Agency under income-tax law needs a direct nexus with non-resident income; indirect commercial links are not enough.

Section 163 agency liability under the Income-tax Act requires a real and direct nexus between the proposed agent and the non-resident's income; a mere economic, contractual, or indirect commercial link is insufficient. On the facts described, the expatriate personnel remained attached to the foreign associate concern, no employer-employee relationship with the assessee was shown, and the assessee lacked control over their engagement or dismissal beyond requesting their return. Indemnity clauses and payment under the commercial arrangement did not by themselves satisfy the statutory conditions, so the assessee could not be treated as an agent under section 163.

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Issues: Whether the assessee could be treated as an agent of the expatriate personnel under section 163 of the Income-tax Act, 1961.

Analysis: The assessee had deployed expatriate personnel under a technical assistance arrangement under which the original employer remained the foreign associate concern. The Tribunal held that section 163 requires a live nexus between the person sought to be treated as agent and the income of the non-resident, and that a mere economic or indirect connection is insufficient. It found that the expatriates did not receive income directly or indirectly from the assessee, that no employer-employee relationship with the assessee was established, and that the assessee had no control over their engagement or dismissal beyond requesting their return to the original employer. The Tribunal also held that indemnity clauses and the fact that fees were paid under the commercial arrangement did not by themselves satisfy the statutory conditions for agency.

Conclusion: The assessee could not be validly treated as an agent under section 163 of the Income-tax Act, 1961, and the assessment on that basis was unsustainable.

Ratio Decidendi: To fasten agency liability under section 163, the Revenue must establish a real and direct nexus between the proposed agent and the non-resident's income; a mere indirect commercial link is not enough.

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