Despite TDS u/s 195, payer is liable as “agent” u/s 163. However, if payee is assessed, payer cannot be assessed as “representative assessee”
The assessee purchased shares of an Indian company from Alcan Inc, Canada. Alcan filed an application u/s 197(1) for issue of a TDS certificate on the basis that the capital gains was Rs. 317.71 crores and tax at 10% was chargeable. The AO issued a certificate directing the assessee to withhold Rs. 40 crores on a provisional basis subject to regular assessment. The assessee complied with the same. During the pendency of the assessment proceedings against Alcan, the AO issued an order u/s 163 treating the assessee as Agent of Alcan in respect of the capital gains. Thereafter, on 15.3.2004, the AO passed an order assessing the capital gains in the hands of the assessee as agent of Alcan in which the rate of tax was taken at 20%. On 16.3.2004, an assessment order was passed in the case of Alcan itself assessing the capital gains in its hands at the rate of 20%. Alcan’s appeal was allowed by the Tribunal (Alcan Inc vs. DDIT 110 ITD 15 (Mum)) and the rate of tax was held to be 10%. The assessee filed an appeal on the point that (a) as it had deducted tax u/s 195, it could not be treated as an “agent” u/s 163; (b) As more than 2 years had passed after the remittance, the assessee could not be treated as an “agent” as it was not in the position to exercise its rights u/s 162(1) and retain funds and (c) as the department had assessed Alcan, the assessee could not be assessed as representative assessee. HELD:
(a) The contention that the assessee having duly deducted tax u/s 195 cannot be treated as an Agent of Alcan u/s 163 is not acceptable because s. 163 is merely intended to ensure that a person can be regarded as a representative assessee if certain conditions are fulfilled. The s. 163 order does not fasten liability on the representative assessee. Therefore, the fact that the Agent has deducted tax u/s 195 is not a bar to treat him as an Agent u/s 163;
(b) The contention that there has been a delay in initiating proceedings u/s 163 which has resulted in prejudice to the Agent is also not acceptable as the law does not contemplate any time limit for initiating proceedings u/s 163. The proceedings for assessing income of the principal were also not barred by time;
(c) However, while the department has the option u/s 166 to assess either the non-resident principal or the representative assessee, once the choice is made and the income is brought to tax in the hands of the principal, the same income cannot be again assessed in the hands of a representative assessee (Saipem UK 298 ITR (AT) 113 (Mum) followed). Consequently, the assessment order on the assessee had to be annulled.