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TMI Blog1970 (12) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... is 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 March, 1963. The assessee-firm on 9th May, 1963, filed a return under protest as agent of the non-resident, Didar Singh Chug. The income was returned as nil. A foot-note was added to the return stating that the assessee-firm was not agent of the said non-resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-section (5) of section 44F or sub-section (1) of section 46, or objecting to a refusal of an Income-tax Officer to allow a claim to a refund under section 48, 49 or 49F, or to the amount of the refund allowed by the Income-tax Officer under any of those sections, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 chargeable to treated as the agent of a non-resident under income-tax which have escaped assessment section 163 and the assessment, or have been under-assessed or assessed reassessment or recomputation to be made at too low a rate or have been made the in pursuance of the notice is to be made on subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf 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 Officer as to his liability to be treated as such. " At this stage it will be proper to reproduce the relevant part of the Privy Council decision in Nawal Kishore's case : " The first question for decision is whether by the terms of the Act it is necessary to the validity of a notice calling for a return of income under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 was under the 1922 Act. He can do both the things simultaneously. In other words, the Income-tax Officer can decide the question of agency and also proceed to make the assessment on that basis. (The view I have taken finds support from three learned commentators on the Law of Income-tax in India). They have not opined that the au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 the agent of a non-resident, but to pass an order treating him as an agent of the non-resident after hearing him. This result also follows from the language of sub-section (3) of section 149 of the 1961 Act wherein it is mentioned that " if the person on whom a notice under section 148 is to be served is a person treated as the agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Previously, in the 1922 Act, no appeal was provided against an order treating a person as an agent of a non-resident. Under section 30 of that Act, in the appeal against the assessment order, the liability to assessment could be challenged by the assessee. That cannot amount to the same thing as an appeal against the order treating a perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 143. " In support of this statement, reliance has been placed on Nawal Kishore's case and Blue Star Engineering Co. (Bombay) (P.) Ltd. v. Commissioner of Income-tax, which is also a decision under section 43 of the 1922 Act and does not deal with sections 149(3) and 163 of the 1961 Act and is, therefore, of no avail. The learned commentator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishore'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 construction as the language in its plain meaning imports, that is, strict grammatical meaning of the words is the only safe guide. Moreover, in interpreting taxing statutes, if the language admits of two interpretations, one favourable to the assessee has to be preferred to the one favouring the revenue. The change of language made in sections 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 notice is annexure " A " in the paper book. The assessee did not appear in response to this notice. No order was passed under section 163 of the Act by the Income-tax Officer treating the assessee as the agent of the non-resident. On 28th February, 1963, a notice under section 148 of the Act, calling upon the assessee to submit a return in the capacity of be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 1961) makes it clear that an Income-tax Officer is bound to make an order taking a decision treating the person concerned as an agent of the non-resident before he can proceed to assess that person as an agent by issuing a notice under section 148 of the Act. This contention of the assessee, according to the Income-tax Appellate Tribunal and B. R. Tuli J., f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. " 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 concerned to be heard, take a decision, whether he would like to treat him as an agent or not. The mere fact that the Income-tax Officer had, by issuing him a notice, like the notice, annexure " A ", expressed his intention to treat him as an agent, is not the same thing as actually treating him as such. Under section 43 of the old Act after the Income-tax Officer had issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of limitation. Sub-section (2) of section 249 of the Act is to the following effect : " (2) The appeal shall be presented within thirty days of the following date, that is to say,-... (b) where the appeal relates to any assessment or penalty, the date of service of the notice of demand relating to the assessment or penalty, or (c) in any other case, the date on which intimati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass 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 the Privy Council were dealing with the provisions of the old Act, which, as pointed out above, were different from the provisions under the new Act. The ratio of that case would not be applicable to the facts of the present case. Agreeing with the view taken by B. R. Tuli J., therefore, I would answer the first question in the affirmative. So far as the second question is concerned, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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