If a non-resident is assessed independently, its representative Assessee cannot be taxed u/s 163 for same income : ITAT
TAXING a non-resident has always been challenging, and wherever possible the law has provided adequate safeguard for the Revenue. That is how Sec 163 came into being. The issue here is: If a non-resident is assessed independently, can its agent in India be also assessed as Representative Assessee for the same income u/s 163? This was the issue that came before the Mumbai bench of ITAT which decided the question in the negative in favour of Assessee by holding that this can’t be done as the primary reason for enactment of Sec.163 was to protect the interest of revenue where it is difficult to make assessment and recover tax from a non resident Assessee by assessing its agent in India as representative Assessee but once the actual Assessee is independently assessed then protective assessment in the hands of agent u/s 163 is unjustified.
The Assessee is a Co. incorporated in UK and its work in India pertained to execution of contracts it got from Indian Cos. In order to execute the contracts it sub-contracted further with other Cos. including one M/s. Valentine Maritime (Gulf) LLC, UAE (for short “Valentine”). The Assessee Co. as well as M/s Valentine were being assessed independently and separately up to the assessment year under consideration but for the relevant AY A.O. issued a notice to the Assessee u/s 163 on 5th Feb.2002 intending to treat it as a representative of Valentine. The notices were sent to the London office as well as Indian office at Jamnagar of Assessee as claimed by the A.O. but the notice sent at Indian office returned undelivered. A.O. however made an ex-parte order treating Assessee as representative Assessee of Valentine on the basis that there was no response to the notice sent to London office. Subsequently, A.O. issued a notice u/s148 on 5th Mar. 2002 in the name of Assessee Co. addressed to its London office asking it to furnish returns within a week of receipt of notice. On 28th Mar. 2002, A.O. went ahead and passed an order u/s 144 r.w. Sec.147 and 163 ex-parte on the ground that there was no response to the notice issued u/s 148 by the Assessee.
Before the Tribunal, it was forcefully submitted on behalf of Assessee Co. that it never received any notice u/s 163 and it came to know of the entire proceedings only when it got the order passed u/s 163 along with notice u/s 148 on 27th Mar.2002 at its London office. Therefore, passing of order u/s 163 without affording an opportunity of hearing was entirely bad in law. It was also submitted that it had replied to A.O.s notice vide its letter dated 2nd Apr.2002 wherein it had stated that Valentine was being assessed independently and any income pertaining to Valentine which was to be brought to charge of tax was to be done in the hands of Valentine itself and thus there was no question of Assessee being held as representative Assessee of Valentine responsible for its income. It was also pointed out that A.O. had made substantive assessment of Valentine and protective assessment in case of Assessee and against the substantive assessment, Valentine had appealed to CIT who dismissed it thereby upholding the order of A.O. It was thus contended that once substantive assessment of Valentine was upheld, confirming of protective assessment of Assessee as agent was not at all justified as it amounted to double taxation as same income was being charged to tax in the hands of Assessee as well as Valentine which is not permissible under law.
On the other hand, the departmental representative contended that all proceedings were legally initiated and sufficient opportunity was given to the Assessee. It was stated that Assessee failed to produce any evidence in support of its claim that it did not receive a notice u/s 163 and that notice u/s 148 was received by it on 27th Mar.2002, whereas on the other hand it is to be normally assumed that Assessee received both the notices and in time and such assumption is fortified by Sec.27 of General Clauses Act.
On merits of the case, it was submitted by DR that the learned CIT(A) has upheld the order of A.O. and supported his order by relying on the Andhra Pradesh High Court decision in the case of Barium Chemicals Ltd. and the Kerala High Court decision in the case of Fertilizers & Chemicals (Travancore) Ltd. It was claimed by the learned Departmental Representative that these decisions settled the issue and that simultaneous assessments of principal and agent are permissible under law.
Having heard the rival submissions, Tribunal held that the orders passed by A.O. and upheld by CIT were totally unjustified and illegal. It first dwelt on the procedural aspect of the case. It observed that Sec. 163 is enacted primarily to protect the interests of the revenue where it is difficult to assess a non resident and recover tax from it in which case its agent in India is to be treated as its representative Assessee for purposes of assessment and recovery of tax. But as per Sec.163(2) it is mandatory to give a reasonable opportunity of hearing to the person to be treated as representative Assessee. In the instant case notice u/s163 served at Indian office of Assessee returned undelivered as its office had changed and that at London office was never received by Assessee as claimed by it and there was no documentary proof produced by department to support its claim that it had sent a notice to the London office also. In light of this observation, Tribunal held that order u/s 163 was bad in law as no meaningful opportunity was given to Assessee. As for order passed u/s 144 r.w. Sec.147 and 163, it observed that Assessee received the notice u/s 148 on 27th Mar.2002 from which date it had 7 days to respond but A.O. passed his order on 28th March itself without thinking it prudent to give another notice to Assessee and also knowing that limitation for passing the order was to expire on 31st Mar.2003. In light of this observation, Tribunal held this order as unsustainable also as reasonable opportunity was not given to Assessee and also 7 days from receipt of notice had not expired.
Coming to merits of the case, Tribunal held that the cases relied on by DR i.e. Andhra Pradesh High Court decision in the case of Barium Chemicals Ltd. and the Kerala High Court decision in the case of Fertilizers & Chemicals (Travancore) Ltd do not at all help the contention of revenue. It clearly distinguished the Andhra H.C. decision for its non applicability. As for Kerala H.C. decision in case of Fertilizers &Chemicals Ltd., it held that it has been misinterpreted. It went into the judgment and came to a finding that what the judgment intended to convey was that when there is a possibility that a non resident is assessed independently and directly for some of its income but it also has some other income which is liable to tax earned through any agent then such agent can be assessed u/s 163 as representative Assessee of non resident for such income. Thus it contemplated a situation where non resident could be taxed independently for its income arising or accruing in India and at the same time assessed through its agent as representative Assessee for income earned through such agent. On this basis tribunal observed that the judgment never intended bringing to the charge of tax same income simultaneously in the hands of non resident as well as representative Assessee. This would amount to double taxation and goes against the tenets of principles of taxation. In light of the above it distinguished both the cases relied on by the department. It noted that there can be a situation where the department is not sure as to whether the assessment should be framed on agent or non resident and in such a case department, to be on safe side, will be justified in making two assessments, one substantive assessment and the other protective assessment like in the instant case but once one of the assessment is confirmed then the other is to be vacated. In view of this Tribunal held that once CIT had rejected the appeal of Valentine, its substantive assessment had attained finality and subsequently its order of confirming protective assessment was totally unjustified. It therefore quashed the orders of A.O. and CIT (A) with respect to protective assessment in case of Assessee. Thus the gist of the issue is that income of non resident arising or accruing in India through its agent can be either assessed in its own hand independently or in the hands of its agent as representative Assessee on protective basis but not both as this would amount to double taxation which is against the principles of taxation and illegal.