if the proceedings have gone on as if there is no objection to the person filing a return being treated as an agent of the assessee, no specific order needs to be passed in this regard. Under the circumstances, we do not find any error in the view taken by the Tribunal in coming to the conclusion that the notice was issued to the assessee beyond the period prescribed by law. [In favour of assessee] – [CIT v. Madhwan Bashyam (2009) 312 ITR 90 : (2008) 214 CTR 335 (Del.)]

Provisions of section 163(2) are mandatory in character - Where return of non-resident assessee was filed by his brother as agent of assessee, an order under section 163(2) was required to be passed by Assessing Officer declaring brother of assessee as agent of assessee

One ‘S’ had filed a return of income as an agent of his NRI brother, the assessee. The ITO completed the assessment. However, the AAC set aside the assessment with a direction that the ITO should first of all record a finding as to whether the assessee was an NRI, thereafter, he should consider whether ‘S’ had got no objection to be appointed as an agent of his brother and then to frame the assessment order after giving due opportunity of being heard to ‘S’. The ITO, however, reframed the assessment without complying with said direction. On appeal, the assessee challenged the order of the ITO on the ground that the ITO was not justified in appointing ‘S’ as his agent without granting opportunity of hearing under section163. However, the AAC upheld the impugned order on the ground that while filing return of the assessee, ‘S’ had declared himself to be his agent. On second appeal, the Tribunal held that the assessment order was vitiated and bad in law for non-compliance of section 163(2). On reference :

Held : The provisions of section 163(2) are mandatory in character because in said section the expression ‘shall’ has been used and, therefore, an order was required to be passed by the ITO declaring ‘S’ as an agent of his assessee brother. Therefore, the Tribunal was right in law : (i) in cancelling the assessment made on the agent of the non-resident assessee, who himself admitted to be an agent by signing the return of income; and (ii ) in holding that the Assessing Officer was required to pass an order under section 163(2) to treat ‘S’ as an agent of the non-resident assessee, who signed and made the return himself, to be an agent of the non-resident assessee. (Related Assessment year : 1973-74) – [CIT v. Prem Kumar Bhagat (2009) 311 ITR 266 : (2007) 212 ITR 130 : 164 Taxman 616 (P&H)]

A person from whom non-resident receives any income, directly or indirectly is an Agent - Under section 163(1)(b), a person with whom a non-resident has any business connection is deemed to be an agent of the non-resident. The definition is inclusive. It also includes a person from whom the non-resident receives any income, directly or indirectly

A person with whom non-resident had any business connection or from whom non-resident receives any income, directly or indirectly, is deemed to be an agent of non-resident for purpose of assessment of non-resident’s income. Petitioner/appellant had engaged a non-resident as its lawyer in respect of its deals and had made certain payments after deducting tax under section 195 in that regard. Dy. Commissioner, Mumbai, treating appellant as representative assessee/agent of non-resident under section 163, issued a notice seeking to re-open assessment of income of non-resident for relevant assessment year under section 148 at hands of appellant requiring it to submit return as representative assessee of non-resident. On writ, Single Judge dismissed same on ground of alternative remedy under section 246(1)(b). Since there are no pre-conditions for treating a person falling within definition of ‘agent’ under section 163, notice issued by Dy. Commissioner, Mumbai (having jurisdiction over non-residents) could not be said to be without jurisdiction. Notice of communication of order under section 163(2), even though an integral part of cause of action, was related to an order under section 163, which is appealable under section 246(1)(a), High Court could not assume jurisdiction for exercising its discretion in relation to such an order. (Related Assessment year : 1998-99) – [CESC Ltd. v. DCIT (2003) 263 ITR 402 :  183 CTR 124 : 131 Taxman 751 (Cal.)]

One K, a non-resident Indian, purchased some agricultural land in India - According to K’s father S (the assessee), annual income of said land was spent by him on his household expenses and no part of it was paid to or received by K - S could be treated as agent of K in terms of section 163(1)(c)

One K, a non-resident Indian, purchased some agricultural land in India. According to K’s father S, the assessee, the annual income of the land was about Rs. 3,000 and the entire amount was spent by him on his household expenses and no part of it was paid to or received by K. The Tribunal held that S was not covered by clause (c) of sub-section (1) of section 163, and, hence, he could not be said to be the agent of K for the purposes of the Act. On reference by the revenue:

Held : Section 163(1)(c) states that ‘agent’ in relation to a non-resident includes any person in India from or through whom the non-resident is in receipt of any income whether directly or indirectly.

