The Assessing Officer served a section 163 notice and the notice starting the assessment on the same day, and only passed the order treating us as agent of the non-resident years later. Is the assessment good?
On the Bombay High Court's reasoning, no. The Court held that an order under section 163 is to be passed in the first place and only thereafter is the notice starting the assessment to be served on the person sought to be made liable as a representative assessee, that is, as the agent of a non-resident. It preferred the majority view of the Full Bench of the Punjab and Haryana High Court in CIT v. Kanhaya Lal Gurumukh Singh, holding that the Privy Council's decision in CIT v. Nawal Kishore Kharaiti Lal, decided under the Indian Income-tax Act, 1922, is no longer applicable to the 1961 Act because of the specific statutory changes — in particular that an order treating a person as agent is now appealable, and that the assessee's right of appeal would be meaningless if the determination could follow the notice. On the facts the determinations under section 163 were made only on 28 March 1969, and by then the limitation period then prescribed for the notice had expired, so no valid notice could be issued and the reassessments failed. The Court also upheld the Tribunal's decision to let the assessee raise the point for the first time before it, because a point going to the jurisdiction of the assessment may be taken though not taken below.
Decided by the High Court (S.K. Desai J (sitting singly on the reference as printed; one report names him 'S.K. Desai, J.' and the other only 'Desai, J.'; no second Judge is named in either report)) on 1981-09-28, reported as (1982) 26 CTR (Bom) 271; [1983] 141 ITR 404 (Bom); Income-tax Reference under s.256(1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax, from a common order of the Income-tax Appellate Tribunal, Bombay Bench 'D'. It bears on section 163, section 163(1), section 163(2), section 148, section 149(3), section 147, section 246(g), section 256(1), section 143(3) of the Income Tax Act 1961, in Residence & Treaty Benefit, Reassessment & Reopening, Assessment & Scrutiny and Appeals matters.
This is the sequencing rule, and it is the most practically useful thing about section 163 because it converts a procedural irregularity into a jurisdictional defect. The reasoning is worth reproducing accurately because it is what a Tribunal will test: the 1961 Act made an order under section 163 appealable, whereas the 1922 Act did not, and a right of appeal against a determination that can be made after the assessment has already been set in motion is a right of appeal against nothing. The Court added the interpretive tie-breaker that where a taxing provision admits of two constructions the one favourable to the assessee is to be preferred — the Punjab and Haryana Full Bench had itself divided, and the majority view was preferred for that reason. Note also the collateral point on procedure, which is separately valuable: a plea that goes to the jurisdiction of the assessment can be raised for the first time before the Tribunal, following CWT v. N.A. Narielwalla. TWO WARNINGS, HOWEVER. First, the limitation limb of the decision cannot be carried across to a current case: the two-year period the Court applied sat in section 149(3), and no sub-section (3) appears in section 149 as it now stands. The sequencing holding does not depend on that period — it depends on the appealability of the section 163 order — but a practitioner must establish the limitation position for his own year from the current section and not from this judgment. Second, the Court expressly did not decide the other pleas raised before it, and expressly declined to consider the validity of the section 163 notices themselves.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The assessee, an Indian company, was treated as the agent of a non-resident French company for the assessment years 1962-63 to 1964-65. It had agreed by an agreement of 24 August 1956 to buy machinery and equipment worth about Rs 60,75,000 from that company, and under amended terms recorded on 17 June 1957 the unpaid price carried interest at five per cent. The Income-tax Officer served a notice under section 163 dated 30 March 1965 for 'assessment year 1962-63 and onwards', calling on the assessee to appear on 31 March 1965; the assessee sought a short adjournment, and the officer nevertheless passed an order under section 163 on 31 March 1965, again for '1962-63 onwards', holding it liable to be treated as agent on the grounds that it had borrowed money from the non-resident and had paid interest from 11 March 1959. On the same day he issued a notice under section 148 describing the assessee as agent. Similar notices for 1963-64 and 1964-65 followed on 31 March 1965 and 10 December 1965. The Appellate Assistant Commissioner allowed the assessee's appeal on 9 September 1966, noting that adequate opportunity had not been given, and sent the matter back. Nothing was done for about two and a half years; a fresh section 163 notice issued on 3 March 1969 and fresh orders treating the assessee as agent were passed on 28 March 1969 for all three years. Reassessments followed, and on appeal the Tribunal allowed the assessee to raise additional grounds for the first time and held the notices void. Two questions came to the High Court: whether the Tribunal was justified in allowing the additional grounds, and if so whether it was justified in holding the notices under sections 148 and 163 void in law.
