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COMVERSE NETWORKS SYSTEMS INDIA PVT. LTD. Vs. COMMISSIONER OF INCOME TAX DELHI-XVI & ANR.
August, 07th 2014
         IN THE HIGH COURT OF DELHI AT NEW DELHI


                                              Judgment delivered on: 22.07.2014

W.P.(C) 3588/2013


COMVERSE NETWORKS SYSTEMS INDIA PVT. LTD. ..... Petitioner



                             versus


COMMISSIONER OF INCOME TAX DELHI-XVI & ANR.
                                        ..... Respondents
Advocates who appeared in this case:
For the Petitioner  : Mr M.S.Syali, Sr. Advocate with Mr Mayank Nagi, Ms Husnal Syali
                      Nagi and Mr Harkunal Singh.
For the Respondents : Mr Kamal Sawhney and Mr Sanjay Kumar.



CORAM:
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SIDDHARTH MRIDUL

                                 JUDGMENT

BADAR DURREZ AHMED, J (ORAL)

1.      By way of this writ petition the order dated 18.03.2013 passed by the

Commissioner of Income Tax under Section 264 of the Income Tax Act,

1961 (hereinafter referred to as the ,,said Act) in respect of the assessment

year 2003-04 is challenged. The petitioner also seeks the quashing of the




WP(C) 3588/2013                                                              Page 1 of 13
notice dated 16.03.2010 issued under Section 163(2) of the said Act as also

the order dated 31.01.2011 passed by the Assistant Commissioner of Income

Tax pursuant to the said notice dated 16.03.2010 under Section 163(1)(c) of

the said Act.


2.      One Mr Francis Daly was an employee with the petitioner which was

then known as CSG Systems India Pvt. Ltd. In respect of the assessment year

2003-04 pertaining to the previous year ended on 31.03.2003, the said

Mr Francis Daly had submitted his return of income which had been

assessed by virtue of the assessment order dated 26.12.2006. From the

assessment order dated 26.12.2006 pertaining to Mr Francis Daly, it is

evident that his status has been shown as "individual" and his residential

status has been indicated as ­ "R & OR" which means "Resident &

Ordinarily Resident".


3.      In other words, the said Mr Francis Daly was not a non-resident in

respect of the previous year ended on 31.03.2013. It is an admitted position

that Mr Francis who is no longer in the employment of the petitioner became

a non-resident subsequently.


4.      On 16.03.2010 a show cause notice was issued by the Assistant



WP(C) 3588/2013                                                    Page 2 of 13
Commissioner of Income Tax, Mayur Bhawan, New Delhi to the petitioner

for treating the petitioner as the representative agent under Section 163(1)(c)

of the said Act in respect of the said Mr Francis Daly for the assessment year

2003-04. By virtue of the said show cause notice, the petitioner was asked to

show cause as to why it should not be treated as a representative agent in

respect of Mr Francis Daly who was said to be a non-resident employee

working with the petitioner and who had been assessed in Circle 46(1), New

Delhi. Pursuant to this notice, the petitioner sent a reply in which the

petitioner pointed out that the said Mr Francis Daly, when he was working

with the petitioner pertaining to the assessment year 2003-04, was not a non-

resident but was a resident and he had been assessed as such as pointed out

above. In this backdrop, it was submitted by the petitioner that it could not

be treated as a representative agent under Section 163(1)(c) of the said Act

and, therefore, the proceedings pursuant to the show cause notice dated

16.03.2010 ought to be dropped. However, the Assistant Commissioner of

Income Tax did not agree with the submissions of the petitioner and passed

an order dated 31.01.2011 and held as under:-

                  "3. The reply of the assessee has been considered but it
                  found that there is no merit in the reply. The Assessee
                  indeed filed the return of income as resident but left the
                  India and she enjoy the status of Non-resident as on date
                  when the notice has been issued. As the notice has been



WP(C) 3588/2013                                                          Page 3 of 13
                  issued not for the purposes of assessment proceedings,
                  therefore, the contentions of the assessee that it will serve
                  no purpose is invalid and there is no bar in the Income Tax
                  Act, 1961 to issue the notice for the limited purpose of
                  treating the Employer Company as Representative
                  Assessee. Similarly no such limit time has been imposed in
                  the Income Tax Act, 1961. The limit of 2 years imposed in
                  treating the Representative Assessee pertains to issuance of
                  notice u/s 148. Therefore, it is held that there is no merit in
                  the reply of the Employer Company. The Assessee was in
                  employment of the formerly CSG System India Private
                  Limited later known as Comverse Kenan India Private
                  Limited. The Employer Company deducted taxes on the
                  salary income of the assessee. Moreover, the employer
                  company was liable to pay tax on taxes."





