1. This petition has been filed by the Premier Automobile Limited under article 226 of the Constitution to challenge certain orders passed by an Income-tax Officer who is respondent No. 1 to the petition and confirmed by the 2nd respondent, the Appellate Assistant Commissioner for Income-tax.
2. The petitioner carries on the business of assembling and manufacturing motor vehicles. For enabling the petitioner to carry on that business, the petitioner entered into an agreement with Messrs. Chrysler Corporation of the U. S. A. in 1947. For some years past the petitioner has been assessee to income-tax as the statutory agent of Messrs. Chrysler Corporation in respect of the income earned by the Corporation under the said agreement. These assessment orders are the subject of references made to this court by the Labour Appellate Tribunal. We are not concerned with those orders in the present petition. The facts which gave rise to the present petition are that on 17th September, 1962, the 1st respondent served a notice on the petitioner under section 163 of the Income-tax Act, 1961 (hereinafter referred to as the Act), requiring the petitioner to show cause why the petitioner should not be treated as the agent of Messrs. Chrysler Corporation for the assessment year 1963-64. It is common ground that the accounting year in question was from 1st July, 1961, to 30th June, 1962, so that the above notice was given after the termination of the accounting year and prior to the commencement of the assessment year. The petitioner objected to the issue of the notice on the ground, inter alia, that a notice under section 163 of the Act could not be validly issued before the commencement of the assessment year. The objection was overruled by the 1st respondent, who by his order dated 7th November, 1962, appointed the petitioner a statutory agent of Messrs. Chrysler Corporation for the assessment year 1963-64. Then on 11th December, 1962, the 1st respondent issued an order under section 210 of the Act calling upon the petitioner as the statutory agent of Messrs. Chrysler Corporation to pay Rs. 75,000 and odd as advance payment of income-tax for the said assessment year. The petitioner filed appeals before the 2nd respondent from the two orders under sections 163 and 210 of the Act respectively. The 2nd respondent held that the order under section 163 appointing the petitioner a statutory agent of Messrs. Chrysler Corporation was correct and that the order under section 210 calling upon the petitioner to pay advance tax was not appealable. Both the appeals were accordingly rejected by the 2nd respondent. This petition seeks to quash the 1st respondent's orders under sections 163 and 210 and the appellate order of the 2nd respondent.
3. A preliminary objection to the petition was taken by Mr. G. N. Joshi on behalf of the respondents. Mr. Joshi argued that it was open to the petitioner to file a further appeal to the Income-tax Appellate Tribunal from the order under section 163, that the order under section 210 was merely consequential to the order under section 163, that thus the petitioner had another equally efficacious remedy, and that the petition should not, therefore, be entertained. Mr. Joshi, however, conceded that the order under section 210 calling upon the petitioner to make advance payment of Rs. 75,000 and odd was not appealable and that no stay of the notice of demand could have been granted by any authority under the Act even if the petitioner had filed a further appeal from the order under section 163. The remedy by way of appeal from the order under section 163. The remedy by way of appeal to the Income-tax Tribunal cannot, therefore, be held to be equally efficacious. I must accordingly reject the preliminary objection.
4. In order to appreciate the main argument advanced by Mr. Palkhivala on behalf of the petitioner, it is necessary to notice some relevant provisions of the Act. Section 9 of the Act deals with income which is deemed to accrue or arise in India and section 9(1)(i) provides, inter alia, that all income accruing or arising, whether directly or indirectly, through or from any business connection in India, shall be deemed to accrue or arise in India. Under section 5(2) a person who is a non-resident is liable to income-tax for income which accrues or arises or is deemed to accrue or arise to him in India during any previous year. It is thus clear that Messrs. Chrysler Corporation as a non-resident was assessable to income-tax for the income derived by it from its agreement with the petitioner if it is held that the agreement and its implementation amounted to a business connection between the two. Then section 163, so far as it is relevant to the present petition, provides that, in relation to a non-resident, an agent includes any person in India who has a business connection with non-resident. Sub-section (2) of section 163 provides that an opportunity of being heard shall be given to a person before he is treated as the agent of a non-resident. Now, an agent appointed under section 163 is a representative assessee as defined by section 160. According to section 160, the expression 'representative assessee' includes the agent of a non-resident as well as a person who is treated as an agent under section 163 in respect of the income of the non-resident specified in clause (i) of sub-section (1) of section 9. The expression 'representative assessee' also covers other persons such as the guardian or manager of the income of a minor, lunatic or idiot, the court of wards, a trustee under a trust deed, etc. Section 161 defined the liability of a representative assessee. Sub-section (1) of section 161 provides :
'Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income; but any such assessment shall be deemed to be made upon him in his representative capacity only, and the tax shall, subject to the other provisions contained in this Chapter, be levied upon and recover from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him.'
