I am about to be treated as the agent of a non-resident and I still hold money payable to him. Can I hold that money back against the tax, and how do I stop the Department later saying I should have retained more?
Yes, and section 162(2) is available to you before any order is made against you — it applies to 'any representative assessee, or any person who apprehends that he may be assessed as a representative assessee'. Such a person may retain, out of any money payable by him to the principal, a sum equal to his estimated liability under Chapter XV; and if the principal disputes the amount, he may secure from the Assessing Officer a certificate stating the amount to be so retained pending final settlement, and that certificate 'shall be his warrant for retaining that amount'. Section 162(1) gives the separate right, after payment, to recover what he has paid from the person on whose behalf it was paid, or to retain an equal amount out of moneys in his possession or coming to him in his representative capacity. Section 162(3) is the protection people miss: the amount recoverable from him at final settlement shall not exceed the amount specified in the certificate, except to the extent that he then has in his hands additional assets of the principal.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 1988-04-01, reported as Income-tax Act, 1961, s.162, as printed identically on departmental pages stamped Year 2000, Year 2023 and Year 2025. It bears on section 162, section 162(1), section 162(2), section 162(3), section 161, section 163, section 160 of the Income Tax Act 1961, in Demand, Recovery & Stay, Charitable Trusts & Exemption and Assessment & Scrutiny matters.
These three sub-sections are the reason a representative capacity is survivable rather than ruinous, and they are the sub-sections least often invoked. Sub-section (2) is prospective and self-help: it does not wait for an assessment, it does not wait for a section 163 order, and it is expressly available to a person who merely 'apprehends' that he may be assessed as a representative assessee — which is exactly the position of an Indian payer who has received a section 163 show-cause. Sub-section (3) then converts the certificate from a permission into a ceiling: once the Assessing Officer has certified an amount, the Department cannot come back at final settlement for more than that, save to the extent of additional assets of the principal actually in the representative's hands at that time. That is a statutory cap on exposure, obtained from the Department's own officer, and it is the single most valuable thing an apprehensive payer can do. Sub-section (1) is the indemnity limb and is worth pleading in the civil forum too, because it is a statutory right of recovery against the principal that does not depend on any contract between them. Note the breadth of the retention right in sub-section (1): it extends not only to money already in the representative's possession but to money that 'may come to him in his representative capacity', so a later receipt is caught.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
Read aloud by your device. Press again to stop.
Section 162, as printed identically on the Year 2000 and Year 2023 departmental pages: '(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 shall be his warrant for retaining that amount. (3) The amount recoverable from such representative assessee or person at the time of final settlement shall not exceed the amount specified in such certificate, except to the extent to which such representative assessee or person may at such time have in his hands additional assets of the principal.'
A representative assessee who pays tax as such may recover it from the person represented or retain an equal amount out of moneys in his possession or coming to him in his representative capacity. A representative assessee, and equally a person who merely apprehends that he may be assessed as one, may retain out of money payable to the principal a sum equal to his estimated Chapter XV liability, and on disagreement may obtain a certificate from the Assessing Officer stating the amount to be retained, which is his warrant for retaining it. At final settlement the amount recoverable from him cannot exceed the certified amount, except to the extent of additional assets of the principal then in his hands.
Not applicable — this is a statement of statutory text taken from two year-stamped departmental pages. No judicial reasoning is involved.
The amount recoverable from such representative assessee or person at the time of final settlement shall not exceed the amount specified in such certificate, except to the extent to which such representative assessee or person may at such time have in his hands additional assets of the principal.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppYes, and section 162(2) is available to you before any order is made against you — it applies to 'any representative assessee, or any person who apprehends that he may be assessed as a representative assessee'. Such a person may retain, out of any money payable by him to the principal, a sum equal to his estimated liability under Chapter XV; and if the principal disputes the amount, he may secure from the Assessing Officer a certificate stating the amount to be so retained pending final settlement, and that certificate 'shall be his warrant for retaining that amount'. Section 162(1) gives the separate right, after payment, to recover what he has paid from the person on whose behalf it was paid, or to retain an equal amount out of moneys in his possession or coming to him in his representative capacity. Section 162(3) is the protection people miss: the amount recoverable from him at final settlement shall not exceed the amount specified in the certificate, except to the extent that he then has in his hands additional assets of the principal. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 162, section 162(1), section 162(2), section 162(3), section 161, section 163, section 160 of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.162, as printed identically on departmental pages stamped Year 2000, Year 2023 and Year 2025. These three sub-sections are the reason a representative capacity is survivable rather than ruinous, and they are the sub-sections least often invoked. Sub-section (2) is prospective and self-help: it does not wait for an assessment, it does not wait for a section 163 order, and it is expressly available to a person who merely 'apprehends' that he may be assessed as a representative assessee — which is exactly the position of an Indian payer who has received a section 163 show-cause. Sub-section (3) then converts the certificate from a permission into a ceiling: once the Assessing Officer has certified an amount, the Department cannot come back at final settlement for more than that, save to the extent of additional assets of the principal actually in the representative's hands at that time. That is a statutory cap on exposure, obtained from the Department's own officer, and it is the single most valuable thing an apprehensive payer can do. Sub-section (1) is the indemnity limb and is worth pleading in the civil forum too, because it is a statutory right of recovery against the principal that does not depend on any contract between them. Note the breadth of the retention right in sub-section (1): it extends not only to money already in the representative's possession but to money that 'may come to him in his representative capacity', so a later receipt is caught. If it applies to you, the first step is this: The moment you apprehend that you may be assessed as a representative assessee — a section 163 show-cause is enough — stop paying out and retain against your estimated Chapter XV liability under section 162(2). You do not need an order against you first.
