1. This reference under Section 256(1) of the Income-tax Act, 1961, is at the instance of the Commissioner of Income-tax, West Bengal-I, Calcutta. The respondent in these proceedings is Messrs. T.I. & M. Sales Ltd., impleaded as a representative assessee and is stated to represent a number of non-resident concerns. The assessment years involved are 1960-61 and 1961-62.
2. The facts found and/or admitted are shortly as follows : By an order passed in November, 1964, the respondent was treated as the representative assessee in respect of ten non-resident concerns, for the assessment years 1960-61 and 1961-62 and assessed as such. Appeals were preferred by the assessee to the Appellate Assistant Commissioner, against the decision to treat the assessee as statutory agent of the said non-residents under Section 163(1) of the Income-tax Act, 1961, and also against the quantum of the assessments. The Appellate Assistant Commissioner disposed of the appeals by a consolidated order.
3. One of the points agitated before the Appellate Assistant Commissioner was whether the representative assessee was liable to pay interest under Section 217(1) of the Income-tax Act, 1961, for non-payment ofadvance tax in accordance with the provisions of Section 212(3) of the said Act. The Appellate Assistant Commissioner came to the conclusion that as the Income-tax Act, 1961, became law only on the 1st April, 1962, it did not confer any authority for levying interest for omission to file an estimate and pay advance tax during the financial years 1959-60 and 1960-61. Accordingly, he remitted the payment of such interest.
4. From this decision of the Appellate Assistant Commissioner the revenue preferred a further appeal to the Income-tax Appellate Tribunal. In the appeal, the revenue contended that there was no right of appeal against the levy of interest under Section 217 of the Act and, therefore, the interest levied could not be remitted in appeal. It was contended further that the Appellate Assistant Commissioner in any event erred in holding that no interest was leviable under the said Section 217.
5. Following their earlier order dated the 21st July, 1966, in the assessment appeals where it had been held that the representative assessee would be called upon to pay advance tax only after it had been validly appointed statutory agent under Section 163, the Tribunal found that the representative assessee not having been appointed statutory agent during the said financial years but subsequently in November, 1964, had no liability to pay advance tax in respect of the income of the non-resident for the said financial years. The Tribunal accordingly dismissed the appeals of the revenue. The Tribunal has drawn up a case and has referred the following question which it is stated arises out of their order as a question of law for our determination :
' Whether, on the facts and in the circumstances of the case, the assessee, T.I. & M. Sales Ltd., was liable to pay advance tax under Section 18A of the Indian Income-tax Act, 1922, in respect of the income of the non-resident companies for the financial years 1959-60 and 1960-61, since it had not been appointed statutory agent during the relevant financial years '
6. In order to appreciate the controversy in this reference it is necessary to keep in mind the relevant statutory provisions.
A. The Indian Income-tax Act, 1922.
'Section 18A. Advance payment of tax.--............
(3) Any person who has not hitherto been assessed shall, before the 15th day of March in each financial year, if his total income of the period which would be the previous year for an assessment for the financial year next following is likely to exceed the maximum amount not chargeable to tax in his case by two thousand five hundred rupees, send to the Income-tax Officer an estimate of the tax payable by him on that part of his income which is not chargeable under the head ' Salaries ' of the said previous year calculated in the manner laid down in Sub-section (1), and shallpay the amount, on such of the dates specified in that sub-section as have not expired, by instalments which may be revised according to the proviso to Sub-section (2).........
(7) Where, on making the regular assessment, the Income-tax Officer finds that any assessee has-
(a) under Sub-section (2) or Sub-section (3) under-estimated the tax payable by him arid thereby reduced the amount payable in any of the first three instalments,.........
