1957 (5) TMI 43 - HC - Income Tax

Summary

Issues Involved:

1. Constitutional validity of section 42(1) of the Income-tax Act.
2. Validity of assessment proceedings initiated by addressing the notice to the non-resident through the statutory agent.
3. Whether purchasing operations carried out by the statutory agent on behalf of non-resident principals constituted an operation within the meaning of section 42(3) of the Income-tax Act, 1922.

Detailed Analysis:

1. Constitutional Validity of Section 42(1):

The petitioners contended that section 42(1) of the Income-tax Act violated their fundamental rights under Articles 14 and 19(1)(g) of the Constitution. The court examined whether section 42(1) imposed an unreasonable restriction on the petitioners' right to carry on their business. The court noted that the section provides for assessing the income of non-resident principals either in their name or in the name of their agents, and that this does not constitute an unreasonable restriction. The court emphasized that the principal's liability is not extinguished even if the assessment is made in the agent's name, and the agent has statutory rights to safeguard against unlimited liability, such as retaining funds of the principal for tax payment. The court concluded that section 42(1) does not violate Articles 14 or 19(1)(g) and upheld its constitutional validity.

2. Validity of Assessment Proceedings:

The court had to determine whether the assessments were made in the name of the non-resident principals or their agents. The Tribunal had found that the assessments were in the name of the agents, but the court disagreed, stating that the evidence showed the assessments were made in the name of the non-resident principals. The court noted that the Income-tax Officer had the choice to assess either the non-resident principal or the agent, and in this case, the assessments were factually made in the name of the non-resident principals. The court held that the assessment in the name of the non-resident principal did not render the assessment invalid and answered the second question in the negative and against the petitioners.

3. Purchasing Operations and Section 42(3):

The third question was whether the purchasing operations carried out by the statutory agent on behalf of non-resident principals constituted an operation within the meaning of section 42(3) of the Income-tax Act, 1922. The court referred to the rule laid down in the case of Bangalore Woollen Cotton and Silk Mills Co. Ltd. v. Commissioner of Income-tax, Madras, and answered the question in the affirmative and against the petitioners.

Conclusion:

The court dismissed the writ petitions and upheld the assessments made under section 42(1) of the Income-tax Act. The court found that section 42(1) did not violate the constitutional rights of the petitioners and that the assessments were validly made in the name of the non-resident principals. The court also concluded that the purchasing operations carried out by the agents constituted an operation within the meaning of section 42(3) of the Act. The reference was answered accordingly, and the petitions were dismissed without any order as to costs.