Calcutta High Court
Income-Tax Officer, "F" Ward And Ors. vs Eastern Scales (Pvt.) Ltd. on 6 April, 1978
Equivalent citations: 82CWN905, [1978]115ITR323(CAL)
Author: M.M. Dutt
Bench: M.M. Dutt
JUDGMENT M.M. Dutt, J.
1. This appeal is at the instance of the revenue and it is directed against the judgment of Sabyasachi Mukharji J. whereby the rule nisi obtained by the respondent No. 1 on its application under Article 226 of the Constitution was made absolute.
2. One Mr. J. H. Somerville was the managing director of the respondent No. 1, Eastern Scales (Pvt.) Ltd. He retired on April 30, 1968, and left this country for Australia. Since his retirement, he has been getting pensions from the respondent No. 1 company and also from two other companies, namely. Automatic Machines Co. (India) Pvt. Ltd. and Bell Punch (India) P. Ltd., who are respectively the respondents Nos. 2 and 3. The ITO assessed the respondent No. 1, Eastern Scales (Pvt.) Ltd., treating him as the agent of the said Mr. Somerville, admittedly a non-resident, in respect of the incomes from the said three companies including that from the respondent No. 1, for the assessment years 1969-70, 1970-71 and 1971-72. The income of the said Mr. Somerville was salary and pension for the assessment year 1969-70 and only pension for the assessment years 1970-71 and 1971-72. The respondent No. 1 preferred three appeals to the AAC, who affirmed the order of the ITO for the assessment year 1969-70 and dismissed the appeal. So far as the appeals relating to the assessment years 1970-71 and 1971-72 were concerned, the AAC held that the liability of the assessee-company for the assessment of the non-resident was limited only to those incomes in respect of which the assessee-company could be treated as a representative assessee, that is to say, only those incomes which the non-resident received through the assessee-company and not his other income. In that view of the matter, he deleted the pensions received by the non-resident from the Automatic Machines Co. (India) Pvt. Ltd. and Bell Punch (India) Pvt. Ltd. from the total income assessed on the assessee as an agent of the non-resident. Against the order of the AAC relating to the assessment year 1969-70, the respondent No! 1 preferred an appeal to the Income-tax Appellate Tribunal, Calcutta Bench. The ITO preferred two appeals to the said Tribunal against the orders of the AAC for the assessment years 1970-71 and 1971-72. The Tribunal allowed the appeal preferred by the respondent No. 1 for the assessment year 1969-70, holding that the income of the said Mr. Somerville from the said two other companies, namely, the respondents Nos. 2 and 3, not having been received by the assessee-company, the same should be deleted from the total income for the purpose of assessment of the assessee-coinpany as the agent of the nonresident. The other two appeals preferred by the ITO relating to the assessment years 1970-71 and 1971-72 were dismissed by the Tribunal and the orders of the AAC were affirmed.
3. After the appeals of the respondent No. 1 were allowed by the AAC for the assessment years 1970-71 and 1971-72, the ITO by his order dated April 25, 1973, revised the original assessment orders and deleted the income of the non-resident from the Automatic Machines Co. (India) Pvt. Ltd. and' Bell Punch (India) Pvt. Ltd. in terms of the order of the AAC. The total income that was computed by him after such deletion was Rs. 46,000 for the assessment year 1970-71 and Rs. 36,525 for the assessment year 1971-72. After the disposal of all the appeals by the Tribunal, the ITO by his order dated March 7, 1974, deleted the salary and pension received by the said Mr. Somerville from the said two companies from his total income and computed the same at Rs. 1,48,807 for the assessment year 1969-70. He, however, charged tax on the said amount at the rate applicable to the sum of Rs. 2,30,370 which was originally assessed by him as the total income of the non-resident. So far as the assessment years 1970-71 and 1971-72 were concerned, he by his orders passed on the same day, that is, March 7, 1974, purported to rectify his revised orders dated -April 25, 1973, on the ground of mistake apparent on the face of the record and charged tax at the rate applicable to the total income of Rs. 1,24,000 for the assessment year 1970-71 and Rs. 87,530 for the assessment year 1971-72 as originally assessed.
