P.V. Dixit, C.J.
1. This matter comes up before us on a case stated by the Appellate Tribunal under Section 66(1) of the Indian Income-tax Act, 1922. The question at issue arises out of an order of the Appellate Tribunal upholding an order made by the Income-taxOfficer, Khamgaon, calling upon the Managing Director, National Newsprint and Paper Mills, Ltd., Nepanagar, (hereinafter referred to as the Mills) to pay Rs. 17,656/10/- as tax in respect of certain payments made by the Mills to one Mr. Bradley, and which amount of tax according to the Income-tax Officer should have been deducted by the Mills under Section 18 (3B) of the Act
2. The facts which give rise to this reference may be briefly stated. The mills, which are engaged Sn the production and manufacture of paper, entered into a contract with M/s. Pusey and Jones, Corporation incoporated in the U. S. A., for the purchase of paper-making machinery through an intermediary corporation, M/s. Ebasco Services, also a corporation registed in the U. S. A. Under the agreement the U. S. A. Corporation selling the machinery agreed to depute Mr. Brodley, one of its engineers, to Nepanagar for the setting up and erection of the machinery at Nepanagar on certain terms of remuneration and benefits such as air. passage, boarding and lodging expenses etc.
Mr. Brodley arrived in India in June 1954 and after completing the work of setting up of the machinery left Nepanagar in November 1954. The Mills paid Rs. 31,565/- to M/s. Pusey and Jones Corporation through the Imperial Bank of India (now the State Bank of India) for services rendered by Mr. Brodley. Mr. Brodley had to obtain a clearance certificate under Section 46A before leaving India. When he applied for the certificate to the Income-tax Officer, enquiries commenced about the terms and nature of engagement of Mr. Brodley and of the payment made to him.
The Income-tax Officer entered into correspondence with Mr. Broadley and the Mills about this and ultimately informed the Mills that they were liable to deduct income-tax and super-tax under Section 18 (2B) or 18 (3B). In reply, the Mills informed the Income-tax Officer that the amount paid to M/s. Pusey and Jones Corporation for the services rendered by Mr. Brodley did not come under the head 'Salaries' and Section 18 (2B) had no applicability; that if the amount paid to the U. S. A. Corporation was taxable under the Indian Income-tax Act, then the Mills would stand as a guarantor for the payment of the tax payable by the U. S A. Corporation; and that on this guarantee the tax clearance certificate required by Mr. Brodley be issued to him.
On this guarantee being given, a clearance certificate was issued to Mr. Brodley and the Mills were asked to pay Rs. 17,656/10/- as tax on the amount of Rs. 31,565/- paid to M/s. Pusey and Jones Corporation, U. S. A. The Mills paid the amount under protest and preferred an appeal before the Commissioner. The Commissioner held, that the payment made by the Mills to M/s. Pusey and Jones Corporation was a payment of a revenue nature in respect of technical help rendered in India by M/s. Pusey and Jones Corporation to the Mills and the income earned by the non-resident Corporation was liable to be charged to tax as income accruing within the taxable territories and that as the Income-tax Officer did not serve on the Mills any notice of his intention of treating the Mills as agents of M/s. Pusey and Tones Corporation, the Mills could not be made liable for the tax as agents of the Corporation and that, therefore, under Section 18 (3B) of the Act the Mills were under an obligation to deduct; the amount of the tax from the sum of Rs. 31,565/-paid to the Corporation.
Accordingly the Commissioner upheld the order of the Income-tax Officer and dismissed the appeal preferred by the Mills. In the appeal preferred before the Tribunal it was contended on behalf ofthe Mills that in view of the second proviso to Section 18(3B) read with the first proviso to Section 43 there was no liability upon the Mills to deduct the amount of tax. This contention was negatived by the Tribunal observing;
'We are unable to accept this contention. The first proviso to Section 43 speaks of a resident broker and of non-resident broker and non-resident principal; We are unable to see who is the resident broker and who are the non-resident broker and non-resident principal concerned (sic) the present transaction.' The Tribunal held that the tax payable by the Corporation was only on Rs. 24,923/ and not on the additional amount of air passage and boarding and lodging expenses paid to Mr. Brodley. With this modification in the order of the Income-tax Officer, the Tribunal dismissed the appeal preferred by the Mills.
3. The Tribunal has now at the instance of the Mills made this reference and the question referred to us for decision is:
'Whether having regard to the second proviso to Section 18 (SB) read with the first proviso to Section 43, Nepa Mills was liable to deduct income-tax and super-tax on the sum of Rs. 24,923/ paid by it to the non-resident U. S. A. Corporation?'
4. Before us Mr. Saranjame, learned counsel for the Mills, did not place the case of the Mills on the second proviso to Section 18 (3B) read with the first proviso to Section 43. He argued that the question framed, by the Tribunal did not correctly state the real contention of the Mills and that the Tribunal had not fully appreciated the arguments advanced by him before it and the contention of the Mills. Learned counsel stated that what he had contended before the Tribunal was that having regard to the second proviso to Section 43 no liability for deduction could be fastened on the Mills under Section 18 (3B).
The argument of the learned counsel was that an essential condition for applicability of Section 18(3B) was that the person responsible for making the payment should not himself be liable to pay income-tax and super-tax thereon as an agent; that the concept of agent had been indicated in Section 43; that the Income-tax Officer should have first determined in the context of Section 43 whether the Mills were or were not agents of M/s. Pusey and Jones Corporation, a non-resident Corporation, and it was only if the Mills had not been found to be agents of the Corporation, that the liability to deduct under Section 18(3B) would arise; and that the Income-tax Officer had made no such adjudication.