he may direct that the assessee shall pay simple interest at six per cent, per annum, in the case referred to in Clause (a) for the period during which the payment was deficient on the difference between the amount paid in each such instalment and the amount which should have been paid having regard to the aggregate tax actually paid under this section during the year, and in the case referred to in Clause (b) for the period during which the payment of tax was wrongly deferred on the amount of which the payment was so deferred............ '
Section 28(1)--Proviso (c) :
' No penalty shall be imposed under this sub-section upon any person assessable under Section 42 as the agent of a person not resident in the taxable territories for failure to furnish the return required under Section 22 unless a notice under Sub-section (2) of that section or under Section 34 has been served on him. '
' Section 42. Income deemed to accrue or arise within the taxable territories.--(1) All income, profits or gains accruing or arising, whether directly or indirectly, through or from any business connection in the taxable territories, or through or from any property in the taxable territories, or through or from any asset or source of income in the taxable territories, or through or from any money lent at interest and brought into the taxable territories in cash or in kind or through or from the sale, exchange or transfer of a capital asset in the taxable territories, shall be deemed to be income accruing or arising within the taxable territories, and where the person entitled to the income, profits or gains is not resident in the taxable territories, shall be chargeable to income-tax either in his name or in the name of his agent, and in the latter case such agent shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income-tax...
Provided further that any such agent, or any person who apprehends that he may be assessed as such an agent, may retain out of any money payable by him to such non-resident person a sum equal to his estimated liability under this sub-section, and in the event of any disagreement between the non-resident person and such agent or person as to the amount to be so retained, such agent or person may secure from the Income-tax Officer, a certificate stating the amount to be so retained pending finalsettlement of the liability, and the certificate so obtained shall be his warrant for retaining that amount.'
' Section 43. Agent to include persons treated as such.--Any person employed by or on behalf of a person residing out of the taxable territories, or having any business connection with such person, or through whom such person is in the receipt of any income, profits or gains upon whom the Income-tax Officer has caused a notice to be served of his intention of treating him as the agent of the non-resident person shall, for all the purposes of this Act, be deemed to be such agent:...
Provided further that no person shall be deemed to be the agent of a non-resident person, unless he has had an opportunity of being heard by the Income-tax Officer as to his liability ...'
B. Income-tax Act, 1961 :
' Section 139. Return of income.--(1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed...'
'160. Representative assessee.--(1) For the purposes of this Act, ' representative assessee ' means-
(i) 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 ;
(ii) in respect of the income of a minor, lunatic or idiot, the guardian or manager who is entitled to receive or is in receipt of such income on behalf of such minor, lunatic or idiot;
(iii) in respect of income which the Court of Wards, the Administrator-General, the Official Trustee or any receiver or manager (including any person, whatever his designation, who in fact manages property on behalf of another) appointed by or under any order of a court, receives or is entitled to receive, on behalf or for the benefit of any person, such Court of Wards, Administrator-General, Official Trustee, receiver or manager;
(iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise (including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (VI of 1913)), receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees.
(2) Every representative assessee shall be deemed to be an assessee for the purposes of this Act.'
'161. Liability of representative assesses--(1) Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income ; but any such assessment shall be deemed to be made upon him in his representative capacity only, and the tax shall, subject to the other provisions contained in this Chapter, be levied upon and recovered from him in like manner arid to the same extent as it would be leviable upon and recoverable from the person represented by him ...'
' 162. Right of representative assessee to recover tax paid.--...
(2) Any representative assessee, or any person who apprehends that he may be assessed as a representative assessee, may retain out of any money payable by him to the person on whose behalf he is liable to pay tax (hereinafter in this section referred to as the principal), a sum equal to his estimated liability under this Chapter, and in the event of any disagreement between the principal and such representative assessee or person as to the amount to be so retained, such representative assessee or person may secure from the Income-tax Officer a certificate stating the amount to be so retained pending final settlement of the liability, and the certificate so obtained shall be his warrant for retaining that amount. . .'
'163. Who may be regarded as agent.--(1) For the purposes of this Act, ' agent', in relation to a non-resident, includes any person in India-
(a) who is employed by or on behalf of the non-resident; or
(b) who has any business connection with the non-resident; or
(c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly ; or
(d) who is the trustee of the non-resident;
.and includes also any other person who, whether a resident or nonresident, has acquired by means of a transfer, a capital asset in India;...
(2) No person shall be treated as the agent of a non-resident unless he had had an opportunity of being heard by the Income-tax Officer as to his liability to be treated as such.'
