Section 163

Section 163 — the law in short

What the courts have decided on section 163, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Vodafone International Holdings BV v Union of India Supreme CourtHelps taxpayerSuperseded by amendment
  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?
  No, on the law as it stood. The Supreme Court held on 20 January 2012 that what was sold was a single share in a Cayman Islands company, which is property situated outside India, in an outright sale between two non-residents on a principal to principal basis. Shares are a bundle of rights and a transfer lock, stock and barrel cannot be broken into components — control premium, non-compete, brand licence, call options — and taxed piecemeal, particularly where the parties fixed one lump sum of US$11.08 billion with no split. The Revenue established no connection with section 9(1)(i), so section 195 did not apply.
• Barendra Prasad Ray v ITO Supreme CourtHelps department
  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?
  Yes, on these facts. The Supreme Court held that 'business connection' in section 9(1) is not confined to trade or manufacture and takes in a professional connection. Business means an activity carried on continuously and systematically by applying labour or skill to earn income, and professions are generally regarded as businesses. The connection between the Calcutta solicitors and the English barrister was real and intimate, not casual: he argued their case with their consent, alongside their Indian counsel, and could not have earned the fees without associating himself with them. The order treating them as his agent under section 163(1) stood.
• CIT v Toshoku Ltd Supreme CourtHelps taxpayer
  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?
  No. The Supreme Court held that a credit entry in the exporter's own books is not receipt by the non-resident: a credit balance without more is only a debt, and a book entry in the debtor's own books is not payment discharging it, so the amounts were neither received nor deemed received in India. Nor did the commission accrue or arise here. Under the Explanation to section 9(1)(i), where all the operations of a business are not carried out in India only the part of the income reasonably attributable to Indian operations is deemed to accrue here - and these agents carried out no operations in India at all.
• CIT v R.D. Aggarwal & Co Supreme CourtHelps taxpayer
  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?
  No, on these facts. The Supreme Court held there was no business connection between the Amritsar firm and the two non-resident yarn exporters. The contracts of sale were made outside India, the price was received outside India and delivery was given outside India. Nothing - procuring raw materials, manufacture, sale or delivery against price - happened here. The firm merely procured orders which were offers it had no authority to accept, and which the non-residents were free to reject. Business connection postulates a real and intimate relation between the trading activity outside India and trading activity within it, contributing to the non-resident's income.
• 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 taxpayer
  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.160: the five, and only five, classes of representative assessee, and what Explanations 1 and 2 do to an unwritten trust CBDT Circulars & InstructionsCuts both ways
  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?
  Section 160(1) is an exhaustive list of five classes and nobody outside it can be made a representative assessee: (i) the agent of a non-resident, in respect of income of the non-resident specified in section 9(1), including a person treated as an agent under section 163; (ii) the guardian or manager of a minor, lunatic or idiot who is entitled to receive or is in receipt of the income on that person's behalf; (iii) the Court of Wards, the Administrator-General, the Official Trustee or any receiver or manager (including any person, whatever his designation, who in fact manages property on behalf of another) appointed by or under an order of a court; (iv) a trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise, including a wakf deed valid under the Mussalman Wakf Validating Act, 1913; and (v) a trustee appointed under an oral trust. Section 160(2) then says that every representative assessee shall be deemed to be an assessee for the purposes of the Act, so yes — you are an assessee, with an assessee's rights of appeal as well as an assessee's exposure.
• 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 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.
• Statutory position — s.162: the representative assessee's right to recover and to retain, and the Assessing Officer's certificate that caps his exposure CBDT Circulars & InstructionsCuts both ways
  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.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.