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
High CourtHelps taxpayerValidity unconfirmed
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the Privy Council's decision in CIT v. Nawal Kishore Kharaiti Lal, decided under the Indian Income-tax Act, 1922, is no longer applicable to the 1961 Act because of the specific statutory changes — in particular that an order treating a person as agent is now appealable, and that the assessee's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.
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
CBDT Circulars & InstructionsCuts both ways
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 Year 2023 and Year 2025 pages both carry 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 on neither of the two earlier pages read, so it was inserted after 2001.