' 212.(3).--Any person who has not previously been assessed by way of regular assessment under this Act or under the Indian Income-tax Act, 1922 (XI of 1922), shall, in each financial year, before the date on which the last instalment of advance tax is due in his case under Sub-section (1) of Section 211, if his current income is likely to exceed the ammmt specified in Sub-section (2) of Section 208, send to the Income-tax Officer an estimate of-
(i) the current income, and
(ii) the advance tax payable by him on the current income calculated in the manner laid down in Section 209,
and shall pay such amount of advance tax as accords with his estimate on such of the dates applicable in his case under Section 211 as have not expired, by instalments which may be revised according to Sub-section (2).'
'271(3)(c).--No penalty shall be imposed under Sub-section (1) upon any person assessable under Clause (i) of Sub-section (1) of Section 160, read with Section 161, as the agent of a non-resident for failure to furnish the return under Sub-section (1)of Section 139.'
7. Mr. B. L, Pal, learned counsel for the revenue, based his submissions only on Section 161 of the Income-tax Act, 1961. He stated that once a person was treated to be a representative assessee then he would be subject to the same duties, responsibilities and liabilities in respect of the income of which he is a representative assessee as if the income were income received by or accruing to or in favour of him beneficially. In the instant case the representative assessee having been treated as such for the assessment years 1960-61 and 1961-62 was subject to all liabilities including the liability to pay advance tax. If the representative assessee was saddled with this liability which it had failed to discharge there was no reason why it should be exempt from the consequences of its default.
8. In support of his contentions Mr. Pal cited several decisions which we shall consider in their chronological order.
(a) East End Dwellings Co. Ltd. v. Finsbury Borough Council  AC 109 ;  2 All ER 587. This decision was cited for the well-known observation of Lord Asquith as follows at page 599 :
' If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs. It does not say that, having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corrollaries of that state of affairs. '(b) Premier Automobiles Lid. v. Income-tax Officer : 59ITR656(Bom) . The facts of this case were that the assessee was served with a notice on the 17th September, 1962, to show cause why he should not be treated as an agen( of a non-resident corporation for the assessment year 1963-64. The assessee challenged the issue of the said notice on the ground that the same could not be validly issued before the commencement of the assessment year by an application under Article 226 of the Constitution before the Bombay High Court. The only contention canvassed in the said proceeding was whether a person could be regarded as an agent under Section 163 before the commencement of the assessment year so that he couldbe called upon to pay advance tax under Section 210. A Single Bench of the Bombay High Court in disposing of the application did not agree with the contention that agents appointed before the commencement of the assessment year cannot be subjected to the liability to pay advance taxes as representative assessees. It was noted that the liability of a statutory agent as a representative assessee was denned by Section 161. It being the accepted position that the non-resident would have been, liable to pay advance tax if he was directly assessed, it necessarily followed that the agent as his representative assessee was also liable to pay tax in advance in the like manner and to the same extent.
(c) H. L. Sud, Income-tax Officer v. Tata Engineering & Locomotive Co. Ltd. : 71ITR457(SC) . The facts in this case before the Supreme Court were that a notice was issued by the Income-tax Officer to the respondent, an Indian company, in respect of each of the assessment years from 1955-56 to 1961-62, under Section 43 of the Indian Income-tax Act, 1922, intimating that it was intended to treat the company as an agent of two German firms. In pursuance thereof orders were passed under Section 43. For the subsequent year 1962-63, no notice under Section 43 of the Act was issued but on the 8th September, 1961, the company received notices of demand under Section 29 of the Act together with an order under Section 18A(1) calling upon it to make advance payment of tax for the assessment year 1962-63, as an agent of the said German firms. These notices were challenged in proceedings taken under Article 226 of the Constitution. The Supreme Court, on the facts as above, held as follows (page 462) :' Having regard to the scheme of the Act, the assessment for each year is self-contained and the vicarious liability imposed by an appointment under Section 43 of the Act only extends to the liability for the assessment of the year for which the appointment is made and cannot extend to the liability for any other assessment. Nor can the expression ' for all purposes ' used in Section 43 of the Act extend the liability to any other assessment excepting the liability for the assessment year for which the appointment is made. The expression ' for all purposes', in our opinion, only indicates that when an appointment is made for a particular assessment year it is good for all purposes as far as that assessment is concerned, i.e., for all purposes for imposing tax liability, determining the quantum of the liability and for recovering it. The liability sought to be imposed under Section 18A of the Act is not in respect of the income-tax for the assessment year for which the appointment is made but for a subsequent assessment year. For the recovery of income-tax of the said subsequent year, unless there is a fresh appointment of the respondent under Section 43 of the Act as a statutory agent, no such liability can be imposed on the respondent by the income-tax authorities. '
9. Mr. B. L. Pal also drew our attention to Rule 40 of the Income-tax Rules, 1962, under which the Income-tax Officer has power to reduce or waive the interest payable under Section 217 where a person is treated as an agent of another person under Section 163 and is assessed to tax. Mr. Pal submitted that this rule sufficiently indicated that the legislature contemplated that a person appointed as a representative assessee would be held liable for payment of advance tax and consequently liable to pay interest thereon for non-payment thereof under all circumstances. But the Income-tax Officer was conferred power under this rule to waive such interest if such waiver was called for in the facts and circumstances.
