TaxTMI 
TaxTMI 
2009 (3) TMI 214
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....ion Avoidance Treaty, the freight collected in India on account of various vessels owned/chartered by TCSPL was taxable at a lower rate. The returns for above assessment years are claimed to have been accepted under section 143(1) of Income-tax Act (hereinafter 'the Act'). Subsequently, the revenue took it to be a case of escaped income as TCSPL was showing revenues by way of commission and not receipt from operation of ships. Accordingly, Assessing Officer issued notices under section 148 of the Income-tax Act, dated 6-1-2005 both to the principal as also on M/s. J.M. Baxi & Co. as agent of the non-resident. The assessments made on the principal are reported to have been cancelled as reasons in accordance with provisions of section 148 were not recorded. We are not concerned with those assessments as those assessments and related questions are pending before the regular Bench. In the case of assessments made through the agent M/s. J.M. Baxi & Co., it was found that notices issued under section 148 in the first three assessment years i.e., 1998-99, 1999-2000, 2000-01 were issued after the expiry of period of two years from the end of the relevant assessment year and were claimed to....
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....ng to the learned counsel, it did not make any difference to assessee's case if the assessee was also held to be an agent under section 160(1)(i) besides section 163 of the Act. It was not necessary that a specific order under section 163(2) of the Act should be passed as the said section is applicable both to an agent under section 160(1)(i) or to an agent under section 163(1) of the Act. In this connection, he drew our attention to the commentaries of learned author Shri N.A. Palkhivala in Law and Practice of Income-tax, Eighth Edition, Vol. 1, page 1278. The learned author has observed, "a person who is an agent of non-resident under the general law may be assessed as an agent. Even if a person is not an agent under the general law, he may still be assessed as an agent" if he is covered by clauses (a) to (d) of sub-section (1) of section 163 or is a person who has acquired by means of transfer a capital asset in India from a non-resident. 6. The learned counsel further submitted that the assessee had filed suo motu returns as agent of the non-resident. He drew our attention to assessment order for the assessment year 1998-99. This order was passed on the assessee treating it ....
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....ssment year involved. According to the learned counsel, above decision of Hon'ble Delhi High Court was the only decision on the issue involved before us and, therefore, should be followed by this Tribunal as a binding authority. For the aforesaid proposition, that only decision of a High Court, being of an authority superior than the Appellate Tribunal, should be treated as binding. The learned counsel relied upon the following decisions:- 1. CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589 (Bom.). 2. ITO v. Ranisati Fabric Mills (P.) Ltd. [2008] 116 TTJ 177 (Mum.). 3. ITO v. P.M. Suthar [1995] 53 ITD 1 (Ahd.) (TM) 4. Dy. CIT v. ING Investment Management (India) [IT Appeal Nos. 1239 & 5203 (Mum.) of 2005] 5. CIT v. Vrajlal Manilal & Co. [1981] 127 ITR 512 (MP) 6. CIT v. Smt. Nirmalabai K. Darekar [1990] 186 ITR 242 (Bom.). 7. CIT v. G.M. Mittal Stainless Steel Ltd. [2004] 271 ITR 219 (MP). 8. Sayaji Iron Works (Quary) (P.) Ltd. v. ITO [1990] 36 TTJ (Ahd.) 645. 9. Tej International (P.) Ltd. v. Dy. CIT [2000] 69 TTJ (Delhi) 650. 10. ITO v. Daga Capital Management (P.) Ltd. [2008] 26 SOT 603 (Mum.) (SB). 8. The learned counsel also argued that the fo....
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....al and notices issued by the revenue for assessment were also served on the assessee. It was immaterial that no order under section 163(2) of the Act was passed in this case. Alternatively, in case it is held that provisions of section 163(2) are mandatory, then assessment made on the assessee as 'agent of the non-resident' without complying with the mandatory provision are bad in law and are liable to be quashed. Either way, the matter has to be decided in favour of the assessee. 11. Learned DR opposed above submissions. She pointed out that assessee as 'agent' of the non-resident was engaged in booking freight from India in the ships of the non-resident principal. Therefore, to get benefit of Article 8 of DTAA between India and Singapore, assessee was submitting returns as 'agent' on behalf of the non-resident and had all along represented and accepted to be the agent of the non-resident under the law. This is an undisputed position. In these circumstances, it was argued that provisions of section 149(3) had no application. The assessee was an agent under the General Law i.e., a natural agent or a common law agent. The provision of section 163(2) was applicable only in cases o....
