Sunanda Bhandare, J.
1. M/s. Premnath Diesels Grainvaying Division, a partnership firm constituted on April 2, 1969, entered into a contract with a non-resident company, M/s. International Grainvaying Company Incorporated, which was incorporated in U.S.A. This contract was in connection with the operation in India of off-loading the grain from large tonnage vessels to smaller ships along the Indian coastline and providing suitable grainvayors and their operation for discharge of wheat from large vessels to the smaller ships. M/s. Premnath Diesels Grainvaying Division, was to provide necessary supervisory and other staff for maintenance and operation of such grainvayors. M/s. Premnath Diesels Grainvaying Division was ultimately dissolved on April 1, 1971. On January 11, 1972, the Income-tax Officer made an assessment for the assessment year 1969-70 on the non-resident company, namely, M/s. International Grainvaying Company Incorporated on a total income of Rs. 2,75,000 on the basis of return filed by the non-resident company. It appears that the non-resident company subsequently closed its business in India and its managing director and directors left India for New York. Thereafter, on December 6, 1972, the Income-tax Officer served a notice on M/s. Premnath Diesels Grainvaying Division requiring it to show cause why it should not be treated as agent of the non-resident under section 163(1)(b) of the Income-tax Act, 1961. The appellant firm objected on the ground that it had no business connection with the non-resident company and it should not be charged to tax on the income of the non-resident. By his order dated February 12, 1974, the Income-tax Officer rejected this contention and treated M/s. Premnath Diesels Grainvaying Division as an agent of the non-resident company. On March 2, 1974, a demand notice for the recovery of the amount of Rs. 2,55,294 was served on the appellant. M/s. Premnath Diesels Grainvaying Division preferred an appeal to the Appellate Assistant Commissioner who confirmed the order of the Income-tax Officer in treating the appellant as an agent of the non-resident company. An appeal was filed against that order before the Income-tax Appellate Tribunal, Delhi Bench 'D'. The Income-tax Appellate Tribunal, Delhi, held that there was a business connection between the appellant and the non-resident company within the meaning of section 163(1)(b) and consequently M/s. Premnath Diesels Grainvaying Division was rightly declared as agent of the non-resident company. The Income-tax Appellate Tribunal, however, held that by declaring M/s. Premnath Diesels Grainvaying Division as an agent of the non-resident company, it did not automatically become liable to pay tax as a representative assessed in respect of the assessment made on the non-resident company On application filed both by the Department and the assessed, the Tribunal referred the case under section 256(1) to this court for opinion. In the Reference Application No. 261(Del) of 1975-76 filed by the Department, the following question has been referred :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that M/s. Premnath Diesels Grainvaying Division held to be the agent of the non-resident company under section 163 would not be liable to pay tax as a representative, assessed in respect of the assessment made on the non-resident company, M/s. International Grainvaying Company Incorporated ?'
2. In Reference Application No. 252(Del) 1975-76, filed by the assessed, the following question has been referred :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the appellant had a business connection with M/s. International Grainvaying Co. Incorporated within the meaning of section 163(1) of the Income-tax Act, 1961 ?'
3. Counsel for the assessed, Shri G. C. Sharma, made a two-fold contention before us. Firstly, it was contended that there was no business connection between the assessed and the non-resident company since the assessed was only a labour contractor. It was, thereforee, contended that the appellant was not an agent within the meaning of section 163 of the Income-tax Act. The second contention was that even assuming there was business connection between the present assessed and the non-resident company, no tax could be levied on the appellant as a representative assessed under section 163 of the Income-tax Act. It was submitted that once the Department having chosen to assess the non-resident company, it was not open to the Department to assess the appellant as a representative assessed of the non-resident. A concurrent assessment could not be made on an agent. This assessment would also be barred by time under section 149(3) of the Income-tax Act since the original assessment against the non-resident company was made on January 11, 1972, and the order under section 163(1)(b) was purported to be made on February 12, 1974.
