TMI Blog1970 (12) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act, 1961, before a notice under section 148 can be validly issued against him ? 2. If the question No. 1 is answered in the affirmative, whether the fact that the assessee filed return as an agent of Didar Singh Chug without admitting that it was his agent, cured the assessment order of the illegality, in the initiation thereof ? " The relevant assessment year is 1960-61. The previous year ended on 31st March, 1960. On 9th of January, 1963, the Income-tax Officer issued a notice under section 163 of the Income-tax Act, 1961, to Messrs. Kanhayalal Gurmukh Singh (hereinafter referred to as " the assessee-firm ") to show cause why it should not be treated as an agent of the non-resident, Didar Singh Chug. The assessee-firm did not appear in response to this notice before the Income-tax Officer. The Income-tax Officer also on the due date did not pass any order under section 163 deciding one way or the other as to whether the assessee-firm was the agent of Didar Singh Chug. The Income-tax Officer then on 28th February, 1963, issued notice under section 148 of the Act against the assessee-firm as the agent of the non-resident, Didar Singh Chug. This notice was served on 4th Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------------------------------------------- 30. Appeal against assessment under 246. Appealable orders.--Any assessee, this Act.--(1) Any assessee objecting to the aggrieved by any of the following orders amount of income assessed under section 23 of an Income-tax Officer may appeal to or section 27, or the amount of loss computed the Appellate Assistant Commissioner under section 24 or the amount of tax against such order -- .......... determined under section 23 or section 27, or denying his liability to be assessed under (g) an order made under section 163 this Act, or objecting to the cancellation by an treating the assessee as the agent of a Income-tax Officer of the registration of a non-resident. firm under sub-section (4) of section 23 or to a refusal to register a firm under sub-section (4) of section 23 or section 26A, or to make a fresh assessment under section 27, or objecting to any order under sub-section (2) of section 25 or section 25A or sub-section (2) of section 26 or section 28, made by an Income-tax Officer, or objecting to any penalty imposed by an Income-tax Officer under sub-section (6) of section 44E or sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (2) of 148. (1) Before making the assessment, section 22 and may proceed to assess or re- reassessment or recomputation under sec- assess such income, profits or gains or tion 147, the Income-tax Officer shall serve recompute the loss or depreciation allowance; on the assessee a notice containing all or and the provisions of this Act shall, so far any of the requirements which may be as may be, apply accordingly as if the notice included in a notice under sub-section (2) of were a notice issued under that section 139; and the provisions of this Act sub-section : shall, so far as may be, apply accordingly Provided that the Income-tax Officer as if the notice were a notice issued shall not issue a notice under clause (a) of under that sub-section. sub-section (1)-- (2) The Income-tax Officer shall, before (i) for any year prior to the year end- issuing any notice under this section, record ing on the 31st day of March, 1941 ; his reasons for doing so. (ii) for any year, if eight years have 149. (3) If the person on whom a notice elapsed after the expiry of that year, unless under section 148 is to be served is a person the income, profits, or gains chargea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer, a capital but deals with or through a non-resident asset in India : broker who is carrying on such transactions Provided that a broker in India who, in in the ordinary course of his business and respect of any transactions, does not not as a principal, such first-mentioned broker deal directly with or on behalf of a shall not be deemed to be an agent under this non-resident ; principal but deals with section in respect of such transactions : or through a non-resident broker shall Provided further that no person shall be not be deemed to be an agent under deemed to be the agent of a non-resident this section in respect of such person, unless he has had an opportunity of transactions, if the following conditions being heard by the Income-tax Officer as to are fulfilled, namely :-- in his liability. (i) the transactions are carried on in the the ordinary course of business through the first mentioned broker ; and (ii) the non-resident broker is carrying on such transactions in the ordinary course of his business and not as a principal. (2) No person shall be treated as the agent of a non-resident unless he had had an opportunity of being heard by the Income-tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is that the change in the provision made it incumbent on the Income-tax Officer that the question of agency should be settled first and before the assessment proceedings are commenced against the agent as the representative of the assessee. Particular stress is laid on the fact that a right of appeal has been provided against an order holding a person to be an agent, whereas no such corresponding right was provided in the 1922 Act. After giving the matter my careful consideration, I am clearly of the view that the authority of the decision of the Privy Council has not been shaken or otherwise affected by the change in the phraseology of the corresponding provisions in the 1961 Act. The ratio of the Privy