Comverse Networks Systems India Pvt. Ltd. v. Commissioner of Income-tax
[Citation -2014-LL-0722-19]

Citation 2014-LL-0722-19
Appellant Name Comverse Networks Systems India Pvt. Ltd.
Respondent Name Commissioner of Income-tax
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 22/07/2014
Assessment Year 2003-04
Judgment View Judgment
Keyword Tags opportunity of being heard • business connection • residential status • issuance of notice • show-cause notice • statutory agent • issue of notice • speaking order • capital asset • capital gain • non-resident
Bot Summary: In the impugned order the assessee's objections are recorded in the following manner: The assessee objects that the provisions of section 160(1)(i) read along with section 163 of the Act does not apply to the present case. The assessee submits that the provisions of section 160 read along with section 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. Section 160(1)(i) of the Act nowhere mentions as to the residential status should not be seen on the date of issuance of notice under section 163(2). The applicant's submission that the notice under section 163(2) of the Act is not valid because it is issued after the expiry of 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. The said provision reads as under: 160.(1) For the purposes of this Act,'representative assessee' means- in respect of the income of a non-resident specified in sub-section of section 9, the agent of the non-resident, including a person who is treated as an agent under section 163; He also drew our attention to section 163 which, to the extent relevant, reads as under: 163. The provisions of section 43 of the 1922 Act and those of section 163 of the said Act are substantially the same as would be evident from the following extract from the said section 43: 43. 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.


JUDGMENT judgment of court was delivered by Badar Durrez Ahmed J.-By way of this writ petition order dated March 18, 2013, passed by Commissioner of Income-tax under section 264 of Income-tax Act, 1961 (hereinafter referred to as "said Act"), in respect of assessment year 2003-04 is challenged. petitioner also seeks quashing of notice dated March 16, 2010, issued under section 163(2) of said Act as also order dated January 31, 2011, passed by Assistant Commissioner of Income-tax pursuant to said notice dated March 16, 2010, under section 163(1)(c) of said Act. One Mr. Francis Daly was employee with petitioner which was then known as CSG Systems India Pvt. Ltd. In respect of assessment year 2003- 04 pertaining to previous year ended on March 31, 2003, said Mr. Francis Daly had submitted his return of income which had been assessed by virtue of assessment order dated December 26, 2006. From assessment order dated December 26, 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 and ordinarily resident". In other words, said Mr. Francis Daly was not non-resident in respect of previous year ended on March 31, 2013. It is admitted position that Mr. Francis who is no longer in employment of petitioner became non- resident subsequently. On March 16, 2010, show-cause notice was issued by Assistant Commissioner of Income-tax, Mayur Bhawan, New Delhi, to petitioner for treating petitioner as representative agent under section 163(1)(c) of said Act in respect of said Mr. Francis Daly for assessment year 2003-04. By virtue of said show-cause notice, petitioner was asked to show cause as to why it should not be treated as representative agent in respect of Mr. Francis Daly who was said to be non-resident employee working with petitioner and who had been assessed in Circle 46(1), New Delhi. Pursuant to this notice, petitioner sent reply in which petitioner pointed out that said Mr. Francis Daly, when he was working with petitioner pertaining to assessment year 2003-04, was not non-resident but was resident and he had been assessed as such as pointed out above. In this backdrop, it was submitted by petitioner that it could not be treated as representative agent under section 163(1)(c) of said Act and, therefore, proceedings pursuant to show-cause notice dated March 16, 2010, ought to be dropped. However, Assistant Commissioner of Income-tax did not agree with submissions of petitioner and passed order dated January 31, 2011, and held as under: "3. reply of assessee has been considered but it found that there is no merit in reply. assessee indeed filed return of income as resident but left India and she enjoy status of non-resident as on date when notice has been issued. As notice has been issued not for purposes of assessment proceedings, therefore, contentions of assessee that it will serve no purpose is invalid and there is no bar in Income-tax Act, 1961, to issue notice for limited purpose of treating employer company as representative assessee. Similarly, no such limit time has been imposed in Income-tax Act, 1961. limit of two years imposed in treating representative assessee pertains to issuance of notice under section 148. Therefore, it is held that there is no merit in reply of employer company. assessee was in employment of formerly CSG System India P. Ltd. later known as Comverse Kenan India P. Ltd. employer company deducted taxes on salary income of assessee. Moreover, employer company was liable to pay tax on taxes." Consequently, Assistant Commissioner of Income-tax held petitioner to be representative assessee in respect of Mr. Francis Daly for assessment year 2003-04. Being aggrieved by this order, petitioner filed revision petition under section 264 before Commissioner of Income-tax. That petition was disposed of by order dated March 18, 2013, whereby Commissioner of Income-tax concurred with view taken by Assistant Commissioner of Income-tax and held petitioner to be representative assessee in so far as Mr. Francis Daly was concerned in respect of assessment year 2003-04. It is this order dated March 18, 2013, which is impugned before