Judgment Case ID: 2456

Judgment:
Appeals Nos. 688 and 689 of 1968. Appeals by special leave from the judgment and order dated April 17	 1963 of the Bombay High Court in Misc. Petitions Nos. 229 and 230 of 1962. Sukumar Mitra	 S.K.Aiyar	 R.N. Sachthey and B.D. Sharma	 for the appellant (in both the appeals ). M.C. Chagla	 B. Datta and P.C. Bhartari	 for the respondent in both the appeals ). The Judgment of the Court was delivered by Ramaswsmi	 J. The respondent is a limited company incorporated under the Indian Companies Act	 1913 and carries on business of manufacturing and selling diesel trucks and bus chassis locomotives and other heavy engineering products. The respondent manufactures diesel trucks and bus chessis in collaboration with the German firm "Daimler Benz A.G." The business of manufacturing locomotives is carried on by the respondent in collaboration with the German firm "Krauss Maffei A.G." For each of the assessment years from 1955 56 to 1961 62	 the Income Tax Officer issued a notice to the respondent under section 43 of the Indian Income Tax Act	 1922 (hereinafter called the "Act ') intimating that he intended treating the respondent as the Agents of the two German firms. In pursuance of the notices the Income Tax Officer actually passed orders under section 43 of the Act treating the respondent as agent of the said two German firms. For the assessment year 1962 63 no notice under section 43 'of the Act had been issued or served upon the respondent by the Income Tax Officer and no order under that section had been passed treating the respondent as the agent of the two German firms. On September 8	 1961	 the respondent received from the Income Tax Officer notices of demand under section 29 of the Act together with an order under section 18A(i) calling upon the respondent to make advance payment of the tax for the assessment year 1962 63 as agent of the said two German firms. The tax demanded was Rs. 90	833.29 in the case of Krauss A.G. and Rs. 6	32	629.62 in the case of Daimler A.G. By its reply dated September 22	 1961	 the respondent denied its liability to make advance payment of tax. The respondent also made a represen 23 tation to the Commissioner of Income Tax but on April 16	 1962 the respondent received a communication from the Commissioner rejecting its representation. The respondent thereupon flied two petitions m the Bombay High Court challenging the action of the Income Tax Officer demanding advance tax and asking for the grant of a writ in the nature of certiorari to quash the notices of demand under section 29 of the Act. By its judgment dated April 17/18	 1963	 the High Court allowed the petitions and granted a writ quashing the notices of demand issued to the respondent and restraining the Income Tax Officer from taking any further steps or proceedings in the enforcement of the said notices. These appeals are brought by special leave to this Court on behalf of the Income Tax Officer	 Companies Circle	 Bombay	 hereinafter called the 'appellant '. Sections 18A	 42 and 43 of the Act	 as they stood at the material time	 are to the following effect: "18A. (1)(a) In the case of income in respect of which provision is not made under section 18 for deduction of income tax at the time of payment	 the Income tax officer may	 on or after the 1st day of April in any financial year	 by order in writing	 require an assessee to pay quarterly to the credit of the Central Government on the 15th day of June	 15th day of September	 15th day of December and 15th day of March in that year	 respectively	 an amount equal to one quarter of the income tax and super tax payable on so much of such income as is included in his total income of the latest previous year in respect of which he has been assessed	 if that total income exceeded the maximum amount not chargeable to tax in his case by two thousand five hundred rupees. Such income tax and super tax shall be calculated at the rates in force for the financial year in which he is required to pay the tax	 and shall bear to the total amount of income tax and super tax so calculated on the said. ' total income the same proportion as the amount of such inclusions bears to his total income or	 in cases where under the provisions of sub section (1 ) of section 17 both income tax and super tax or super tax are chargeable with reference to the total world income	 shall bear to the total amount of income tax and super tax which would have been payable on his total world income of the said previous year had it been his total income the same proportion as the amount of such inclusions bears to his total world income: 24 Provided that	 where the previous year of the assessee in respect of any source of income ends after the 31st day of December and before the 30th day of April	 the order in writing issued by the Income tax Officer requiring the payment of income tax and super tax on that source of income shall substitute for the four quarterly payments hereinbefore specified	 three payments of equal amount to be made on the 15th day of September	 the 15th day of December and the 15th day of March	 respectively: (b) If the notice of demand issued under section 29 in pursuance of the order under clause (a) of this sub section is served after any of the dates on which the instalments specified therein are payable	 the tax shall be payable in equal instalments on each of such of those dates as fall after the date of the service of the notice or demand	 or in one sum on the 15th day of March if the notice is served after the 15th day of December. (2) If any assessee who is required to pay tax by an order under sub section (1 ) estimates at any time before the last instalment is due that the part of his income to which that sub section applies. for the period which would be the previous year for an assessment for the year next following is less than the income on which he is required to pay tax and accordingly wishes to pay an amount less than the amount which he is so required to. pay	 he may send to the Income tax Officer an esti mate of the tax payable by him calculated in the manner laid down in sub section (1 ) on that part of his income 1 for such period	 and shall pay such amount as accords with his estimate in equal instalments on such of the dates specified in sub section (1)(a) as have not expired or in one sum if only the last of such dates has not expired: (3) Any person who has not hitherto been assessed shall	 before the 15th day of March in each financial year	 if his total income of the period which would be the previous year for an assessment for the financial year next following is likely to exceed the maximum amount not chargeable to tax in his case by two thousand five hundred rupees	 send to the Income tax Officer an estimate of the tax payable by him on that part of his 25 income to which the provisions of section 18 do not apply of the said previous year calculated in the manner laid down in sub section ( 1 )	 and shall pay the. amount	 on such of the dates specified in that sub section as have not expired	 by instalments which may be revised according to the proviso to sub section (2). ' "42. (1 ) All income	 profits or gains accruing or arising	 whether directly or indirectly	 through