Council decision which was rendered when the 1922 Act was in force is that it is not incumbent on the Income-tax Officer to decide the question of agency until the time comes to make an assessment under section 23, corresponding to section 143 of the 1961 Act. There is nothing in the 1961 Act which makes it incumbent on the Income-tax Officer to decide the question of agency before he proceeds to make an assessment. In this respect the position remains the same as it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct has affected the validity of the decision of the Privy Council in Nawal Kishore's case. In that case the provision of law under consideration was section 43 of the 1922 Act which described the persons who could be deemed to be the agent of a non-resident in the taxable territories and the requirement was that the Income-tax Officer should issue to the person, whom he wanted to treat as the agent of the non-resident, a notice of his intention to treat him as such (and there was no requirement that before issuing the notice to him calling for the return of the income of the non-resident, an order should be passed, declaring him or treating him as the agent of the non-resident). There is no such corresponding provision in section 163 of the 1961 Act. Sub-section (1) of this section only describes the persons who can be treated as " agent " of a non-resident and sub-section (2) provides that " no person shall be treated as the agent of a non-resident unless he had had an opportunity of being heard by the Income-tax Officer as to his liability to be treated as such ". It is, therefore, necessary under this sub-section not only to issue a notice of his intention to treat the person as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer and the persons who could be deemed to be the " agent " of the non-resident were described in that section. No obligation was cast on the Income-tax Officer to decide before issuing the notice calling for the return, to make an adjudication as to the status of the addressee of the notice as an " agent " of the non-resident and as such liable to file the return of income and pay income-tax on his behalf. This difference in the language has not been noticed by the learned commentators who have been cited by my learned brother in support of his view. I also find force in the submission of the learned counsel for the respondent that the provision of an appeal against an order passed by the Income-tax Officer under section 163 of the 1961 Act and by clause (g) of section 246 of that Act also leads to the conclusion that an order treating a person as an agent of a non-resident has to be passed before issuing the notice under section 149(3) so that he can file an appeal against that order to avoid the submission of the return of the non-resident's income by him and consequent harassment of producing accounts, etc., and replying to the various queries of the Income-tax Officer. Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due course under section 139(2) calling for a return of income the relevant assessment year is specified, the assessee can have no grievance in point of procedure merely because the year for which he is proposed to be treated as an agent is not mentioned in the notice under this section. " As stated above, this commentary is based on Nawal Kishore's case and it is significant to note that the learned commentators do not refer to section 163 or section 149(3) which require interpretation in the present case nor do they give their own interpretation of those sections. They merely refer to section 43 of the 1922 Act and section 139(2) of the 1961 Act and reproduce what is stated in the Privy Council judgment. This commentary is, therefore, of no help in the decision of the point before us. Sundaram, in his commentary, has stated, in the tenth edition of his book, volume 1, at page 1127, that : " It is not necessary that orders should be passed under section 163 before a notice is issued on the agent under section 139(2) and it is open to the Income-tax Officer to postpone the final determination of the question of agency until the time comes to make an assessment under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 148, the procedure is different in so far as the agent of a non-resident is concerned and unless the specific procedure prescribed in a particular case is followed, the initiation of proceedings is bad in law and the assessment made in consequence thereof has to be quashed. On that basis, it can be said that the Privy Council decision in Nawal Kishore's case may still hold good qua section 139 of the 1961 Act, on which I express no firm opinion, but it can certainly not be applied to a notice to be issued under section 148 of that Act to the agent of a non-resident. The commentary by Sampath Iyengar, which has been reproduced by my learned brother, is based only on Nawal Kishore's case and the provisions of section 149(3) of the 1961 Act have not been adverted to. Whatever I have said in the preceding paragraph also applies to this commentary. I am, therefore, of the opinion that what is stated in these commentaries does not concern the interpretation of sections 149(3) and 163 of the 1961 Act with which we are concerned in this case and is, therefore, of no help. It is a well-settled principle of interpretation of statutes that every section of the statute must receive such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns referred were as follows : " 1. Whether a person should first be treated as an agent of a non-resident by an order under section 163 of the Income-tax Act, 1961, before a notice under section 148 can be validly issued against him ? 