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.... non-resident, he would be a representative assessee within the meaning of section 160 right from the date on which he acted as agent of the non-resident and purchased the land in his name. For a person to be the representative assessee within the meaning of section 160, it is not necessary that he must have been treated as agent under section 163 because the agent of a non-resident is the representative assessee in respect of the income of the non-resident irrespective of the fact whether he has been treated as agent under section 163 or not. It is only in addition to an agent of the non-resident that persons who are treated as agent under section 163 are also included in the definition of 'representative assessee' within the meaning of section 160(1)(i) of the Act. Hazoora Singh was, therefore, a representative assessee in respect of the income of Mohinder Singh, a non-resident, during the accounting year as well as the assessment year and as such was liable to file the return under section 139 within the prescribed period." 13. Ld. DR then referred to the decision of Hon'ble Bombay High Court in the case of Jadavji Narshidas & Co. v. CIT [1957] 31 ITR 1 wherein the short ques....
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....on (2) of section 22 of the Wealth-tax Act, 1957 gives a list of the persons who can be deemed to be agents of non-resident assessees. If such persons are to be treated as agents, the requirement of giving notice will become applicable. There is no such requirement of issuing a notice to a person who is otherwise appointed as agent or who has acted as agent and who has been accepted as agent of the assessee, before the levy of penalty. Held, that the respondents had acted as agents of the assessees by filing returns voluntarily and represented the assessees throughout the assessment proceedings. In fact, they had described themselves as agent of the assessees and, thus, admitted that they were the agents of the assessees. Therefore, it was not necessary for the Wealth Tax Officer to give any further notice to them under section 22(2) before levying any penalty upon the assessees under section 18(1)(a)." 15. Ld. DR contended that to be a person 'treated as an agent under section 163' it is not necessary that there should be an order under section 163 but as persons mentioned in different clauses of sub-section (1) of section 163 are not natural agents (under the general law....
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....yana and Gujarat High Courts were direct on the point wherein distinction between agent and a statutory agent (or deemed agent) was noted and applied. The decision of Hon'ble Delhi High Court was distinguishable as the said case was a case of statutory agent under section 163. There is no consideration of provision of section 160 or 161 in the decision, which is essential for finding liability of a representative agent. It was also pointed out that income for which proceedings were taken in this case was assessable under section 9(1)(i) of the Income-tax Act. Ld. DR also distinguished other decisions relied upon by ld. Counsel for the assessee. 16. In rebuttal, ld. Counsel for the assessee stated that the decision of Hon'ble Bombay High Court in the case of Jadavji Narshidas & Co. and the decision of ITAT Pune Bench in the case of R Lines Ltd. were all in favour of the assessee. The Hon'ble Gujarat High Court had merely followed the decision of Hon'ble Bombay High Court in the case of Jadavji Narshidas & Co. Even if the assessee was a natural agent, it was also a statutory agent under section 163 of the Income-tax Act. Merely because assessee had filed returns suo motu, as a law....
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....ssee consists of, or includes, profits and gains of business, tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate: Provided that the provisions of this sub-section shall not apply where such profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him. (2) Where any person is, in respect of any income, assessable under this Chapter in the capacity of a representative assessee, he shall not, in respect of that income, be assessed under any other provision of this Act. 162. Right of representative assessee to recover tax paid-(1) Every representative assessee who, as such, pays any sum under this Act, shall be entitled to recover the sum so paid from the person on whose behalf it is paid, or to retain out of any moneys that may be in his possession or may come to him in his representative capacity, an amount equal to the sum so paid. (2) Any representative assessee, or any person who apprehends that he may be assessed as a representative assessee,....
