TMI Blog2009 (3) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of various vessels owned/chartered by TCSPL was taxable at a lower rate. The returns for above assessment years are claimed to have been accepted under section 143(1) of Income-tax Act (hereinafter 'the Act'). Subsequently, the revenue took it to be a case of escaped income as TCSPL was showing revenues by way of commission and not receipt from operation of ships. Accordingly, Assessing Officer issued notices under section 148 of the Income-tax Act, dated 6-1-2005 both to the principal as also on M/s. J.M. Baxi Co. as agent of the non-resident. The assessments made on the principal are reported to have been cancelled as reasons in accordance with provisions of section 148 were not recorded. We are not concerned with those assessments as those assessments and related questions are pending before the regular Bench. In the case of assessments made through the agent M/s. J.M. Baxi Co., it was found that notices issued under section 148 in the first three assessment years i.e., 1998-99, 1999-2000, 2000-01 were issued after the expiry of period of two years from the end of the relevant assessment year and were claimed to be out of time under section 149(3) of the Act. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to assessee's case if the assessee was also held to be an agent under section 160(1)(i) besides section 163 of the Act. It was not necessary that a specific order under section 163(2) of the Act should be passed as the said section is applicable both to an agent under section 160(1)(i) or to an agent under section 163(1) of the Act. In this connection, he drew our attention to the commentaries of learned author Shri N.A. Palkhivala in Law and Practice of Income-tax, Eighth Edition, Vol. 1, page 1278. The learned author has observed, "a person who is an agent of non-resident under the general law may be assessed as an agent. Even if a person is not an agent under the general law, he may still be assessed as an agent" if he is covered by clauses (a) to (d) of sub-section (1) of section 163 or is a person who has acquired by means of transfer a capital asset in India from a non-resident. 6. The learned counsel further submitted that the assessee had filed suo motu returns as agent of the non-resident. He drew our attention to assessment order for the assessment year 1998-99. This order was passed on the assessee treating it as agent of the non-resident. Similar was the position in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of Hon'ble Delhi High Court was the only decision on the issue involved before us and, therefore, should be followed by this Tribunal as a binding authority. For the aforesaid proposition, that only decision of a High Court, being of an authority superior than the Appellate Tribunal, should be treated as binding. The learned counsel relied upon the following decisions:- 1. CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589 (Bom.). 2. ITO v. Ranisati Fabric Mills (P.) Ltd. [2008] 116 TTJ 177 (Mum.). 3. ITO v. P.M. Suthar [1995] 53 ITD 1 (Ahd.) (TM) 4. Dy. CIT v. ING Investment Management (India) [IT Appeal Nos. 1239 5203 (Mum.) of 2005] 5. CIT v. Vrajlal Manilal Co. [1981] 127 ITR 512 (MP) 6. CIT v. Smt. Nirmalabai K. Darekar [1990] 186 ITR 242 (Bom.). 7. CIT v. G.M. Mittal Stainless Steel Ltd. [2004] 271 ITR 219 (MP). 8. Sayaji Iron Works (Quary) (P.) Ltd. v. ITO [1990] 36 TTJ (Ahd.) 645. 9. Tej International (P.) Ltd. v. Dy. CIT [2000] 69 TTJ (Delhi) 650. 10. ITO v. Daga Capital Management (P.) Ltd. [2008] 26 SOT 603 (Mum.) (SB). 8. The learned counsel also argued that the following benches of the Tribunal had taken the same view that notice under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. It was immaterial that no order under section 163(2) of the Act was passed in this case. Alternatively, in case it is held that provisions of section 163(2) are mandatory, then assessment made on the assessee as 'agent of the non-resident' without complying with the mandatory provision are bad in law and are liable to be quashed. Either way, the matter has to be decided in favour of the assessee. 11. Learned DR opposed above submissions. She pointed out that assessee as 'agent' of the non-resident was engaged in booking freight from India in the ships of the non-resident principal. Therefore, to get benefit of Article 8 of DTAA between India and Singapore, assessee was submitting returns as 'agent' on behalf of the non-resident and had all along represented and accepted to be the agent of the non-resident under the law. This is an undisputed position. In these circumstances, it was argued that provisions of section 149(3) had no application. The assessee was an agent under the General Law i.e., a natural agent or a common law agent. The provision of section 163(2) was applicable only in cases of persons covered under various clauses of section 163(1) who were not agents un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 160 right from the date on which he acted as agent of the non-resident and purchased the land in his name. For a person to be the representative assessee within the meaning of section 160, it is not necessary that he must have been treated as agent under section 163 because the agent of a non-resident is the representative assessee in respect of the income of the non-resident irrespective of the fact whether he has been treated as agent under section 163 or not. It is only in addition to an agent of the non-resident that persons who are treated as agent under section 163 are also included in the definition of 'representative assessee' within the meaning of section 160(1)(i) of the Act. Hazoora Singh was, therefore, a representative assessee in respect of the income of Mohinder Singh, a non-resident, during the accounting year as well as the assessment year and as such was liable to file the return under section 139 within the prescribed period." 