In the present case, the income from the land in question was undoubtedly that of K. If instead of taking it, he chose to let his father utilise it, it could not but be treated as an indirect receipt of the said income by K. Accordingly. S was covered by clause (c) of sub-section (1) of section 163, and, as such, he was agent of K for the purposes of the Act. The order of the Tribunal was, therefore, set aside. – [CIT v. Shiv Singh (1989) 177 ITR 524 : 79 CTR 172 : 45 Taxman 94 (P&H)]

Direct assessment of non-resident is no bar to assess the agent 

Direct assessment on the non-resident in respect of other income would not affect the jurisdiction of the ITO to assess the agent of the non-resident on income arising to the non-resident through him. - [CIT v. Fertilizers & Chemicals (Travancore) Ltd. (1987) 166 ITR 823 : 65 CTR 190 : 34 Taxman 346 (Ker.)] 

Assessee-company was treated as agent of ten non-resident companies, in respect of which it had indirect business connection under agreement executed in 1948 with exporting company - Assessee filed affidavit of its secretary before Tribunal to substantiate that it had no business connection with these companies - Though Tribunal held that affidavit was relevant, High Court considered affidavit on merits and held that no such business connection existed - Decision of High Court was correct

The assessee-company was assessed to income-tax as a representative assessee of ten non-resident companies. These ten companies were grouped into three categories (i) Group-A comprising six companies in respect of which the assessee had no direct agreement but had dealings by virtue of its agreement of 1948 with the exporting company, (ii) Group-B comprising three companies with which the assessee had no business connection, and (iii) Group-C comprising one company, in respect of which the assessee's stand was that it had an agreement dated 16.12.1948 with the export company, but no liability accrued under the law in respect of the transactions. Before the Tribunal, the assessee produced an affidavit by its secretary to substantiate its claim that it had no business connection with any of these companies, so as to be treated as their agents under section 163. The Tribunal observed that, for purposes of deciding whether the assessee was an agent of the companies, it was not necessary to go into the terms of the affidavit. Consequently, the Tribunal upheld the assessments. On reference, the High Court considered the contents of the affidavit on merits and also relied upon the Supreme Court decision in CIT v. R.D. Aggarwal & Co. (1965) 56 ITR 20 (SC) to hold that, since the revenue had not adduced any evidence to contradict the facts stated in the affidavit, there was no business connection between the assessee and the ten companies, and upheld the contention of the assessee. On appeal:

Held : The Tribunal obviously fell into an error in brushing aside the affidavit for the reason it indicated. The facts stated in the affidavit had a direct bearing on the point in issue, namely, whether there was any business connection between the assessee and the non-resident companies.

The revenue had full notice of the affidavit and as pointed out by the High Court, it did not dispute the facts stated in the affidavit by filing objection or counter thereto. The affidavit had not been rejected by the Tribunal but had only been brushed aside by saying that it was not relevant. Before the High Court the revenue also used the affidavit. It would, therefore, not be appropriate at this stage to accept the submission made by the revenue and putback the matter to the stage of the second appeal before the Tribunal. The assessments relate to a period about a quarter of a century back and by its conduct, the revenue appeared to have waived its right to dispute the facts asserted in the affidavit on one hand by not challenging its admissibility and on the other, by not disputing the contents thereof. Once the facts stated in the affidavit were accepted, the ratio of the decision of this Court in R. D. Aggarwal & Co.’s case (supra) would be fully applicable and the High Court had utilized the ratio of that decision to find out whether any business connection between the assessee and the non-resident companies had been established. There was no dispute that unless the matter came under section 163(1)(a), there would be no liability for assessment. The High Court was, therefore, justified in its conclusion. Decision of the Calcutta High Court in C1T v. T.I. & M. Sales Ltd. (1978) 114 ITR 59 (Cal.) affirmed. – [CIT v. T.I. & M. Sales Ltd. (1987) 166 ITR 93 : 61 CTR 273 : 31 Taxman 505 (SC)]