or from any business connection in the taxable territories	 or through or from any property in the taxable territories	 or through or from any asset or source of income in the taxable territories	 or through or from any money lent at interest and brought into the taxable territories in cash or in kind or through or from the sale	 exchange or transfer of a capital asset in the taxable territories	 shall be deemed to be income accruing or arising within the taxable territories	 and where the person entitled to the income	 profits or gains is not resident in the taxable territories	 shall be chargeable to income tax either in his name or in the name of his agent	 and in	 the latter case such agent shall be deemed to be	 for all the purposes of this Act	 the assessee in respect of such income tax: Provided that where the person entitled to the income	 profits or gains is not resident in the taxable territories	 the income tax so chargeable may be recovered by deduction under any of the provisions of section 18 and that any arrears of tax may be recovered also in accordance with the provisions of this Act from any assets of the non resident person which are	 or may at any time come	 within the taxable territories. : Provided further that any such agent	 or any person who apprehends that he may be assessed as such an agent	 may retain out of any money payable by him to such non resident person a sum equal to his estimated liability under this sub section	 and in the event of any disagreement between the non resident person and such agent or person as to the amount to be so retained	 such agent or person may secure from the Income tax Officer a certificate stating the amount to be so retained pending final settlement .of the liability	 and the certificate so obtained shah be his warrant for retaining that amount: L2Sup CI/69 33 26 "43. Any person employed by or on behalf of a person residing out of the taxable territories	 or having any business connection with such person	 or through whom such person is in the receipt of any income	 profits or gains upon whom the Income tax Officer has caused a notice to be served of his intention of treating him as the agent of the non resident person shall	 for all the purposes of this Act	 be deemed to be such agent: Provided that where transactions are carried on in the ordinary course of business through a broker in the taxable territories in such circumstances that the broker does not 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	 be deemed to have a business connection	 within the meaning of this section	 with such person residing out of the taxable territories. " On behalf of the appellant Mr. Sukumar Mitra addressed the argument that an appointment made under section 43 of the Act was good for all purposes of the Act and therefore also for the purpose of section 18A of the Act. It was said that under s.18A	 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 section 43 of the Act was made on October 21	 1961 and the notices of demand in the present case were issued 27 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 section 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 section 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 section 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 all 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 section 18A 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 section 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 section 18A is charged 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 year but it is charged for the tax liability of the subsequent year. In the present case	 it is admitted that there was no appointment of the respondent under section 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 section 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 section 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 28 alter in the next year and he 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 section 18A 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 rites and rightly quashed by the High Court by the grant of a writ in the nature of certiorari under article 226 of the Constitution. For the reasons expressed we hold that these appeals fail and are accordingly dismissed with costs there will be one set of hearing fee. Y.P. Appeals dismissed.

Summary:
The respondent company	 carried on manufacturing business in collaboration with so.me. non resident German firms. For each of the assessment.years up to. 1961 62	 the Income tax Officer issued a notice to the respondent under section 43 of the Indian Income tax Act	 1922	 intimating that he intended treating the respondent as the agent of the non resident firms	 and thereafter passed orders treating the respondent as agent of the firms. For the assessment year 1962 63 no notice under section 43 was issued ' or served upon the respondent by the Income tax Officer and no order under that section was passed treating the respondent as their agent. The respondent received from the Income tax Officer notices if demand under section 29 together with an order under section 18A(1) calling upon the respondent to make advance payment of the tax for the assessment year 1962 63 as agent of the firms. The respondent denied its liability to make advance payment of tax. The Commissioner of Income tax 'rejected the respondent 's representation. The respondent	 thereupon	 filed writ petitions in the High Court challenging the demand of the advance tax and for quashing the notices of demand. The High Court granted the writ. Dismissing the appeals	 this Court	 HELD: The respondent could not be treated as an agent if the nonresident firms for the assessment year 1962 63 as advance tax could not be demanded under section 18A for that assessment year treating the respondent as such statutory agent. Having regard to the scheme of the Income tax Act	 the assessment for each year is self contained and the vicarious liability imposed by an appointment under section 43 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 section 43 extend the liability to any other assessment excepting the liability for the assessment year for which the appointment is made. The expression for all purposes"	 only indicates that when an appointment is made for a particular assessment year it is good for all purposes as far as the assessment is concerned i.e.	 for all purposes for imposing tax liability	 determing the quantum of the liability and for recovering it. The liability sought to be imposed under section 18A in the present ease 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 section 43 of the Act as a statutory agent	 no such liability can be imposed on the respondent by the income tax Authorities. [27 C F] In the present case	 no notice was served on the respondent intimating that it would be treated as the agent of the non resident firms for the 22 assessment year 1962 63. No. opportunity was given to the respondent to be heard in the matter	 not was any formal order passed under section 43 by the appellant treating the respondent as the agent of the non:resident 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 year and he 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. [27 G 28 A]