2007 (7) TMI 293 - HC - Income Tax

Whether passing of an order U/S 163(2) declaring a person as an agent of his non-resident Indian assessee brother is mandatory - Appellate directed ITO to record a finding whether Shri Prem Kumar Bhagat is an non-resident Indian and to consider whether assessee has got no objection to be appointed as an agent of his brother and then to frame the assessment order after giving due opportunity to assessee of being heard but ITO not recorded finding on status of non-resident or his agent - Assessment order was bad in law for non-compliance with S. 163(2) - Assessment as agent of non-resident not valid

Summary

Issues:
1. Whether passing an order under section 163(2) of the Income-tax Act, 1961, declaring a person as an agent of a non-resident Indian assessee is mandatory?

Analysis:
The case involved a dispute regarding the necessity of passing an order under section 163(2) of the Income-tax Act, 1961, declaring a person as an agent of a non-resident Indian assessee. The Revenue contested the cancellation of an assessment made by the Assessing Officer and confirmed by the first appellate authority, arguing that the Income-tax Officer was required to pass an order under section 163(2) to treat the individual as an agent. The Appellate Assistant Commissioner had directed the Income-tax Officer to determine the individual's status as an agent and frame the assessment accordingly. The Tribunal, comprising Judicial and Accountant Members, had conflicting opinions on the matter. The Third Member concluded that the Income-tax Officer failed to comply with the directions to appoint the individual as an agent, rendering the assessment order invalid due to non-compliance with section 163(2).

The Tribunal referred the case to the High Court, which analyzed the mandatory nature of section 163(2). The High Court emphasized the importance of the provision's language, stating that the use of "shall" makes it obligatory for the Income-tax Officer to declare an individual as an agent. The court highlighted that previous orders from the Appellate Assistant Commissioner had directed specific action on appointing the individual as an agent, which had become final as no appeals were filed. Citing precedent cases, the court held that principles of natural justice, including issuing notice and granting a reasonable opportunity to be heard, must be followed. The court also noted that being an agent in one assessment year does not automatically imply the same status in subsequent years.

In conclusion, the High Court ruled in favor of the assessee and against the Revenue, emphasizing the mandatory nature of section 163(2) and the necessity for the Income-tax Officer to pass an order declaring the individual as an agent of the non-resident Indian assessee before making the assessment.

This detailed analysis of the judgment addresses the central issue of whether passing an order under section 163(2) of the Income-tax Act, 1961, declaring a person as an agent of a non-resident Indian assessee is mandatory, providing a comprehensive overview of the legal reasoning and precedents considered by the High Court.