TMI Blog2012 (12) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee as an agent of the foreign company – Held that:- Mere passing reference or remark in the reasons recorded which ordinarily unless the assessee demands, are not supplied to the assessee, cannot be seen as a formal order against which the assessee could exercise his right of appeal. Following the decision in case of Kanhaya Lal Gurmtjkh Singh (1970 (12) TMI 33 - PUNJAB AND HARYANA HIGH COURT) that before issuing notice u/s 148, the AO must pass an order u/s 163(2) treating the assessee as an agent. In favour of assessee - SPECIAL CIVIL APPLICATION NOS. 8857 & 8858 OF 2003 - - - Dated:- 4-9-2012 - AKIL KURESHI AND MS. HARSHA DEVANI, JJ. Mrs. Swati Soparkar for the Petitioner. Mrs. Mauna M Bhatt for the Respondent. JUDGMENT Akil Kureshi, J. - These petitions arise in common factual and legal background. They have been heard together and are being disposed of by this common judgement. Facts as arising in Special Civil Application No 8858 of 2003 be noted: 1.1 The petitioner is a company registered under the Companies Act and is regularly assessed to tax. For the assessment year 1999-2000, the petitioner filed its return of income on 20.12.1999 declaring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payments made by the petitioner-company to the foreign company included the cost of the personnel. It was pointed out that Mr. Ivo Perica had not offered the income earned by him arising in India for taxation in Germany. Since Mr. Ivo Perica was employed in India, on such receipts, he was liable for taxation and since the petitioner-company was liable for paying taxes connected with execution of the order, it was also liable for paying taxes on behalf of Mr. Ivo Perica. 1.6 The petitioner-company opposed such notice by filing a detailed reply dated 25.03.2002. In such reply, it was stated that even if Mr. Ivo Perica's salary during employment in India, may be taxable in India, the petitioner-company cannot be held liable for the same as he was not an employee of the company. 1.7 It is not in dispute that pursuant to the above noted show-cause notice dated 15.03.2002, the Assessing Officer passed no order under Section 163(2) of the Act. Instead, he issued a notice dated 28.03.2003 under Section 148 of the Act indicating that he had reason to believe that income chargeable to tax for the assessment year 1999-2000 has escaped assessment within the meaning of Section 147 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d changes in the corresponding provisions between the two statutes, it was necessary that the Assessing Officer should pass an order under Section 163(2) of the Act before issuing notice under Section 148 against a representative assessee. 2. In case of CIT v. Belapur Sugar Allied Industries Ltd. [1983] 141 ITR 404 wherein, the Bombay High Court followed the decision of the Punjab and Haryana High Court in case of Kanhaya Lal Gurmukh Singh (supra) and held as under: "In our opinion, it is necessary to concur with the view taken by the majority of the judges in Kanhaya Lal's case [1973] 87 ITR 476 (P H). This view appears to be in accord with the plain language of the statutory provisions, and we are inclined to agree with the majority view that the decision of the Privy Council in Nawal Kishore's case [1938] 6 ITR 61, is no longer applicable to the I.T. Act, 1961, by reason of the specific statutory changes, which the Division Bench of the said court has noted in extenso. If the right of appeal of the assessee is to have any real meaning then the decision under Section 163 must be given previous to the notice under Section 148 being issued to an assessee on the basis that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e root of the matter. 7. Learned senior counsel, Mr. Bhatt for the department opposed the petition raising following contentions: 1. Drawing our attention to the reasons recorded by the Assessing Officer for issuing notice under Section 148 of the Act, counsel submitted that the petitioner-company had made payments to a foreign-company for purchase of machinery which contract included the erection work also. The foreign company had deputed one of its employees for supervising such erection work. Such person had received payment for the work done in India. He was liable, therefore to pay tax. Not having done so, the petitioner, as an agent of Mr. Ivo Perica, was liable to pay tax in terms of Section 160 of the Act. 2. Counsel contended that the reasons recorded would show the decision taken by the Assessing Officer to reject the assessee's opposition to be treated as an agent of the non-resident. Same should be treated as an order envisaged under Section 163(2) of the Act. 3. Counsel further submitted that any defect or inconsistency in the notices would not vitiate the entire proceedings. He relied on Section 292-B of the Act to contend that the notice issued should n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in this Chapter, 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. Section 163 of the Act pertains to who may be regarded as agent and reads as under: 163. (1) For the purposes of this Act, "agent" in relation to a non-resident, includes any person in India- (a) who is employed by or on behalf of the non-resident; or (b) who has any business connection with the non-resident; or (c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or (d) who is the trustee of the non-resident; and includes also any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India: Provided that a broker in India who, in respect of any transactions, does not deal directly with or on behalf of a non-resident principal but deals with or through a non-resident broker shall not be deemed to be an agent under this section in respect of such transactions, if the following conditions are fulfilled, namely:- (i) the transactions are carried on in the ordinary course of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salary charges etc to Mr. Ivo Perica, Engineer of the German company. Therefore, it is not an agent of Mr. Ivo Perica and not liable for payment of taxes, if any. The contention of the Arvind Mills Ltd. has not been accepted and it has been held that the Arvind Mills Ltd has business connection with the non-resident German Company and Mr. Ivo Perica was the employee of the German company. Therefore, in terms of provisions of section 163(1) of the IT Act 1961, the Arvind Mills Ltd. is the agent of Mr. Ivo Perica and liable for the payment of taxes due from him." 11. From the above documents it becomes absolutely clear that as per the Assessing Officer, the petitioner should be treated as an agent of Mr. Ivo Perica. For the salary income that Mr. Ivo Perica received for the work done in India having not paid tax, such tax could be recovered from the petitioner. For some strange reason, however, when the impugned notice was issued, the petitioner was described as an agent of M/s. A Monforts Textilmachinen Gmbh and Co. i.e. the foreign company. This, in our view, is a vital defect in the notice itself. Mr. Ivo Perica and the foreign company were two different entities. The terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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