Section 162, as printed identically on the Year 2000 and Year 2023 departmental pages: '(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 shall be his warrant for retaining that amount. (3) The amount recoverable from such representative assessee or person at the time of final settlement shall not exceed the amount specified in such certificate, except to the extent to which such representative assessee or person may at such time have in his hands additional assets of the principal.' The matter was decided on 1988-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. A representative assessee who pays tax as such may recover it from the person represented or retain an equal amount out of moneys in his possession or coming to him in his representative capacity. A representative assessee, and equally a person who merely apprehends that he may be assessed as one, may retain out of money payable to the principal a sum equal to his estimated Chapter XV liability, and on disagreement may obtain a certificate from the Assessing Officer stating the amount to be retained, which is his warrant for retaining it. At final settlement the amount recoverable from him cannot exceed the certified amount, except to the extent of additional assets of the principal then in his hands.
Not applicable — this is a statement of statutory text taken from two year-stamped departmental pages. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "The amount recoverable from such representative assessee or person at the time of final settlement shall not exceed the amount specified in such certificate, except to the extent to which such representative assessee or person may at such time have in his hands additional assets of the principal."
It was decided by the CBDT Circulars & Instructions on 1988-04-01 and is reported as Income-tax Act, 1961, s.162, as printed identically on departmental pages stamped Year 2000, Year 2023 and Year 2025. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 162, section 162(1), section 162(2), section 162(3), section 161, section 163, section 160, 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 cuts both ways and is cited by both sides. A representative assessee who pays tax as such may recover it from the person represented or retain an equal amount out of moneys in his possession or coming to him in his representative capacity. A representative assessee, and equally a person who merely apprehends that he may be assessed as one, may retain out of money payable to the principal a sum equal to his estimated Chapter XV liability, and on disagreement may obtain a certificate from the Assessing Officer stating the amount to be retained, which is his warrant for retaining it. At final settlement the amount recoverable from him cannot exceed the certified amount, except to the extent of additional assets of the principal then in his hands. It arises in Demand, Recovery & Stay, Charitable Trusts & Exemption and Assessment & Scrutiny matters, on section 162, section 162(1), section 162(2), section 162(3), section 161, section 163, section 160 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. 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. Estimate the liability in writing and keep the working. The sub-section speaks of 'a sum equal to his estimated liability under this Chapter', so an estimate on a documented basis is what you are entitled to retain. If the principal disputes the retention, apply to the Assessing Officer for a certificate under section 162(2) rather than negotiating. The certificate is your warrant for retaining, and it is what triggers the section 162(3) ceiling. Once you hold a certificate, treat the certified figure as your cap and say so in any later correspondence: under section 162(3) the amount recoverable from you at final settlement cannot exceed it, except to the extent of additional assets of the principal then in your hands. Keep a running account of the principal's assets in your hands, because that account is the only thing that can lift the section 162(3) ceiling. If you have already paid tax as a representative assessee without retaining, use section 162(1) to recover from the principal, or to retain against moneys that come to you later in your representative capacity — the right survives the payment.
Still good law. Departmental pages stamped Year 2000, Year 2023 and Year 2025 print identical text for the whole section, which is the best evidence obtainable on this pass that it stands unamended over that span. That is the extent of what was verified: no page stamped Year 2026 was located, no Finance Act text was read, and no judicial treatment was checked. 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.
'decided_on' is 1 April 1988, the commencement date recorded in footnote 30 on the Year 2000 departmental page — 'Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988' — which is the substitution of 'Assessing Officer' for 'Income-tax Officer' in sub-section (2). It is not a decision date and it is not the date the section itself was enacted; it is simply the only dated change to this section that either page printed. 'bench' is 'Not applicable — statutory text' and 'favours' is null. The Year 2000 page printed the marker for footnote 30 without showing me its position in the text, so I attribute it to sub-section (2) on the basis that sub-section (2) is the only place in the section where 'Assessing Officer' appears — that is an inference from the text I read, not something the page states. Two year-stamped pages were transcribed, both printing the heading 'Right of representative assessee to recover tax paid': /w/section-162 (Year: 2000) and /w/section-162-61 (Year: 2023). They print identical text. Three year-stamped pages were read for this section, not two: https://incometaxindia.gov.in/w/section-162 (Year: 2000), https://incometaxindia.gov.in/w/section-162-61 (Year: 2023) and https://incometaxindia.gov.in/w/section-162-64 (Year: 2025), all printing the heading 'Right of representative assessee to recover tax paid' and all printing sub-sections (1), (2) and (3) word for word identically. No page stamped Year 2026 was located, so no change made during 2026 is excluded. Every word of the statutory text quoted in this entry was transcribed this pass from incometaxindia.gov.in section pages, each of which was made to print its section HEADING and its "Year:" stamp alongside the text, and each of which named the Act as the Income-tax Act, 1961. No text in this entry comes from an indiankanoon bare-act page, from a commentary, or from memory. 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.
A representative assessee who pays tax as such may recover it from the person represented or retain an equal amount out of moneys in his possession or coming to him in his representative capacity. A representative assessee, and equally a person who merely apprehends that he may be assessed as one, may retain out of money payable to the principal a sum equal to his estimated Chapter XV liability, and on disagreement may obtain a certificate from the Assessing Officer stating the amount to be retained, which is his warrant for retaining it. At final settlement the amount recoverable from him cannot exceed the certified amount, except to the extent of additional assets of the principal then in his hands.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
I am buying the shares of a foreign holding company from another non-resident, and that company's subsidiaries hold shares in an Indian company — must I withhold tax under section 195?
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?
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?
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?