us. In impugned order assessee's objections are recorded in following manner: "(ii) assessee objects that provisions of section 160(1)(i) read along with section 163 of Act does not apply to present case. assessee submits that provisions of section 160 read along with section 163(1)(c) of Act which lays down mechanism for treating person as representative assessee restricts its purview in respect of non-resident. assessee further submits that Francis Daly was resident within meaning of section 6 of Act for assessment year concerned (assessment year 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 subject assessment year." On this objection Commissioner of Income-tax held as under: "This objection of assessee also does not hold any merit as it does not properly appreciate scheme of Act dealing with representative assessees. Section 160(1)(i) of Act nowhere mentions as to residential status should not be seen on date of issuance of notice under section 163(2). assessee indeed filed return of income as resident but left India and she enjoyed status of nonresident as on date when notice had been issued. As notice had been issued not for purpose of assessment proceedings, therefore, contention of assessee that it will serve no purpose is invalid and there is no bar in Income-tax Act, 1961, to issue notice for limited purpose of treating employer company as representative assessee." Commissioner of Income-tax ultimately recorded his findings as under: "5. In present case, issues pertaining to holding CKI as representative assessee of Ms. Francis Daly under section 163 of Act has been examined objectively and in accordance with law by Assessing Officer. applicant's submission that notice under section 163(2) of Act is not valid because it is issued after expiry of two years is not acceptable as section 149(3) lays down time limit for issue of notice under section 148 of Act and not notice under section 163 of Act. In its application under section 264, applicant has raised certain issues relating to two additions made on account of tax on income of Francis Daly amounting to Rs. 39,20,157 borne by Co. and increasing accommodation perquisite by Rs. 18,23,888. As these matters pertain to assessment proceedings and not to issue relating to section 163, which is subject matter of current proceedings, no cognizance of these submissions are being taken. As Assessing Officer has passed speaking order for holding CKI as representative assessee of Francis Daly under section 163 of Act, it is held that no prejudice is caused to assessee. 6. In result, revision petition filed by applicant is rejected." Mr. Syali, learned senior counsel appearing on behalf of petitioner drew our attention to section 160(1)(i) which is relevant for purposes of this case. said provision reads as under: "160.(1) For purposes of this Act,'representative assessee' means- (i) in respect of income of non-resident specified in sub-section (1) of section 9, agent of non-resident, including person who is treated as agent under section 163;" He also drew our attention to section 163 which, to extent relevant, reads as under: "163. (1) For purposes of this Act,'agent', in relation to nonresident, includes any person in India-... (c) from or through whom non-resident is in receipt of any income, whether directly or indirectly; or... and includes also any other person who, whether resident or non- resident, has acquired by means of transfer, capital asset in India:..." Upon reading said provisions Mr. Syali submitted that person could be taken to be representative assessee only in respect of income of non- resident. What he meant by this was that relevant period to be considered would be period in which income accrued and it had to be seen as to whether in that period person in respect of whom petitioner was sought to be made representative assessee was non-resident or not. He submitted that in so far as assessment year 2003-04 is concerned, Mr. Francis Daly was not non-resident and was admittedly "resident and ordinarily resident" as indicated in assessment order of Mr. Francis Daly itself. Therefore, according to Mr. Syali, petitioner could not be regarded as representative assessee of Mr. Francis Daly for assessment year 2003-04 and it did not matter that on date on which notice under section 163(2) was issued Mr. Francis Daly was non-resident. relevant point to be considered was accounting year in respect of assessment year 2003-04. Mr. Syali drew our attention to decision of Bombay High Court in case of Abdullabhai Abdul Kader v. CIT [1952] 22 ITR 241 (Bom), wherein provisions of section 43 of Indian Income-tax Act, 1922, were considered. provisions of section 43 of 1922 Act and those of section 163 of said Act are substantially same as would be evident from following extract from said section 43: "43. Any person employed by or on behalf of person residing out of taxable territories, or having any business connection with such person, or through whom such person is in receipt of any income, profits or gains upon whom Income-tax Officer has caused notice to be served of his intention of treating him as agent of non-resident person shall, for all purposes of this Act, be deemed to be such agent: Provided that where transactions are carried on in ordinary course of business through broker in taxable territories in such circumstances that broker does not in respect of such transactions deal directly with or on behalf of non-resident principal but deals with or through non-resident broker who is carrying on such transactions in ordinary course of his business and not as principal such first-mentioned broker shall not be deemed to be agent under this section in respect of such transactions: Provided further, that no person shall be deemed to be agent of non- resident person, unless he has had opportunity of being heard by Income- tax Officer as to his liability. Explanation.