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PETITIONER: H.L. SUD, INCOME-TAX OFFICER, BOMBAY

       Vs.

RESPONDENT: TATA  ENGINEERING  &  LOCOMOTIVE  CO.  LTD.BOMBAY

DATE OF JUDGMENT: 06/09/1968

BENCH: RAMASWAMI, V. BENCH: 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

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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 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]

JUDGMENT: 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

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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 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 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   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

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             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

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             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

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             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

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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  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 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. 29