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Tata Engineering and Locomotive Co. Ltd. Vs. Income-tax Officer, Companies Circle I (1), Bombay - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberMiscellaneous Petition Nos. 229 and 230 of 1960
Judge
Reported in[1963]49ITR866(Bom)
ActsIncome Tax Act, 1922 - Sections 18A, 40(2), 42 and 43; Income Tax (Amendment) Act, 1961 - Sections 163
AppellantTata Engineering and Locomotive Co. Ltd.
Respondentincome-tax Officer, Companies Circle I (1), Bombay
Appellant AdvocateN.A. Palkhivala, Adv.
Respondent AdvocateG.N Joshi, Adv.
Excerpt:
.....for each year is self-contained, notice under section 43 has got to be served in respect of each assessment year and the notice given in respect of the earlier years of the appointment made in the earlier years will not hold good for the subsequent years also. joshi, learned counsel for the respondent, in reply to the submissions raised on behalf of the petitioners is briefly as follows :the assessment year 1961-62 is the same as the financial year 1961-62. the appointment of the petitioners which has been made for the assessment year 1961-62 is, therefore, also an appointment for the financial year 1961-62. an appointment made under section 43 is good for all purposes under the act, and therefore, also for the purposes of section 18a of the act. joshi, therefore, the advance payment..........demand is illegal and without jurisdiction. it is urged on their behalf that the liability to pay advance income-tax under section 18a is of the assessee. as assessee, as has been defined under the act, is a person who is liable to pay the tax. the tax demanded is in respect of the years 1962-63 but there has been no appointment made for the said year. it is the appointment made under section 43 for the relevant assessment year which is the foundation of the liability of the appointed agent. in the absence of the appointment, therefore, there can be no liability of the petitioners to pay the advance tax. 7. in our opinion, the argument advanced on behalf of the petitioners is substantial. the argument of mr. joshi, learned counsel for the respondent, in reply to the submissions raised.....
Judgment:

V.S. Desai, J.

1. The questions involved in these two petitions under article 226 of the Constitution relate to the notices of demand for the advance payment of tax from the petitioners as agents of certain non-residents. The petitioners have asked for a writ of certiorari quashing the said notices of demand and for a writ of prohibition and/or mandamus or other appropriate writ restraining and prohibiting the respondent, his officers, servants and agents from taking any steps of proceeding in enforcement, furtherance, pursuance or implementation of the said notices of demand or from taking any steps or proceeding towards recovery of any portion of the advance tax demanded from the petitioners as the agents of the non-resident firms. The fact which are not in dispute may be briefly stated as follows :

2. The petitioners are a limited company incorporated under the Indian Companies Act, 1913, and carry on the business of manufacturing and selling diesel trucks and bus chassis, locomotives and other heavy engineering products. The manufacture of locomotives is carried on by the petitioners in collaboration with a German firm called 'Krauss-Maffei A. G.' and the manufacture of diesel trucks and bus chassis is carried on in collaboration with another German firm called 'Daimler Benz A. G.' For each of the assessment years from 1955-56 to 1961-62 notices had been issued to the petitioners under section 43 of the Indian Income-tax Act, intimating to them (the petitioners) that they would be treated as agents of the non-residents forms, and for the said years orders were passed under section 43 of the Act, treating the petitioners as agents of the said firms. For the assessment year 1962-63, with which we are concerned in the present case, there was no notice under section 43 of the Act served on petitioners and no order under that section was passed by the respondent, treating the petitioners as agents of the said firms. On the 8th September, 1961, however, the petitioners received two notices of demand under section 29 of the Act under the first of which the petitioners were called upon to make an advanced payment of tax of Rs. 90,833.29 nP. Under section 18A(1) of the Act for the assessment year 1962-63 as the agents of the 'Krauss Maffei A. G.' firm and under the second notice an advance payment of tax of Rs. 6,32,629.62 nP was called for from them as the agents of the other firm 'Daimler Benz A. G.' Correspondence was carried on by the petitioners with the income-tax authorities in connection with these notices of demand. But on the 2nd and 3rd of November, 1961, fresh notices for the advance payment of tax were again repeated by the Income-tax authorities. As a result of further correspondence, the amount of Rs. 90,833,.29 nP., which was claimed as the advance payment of tax as the agents of the 'Krauss Maffei A. G.' firm, was reduced to Rs. 66,832.89 nP. The petitioners went to the Commissioner of Income-tax who directed them to see the Inspecting Assistant Commissioner. The petitioners wrote to the Inspecting Assistant Commissioner to let them know the decision of the Commissioner at an early date, but subsequently, on the 6th of April, 1962, the respondent, who is the Income-tax Officer, Companies Circle I(1), Bombay, wrote to the petitioners calling upon them to make the advance payment of tax before the 11th April, 1962, and intimating to them that if they failed to do so, coercive measures for recovering the demand would be adopted. Thereafter, on the 16th April, 1962, the petitioners also received a communication from the Commissioner wherein he expressed his view that the demand for advance payment of tax made by the Income-tax Officer was correct. Thereafter, the present petition has been filed by the petitioners on the 11th June, 1962, praying that the notices of demand be quashed and the respondent be restrained from taking any coercive measures for the recovery of the amounts stated in the notices of demand.

