S.K. Desai, J.
1. This is a reference at the instance of the Commr. by the IT Appellate Tribunal, Bombay Bench 'D'. The reference is u/s 256(1) of the IT Act, 1961.
2. The following two questions stand referred to us :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the assessee to raise the additional grounds of appeal which were not raised by the assessee earlier for the asst. yrs. 1962-63 to 1964-65 ?
(2) If the answer to the above is in the affirmative, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the notices u/s 148 and u/s 163 for the asst. yrs. 1962-63 to 1964-65 were void in law ?'
3. A few facts may be stated. The assessee is a limited company and for the asst. yrs. 1962-63 to 1964-65 it has been treated as the agent of the non-resident M/s. C.A.I.L. of France. The assessee entered into an agreement dt. 24-8-1956 with a non-resident French company known as M/s. Societe Francaise De Construction Mecaniquea, Ancients Establishments, Cail Danain (Nord), France (herein after referred to as the 'CAIL' for the sake of brevity). The assessee agreed to buy from the said non-resident company complete machinery and equipment valued at Rs. 60,75,000 (approximately). According to the original contract, the terms of payment were that 10% of the price was to be paid on receipt of import licence, 60% against shipping documents, and the balance at the end of the two subsequent seasons. The terms of payment were subsequently modified in accordance with the terms of import licence and these amended terms were incorporated in the document dt. 17-6-1957. According to the amended agreement, the amount of price remaining unpaid after the first and subsequent instalments would carry interest at the rate of 5% per annum and the whole of the interest so accruing was to be paid along with the second and subsequent instalments.
4. The ITO was of opinion that the assessee was the agent of the non-resident CAIL and he therefore, served a notice u/s 163 of the IT Act, 1961 on the assessee for 'asst. yr. 1962-63 and onwards'. This notice was dt. 30-3-1965 and appears to have been served on the assessee on that very day. A copy of the said notice is annexed as Annexure 'B' to the statement of case. By the said notice the assessee was called upon to appear before the ITO either in person or through an authorised representative in his office on 31-3-1965 at 11.00 a.m. On the appointed day, the assessee did not remain present but by letter sought a short adjournment. The ITO however, passed an order u/s 163 on 31-3-1965. This order was also for 'asst. yr. 1962-63 onwards' and by the said order the ITO expressed the opinion that the assessee was clearly liable to be treated as the agent of the non-resident CAIL u/s 163 of the IT Act, 1961. This conclusion was based on two grounds viz. that according to the information in possession of the ITO the assessee had borrowed money from CAIL and brought the same to India, and further it had paid interest on the loan from 11-3-1959 onwards to the non-resident. A copy of this order is to be found as Annexure 'C' to the statement of case. Similar notice in respect of asst. yrs. 1963-64 and 1964-65 were issued by the ITO on 31-3-1965 and 10-12-165 respectively. On that very day i.e. on 31-3-1965 the ITO also issued a notice to the assessee describing it as agent of CAIL of France therein. This was u/s 148 of the IT Act, 1961 and the necessary report was sought within a period of thirty days from the service of the notice.
5. From the order of the ITO holding the assessee as agent of the non-resident the assessee preferred an appeal to the AAC and this appeal came to be allowed on 9-9-1966. In his order the AAC noted the several contentions of the assessee of which the first and the foremost was that adequate opportunity had not been given to the assessee and the request for grant of two weeks' time for filing objections was turned down by the ITO. By this order the AAC directed that the matter should go back to the ITO for bringing on record necessary material from which alone proper conclusion could be reached whether the assessee could be held to be an agent or not.