13. Ld. DR then referred to the decision of Hon'ble Bombay High Court in the case of Jadavji Narshidas Co. v. CIT [1957] 31 ITR 1 wherein the short question was whether an assessment made on the assessee as an agent of non-resident pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed to be agents of non-resident assessees. If such persons are to be treated as agents, the requirement of giving notice will become applicable. There is no such requirement of issuing a notice to a person who is otherwise appointed as agent or who has acted as agent and who has been accepted as agent of the assessee, before the levy of penalty. Held , that the respondents had acted as agents of the assessees by filing returns voluntarily and represented the assessees throughout the assessment proceedings. In fact, they had described themselves as agent of the assessees and, thus, admitted that they were the agents of the assessees. Therefore, it was not necessary for the Wealth Tax Officer to give any further notice to them under section 22(2) before levying any penalty upon the assessees under section 18(1)(a)." 15. Ld. DR contended that to be a person 'treated as an agent under section 163' it is not necessary that there should be an order under section 163 but as persons mentioned in different clauses of sub-section (1) of section 163 are not natural agents (under the general law) but statutory agents, it is necessary to pass order under section 163(2) for treating such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a statutory agent (or deemed agent) was noted and applied. The decision of Hon'ble Delhi High Court was distinguishable as the said case was a case of statutory agent under section 163. There is no consideration of provision of section 160 or 161 in the decision, which is essential for finding liability of a representative agent. It was also pointed out that income for which proceedings were taken in this case was assessable under section 9(1)(i) of the Income-tax Act. Ld. DR also distinguished other decisions relied upon by ld. Counsel for the assessee. 16. In rebuttal, ld. Counsel for the assessee stated that the decision of Hon'ble Bombay High Court in the case of Jadavji Narshidas Co. and the decision of ITAT Pune Bench in the case of R Lines Ltd. were all in favour of the assessee. The Hon'ble Gujarat High Court had merely followed the decision of Hon'ble Bombay High Court in the case of Jadavji Narshidas Co. Even if the assessee was a natural agent, it was also a statutory agent under section 163 of the Income-tax Act. Merely because assessee had filed returns suo motu, as a law abiding citizen, it could not be held that the case was not covered under section 163. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chapter in the capacity of a representative assessee, he shall not, in respect of that income, be assessed under any other provision of this Act. 162. Right of representative assessee to recover tax paid-(1) Every representative assessee who, as such, pays any sum under this Act, shall be entitled to recover the sum so paid from the person on whose behalf it is paid, or to retain out of any moneys that may be in his possession or may come to him in his representative capacity, an amount equal to the sum so paid. (2) Any representative assessee, or any person who apprehends that he may be assessed as a representative assessee, may retain out of any money payable by him to the person on whose behalf he is liable to pay tax (hereinafter in this section referred to as the principal), a sum equal to his estimated liability under this Chapter, and in the event of any disagreement between the principal and such representative assessee or person as to the amount to be so retained, such representative assessee or person may secure from the Assessing Officer a certificate stating the amount to be so retained pending final settlement of the liability, and the certificate so obtained shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies against all property of any kind vested in or under the control or management of any representative assessee as he would have against the property of any person liable to pay any tax, and in as full and ample a manner, whether the demand is raised against the representative assessee or against the beneficiary direct." 