4. The respondent No. 1, being aggrieved by the said orders of the ITO, all dated March 7, 1974, moved a writ petition to this court and obtained the rule nisi out of which this appeal arises. It was contended by the respondent No. 1 that the rate at which the tax should be charged was the rate applicable to the income of the non-resident which he received through the respondent No. 1 as his agent and not the rate applicable to the total income of the non-resident including his income received through the respondent No. 1. Further, it was contended that for the assessment years 1970-71 and 1971-72, there was no mistake apparent on the face of the record, and, accordingly, the ITO had no jurisdiction to exercise his power under Section 154 of the Income-tax Act, 1961, hereinafter referred to as " the Act." Sabyasachi Mukharji J., who heard the rule, upheld the contentions of the respondent No. 1 and set aside the impugned orders of the ITO. The rule was made absolute. Hence this appeal.
5. The principal question involved in this appeal is that when an agent of a non-resident is assessed in respect of the income of the non-resident what the rate applicable to such income should be for the purpose of computation of tax. In other words, whether the rate should be that as applicable to the income of the non-resident in the hands of the agent or that applicable to the total income of the non-resident. Section 4 of the Act which deals with charge of income-tax provides as follows :
" 4. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax , at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year or previous years, as the case may be, of every person :
Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly."
6. Sub-section (1) of Section 161 provides as follows :
" 161. (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 the like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him."
7. It is not disputed that the respondent No. 1 is a representative-assessee within the meaning of Section 160(1)(i) of the Act. Under Sub-section (2) of Section 160 of the Act, every representative-assessee shall be deemed to be an assessee for the purpose of the Act. The respondent No. 1, who is a representative-assessee, is liable to be assessed as regards the income in respect of which he is a representative-assessee for the assessment years in question. Under Section 161, a representative-assessee is liable to be assessed in respect of the income which he receives on behalf of a non-resident. By a legal fiction the agent of a non-resident will be treated as an assessee, although the income for which he will be assessed for the purpose of payment of income-tax is not his income, but that of the non-resident. The combined effect of Section 161 and Sub-section (2) of Section 160 is that the income of the non-resident received by a representative-assessee will be treated as the income of the representative-assessee. Under Section 4, the rate at which the tax will be computed is the rate applicable to the total income of the assessee in the previous year. Thus, the total income of the assessee who is a representative-assessee cannot be any income other than that received by him on behalf of the nonresident during the previous year and, accordingly, the rate will be that applicable to such total income.
8. It is, however, contended by Mr. Pal, learned advocate appearing on behalf of the appellants, that the latter part of Section 161 clearly indicates that the total income will be the income of the non-resident from all sources including the income received by him directly and also through the repre-sentative-assessee. It is submitted by him that if the latter part of Section 161 is not interpreted in the way suggested by him, it would be meaningless and nugatory. We are unable to accept this contention. It is true that the latter part of Section 161 provides, inter alia, that the tax shall be levied upon the representative-assessee in the like manner and to the same extent as it would be leviable upon the person represented by him, but that relates only to the income in respect of which he is a representative-assessee and not to any other income of the non-resident. It will be quite unreasonable to think that the legislature intends to impose tax on a representative-assessee at the rate applicable to the total income received by the nonresident from the representative-assessee and also from other sources and not at the rate applicable to the amount of income received by the representative-assessee on behalf of the non-resident. It may so happen that compared with the total income received by him from all sources, the nonresident receives only a paltry sum of money through the representative-assessee. In such a case, to apply the rate of tax applicable to the total income of the non-resident would be to penalise the representative-assessee. If that rate is applied, it may also happen that in a particular case, the amount of tax may exceed the amount of income received by the representative-assessee on behalf of the non-resident. Further, the non-resident may have more than one agent through whom he may receive his income and such agents may be assessed by different ITOs. The Act does not make any provision to compute the total income of the non-resident which he received directly and also through his different agents for the purpose of fixing the rate of tax to be applied to the income received by each such agent. The income-tax authorities have the option either to assess the agent of a non-resident or to assess the non-resident directly as provided in Section 166 of the Act. In our view, therefore, Section 161 read with Section 4 of the Act contemplates that the rate at which the tax is to be computed is the rate applicable to the income of the representative-assessee received by him on behalf of the non-resident.
