1981 (4) TMI 1 - SC - Income Tax

Domestic solicitors held representative assessee under ss.160/161 for non-resident barrister's India-earned fees; business connection under s.9(1)

SC upheld the High Court, dismissing the appeal and holding that the appellants (domestic solicitors) were representative assessee under s.160/161 for ... Liability under Section 195(2) - Non-resident - Indian solicitors and non-resident barrister - Income earned by U.K. barrister - expression 'business connection' - HELD THAT:- Section 160(1)(i) of the Act provides that in respect of the income of a nonresident specified in sub-s. (1) of s. 9 of the Act, the agent of the non-resident, including a person who is treated as an agent under s. 163 is representative assessee. Section 161(1) of the Act stipulates that every representative assessee, as regards the income in respect of which he is representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by 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, subject to the other provisions contained in Chap. XV of the Act 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. We are also of the view that there must have been discussion between the appellants and Mr. Blanco White before the case was argued by him. Moreover, Mr. Blanco White could appear only with the consent of the appellants who were the solicitors on record. In the circumstances, it cannot be said that the High Court was wrong in holding that there was connection between the appellants and Mr. Blanco White. The said connection cannot also be termed as a casual one having regard to the period over which it had existed. It was real and intimate and Mr. Blanco White earned the fees for arguing the case in India only through the said connection. The case satisfies the test laid down by this court in CIT v. R. D. Aggarwal and Co.[1964 (10) TMI 9 - SUPREME COURT] for holding that there was connection between the appellants and Mr. Blanco White. The finding of the High Court on the above question also appears to be well founded. The contention of the appellants is that a professional connection cannot amount to a business connection attracting s. 9(1) of the Act. In support of this contention the appellants depend upon the definitions of the expressions ' business ' and ' profession ' found in s. 2(13) and s. 2(36) of the Act. We do not find that there is any substance in the first submission. There could be no good reason for Parliament for excluding non-resident professional men from the purview of s. 9(1) of the Act. There is no material on which we can reach that conclusion. In so far as the second submission is concerned, we have to examine whether it would really amount to filling up a lacuna in the section if the expression ' business connection ' is interpreted as including within its scope ' professional connection ' also. The appellants may not have undertaken to pay his fees but he could not have argued and earned the fees without associating himself with the appellants. The fact that Mr. Blanco White being barrister could not file a suit to recover the fees would not make any difference in this case as in the letter dated August 19, 1980, written by the London solicitors to the appellants which is produced before us it is stated that the fees of Mr. Blanco White amounted to pounds 2,200 with refreshers at the rate of pounds 220 per day. We need not go into the correctness of these figures but the fact remains that Mr. Blanco White has earned income for the work done in India. In the result, the appeal is dismissed. Issues Involved:1. Liability under Section 195(2) of the Income Tax Act, 1961.2. Business connection under Section 163(1) of the Income Tax Act, 1961.3. Jurisdiction of the Income Tax Officer (ITO) to treat the appellants as agents of Mr. Blanco White.4. Definition and scope of 'business connection' under Section 9(1) of the Income Tax Act, 1961.5. Professional connection versus business connection.Issue-wise Detailed Analysis:1. Liability under Section 195(2) of the Income Tax Act, 1961:The appellants received a notice from the ITO asking them to furnish information about the fees earned in India by Mr. Blanco White and drawing their attention to the liability under Section 195(2) of the Act, which required them to deduct tax payable at source on payments made to a non-resident. The appellants denied their liability, stating they neither briefed Mr. Blanco White nor incurred any liability to pay his fees. The ITO, however, proceeded to treat the appellants as agents of Mr. Blanco White under Section 163(1) of the Act.2. Business connection under Section 163(1) of the Income Tax Act, 1961:The ITO proposed to treat the appellants as agents of Mr. Blanco White, asserting that there was a business connection between them. The appellants contested this, arguing that they had no business connection with Mr. Blanco White and had not engaged or briefed him in the suits. The Division Bench of the High Court held that there was a business connection between the appellants and Mr. Blanco White, noting that the relationship was not a solitary and isolated one but had an element of continuity.3. Jurisdiction of the Income Tax Officer (ITO) to treat the appellants as agents of Mr. Blanco White:The appellants questioned the jurisdiction of the ITO to treat them as representative assessees of Mr. Blanco White. The High Court dismissed the petition on the grounds that the question of whether the case came within the purview of Section 163(1) had to be determined after ascertainment of facts by the ITO, and thus, the petition was premature.4. Definition and scope of 'business connection' under Section 9(1) of the Income Tax Act, 1961:The Supreme Court examined whether the connection between the appellants and Mr. Blanco White could be termed as a business connection. The court referred to various provisions of the Act, including Sections 160(1)(i), 161(1), 163(1)(b) and (c), and 9(1). It concluded that there was a connection between the appellants and Mr. Blanco White, which was real and intimate, and not casual. The court held that the connection satisfied the test laid down in CIT v. R. D. Aggarwal and Co. [1965] 56 ITR 20.5. Professional connection versus business connection:The appellants contended that a professional connection could not amount to a business connection attracting Section 9(1) of the Act. The court examined the definitions of 'business' and 'profession' under Sections 2(13) and 2(36) of the Act, respectively. It noted that the expression 'business' is of wide import and includes professions, vocations, and callings. The court held that in the context of Section 9(1), there was no warrant for excluding professional connections from the scope of 'business connection.' The court also dismissed the argument that Mr. Blanco White's inability to appear as counsel as of right under the Advocates Act or Calcutta High Court Rules negated the existence of a business connection.Conclusion:The Supreme Court upheld the judgment of the Division Bench of the High Court, concluding that there was a business connection between the appellants and Mr. Blanco White, and that the connection was not casual but continuous and systematic. The appeal was dismissed, and the parties were directed to bear their own costs.