S.K. Desai, J.
1. The following question stands referred to us under section 256(1) of the Income-tax Act, 1961:
'Whether, on the facts and in the circumstances of the case, the order passed by the Income-tax Officer under section 201 of the Income-tax Act, 1961, was valid and tenable ?'
2. The assessee-company carries on the business of manufacturing tyres and other rubber products. Whilst it was in the process of formation but not actually incorporated, the promoter of the assessee-company, namely, Indo Orient Agency Ltd., entered into an agreement dated October 9, 1959, called 'Initial Service Agreement' as agents for and on behalf of the assessee-company yet to be formed with Messrs. Dayton Rubber Company, Dayton, Ohio, U.S.A., hereinafter, for the sake of brevity, referred to as 'Dayton'. The purpose of the agreement was to obtain technical service and assistance of Dayton to enable the assessee-company to erect plant structure, acquire suitable equipment and machinery, install and erect such equipment and machinery, train its key personnel, procure required materials and supplies and initiate and efficiently maintain production of high quality products, and to procure the right to use Dayton's technical information and patents relating to the manufacture of tyres, tubes, camel-back and tyre repair materials. A copy of the said agreement is annexed as annexure 'A' to the statement of the case.
3. In pursuance of the said agreement, the assessee-company paid the following amounts to Dayton for the services rendered by Dayton to the assessee-company:
'Amount Paid When paidRs.1,67,407 1-4-1959 to 31-3-196018,76,280 1-4-1960 to 31-3-196146,99,560 1-4-1961 to 31-3-19623,85,381 1-4-1962 to 31-3-1963'----------71,28,628----------
4. It is the agreed position that the assessee-company did not make any deductions out of the above payments.
5. On September 10, 1963, the assessee-company made an application to the ITO to issue income-tax clearance certificate as it had to remit 50,000 U.S. dollars to Dayton as part of the compensation payable to Dayton by the Assessee-company under the terms of the initial service agreement. In 1965, the ITO issued a notice under s. 163 of the I.T. Act, 1961, to the assessee-company to show cause why it should not be treated as an agent of Dayton which was a non-resident. Certain objections were filed by the assessee-company, but these objections were rejected by the ITO, who passed an order under s. 163 of the I. T. Act, 1961, on March 25, 1965, treating the assessee-company as an agent of Dayton for the assessment year 1962- 63. In the other years no similar orders were passed, although the AAC in his order mentions that the ITO had passed orders for declaring the assessee-company as agents of Dayton.
6. On March 30, 1965, the ITO issued notice to the assessee-company inviting its attention to the fact that it had remitted an aggregate amount of Rs. 71,28,618 to Dayton, a non-resident, without deducting the necessary amount of tax therefrom, and called upon it to show cause why necessary order under s. 201 o the I.T. Act, 1961, should not be passed against it. Certain contentions were raised by the assessee-company. They were considered and rejected by the ITO, who held that it was the primary liability of the assessee-company to deduct the tax on the entire payments. He then calculated the amount of tax payable by the assessee in respect of the above payments, and passed an order under s. 201 of the I.T. Act, 1961. This order was passed on May 29, 1965. The ITO thereafter issued the notice of demand.
7. The assessee-company thereafter preferred an appeal before the AAC. The AAC held that a person is excused under s. 195 of the I.T. Act, 1961, from deducting the amount of tax from the payment to be made to a non-resident, only if he himself admits at the relevant time that he is an agent of the non-resident. Since the assessee company had initially disputed its position as an agent of Dayton, the AAC held that it was liable to make the necessary deductions before making the payment as provided under s. 195. In the opinion of the AAC, the assessee-company was deemed to be in default.
8. This order of the AAC was challenged by the assessee-company in appeal before the Income-tax Tribunal. It was submitted by the learned counsel appearing on behalf of the assessee-company that the assessee-company can be deemed to be in default within the meaning of s. 201 of the I.T. Act, 1961, only if it was liable under s. 195 of the said Act to deduct income-tax out of the amounts payable to the non-resident. It was submitted by the counsel that a person who is himself liable to pay income-tax on a payment to be made to a non-resident as an 'agent' of the said non-resident, cannot be saddled with the statutory duty to deduct income-tax under s. 195 before making the payment to the non-resident. The order passed by the ITO under s. 163 treating the assessee as an agent of Dayton was referred to and it was submitted that the same had become final or in the alternative that the appeal filed by the assessee-company had been dismissed as time-barred. It was thus urged that the assessee-company was the agent of Dayton throughout the period April 1, 1959, to March 31, 1963. Accordingly, the assessee-company was liable to pay income-tax on the amounts paid to Dayton throughout this period. If that be so, it was submitted by counsel, then the assessee was freed from the obligation under s. 195(1) of the I.T. Act, 1961, to deduct the necessary amount of tax at the time of payment. If it was so freed from the obligation, it was urged further, then it could not be deemed to be an assessee in default under s. 201 of the said Act.
9. The Tribunal considered the provisions of the service agreement between the assessee-company and Dayton. It also surveyed the statutory provisions and concluded that s. 161(2) of the I.T. Act, 1961, served as a complete answer to the revenue's claim to demand tax from the assessee-company in respect of the income of Dayton, first under s. 161(1) and again under s. 201 of the said Act. The Tribunal was unable to accept the contention of the revenue that the former was the primary and direct liability, and the latter was a vicarious liability, both of which were separate and distinct from one another. According to the Tribunal, a scrutiny of the relevant provisions of the agreement between the assessee-company and Dayton left no room for doubting the position that the assessee-company was an agent of Dayton and was, therefore, liable to pay tax as such agent within the meaning of s. 195(1). The Tribunal added that the ITO had admitted this position so far as the assessment year 1962-63 was concerned and that it was not the suggestion of the revenue before it that the position was different in the remaining years. According to the Tribunal, there was complete identity of facts throughout the period covered by the payments and, therefore, the position prevailing in the assessment year 1962-63 also prevailed in the remaining years.
10. In this background, the Tribunal opined that since the assessee-company was liable to pay tax as agent of Dayton, it could not be saddled with the liability to deduct the amount of tax out of the payments made to Dayton under s. 195(1) of the I.T. Act, 1961, or under s. 18(2B) of the Indian I.T. Act, 1922.
11. It is this view of the Tribunal which has been assailed by Mr. Joshi.
12. Certain other questions were sought to be referred by the revenue to the High Court, but these were disallowed by the Tribunal. The reasons for referring only one question and disallowing questions Nos. 1 and 2 originally sought by the Commissioner have been indicated in para. 11 of the statement of the case. We must proceed to answer the question on the footing that throughout the years under consideration the assessee-company was an agent of the American Company, namely, Dayton.
13. It would appear to us that the view taken by the Tribunal that once the assessee-company becomes liable to pay income-tax as agent of Dayton, it cannot be saddled with the further obligation to make a deduction of tax and be deemed to be in default under s. 201 of the I. T. Act, 1961, is correct.
14. Mr. Joshi has fairly drawn our attention to a decision of the Calcutta High Court where a single judge of the High Court in Bunge & Co. Ltd. v. ITO : 79ITR93(Cal) , has come to a similar decision. It has been held in the said case that the same assessee cannot be treated as an agent under s. 163 of the I.T. Act, 1961, and also proceeded against under s. 201 at the same time. In our view, this represents the proper approach to the statutory provisions under consideration.
15. In the result, the question is answered in the negative and in favour of the assessee. Parties, however, to bear their own costs.