Income Tax Appellate Tribunal - Ahmedabad
Gujarat State Fertilizers Co. Ltd. vs Income-Tax Officer on 18 February, 1988
Equivalent citations: [1988]27ITD252(AHD)
ORDER
M.A.A. Khan, Accountant Member
1. In all these appeals, arising from the orders of the CIT (A), Baroda for the assessment year 1982-83, common facts and common questions of law are involved. These are, therefore, disposed of by this common order.
2. The common question that stands involved in all these cases is whether the Income-tax Officer was justified in passing an order under Section 163(1)(c) of the I.T. Act, 1961 ('the Act'), appointing the appellant as a Statutory Agent of certain foreign technicians. For narrating the circumstances under which this question has arisen, we take the case of Mr. Kuhn Jurg Christ as a representative case as admittedly facts of all the remaining cases are quite similar.
3. The Gujarat State Fertilizers Co. Ltd. (henceforth referred to as the "Indian company") is an Indian Limited Company, incorporated under the Companies Act, 1956. It is engaged in the business of manufacturing fertilizers and other similar activities. It appears that in the year 1981 the Indian Company thought of starting its Nylon-6 Project. For the start up service and for technical supervision and consultation for the said project the Indian Company stood in need of the services of certain foreign technicians. The Indian Company, therefore, entered into an agreement with a Swiss Company known as 'Inventa' (henceforth referred to as the "Foreign Company") which agreed to lend the services of five of its technical employees to the Indian Company. The terms and conditions as agreed to between the Indian Company and the Foreign Company are not placed before us but from the service contract entered into by the Foreign Company with its employees, whose services were to be deputed to the Indian Company, stated that the deputation shall be in force for a maximum period of six months and that during the period of the stay in India of the employees of the Foreign Company the retention remuneration would be payable to them outside India by the Foreign Company. For their stay in India with the Indian Company, the deputationists were told that they would receive a certain amount, say Rs. 200 per day, as a reimbursement to meet the cost of their food and other requirements. They were told that the assignment was being given to them on the specific understanding that they were entitled to tax exemption under the income-tax law of India and the tax, if any, shall be reimbursed by the Indian Company. However if, for any reasons, tax exemption was not available to them and the tax, if any, was levied by the taxing authorities in India, the same would be borne by the deputationists with no right of reimbursement either from the Indian Company or from the Foreign Company. It was with the above terms and conditions and understanding given to them by their foreign employer that the deputationists rendered services for the Indian Company for about three months in the year 1981-82, relevant to assessment year 1982-83.
4. The Indian Company as mentioned above, paid certain amounts to the foreign technicians as living allowance. It appears that the foreign technicians had also executed a deed of attorney in favour of the Indian Company, authorising it to file, fill in, appear, represent and settle on their behalf all taxes, assessments before the authorities under the Act and the appellate authorities also. It further appears that after having rendered services for about three months, the foreign technicians returned to their original job with their foreign employer, the Foreign Company.
5. It also appears that the foreign technicians filed their respective returns for assessment year under consideration on or about 2nd December, 1981. Such returns were forwarded by the Indian Company to the concerned taxing authority. In such returns, the foreign technicians appear to have mentioned that they were getting retention remuneration abroad, which, being outside India, was not liable to tax under the proviso to Section 5(1)(c) of the Act. In the statements attached with their returns they further appear to have mentioned that on the strength of the decision of the Gujarat High Court in the case of CIT v. S.G. Pgnatale [1980] 124 ITR 391 their living allowance received in India and the retention remuneration received abroad were not taxable in India. In the statement showing the details of salary, allowances and perquisites they appear to have mentioned the amount received by them as living allowance under the head 'Salary and allowances' but in the note given below the said statement they again reiterated that the living allowance was not taxable in view of the said decision of the Gujarat High Court. In another statement accompanying the income-tax returns, they further reiterated the said position and in note No. 3, given in the said statement, it was mentioned that the foreign technicians were entitled for exemption under Section 10(6)(vii)(a) of the Act for which necessary application had already been made by the Indian Company to the Government of India vide Letter No. F & A/PM/LS/NYC/904/81 dated June 6, 1981.