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.... being heard by the [Assessing] Officer as to his liability to be treated as such. D. Representative assesses-Miscellaneous provisions 166. Direct assessment or recovery not barred.-Nothing in the foregoing sections in this Chapter shall prevent either the direct assessment of the person on whose behalf or for whose benefit income therein referred to is receivable, or the recovery from such person of the tax payable in respect of such income. 167 . Remedies against property in cases of representative assesses.-The Assessing Officer shall have the same remedies against all property of any kind vested in or under the control or management of any representative assessee as he would have against the property of any person liable to pay any tax, and in as full and ample a manner, whether the demand is raised against the representative assessee or against the beneficiary direct." 18. In order to decide whether assessee is an 'agent' under the General law or is a 'statutory agent' under section 163(1), we have to take into account not only above quoted provisions but also corresponding provisions of old Indian Income-tax Act, 1922. These are contained in sections 42 and 43 of ....
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....42 and 43 were satisfied. The branch at Cawnpore had a business connection with the non-resident and, therefore, the branch at Cawnpore was rightly held to be 'deemed agent' of the non-resident. Para 28 of the decision is relevant and is as under:- "28. Nandlal Bhandari & Sons of Indore are the managing agents of Nandlal Bhandari Mills Ltd., Indore, on whose behalf they have opened a branch at Cawnpore under their own control. Nandlal Bhandari & Sons supply goods to the branch at Cawnpore, which are sold in British India, and they receive a commission on the sales effected. It is true that according to clause 7 of the agreement the commission does not become payable until the annual accounts of the company have been taken, but their claim to the commission is dependent upon the sale of goods in British India. Clause 12 of the agreement even suggests that they might be competent to retain their commission before transferring the profits to the company, and this is the view which was taken by the Asstt. CIT, but even if it be held, having regard to the provisions of clause 7 that Nandlal Bhandari & Sons, are only entitled to receive their commission when the annual accounts of the....
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.... 'Whether, in the absence of a fresh notice under section 43 in respect of the assessment year 1935-36, the assessment levied on the assessee as agents for Mahavirprasad Vishwanath is valid in law.' I think that Mr. Setalvad's argument on behalf of the Commissioner that the larger question, whether notice once given under section 43 will ensure for subsequent years, does not really arise because of the action of the assessees in this particular case. I will only say that I see obvious difficulties in holding that an appointment of an agent for one year will hold good for subsequent years. In order to justify the appointment of an agent under section 43 the Commissioner has to be satisfied on certain questions of fact, and the assessee has a right to dispute his liability to be deemed the agent. It is obvious, that although an agent may fail in a particular year to resist the claim that he is an agent, circumstances may alter, and in the next year he might be able to resist the claim. However, in this particular case the agents did not dispute their liability to be assessed in respect of the year 1935-36. They were actually assessed, and they paid the tax and it seems to me th....
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.... will be liable to tax under the provisions of section 42. Now, the second proviso to section 42 throws considerable light on the interpretation of section 42 itself. That proviso gives the right to the agent to retain, out of the moneys payable by him to his principal the non-resident, a sum equal to his estimated liability under section 42, and he has also been given the right to secure from the Income-tax Officer a certificate stating the amount to be so retained pending final settlement of the liability and the certificate so obtained shall be his warrant for retaining that amount. Therefore the Legislature realising that the agent may have no right against his principal in the event of his being called upon to pay tax and being compelled to pay the tax, gives him a special right of retainer as an agent so that to the extent of that retainer at least he would be indemnified against his principal. If the interpretation sought to be put upon section 42 by the Department were correct, it would mean this that although a person may be the agent of a non-resident in respect of a small business where his principal may earn profits to the extent of a few thousands and the liabili....