5.      Consequently, the Assistant Commissioner of Income Tax held the

petitioner to be a representative assessee in respect of Mr Francis Daly for

the assessment year 2003-04.


6.      Being aggrieved by this order, the petitioner filed a revision petition

under Section 264 before the Commissioner of Income Tax. That petition

was disposed of by the order dated 18.03.2013 whereby the Commissioner of

Income Tax concurred with the view taken by the Assistant Commissioner of

Income Tax and held the petitioner to be the representative assessee insofar

as Mr Francis Daly was concerned in respect of the assessment year 2003-

04. It is this order dated 18.03.2013 which is impugned before us.




WP(C) 3588/2013                                                               Page 4 of 13
7.      In the impugned order the assessees objections are recorded in the

following manner:-

                  "ii) Assessee objects that provisions of sec. 160(1)(i) read
                  along with sec. 163 of the Act does not apply to the present
                  case. The assessee submits that provisions of sec. 160 read
                  along with sec.163(1)(c) of the Act which lays down the
                  mechanism for treating a person as a representative
                  assessee restricts its purview in respect of a non-resident.
                  The assessee further submits that Francis Daly was a
                  resident within the meaning of sec. 6 of the Act for the
                  assessment year concerned (A.Y. 2003-04) and had filed
                  his return of income in that capacity. Therefore, by no
                  stretch of imagination, CKI can be treated representative
                  assessee in respect of Francis Daly for the subject
                  assessment year."

        On this objection the Commissioner of Income Tax held as under:-

                  "This objection of the assessee also does not hold any merit
                  as it does not properly appreciate scheme of the Act dealing
                  with Representative Assessees. Sec 160(1)(i) of the Act
                  nowhere mentions as to the residential status should not be
                  seen on the date of issuance of notice u/s 163(2). The
                  assessee indeed filed the return of income as resident but
                  left India and she enjoyed the status of non-resident as on
                  the date when the notice had been issued. As the notice had
                  been issued not for the purpose of assessment proceedings,
                  therefore, the contention of the assessee that it will serve no
                  purpose is invalid and there is no bar in the Income Tax
                  Act, 1961 to issue notice for the limited purpose of treating
                  the employer company as Representative Assessee."


8.      The Commissioner of Income Tax ultimately recorded his findings as

under:-

                  "5. In the present case the issues pertaining to holding CKI



WP(C) 3588/2013                                                               Page 5 of 13
                  as the representative assessee of Ms. Francis Daly under
                  Section 163 of the Act has been examined objectively and
                  in accordance with the law by the Assessing Officer. The
                  applicants submission that the notice under Section 163(2)
                  of the Act is not valid because it is issued after the expiry
                  two years is not acceptable as Section 149(3) lays down the
                  time limit for issue of notice under Section 148 of the Act
                  and not the notice under Section 163 of the Act. In its
                  application under Section 264, the applicant has raised
                  certain issues relating to two additions made on account of
                  tax on the income of Francis Daly amounting to
                  Rs.39,20,157/- borne by the Co. and increasing the
                  accommodation perquisite by Rs.18,23,888/-. As these
                  matters pertain to the assessment proceedings and not to the
                  issue relating to Section 163, which is the subject matter of
                  current proceedings, no cognizance of these submissions
                  are being taken. As the A.O. has passed a speaking order
                  for holding CKI as representative assessee of Francis Daly
                  u/s 163 of the Act, it is held that no prejudice is caused to
                  the assessee.