-A person, whether residing in or out of taxable territories, who acquires after 28th day of February, 1947, whether by sale, exchange or transfer, capital asset in taxable territories from person residing out of taxable territories shall, for purposes of charging to tax capital gain arising from such sale, exchange or transfer, be deemed to have business connection, within meaning of this section, which such person residing out of taxable territories." In Abdullabhai Abdul Kader (supra), assessee was appointed as statutory agent under section 43 for year 1942-43 on March 12, 1945. non-resident died on March 26, 1946 and orders appointing assessee as statutory agent with regard to 1943-44, 1944-45 and 194546 were passed on June 27, 1946. assessee therein had contended that inasmuch as non- resident was dead, no order could be passed after his death appointing assessee therein as statutory agent. Bombay High Court, speaking through M. C. Chagla C. J., observed as under (page 252): "The first question which has been argued by Sir Jamshedji on behalf of assessee is that with regard to assessment years 1943-44, 1944-45 and 1945-46 his client cannot be assessed as agent under section 43 in view of death of non-resident. Now, facts which are necessary to be considered with regard to this contention are that assessee was appointed statutory agent under section 43 for year 1942-43 on March 12, 1945. nonresident died on March 26, 1946, and orders appointing assessee statutory agent with regard to assessment years 1943-44, 1944-45 and 1945-46 were passed on June 27, 1946. Sir Jamshedji's contention is that inasmuch as non-resident was dead, no order can be passed after his death, appointing assessee as statutory agent. It is perfectly true that when one has to deal with contractual agency, death of principal brings agency to end. But under section 43 we are dealing, not with contractual agency, but with statutory agency, and statutory agent can be appointed under section 43 provided conditions laid down in that section are satisfied; and conditions necessary are that any person employed by or on behalf of person residing out of taxable territories or having any business connection with such person or through whom such person is in receipt of any income, profits or gains can be appointed statutory agent. Now, employment contemplated, business connection contemplated, and receipt of income contemplated by this section are all within accounting year. We are concerned here with business connection; therefore, if there was business connection in year of account, statutory agent can be appointed under section 43, notwithstanding fact that at date of appointment of statutory agent non- resident was not alive. material and relevant period to consider is not date of appointment of statutory agent, but period covering year of account. Now, admittedly during accounting period non-resident was alive; and we are concerned with business connection which he had within taxable territories. Therefore, Department was within its rights in appointing assessee statutory agent on June 27, 1946, notwithstanding fact that non-resident died on March 26, 1946." (underlining added) What is to be noted from above decision is that material and relevant period to be considered is not date of appointment of statutory agent but period covering year of account. In that case, during accounting period, non-resident was alive and, therefore, it was held that Department was within its right in appointing assessee as statutory agent on June 27, 1946, notwithstanding fact that non-resident had died on March 26, 1946. Despite fact that learned counsel for Revenue argued to contrary, we feel that same logic would apply in present case also. relevant accounting year is previous year ending on March 31, 2003, which pertains to assessment year 2003-04. At that point of time Mr. Francis Daly was not non-resident. Therefore, in relation to that accounting period petitioner cannot be appointed as representative assessee. This is notwithstanding fact that subsequently Mr. Francis Daly attained status of non-resident and that when he was nonresident notice under section non-resident and that when he was nonresident notice under section 163(2) were issued. We reiterate, relevant period for consideration would be relevant accounting period which in this case happened to be year ending on March 31, 2003. Section 160(1)(i) of said Act makes it clear that expression "representative assessee" has to seen "in respect of income of nonresident". It is obvious that when we construe expression "income of non-resident" it has reference to income in particular previous year/ accounting year. income of that year must be of non-resident. If that be so, agent of non-resident or deemed agent under section 163 of said Act would be representative assessee. petitioner is not agent of Mr. Francis Daly. Section 163(1)(c) talks about person from or through whom non- resident "is in receipt of any income, whether directly or indirectly". We have already seen from decision in Abdullabhai Abdul Kader (supra) that income bears reference to accounting year for which statutory agent is to be appointed. In present case, year in question is year ended on March 31, 2003. During that year Mr. Francis Daly was not non-resident. Therefore, petitioner cannot even be regarded as deemed agent under section 163(1)(c) of said Act. Consequently, petitioner cannot be considered to be representative assessee of Mr. Francis Daly in respect of assessment year 2003-04 (relating to previous year ended on March 31, 2003). This consideration itself is sufficient for us to decide case in favour of petitioner and it is for this reason that we have neither mentioned nor considered other arguments which have been placed before us. As result, writ petition is allowed and impugned order is set aside. parties shall bear their respective costs. *** Comverse Networks Systems India Pvt. Ltd. v. Commissioner of Income-tax
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