TMI Blog1984 (12) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... non-resident company, namely, M/s. International Grainvaying Company Incorporated on a total income of Rs. 2,75,000 on the basis of return filed by the nonresident company. It appears that the non-resident company subsequently closed its business in India and its managing director and directors left India for New York. Thereafter, on December 6, 1972, the Income-tax Officer served a notice on M/s. Premnath Diesels Grinvaying Division requiring it to show cause why it should not be treated as agent of the non-resident under section 163(1)(b) of the Income-tax Act, 1961. The appellant firm objected on the ground that it had no business connection with the non-resident company and it should not be charged to tax on the income of the nonresident. By his order dated February 12, 1974, the Income-tax Officer rejected this contention and treated M/s. Premnath Diesels Grainvaying Division as an agent of the nonresident company. On March 2, 1974, demand notice for the recovery of the amount of Rs. 2,55,294 was served on the appellant. M/s. Premnath Diesels Grainvaying Division preferred an appeal to the Appellate Assistant Commissioner who confirmed the order of the Income-tax Officer in tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that once the Department having chosen to assess the non-resident company, it was not open to the Department to assess the appellant as a representative assessee of the non-resident. A concurrent assessment could not be made on an agent. This assessment would also be barred by time under section 149(3) of the Income-tax Act since the original assessment against the non-resident company was made on January 11, 1972, and the order under section 163(1)(b) was purported to be made on February 12, 1974. In support of his first contention, reliance was placed by Mr. G. C. Sharma on the judgment of the Supreme Court in the case of CIT v. R. D. Aggarwal and Co. [1965] 56 ITR 20. The Supreme Court while interpreting the term " business connection " within the meaning of section 42(1) of the Indian Income-tax Act, 1922 held (p. 24): " The expression ' business ' is defined in the Act as any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture, but the Act contains no definition of the expression 'business connection' and its precise connotation is vague and indefinite. The expression 'business connection' undoubtedly means somet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provident fund for the labour and certain office and miscellaneous expenses. Counsel submitted that if the appellant had refused to supply the labour, the nonresident company could have engaged labour directly or through other sources and the business of the non-resident company would not have been affected in any manner whatsoever. There was no profit sharing between the non-resident company and the appellant firm. No amount was paid by the appellant company to the non-resident company and in fact a sum of Rs. 2,18,432 was paid by the non-resident company to the appellant on which the appellant firm was separately assessed and tax on that income had already been paid. Mr. Wazir Singh, learned counsel for the Department, submitted that it was not necessary to have any profit sharing between the non-resident company and the appellant firm in order to show that there was a business connection between the two. It was submitted that there was intimate relation between the non-resident company and the appellant company inasmuch as all the work was done by the appellant company. Reliance was placed by the counsel for the Department on the judgment of the Supreme Court in the case of B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , be held to be an agent having any business connection with the non-resident as envisaged under section 163(1)(b) of the Income-tax Act, 1961. We now come to the second contention raised by Mr., G. C. Sharma, advocate for the appellant. It is an admitted fact that the non-resident company, M/s. International Grainvaying Incorporated, filed its return on August 25, 1969, and was assessed under section 143(3) of the Income-tax Act on January 11, 1972. It was only on February 12, 1974, that an order under section 163(1)(b) was passed by the Income-tax Officer declaring the present appellant as an agent and treating him as a representative assessee, of the non-resident. In none of the cases cited by the counsel on both the sides, an order under section 163(1)(b) was sought to be made after the non-resident was assessed on the return filed by the non-resident and without giving any opportunity to the agent to make its objections and subjecting it to the normal process of assessment under the Income-tax Act. In the case of CIT v. Claggett Brachi Co. Ltd. [1975] 100 ITR 46, the Andhra Pradesh High Court held that the. Department cannot make assessment on both the agent and the prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntative assessee. The Department having chosen to assess the non-resident, assuming the appellant could be treated as an agent, could not tax the agent as a representative assessee. The only thing that could be done at this stage would be under section 167 of the Act to recover the amount of tax payable by the nonresident from the assets (of the non-resident) which had vested in the hands of the agent. In the present case, no property of the non-resident had vested in the hands of the agent. Therefore, no recovery could be made under section 167 of the Act. In any event, the question of recovery of tax was not before the Appellate Assistant Commissioner. The only question before the Appellate Assistant Commissioner was whether the appellant could be treated as an agent tinder section 163(1)(b) of the Act. We, therefore, answer the first question in Reference Application No. 261 (Del) of 1975-76 in the affirmative, in favour of the assessee and against the Department and the second question in Reference Application No. 252 (Del) of 1975-76 in the negative, in favour of the assessee and against the Department. The parties are left to bear their own costs. - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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