6. It appears that the ITO had taken up the assessment of the foreign technicians in January or February 1985. Such proceedings further appear to have been attended to by the Indian Company as is evident from its letters dated 19th March, 1985 and 25th March, 1985. Now what happened was like this that taking clue from the mention of the fact in the statements attached to the returns that the Indian Company had applied for exemption under Section 10(6)(vii)(a) of the Act in respect of the assessees, the ITO issued a notice under Section 163(2) of the Act to the Indian Company intimating that he proposed to treat it as an Agent of the five non-resident asses-sees, who had rendered services for it, under Section 163(3) of the Act for the purposes of proceedings under the provisions of the said Act. In reply to such notice of the ITO dated 4th February, 1985, the Indian Company submitted the following reply vide its letter dated 11th March, 1985:
We refer to your abovementioned notice and in reply thereto we have to state that the provision of Section 163(2) of the IT Act are not applicable for the following reasons:
(1) The abovementioned foreign technician has filed the return of income to the Income-tax Officer in time on his own and not in response to notice under Section 139(2) of the IT Act from the Income-tax Department.
(2) The return of income filed by the foreign technician has so far not been disposed of and no tax demand has been raised so far. There is no outstanding demand against the foreign technician, necessitating the Department to treat GSFC as the Agent of Foreign Technician.
(3) We have filed a copy of the service contract of the abovemen-tioned foreign technician with his principal where in the last paragraph it has been stated that the assignment to the foreign technician has been given on the specific understanding that he will be entitled to tax exemption under the Income Tax Law and in case if there is any tax liability the same shall be reimbursed by GSFC. You will thus please appreciate that in case if there is any tax liability the same is to be reimbursed by GSFC and thereby we understand that the Department is not at a loss and therefore there is no justification in treating us as an agent under the above proviso.
We have to request you to kindly consider the aforesaid facts and drop the proceedings initiated against us as the agent of foreign technician and if you desire any further information in the matter, we shall be pleased to furnish the same on hearing from you.
From the above reply of the Indian Company to the ITO it would appear that the main contentions raised on behalf of the Indian Company were that the returns had been submitted by the asses-sees themselves in time on their own and not in response to notice under Section 139(2) and that since no tax demand had been raised by then there was no necessity of treating the Indian Company as the agent of the foreign technicians. In para 3 of the reply, as extracted above, it had further been agitated on behalf of the Indian Company that in case there was any tax liability against the nonresident foreign assessees, the same was to be reimbursed by the assessee-company and, therefore, the Department was not to remain at a loss. It was on the above three grounds that the proposed action of the ITO under Section 163 of the Act was opposed by the Indian Company. The ITO, however, did not feel satisfied with the main contention of the Indian Company that there was no necessity of appointing it as agent of the five foreign technicians who had rendered service for it and had earned income from the Indian Company. He accordingly passed his order under Section 163(3) of the Act on 16th March, 1985.
7. In appeal to the CIT (A), Baroda, the Indian Company again appears to have reiterated the same points as had been agitated by it in its written reply to the notice issued under Section 163(2) of the Act. The learned CIT (A), however, did not agree with its submission that the Indian Company was not required to be appointed as statutory agent of the foreign technicians. He, therefore, dismissed the appeals giving rise to the present appeals before us.