18. In order to decide whether assessee is an 'agent' under the General law or is a 'statutory agent' under section 163(1), we have to take into account not only above quoted provisions but also corresponding provisions of old Indian Income-tax Act, 1922. These are contained in sections 42 and 43 of the said Act and are as under: [reproduced from the case of Nandlal Bhandari Mills Ltd., In re [1939] 7 ITR 452 (All.)]:- "42(1) In the case of any person residing out of British India, all profits or gains accruing or arising to such person, whether directly or indirectly, though or from any business connection or property in British India, shall be deemed to be income accruing or arising within British India, and shall be chargeable to income-tax in the name of the agent of any such person, and such agent shall be deemed to be, for all the purposes of this Act, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. It is true that according to clause 7 of the agreement the commission does not become payable until the annual accounts of the company have been taken, but their claim to the commission is dependent upon the sale of goods in British India. Clause 12 of the agreement even suggests that they might be competent to retain their commission before transferring the profits to the company, and this is the view which was taken by the Asstt. CIT, but even if it be held, having regard to the provisions of clause 7 that Nandlal Bhandari Sons, are only entitled to receive their commission when the annual accounts of the company are made up, the fact remains that their right to this commission accrues upon the sales effected at Cawnpore. This being the position, we think it must be held that this commission is in the nature of profits or gains accruing or arising to the non-resident through or from a business connection in British India within the meaning of section 42, and must, therefore, be deemed to be income accruing or arising in British India; and since there is a 'business connection' between the branch at Cawnpore representing in British India the Company at Indore, and the non-res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quent years. In order to justify the appointment of an agent under section 43 the Commissioner has to be satisfied on certain questions of fact, and the assessee has a right to dispute his liability to be deemed the agent. It is obvious, that although an agent may fail in a particular year to resist the claim that he is an agent, circumstances may alter, and in the next year he might be able to resist the claim. However, in this particular case the agents did not dispute their liability to be assessed in respect of the year 1935-36. They were actually assessed, and they paid the tax and it seems to me that that amounts to an admission on their part that in respect of the year 1935-36 they were the agents of the principal for the purposes of section 43. The reassessment under section 34 is a part of the assessment for the year 1935-36, and although the actual reassessment was not made until the beginning of 1940, the facts necessary to constitute them agents for the reassessment were the same, and have to be determined for the same date as in the case of the original assessment. I think that in the face of their conduct it is not open to the assessees to assert that for the year 193 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Therefore the Legislature realising that the agent may have no right against his principal in the event of his being called upon to pay tax and being compelled to pay the tax, gives him a special right of retainer as an agent so that to the extent of that retainer at least he would be indemnified against his principal. If the interpretation sought to be put upon section 42 by the Department were correct, it would mean this that although a person may be the agent of a non-resident in respect of a small business where his principal may earn profits to the extent of a few thousands and the liability to tax in respect of that business may be very small, if that principal has other large business in respect of which the assessee has nothing whatever to do, if he has properties in the taxable territories, if he is earning interest in the taxable territories, the agent can be assessed in respect of all that income and can be made liable to pay tax although what he could retain under the second proviso might be a very small amount of the tax which the non-resident might become liable to pay. But the difficulties do not cease there because if under section 42, a person becomes an agent, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. of India Ltd v. The Secretary of State for India [1922] ILR 49 Cal. 721, Commissioner of Income-tax, Bombay v. Metro Goldwyn Mayer (India) Ltd [1939] 7 ITR 176 and Caltex (India) Ltd v. CIT, Bombay City [1952] 21 ITR 278 where it has been held that section 43 is only a machinery for giving effect to section 42. To say that section 43 is really only machinery for giving effect to section 42 is not to say that section 43 has no other purpose. Section 42 refers to income, profits or gains accruing or arising directly or indirectly through or from (i) any business connection in India, (ii) any property in India, or (iii) any assets or sources of income in India, or (iv) any money lent at interest and brought into India in cash or in kind, or (v) the sale, exchange or transfer of a capital asset in India. All these incomes by virtue of this section have to be deemed to be income accruing or arising within India and where the person entitled to such income, profits or gains is a non-resident such income, profits and gains are made chargeable to income-tax either in his name or in the name of his agent who is to be deemed to be for all the purposes of this Act the assessee in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be assessed as such an agent is also enabled to retain out of the money payable to the non-resident person a sum equal to his estimated liability. The section thus creates a vicarious liability, insofar as the agent is concerned, for the tax which the non-resident has to pay; but as a safeguard for him, he is enabled to retain from the money he has to pay, a sum equal to his own liability in the event of his being treated as the assessee. Section 43 lays down who can be deemed to be an agent, and it is provided that any person having any business connection with a non-resident person or through whom the non-resident is in receipt of any income, profits or gains is to be deemed to be such an agent, if the Income-tax Officer has caused a notice to be served of his intention of treating him as the agent of the non-resident person. Such persons are conveniently described as statutory agents." 