Both questions were answered in favour of the assessee, and the parties were left to bear their own costs. On the first, a point going to the jurisdiction of the assessment may be allowed to be taken before the Tribunal although not taken before the Income-tax Officer or the Appellate Assistant Commissioner. On the second, the Tribunal was right that an order under section 163 is to be passed in the first place and thereafter the notice under section 148 is to be served on the person sought to be made liable as a representative assessee, namely as the agent of a non-resident. Since the determinations under section 163 were made only on 28 March 1969 and the limitation period then prescribed by section 149(3) had by then expired, no valid notice could be issued; the earlier notices were invalid and the reassessments made in pursuance of them were invalid too. The Court expressed no opinion on the assessee's other pleas and held it unnecessary to consider the validity of the notices issued under section 163 themselves.
Section 163 sits in Chapter XV, and sub-section (2) forbids treating anyone as the agent of a non-resident unless he has had an opportunity of being heard by the Income-tax Officer as to his liability to be so treated. The Court identified what it called a deliberate departure from the 1922 Act: an order under section 163 is now specifically made appealable, the relevant provision being section 246(g). It then set section 149(3) against that, which fixed the time limit for a notice under section 148 where the person to be served is a person treated as the agent of a non-resident under section 163. The short question was whether the determination contemplated by section 163, after the necessary opportunity, has to be made before the notice issues. Under the 1922 Act the Privy Council in Nawal Kishore Kharaiti Lal had held that no prior order declaring the person to be the agent was needed, and this Court had followed that line in Blue Star Engineering. The Full Bench of the Punjab and Haryana High Court in Kanhaya Lal Gurumukh Singh, divided initially and resolved on a reference to a third judge, held by a majority that Nawal Kishore no longer applies under the 1961 Act and that the officer must pass an order under section 163, after complying with sub-section (2), before issuing a notice under section 148. The Bombay High Court concurred with that majority, holding the view to be in accord with the plain language of the provisions, reasoning that if the assessee's right of appeal is to have any real meaning the decision under section 163 must be given before the notice under section 148 is issued, and adding that where two views are possible the one in favour of the assessee is to be upheld. It observed that if the two-year period under section 149(3) creates a difficulty in working the provisions, it is for the Revenue to seek an amendment. On the first question it applied CWT v. N.A. Narielwalla, where a Division Bench had upheld the Tribunal's discretion to permit a pure question of law going to the root of jurisdiction to be raised before it for the first time.
In our view the Tribunal was thus right in holding that order u/s 163 is to be passed in the first place and thereafter a notice u/s 148 is to be served on the assessee who is sought to be made liable as a representative assessee viz. as agent of a non-resident.