3. The petitioners' case is that the notices of demand issued by the Income-tax Officer to the petitioners for the advance payment of tax are illegal, void and without jurisdiction. According to the petitioners, no advance payment of tax could be demanded from the petitioners unless they were appointed agents of the non-resident firms by orders properly passed under section 43 of the Indian Income-tax Act for the assessment year 1962-63. For the assessment year 1962-63 there was no notice issued by the Income-tax Officer to the petitioners under section 43, intimating to them his intention of treating them as agents of the non-resident firms and they had also not been given an opportunity of being heard as to their liability as such agents. According to the petitioners, therefore, they could not be deemed to be the agents of the non-resident firms and no advance payment of tax could be demanded from them. It is also their case that in view of the scheme of sections 40(2), 42 and 43 of the Indian Income-tax Act 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 and, therefore, the petitioners could not be called upon as agents of the non-resident firms, to pay advance payment of tax under section 18A of the Act.

4. In the affidavit, which the respondent has filed in reply to the petition, the position taken by the respondent is that inasmuch as by an order passed under section 43 of the Indian Income-tax Act the petitioners were appointed agents of the non-resident firms for the financial year 1961-62, that appointment ensures for all purposes of the Act during the said financial year. The advance payment of tax was to be made in the said financial year and, therefore, the notices under section 18A for the advance payment of tax, which were served on the petitioners on the 2nd and 3rd of November, 1961, which was subsequent to their appointment as agents of the non-resident firms under section 43 of the Act for the financial year 1961-62, were perfectly in order. It was contended by him that under section 60B of the Indian Income-tax Act it was provided that tax may be levied for a period other than the previous year or deducted at source or paid in advance wherever so provided.

5. The advance payment of tax demanded in the present case was the tax which was charged under the provision of section 18A for the financial year and since there was already an appointment of the petitioners under section 43 of the Act for the assessment year 1961-62, the liability for the payment of advance tax was properly levied on the petitioners for the financial year 1961-62. According to the respondent, therefore, the petitioners were no entitled to challenge the notices of demand which were issued to them.

