Agency proceedings for non-resident tax liability may start before formal declaration, and a timely notice avoids limitation issues.

Proceedings against an alleged agent of a non-resident under the Indian Income-tax Act, 1922 could validly begin with a show-cause notice and need not await a separate formal order declaring agency. The later notice calling for a return was sufficient to complete the initiation process, and omission of the assessment year in the earlier agency notice did not invalidate the proceedings where the year was specified in the return notice. Where the initiating notice was served within the statutory period, reassessment proceedings were not time-barred merely because later steps extended beyond that period. The assessment proceedings against the respondent as agent were upheld.

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Issues: (i) whether a person could be treated as agent of a non-resident and proceeded against under the Income-tax Act without a prior formal order declaring agency, and whether the notice initiating proceedings was valid; (ii) whether a notice under the proviso to the agency provision was invalid because it did not specify the assessment year; (iii) whether proceedings under the reassessment provision were time-barred.

Issue (i): whether a person could be treated as agent of a non-resident and proceeded against under the Income-tax Act without a prior formal order declaring agency, and whether the notice initiating proceedings was valid.

Analysis: The statutory scheme of the Indian Income-tax Act, 1922 permitted the Income-tax Officer to deal with the question of agency in the course of the assessment process. The notice calling upon the respondent to show cause why it should not be treated as agent, followed by the later notice requiring a return, was sufficient to commence proceedings. The Act did not require, as a condition precedent, a separate formal order first declaring agency before a notice for return could be served. Final determination of agency could be postponed until assessment.

Conclusion: Yes. The respondent could validly be proceeded against as agent of the non-resident, and the initiating notice was valid.

Issue (ii): whether a notice under the proviso to the agency provision was invalid because it did not specify the assessment year.

Analysis: The notice under the agency provision formed part of the process by which agency was brought into question. The year of assessment was specified in the later notice calling for the return under the return-filing provision, and that was sufficient to remove any procedural grievance. The omission in the earlier notice did not invalidate the proceedings.

Conclusion: No. The notice was not illegal merely because it did not mention a particular assessment year.

Issue (iii): whether proceedings under the reassessment provision were time-barred.

Analysis: The relevant initiating notice had been served within the statutory period. Where proceedings are validly begun in time, the Act did not require their completion within the same limitation period. The later steps in the assessment process therefore were not defeated by limitation.

Conclusion: Yes. The proceedings were not barred by limitation in the circumstances of the case.

Final Conclusion: The appeal succeeded, the High Court's answers were reversed, and the assessment proceedings against the respondent as agent of the non-resident were upheld.

Ratio Decidendi: Under the Indian Income-tax Act, 1922, proceedings against an alleged agent of a non-resident may be validly initiated before a separate formal declaration of agency, and a timely initiating notice is not invalidated by omission of the assessment year in the earlier agency notice if the year is otherwise specified in the return notice.

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