1973 (6) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Whether section 166 of the Income-tax Act confers an option on the Income-tax Officer to initiate proceedings against either the non-resident firm or its agent.
2. Whether section 166 of the Act violates Article 14 of the Constitution by providing unbridled discretion.
3. Whether the failure to take action under section 174 of the Act against the non-resident firm precludes the Income-tax Officer from proceeding against the petitioner for assessment and recovery of tax.

Detailed Analysis:

Issue 1: Option to Initiate Proceedings (Section 166)
The court examined whether section 166 of the Income-tax Act confers an option on the Income-tax Officer to initiate proceedings against either the non-resident firm or its agent. The court clarified that section 160(1) defines "representative assessee" to include the agent of a non-resident. Section 163(1)(c) further includes any person in India from whom the non-resident receives income as an "agent."

Section 166 states:
> "Nothing in the foregoing sections in this Chapter shall prevent either the direct assessment of the Person on whose behalf or for whose benefit income therein referred to is receivable, or the recovery from such person of the tax payable in respect of such income."

The court interpreted this to mean that both the non-resident principal and its agent are liable for assessment and tax recovery. There is no option for the Income-tax Officer to choose between the two; both can be assessed and taxed simultaneously. The terms "either" and "or" in section 166 are used to indicate the dichotomy between assessment and recovery, not to provide a choice between the non-resident principal and its agent. Therefore, the argument that the Income-tax Officer could not continue proceedings against the petitioner after initiating them against the non-resident firm was rejected.

The court distinguished this case from the Bombay High Court decision in Chaturbhuj Raghavji Trust v. Commissioner of Income-tax, where the income was already taxed in the hands of the beneficiary, precluding further taxation in the hands of the trustees. The court also referred to an unreported decision of the Andhra Pradesh High Court, which supported the view that reassessment can be made on the principal even if the original assessment was on the agent.

Issue 2: Violation of Article 14
The second contention, that section 166 confers unbridled discretion and violates Article 14 of the Constitution, was not pressed by the petitioner. Therefore, the court did not address this issue in detail.

Issue 3: Failure to Take Action Under Section 174
The petitioner argued that the Income-tax Officer's failure to take action under section 174 against the non-resident firm, when Mr. Davis was in India, should preclude further proceedings against the petitioner. Section 174 provides a mechanism for accelerated assessment of persons leaving India. The court assumed, without deciding, that section 174 could apply to non-residents temporarily in India.

However, the court held that section 174 is an enabling provision that does not relieve the agent or the non-resident principal of their tax obligations if not invoked. The court emphasized that there is no provision in the Act suggesting that the failure to act under section 174 absolves the petitioner of liability. The petitioner's contention was therefore rejected.

Conclusion
The court dismissed the writ petitions, holding that:
1. Section 166 does not confer an option on the Income-tax Officer to choose between assessing the non-resident firm or its agent; both can be assessed and taxed.
2. The second issue was not pressed and thus not addressed.
3. The failure to take action under section 174 does not relieve the petitioner of its tax obligations.

The writ petitions were dismissed with costs, and the advocate's fee was set at Rs. 250.