5. Section 162 entitles a representative assessee to recover the tax paid by him as such from the person on whose behalf the tax was paid. Section 166 makes it clear that the department has the option of levying tax either on the representative assessee or the principal assessee and also of recovering from the principal assessee the tax assessee on the representative assessee. Sections 207 to 210 deal with the computation and demand of advance payment of income-tax.
6. On behalf of the petitioner, Mr. Palkhivala made it clear that, for purpose of this petition, it may be assumed that Messrs. Chrysler Corporation had a business connection with the petitioner in the accounting year 1962-63 and that the petitioner was liable to be assessee as a representative assessee for the assessment year 1963-64. The only question canvassed by Mr. Palkhivala was whether a person can be appointed an agent under section 163 before the commencement of the assessment year so that he could be called upon to pay advance income-tax under section 210.
7. A somewhat similar point was raised, but not decided in Tata Engineering & Locomotive Co. Ltd. v. Income-tax Officer, Companies Circle I(1), Bombay. That case was decided under the corresponding provision of the Indian Income-tax Act of 1922. The petitioner in that case was appointed an agent of certain foreign firms for a particular assessment year but was called upon to pay advance income-tax for the next assessment year. A Division Bench of this court allowed that petition on the ground that a notice treating a person as an agent of a non-resident for the purpose of assessment to income-tax has to be served in respect of each assessment year in order to fix upon that person the liability for tax payable by the non-resident, and that in the absence of a fresh notice and a fresh appointment as an agent for a particular assessment year, no person can be called upon to pay the tax payable by the non-resident for the assessment year. It was also argued on behalf of the petitioner in that case that no vicarious liability in respect of the income of a non-resident for any year can be imposed on an agent until after the close of that year, but the court did not find it necessary to deal with that contention on the merits.
8. In the present case it was not enough for Mr. Palkhivala to contend, as appears to have been done on behalf of the petitioner in the above case, that no vicarious liability can be imposed on an agent until the close of the accounting year. This is because the petitioner in this case was served with a notice under section 163 of the Act after the termination of the accounting year, and the petitioner was appointed an agent under section 163 and was called upon to pay advance tax under section 210 before the commencement of the assessment year. As I will show later, the accounting year in this context must be the accounting year of the non-resident and not the accounting year of the agent in respect of the latter's personal income. It was, however, not contended by the petitioner that the accounting year of the non-resident (Messrs. Chrysler Corporation) was different from the accounting year of the petitioner so that the case before me proceed on the basis that the relevant accounting year was already over before the impugned order sections 163 and 210 were passed by the 1st respondent.
9. That being the case, Mr. Palkhivala argued, in the first place, that a person cannot be appointed an agent of a non-resident under section 163 before the close of the accounting year, and, secondly, that since in many cases the close of the accounting year synchronizes with the commencement of the assessment year with the result that no advance tax could be claimed and collected from such agents, it was not the intention of the legislature that advance tax should be collected in other cases where a margin of time happens to exist between the close of the of the accounting year and the commencement of the assessment year. Mr. Palkhivala argued in effect that since in a number of cases persons cannot be appointed agents of non-resident prior to the commencement of the assessment year and cannot in consequence be subjected to the liability to pay advance tax on behalf of non-residents, it must be held in fairness that the legislature did not intend the advance payment should be claimed from other agents simply because they could be appointed some time before the commencement of the assessment year.
10. I will first examine Mr. Palkhivala's argument that no appointment of an agent can be made under section 163 prior to the close of the accounting year. According to Mr. Palkhivala, the conditions which must exist before a person can be appointed an agent under section 163 cannot be ascertained with precision till the close of the accounting year. The terms of section 163 show that there are two such conditions. They are, firstly, that the non-resident must be a non-resident in the accounting year and secondly, that there must exist in the accounting year a relation between the non-resident and the proposed agent of any one of the several types enumerated in that section. Either the proposed agent must be employed by or on behalf of the non-resident or the non-resident or he must have a business connection with the non-resident or the non-resident must be in receipt of some income whether directly or indirectly from or through the proposed agent, or the proposed agent must be a trustee of the non-resident.