19. We have given careful thought to the rival submissions of the parties and examined them in the light of material available on record, statutory provisions and case law cited at the Bar. At the very outset, we may state that the basic contention of the assessee that he is and should be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd limited to the income earned through his agency as an agent. 20.2 In the case of Turner Morrison Co. Ltd., their Lordship of Supreme Court has observed that section 43 is only machinery for giving effect to section 42, is not to say that section 43 has no other purpose. After considering various income assessable under sections 42 and 43, their Lordship stated that the portion of section 43 which refers to the person through whom the non-resident is in receipt of any income, profit or gains does not necessarily attract the provision of section 42, for the income, profit and gains received by the person who is treated as agent under section 43, may not fall within any of the several categories of income, profits or gains referred to in section 42. 20.3 In the case of Raghava Reddi, their Lordship again stated that section 43 lays down who can be "deemed to be an agent" and further noted that such persons are conveniently described as 'statutory agents'. 21. It is clear from above referred to decisions that a distinction between an agent and a statutory agent or deemed agent under section 43 was maintained. The latter section also provided for treating a person as an agent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise be regarded as 'included' in that sense. The words 'include' and 'including' have been interpreted by several Courts. We may refer to the following: "The word 'include' when used, enlarges the meaning of the expression defined to comprehend not only such things as they signify according to their natural import but also those things which the clause declares that they shall include. See [P. Kasilingam v. PSG College of Technology AIR 1995 SC 1395 at 1400; CIT, AP v. Taj Mahal Hotel AIR 1972 SC 168, (1971) 3 SCC 550]." Further, on consideration of section 163, we find that title of the section is "who may be regarded as an agent". There is definition of "agent" under section 163 and the same is for purposes of the Act. Wherever the word 'agent' is employed including clause (i) of sub-section (1) of section 160. There is nothing in the language or in the context of the provision to suggest that the word 'agent' as defined would not apply to 'agent' falling under any category (clause) of sub-section (1) of section 163; all are representative assessees of the non-resident. This is made clear from the title providing for persons who are to be "regarded" as agent of the non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or through whom non-resident was in receipt of income and upon whom the Income-tax Officer, "has caused a notice to be served of his intention of treating him as the agent of the non-resident person, shall for all purposes of this Act be deemed to be such an agent". As per proviso to the section, an opportunity of being heard by the Income-tax Officer was required to be given, as liability of such person, to be deemed to be an agent of non-resident. There is no similar requirement under any section as provided in section 43 of old Act, although requirement of the proviso to provide "opportunity of being heard as to his liability to be treated as such", has been retained in sub-section (2) of section 163 in 1961 Act. The expression "treated as an agent of non-resident" under section 163 is also retained in section 149(3), and in some other section. When these provisions are read in conjunction with section 246(1)(d) of Income-tax Act, it is clear that passing of an order under section 163(2) of the Act treating the person as 'agent' of non-resident is an appealable order. Therefore, opportunity of being heard as provided under section 163(2) is not mere requirement of notice, but a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a notice 149 of the Act is to the being given by the ITO with following effect: regard to income that escaped assessment and the '(3) If the person on whom a second proviso to notice under section 148 is sub-section (1) runs as to be served is a person under. treated as the agent of a non-resident under section 'Provided further that the 163 and the assessment... to ITO shall not issue a notice be made in pursuance of the under this sub-section for notice is to be made on him any year, after the expiry as the agent of such of two years from that year, non-resident, the notice if the person on whom the shall not be issued after assessment