Agency of non-resident upheld, but double taxation barred where goods were already treated as resident's own purchases.

A resident was validly treated as the agent of a non-resident because the correspondence and remand material showed a business connection and instructions from the non-resident, rather than an independent purchase arrangement. The declaration of agency under section 43 was upheld. However, income from goods already accepted as the resident's own purchases could not be taxed again under section 42(1), and there was no evidence that the remaining imported goods were sold through the resident as agent in the relevant year. Taxation under section 42(1) was therefore negated for the assessed amount.

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Issues: (i) Whether the resident was validly treated as the agent of the non-resident under section 43; (ii) whether the resident could be taxed under section 42(1) on the profits from the sales of goods already treated as his own purchases under section 42(2) and on the profits of other imported goods not shown to have been sold through him as agent.

Issue (i): Whether the resident was validly treated as the agent of the non-resident under section 43.

Analysis: The existence of a business connection between the parties was clear. The material on record, including the correspondence and the remand report, supported the inference that the resident was acting on instructions from the non-resident and was not merely an independent purchaser. The objection that there was no effective opportunity to meet the additional material was not accepted.

Conclusion: The declaration of agency under section 43 was upheld and was against the assessee.

Issue (ii): Whether the resident could be taxed under section 42(1) on the profits from the sales of goods already treated as his own purchases under section 42(2) and on the profits of other imported goods not shown to have been sold through him as agent.

Analysis: The profits relating to the goods of value Rs. 2,37,195 could not be taxed again under section 42(1), because those goods had been accepted as purchases by the resident and had ceased to belong to the non-resident when resold. Sections 42(1) and 42(2) operate on different bases and the same income cannot be treated as income of both the non-resident and the resident. As to the remaining imports, there was no finding or evidence that the resident handled or sold them as agent in the relevant year of account; liability under section 42(1) extends only to income accruing to the non-resident through transactions effected by that agent.

Conclusion: The resident was not liable to be taxed under section 42(1) on any portion of the assessed amount and this issue was in favour of the assessee.

Final Conclusion: The reference was answered by sustaining the agency declaration but negating any tax liability under section 42(1), with the assessee ultimately succeeding on the substantive assessment issue.

Ratio Decidendi: An agent of a non-resident is taxable only on income accruing to the non-resident through transactions actually effected by that agent, and the same income cannot be subjected to assessment both as the agent's own income and as the non-resident's income.

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