2009 (3) TMI 214 - AT - Income Tax

Special Bench clarifies agent status for non-resident assessee, time limits, and mandatory order

The Special Bench concluded that the assessee, who voluntarily filed returns as an agent of the non-resident, was not treated as an agent under section ... Representative assessee - agent under the general law - persons regarded as agent under section 163 - treatment as an agent requiring adjudication under section 163(2) - limitation under section 149(3) where person is 'treated as' agent - waiver of procedural opportunity to be heard by voluntary admissionTreatment as an agent requiring adjudication under section 163(2) - waiver of procedural opportunity to be heard by voluntary admission - Meaning of the expression 'treated as an agent under section 163' and whether such treatment requires a prior adjudication under section 163(2). - HELD THAT: - The Bench held that the word 'treated' in the phrase 'treated as the agent of a non-resident under section 163' implies an adjudication of liability and is different from the 'deemed' language of the old Act. Section 163(2) grants an opportunity of being heard and contemplates an order which is appealable; accordingly 'treatment' means an order adjudging a person to be agent. Where a person admits or voluntarily files returns as agent and does not dispute that status, the occasion to 'treat' him by passing an order under section 163(2) does not arise and the procedural benefit (opportunity to be heard) can be, and effectively is, waived by his conduct. The Tribunal relied on the scheme of sections 160-166, prior authorities distinguishing 'deemed' and 'treated', and noted that treatment must precede service of a section 148 notice when the person is to be assessed because his agent-status is contested. [Paras 21, 22, 23, 27]A person is 'treated as an agent' under section 163 only upon adjudication under section 163(2); where the person has voluntarily admitted agent status (filed returns and furnished undertakings), no prior order under section 163(2) is necessary and the procedural opportunity is effectively waived.Agent under the general law - persons regarded as agent under section 163 - representative assessee - Whether persons falling within clauses of section 163(1) are a different category from agents under the general law for purposes of liability as representative assessee. - HELD THAT: - The Bench explained that under the 1961 Act the term 'agent' for purposes of section 160(1)(i) expressly 'includes' persons treated as agent under section 163, and the legislative scheme equates liabilities of the various categories of representative assessees. The 1961 Act did not retain the old Act's rigid dichotomy; although section 163(2) is a machinery provision to adjudicate disputed agent-status, persons covered by section 163(1) and natural agents under general law have the same rights, obligations and liabilities as representative assessees under sections 160-166. Hence the categories are not intended to be substantively different as to liabilities once agent-status is established or adjudicated. [Paras 21, 24]Persons described in section 163(1) and agents under the general law are both 'agents' for the purposes of being representative assessees and share the same liabilities under sections 160-166 once their agent-status is established.Limitation under section 149(3) where person is 'treated as' agent - waiver of procedural opportunity to be heard by voluntary admission - Whether the twoyear limitation under section 149(3) bars issuance of reassessment notices where the assessee voluntarily filed returns as agent but no order under section 163(2) was passed. - HELD THAT: - Applying the conclusions on 'treatment' and waiver, the Bench found that section 149(3) applies only where the person on whom notice is to be served is a person 'treated as the agent' under section 163 (i.e., adjudged as such). In the present factual matrix the assessee had an agency agreement, filed returns as agent, furnished undertakings and never contested agent-status; therefore there was no treatment under section 163(2) and section 149(3)'s special twoyear bar was not attracted. The Tribunal emphasised that voluntary filing and acceptance of agent-status precludes an objection that the statutory treatment step under section 163(2) was not undertaken. [Paras 23, 27, 28, 31]Section 149(3) does not apply where the assessee voluntarily filed returns as agent and did not require treatment under section 163(2); accordingly the reassessment notices in the facts before the Bench were not barred by section 149(3).Final Conclusion: The Special Bench answered the referred question in the negative: where an assessee has voluntarily filed returns and otherwise admitted agentstatus, he is not a person 'treated as the agent' under section 163 for the purpose of attracting the twoyear bar in section 149(3); treatment under section 163(2) is an adjudication required only where agentstatus is disputed, and persons covered by section 163(1) and natural agents under general law are representative assessees with the same liabilities once agentstatus is established. Issues Involved:1. Applicability of the time limit under section 149(3) to the assessee who voluntarily filed the return of his principal non-resident.2. Whether the assessee was treated as an agent under section 163 of the Income-tax Act.3. Whether an order under section 163(2) is mandatory for treating a person as an agent of the non-resident.4. The distinction between an agent under general law and a statutory agent under section 163.Issue-wise Detailed Analysis:1. Applicability of the time limit under section 149(3):The controversy arose when M/s. J.M. Baxi & Co. filed returns as the agent of a non-resident Singapore company, M/s. Thoresen Chartering Singapore Pte. Ltd. (TCSPL), for assessment years 1998-99 to 2002-03. The revenue issued notices under section 148 for the first three assessment years after the expiry of the two-year period specified in section 149(3). The Special Bench was constituted to determine if the time limit under section 149(3) applied to the assessee who had voluntarily filed returns without an order under section 163 treating them as an agent.2. Whether the assessee was treated as an agent under section 163:The assessee contended that they were an agent under section 163 and thus the time limit under section 149(3) should apply. The revenue argued that the assessee was an agent under general law and not specifically treated as an agent under section 163. The Special Bench held that the assessee was not treated as an agent under section 163 since no order under section 163(2) was passed. The Bench emphasized that the term 'treated' implies an adjudication or formal recognition of the agent's status, which must precede the issuance of a notice under section 148.3. Whether an order under section 163(2) is mandatory:The Bench concluded that an order under section 163(2) is mandatory for treating a person as an agent of the non-resident. This order must be passed after giving the person an opportunity to be heard. The Bench referred to several judicial precedents, including the decision of the Punjab & Haryana High Court in Kanhaya Lal Gurmukh Singh, which held that passing an order under section 163(2) must precede the issuance and service of a notice under section 148.4. Distinction between an agent under general law and a statutory agent under section 163:The Bench distinguished between an agent under general law (section 160(1)(i)) and a statutory agent under section 163. It held that the provisions of section 163(2) apply to both categories of agents. The Bench noted that the term 'agent' in section 160(1)(i) includes persons treated as agents under section 163. Therefore, the liabilities and obligations of agents under general law and statutory agents are similar.Conclusion:The Special Bench concluded that the assessee, who voluntarily filed returns as an agent of the non-resident, was not treated as an agent under section 163. Consequently, the time limit under section 149(3) did not apply. The Bench emphasized that an order under section 163(2) is mandatory to treat a person as an agent of the non-resident, and such an order must precede the issuance of a notice under section 148. The Bench answered the question referred to it in the negative, in favor of the revenue and against the assessee.