6. It would appear that thereafter for nearly 2-1/2 years the ITO did nothing and on 3-3-1969 issued a notice u/s 163 for the asst. yr. 1962-63. In this notice a copy whereof is annexed as Annexure 'F', five grounds were indicated by the income-tax Officer for his prima facie view which was that the assessee was liable to be treated as the agent of a non-resident. Thereafter on 13-3-1969 in response to the said notice the assessee raised several contentions but ultimately by his order dt. 28-3-1969 the ITO rejected these contentions and held that the assessee company was liable to be treated as the agent of the non-resident. By two separate orders also dt. 28-3-1969 he passed similar order for the asst. yrs. 1963-64 and 1964-65. It would appear that thereafter reassessment was done and the assessee preferred appeal, both from the decision of the ITO treating the assessee as agent of the non resident as also against the re-assessment for the asst. yrs. 1962-63, 1963-64 and 1964-65. The AAC initially dismissed the appeal in respect of the orders u/s 163. He also confirmed the assessment made by the ITO for the three years under consideration. The matter was thereafter carried by the assessee to the IT Appellate Tribunal. Six separate appeals were filed and they were disposed of by the Tribunal by a common order. The said order initially records the facts which have been summarized earlier and thereafter proceeds to indicate that the ld. advocate for the assessee at the hearing made an application to the Tribunal for permission to raise the following additional grounds of appeal which were from the substantive orders u/s 144(3).
7. The additional grounds sought to be urged were :
'(a) that in view of the provisions of s. 149(3) of the IT Act, 1961, it is a condition precedent for the issue of a notice u/s 148 that a person should be treated as the agent of a non-resident u/s 163 of the Act;
(b) that the notice u/s 148 dt. 31-3-1965 issued by the ITO upon the Appellants cannot survive and stand cancelled and/or withdrawn inasmuch as the order dt. 31-3-1965 u/s 163 pursuant to which the said notices were issued has been set aside by the AAC of Income Tax by the order dt. 9-9-1966 :
(c) that the assessment now purported to be made by ITO upon the Appellant are, therefore illegal and void;
(d) that in any event, the notice u/s 163 dt. 30-3-1965 issued by the ITO and order dt. 31-3-1965 passed by the ITO did not specify the years 1963-64 and 1964-65 and the condition precedent for issue of notices u/s 148 was not satisfied at least for the years 1963-64 and 1964-65;
(e) that the alternatively and in any event the notice u/s 163 dt. 30.3.1965 issued by the ITO upon the Appellants being a composite notice for years, 1962-63 'and onwards' the same could not be said to be in due compliance of the requirement of s. 163 as also of the condition precedent specified in s. 149(3) and, therefore, the notice u/s 148 of the orders purported to be passed by the ITO are void in law.'
8. Raising of these additional pleas was opposed on behalf of the Department, but ultimately they were allowed to be taken and this decision of he Tribunal allowing additional grounds to be urged for the first time before the Tribunal is reflected in Question No. 1.
9. The Tribunal therefore appears to have upheld the several contentions raised by the assessee company before it. In its view the order u/s 163 is to be passed first and then a notice u/s 148 is to be served on the assessee. In this view of the matter the notice dt. 31-3-1965 was held by the Tribunal to be improper. The Tribunal also upheld the contention raised on behalf of the assessee that this notice cannot be deemed to exist after the AAC has set aside the order of the ITO u/s 163. The Tribunal was, accordingly of the view that there was no valid notice u/s 148 properly served on the assessee and hence the assessment for all the years was invalid and could not be sustained. A further technical contention of the assessee which does not appear to be necessary to be gone into, was also upheld by the Tribunal.
10. These conclusion of the Income-tax Tribunal are reflected in Question No. 2.
11. Sec. 163 of the IT Act 1961 occurs in Chapter XV which provides for liability in special cases. One of the special cases provided for in this chapter is of a representative assessee who has certain obligations therein indicated. Sec. 163 provides for the persons who may be regarded as agents in relation to a non-resident. Sub-s. 2 of s. 163 provides that no person shall be treated as the agent of a non-resident unless he had an opportunity of being heard by the ITO as to his liability to be treated as such. It may be mentioned further, and this marks a deliberate departure from the provisions of the earlier Act of 1922, that an order may be made u/s 163 treating the assessee as the agent of a non-resident is now specifically made applicable and the relevant provision in this behalf is s. 246(1)(g) of the Act.