                  6. In the result, the revision petition filed by the applicant
                  is rejected."


9.      Mr Syali, the learned senior counsel appearing on behalf of the

petitioner drew our attention to Section 160(1)(i) which is relevant for the

purposes of this case. The said provision reads as under:-

                  160. (1) For the purposes of this Act, "representative
                  assessee" means­
                      (i)    in respect of the income of a non-resident
                             specified in sub-section (1) of section 9, the
                             agent of the non-resident, including a person
                             who is treated as an agent under section 163;


10.     He also drew our attention to Section 163 which, to the extent



WP(C) 3588/2013                                                              Page 6 of 13
relevant, reads as under:-

                  163. (1)     For the purposes of this Act, "agent", in relation
                  to a non-resident, includes any person in India­
                       (a)    xxxx          xxxx          xxxx            xxxx
                       (b)    xxxx          xxxx          xxxx            xxxx
                       (c)    from or through whom the non-resident is in
                              receipt of any income, whether directly or
                              indirectly;
                       (d)    xxxx          xxxx          xxxx            xxxx

                       and includes also any other person who, whether a
                       resident or non-resident, has acquired by means of a
                       transfer, a capital asset in India:
                       xxxx                  xxxx          xxxx       xxxx


11.     Upon reading the said provisions Mr Syali submitted that a person

could be taken to be a representative assessee only in respect of the income

of a non-resident. What he meant by this was that the relevant period to be

considered would be the period in which the income accrued and it had to be

seen as to whether in that period the person in respect of whom the petitioner

was sought to be made a representative assessee was a non-resident or not.

He submitted that insofar as the assessment year 2003-04 is concerned,

Mr Francis Daly was not a non-resident and was admittedly a "resident and

ordinarily resident" as indicated in the assessment order of Mr Francis Daly

itself. Therefore, according to Mr Syali, the petitioner could not be regarded

as a representative assessee of Mr Francis Daly for the assessment year




WP(C) 3588/2013                                                               Page 7 of 13
2003-04 and it did not matter that on the date on which the notice under

Section 163(2) was issued Mr Francis Daly was non-resident. The relevant

point to be considered was the accounting year in respect of the assessment

year 2003-04.


12.     Mr Syali drew our attention to a decision of the Bombay High Court

in the case of Abdullabhai Abdul Kadar v. Commissioner of Income-tax:

(1952) 22 ITR 241 (BOM.), wherein the provisions of Section 43 of the

Income Tax Act, 1922 were considered. The provisions of Section 43 of

1922 Act and those of Section 163 of the said Act are substantially the same

as would b e evident from the following extract from the said Section 43:-

                  43.        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 that where transactions are carried on
                  in the ordinary course of business through a broker in the
                  taxable territories in such circumstances that the broker
                  does not in respect of such transactions deal directly with
                  or on behalf of a non-resident principal but deals with or
                  through a non-resident broker who is carrying on such
                  transactions in the ordinary course of his business and not
                  as a principal such first-mentioned broker shall not be
                  deemed to be an agent under this section in respect of such
                  transactions:




WP(C) 3588/2013                                                              Page 8 of 13
                               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.
                               Explanation.­ A person, whether residing in or
                  out of the taxable territories, who acquires after the 28th day
                  of February, 1947, whether by sale, exchange or transfer, a
                  capital asset in the taxable territories from a person residing
                  out of the taxable territories shall, for the purposes of
                  charging to tax the capital gain arising from such sale,
                  exchange or transfer, be deemed to have a business
                  connection, within the meaning of this section, which such
                  person residing out of the taxable territories.


13.     In Abdullabhai Abdul Kadar (supra), the assessee was appointed as a

statutory agent under Section 43 for the year 1942-43 on 12.03.1945. The

non-resident died on 26.03.1946 and the orders appointing the assessee as

the statutory agent with regard to 1943-44, 1944-45 and 1945-46 were

passed on 27.06.1946. The assessee therein had contended that inasmuch as

the non-resident was dead, no order could be passed after his death

appointing the assessee therein as a statutory agent.


14.     The Bombay High Court speaking through M.C.Chagla, CJ, observed

as under:-

                  "The first question which has been argued by Sir Jamshedji
                  on behalf of the assessee is that with regard to the
                  assessment years 1943-44, 1944-45 and 1945-46 his client
                  cannot be assessed as an agent under Section 43 in view of
                  the death of the non-resident. Now, the facts which are
                  necessary to be considered with regard to this contention