Simultaneous Proceedings against Non-Resident and Agent are barred - Revenue cannot proceed against a non-resident as also his representative in India simultaneously. The Act does not postulate that the income can be split up and different parts of such income can be assessed in the hands of different persons

The revenue cannot proceed against a non-resident as also against the representative in India simultaneously. For the assessment year 1970-71 there was no question of reassessment. The ITO knowing fully well that assessment in the said assessment year had already been made in the hands of the non-resident had issued a fresh notice under section 143(3) calling upon the assessee as the representative of the non-resident to file a fresh return. This amounted to an assessment of the same income both in the hands of the representative and also the principal. For the other two assessment years 1968-69 and 1969-70 reassessment proceedings had been initiated. The definition of assessment in section 2(8) shows that assessment includes reassessment. Therefore, what was sought to be assessed in the hands of the assessee was an income which had already suffered assessment in the hands of the non-resident. The Act does not postulate that the income can be split up and different parts of such income can be assessed in the hands of different persons. Thus, the contention of the revenue that it did not seriously dispute that if an income had been assessed in the hands of the non-resident the same income could not again be assessed in the hands of his representative; and what was being sought to be reassessed was another part of the income of the nonresident which had escaped assessment in the hands of the latter and was, therefore, not the same income, could not be accepted.

Further, the assessment proceedings had been initiated illegally and without jurisdiction in the assessment year 1969-70. During the assessment year in question the assessee was not treated as an agent of the non-resident company. Therefore, there was no obligation on the assessee to file any return of the income of the non-resident. Therefore, the basic requirement of section 147(a) was not present as there could not have been any default on the part of the assessee in not filing a return. Reassessment cannot also be supported under section 147(b) as the conditions precedent for assumption of jurisdiction under the provisions of this sub-section were also not present. There had been no previous assessment of the assessee and there was no question of any income escaping the previous assessment. Accordingly, the assessment and reassessment proceedings taken against the assessee as the agent of the non-resident company were not valid. [In favour of the assessee] – [CIT v. Alfred Herbert (India) (P) Ltd. (1986) 159 ITR 583 : 52 CTR 321 : 26 Taxman 145 (Cal.)]

In case the Assessing Officer feels that the agent is to be taxed as a representative assessee , the department must ask the agent to file a return and then the agent can be taxed as a representative assessee

It was open to the ITO to assess either the representative or the non-resident company at the initial stage. Therefore, even if the assessee was treated as an agent having business connection with the non-resident, he could not be taxed without assessment being made on him. There was no doubt that the assessee had to be given an opportunity of being heard as to its liability. Therefore, a notice under section 139(2) calling for a return of income would be essential. However, once the non-resident company was assessed, the representative assessee could not be assessed after the statutory period of two years had expired. In fact, on the date when an order under section 163(1)(b) was passed, no assessment could have been made on the assessee since two years had already expired, which is a requirement under section 149(3).

In the instant case, no notice was issued to the assessee to file a return. The assessment was made on the non-resident and only a demand notice was issued on the assessee for the recovery of the amount after declaring it an agent under section 163, that too after a period of 2 years had expired. Thus, by being denied the opportunity of being heard, the assessee was denied the valuable right of appeal to challenge the quantum of tax. The department having chosen to assess the nonresident, assuming the assessee could be treated as an agent, could not tax the agent as a representative assessee.

The only thing that could be done at this stage would be under section 167 to recover the amount of tax payable by the non-resident from the assets which had vested in the hand of the agent. In the instant case, no property of the non-resident had vested in the hands of the agent. Therefore, no recovery could be made under section 167. Accordingly, the assessment of the assessee as the non-resident company's agent and recovery of tax due from non-resident from the assessee was not justified. – [Prem Nath Diesels v. CIT (1986) 159 ITR 575 : (1985) : 48 CTR 171 : 22 Taxman 298 (Del.)]