12. We now turn to ss. 147 to 149 of the Act. Sec. 147 is a special provision for assessment or reassessment in case of income escaping assessment. Sec. 148 makes obligatory the issue of a notice before making reassessment or recomputation in such case. A further obligation seems to have been cast on the ITO making it necessary for him to record his reasons before the issue of such notices. Sec. 149 finally fixes certain time limit for the issue of notices u/s 148. We are concerned only with sub-s. (3) of s. 149 which reads as under :
'149(3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessment year.'
It is clear, therefore, that before making the reassessment a notice u/s 148 is necessary. Under sub-s. (3) of s. 149 if such notice is to be served on a person treated as the agent of a non-resident u/s 163, the notice is to be issued before the expiry of a period of two years from the end of the relevant assessment year. The short question is whether the determination which is contemplated u/s 163 after necessary opportunity being given to the assessee is required to be made before the issue of such notice ?
13. It would appear that as far as the 1922 Act is concerned, this Court appears to have rejected a similar contention in Blue Star Engineering Co. (Bombay) Pvt. Ltd. v. CIT : 73ITR283(Bom) (see observations at page 296) Indeed the point had been clearly negatived by the decision of the Privy counsel in CIT Naval Kishore Kharaiti Lal (1938) 6 ITR 61 . It had been expressly held therein that under the Indian IT Act, 1922 it is not necessary to the validity of a notice calling for a return of income u/s 23(2), where it is served upon a person as agent of a non-resident under sec. 43 that it should have been proceeded not only by the notice of the intention prescribed by s. 43 and by the opportunity of being heard prescribed by the proviso thereto, but also by an order declaring the person to be the agent of the non-resident person or treating him as such agent.
14. The question to be considered is whether the same position enures after the enactment of the IT Act, 1961. The difference between the Act of 1922 and the Act of 1961 have been noted by the Full Bench of the Punjab and Haryana High Court in CIT v. Kanhayalal Gurumukh Singh . There was a difference of opinion initially which was resolved on a reference to a third Judge and the majority judgment, after considering the language of the statutory provisions earlier extracted, observed that Nawal Kishore's case 6 ITR 61 (supra) is not applicable to a notice issued u/s 148 of the 1961 Act to a person as an agent of the non-resident. According to the majority there was no doubt that the ITO had to pass an order u/s 163 before initiating proceedings by issuing a notice u/s 148 of the Act. The ld. Judges also extracted the opinions of various commentators but seem to have been principally influenced by the provision for appeal specifically from an order u/s 163. A similar provision was earlier absent from the 1922 Act. One of the Judges constituting the majority, Bal Raj Tuli, J. has observed as under :
'It is a sell-settled principle of interpretation of statutes that every section of the statutes must receive such a construction as the language in its plain meaning imports, that is, strict grammatical meaning of the words is the only safe guide. Moreover, in interpreting taxing statute, if the language admits of two interpretations, one favourable to the assessee has to be preferred to the one favouring the revenue. The change of language made in ss. 149(3) and 163 of the 1961 Act as compared to the corresponding provisions in the 1922 Act is not without meaning and purpose and the only meaning and purpose that can be gathered from the language of these sections is that the dictum of their Lordships of the Privy Council in Nawal Kishore's case is no more applicable to a notice to be issued u/s 148 of the 1961 Act to a person as an agent of a non-resident. That notice can only be issued after passing an order that the assessee is the agent of the non-resident and is to be treated as such. This decision has, of course, to be made after complying with the provisions of sub-s. (2) s. 163 of 1961 Act. Without deciding this matter, no notice u/s 148 r/w s. 149(3) of the 1961 Act can be issued.'
15. This decision of the Punjab and Haryana High Court came to be considered by the Madras High Court in CIT v. Express Newspapers Limited : 111ITR347(Mad) . This aspect of the matter, however, did not specifically arise before the said High Court and the Madras High Court has expressly stated that they were not called upon to hold whether an order of assessment which is made without serving a recognition order on the representative assessee is void and unenforceable or the specific question which directly arose before the Punjab and Haryana High Court. We were also referred at the Bar to a decision of the Calcutta High Court in CIT v. I. & M. Sales Ltd. : 114ITR59(Cal) On the aspect of the matter which we are considering, the said decision is of no assistance.