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Handle my notice → Ask a CA on WhatsAppOn the Bombay High Court's reasoning, no. The Court held that an order under section 163 is to be passed in the first place and only thereafter is the notice starting the assessment to be served on the person sought to be made liable as a representative assessee, that is, as the agent of a non-resident. It preferred the majority view of the Full Bench of the Punjab and Haryana High Court in CIT v. Kanhaya Lal Gurumukh Singh, holding that the Privy Council's decision in CIT v. Nawal Kishore Kharaiti Lal, decided under the Indian Income-tax Act, 1922, is no longer applicable to the 1961 Act because of the specific statutory changes — in particular that an order treating a person as agent is now appealable, and that the assessee's right of appeal would be meaningless if the determination could follow the notice. On the facts the determinations under section 163 were made only on 28 March 1969, and by then the limitation period then prescribed for the notice had expired, so no valid notice could be issued and the reassessments failed. The Court also upheld the Tribunal's decision to let the assessee raise the point for the first time before it, because a point going to the jurisdiction of the assessment may be taken though not taken below. This was decided by the High Court (S.K. Desai J (sitting singly on the reference as printed; one report names him 'S.K. Desai, J.' and the other only 'Desai, J.'; no second Judge is named in either report)) and bears on section 163, section 163(1), section 163(2), section 148, section 149(3), section 147, section 246(g), section 256(1), section 143(3) of the Income Tax Act 1961. It is reported as (1982) 26 CTR (Bom) 271; [1983] 141 ITR 404 (Bom); Income-tax Reference under s.256(1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax, from a common order of the Income-tax Appellate Tribunal, Bombay Bench 'D'. This is the sequencing rule, and it is the most practically useful thing about section 163 because it converts a procedural irregularity into a jurisdictional defect. The reasoning is worth reproducing accurately because it is what a Tribunal will test: the 1961 Act made an order under section 163 appealable, whereas the 1922 Act did not, and a right of appeal against a determination that can be made after the assessment has already been set in motion is a right of appeal against nothing. The Court added the interpretive tie-breaker that where a taxing provision admits of two constructions the one favourable to the assessee is to be preferred — the Punjab and Haryana Full Bench had itself divided, and the majority view was preferred for that reason. Note also the collateral point on procedure, which is separately valuable: a plea that goes to the jurisdiction of the assessment can be raised for the first time before the Tribunal, following CWT v. N.A. Narielwalla. TWO WARNINGS, HOWEVER. First, the limitation limb of the decision cannot be carried across to a current case: the two-year period the Court applied sat in section 149(3), and no sub-section (3) appears in section 149 as it now stands. The sequencing holding does not depend on that period — it depends on the appealability of the section 163 order — but a practitioner must establish the limitation position for his own year from the current section and not from this judgment. Second, the Court expressly did not decide the other pleas raised before it, and expressly declined to consider the validity of the section 163 notices themselves. If it applies to you, the first step is this: Establish the date of the order under section 163 and the date of the notice starting the assessment, and set them side by side. If the notice came first, this is the authority for saying the assessment on you as agent is without jurisdiction.
The assessee, an Indian company, was treated as the agent of a non-resident French company for the assessment years 1962-63 to 1964-65. It had agreed by an agreement of 24 August 1956 to buy machinery and equipment worth about Rs 60,75,000 from that company, and under amended terms recorded on 17 June 1957 the unpaid price carried interest at five per cent. The Income-tax Officer served a notice under section 163 dated 30 March 1965 for 'assessment year 1962-63 and onwards', calling on the assessee to appear on 31 March 1965; the assessee sought a short adjournment, and the officer nevertheless passed an order under section 163 on 31 March 1965, again for '1962-63 onwards', holding it liable to be treated as agent on the grounds that it had borrowed money from the non-resident and had paid interest from 11 March 1959. On the same day he issued a notice under section 148 describing the assessee as agent. Similar notices for 1963-64 and 1964-65 followed on 31 March 1965 and 10 December 1965. The Appellate Assistant Commissioner allowed the assessee's appeal on 9 September 1966, noting that adequate opportunity had not been given, and sent the matter back. Nothing was done for about two and a half years; a fresh section 163 notice issued on 3 March 1969 and fresh orders treating the assessee as agent were passed on 28 March 1969 for all three years. Reassessments followed, and on appeal the Tribunal allowed the assessee to raise additional grounds for the first time and held the notices void. Two questions came to the High Court: whether the Tribunal was justified in allowing the additional grounds, and if so whether it was justified in holding the notices under sections 148 and 163 void in law. The matter was decided on 1981-09-28 by the High Court (S.K. Desai J (sitting singly on the reference as printed; one report names him 'S.K. Desai, J.' and the other only 'Desai, J.'; no second Judge is named in either report)). On those facts the High Court held as follows. Both questions were answered in favour of the assessee, and the parties were left to bear their own costs. On the first, a point going to the jurisdiction of the assessment may be allowed to be taken before the Tribunal although not taken before the Income-tax Officer or the Appellate Assistant Commissioner. On the second, the Tribunal was right that an order under section 163 is to be passed in the first place and thereafter the notice under section 148 is to be served on the person sought to be made liable as a representative assessee, namely as the agent of a non-resident. Since the determinations under section 163 were made only on 28 March 1969 and the limitation period then prescribed by section 149(3) had by then expired, no valid notice could be issued; the earlier notices were invalid and the reassessments made in pursuance of them were invalid too. The Court expressed no opinion on the assessee's other pleas and held it unnecessary to consider the validity of the notices issued under section 163 themselves.
