2010 (2) TMI 735 - AT - Income Tax

Appellant treated as an agent u/s 163 on the basis of non-resident was in receipt of any income directly or indirectly from or through the representative assessee is correct or not. - held that - section 163 has been so exhaustively drafted. As a matter of fact these proceedings are in the interest of M/s. BSAMC also because if any refund becomes due to non-resident then it can be paid to M/s. BSAMC only when it is treated as agent of non-resident investors. decided against Assessee.

Issues Involved:
1. Whether M/s. BSAMC can be treated as an agent under section 163 of the Income-tax Act, 1961.
2. Applicability of section 201 proceedings parallel to section 163.
3. Taxability of capital gains under the Double Tax Avoidance Agreement (DTAA) between India and UAE.
4. Distinction between the assessee and the person under the Income-tax Act.
5. The scope and object of sections 160(1)(i), 161 to 163.
6. The relationship between sections 195 and 163.

Issue-wise Detailed Analysis:

1. Treatment as an Agent under Section 163:
The primary issue was whether M/s. BSAMC could be treated as an agent under section 163 of the Income-tax Act, 1961. The ITO issued a show-cause notice to M/s. BSAMC for not deducting tax at source on payments made to non-residents upon redemption of units. M/s. BSAMC argued that they had no business connection with the non-residents, and the amounts received by the non-residents were not taxable in India under the DTAA with UAE. However, the ITO found that the non-residents received income through M/s. BSAMC, satisfying the conditions under section 163(1)(c). The appellate tribunal upheld this view, stating that M/s. BSAMC was rightly treated as an agent of non-resident investors.

2. Parallel Proceedings under Sections 201 and 163:
The assessee contended that proceedings under section 201 for non-deduction of tax should preclude parallel proceedings under section 163. The tribunal clarified that section 163 proceedings are for treating the company as a representative assessee of the non-resident, while section 201 proceedings are for non-deduction of tax. Both proceedings are complementary and part of the same scheme of taxation of non-residents. The tribunal emphasized that there is no bar on simultaneous proceedings under these sections.

3. Taxability under DTAA:
The assessee argued that the capital gains arising from the redemption of mutual fund units were not taxable in India under the DTAA with UAE. The tribunal noted that the benefit of the DTAA would still be available to non-residents, and treating M/s. BSAMC as an agent would not affect this benefit. The tribunal stated that if the non-residents are not liable to tax under the DTAA, merely having an agent in India does not change their tax liability.

4. Distinction between Assessee and Person:
The tribunal discussed the distinction between an "assessee" and a "person" under the Income-tax Act. An assessee is a person by whom any tax or other sum of money is payable under the Act, while a person includes various entities such as individuals, companies, and firms. The tribunal clarified that M/s. BSAMC, as a payer, was responsible for deducting tax and could be treated as an assessee in default. However, this does not imply that M/s. BSAMC is liable for the tax dues of the non-residents unless treated as an agent under section 163.

5. Scope and Object of Sections 160(1)(i), 161 to 163:
The tribunal examined the scope and object of sections 160(1)(i), 161 to 163, which deal with the representative assessee and the agent of a non-resident. These sections are meant to facilitate the recovery of tax dues from non-residents through their agents. The tribunal emphasized that these provisions are part of the same integral scheme of taxation of non-residents and are meant for speedy determination and recovery of tax dues.

6. Relationship between Sections 195 and 163:
The tribunal discussed the relationship between sections 195 and 163, noting that section 195 deals with the deduction of tax at source from payments made to non-residents, while sections 160 to 163 deal with the recovery of tax dues from non-residents through their agents. Both provisions are machinery provisions for recovering tax dues and are complementary to each other. The tribunal cited the Supreme Court's decision in the case of Eli Lilly and Co. (India) (P.) Ltd., which affirmed that TDS provisions are for tentative deduction of income-tax subject to regular assessment.

Conclusion:
The tribunal concluded that M/s. BSAMC is an agent of non-resident investors for the purposes of the Income-tax Act. The appeal filed by the assessee was dismissed.

← Previous Next →