Strict section 153C ownership test and India-France treaty protection defeated assessment and representative assessee addition

For pre-amendment section 153C proceedings, seized material had to strictly belong to a person other than the searched person; hard disks, emails and invoices found in the searched party's premises or email accounts did not satisfy that test, and the later "pertains to or relates to" wording was treated as prospective. The jurisdictional condition for section 153C therefore failed and the assessment was quashed. On merits, a French resident providing independent professional architectural services was entitled to Article 15 treaty protection, so the assessee could not be fastened with tax as representative assessee or agent under section 163 absent the necessary statutory conditions. The related addition was deleted.

---

---

Issues: (i) Whether the assumption of jurisdiction under section 153C was valid when the seized material was alleged to belong to the non-resident and his associated entities. (ii) Whether the addition made by treating the assessee as representative assessee/agent of the non-resident under section 163 was sustainable in view of Article 15 of the India-France DTAA.

Issue (i): Whether the assumption of jurisdiction under section 153C was valid when the seized material was alleged to belong to the non-resident and his associated entities.

Analysis: For initiation under section 153C, the pre-amendment requirement was that the seized document must belong to a person other than the searched person. The seized items comprised hard disks found in the searched group's premises, email printouts retrieved from those hard disks, and invoices transmitted through email. The hard disks were seized from the searched person's premises and therefore could not be said to belong to the non-resident. The emails, even if they referred to the non-resident or his entities, remained electronic records found in the searched person's devices and inbox or outbox, and the mere mention of a name did not make them the property of the non-resident. The invoices, though raised by the non-resident or his entities, when found in the searched person's email account, belonged to the recipient's record and not to the issuer. The expression "belongs to" was applied strictly, and the later amendment replacing it with "pertains to or relates to" was held prospective.

Conclusion: The jurisdictional condition for section 153C was not satisfied, and the assessment framed under section 153C was quashed.

Issue (ii): Whether the addition made by treating the assessee as representative assessee/agent of the non-resident under section 163 was sustainable in view of Article 15 of the India-France DTAA.

Analysis: The non-resident was held to be a resident of France rendering independent professional services in the nature of architectural services. Under Article 15 of the India-France DTAA, such income is taxable only in France unless the non-resident has a fixed base in India or stays in India for the prescribed period. The record did not justify treating the assessee as a representative assessee for a person who retained non-resident status during the relevant year, and the Tribunal accepted that treaty protection was available. The material on record did not justify the conclusion that the entire receipts were taxable in India in the assessee's hands as representative assessee.

Conclusion: The addition made by treating the assessee as representative assessee/agent was not sustainable and the related addition was directed to be deleted.

Final Conclusion: The assessments could not be sustained either on jurisdiction or on merits, and the assessee obtained complete relief in all connected appeals.

Ratio Decidendi: For pre-amendment section 153C proceedings, seized material must strictly belong to a person other than the searched person, and a non-resident professional's income cannot be fastened on a representative assessee where treaty protection under Article 15 applies and the statutory conditions for section 163 are not met.

---