Section 163 sits in Chapter XV, and sub-section (2) forbids treating anyone as the agent of a non-resident unless he has had an opportunity of being heard by the Income-tax Officer as to his liability to be so treated. The Court identified what it called a deliberate departure from the 1922 Act: an order under section 163 is now specifically made appealable, the relevant provision being section 246(g). It then set section 149(3) against that, which fixed the time limit for a notice under section 148 where the person to be served is a person treated as the agent of a non-resident under section 163. The short question was whether the determination contemplated by section 163, after the necessary opportunity, has to be made before the notice issues. Under the 1922 Act the Privy Council in Nawal Kishore Kharaiti Lal had held that no prior order declaring the person to be the agent was needed, and this Court had followed that line in Blue Star Engineering. The Full Bench of the Punjab and Haryana High Court in Kanhaya Lal Gurumukh Singh, divided initially and resolved on a reference to a third judge, held by a majority that Nawal Kishore no longer applies under the 1961 Act and that the officer must pass an order under section 163, after complying with sub-section (2), before issuing a notice under section 148. The Bombay High Court concurred with that majority, holding the view to be in accord with the plain language of the provisions, reasoning that if the assessee's right of appeal is to have any real meaning the decision under section 163 must be given before the notice under section 148 is issued, and adding that where two views are possible the one in favour of the assessee is to be upheld. It observed that if the two-year period under section 149(3) creates a difficulty in working the provisions, it is for the Revenue to seek an amendment. On the first question it applied CWT v. N.A. Narielwalla, where a Division Bench had upheld the Tribunal's discretion to permit a pure question of law going to the root of jurisdiction to be raised before it for the first time. In the words reproduced by the source cited on this page: "In our view the Tribunal was thus right in holding that order u/s 163 is to be passed in the first place and thereafter a notice u/s 148 is to be served on the assessee who is sought to be made liable as a representative assessee viz. as agent of a non-resident." The decision followed or applied CIT v. Kanhaya Lal Gurumukh Singh [1973] 87 ITR 476 (P&H, Full Bench) — majority view concurred with and followed; CIT v. Nawal Kishore Kharaiti Lal [1938] 6 ITR 61 (PC) — held no longer applicable under the Income-tax Act, 1961; CWT v. N.A. Narielwalla [1980] 126 ITR 344 (Bom) — applied on raising a jurisdictional plea for the first time before the Tribunal; Blue Star Engineering Co. (Bombay) P. Ltd. v. CIT [1969] 73 ITR 283 (Bom) — noted as a decision under the Indian Income-tax Act, 1922; CIT v. Express Newspapers (P.) Ltd. [1978] 111 ITR 347 (Mad) — noted; the point did not specifically arise there; CIT v. T.I. & M. Sales Ltd. [1978] 114 ITR 59 (Cal) — noted as of no assistance on this aspect.