8. Before us, Mr. B. C. Shah, Chartered Accountant, appearing for the appellant, the Indian Company, has raised two-fold arguments. In the first place, Mr. Shah has contended that the notice issued to the appellant under Section 163 without mentioning the year for which the appellant was treated as an agent was bad in law. We, however, find that this argument has no merits at all. Such an objection does not appear to have been taken either in the written reply submitted by the appellant to the ITO or before the CIT (A). We must observe that objections of this type relating to the validity of notice must ordinarily be raised at the first available opportunity so that the defect or infirmity pointed out in the notice be removed or rectified at the proper stage and time and money of the parties should not be wasted. That apart, we have mentioned above all the relevant facts attending to the issue of notice under Section 163 by the ITO and they clearly go to show that it was during the course of assessment proceedings for assessment year 1982-83 that the ITO had issued the said notice to the appellant. Since the notice had been issued during the course of assessment proceedings it was very much clear that the said notice had been issued in respect of the assessment year which was then under the consideration of the ITO.
9. Further, as rightly pointed out by the learned Departmental Representative the defect in the notice, if any, would not invalidate the appointment order in view of the specific provisions of Section 292B of the Act, which was brought on the statute book by the Taxation Laws (Amendment) Act, 1975 with effect from 1-10-1975. We have also pointed out that during the course of assessment proceedings the appellant appears to have actively participated in such proceedings. Moreover, it is the admitted position that the returns of the foreign assessees had been forwarded by the appellant itself and thereafter it had represented them before the ITO from time to time. A Power of Attorney written on a stamped paper dated 4-2-1981 and executed by the foreign nationals in favour of the appellant was also there.
10. In view of what we have stated above, it is not open for the appellant to urge that the defect in the notice, if any, has invalidated the order under Section 163 of the Act.
11. One of the grounds of appeal is also to the effect that the ITO had mentioned the relevant section as Section 163(3) in his order. As observed by the learned CIT (A) it was purely a clerical mistake and do not affect the merit of the order itself.
12. Mr. Shah further urged that the ITO had erred in passing a common order in respect of all the foreign technicians and that he should have passed separate orders in respect of each of the foreign technicians for each assessment year. In this behalf Mr. Shah relied upon the decision of the Supreme Court in the case of H.L. Sud, ITO v. Tata Engg. & Locomotive Co. Ltd. [1969] 71 ITR 457.
13. We find no force in this argument also. The requirement of Section 163(2) is that no order appointing any Indian person as an agent for a non-resident assessee should be passed without giving him an opportunity of being heard. This requirement was satisfied as soon as the ITO had issued notice under Section 163(2) of the Act to the appellant. Now, since the facts relating to the case of the foreign technicians were quite similar and such foreign technicians had, admittedly, rendered services to the appellant, the learned ITO could have disposed of the matter of appointment of the appellant as agent for all those foreign technicians for the assessment year 1982-83 by a common order. The ratio of the decision of the Supreme Court in the case of Tata Engg. & Locomotive Co. Ltd. (supra) is, to our mind, not applicable to the facts and circumstances of the present case. In the said case the assessment years involved were from 1955-56 to 1962-63. In pursuance of the notice issued by the ITO in respect of assessment years 1955-56 to 1961-62 he had passed order under Section 43 of the Indian Income-tax Act, 1922 but for the assessment year 1962-63 no notice under Section 43 of the said Act had been issued and served upon the to-be-appointed agent by the ITO and no order under that section had been passed treating the to-be-appointed agent as the agent of the foreign German firm. That is not the position available here. In the instant case, the assessment year involved is 1982-83 for which the ITO had, admittedly, issued notice, in respect of the foreign technicians, to the appellant and had given it proper opportunity of being heard as required by Section 163(2) of the Act, and the order under Section 163 had been passed thereafter.
