Limitation for reassessment barred where revenue's alternative agency argument was not raised before the Tribunal

Reassessment under section 34(1)(b) to tax deemed dividend as agent income was held time-barred because the revenue had proceeded before the Tribunal on the footing that the assessee was a deemed agent under section 43, attracting the second proviso to section 34(1). The alternative argument that the assessee should be treated as an agent under section 40(2) could not be entertained in reference under section 66 because it had not been raised or argued before the Tribunal. On the issues actually before it, the Tribunal was therefore justified in holding the reassessment notice barred by limitation.

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Issues: Whether, on the facts and in the circumstances of the case, the Tribunal was justified in applying the second proviso to section 34(1) of the Indian Income-tax Act, 1922 and holding the reassessment to be barred by limitation.

Analysis: The assessment for the relevant assessment year had been reopened under section 34(1)(b) to bring to tax deemed dividend under section 23A in the hands of the assessee as agent of a non-resident principal. The revenue sought to contend that the assessee should instead be treated as an agent under section 40(2) and, therefore, the shorter limitation under the second proviso to section 34(1)(b) would not apply. That contention was rejected because it had not been raised or argued before the Tribunal and did not arise from the Tribunal's order. In a reference under section 66, only a question actually raised or argued before the Tribunal can be answered. On the footing accepted by the revenue before the Tribunal, the assessee was treated as a deemed agent under section 43, and the reassessment notice issued after the prescribed period was time-barred.

Conclusion: The Tribunal was justified in applying the second proviso to section 34(1) of the Indian Income-tax Act, 1922 and the reassessment notice was barred by limitation, in favour of the assessee.

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