It was decided by the High Court on 1981-09-28 and is reported as (1982) 26 CTR (Bom) 271; [1983] 141 ITR 404 (Bom); Income-tax Reference under s.256(1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax, from a common order of the Income-tax Appellate Tribunal, Bombay Bench 'D'. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 163, section 163(1), section 163(2), section 148, section 149(3), section 147, section 246(g), section 256(1), section 143(3), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. Both questions were answered in favour of the assessee, and the parties were left to bear their own costs. On the first, a point going to the jurisdiction of the assessment may be allowed to be taken before the Tribunal although not taken before the Income-tax Officer or the Appellate Assistant Commissioner. On the second, the Tribunal was right that an order under section 163 is to be passed in the first place and thereafter the notice under section 148 is to be served on the person sought to be made liable as a representative assessee, namely as the agent of a non-resident. Since the determinations under section 163 were made only on 28 March 1969 and the limitation period then prescribed by section 149(3) had by then expired, no valid notice could be issued; the earlier notices were invalid and the reassessments made in pursuance of them were invalid too. The Court expressed no opinion on the assessee's other pleas and held it unnecessary to consider the validity of the notices issued under section 163 themselves. It arises in Residence & Treaty Benefit, Reassessment & Reopening, Assessment & Scrutiny and Appeals matters, on section 163, section 163(1), section 163(2), section 148, section 149(3), section 147, section 246(g), section 256(1), section 143(3) of the Income Tax Act 1961, and was decided by S.K. Desai J (sitting singly on the reference as printed; one report names him 'S.K. Desai, J.' and the other only 'Desai, J.'; no second Judge is named in either report). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Frame the point as jurisdictional. This decision, following CWT v. N.A. Narielwalla, is authority that a jurisdictional plea may be raised for the first time before the Tribunal even if it was not taken before the Assessing Officer or the first appellate authority. Run the appealability argument as the reason for the sequencing rule, not as an afterthought: an order under section 163 is appealable, and the right of appeal is what requires the determination to precede the notice. Do NOT carry the two-year limitation across. The section 149(3) that decided this case is not printed on the Year 2025 departmental section 149 page; establish the limitation applicable to your own year from the current section before you plead it. Object to a composite section 163 notice or order expressed for one year 'and onwards'. The assessee here took that point, and although the Court did not need to decide it, the point is preserved by the decision rather than foreclosed. If the first order under section 163 has been set aside on appeal, treat any notice issued in reliance on it as falling with it, which is what the Tribunal held and the Court did not disturb. Do not cite a paragraph number from this judgment without checking which report you are in — the two reports number the operative paragraph differently.
Still good law. The judgment stands and is applied. The Mumbai Tribunal followed it in DCIT v Keystone Realtors P Ltd (31 May 2023): at paragraph 10 the Bench recorded that 'The Hon'ble Bombay High Court in the case of CIT vs. Belapur Sugar and Allied Industries Ltd. was ceased of a similar issue, wherein the assessment was framed on a person in representative capacity without there being any order u/s 163 of the Act', adopted the rule that the section 163 order 'is to be passed in the first place', and struck down the representative assessments as void ab initio, dismissing the Revenue's appeals. Nothing overruling, doubting or confining the judgment has been found, and no contrary High Court view on the sequence of the section 163 order has emerged. Two cautions go with that. In DCIT v Madhucon Sino Hydro JV (Hyderabad Tribunal, 28 October 2021) this judgment appears only in the assessee's list of authorities as reproduced in the Commissioner (Appeals)'s order, and the Bench decided on other grounds; that is not an application of it and should not be cited as one. And the judgment is a 1981 decision whose limitation limb rested on section 149(3), a sub- section that does not appear in section 149 as it now stands. What survives untouched is the sequencing rule and the ground it rests on — that an order under section 163 is appealable under section 246(g), so a determination made after the notice under section 148 would leave the right of appeal with nothing to bite on. What would displace the entry is a decision of the Supreme Court on the sequence, or an amendment making the section 163 order non-appealable or expressly permitting it to follow the notice. Short of that, the point is available wherever the order under section 163 post-dates the notice, and it is a point going to jurisdiction, so it may be taken for the first time before the Tribunal. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