5. There is no force in the argument put forward by the learned counsel for the Mills. The statement submitted by the Tribunal puts the contention advanced by the learned counsel appearing before the Tribunal on behalf of the Mills thus :
'.....he conceded that the Nepa Mills had made certain payment to the U. S. A. Corporation; and that it fell within the ambit of the substantive part of Section 18 (3B), but in view of the second proviso to that section read with the 1st proviso to Section 43, there was no liability upon it to deduct income-tax and super-tax in respect of the said payment.'
This statement by the Tribunal must be taken as conclusive of what transpired before it. Learned counsel did not dispute that he did make the concession that the matter fell within the ambit of the substantive part of Section 18 (3B). But what he urged was that the concession was with the qualification that the second proviso to Section 43 applied and so long as the Mills were held not to be agents in accordance with, that proviso, there can be no liability on the Mills to make any deduction under Section 18 (3B).
It seems to us that if the learned counsel did make such a concession before the Tribunal, then consistent with it he could not and should not havetaken up the position that the status of the Mills as agents of a non-resident assessee had not been determined as required by the second proviso to Section 43. For if according to the learned counsel the status of the Mills was that of agents of a non-resident assessee, then he should not have admitted that the substantive part of Section 18 (3B) applied. In that case the argument would have been that one of the essential conditions for the applicability of Section 18(3B) did not exist at all.
6. Be that as it may, there is really no substance in the contention that the Income-tax Officer should have first proceeded in accordance with the second proviso to Section 43 and determined whether or not the Mills were agents of the non-resident U. S. Corporation before applying Section 18(3B). The substantive part of that sub-section runs as follows:
'Any person responsible for paying to a person not resident in the territories any interest not being 'Interest on securities' or any other sum chargeable under the provisions of this Act shall, at the time of payment, unless he is himself liable to pay any income-tax and super-tax thereon as an agent, deduct income-tax at the maximum rate and super-tax at the rate applicable to a company or in accordance with the provisions of Sub-clause (b) of Sub-section (1) of Section 17, as the case may be:'
It is not disputed that Messrs. Pusey and Jones Corporation was a non-resident assessee and that the amount payable to the Corporation was chargeable to tax under the provisions of the Act. The status of an agent referred to in the expression 'unless he is himself liable to pay any income-tax and supertax thereon as an agent' occurring in Sub-section (3B) is no doubt the status contemplated in Section 43. Under Sections 40(2) and 42(1) the agent of a non-resident is personally liable to assessment in respect of a non-resident's income.
Section 43 deals with the appointment of a statutory agent on whom the assessment may be made in respect of income covered by the aforesaid provisions. But it is at the option of the Department to assess a non-resident or his agent Section 43 is really only a machinery for giving effect to Section 42. Under Section 43 no person can be deemed to be an agent of a non-resident unless the Income-tax Officer has served on him a notice of his intention to treat him as an agent and has further given him an opportunity of being heard as to his liability. The procedure laid down in Section 43 has to be followed only if the Department desires to impose substantive liability on the agent in respect of the non-resident assessee's income.
It is not necessary that the status of a person sought to be made liable for the deduction under Section 18(3B) should first be determined in accordance with Section 43 before seeing whether the other requisites of Sub-section (3B) are or are not satisfied. The expression 'unless he is himself liable to pay any income-tax and super-tax thereon as an agent' introduces in Sub-section (3B) an exception for the benefit of the person sought to fee made liable for deduction under that sub-section. The expression does not mean that unless 'the person has been declared not to be an agent in accordance with Section 43,' he cannot be made liable for deduction under Sub-section (3B). If the Department has not treated him as an agent after giving a notice of its intention to treat him as anagent, it must be taken that for the purpose of Sub-section (3B) of Section 18, the person has not been made liable as an agent of the non-resident assessee.
No enquiry and adjudication is necessary for determining whether a person has or has not been treated as an agent under Section 43. It is a matter of record. If the Department seeks to make a person liable for deduction under Sub-section (3B) and that person thinks that he has been made liable as an agent for the tax amount under Section 43, then it is always easy for him to show that in respect of a particular assessment year he has been made liable for the tax as an agent of the non-resident assessee. An enquiry into the question whether a person has or has not been declared to be an agent under Section 43 is quite different from an enquiry into the status of the person as an agent for liability to assessment as an agent of the nonresident assessee under Section 43. The exception introduced in Sub-section (3B) being one for the benefit of the person, it is for him to show that he has been made liable to pay income-tax and supertax as an agent of the non-resident assessee.
It was never the case of the Mills that they have been made liable for the tax as agents of the non-resident U. S. Corporation. On the other hand, it was admitted that no notice to treat them as agents under Section 43 was given to the Mills. What is really contended is that notice should have been given under Section 43 arid an enquiry should have been held into the status of the Mills as agents of the non-resident corporation; and that it was only if after such enquiry it had been found that the Mills were the agents of the non-resident corporation that any liability for deduction could be imposed on them under Sub-section (3B). This contention cannot be acceded to having regard to the purpose of Section 43 and the plain meaning of the expression 'unless he is himself liable to pay any income-tax and super-tax thereon as an agent.'
7. As it has not been contended before us that the liability of the Mills for deduction under the substantive part of Sub-section (3B) is displaced by reason of the applicability of the second proviso to that sub-section, our answer to the question referred to by the Tribunal for decision most be in the affirmative. The Mills shall pay the costs of this reference. Counsel's fee is fixed at Rs. 200/-.