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?
Section 163(1) defines 'agent', in relation to a non-resident, as including any person in India who is employed by or on behalf of the non-resident; or who has any business connection with the non-resident; or from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or who is the trustee of the non-resident — and it includes also any other person, whether resident or non-resident, who has acquired by means of a transfer a capital asset in India. Section 163(2) is a hard condition precedent: 'No person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be treated as such.' The section also carries an Explanation providing that for the purposes of sub-section (1) the expression 'business connection' has the meaning assigned to it in Explanation 2 to section 9(1)(i); it is absent from the editions up to 2001, so it was inserted after that year.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2000-04-01, reported as Section 163 of the Income-tax Act, 1961, as amended up to 2023. It bears on section 163, section 163(1), section 163(2), section 160(1)(i), section 161, section 9(1), section 9(1)(i), section 162(2) of the Income Tax Act 1961, in Residence & Treaty Benefit, Assessment & Scrutiny, How Tax Law Is Read and Demand, Recovery & Stay matters.
Three things decide these cases. The first is that section 163 is a gateway, not a charge: it makes a person an agent, and it is section 160(1)(i) read with section 161 that then fixes what he is liable for, namely the income of the non-resident specified in section 9(1). An agent can therefore be validly appointed and still owe nothing if there is no section 9(1) income. The second is the section 163(2) hearing. It is not a formality and it is not satisfied by a notice giving a day's time; where it is not given the resulting order is open to challenge, and an order under section 163 is itself appealable. The third is the last limb of sub-section (1), 'any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India' — this is the limb that reaches purchasers in offshore and onshore share transfers, and it is expressly not confined to residents. The broker proviso is the one carve-out written into the section and it is narrowly drawn: an Indian broker who does not deal directly with or on behalf of a non-resident principal but deals with or through a non-resident broker is not deemed an agent in respect of those transactions, but only if both conditions are met — the transactions are carried on in the ordinary course of business through the Indian broker, and the non-resident broker is carrying them on in the ordinary course of his business and not as a principal. Finally, the Explanation matters because it removes the argument that 'business connection' in section 163 means something looser than it does in section 9; the meaning is imported from Explanation 2 to section 9(1)(i).
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 163, as it currently stands: '(1) For the purposes of this Act, "agent", in relation to a non-resident, includes any person in India — (a) who is employed by or on behalf of the non-resident; or (b) who has any business connection with the non-resident; or (c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or (d) who is the trustee of the non-resident; and includes also any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India : Provided that a broker in India who, in respect of any transactions, does not deal directly with or on behalf of a non-resident principal but deals with or through a non-resident broker shall not be deemed to be an agent under this section in respect of such transactions, if the following conditions are fulfilled, namely:— (i) the transactions are carried on in the ordinary course of business through the first-mentioned broker; and (ii) the non-resident broker is carrying on such transactions in the ordinary course of his business and not as a principal. Explanation.—For the purposes of this sub-section, the expression "business connection" shall have the meaning assigned to it in Explanation 2 to clause (i) of sub-section (1) of section 9 of this Act. (2) No person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be treated as such.' The editions up to 2001 print the same sub-sections (1) and (2) and the same proviso but carry no Explanation.
A person in India who is employed by or on behalf of a non-resident, who has any business connection with him, from or through whom the non-resident receives any income directly or indirectly, or who is his trustee, may be treated as his agent; so may any other person, resident or non-resident, who has acquired a capital asset in India by means of a transfer. An Indian broker dealing with or through a non-resident broker rather than with the non-resident principal is outside the section in respect of those transactions if both conditions in the proviso are fulfilled. No person may be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be so treated.
Not applicable — this is a statement of statutory text taken from several published editions of the section. No judicial reasoning is involved.
No person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be treated as such.
