Gopal Rao Ekbote, C.J.
1. These two writ petitions raise common questions of law. They can, therefore, conveniently be disposed of by a common order.
2. The facts lie in a narrow compass and are not in dispute.
3. The petitioner, in both the writ petitions, is a public limited company, having its registered office at Kothagudem, The petitioner entered into an agreement on July 9, 1967, with Messrs. Chemicals and Technical Services of the United Kingdom (hereinafter referred to as the 'nonresident firm'), to rectify certain defects in the plant and machinery supplied to the petitioner by Messrs. Mitchell Ltd., of the United Kingdom, and also to supply designs, drawings and other technical know-how, connected with the manufacture of Barium salts.
4. Pursuant to the above-said agreement, the non-resident firm supplied necessary designs and drawings, etc., and also sent one of its partners, Mr. Davis, to Kothagudem for supervising the erection of the plant and machinery. Mr. Davis was at Kothagudem for about three months and left India on June 24, 1969.
5. A certain sum of money was paid to the non-resident firm, as agreed, towards remuneration. This amount was paid after obtaining the necessary sanction from the Reserve Bank of India. It was all paid in foreign currency, and no part of it was paid in Indian currency.
6. The Income-tax Officer, Kothagudem, felt that some income, profits and gains assessable under the Income-tax Act (hereinafter referred to as 'the Act') had accrued or arisen to the non-resident firm and, therefore, it was liable to be assessed under the Act.
7. The Income-tax Officer, therefore, issued notice to the petitioner to show cause why it should not be treated as an agent of the non-resident firm. The petitioner objected to its being treated as an agent of the non-resident firm. Nevertheless, the Income-tax Officer passed an order on June 5, 1969, and regarded the petitioner as an agent of the non-resident firm:
During the pendency of the said proceedings, on May 31, 1969, the petitioner brought to the notice of the Income-tax Officer that Mr. Davis, partner of the non-resident firm, was in India. He was produced before the Income-tax Officer. The Income-tax Officer recorded his statement.
8. The Income-tax Officer then served a notice on the petitioner, under Section 148 of the Act, requiring it to file a return of income of the nonresident firm for the two assessment years 1968-69 and 1969-70.
9. Simultaneously, the Income-tax Officer also served notices on the nonresident firm, calling upon it to file its return of income -for the aforesaid assessment years.
10. The non-resident firm filed its return of income, along with its letter dated July 29, 1969, showing 'nil' as the income.
11. Since notices were also served on the petitioner calling upon it to submit returns of income for the above-said two assessment years, the petitioner also filed returns showing 'nil' as the income.
12. It appears that, subsequently, some information was called for by the Income-tax Officer, both from the non-resident firm as well as the petitioner. No assessment order, however, either against the non-resident firm or against the petitioner, or against both, has so far been made. The cases are still pending with the Income-tax Officer.
13. The two writ petitions, in respect of the two assessment years, referred to above, have been filed under article 226 of the Constitution for the issue of a writ of mandamus, directing the respondent not to proceed with the assessment against the petitioner.
14. Three contentions have been raised before us, viz., (1) Section 166 of the Act confers an option on the Income-tax Officer to initiate proceedings of assessment either against the non-resident firm or against the agent of the non-resident firm, i.e., the petitioner. Having exercised his option to proceed against the non-resident firm, the respondent could not have continued the proceedings against the petitioner, i.e., agent of the non-resident firm ; (ii) Section 166 of the Act confers the choice to proceed against one or the other, in an unbridled manner, without providing any guide-lines. The discretion thus conferred is, therefore, violative of article 14 of the Constitution; and (iii) since the Income-tax Officer failed to take action under Section 174 of the Act against the non-resident firm and assess that firm in an accelerated way provided in the section, the Income-tax Officer has no power now to proceed against the petitioner for assessment and recovery of the tax.
15. Taking the first argument for consideration, it is seen that Section 160(1) of the Act defines the term 'representative assessee' to mean, in respect of the income of a non-resident specified in Clause (i) of Sub-section (1) of Section 9, the agent of the non-resident, including a person who is treated as an agent under Section 163.
16. Section 163(1)(c) of the Act enjoins that, for the purposes of the Act, 'agent', in relation to a non-resident, includes any person in India, from or through whom the non-resident is in receipt of any income, whether directly or indirectly.
17. It was not disputed before us that the petitioner herein was regarded as an 'agent' of the non-resident firm under the said provision of law.
18. Section 166, which is more relevant for our purposes, then reads:
'166. Nothing in the foregoing sections in this Chapter shall prevent either the direct assessment of the person on whose behalf or for whose benefit income therein referred to is receivable, or the recovery from such person of the tax payable in respect of such income......'