2. If the question No. 1 is answered in the affirmative, whether the fact that the assessee filed return as an agent of Didar Singh Chug without admitting that it was his agent, cured the assessment order of the illegality in the initiation thereof ? " The relevant assessment years is 1960-61 and the accounting year ended on 31st March, 1960. On 9th January, 1963, the Income-tax Officer, " B " Ward, Amritsar, issued a notice to Messrs. Kanhayalal Gurmukh Singh (hereinafter referred to as " the assessee ") under section 163 of the Income-tax Act, 1961 (hereinafter referred to as " the Act "), asking the assessee to show cause why it should not be treated as an agent of the non-resident, D. S. Chug, for all purposes of income-tax. The ground given was that there were business connections between the aforesaid non-resident and the assessee. The assessee was asked to show cause on 22nd January, 1963, at the office of the Income-tax Officer. This not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the non-resident before a notice under section 148 of the Act can be validly issued against him. It was not denied that under the Income-tax Act of 1922 (hereinafter referred to as " the old Act "), an Income-tax Officer was not called upon to decide the status of a person who was proposed to be treated as an agent of the non-resident under section 43 of the old Act and that this matter could be postponed by the Income-tax Officer till after a return had been filed. In other words, the question, whether a particular person was to be treated as an agent of a non-resident, could be settled on the same date as an order of assessment was passed by the Income-tax Officer. This proposition is well settled in view of the decision of the Privy Council in Commissioner of Income-tax v. Nawal Kishore Kharaiti Lal . The contention of the assessee, which was accepted by the Income-tax Appellate Tribunal and by B. R. Tuli J., however, was that the words used in sections 163(2) and 149(3) of the Act are materially different from the words used in the corresponding sections 43 (second proviso) and 34(1) of the old Act and that the change in the phraseology of these two sections of the Act (of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect : " (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment...... to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant year. " The argument on behalf of the department was that there is, in fact, no substantial difference in the provisions as they existed under the old Act and as they are under the Act (of 1961). The word "deemed " appearing in the old Act and the word " treated " in the Act (of 1961) have both the same meaning. On the other hand, the contention of the assessee was that the words used in section 149(3) of the Act are " treated " as the " agent " and he can be so treated under section 163 of the Act only after he has been given an opportunity to be heard under sub-section (3) of section 163 and, consequently, before a notice under section 148 of the Act can validly be issued against him, he must first be treated as an agent and that, therefore, the Income-tax Officer must, after giving an opportunity to the person co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be an agent of the non-resident, could only be taken as one of the grounds of attack against the assessment order. The corresponding provision in the Act (of 1961) providing a right of appeal against the order of an Income-tax Officer is in section 246. Under this an assessee has a right of appeal when aggrieved in respect of various orders of the Income-tax Officer. These orders are detailed under several clauses and we are concerned with clauses (c) and (g), which are as follows : " (c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any order of assessment under sub-section (3) of section 143 or section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed. " This clause substantially corresponds to section 30(1) of the old Act. Clause (g) of section 246 of the Act is as follows : " (g) an order made under section 163 treating the assessee as the agent of a non-resident. " Sub-section (1) of section 249 of the Act provides for the form of appeal and sub-section (2) deals with the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is treated as an agent could challenge this matter so as to avoid further botheration to himself in facing the assessment. The provisions of sections 246 and 249 of the Act leave no manner of doubt that, before an Income-tax Officer proceeds to assess the income, he must make up his mind to treat the person concerned as an agent or not to treat him as such and, therefore, he has to pass an order under section 163 of the Act before he initiates the proceedings by issuing a notice under section 148 of the Act. Even if there was some doubt, whether the phraseology of sections 149(3) and 163(2) of the Act was so different from that of sections 34(1) (second proviso) and 43 of the old Act as to show that is was necessary for the Income-tax Officer to pass an order before issuing a notice under section 148 of the Act, that doubt is set at rest on examining the provisions of sections 246 and 149 of the Act. So far as the case of Nawal Kishore Kharaiti Lal is concerned, that was a decision given by the Privy Council regarding an assessment which related to the year 1926-27, when even the second proviso of section 34(1) of the old Act did not exist and, in any case, their Lordships of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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