11. Whether a person is non-resident in the accounting year is to be determined by the tests laid down in section 6. Section 6 deals with the circumstances in which assessees of different types are said to be resident in India. Sub-section (i) of that section deals with individuals sub-section (2) with Hindu undivided families, firms or other associations of persons, sub-section (3) with companies and sub-section (4) with other person. These provisions show that in regard to assessees covered by sub-sections (2), (3) and (4), it is not possible to say with certainty till the close of the accounting year whether they are residents or non-residents. For instance, according to sub-section (2), a Hindu undivided family, firm or other association of persons is a non-resident if the control and management of its affairs is situated wholly outside India during the accounting year. Whether the control and management of the affairs of a Hindu undivided family, firm or other association of persons is situated wholly outside India during the accounting year. Sub-section (4) is couched in similar terms. Under sub-section (3) a company is said to be resident in India in any accounting year if it is an Indian company or if during that year the control and management of its affairs is situated wholly in India. The term 'Indian company' is defined in section 2(26). Since it is theoretically possible that a non-resident company may become an Indian company at the very close of its accounting year, it cannot be described as a non-resident till its accounting year has come to close. These considerations do not apply with the same force to individual assessees covered by sub-section (1) of section 6. In particular an individual who falls in the category described in section 6(1)(a) can be said to be a non-resident if he is found to be not residing in India for more than half of his accounting year. It must accordingly be held that in many, but not in all, cases the question whether an assessee is a non-resident cannot be determined prior to the close of the accounting year.
12. Regarding the relation which must exist in the accounting year between the non-resident and the proposed agent according to the terms of section 163, Mr. Palkhivala argued that in some cases it might not be possible to determine before the close of the accounting year whether there was 'any business connection' between them. That may well be so. It was, however, not disputed by Mr. Palkhivala that it is possible in many other cases to say, long before the close of the accounting year, whether the proposed agent is employed by or on behalf of the non-resident, or whether he has any business connection with the non-resident, or whether the non-resident is in receipt of any income from the proposed agent, or whether the proposed agent is a trustee of the non-resident.
13. It was further argued by Mr. Palkhivala that, even where an agent is validly appointed under section 163, his liability to assessment as a representative assessee does not arise until it is found that the non-resident has received some 'income' through the agent in the accounting year, and that it may often be impossible to ascertain whether any 'income was received by the non-resident in the accounting year till the close of that year. In support of this argument Mr. Palkhivala pointed out that in section 160(1)(i) an agent is said to be a representative assessee 'in respect of the income of a non-resident specified in clause (i) of sub-section (1) of section 9'. Again section 161 says that a representative assessee is liable to tax 'as regards the income in respect of which he is a representative assessee'. Mr. Palkhivala argued that amounts which accrue or are received from a business connection cannot be said to be 'income' unless it is ascertained at the close of the accounting year that any profits were derived from the business connection during that year. It was, on the other hand argued by Mr. G. N. Joshi for the respondents that the word 'income' in sections 160 and 161 is used in the same wide sense in which it is used in sections 190 and 207 relating to the advance payment of income-tax, and that the word includes not only income which has already accrued but also income which is expected to accrue during an accounting year. Although I am inclined to agree with Mr. Joshi on the meaning of the word 'income' in sections 160 and 161, I do not think it is necessary to decide that question for the purpose of the present petition. This is because the amounts which are deemed to accrue or arise to a non-resident under section 9(1)(i) are of various types and many of such amounts have the character of 'income' at the time when they accrue or are received. Such amounts may consist of the earnings from any property or any other asset in India, or from money lent at interest, or from shares and securities. Even amounts which accrue or arise from a business connection may partake the character of income at the time when they accrue or arise, as, for instance, when a non-resident is entitled to receive an annual consideration for the use of his patents and trade marks by an agent in India.
14. These consideration lead to the conclusion that in several (but not all) cases, persons cannot be appointed agents under section 163 and made vicariously liable as representative assesses prior to the close of the accounting year. It may also be, as contend by Mr. Palkhivala, that in several such cases the period of the accounting year may synchronize with the commencement of the assessment year, with result that such agents cannot be called upon to pay advance income-tax as representative assessees. I do not, however, find it possible to conclude from this that the Act does not contemplate, even in the case of agents who can be appointed agents before the commencement of the assessment year, that they should be subjected to the liability to pay advance tax as representative assessees.
15. Before dealing with my reasons for not accepting this part of Mr. Palkhivala's case, I must deal with an argument which was advanced by Mr. G. N. Joshi in reply. Mr. Joshi argued that an agent exercises an option under section 3 of the Act when he choose an accounting year different from the financial year, and that no unfairness or inequality is involved if the exercise of the option by the agent leads to the consequence that he becomes liable to the payment of advance tax as representative assessee. This argument assumes that the accounting year for the purpose of the assessment of a representative assessee is the same as the accounting year which the representative assessee has chosen for the assessment of his personal income. It appears to me that this assumption is not justified. A non-resident is assessee to income-tax under section 5(2) which provides that the total income 'of any previous year of a person who is a non-resident' includes all income received or deemed to be received in India in such year by or on behalf of such person, or which accrues or is deemed to accrue to him in India during such year. Here the previous year is obviously the accounting year of the non-resident. Then section 161 says that the tax shall be levied and recovered from a representative assessee 'in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him.' It is obvious that neither the manner of the levy nor its extent, will be the same unless the accounting year of the representative assessee in his capacity as a representative assessee is the same as the accounting year of the person represented by him. Moreover the Act gives an option to the department by section 166 to assess either the representative assessee or the non-resident principal. It is obvious that the accounting year must be the same if the department were to exercise its option by assessing the representative assessee in one year and the non-resident the next year.