10. Dr. Debi Pal, learned counsel for the assessee, has contended that in order to hold the representative assessee liable to pay advance tax it must first be held that the non-resident was liable to pay advance tax and that finding not having been arrived at there was no question of holding the representative assessee liable for advance tax.
11. Dr. Pal contended further that the statute in any event should not be given retrospective effect. The liability of the representative assessee must be held to arise from the point of time when he is treated as a representative assessee by the Income-tax Officer and not earlier. An opportunity had to be given to the person who was going to be treated as representative assessee. It was only after giving him such opportunity the Income-tax Officer can make an order recording that he would be treated as a representative assessee. Therefore, the liability of such an assessee cannot be determined retrospectively. He also faintly argued that under Section 161 of the Act a representative assessee was liable only to assessment and consequently only the tax could be levied upon and recovered from him. He invited us to construe the section narrowly and hold that a representative assessee would not be liable to pay either interest or penalty, which were both different from the tax. The penalty was expressly exempt in the statute.
12. In support of his contentions Dr. Pal cited Premier Automobiles Ltd. v. S. N. Shrivastava, Income-tax Officer : 76ITR1(SC) . The facts in this case were that on 25th February, 1965, the Income-tax Officer concerned directed that Premier Automobiles Ltd. should be treated as a statutory agent of M/s. Dodge,Brothers of U.K., a non-resident company, and on the same day issued a notice of demand under Section 156 read with Section 210 of the Income-tax Act, 1961, calling upon the Indian company to pay advance tax for the assessment year 1965-66. It was contended on behalf of the petitioner that under Sections 209 and 210 of the Act no order for payment of advance-tax should be made against an agent of a non-resident and challenged the demand under Article 32 of the Constitution: The Supreme Court negatived such contention and held as follows (pages 5, 6) :
' It is expressly enacted by Section 161 that as regards income in respect of which a person is a representative assessee, he shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially. It is clearly implicit therein that a representative assessee is not exempt from liability to pay advance tax......Once the Income-tax Officer treats a person as an agent of a non-resident, liability to pay tax on regular assessment arises; and his liability as a representative assessee to pay advance tax is not excluded by any provision of the Act. '
13. Dr. Pal also cited Shri Rama Nand v. Commissioner of Income-tax . The facts before the Punjab High Court in this case were that for the accounting years 1946-47 and 1947-48, the assessee was a non-resident, but he was carrying on some business in British India through a registered firm which was treated as his agent under Section 43 of the Indian Income-tax Act, 1922, after a notice issued on the 3rd March, 1950. During the assessment it was found by the Income-tax Officer that the representative assessee had failed to submit an estimate of the nonresident's income in accordance with the provisions of Section 18A(3) and to make advance payment of tax. Accordingly, after a notice under Section 28(3), the Income-tax Officer imposed a penalty. On appeal the Appellate Assistant Commissioner vacated the order of penalty. On further appeal the Tribunal revised the decision of the Appellate Assistant Commissioner and held that the penalty was imposable. The question referred to the High Court was whether in the facts and circumstances penalty should be legally imposed on the agent of the non-resident under Section 18A(9) read with Section 28(1). The High Court held that if an assessee did not comply with the provisions of Section 18A(3), he would be deemed to have failed to make a return and would also be deemed that the assessee was served with a notice under Section 22 of the Act and, therefore, was required to make a return and the question of making a return could not arise under Section 18A. The agent of a non-resident, however, could not be held liable to any penalty for not filing a return except where he failed to make a return in spite of a notice served upon him. The High Court observed as follows (page 321) :
' Unless the case clearly falls within the exception, the agent cannot be called to pay the penalty for not making a return and in view of this statutory provision there is no scope for saying that by a fiction of law an agent of a non-resident can be deemed to have been served with a notice under Section 22(2) or Section 34 of the Act. '
14. We are not much impressed by the contention of Dr. Pal that there is no finding that the non-resident had failed to pay advance tax and so the representative assessee cannot be held liable for the same. The partieshave all along proceeded on the basis that no advance tax had been paid by either the principal or the agent and we cannot permit new facts to be agitated.
