Case: H.L. Sud, Income-Tax Officer, Bombay Vs. Tata Engineering &amp; Locomotive Co. Ltd.Bombay

in respect of such transactions deal directly with or on behalf of a non-resident principal but deals with or through a non-resident broker who is carrying on such transactions in the ordinary course of his business and not as a principal, such first-mentioned broker shall not be deemed to be an agent under this section in respect of such transactions:Provided further that no person shall be deemed to be the agent of a non-resident person, unless he has had an opportunity of being heard by the Income-tax Officer as to his liability.Explanation:- A person, whether residing in or out of the taxable territories, who acquires, after the 28th day of February, 1947, whether by sale, exchange or transfer, a capital asset in the taxable territories from a person residing out of the taxable territories shall, for the purposes of charging to tax the capital gain arising from such sale, exchange or transfer, he deemed to have it business connection, within the meaning of this section, with such person residing out of the taxable territories."3. On behalf of the appellant Mr. Sukumar Mitra addressed the argument that an appointment made under S. 43 of the Act was good for all purposes of the Act and therefore also for the purpose of S. 18-A of the Act. It was said that under S. 18-A, advance payment of tax is liable to be made in the current financial year that the assessment year 1961-62 is the same as the financial year 1961-62 and that for the said financial year in which the advance payment of tax was called to be made by the respondent, there was already an appointment of the respondent as the statutory agents of the non-resident firms, the advance payment of tax was rightly demanded from the respondent. The appointment of the respondent under S. 43 of the Act made on October 21, 1961 and the notice of demand in the present case were issued on November 2/3, 1961 and therefore subsequent to the said appointment. It was therefore contended that the advance payment of tax was properly demanded from the respondent and the respondent could not challenge the notices issued to it. In our opinion, there is no warrant or justification for the argument advanced on behalf of the appellant.The liability imposed upon a person by his appointment as a statutory agent under S. 43 of the Act is only in respect of the liability for the assessment year for which the appointment is made. The appointment of the respondent for the assessment year 1961-62 was in respect of the liability of the non-resident firms for the income of the previous year for the said assessment year 1961-62. Having regard to the scheme of the Act, the assessment for each year is self-contained and the vicarious liability imposed by an appointment under S. 43 of the Act only extends to the liability for the assessment of the year for which the appointment is made and cannot extend to the liability for any other assessment. Nor can the expression "for all purposes" used in S. 43 of the Act extend the liability to any other assessment excepting the liability for the assessment year for which the appointment is made. The expression "For the purposes", in our opinion, only indicates that when an appointment is made for a particular assessment year it is good for all purposes as far as that assessment is concerned i. e. for all purposes for imposing tax liability, determining the quantum of the liability and for recovering it. The liability sought to be imposed under S. 18-A of the Act is not in respect of the income-tax for the assessment year for which the appointment is made but for a subsequent assessment year. For the recovery of income tax of the said subsequent year unless there is a fresh appointment of the respondent under S. 43 of the Act as a statutory agent, no such liability can be imposed on the respondent by the Income-tax authorities. It is true, as Mr. Sukumar Mitra contends, that advance tax which is required to be paid under S. 18-A is charges during the financial year.But it must be remembered that it is charged not in respect of the previous year for which the financial year is the proper assessment yea but it is charges for the tax liability of the subsequent year. In the present case, it is admitted that there was no appointment of the respondent under S. 43 of the Act as statutory agent of the two German firms for the assessment year 1962-63. No notice was served upon the respondent under S. 43 of the Act intimating to the respondent that the appellant intended to treat it as the agent of the non-resident German firms for the assessment year 1962-63. No opportunity was given to the respondent to be heard in the matter, nor was any formal order passed under S. 43 of the Act by the appellant treating the respondent as the agent of the non-resident German firms for the assessment year 1962-63. Although a person may fail in a particular year to resist the claim that he is an agent, circumstances may alter in the next claim and be may be able to resist the claim then. Hence notice shall have to be given by the Income-tax Officer for each assessment year to appoint a person as agent.It follows therefore that the respondent could not be treated as an agent of the two German firms for the assessment year 1962-63 and advance tax could not be demanded under S. 18-A of the Act for that assessment year treating the respondent as such statutory agent.We are accordingly of the opinion that the notices of demand issued by the appellant to the respondent dated September 5, 1961 were illegal and ultra vires and rightly quashed by the High Court by the grant of a writ in the nature of certiorari under Article 226 of the Constitution.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]In our opinion, there is no warrant or justification for the argument advanced on behalf of the appellant.The liability imposed upon a person by his appointment as a statutory agent under S. 43 of the Act is only in respect of the liability for the assessment year for which the appointment is made. The appointment of the respondent for the assessment year 1961-62 was in respect of the liability of the non-resident firms for the income of the previous year for the said assessment year 1961-62. Having regard to the scheme of the Act, the assessment for each year is self-contained and the vicarious liability imposed by an appointment under S. 43 of the Act only extends to the liability for the assessment of the year for which the appointment is made and cannot extend to the liability for any other assessment. Nor can the expression "for all purposes" used in S. 43 of the Act extend the liability to any other assessment excepting the liability for the assessment year for which the appointment is made. The expression "For the purposes", in our opinion, only indicates that when an appointment is made for a particular assessment year it is good for all purposes as far as that assessment is concerned i. e. for all purposes for imposing tax liability, determining the quantum of the liability and for recovering it. The liability sought to be imposed under S. 18-A of the Act is not in respect of the income-tax for the assessment year for which the appointment is made but for a subsequent assessment year. For the recovery of income tax of the said subsequent year unless there is a fresh appointment of the respondent under S. 43 of the Act as a statutory agent, no such liability can be imposed on the respondent by the Income-tax authorities. It is true, as Mr. Sukumar Mitra contends, that advance tax which is required to be paid under S. 18-A is charges during the financial year.But it must be remembered that it is charged not in respect of the previous year for which the financial year is the proper assessment yea but it is charges for the tax liability of the subsequent year. In the present case, it is admitted that there was no appointment of the respondent under S. 43 of the Act as statutory agent of the two German firms for the assessment year 1962-63. No notice was served upon the respondent under S. 43 of the Act intimating to the respondent that the appellant intended to treat it as the agent of the non-resident German firms for the assessment year 1962-63. No opportunity was given to the respondent to be heard in the matter, nor was any formal order passed under S. 43 of the Act by the appellant treating the respondent as the agent of the non-resident German firms for the assessment year 1962-63. Although a person may fail in a particular year to resist the claim that he is an agent, circumstances may alter in the next claim and be may be able to resist the claim then. Hence notice shall have to be given by the Income-tax Officer for each assessment year to appoint a person as agent.It follows therefore that the respondent could not be treated as an agent of the two German firms for the assessment year 1962-63 and advance tax could not be demanded under S. 18-A of the Act for that assessment year treating the respondent as such statutory agent.We are accordingly of the opinion that the notices of demand issued by the appellant to the respondent dated September 5, 1961 were illegal and ultra vires and rightly quashed by the High Court by the grant of a writ in the nature of certiorari under Article 226 of the Constitution.