2012 (12) TMI 78 - HC - Income Tax

Agent of the non-resident u/s 163 Representative assessee - Assessee enter into an agreement with foreign company for purchase of certain machineries Assessee had to pay only contract price for supply, installment and erection of the machinery - Foreign company deputed one its employees for supervising the work in India Salary payment was made by the foreign company According to AO such employee was employed in India, on such receipts, he was liable for taxation therefore assessee should be treated as the agent u/s 163 of such employee Held that - When the impugned notice was issued, assessee was described as an agent of the foreign company. This, in our view, is a vital defect in the notice itself. Foreign company & its employee were two different entities. It can, however, not be denied that the foreign company and its employee were legally completely in different position vis-a-vis the petitioner-company. Therefore the notice was wholly defective. In favour of assessee Validity of notice u/s 148 AO issued notice u/s 148 came to be issued treating the assessee as an agent of the foreign company Held that - Mere passing reference or remark in the reasons recorded which ordinarily unless the assessee demands, are not supplied to the assessee, cannot be seen as a formal order against which the assessee could exercise his right of appeal. Following the decision in case of Kanhaya Lal Gurmtjkh Singh (1970 (12) TMI 33 - PUNJAB AND HARYANA HIGH COURT) that before issuing notice u/s 148, the AO must pass an order u/s 163(2) treating the assessee as an agent. In favour of assessee

Summary

Issues Involved:
1. Time-barred notice under Section 148 of the Income Tax Act.
2. Requirement of an order under Section 163(2) before issuing a notice under Section 148.
3. Defect in the notice under Section 148 describing the petitioner as an agent of the foreign company instead of Mr. Ivo Perica.

Issue-wise Detailed Analysis:

1. Time-barred Notice under Section 148:
The petitioner argued that the notice issued on 28.03.2003 for reopening the assessment year 1999-2000 was time-barred under Section 149(3) of the Act, which mandates that such notice should be issued within two years from the end of the relevant assessment year. This period expired on 31.03.2002. The court accepted this contention, stating, "The notice which was issued on 20.03.2003 was thus clearly barred by limitation. On this ground alone notice impugned in Special Civil Application No. 8858 of 2000 is required to be quashed."

2. Requirement of an Order under Section 163(2) Before Issuing a Notice under Section 148:
The petitioner contended that before issuing a notice under Section 148, the Assessing Officer was required to pass an order under Section 163(2) treating the petitioner as an agent of the principal. The court referred to several precedents, including CIT v. Kanhaya Lal Gurmukh Singh, CIT v. Belapur Sugar & Allied Industries Ltd., and CIT v. S.G. Sambandam & Co., which held that an order under Section 163(2) is a prerequisite for issuing a notice under Section 148. The court observed, "We are unable to accept the contention of the counsel for the revenue that the observation made in the reasons recorded to the effect that the petitioner company's contention i.e. he is not an agent of Mr. Ivo Perica has not been accepted could be treated as an order envisaged under Section 163(2) of the Act."

3. Defect in the Notice under Section 148:
The petitioner argued that the notice under Section 148 was defective as it described the petitioner as an agent of the foreign company, M/s. A Monforts Textilmachinen Gmbh and Co., instead of Mr. Ivo Perica. The court found this to be a "vital defect in the notice itself," stating, "Mr. Ivo Perica and the foreign company were two different entities. The terms of payment between the petitioner and the foreign company were vitally different from those between the petitioner and Mr. Ivo Perica." The court concluded that this defect "goes to the very root of the matter and would strike at the Assessing Officer's jurisdiction to issue the notice."

Conclusion:
The court quashed the impugned notices under Section 148 of the Act on the grounds of being time-barred, lacking a prior order under Section 163(2), and containing a fundamental defect by incorrectly describing the petitioner as an agent of the foreign company instead of Mr. Ivo Perica. The petitions were allowed, and the rule was made absolute.