15. It appears to us that only in Shri Rama Nand's case , a person was treated as a representative assessee of a non-resident for the assessment year involved after the expiry of such assessment year. In the other decisions cited, the agent had been so treated either before or during the assessment year in question. In the said decisions the question whether an agent was retrospectively liable for default of the non-resident principal was not involved.
16. Reading the sections, it appears to us that both under Section 43 of the earlier Act and Section 163 of the later Act, a person intended to be treated as an agent of a non-resident must be given an opportunity of being heard and to make submission denying his liability to be treated as such. The earlier Act is that ' no person shall be deemed to be an agent of a nonresident person ' unless he had an opportunity of being heard. The later Act is that ' no person shall be treated as an agent of a non-resident ' unless he had such opportunity. In our opinion, if the provisions of Section 161 are to be literally applied as suggested on behalf of the revenue and he is made retrospectively liable for the acts of omissions or commissions of the non-resident, then opportunity granted to him by the statute before he is treated as a representative assessee would become illusory.
17. It also appears to us that the provisions of Section 161 are neither clear nor categorical enough so that the same may be given a retrospective effect. It is a well-known principle of statutory construction that a statute and, in particular, a financial or a penal statute, which saddles a person with liability or puts a person in jeopardy, should not be given a retrospective effect unless the statute expressly professes to be so : see Maxwell on the Interpretation of Statutes, 12th Edn., page 215.
18. Rule 40 of the Income-tax Rules cannot impart a greater retrospective effect to the sections. There may be cases where a person can be prospectively treated as a representative assessee of a non-resident in the assessment year concerned and held liable to pay advance tax on behalf of the non-resident, and yet there may be other circumstances which he may successfully plead for waiver or reduction of interest levied for non-payment of such advance tax.
19. It appears to us that it would lead to many anomalous situations if Section 161 is given a fully retrospective operation. Unless a person is treated as a representative assessee, he can neither file a return nor pay any advance tax on estimate on behalf of the non-resident. Even if a person apprehends that he may in future be treated as the representative of a nonresident, all he can do is to retain moneys payable by him to the non-resident on an estimate basis. He cannot pay any advance tax. In the facts and circumstances before us no representative assessee could have complied with the provisions of the statute and avoided liability to pay penal interest in any conceivable circumstances. For the reasons stated above, we are inclined to hold that a person may be treated as a representative assessee of a non-resident at any point of time but if he is treated as a representative of a non-resident after the financial year is over, he cannot retrospectively be saddled with liability to pay advance tax for any past financial year.
20. Accordingly, we answer the question referred to us in the negative and in favour of the assessee. There will be no order as to costs.
21. It is made clear that we have not expressed any opinion on the question whether a representative assessee is liable to pay only the tax assessed or the tax including all penalty and interest. Not having agitated this question earlier, the assessee cannot be permitted to urge the same in the reference.
C.K. Banerji, J.
22. I agree.