1968 (9) TMI 2 - SC - Income Tax

Notices of demand - legality - notice shall have to be given by the ITO for each assessment year to appoint a person as agent. It follows, therefore, that the respondent could not be treated as an agent of the two German firms for the asst. yr. 1962-63 and advance tax could not be demanded under s. 18A of the Act for that assessment year treating the respondent as such statutory agent - notices were illegal - Revenue s appeal dismissed

Summary

Issues Involved:
1. Validity of the appointment of the respondent as a statutory agent under Section 43 of the Indian Income-tax Act, 1922.
2. Legality of the demand for advance tax under Section 18A for the assessment year 1962-63 without a fresh appointment under Section 43.

Detailed Analysis:

1. Validity of the Appointment of the Respondent as a Statutory Agent under Section 43:

The respondent, a limited company engaged in manufacturing and selling heavy engineering products, was served notices by the Income-tax Officer under Section 43 of the Indian Income-tax Act, 1922, for the assessment years 1955-56 to 1961-62, treating it as the agent of two German firms. However, for the assessment year 1962-63, no such notice or order was issued. The court noted that the liability imposed by an appointment under Section 43 is specific to the assessment year for which the appointment is made. The term "for all purposes" in Section 43 implies that the appointment is comprehensive for the particular assessment year, covering tax liability imposition, determination, and recovery. However, this does not extend to subsequent assessment years without a fresh appointment.

2. Legality of the Demand for Advance Tax under Section 18A for the Assessment Year 1962-63:

The Income-tax Officer issued notices of demand under Section 29 and an order under Section 18A(1) to the respondent for the assessment year 1962-63, demanding advance tax. The respondent challenged this, asserting that no notice under Section 43 was served for the said year, nor was there an opportunity for a hearing or a formal order of appointment as the agent for the German firms. The court held that the advance tax liability under Section 18A pertains to the subsequent assessment year, and without a fresh appointment under Section 43, the respondent could not be held liable for the advance tax for 1962-63. The court emphasized that each assessment year is self-contained, and a fresh notice and appointment are necessary for each year to impose such liability.

Conclusion:

The Supreme Court upheld the High Court's decision, quashing the notices of demand issued to the respondent for the assessment year 1962-63. The court concluded that the demand for advance tax was illegal and ultra vires, as the respondent was not duly appointed as an agent under Section 43 for that year. The appeals were dismissed with costs, affirming the necessity of a fresh appointment for each assessment year to impose tax liability under Section 18A.

Appeals Dismissed.