H.L. Sud, Income-Tax Officer, Bombay Vs.
Tata Engineering & Locomotive Co. Ltd. [1968] INSC 206 (6 September 1968)
06/09/1968 RAMASWAMI, V.
RAMASWAMI, V.
SHAH, J.C.
GROVER, A.N.
CITATION: 1969 AIR 319 1969 SCR (2) 21
ACT:
Income-tax Act (11 of 1922), ss. 18A and
43-Advance tax of nonresident firm-Liability of agent of the firm-Whether
notice to be given each year.
HEADNOTE:
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 s. 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 s. 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 s. 29
together with an order under s. 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 s. 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 s. 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 s. 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 s. 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 s.
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 s. 43 by the appellant treating the respondent as the agent of the
nonresident 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]
CIVIL APPELLATE JURISDICTION: Civil 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 s. 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 s. 43 of the Act treating the respondent as agent
of the said two German firms. For the assessment year 1962-63 no notice under
s. 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 s. 29
of the Act together with an order under s. 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 representation 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 s. 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 incometax 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 supertax
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 subsection (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 supertax 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 installments specified therein are
payable, the tax shall be payable in equal installments 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 installment
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 Incometax Officer an estimate 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 installments 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 subsection ( 1 ), and shall
pay the. amount, on such of the dates specified in that subsection as have not
expired, by installments 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 nonresident 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 s. 43 of the Act was good for all
purposes of the Act and therefore also for the purpose of s. 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 s. 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
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 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 s. 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 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. 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 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 nonresident 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 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 s.. 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 Art. 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.
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