19. Even a casual reading of Section 166 would indicate that direct assessment or recovery of the tax from a non-resident firm is not barred because of the fact that, under Section 160 and Section 163 of the Act, the'representative assessee', that is to say, the agent of the non-resident firm, is made liable for assessment and recovery of tax. There are no words in Section 166 which would indicate that the law confers a discretion or option upon the Income-tax Officer to choose, either initially or subsequent to the initiation of proceedings, as to whether he wants to assess and recover the tax from the non-resident firm or its agent. What all the section says is that merely because the representative-assessee, that is to say, the agent, is, in law, made responsible for the assessment and recovery of tax, it would not bar the assessment and recovery of tax from the non-resident principal. In other words, the law holds not only the nonresident principal but also the agent of such non-resident firm liable for assessment and for the recovery of tax under such assessment. No question of selecting one or the other arises either for the purpose of assessment or for the purpose of recovery. of tax. Both are equally liable.
20. The misunderstanding seems to arise from the words 'either' and 'or' used in Section 166. A careful reading of that section, however, would indicate that those terms are used in order to point out that not only the assessment is possible against a non-resident principal but the recovery of tax also is possible from such non-resident principal. Thus, the terms 'either' and 'or' are used in Section 166 to indicate the dichotomy between the assessment and the recovery. They are not, certainly, used for indicating that the assessment and recovery proceedings can be taken either against a non-resident principal or against the agent of such non-resident principal. There is no justification for reading anything of that kind in Section 166. The marginal note of Section 166 and the language of that section can leave no one in doubt that both the non-resident principal as well as the agent of such non-resident principal are liable to be assessed to tax. The contention, therefore, that the said section confers an option upon the Income-tax Officer cannot be said to be correct. Consequently, it must follow that, even if the proceedings of assessment had been commenced as against the non-resident principal, still they can be continued as against the agent of the non-resident principal or, simultaneously, action for assessment and recovery of tax can be taken both against the non-resident principal as well as its agent. The argument, therefore, that having exercised his option to proceed against the non-resident firm, the Income-tax Officer could not continue the proceedings against the petitioner, i.e., the agent of the non-resident firm, is misconceived and we find no difficulty in rejecting it.
21. Reliance, however, was placed upon a decision of the Bombay High Court in Chaturbhuj Raghavji Trust v. Commissioner of Income-tax : 50ITR693(Bom) . That case can be distinguished easily on the facts. In that case, an amount of Rs. 25,000 was paid by the trustees to Bai Champavahoo. The amount was treated as an income and was brought to tax from the hands of Bai Champavahoo directly. The argument was that the same amount could not be brought again to tax in the hands of the trustees.
22. The above case could have been disposed of on one short ground that the beneficiary having already been assessed and tax recovered from the beneficiary, a fresh assessment and recovery of tax on the same transaction was neither possible nor permissible. The learned judges of -the Bombay High Court, however, considered the argument that, since the said income had already been brought to tax in the hands of Champavahoo, it could not be brought to tax again in the hands of the trustees. While considering this argument, their Lordships of the Bombay High Court considered Section 41(2) of the Indian Income-tax Act, 1922, which is in pari materia with Section 166 of the Income-tax Act, 1961. Their Lordships observed that:
'Section 41 having provided for two alternative methods, namely, either to tax the income in the hands of the trustees or directly in the hands of the person on whose behalf the income was receivable under the trust, and one of them having been availed of by the income-tax department in directly assessing Champavahoo in respect of the income, the other was no longer available to the department.'
23. Their Lordships further observed:
'Section 41 was a special enabling provision which permitted the assessment in the hands of the trustees but did not preclude the direct assessment in the hands of the beneficiaries.'
24. Their Lordships concluded :
'There is nothing in Section 41 which would indicate that the choice between the alternative methods provided therein has to be made only at the time of the assessment of the trustees or that the choice only belongs to the Income-tax Officer who is assessing the trust.'
25. If these observations are read in the context in which they are made, it would not be difficult to understand that what all their Lordships said was that Champavahoo having already been assessed and tax recovered from her, the Income-tax Officer could not have proceeded against the trustees for recovery of tax on the same transaction. It is true that their Lordships have read Section 41(2) to suggest that there are two alternative methods, namely, either to tax the income in the hands of the trustees, or directly in the hands of the person on whose behalf the income was receivable. But their Lordships immediately said that the income-tax department having availed of one of the methods, viz having proceeded against Champavahoo and recovered the tax from her, the trustees could not havebeen proceeded against. The second observation, which we have extracted above, clearly supports the view which we have taken. Their Lordships said that Section 41 is a special enabling provision which not only permitted the assessment in the hands of the trustees, but also did not preclude the direct assessment in the hands of the beneficiaries. We do not, therefore, think that this decision goes, in any manner, against the view which we have taken. If that decision is to be understood as taking any contrary view, then, with due respect, we must say that Section 166 of the Act does not permit of any such interpretation.
