TMI Blog1987 (2) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... sector undertaking. The assessee-company had entered into collaboration agreement with Power Gas Corporation, U.K., as is seen from the agreement dated April 24, 1966. The object with which the agreement was entered into was for designing and constructing synthesis gas plants based on I.C.I's steam reforming process and ammonia synthesis plants based on I.C.I's ammonia synthesis process. Regarding payments, the assessee was to pay to the Power Gas Corporation, U.K., what was known as I.C.I. fees, and the Power Gas Corporation will, in turn, transfer this amount to the I.C.I., U.K., another non-resident company. The total I.C.I. fees thus payable by the assessee-company under the agreement was fixed at Rs. 49,42,830. A sum of Rs. 5,67,210 out of this, was paid by the assessee outside India during the assessment year l968-69.For the subsequent years also, similar payments were made by the assessee. So far as these payments are concerned, the Income-tax Officer has treated the assessee company as the agent of the non-resident foreign company under section 163 of the Income-tax Act and assessed the aforesaid amounts in the hands of the assessee-company, overruling the objections the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e " Income-tax Act ". The sections in this Chapter which are relevant for the purpose of disposing of the issues are sections 160(1)(i), 161, 162, 163 and 166. Before we deal with the points arising for consideration, we shall state certain fundamental principles that should be borne in mind in construing these sections. The Income-tax Act focuses its attention primarily on the person who, in fact, receives the income, though, he may not have the ownership or enjoyment thereof. The statute thus makes the person who carries on the business or profession liable to pay the tax although he is not the owner of the business. It is also worthy of note that in several instances, convenience of assessment and collection of the tax is the reason for making the person, though not the proprietor of the business and accordingly not entitled to enjoy the income therefrom, liable for the tax. (See Executors of the Estate of J. K. Dubash v. CIT [1951] 19 ITR 182 (SC)). It is profitable in this connection to refer to the following observations of Lord Cave in A. W. Williams (Surveyor of Taxes) v. W. M. G. Singer [1920] 7 Tax Cases 387 at page 411): ".. ......... if the Income-tax Acts are exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of a representative assessee, he shall not, in respect of the same income, be assessed under any other provisions of the Income-tax Act. While considering the scope of section 161(1), it is fruitful if we take into account the object with which section 166 is enacted. These two sections together would constitute code and, therefore, to understand the scope of one, it is necessary to consider the scope of the other also. Section 166 virtually overrides the provisions contained in sections 160 to 165 and confers power on the Income-tax Officer to assess either the representative assessee or the person represented by him (the principal) in respect of the income made mention of in section 160 and recover the tax thus levied from the said assessee. Section 162 provides that a representative assessee who pays any tax on behalf of the person whom he represents is entitled (a) to recover from such person the tax so paid, and (b) to retain out of any moneys that may be in his possession or that might come to him in his representative capacity, an amount equal to the tax so paid by him, and (c) to obtain certificate from the Income-tax Officer specifying the amount to be retained, pending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment initiated proceedings against the non-resident to assess his income other than the income in question, it does not mean that the Department has abandoned its power to make an assessment on the agent of the said non-resident, in respect of the income earned by, or derived to, the non-resident, through him. It is true that the tax is levied on the total income and the total income of any previous year of an assessee includes all income from whatever sources they are derived. However, it is significant to note that the charge of tax on the total income of an assessee is made subject to and in accordance with the provisions of the Income-tax Act. The assessment of the income of a non-resident assessee in the hands of a representative following the procedure prescribed under Chapter XV of the Income-tax Act will be an assessment in accordance with the Income-tax Act. The said assessment would, therefore, be a valid assessment. Even after such assessment on the representative assessee, the other incomes of the non-resident can be assessed directly in the hands of the non-resident. So long as the assessing authority has the power to exercise the option to make an assessment of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. Those assessments are already over. From the materials on record, it becomes clear to us that this item which is said to be assessed in the hands of the assessee is not included in the assessments made on the non-resident. What appears to us is that such non-assessment of this item of income on the non-resident assessee is not by any decision on the merits of the case of includibility but only an omission on the part of either the assessee or the assessing authority at Calcutta, because we are assured by the departmental representative that reassessment proceedings against the non-resident assessee are in the offing at Calcutta. " Taking advantage of the above observation, learned counsel for the assessee submits that since the non-resident has already been assessed, it is not possible under law to have a separate assessment of the income the non-resident has earned through the assessee-company against it in representative capacity. In support of this argument, learned counsel relied on the decision of the Madras High Court in Abdul Azeez Dawood Marzook v. CIT [1958] 33 ITR 154. In that case, the Madras High Court was considering the constitutional validity of section 42 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trust [1977] 108 ITR 555, be ignored in favour of general provision. Thus, if a fiscal enactment makes a special provision regarding the manner in which the burden of taxation shall be borne by a particular set of assessees, then the said special provisions shall prevail over the general provision. Chagla C.J. in CIT v. Balwantrai Jethalal Vaidya [1958] 34 ITR 187 (Bom), has observed as follows (at pages 194 and 195): " If the assessment is upon a trustee, the tax has to be levied and recovered in the manner provided in section 4l. The only option that the Legislature gives is the option embodied in sub-section (2) of section 41, and that option is that the Department may assess the beneficiaries instead of the trustees, or having assessed the trustees, it may proceed to recover the tax from the beneficiaries. But, on principle, the contention of the Department cannot be accepted that, when a trustee is being assessed to tax, his burden which will ultimately fall upon the beneficiaries should be increased and whether that burden should be increased or not should be left to the option of the Department. The basic idea underlying section 41, and which is in conformity with princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciple (borrowing the observations of Chagla C.J. in Vaidya's case [1958] 34 ITR 187 (Bom), with appropriate changes introduced in the said observation to suit the wording of this sub-section) is that the liability of the representative assessee should be co-extensive with that of the non-resident and in no sense a wider or larger liability. It is, therefore, clear that every case of assessment of a representative assessee shall be in accordance with sub-section (1) of section 161 ; and it is equally clear that although the representative assessee is assessed, the assessment must be made in the manner laid down in Chapters II to XII of the Income-tax Act. This sub-section comes into play after the income is computed in accordance with the provisions contained in Chapter IV. Then the question of payment of tax arises and it is at that stage the mandate of this sub-section comes to the fore. What is that mandate ? It, in short, is this: The Revenue can levy the tax on the said income and recover it only in the manner laid down in the said sub-section. It is in this background that the main question, namely, whether the Department has the authority to assess the representative asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e words " escaped assessment ", as observed by the Supreme Court in CIT v. Narsee Nagsee Co. [1960] 40 ITR 307 (at p. 313), " apply equally to cases where a notice was received by the assessee but resulted in no assessment at all and to cases when, due to any reason, no notice was issued to the assessee and, therefore, there was no assessment of his income. " This section, although it is part of a taxing Act, " imposes no charge on the subject, and deals merely with the machinery of assessment". (See CIT v. Mahaliram Ramjidas [1940] 8 ITR 442 at 448 (PC) ). It can thus be seen that the proceedings initiated under this section can as well be for the purpose of assessing for the first time, the income which is chargeable under the Income-tax Act. So far as the income in dispute is concerned, it is chargeable either in the hands of the assessee in the manner provided for under section 161, in his capacity as representative assessee, or in the hands of the non-resident. Since this income has not already been subjected to tax, the same is liable to be assessed. Such assessment can be had either by initiating proceedings under section 147 against a non-resident or the agent, because he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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