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....er section 42, but his liability is restricted and limited to the income earned through his agency, income arising in respect of heads qua which he is an agent." In the case of Turner Morrison & Co. Ltd. v. CIT [1953] 23 ITR 152, their Lordship of the Supreme Court made the following observation on the statutory provisions:- "The last main point urged by Mr. Mitra is that as soon as Turner Morrison & Co. Ltd., were treated as agents under section 43, the provisions of section 42 were immediately attracted. In support of this contention Mr. Mitra relies on the decisions in Imperial Tobacco Co. of India Ltd v. The Secretary of State for India [1922] ILR 49 Cal. 721, Commissioner of Income-tax, Bombay v. Metro Goldwyn Mayer (India) Ltd [1939] 7 ITR 176 and Caltex (India) Ltd v. CIT, Bombay City [1952] 21 ITR 278 where it has been held that section 43 is only a machinery for giving effect to section 42. To say that section 43 is really only machinery for giving effect to section 42 is not to say that section 43 has no other purpose. Section 42 refers to income, profits or gains accruing or arising directly or indirectly through or from (i) any business connection in India, (ii) a....
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.... connection in the taxable territories are deemed to be income accruing or arising within the taxable territories, and if the person entitled to the income, profits or gains is not resident in the taxable territories, it is chargeable to income-tax either in his name or in the name of his agent, and in the latter case, such agent is deemed to be, for all the purposes of the Act, the assessee in respect of such income-tax. The provisos to the section enable the application of section 18, and the tax may be recovered by deduction under that section and the agent or any person who apprehends that he may be assessed as such an agent is also enabled to retain out of the money payable to the non-resident person a sum equal to his estimated liability. The section thus creates a vicarious liability, insofar as the agent is concerned, for the tax which the non-resident has to pay; but as a safeguard for him, he is enabled to retain from the money he has to pay, a sum equal to his own liability in the event of his being treated as the assessee. Section 43 lays down who can be deemed to be an agent, and it is provided that any person having any business connection with a non-resident person o....
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....that for determining liabilities of an agent, we do not turn to section 43 but must turn to section 42. Undoubtedly the assessee in that case could be "deemed to be an agent" for purpose of section 42 and for liabilities of such an agent, have to be determined in terms of section 42 and not on terms of section 43. This, according to their Lordship was clear on reading of section 42 itself and looking at the scheme of the Indian Income-tax Act. However, liability of agent under section 42 was not in respect of all income earned by the principal under the various heads, but his liability is restricted and limited to the income earned through his agency as an agent. 20.2 In the case of Turner Morrison & Co. Ltd., their Lordship of Supreme Court has observed that section 43 is only machinery for giving effect to section 42, is not to say that section 43 has no other purpose. After considering various income assessable under sections 42 and 43, their Lordship stated that the portion of section 43 which refers to the person through whom the non-resident is in receipt of any income, profit or gains does not necessarily attract the provision of section 42, for the income, profit and gai....
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....the old Act of 1922, these persons were termed as 'statutory agents' or 'deemed agent'. In the 1961 Legislation, the words "statutory agent" or "deemed agent" are no longer employed. Even if you are an 'agent' under section 163(1), your liability is equated with the agent of the non-resident under clause (i) of sub-section (1) of section 160. The agent of the non-resident, as per above provision, is agent including a person who is treated as an agent under section 163. The word "including" or "includes" enlarges the meaning of the expression and effect is to import and add things or person which would not otherwise be regarded as 'included' in that sense. The words 'include' and 'including' have been interpreted by several Courts. We may refer to the following: "The word 'include' when used, enlarges the meaning of the expression defined to comprehend not only such things as they signify according to their natural import but also those things which the clause declares that they shall include. See [P. Kasilingam v. PSG College of Technology AIR 1995 SC 1395 at 1400; CIT, AP v. Taj Mahal Hotel AIR 1972 SC 168, (1971) 3 SCC 550]." Further, on consideration of section 163, we fin....
