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
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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
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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.
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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
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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
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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
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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:
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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)
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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.
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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).
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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
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