or reassessment the expiry of a period of is to be made in pursuance two years from the end of of the notice is a person the relevant year.' deemed to be the agent of a non-resident person under section 43.' Section 43: 'Any person Section 163: '(1) For the employed by ... a person purposes of this Act, 'agent' residing out of the taxable in relation to a non-resident, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment or reassessment of non-resident through such a person. This would also be in line with provision of section 149(3) as interpreted by Punjab Haryana High Court and various other courts. The treatment has to be prior to service of notice on the person who is desired to be assessed. Service of notice under section 148 is first step in the assessment and not assessment. Therefore, assessment of person as agent of non-resident is not 'treatment' as envisaged under section 163(2). It is adjudication which must precede assessment. 23.1 The above view would also be in line with the view which Chagla, J. took in the case of Jadavji Narshidas Co., laying down that necessity to treat a person as an agent of non-resident would arise in a case where such a liability is disputed or contested. Where the person himself represents or accepts or admits to be the agent of non-resident, the question of treating such person as agent of non-resident by passing an order would not arise. It would be quite an absurd situation where the person represent an agent of the non-resident or admits by his conduct by filing a return of income of the non-resident, yet the income-tax authorities are requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Because of their stand, it becomes necessary for the Assessing Officer to allow an opportunity of being heard to them and then adjudicate the matter relating to their liability to be agent of the non-resident in terms of section 163(2) of the Act. When an order under section 163(2) is passed holding such person to be an agent of the non-resident, such person falls in the category of person who is treated as an agent under section 163. Difficulties can arise in cases where action under section 148 for making assessment for the first time for a particular assessment year, is required to be taken. There being no return filed by the agent on behalf of the non-resident, it is necessary for the Assessing Officer to initiate action under section 163(2) and thereafter issue the notice under section 148 of the Act. That would of course be in the interest of the revenue. However, in the light of clear admission of the agent here, this aspect is not arising in this case. We, therefore, need not conclusively decide this aspect. Once order on above lines is passed, such persons are equated with agents under general law and both would fall and covered under provisions of section 160(1)(i) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties in this case to provide any opportunity of being heard to the assessee as regards his liability to be treated as an agent under the Act. In fact, it would have looked absurd to provide such an opportunity of being heard to a person who has accepted and never disputed his liability to be assessed as an agent. Therefore, there was no occasion to pass any order under section 163(2) of the Income-tax Act. In other words, there was no question of "treating the assessee as an agent of the non-resident" and, therefore, provision of section 149(3) had no application in this case. As noted earlier with reference to provisions of old Act and section 163(2) of the Act, these provisions are for the benefit of the agent relating to his liabilities under the Act. The benefit of provision (opportunity of being heard) can be waived by the agent as authoritatively held by their Lordships of Bombay High Court. Having regard to the act and conduct of the assessee noted above in detail, it is difficult to dispute that the assessee did not waive this benefit or privilege under the statutory provision. Therefore, the assessee agent cannot turn around and raise an objection of failure to provide an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lal Gurumukh Singh was not cited and applied in the case of Hazoora Singh and thus a contrary view was taken. This is true of several other decisions including the case of Madhwan Bashyam. In the reported case, detailed facts are not available nor various decisions relevant to the issue were placed before the Hon'ble High Court. Even reference to provision of section 160 or 161 is not shown to have been made. It is not clear whether the agent in that case had denied his liability to be treated as an agent. All the same, their Lordships in para 7 of the decision have held as under:- "In our opinion, if a person filing a return as an agent of the assessee is not accepted as an agent for further proceedings, then the Assessing Officer must pass an order so that the agent or assessee can file an appeal. But, as in the present case, if the proceedings have gone on as if there is no objection to the person filing a return being treated as an agent of the assessee, no specific order needs to be passed in this regard." 30. Our view is quite in line with the above observations. Reference was also made to the decision of ITAT 'K' Bench Mumbai in the case of R. Lines Ltd., but both the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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