14. Now coming to the merits of the order, Mr. Shah submitted that the provisions of Section 163(1)(c), which were sought to be applied in the present case, do not at all apply to the facts and circumstances of the case on hand. In this behalf it was submitted that there was no direct or indirect payment to the foreign technicians by the appellant. It was further submitted that the provisions of Section 9(1), which appear to have been applied by the ITO, did not apply as there were no business connections of the appellant with the foreign technicians. Mr. Shah further submitted that income earned by the foreign technicians from their foreign employer would fall, if at all, under Section 9(1)(ii) and, therefore, the provisions of Section 9 cannot be invoked in the present case. Mr. Shah took exception to ITO's relying on the Supreme Court decision in the case of Raghava Reddi v. CIT [1962] 44 ITE 720 and submitted that the said case was clearly distinguishable on facts and as against the said case the decision of the Calcutta High Court in the case of CIT v. Atlas Steel Co. Ltd. [1987] 164 ITR 401 was applicable.
15. In reply to the arguments put forth by Mr. Shah, the learned Departmental Representative, Mr. P.D. Khandelwal, submitted that the living allowance paid by the appellant to the foreign technicians was for all practical purposes income in their hands and was, therefore, taxable under the provisions of the Act. Mr. P.D. Khandelwal, the learned D.R., further submitted that living allowance very well fell within the purview of the definition of 'salary' for the purposes of Section 10(14) as it stood amended on the relevant date and for that the foreign technicians could be assessed through their agents, i.e., the appellant. He further submitted that the ITO had invoked his jurisdiction under Section 163 and for the purpose of disposal of the present appeals it is in fact the scope of Section 163(1)(c) which is required to be taken into consideration. He summed up that the decision of the Supreme Court in the case of Raghava Reddi (supra) has rightly been relied upon by the ITO and that the Calcutta decision as cited by the learned representative for the appellant was not at all applicable to the facts and circumstances of the cases under consideration.
16. In the present cases, we are required to consider the scope of Section 163. It needs no stress that a person may be appointed the agent of non-resident under Section 163 either before the commencement of the relevant assessment year or during the course of such proceedings against the assassee. The necessity of appointing the agent of a non-resident before the commencement of the relevant assessment year may be occasioned for the requirement of advance payment of tax in respect of the income of the nonresident. In fact the relevant provisions of Section 163 read as under:
163. (1) For the purposes of this Act, 'agent', in relation to a nonresident, includes any person in India (a) ** ** **
(b) ** ** **
(c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or
(d) ** ** ** (2) No person shall be treated as the agent of a non-resident unless he had an opportunity of being heard by the ITO as to his liability to be treated as such.
Clause (c) of Section 163(1) above clearly shows that for the purpose of the Act a person in India would fall within the definition of agent in relation to a non-resident if the non-resident is or has been in receipt of any income, whether directly or indirectly from or through such person in India. It means that if a nonresident is in receipt of any income, whether directly or indirectly from or through a person in India, the person in India may be held vicariously liable to assessment in respect of the nonresident's income. In fact the agent is chargeable as representative assessee only in respect of income accrued or arisen to a non-resident in India. The agent is chargeable in the like manner and to the same extent as a non-resident would be. It is not at all necessary that a statutory agent appointed under Section 163 should be an agent of the non-resident in fact. Again, it is also not necessary that the agent should be in receipt of income on behalf of the non-resident. What is necessary is that the agent must have some connection or concern with the income sought to be assessed. The legal requirement for invoking the provisions of Section 163 for appointment of a person in India as agent for a non-resident is to give him an opportunity of being heard as required by Sub-section (2) of Section 163. It may be noted that it is in fact the income accruing or arising to a non-resident in India that necessitates the appointment of a person in India as an agent of the non-resident. This necessarily takes us to understand the meaning of income for the purpose of application of Section 163.
17. The term "income" has been defined in Section 2(24) and, inter alia, includes (1) profits and gains, and (2) the value of any perquisite or profit in lieu of salary taxable under Clauses (2) and (3) of Section 17 of the Act. Then, the term "total income" has been defined in Section 2(45) as meaning the total amount of income referred to in Section 5 and computed in the manner laid down in the Act. Section 5 deals with the scope of 'total income' and, inter alia, says that subject to the provisions of the Act the total income of any previous year of a person, who is a resident, includes all income from whatever source derived which (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (6) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year. This necessarily takes us to Section 9(1), which is relevant for our purpose.