Liability of agent cannot be made retrospective 

A person may be treated as a representative assessee of a non-resident at any point of time but if he is treated as a representative of a non-resident after the financial year is over, he cannot retrospectively be saddled with liability to pay advance tax for any past financial year – [CIT v. T.I. & M. Sales Ltd.(1978) 114 ITR 59 (Cal.)]

 

Written order is necessary 

As an order treating a person as the agent of a non-resident is appealable, a written order treating the representative assessee as the agent of the non-resident is necessary – [CIT v. Express Newspapers (P) Ltd. (1978) 111 ITR 347 (Mad)] 

Notice to agent must be given for each assessment year - Liability imposed upon a person by his appointment as a statutory agent is only in respect of liability for assessment year for which appointment is made - Expression “for all purpose”, only indicates that when an appointment is made for a particular assessment year it is good for all purposes as far as that assessment is concerned

Section 163 of the Income-tax Act, 1961 [Corresponding to section 43 of the Indian Income-tax Act, 1922] – The liability imposed upon a person by his appointment as a statutory agent under section 43 of the Act is only in respect of the liability for the assessment year for which the appointment is made. The appointment of the respondent for the assessment year 1961-62 was in respect of the liability of the non-resident firms for the income of theprevious year for the said assessment year 1961-62. Having regard to the scheme of the Act, the assessment for each year is self-contained and the vicarious liability imposed by an appointment under section 43 of the Act only extends to the liability for the assessment of the year for which the appointment is made and cannot extend to the liability for any other assessment. Nor can the expression "for all purposes" used in section 43 of the Act extend the liability to any other assessment excepting the liability for the assessment year for which the appointment is made. The expression "for all purposes", only indicates that when an appointment is made for a particular assessment year it is good for all purposes as far as that assessment is concerned, i.e., for all purposes for imposing tax liability, determining the quantum of the liability and for recovering it. The liability sought to be imposed under section 18A of the Act is not in respect of the income-tax for the assessment year for which the appointment is made but for a subsequent assessment year. For the recovery of income-tax of the said subsequent year, unless there is a fresh appointment of the respondent under section 43 as a statutory agent, no such liability can be imposed on the respondent by the income-tax authorities.

In the instant case, it was admitted that there was no appointment of the respondent under section 43 as statutory agent of the two foreign firms for the assessment year 1962-63. No notice was served upon the respondent under section 43 of the Act intimating to the respondent that the appellant intended to treat it as the agent of the non-resident German firms for the assessment year 1962-63. No opportunity was given to the respondent to be heard in the matter, nor was any formal order passed under section 43 by the appellant treating the respondent as the agent of the non-resident German firms for the assessment year 1962-63. Although a person may fail in a particular year to resist the claim that he is an agent, circumstances may alter in the next year and he may be able to resist the claim then. Hence notice shall have to be given by the ITO for each assessment year to appoint a person as agent. It followed, therefore, that the respondent could not be treated as an agent of the two German firms for the assessment year 1962-63 and advance-tax could not be demanded under section 18A for that assessment year treating the respondent as such statutory agent. The notices of demand issued by the appellant to the respondent were illegal and ultra vires and rightly quashed by the High Court. The appeals were dismissed accordingly. [In favour of assessee] (Related Assessment year : 1962-63) – [H.L. Sud, ITO v. Tata Engineering & Locomotive Co. Ltd. (1969) 71 ITR 457 (SC)]

Agent is liable to pay advance tax

A person can be appointed as agent under section 163 before commencement of assessment year and that he as representative assessee can be called upon to pay advance tax under section 210. Since a representative assessee is liable to advance payment of tax as regards his own income, it must follow that he is also liable to advance payment of tax as regards the income in respect of which he is a representative assessee. (Related Assessment year : 1963-64) – [Premier Automobiles Ltd. v. ITO (1966) 59 ITR 656 (Bom.)] 