4. In support of his first contention, reliance was placed by Mr. G. C. Sharma on the judgment of the Supreme Court in the case of CIT v. R. D. Aggarwal and Co. : 56ITR20(SC) . The Supreme Court while interpreting the term 'business connection' within the meaning of section 42(1) of the Indian Income-tax Act, 1922 held (p. 24) :
'The expression 'business' is defined in the Act as any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture, but the Act contains no definition of the expression 'business connection' and its precise connotation is vague and indefinite. The expression 'business connection' undoubtedly means something more than 'business'. A business connection in section 42 involves a relation between a business carried on by a non-resident which yields profits or gains and some activity in the taxable territories which contributes directly or indirectly to the earning of those profits or gains. It predicates an element of continuity between the business of the non-resident and the activity in the taxable territories : a stray or isolated transaction is normally not to be regarded as a business connection. Business connection may take several forms : it may include carrying on a part of the main business or activity incidental to the main business of the non-resident through an agent, or it may merely be a relation between the business of the non-resident and the activity in the taxable territories, which facilitates or assists the carrying on of that business. In each case, the question whether there is a business connection from or through which income, profits or gains arise or accrue to a non-resident must be determined upon the facts and circumstances of the case.
A relation to be a 'business connection' must be real and intimate, and through or from which income must accrue or arise whether directly or indirectly to the non-resident.'
5. In the case before the Supreme Court, though the assessed was having commercial activity with the non-resident inasmuch as orders were procured by the assessed for the non-resident company, which resulted in contracts for sale by the non-resident of goods to merchants at Amritsar, the Supreme Court held that there was no real and intimate relation between the non-resident company and the Indian assessed and, thereforee, no business connection resulted from this transaction between the assessed and the non-resident company. Section 42(1) of the Indian Income-tax Act, 1922, is in pari materia with section 163(1)(b) of the Income-tax Act, 1961. It was submitted by the counsel that the present case stood on a stronger footing. In the present case, the appellant was only a labour contractor who provided necessary supervisory and other staff for maintenance of operation of grainvayors. According to the contract dated April 8, 1968, between the appellant and the non-resident company, the appellant was to be paid direct expenses in and towards the actual cost of the labour and supervisory staff plus additional provision for gratuity and provident fund for the labour and certain office and miscellaneous expenses. Counsel submitted that if the appellant had refused to supply the labour, the non-resident company could have engaged labour directly or through other sources and the business of the non-resident company would not have been affected in any manner whatsoever. There was no profit sharing between the non-resident company and the appellant firm. No amount was paid by the appellant company to the non-resident company and in fact a sum of Rs. 2,18,432 was paid by the non-resident company to the appellant on which the appellant firm was separately assessed and tax on that income had already been paid.
6. Mr. Wazir Singh, learned counsel for the Department, submitted that it was not necessary to have any profit sharing between the non-resident company and the appellant firm in order to show that there was a business connection between the two. It was submitted that there was intimate relation between the non-resident company and the appellant company inasmuch as all the work was done by the appellant company. Reliance was placed by the counsel for the Department on the judgment of the Supreme Court in the case of Barendra Prasad Ray v. ITO : 129ITR295(SC) . The Supreme Court while dealing with the question whether the expression 'business connection' would also include professional connection between a solicitor and a barrister held that the expression 'business' does not necessarily mean trade or manufacture only. The expression included within its scope professions, vocations and callings. The word 'business' is one of wide import and meant an activity carried on continuously and systematically by a person by the application of his labour and skill with a view to earn income. In that case, the Supreme Court observed that the barrister, Mr. Blanco White, who came to India and appeared before the Calcutta High Court, though not paid by the Calcutta solicitor, was engaged by the solicitor at Calcutta on instructions from the London solicitor. Mr. Blanco White could not have appeared before the Calcutta High Court unless he was assisted or instructed by a solicitor to do so. The Supreme Court, thereforee, held that the connection was not a casual one and it was a real and intimate relation. The facts of the case before the Supreme Court were different from the facts of the present case. The relationship between a solicitor and a barrister in a dual system is of a peculiar nature. A barrister in this system cannot argue a case in court unless he is instructed and assisted by a solicitor. In the present case, if the firm had refused to assist the non-resident company in procuring labour, the non-resident company could have directly engaged labour and carried on the business activity. The profits of the business of the non-resident company could have been earned by the non-resident company even without the assistance of the appellant firm.