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Handle my notice → Ask a CA on WhatsAppSection 163(1) defines 'agent', in relation to a non-resident, as including any person in India who is employed by or on behalf of the non-resident; or who has any business connection with the non-resident; or from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or who is the trustee of the non-resident — and it includes also any other person, whether resident or non-resident, who has acquired by means of a transfer a capital asset in India. Section 163(2) is a hard condition precedent: 'No person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be treated as such.' The section also carries an Explanation providing that for the purposes of sub-section (1) the expression 'business connection' has the meaning assigned to it in Explanation 2 to section 9(1)(i); it is absent from the editions up to 2001, so it was inserted after that year. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 163, section 163(1), section 163(2), section 160(1)(i), section 161, section 9(1), section 9(1)(i), section 162(2) of the Income Tax Act 1961. It is reported as Section 163 of the Income-tax Act, 1961, as amended up to 2023. Three things decide these cases. The first is that section 163 is a gateway, not a charge: it makes a person an agent, and it is section 160(1)(i) read with section 161 that then fixes what he is liable for, namely the income of the non-resident specified in section 9(1). An agent can therefore be validly appointed and still owe nothing if there is no section 9(1) income. The second is the section 163(2) hearing. It is not a formality and it is not satisfied by a notice giving a day's time; where it is not given the resulting order is open to challenge, and an order under section 163 is itself appealable. The third is the last limb of sub-section (1), 'any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India' — this is the limb that reaches purchasers in offshore and onshore share transfers, and it is expressly not confined to residents. The broker proviso is the one carve-out written into the section and it is narrowly drawn: an Indian broker who does not deal directly with or on behalf of a non-resident principal but deals with or through a non-resident broker is not deemed an agent in respect of those transactions, but only if both conditions are met — the transactions are carried on in the ordinary course of business through the Indian broker, and the non-resident broker is carrying them on in the ordinary course of his business and not as a principal. Finally, the Explanation matters because it removes the argument that 'business connection' in section 163 means something looser than it does in section 9; the meaning is imported from Explanation 2 to section 9(1)(i). If it applies to you, the first step is this: Demand the section 163(2) hearing in terms and put on record what time you were given. Section 163(2) is a condition precedent to treating anyone as an agent, and an order made without a real opportunity is challengeable on that ground alone.
Section 163, as it currently stands: '(1) For the purposes of this Act, "agent", in relation to a non-resident, includes any person in India — (a) who is employed by or on behalf of the non-resident; or (b) who has any business connection with the non-resident; or (c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or (d) who is the trustee of the non-resident; and includes also any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India : Provided that a broker in India who, in respect of any transactions, does not deal directly with or on behalf of a non-resident principal but deals with or through a non-resident broker shall not be deemed to be an agent under this section in respect of such transactions, if the following conditions are fulfilled, namely:— (i) the transactions are carried on in the ordinary course of business through the first-mentioned broker; and (ii) the non-resident broker is carrying on such transactions in the ordinary course of his business and not as a principal. Explanation.—For the purposes of this sub-section, the expression "business connection" shall have the meaning assigned to it in Explanation 2 to clause (i) of sub-section (1) of section 9 of this Act. (2) No person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be treated as such.' The editions up to 2001 print the same sub-sections (1) and (2) and the same proviso but carry no Explanation. The matter was decided on 2000-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. A person in India who is employed by or on behalf of a non-resident, who has any business connection with him, from or through whom the non-resident receives any income directly or indirectly, or who is his trustee, may be treated as his agent; so may any other person, resident or non-resident, who has acquired a capital asset in India by means of a transfer. An Indian broker dealing with or through a non-resident broker rather than with the non-resident principal is outside the section in respect of those transactions if both conditions in the proviso are fulfilled. No person may be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be so treated.
Not applicable — this is a statement of statutory text taken from several published editions of the section. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "No person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be treated as such."
It was decided by the CBDT Circulars & Instructions on 2000-04-01 and is reported as Section 163 of the Income-tax Act, 1961, as amended up to 2023. 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 163, section 163(1), section 163(2), section 160(1)(i), section 161, section 9(1), section 9(1)(i), section 162(2), 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 person in India who is employed by or on behalf of a non-resident, who has any business connection with him, from or through whom the non-resident receives any income directly or indirectly, or who is his trustee, may be treated as his agent; so may any other person, resident or non-resident, who has acquired a capital asset in India by means of a transfer. An Indian broker dealing with or through a non-resident broker rather than with the non-resident principal is outside the section in respect of those transactions if both conditions in the proviso are fulfilled. No person may be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be so treated. It arises in Residence & Treaty Benefit, Assessment & Scrutiny, How Tax Law Is Read and Demand, Recovery & Stay matters, on section 163, section 163(1), section 163(2), section 160(1)(i), section 161, section 9(1), section 9(1)(i), section 162(2) 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. Make the Assessing Officer identify which limb of sub-section (1) he relies on — employment, business connection, receipt of income from or through you, trusteeship, or acquisition of a capital asset in India by transfer. Each has different facts and you cannot answer a limb that has not been named. If the limb is 'business connection', hold him to Explanation 2 to section 9(1)(i), which the Explanation to section 163(1) imports; a commercial relationship is not automatically a business connection in that sense. Argue the charge separately from the appointment. Even a validly appointed agent is liable only for income of the non-resident specified in section 9(1), because that is the limit written into section 160(1)(i). If you are a broker, run the proviso condition by condition: no direct dealing with or on behalf of the non-resident principal, dealing with or through a non-resident broker, both sets of transactions in the ordinary course of business, and the non-resident broker not acting as a principal. Appeal the section 163 order in its own right rather than waiting for the assessment; and in parallel invoke section 162(2) to retain against your estimated liability out of anything you owe the non-resident. Read the entry on CIT v. Belapur Sugar and Allied Industries (Bombay High Court, 28 September 1981) for the sequencing point — the order under section 163 has to come first, before the notice that starts the assessment.