Even a non-resident can be treated as agent of another non-resident; section 163 does not contemplate that only a resident can be treated as agent

As regards the question as to whether a non-resident could be appointed agent of another non-resident, the Legislature has not placed any limitation or qualification upon the person who can be treated as an agent under section 43 if he satisfies the conditions laid down in that section. It is entirely for the Department to decide which person they would treat as an agent. Therefore, there was nothing in section 43 itself to justify the contention that only a resident can be treated as an agent for the purpose of section 43. The expression "any person" in section 43 is not controlled by the language used by the Legislature in Explanation to section which was subsequently enacted. Even on principle, the Legislature, when it wanted to raise revenue by taxing a certain kind of income and wanted to impose a vicarious liability in order to see that tax was recovered, should prefer non-residents to residents as far as the imposing of the various liability was concerned. - (Related Assessment year : 1943-44) – [A.P. Damodara Shenoy v. CIT (1954) 26 ITR 650 (Bom.)] 

Death of non-resident is no bar, if business connection existed during the year

If there was a business connection in the year of account, a statutory agent could be appointed under section 163, notwithstanding the fact that on the date of the appointment of the statutory agent the non-resident was not alive. The material and period to consider is not the date of appointment of the statutory agent, but the period covering the year of account. If a non-resident has a commission agent in India, who enters into transactions on its behalf, the non-resident would be regarded as having a business connection in India. – [Abdullabhai Abdul Kadar v. CIT (1952) 22 ITR 241 (Bom.]. 

In case of a person residing out of British India who has property or business connections in British India, income-tax authorities are not competent to serve notices upon him; such notices must be served upon his agent in British India or upon such person as may be deemed to be his agent within meaning of section 43 of 1922 Act and who will be treated as such

The assessee had a dual capacity (1) as the ruling chief of the quondum family domains converted into an Indian State, and (2) a landholder in British India. He owned extensive property in his latter capacity and was in receipt of (1) Nazarana and (2) Zare Chaharam from his Zamindari villages in British India. For the most part, he lived in the Indian State. For the year in dispute as in all the years anterior to it, the ITO issued by registered post a notice under section 22(2) of the 1922 Act addressed by the name of the assessee to his place, requiring him to file a return of his (British Indian) income in the previous financial year. In response to this notice, a return was filed showing an income of Rs. 48,948. After allowing the statutory deductions and management charges the ITO made an assessment in the amount of Rs. 48,880. The assessee appealed contending inter alia, that the assessment was illegal and improper because (1) he was not a resident of British India and no agent within the purview of sections 42 and 43 of the 1922 Act had been appointed by the ITO. Overruling these contentions the Assistant Commissioner, however, reduced the total income to Rs. 47,174. On reference:

In the case of a person residing out of British India who has property or business connexions in British India income-tax authorities are not competent to serve notices upon him; such notices must be served upon his agent in British India or upon such person as may be deemed to be his agent within meaning of section 43 of the 1922 Act and who will be treated as such. The proviso to section 42 of the 1922 Act does not, militate against the above view that and does not support the opinion of the Commissioner that it was open to the Income-tax Officer to address notices direct to the assessee even though he be a “non-resident”. It could not be agreed with that the proviso to section 42 of the 1922 Act in any way goes against the construction that the income of a non resident shall be chargeable in income-tax in the name of the agent. The proviso contemplates the possibility of the assessee, i.e., the agent, not being able to pay the income-tax. It is only natural to suppose that the non-resident will place the agent in funds in order to enable him to pay the income-tax demand, but if the agent is not provided with such funds, then, apart from such steps as might be taken against the agent, the proviso empowers the authorities to recover the tax from the assets of the non-resident in British India, and in the majority of cases the non-resident will have such assets in British India because the income which has accrued to him through or from some business connection or property in British India, and even if in some extraordinary case there be no such assets for the time being, the authorities are empowered to seize any assets when they come at any future time in British India. That, is the only effect of the proviso which does not override the mandatory provisions contained in the preciding paragraph that the income shall be chargeable to income-tax in the name of the agent. It was held that the assessee being a non-resident, the ITO was precluded from serving a notice on him without appointing an agent within the meaning of section 43 of the 1922 Act. The case was decided in favour of the assessee. (Related Assessment year : 1934-35) – [Sir Aditya Narain Singh Bahadur (Maharaja of Benares) v. CIT (1938) 6 ITR 217 (All.)]