16. It may be pointed out that as far as the Punjab and Haryana High Court is concerned, we are invited on behalf of the Department to concur with D.K. Mahajan, J. Who was of the clear view that the decision in Nawal Kishore's case 6 ITR 61 (supra) had not been shaken or otherwise affected by the change in phraseology of the corresponding provisions in the 1961 Act. He had upheld the contention of the Department and we were invited to follow his judgment in preference to those of the other two Judges.
17. Before expressing our views in the matter it is necessary to consider Question No. 1. It is now well-settled, as far as this Court is concerned, that a point which goes to the jurisdiction of the assessment can be allowed to be taken although not earlier taken either before ITO or the AAC. This was decided in CWT v. N.A. Narielwalla : 126ITR344(Bom) . In the said case a contention was taken for the first time before the Tribunal. This was objected to on behalf of the Department which objection was overruled. The action of the Tribunal was upheld by the Division Bench of this High Court which observed that the contention raised before the Tribunal on behalf of the assessee was a pure question of law going to the root of the jurisdiction of the Wealth Tax Officer. In the view of the High Court the Tribunal had properly exercised its discretion in the interest of justice when it permitted the assessee to raise the point of jurisdiction before it. It was also observed that there was no erroneous or arbitrary exercise of jurisdiction by the Tribunal.
18. The principal plea sought to be raised by the ld. Counsel for the assessee before the Tribunal, at any rate is clearly covered by the said observations in Narielwalla's case : 126ITR344(Bom) (supra). Since we are inclined to uphold that plea, we are not required to express our opinion on the other contentions.
19. In our opinion, it is necessary to concur with the view taken by the majority of the judges in Kanhayalal's case (supra). This view appears to be in accord with the plain language of the statutory provisions and we are inclined to agree with the majority view that the decision of the Privy Council in Nawal Kishore's case is no longer applicable to the 1961 Act by reason of the specific statutory changes which the Division Bench of the said Court has noted in extenso. If the right of appeal of the assessee is to have any real meaning then the decision u/s 163 must be given previous to the notice u/s 148 being issued to an assessee on the basis the alleged income which had escaped assessment is the income on which the assessee is liable as a representative assessee being the agent of a non-resident covered by s. 163. We are also in agreement with the approach indicated by one of the Judges of the said High Court in the passage which we have fully extracted. As the passage indicates, the matter is not free from doubt and indeed there was initially a difference of opinion between the two Judges but then it would appear that if two views are possible the view which ultimately found favour with the majority will be required to be upheld inasmuch as it is the view in favour of the assessee. If the period of limitation of two years prescribed u/s 149(3) creates difficulty for the working out of these provisions, it is for the Revenue to seek amendment of these provisions.
20. In our view the Tribunal was thus right in holding that order u/s 163 is to be passed in the first place and thereafter a notice u/s 148 is to be served on the assessee who is sought to be made liable as a representative assessee viz. as agent of a non-resident. On the facts of the instant case such determination u/s 163 took place for the three years in question on 28-3-1969 by three separate orders. It was only then or thereafter that a fresh notice under section 148 was required to be issued. Since by that time the period of limitation under sub-s. 3 of s. 149 had expired no such notice could be validly issued. The earlier notice issued was clearly not in order and any assessment, reassessment or recomputation done in pursuance of such invalid notice is required to be held as invalid as the Tribunal has done.
21. In the result, the two questions referred to us are answered as follows :
Question No. 1 : In the affirmative and in favour of the assessee as far as the plea earlier indicated is concerned. We are expressing no opinion on the other pleas.
Question No. 2 : The earlier notices issued u/s 148 i.e. the three notices issued on 31-3-1965, 31-3-1965 and 10-12-1965 respectively were invalid because by that time the determination u/s 163 had not properly taken place. Since these notices are invalid, the reassessment done in pursuance of them is also invalid. It is unnecessary, in our opinion, to consider the validity of the notices, issued u/s. 163.
22. Parties to bear their own costs of the reference.