6. Section 43 of the Indian Income-tax Act authorises the Income-tax Officer to treat a person as a statutory agent of a non-resident and makes him vicariously liable for the tax liability of the non-resident in respect of his income taxable under the Indian Income-tax Act. The person to be appointed a statutory agent under the said section must be either a person employed by or on behalf of the non-resident or a person having a business connection with the non-resident or a person through whom the non-resident is in receipt of income, profits or gains. Moreover, whenever an appointment of a statutory agent is intended to be made by the Income-tax Officer, he has to give a notice, intimating such person to treat him as a statutory agent and he must also give such person an opportunity of being heard as to his liability. When an appointment is made under the said section, the person appointed is to be deemed to be the agent of the non-resident for all purposes of the Act. It has been held by this court in Bhagwanji Laxmidas & Co. v. Commissioner of Income-tax (Income-tax Reference No. 40, decided on 17th February, 1955), that for the legal and valid appointment of a statutory agent under section 43 the requirements as to the giving of a notice and as to the opportunity of being heard with regard to his liability must both be complied with and, in the absence of such compliance, there would be no valid and legal appointment. A view has been taken by this court in Govindram Seksaria, In re and in Harakchand Makanji & Co. v. Commissioner of Income-tax, that having regard to the scheme of the Income-tax Act, which says that assessment for each year is self-contained, notice under section 43 has got to be served in respect of each assessment year and the notice given in respect of the earlier years of the appointment made in the earlier years will not hold good for the subsequent years also. Relying on the provisions of section 43 and the aforesaid decisions, it is contended on behalf of the petitioners that in the absence of a proper order passed under section 43, after the observance of due formalities in respect of the assessment year 1962-63, the petitioners could not be called upon to make any payment towards the tax liability of the said assessment year. It is contended that a payment demanded by the notices issued in the present case is for the sum payable by the petitioners as the agents of the non-residents for the financial year 1962-63. For the said financial year 1962-63, it is argued, there has been no appointment made of the petitioners as the statutory agents of the non-residents. The appointment of the assessment year 1961-62 cannot be availed for the purposes of the liability in respect of the assessment year 1962-63. According to the petitioners, therefore, the vicarious liability, which is sought to be imposed in respect of the liability of the non-residents by the present notices of demand is illegal and without jurisdiction. It is urged on their behalf that the liability to pay advance income-tax under section 18A is of the assessee. As assessee, as has been defined under the Act, is a person who is liable to pay the tax. The tax demanded is in respect of the years 1962-63 but there has been no appointment made for the said year. It is the appointment made under section 43 for the relevant assessment year which is the foundation of the liability of the appointed agent. In the absence of the appointment, therefore, there can be no liability of the petitioners to pay the advance tax.

7. In our opinion, the argument advanced on behalf of the petitioners is substantial. The argument of Mr. Joshi, learned counsel for the respondent, in reply to the submissions raised on behalf of the petitioners is briefly as follows :

The assessment year 1961-62 is the same as the financial year 1961-62. The appointment of the petitioners which has been made for the assessment year 1961-62 is, therefore, also an appointment for the financial year 1961-62. An appointment made under section 43 is good for all purposes under the Act, and therefore, also for the purposes of section 18A of the Act. Under section 18A, advance payment of tax is liable to be made in the current financial year. Since for the said financial year in which the advance payment of tax was called to be made by the petitioners, there was already an appointment of the petitioners as the statutory agents of the non-residents, the advance payment of tax was properly called for from them. The appointment of the petitioners was made on the 21st October, 1961, while the notices of demand issued in the present case were on the 2nd and 3rd of November, 1961, and therefore, subsequent to the said appointment. According to Mr. Joshi, therefore, the advance payment of tax called for from the petitioners was after their appointment as statutory agents for the non-residents and the demand, therefore, was perfectly good and proper. Mr. Joshi says that although the scheme under the Indian Income-tax Act is to levy tax on the income of the previous year, it is not as if the income-tax is not to be charged in respect of the income of any period other than the previous year. Sections 18 and 18A of the Indian Income-tax Act provide for the charging of income-tax for periods other than the previous year and section 60B of the Act authorises such charging. Now, under section 18A of the Indian Income-tax Act, an assessee who is previously assessed, is required to make an advance payment of tax during the financial year itself. In the present case, the petitioners were previously assessed as the statutory agents of the non-residents. They were also the assessees during the financial year. Because they have been appointed as the statutory agents for the assessment year 1961-62, they were deemed to be agents all for all purposes of the Act, and therefore, by reason of section 42 of the Act also assessees for all purposes of the Act in respect of the tax liability of the non-residents. The advance payment of tax, therefore, was rightly demanded from them under section 18A by the Income-tax Officer. According to Mr. Joshi, therefore, the petitioners are not entitled to challenge the notices issued to them on the ground that they are illegal or without jurisdiction.