WP(C) 3588/2013                                                               Page 9 of 13
                  are that the assessee was appointed a statutory agent under
                  Section 43 for the year 1942-43 on the 12th of March,
                  1945. The non-resident died on the 26th of March, 1946,
                  and the orders appointing the assessee statutory agent with
                  regard to assessment years 1943-44, 1944-45 and 1945-46
                  were passed on the 27th of June, 1946. Sir Jamshedji's
                  contention is that inasmuch as the non-resident was dead,
                  no order can be passed after his death, appointing the
                  assessee as statutory agent. It is perfectly true that when
                  one has to deal with a contractual agency, death of the
                  principal brings the agency to an end. But under Section 43
                  we are dealing, not with a contractual agency, but with a
                  statutory agency, and a statutory agent can be appointed
                  under Section 43 provided the conditions laid down in that
                  section are satisfied; and the conditions necessary are that
                  any person employed by or on behalf of the 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 can be
                  appointed a statutory agent. Now the employment
                  contemplated, the business connection contemplated, and
                  the receipt of income contemplated by this section are all
                  within the accounting year. We are concerned here with
                  business connection ; therefore, if there was a business
                  connection in the year of account, a statutory agent can be
                  appointed under Section 43, notwithstanding the fact that at
                  the date of the appointment of the statutory agent the non-
                  resident was not alive. The material and relevant period to
                  consider is not the date of the appointment of the statutory
                  agent, but the period covering the year of account. Now,
                  admittedly during the accounting period the non-resident
                  was alive; and we are concerned with the business
                  connection which he had within the taxable territories.
                  Therefore, the Department was within its rights in
                  appointing the assessee the statutory agent on the 27th of
                  June, 1946, notwithstanding the fact that the non-resident
                  died on the 26th of March, 1946."
                                                          (underlining added)




WP(C) 3588/2013                                                            Page 10 of 13
15.     What is to be noted from the above decision is that the material and

relevant period to be considered is not the date of the appointment of the

statutory agent, but the period covering the year of account. In that case,

during the accounting period, the non-resident was alive and, therefore, it

was held that the department was within its right in appointing the assessee

as a statutory agent on 27.06.1946 notwithstanding the fact that the non-

resident had died on 26.03.1946.





16.     Despite the fact that the learned counsel for the Revenue argued to the

contrary, we feel that the same logic would apply in the present case also.

The relevant accounting year is the previous year ending on 31.03.2003

which pertains to the assessment year 2003-04. At that point of time

Mr Francis Daly was not a non-resident. Therefore, in relation to that

accounting period the petitioner cannot be appointed as a representative

assessee. This is notwithstanding the fact that subsequently Mr Francis Daly

attained the status of a non-resident and that when he was a non-resident the

notice under Section 163(2) were issued. We reiterate, the relevant period for

consideration would be the relevant accounting period which in this case

happened to be the year ending on 31.03.2003.




WP(C) 3588/2013                                                      Page 11 of 13
17.     Section 160(1)(i) of the said Act makes it clear that the expression

"representative assessee" has to seen "in respect of the income of a non -

resident". It is obvious that when we construe the expression "income of a

non-resident" it has reference to income in a particular previous

year/accounting year. The income of that year must be of a non-resident. If

that be so, the agent of the non-resident or the deemed agent under Section

163 of the said Act would be the representative assessee. The petitioner is

not an agent of Mr Francis Daly. Section 163(1)(c) talks about the person

from or through whom the non-resident "is in receipt of any income, whether

directly or indirectly". We have already seen from the decision in

Abdullabhai Abdul Kadar (supra) that the income bears reference to the

accounting year for which the statutory agent is to be appointed. In the

present case, the year in question is the year ended on 31.03.2003. During

that year Mr Francis Daly was not a non-resident. Therefore, the petitioner

cannot even be regarded as a deemed agent under Section 163(1)(c) of the

said Act. Consequently, the petitioner cannot be considered to be the

representative assessee of Mr Francis Daly in respect of the assessment year

2003-04(relating to the previous year ended on 31.03.2003).




WP(C) 3588/2013                                                    Page 12 of 13
18.     This consideration itself is sufficient for us to decide the case in favour

of the petitioner and it is for this reason that we have neither mentioned nor

considered the other arguments which have been placed before us. As a

result, the writ petition is allowed and the impugned order is set aside. The

parties shall bear their respective costs.



                                               BADAR DURREZ AHMED, J




                                                    SIDDHARTH MRIDUL, J
JULY 22, 2014
mk




WP(C) 3588/2013                                                          Page 13 of 13

 
 
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