16. I do not, however, find it possible to accept Mr. Palkhivala's argument that the Act did not intend to subject statutory agents to the liability to pay advance tax as representative assessees, because any such deduction can only be made by reference to the concrete provisions of the Act. The liability of a statutory agent as a representative assessee is defined by section 161, and the question whether the legislature did or did not intend to subject a statutory agent to the liability for advance tax must be deduced from the terms of the section. That section says, in the first place, that every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially. Since representative assessee is liable to advance payment of tax as regards his own income, it must follow that he is also liable to advance payment of tax as regards the income in respect of which he is a representative assessee. The section goes on further to say that the tax shall be levied upon and recovered from the representative assessee 'in like manner and to the same extent' as it would be leviable upon and recoverable from the person represented by him. It is not denied that the non-resident is liable to payment of advance tax if he is directly assessee, and it must, therefore, follow that the agent as his representative assessee is also liable to advance payment of tax 'in like manner and to the same extent.'
17. In this connection, my attention was drawn by Mr. Palkhivala to the wording of section 209 which deals with computation of advance tax. Clause (a) (i) of section 209 provides that, while computing advance tax-payable by an assessee, 'his total income of the latest previous year in respect of which he has been assessee by way of regular assessment shall first be ascertained.' Mr. Palkhivala asked me to contrast this language of section 209 with the language of section 139 which deals with return of income to be furnished by an assessee. Sub-section (1) of section 139 lays down that a person is bound to furnish a return 'if his total income or the total income of any other person in respect of which he is assessable' exceeded a certain amount. Mr. Palkhivala pointed out that clause (a) (i) of section 209 did not contain any words corresponding to the words in section 139(1) 'or the total income of any other person in respect of which he is assessable'. In my view, the difference in the wording of section 139(1) and of section 209(1)(i) arises from the fact that these provisions deal with different topics. Section 209 deals with the manner of computing advance tax, and not with the liability to pay it or to furnish a return in that behalf. The liability of a representative assessee to levy and payment of tax is determined by the terms of sub-section (1) of section 161 and not section 209. It must further be noticed that sub-section (2) of section 160 lays down in terms that every representative assessee shall be deemed to be an assessee for the purpose of the Act. When, therefore, section 209 says that, for the purpose of computation of advance tax, the total income of the assessee shall be ascertained in a particular manner, the term 'assessee' in that if an inference were drawn from the wording of section 209 that it excludes the liability to advance tax in respect of income which is not the personal income of the assessee, the result will be that not only the statutory agents, but all other categories of representative assessees, must be held as not being liable to the payment of advance tax. In that case, even guardians, managers, trustees, etc., will be absolved from the liability to pay advance tax as regards the income in respect of which they are representative assessees. In my view there is nothing in the wording of section 209 which justifies such a conclusion.
18. In the course of his argument on this part of his case, Mr. Palkhivala relied on the observations of Agarwala J. in Commissioner of Income-tax v. Maharaja Visweswar Singh that 'equality and impartial justice in the incidence of taxation' are of great moment and that 'the statute should be construed so as to promote that equality and that impartiality of justice'. Mr. Palkhivala also referred to the observations of Mr. Justice Mahajan (as he then was) in Commissioner of Income-tax v. Saran Singh Ram Singh that he could not 'ascribe to the legislature in intention to the effect that it wished to discriminate between the different persons liable to the charge of income-tax'. These observations would have been relevant if there was any ambiguity in the expressions used in section 161 in relation to the liability of representative assessee to the advance payment of tax, and if that ambiguity in the expressive of the legislature's intention. I do not find any such ambiguity in the terms of section 161.
19. I must further observe that the constitutional validity of section 161 was not challenged in this petition. The observations made by me above do not imply that discrimination is in fact involved when a person is validly appointed a statutory agent under section 163 in advance of the commencement of the assessment year and is called upon to pay advance tax for a non-resident, while other agents of other non-residents cannot be so appointed and subjected to a similar liability. The constitutional validity of section 161 not having been challenged before me, I am only concerned with the interpretation of that section, and it appears to me that that section lays down in clear terms that a representative assessee is liable to advance payment of tax on the income in respect of which he is representative assessee.
20. In the result, I must hold that the impugned orders are not shown to be bad in law. The petition, therefore, fails and is dismissed with costs.
21. Petition allowed.