26. Our attention was drawn by the learned standing counsel for the income-tax department to an unreported decision of this court dated 4th August, 1971, given in R. C. No. 12 of 1968 (Commissioner of Income-tax v. Claggett Brachi & Co. Ltd. : 100ITR46(AP) ). We do not, however, think that that decision is, in any way, inconsistent with what we have said. In fact, it lends support, to a great extent, to what we have said above.
27. The question involved in that case really was, whether the reassessment proceedings can be directly initiated against the assessee when the original assessment was made on the agents. What had happened was that two years had elapsed by the time notice of reassessment was given to the agent. As the reassessment could not have been made on the agent after a lapse of two years, notice was given to the principal. It was contended that' the department has option to make the assessment either against the agent or against the principal and it was not open to them to make assessments against both. And once they have exercised the option by assessing the agent, it is not open to them to start reassessment proceedings against the principal'. Rejecting this contention, their Lordships observed:
'We do not find any warrant for this argument in any of the provisions of the Income-tax Act.'
28. It is true that immediately thereafter the learned judge observed that:
'.....the department cannot make the assessment on both the agentand the principal. If they exercise the option of making the assessment on the agent, the authorities cannot make an assessment on the principal.'
29. The observation, however, has to be read in the context of reassessment proceedings in which it was made. It is relevant to 'note that the learned judges noticed the definition of the word 'assessee' in Section 2(7)(b) of the Act, as well as Section 2(8), which states that 'assessment' includes 'reassessment'. Their Lordships also noticed Section 166 of the Act. They then said :
'It follows from a reading of all these sections together that, at the time of reassessment, again there is an option on the part of the department either to proceed against the agent or against the principal.'
30. Nevertheless, the learned judges concluded that, although assessment was made on the agent, reassessment can be made on the principal. The said observations, therefore, must be understood in the light of the conclusions arrived at. We have already noticed that the argument regarding the option was rejected, as stated above.
31. The second point was not pressed before us, because of the view which we have taken on the first point. We are, therefore, relieved from considering the second point.
32. It was finally contended that the Income-tax Officer was obliged, under Section 174 of the Act, to make an accelerated assessment in view of the fact that Mr. Davis, the partner of the non-resident firm, was produced before the Income-tax Officer on May 31, 1969. Mr. Davis was in India for three months. It was argued that the omission on the part of the Income-tax Officer to so proceed against the non-resident firm has, by implication, relieved the petitioner of its obligation to pay the tax. We are afraid, we cannot accept this contention.
33. Section 174 of the Act, no doubt, provides a particular machinery for the assessment of persons leaving India. We do not propose to consider the question whether the said section is applicable only to Indian citizens who leave India with no intention to return to India, or it is applicable even to persons who are not Indian citizens but have come to India and are about to leave India with no intention to return to India. Assuming that this section is applicable even to persons who come from outside India and leave India with no present intention of returning to this country, even then the question is whether any omission on the part of the Income-tax Officer, to take immediate proceedings under Section 174, would absolve the petitioner of its liability to be assessed to tax. Admittedly, Section 174 does not say that such a result would follow either expressly or by necessary implication. As stated earlier, if it is merely an enabling provision authorising the Income-tax Officer to have recourse to that section in the circumstances postulated by that section. If the Income-tax Officer, however, fails to take advantage of that enabling provision, we fail to see how either the non-resident principal or the agent can be relieved of its obligation. It may be that Mr. Davis, a partner of the non-resident firm, left India after obtaining a certificate from the income-tax department that no tax was due from him. Under Section 230 of the Act, if he was not given such a certificate, he would have been obliged to stay in India, or pay the tax if he wanted to leave India and, to that extent, hardship is undoubtedly caused to the petitioner, because its liability continues. But,that does not mean that the petitioner is relieved of the obligation cast upon it by Chapter XV of the Act. No authority was cited in support of the contention that, since no action under Section 174 of the Act was taken, the proceedings cannot be continued against the petitioner. We are not aware of any authority on this point. There are no provisions in the Act to that effect. We are, therefore, satisfied that no effect can be given to this contention also.
34. Since no other contention was raised, the writ petitions fail and are, accordingly, dismissed with costs. Advocate's fee Rs. 250.