7. It is not disputed that in the present case the appellant, apart from procuring labour, supplied supervisory and other services for which the appellant was paid actual expenses and commission. The non-resident company carried on its business activity because of the contract with the Government of India under PL-480 programme. The services rendered by the appellant could have been rendered by any other labour contractor or could have been obtained by the non-resident company by engaging direct labour. There was, thereforee, no real and intimate relation between the appellant and the non-resident company. The appellant cannot, thereforee, be held to be an agent having any business connection with the non-resident as envisaged under section 163(1)(b) of the Income-tax Act, 1961.
8. We now come to the second contention raised by Mr. G. C. Sharma, advocate for the appellant. It is an admitted fact that the non-resident company, M/s. International Grainvaying Incorporated, filed its return on August 25, 1969, and was assessed under section 143(3) of the Income-tax Act on January 11, 1972. It was only on February 12, 1974, that an order under section 163(1)(b) was passed by the Income-tax Officer declaring the present appellant as an agent and treating him as a representative assessed of the non-resident. In none of the cases cited by the counsel on both the sides, an order under section 163(1)(b) was sought to be made after the non-resident was assessed on the return filed by the non-resident and without giving any opportunity to the agent to make its objections and subjecting it to the normal process of assessment under the Income-tax Act.
9. In the case of CIT v. Claggett Brachi & Co. Ltd. : 100ITR46(AP) , the Andhra Pradesh High Court held that the Department cannot make assessment on both the agent and the principal. If, on exercise of the option, the assessment is made on the agent, the authorities cannot make an assessment on the principal. The Andhra Pradesh High Court in this case was dealing with a question of reassessment proceedings and whether the same could be started against the principal instead of on the agent when the original assessment was made on the agent.
10. Reference may be made to the Full Bench judgment of the Punjab & Haryana High Court in, the case of CIT v. Kanhaya Lal Gurmukh Singh , where the majority expressed the view that sections 246 and 249 of the Income-tax Act leave no manner of doubt that the Income-tax Officer has to pass an order under section 163 before initiating proceedings by issuing a notice under s. 148 of the Act. In that case, simultaneously notices were issued both under section 163 and s. 148 of the Act. In the present case, no notice was issued to the appellant asking it to file a return. The assessment was made on the non-resident and only a demand notice was issued on the appellant, for the recovery of the amount, after declaring it an agent under section 163, that too after the period of two years had expired. It was open to the Income-tax Officer to assess either the representative or the non-resident at the initial stage. However, once the non-resident company was assessed, the representative assessed could not be assessed after the statutory period of two years had expired. In fact, on the date when an order under section 163(1)(b) was passed, no assessment could have been made on the appellant since two years had already expired, which is a requirement under section 149(3) of the Income-tax Act. thereforee, even if the appellant was treated as an agent having business connection with the non-resident, he could not be taxed without an assessment being made on him. There is no doubt that the appellant had to be given an opportunity of being heard as to its liability. thereforee, a notice under section 139(2) calling for a return of income would be essential. In the present case by denying this opportunity, the appellant was also denied the valuable right of appeal to challenge the quantum of tax. If the Income-tax Department finds that the agent is to be taxed as a representative assessed, then the Department must-call upon the agent to file the return and then only the agent can be taxed as a representative assessed. The Department having chosen to assess the non-resident, assuming the appellant could be treated as an agent, could not tax the agent as a representative assessed.
11. The only thing that could be done at this stage would be under section 167 of the Act to recover the amount of tax payable by the non-resident from the assets (of the non-resident) which had vested in the hands of the agent. In the present case, no property of the non-resident had vested in the hands of the agent. thereforee, no recovery could be made under section 167 of the Act. In any event, the question of recovery of tax was not before the Appellate Assistant Commissioner. The only question before the Appellate Assistant Commissioner was whether the appellant could be treated as an agent under section 163(1)(b) of the Act.
12. We, thereforee, answer the first question in Reference Application No. 261 (Del) of 1975-76 in the affirmative, in favor of the assessed and against the Department and the second question in Reference Application No. 252 (Del) of 1975-76 in the negative, in favor of the assessed and against the Department. The parties are left to bear their own costs.