18. Section 9(1)(ii), with its Explanation reads as under:
9. (1) The following incomes shall be deemed to accrue or arise in India
(i) ** ** **
(ii) income which falls under the head "Salaries" if it is earned in India:
(Explanation: For the removal of doubts, it is hereby declared that income of the nature referred to in this Clause payable for service rendered in India shall be regarded as income earned in India.) ** ** ** Section 9(1)(ii) clearly lays down that income which falls under the head 'Salaries' and is earned in India shall be deemed to accrue or arise in India. The Explanation which was inserted to Clause (ii) of Section. 9(1) by the Finance Act, 1983 with retrospective effect from 1-4-1979 clearly states that income of the nature referred to in the above clause payable for services rendered in India shall be regarded as income earned in India. It would thus be clear that any payment which falls within the definition of income as defined in Section 2(24) and explained in the Explanation to Clause (ii) of Section 9(1) of the Act would qualify for computation of total income of an assessee in accordance with the provisions of Chapter III. We may observe that Chapter III enumerates such incomes which are not required to form part of total income of an assessee. The question of applicability of Section 10 for the purpose of exclusion of certain amount from the computation of total income of an assessee would arise only when such amount falls within the definition of income as given under Section 2(24). If an exemption under any of the clauses enumerated under Section 10 is claimed by an assessee it presupposes that the exclusion of such amount is sought on the basis of treating that amount to be an income of the assessee. If a receipt of an amount does not fall within the definition of income in the hands of an assessee then certainly the question of exemption thereof under any of the provisions of Section 10 would not at all arise. Let us examine if that is the position in the case on hand.
19. It may be recalled that in the note given in the statements attached with the returns of income it had been specifically mentioned that the appellant had applied to the Central Government for exemption under Section 10(6)(vii)(a) of the Act of the living allowance being paid to the foreign technicians. That was the stand taken by the appellant in the written reply submitted to the ITO in answer to the notice issued by him under Section 163(2). That is also its case when it makes reliance on the Gujarat High Court decision in.the case of S.G. Pgnatale (supra). Once the claim is advanced on the footing that the payments made to the foreign technicians were exempt from the computation of their total income under a particular provision of Section 10, it becomes quite clear that such payment did fall within the definition of 'income' as contemplated by the Act.
20. In S.G. Pgnatale's case (supra) the Indian Company and the foreign company had entered into an agreement for provision of services by foreign company. The employees of the foreign company had rendered services in India and their salaries were payable by the foreign company outside India. It was on those facts that it was held that the salaries earned by the foreign employees were not assessable as salary earned in India. It was further held that a living allowance graded according to place of employment and other factors was not a perquisite and as such, not assessable. The question whether the living allowance earned by the foreign technicians in the present case was assessable income or not is a question to be considered in the assessment proceedings and is not to be answered in the present appeals which had arisen from an order under Section 163. What is necessary for the application of Section 163 is simply this that a foreign national had earned income in India which is being sought to be assessed upon him by appointing a person in India as his agent. We had discussed above that the payment made to the foreign technicians could be said to be in the nature of income irrespective of the fact whether such income was assessable or not or was qualified for exemption/deduction under the relevant provisions of the Act. In our opinion the circumstances clearly justify the appointment of the appellant as statutory agent of the non-resident technicians in relation to the assessment year under consideration particularly when it was quite obvious that the non-resident technicians had left the country after having rendered services to the appellant for a very limited period and that they had been paid an amount which could be claimed to be falling within taxable income. Such being the facts of the present cases we are of the opinion that the principles laid down by the Supreme Court in the case of Raghava Reddi (supra) were clearly applicable here too and were rightly applied by the learned ITO.
21. In the result, we find no force in the present appeals and dismiss them as such.