Still good law. Sub-sections (1) and (2) and the broker proviso are printed identically on every published edition of the section read, from 2000 through to the current one, so the operative text is stable and can be relied on. ONE PART OF THE SECTION CANNOT BE DATED. The Explanation importing the section 9(1)(i) meaning of 'business connection' is present on the recent editions and absent from the editions up to 2001, and no footnote anywhere gives its amending Act or its commencement, so none is asserted here. It was inserted after 2001 and it stands today; that is as far as this entry goes. A practitioner whose case turns on whether 'business connection' in section 163 carried the section 9 meaning in an older assessment year must establish the date for himself. No judicial treatment of the section has been checked for this entry, so nothing here is a survey of the authority, and that matters because the section is heavily litigated on two fronts. The first is whether the person sought to be treated as agent has a business connection at all, which now turns on Explanation 2 to section 9(1)(i) and on the treaty if one applies. The second is the sequence: an order under section 163 is appealable, and there is authority that it must be passed before the notice that starts the assessment on the person as representative assessee, which this library carries separately. Neither question is answered by the statutory text set out here. Read the section, and section 160(1)(i) with section 161, for the year in hand before advising, because section 163 only makes a person an agent — what he is then liable for is fixed elsewhere. 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 A LABELLED PLACEHOLDER, not a verified commencement date. It is set to 1 April 2000, the start of the tax year corresponding to the earliest published edition on which sub-sections (1) and (2) and the broker proviso appear in this identical form. No edition read prints a footnote dating those provisions. It is not a decision date, and 'bench' and 'favours' carry no case values. FOUR EDITIONS OF THE SECTION WERE TRANSCRIBED, all printing the heading 'Who may be regarded as agent' and naming the Income-tax Act, 1961: the editions as amended up to 2000, up to 2001, up to 2023 and up to 2025. Sub-sections (1) and (2), and the broker proviso, are identical on all four. THERE IS ONE REAL DIFFERENCE and it is flagged because it is the only moving part in the section. The Explanation providing that 'business connection' has the meaning assigned to it in Explanation 2 to section 9(1)(i) appears on the 2023 and 2025 editions and on NEITHER the 2000 nor the 2001 edition. It was therefore inserted at some point after 2001. IT COULD NOT BE DATED: neither the 2000 nor the 2001 edition prints a footnote for it — the only footnote either prints is 'Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988' — and the 2023 edition prints no footnote apparatus at all. This entry therefore states that the Explanation is in the section and asserts no amending Act and no commencement date for it. What can be said about its date is bounded on both sides from the editions themselves: absent up to 2001, present on 2023 and on 2025. The 2023 and 2025 editions print the whole section, Explanation included, word for word identically. THE STATUTORY TEXT IN THIS ENTRY IS TAKEN FROM THE SECTION ITSELF, from editions each of which prints its own heading and names the Act; none of it comes from a bare-act reproduction, from a commentary or from memory. That is worth stating because bare-act reproductions of section 163 in circulation frequently omit the Explanation altogether, which is exactly the part that matters when 'business connection' is in issue. TWO POINTS OF SCOPE. This entry sets out section 163 only. What an agent so appointed is liable for is fixed by section 160(1)(i) read with section 161 and by the income specified in section 9(1), none of which is set out here, so a person validly treated as agent may still owe nothing if there is no section 9(1) income. And the entry says nothing about the sequence in which the section 163 order and the notice starting the assessment must be passed, which is a separate question carried elsewhere in this library. 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 person in India who is employed by or on behalf of a non-resident, who has any business connection with him, from or through whom the non-resident receives any income directly or indirectly, or who is his trustee, may be treated as his agent; so may any other person, resident or non-resident, who has acquired a capital asset in India by means of a transfer. An Indian broker dealing with or through a non-resident broker rather than with the non-resident principal is outside the section in respect of those transactions if both conditions in the proviso are fulfilled. No person may be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be so treated.
TaxSphere, “Statutory position — s.163: who may be treated as the agent of a non-resident, the broker proviso, and the s.163(2) hearing that cannot be skipped”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-163-who-may-be-regarded-as-agent-of-a-non-resident/ (validity last checked 2026-09-08)
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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?
The Assessing Officer has issued a notice describing me as the 'representative assessee' of a family trust. Who can lawfully be made a representative assessee, and does being called one make me the assessee?
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?
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?