THE PARAGRAPH NUMBERING DIFFERS BETWEEN THE TWO REPORTS OF THIS JUDGMENT AND THAT IS A TRAP. In one report the judgment runs from paragraph 1 to paragraph 21 and the operative sequencing paragraph is numbered 19; in the parallel report the same passage is printed as paragraph 20. The passage is therefore cited here by description and not by number, and any entry elsewhere in this library that gives a paragraph number for this judgment should be checked against both reports before it is repeated in a written submission. The two reports are also not word- identical. One expands the citations — 'an order under s. 163 of the I.T. Act, 1961', 'sub-s. (3) of s. 149' — where the other abbreviates them, 'order u/s 163', 'sub-s. 3 of s. 149'. More seriously, one carries the words 'any assessment, reassessment or recomputation done in pursuance of such invalid notice is required to be held as invalid' where the other prints the visibly garbled 'and any assessment, required to be held as invalid, as the Tribunal has done'. The quotation used in this entry is taken from the report whose sentence is grammatically complete and is cited to that report by name. The headers differ too. One names the Judge only as 'Desai, J.' and the other as 'S.K. Desai, J.'; no second Judge is named in either report and none is supplied here. One prints no equivalent citation and spells the respondent 'Belapur Sugar And Allied Industries'; the other prints '(1982)26CTR(BOM)271, [1983]141ITR404(BOM)' and spells it 'Balapur Sugar & Allied Industries Ltd.'. The 'reported' field carries the citations from the report that prints them and names that source; 'full_name' keeps the 'Belapur' spelling, which is the spelling used throughout the body of both reports. One point on currency, because it is the limb of the judgment most likely to mislead. The two-year period the Court applied sat in section 149(3), which fixed the time for a notice under section 148 on a person treated as agent of a non-resident. Section 149 as it now stands, headed 'Time limit for notices under sections 148 and 148A', prints sub-sections (1) and (2) and no sub-section (3) at all. That is not a complete history of the section and has not been traced amendment by amendment, but it is enough to say that the period on which this judgment turned cannot be assumed to survive, and that a reader must establish the limitation position for his own year from the section as it stands. The sequencing holding itself does not depend on that period: it depends on the appealability of the section 163 order under section 246(g), which is untouched. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Both questions were answered in favour of the assessee, and the parties were left to bear their own costs. On the first, a point going to the jurisdiction of the assessment may be allowed to be taken before the Tribunal although not taken before the Income-tax Officer or the Appellate Assistant Commissioner. On the second, the Tribunal was right that an order under section 163 is to be passed in the first place and thereafter the notice under section 148 is to be served on the person sought to be made liable as a representative assessee, namely as the agent of a non-resident. Since the determinations under section 163 were made only on 28 March 1969 and the limitation period then prescribed by section 149(3) had by then expired, no valid notice could be issued; the earlier notices were invalid and the reassessments made in pursuance of them were invalid too. The Court expressed no opinion on the assessee's other pleas and held it unnecessary to consider the validity of the notices issued under section 163 themselves.
TaxSphere, “CIT v. Belapur Sugar and Allied Industries (Bombay High Court) — the order under s.163 treating a person as agent of a non-resident must be passed BEFORE the notice that starts the assessment on him”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-belapur-sugar-order-under-163-must-precede-the-notice-starting-the-assessment/ (validity last checked 2026-09-08)
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The Assessing Officer wants to treat my company as the agent of a foreign supplier because we have dealings with it. On what basis can he, and what am I entitled to before he does it?
A foreign professional worked on our matter in India but we neither briefed him nor paid him. Can we be treated as his agent and made liable for his tax?
I canvass orders in India for foreign suppliers and pass them on for acceptance abroad. Does that give the foreign supplier a business connection here, so that I can be taxed as its agent?
I credited commission in my books to a foreign selling agent who works entirely outside India, and remitted it later. Is that commission taxable in India in his hands?