9. The impugned orders of the ITO for the assessment years 1970-71 and 1971-72 were passed under Section 154 of the Act. It has been already stated that after the AAC had allowed the appeals of the respondent No. 1, the ITO revised his original orders of assessment for the said assessment years and excluded the income of the non-resident from Automatic Machines Co. (India) Pvt. Ltd. and Bell Punch (India) Pvt. Ltd., from the total income. He also applied the rates applicable to the income as assessed by him after such exclusion. By the impugned orders he purported to rectify the assessment orders as revised by him by applying the rates as applicable to the total income of the non-resident including the income he received from the said two companies, on the ground of errors apparent on the face of the record. It has been laid down by the Supreme Court in T.S.Balaram, ITO v. Volkart Brothers that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by long drawn process of reasoning on points on which there may be conceivably two opinions. Further, it has been observed that a decision on a debatable point of law is not a mistake apparent from the record. It is not understandable how the ITO could take the view that he had committed a mistake which, in his opinion, was apparent on the face of the record, by not applying the rate applicable to the total income of the non-resident to the income which he received through his agent, that is, the respondent No. I. Much argument has been advanced on behalf of either side as to what the rate in such cases should be and, on an interpretation of Section 161 and Section 4 of the Act, it has been found by us that the rate applicable to the total income of the non-resident cannot be taken to be the rate for the purpose of computation of tax on the income which has been received by the non-resident through the representative-assessee. In our view, the ITO had no reason to think that he had committed an error or that such an error was apparent on the face of the record.
10. The further ground of challenge of the respondent No. 1 to the impugned orders relating to the assessment years 1970-71 and 1971-72 was that the assessments for the said assessment years were sought to bo rectified by the ITO under Section 154 according to the direction of the Additional CIT, West Bengal-I, by charging tax on the rate applicable to the total income received by the non-resident from all the three sources. The ITO in his affidavit-in-opposition has admitted the said fact, namely, that he revised the assessment orders for the said years as per the direction of the Additional CIT, West Bengal-I. It has been held by the learned judge that the impugned orders were vitiated as the same were passed at the behest of the Additional CIT and not at the instance of the ITO concerned. It is, however, contended by Mr. Pal that in view of the provision of Section 119(3) of the Act, the ITO did not commit any illegality by complying with the direction of the Additional CIT. Section 119(3) provides that every ITO employed in the execution of the Act shall observe "and follow such instructions as may be issued to him for his guidance by the Director of Inspection or by the Commissioner or by the IAC within whose jurisdiction he performs his functions. In our view, Section 119(3) does not permit the authorities mentioned therein to interfere with the exercise of judicial or quasi-judicial functions by the ITO in making the assessment. Section 119 contemplates administrative directions or instructions that may be issued from time to time by the authorities as mentioned in Sub-section (3) as also in other Sub-sections. The ITO has to act judicially or quasi-judicially in the assessment proceedings and any direction by any higher authority as to the manner in which such proceedings are to be disposed of would be interference with the judicial or quasi-judicial functions of the ITO. If the ITO acts in accordance with such directions and disposes of assessment proceedings accordingly, his orders will be liable to be set aside on that ground. No other point has been argued on behalf of the appellants in this appeal.
11. For the reasons aforesaid, the appeal is dismissed, but there will be no order for costs.
12. Let the operation of this judgment remain stayed for a period of four weeks from date, as prayed for on behalf of the appellants.
D.C. Chakravorti, J.
13. I agree.