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.... clauses is an agent as is more than clear from language of section 163, providing definition of an "agent" and having title "who may be regarded as agent". Such persons have same liabilities as a natural agent would have under the General Law. These are not persons treated as an agent under section 163 of the Act. 22. Next important question is: What is the meaning of the expression, "persons who are treated as an 'agent' under section 163"? In order to answer this question, we have once again to go to provision of section 43 of 1922 Act. The said section specifically provided that any person employed by or through whom non-resident was in receipt of income and upon whom the Income-tax Officer, "has caused a notice to be served of his intention of treating him as the agent of the non-resident person, shall for all purposes of this Act be deemed to be such an agent". As per proviso to the section, an opportunity of being heard by the Income-tax Officer was required to be given, as liability of such person, to be deemed to be an agent of non-resident. There is no similar requirement under any section as provided in section 43 of old Act, although requirement of the proviso to pro....
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....-resident has to be passed before issuing notice under section 148 of the 1961 Act." The learned CJ. while agreeing with the view expressed by B.R. Tuli, J., noted various differences between Income-tax Act, 1961 and the Old Act as under: 1922 Act 1961 Act That no appeal was provided However, under the 1961 Act, against treatment of a an appeal can be filed by a person as an agent under person who is treated as an the old Act. agent under section 163(2). Section 34(1) of the old Relevant portion of section Act provides for a notice 149 of the Act is to the being given by the ITO with following effect: regard to income that escaped assessment and the '(3) If the pers....
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....nbsp; treated as the agent of a non-resident unless he had an opportunity of being heard by the Income-tax Officer as to his liability to be treated as such.' The learned CJ. also agreed ....
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....gent of non-resident, the question of treating such person as agent of non-resident by passing an order would not arise. It would be quite an absurd situation where the person represent an agent of the non-resident or admits by his conduct by filing a return of income of the non-resident, yet the income-tax authorities are required to give him an opportunity of being heard to be treated as an 'agent' of non-resident and pass an order under section 163(2). Opportunity of being heard and passing of an order would have meaning only in cases where the person to be treated as an 'agent', denies his liability. In such a situation, the Assessing Officer is required to adjudicate and pass an order. 24. Another relevant question is whether order under section 163(2) is required to be passed only in respect of persons mentioned in sub-section (1) of section 163 or would cover the case of an agent, under law. We have already held that word 'agent' for the purpose of section 160(1)(i) is defined in section 163, the latter provision has no different meaning. Section 163(2) is a machinery section for treatment of an agent (of every kind). There is nothing in sub-section (2) of section 163 to ....
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....enue. However, in the light of clear admission of the agent here, this aspect is not arising in this case. We, therefore, need not conclusively decide this aspect. Once order on above lines is passed, such persons are equated with agents under general law and both would fall and covered under provisions of section 160(1)(i) of the Act and would have similar rights, obligations and liabilities of an agent under sections 161, 162 and 166 of the Income-tax Act. They would have to discharge liabilities and obligations under the Act and would also be entitled to retain with them out of funds belonging to the non-resident as per statutory provisions. Now whether a particular person would fall under first category or second category, would depend upon facts and circumstances of the case. This distinction is maintained under sections 149(3), 163(2), 195, 246(1)(d) etc. of the Income-tax Act. 25. In the light of above legal quoting, we proceed to examine facts of the present case. 26. In the present case, it is an undisputed position that assessee had an agreement with its principal. The salient features of the said agreement are as under:- "1. J.M. Baxi & Co. will act as the Agent....
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....ly held by their Lordships of Bombay High Court. Having regard to the act and conduct of the assessee noted above in detail, it is difficult to dispute that the assessee did not waive this benefit or privilege under the statutory provision. Therefore, the assessee agent cannot turn around and raise an objection of failure to provide an opportunity of being heard under section 163(2). The assessee was not and could not be treated as an agent under section 163 of the Act. Besides, the circumstances under which original returns in all the assessment years under reference were filed under section 139, accepting position of "agent of non-resident" remained unaltered. These unaltered circumstances are to be considered at the time of application of section 147/148 of the Act for assessment of non-resident through the agent. As pointed out by their Lordships of Bombay High Court, assessment includes reassessment. It is not possible to contend that he is an agent for filing returns under section 139(1) and for regular assessment but not for reassessment. Therefore, on the facts and circumstances of the case, provision of section 149(3) has no application in this case nor was there any neces....