8. In our opinion, the argument advanced by Mr. Joshi is not sound. The vicarious liability imposed on a person by his appointment as a statutory agent under section 43 is only in respect of the liability for the assessment year for which the appointment is made. The appointment of the petitioners for the assessment year 1961-62 is in respect of the liability of the non-residents for the income of the previous year for the said assessment year 1961-62. Having regard to the scheme of the Indian Income-tax Act, which says that every assessment is self-contained, the vicarious liability imposed by the appointment under section 43 only extends to the liability for the self-contained assessment for which the appointment is made and cannot extend to the liability for any other assessment. Nor can the expression 'for all purposes', used under the said section, extend to the liability to any other assessment excepting the liability for that assessment year for which the appointment is made. The expression 'for all purposes', in our opinion, only means that the appointment is made for a particular self-contained assessment, it is good for all purposes as far as that assessment is concerned, i.e., for all purposes of imposing the tax liability determining the same and for recovering it. The liability sought to be imposed under section 18A is not in respect of the income-tax for the assessment year for which the appointment is made, but for the subsequent assessment year. For the said subsequent year, which is another self-contained assessment, unless there is a fresh appointment as an agent under section 43, no such liability can be imposed. It is true, as Mr. Joshi says, that the advance tax, which is required to be paid under section 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. The notices of demand issued in the present case in terms say that the amount called for is payable during the financial year 1962-63. Unless the liability of the petitioners as the statutory agents for the said financial year has been properly established by an order made under section 43, no such demand can be made on them for the payment of any sum towards the tax liability of the said period. Mr. Joshi's argument that because the petitioners were the assessees as agents of the non-residents during the previous year and since they have been appointed as agents for the assessment year 1961-62 they are also properly the assessees for the purposes of section 18A for the financial year 1961-62, cannot be accepted. The appointment of the petitioners as agents for the assessment year 1961-62, as we have already pointed out, ensures only for the purposes of imposing the tax liability on the petitioners for the pervious year for the said assessment year. They are by reason of the said appointment assessee in respect of the said assessment year. They could not, however, be said to be assessees for the said payment of advance tax, they have to be assessees for the assessment year towards which that tax is required to be paid, namely, the assessment year 1962-63. Mr. Joshi has then urged that in view of the provisions of section 18A, the liability to pay advance tax is linked up or conditional upon the person who is called upon to pay such advance tax being an assessee for the previous year. Since by reason of the appointment of the petitioners for the assessment year 1961-62, they were the assessees for the previous year, they are liable to pay the advance tax during the financial year 1961-62 also. We cannot appreciate this argument. The liability to pay advance income-tax is, no doubt, imposed on persons who have been previously assessed. It is, however, not because they have been previously assessed also that they are required to pay the advance tax, but it is because they are previously assessed to income-tax and they also subsequently continue to be liable to pay the income-tax that the advance payment of tax is called for from them on the basis 'pay as you earn.' In order to be liable to pay advance tax there must, therefore, be not only the qualification of being previously assessed, but there must also be the continuance of the liability to pay income-tax for the subsequent years. In the present case, there may be the previous assessment of the petitioners as the agents for the non-residents, but the mere previous liability as agents is not sufficient to continue that liability in the subsequent years also unless for each of the subsequent years such liability is freshly imposed by a proper and valid order under section 43 of the Act. It cannot, therefore, be said that because the petitioners were previously assessed they are bound to make the advance payment of tax for the subsequent year. Neither is the argument of Mr. Joshi that because there is the appointment of the petitioners for the assessment year 1961-62 it avails for bringing in their liability to pay the advance tax for the financial year 1961-62 also capable of being accepted. As we have already pointed out earlier, the appointment for the assessment year 1961-62 can only hold good in respect of the tax liability for the relevant previous year for the assessment year 1961-62 and for no other liability. Since the advance payment of tax demanded is not towards the liability for which the appointment of the petitioners as agents ensures, the demand could not be justified on the basis of the said appointment. In our opinion, therefore, the petitioners are right in their contention that the notices of demand issued to them by the respondent in the present case are illegal and void, and without jurisdiction.

9. The petitioners have in their petition also raised another contention, namely, that having regard to the scheme of sections 40(2), 42 and 43 of the Act 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, and, therefore, the petitioners could not be called upon to make an advance payment of tax under section 18A of the Act. Since we are in favour of the petitioners on the first contention which was raised by them and which we have already dealt with, we have not found it necessary to consider the merits of the further contention urged by them. We have, therefore, heard no argument on the said contention and do not express any opinion with regard to the same.

10. In the view that we are taking, the petitioners are entitled to have the notices of demand issued to them by the income-tax Officer quashed and they are also entitled to a further order requiring the respondent not to take any further steps or proceedings in the enforcement of the said notices of demand. We accordingly order that the notices, with have been complained of by the petitioners in the present petition, be quashed and the respondent be directed not to take any further steps or proceedings in the enforcement thereof. The petitioners will be entitled to their costs from the respondent in Miscellaneous Petition No. 229 of 1962. There will be no order as to costs in the companion Miscellaneous Petition No. 230 of 1962.


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