1970 (3) TMI 17 - HC - Income Tax

Export through non-resident agents - some of the non-resident agents act as agents-cum-buyers - tax liability - action for recovery of tax in default in respect of payments to non-resident traders - notice to treat the company as agent for recovery of tax - legality of notice

Summary

Issues Involved:
1. Liability of the petitioner under Section 195 and Section 201 of the Income-tax Act, 1961.
2. Applicability of Section 163 of the Income-tax Act, 1961.
3. Bar of recovery proceedings under Section 201 by Section 231 of the Income-tax Act, 1961.
4. Applicability of Circular No. 17 (XXXVII-1) of 1953.

Detailed Analysis:

1. Liability under Section 195 and Section 201 of the Income-tax Act, 1961:
The petitioner, a limited company incorporated in the UK, engaged in exporting jute goods, argued that the non-resident agents, to whom it paid commissions, performed all their activities outside India. The Income-tax Officer issued notices stating that the commissions paid to non-resident agents were liable to Indian income-tax and proposed treating the petitioner as an agent under Section 201 for recovery purposes. The petitioner contended that the provisions of Section 195, which mandate the deduction of tax at source for payments to non-residents, and Section 201, which deals with the consequences of failure to deduct or pay tax, were not applicable as the commissions were earned and received outside India.

2. Applicability of Section 163 of the Income-tax Act, 1961:
The petitioner argued that Section 163, which defines an "agent" in relation to a non-resident, and Section 161, which outlines the responsibilities of a representative assessee, provide a complete mechanism for assessment and recovery of tax from an agent. The petitioner contended that these sections are mutually exclusive from Sections 195 to 201, which deal with the deduction of tax at source. The court agreed, stating that the two groups of sections operate in different fields and are mutually exclusive. Therefore, the petitioner could not be treated as an agent under Section 163 for the purpose of recovery under Section 201.

3. Bar of Recovery Proceedings under Section 201 by Section 231 of the Income-tax Act, 1961:
The petitioner raised the contention that recovery proceedings under Section 201 were barred by the time limit prescribed under Section 231 for the relevant assessment year. The revenue contested this, arguing that the time limit under Section 231 did not affect the application of Section 201. The court did not pronounce a final opinion on this issue, as it set aside the impugned notices on other grounds.

4. Applicability of Circular No. 17 (XXXVII-1) of 1953:
The petitioner relied on Circular No. 17 (XXXVII-1) of 1953, which stated that foreign agents of Indian exporters are not liable to Indian income-tax as their commission is earned and received outside India. The revenue argued that the circular did not apply to agents-cum-buyers and that the true legal relationship between the parties required further investigation. The court did not address this issue in detail, as it set aside the notices based on the mutual exclusivity of the relevant sections.

Conclusion:
The court held that the notices issued by the Income-tax Officer, proposing to treat the petitioner as an agent under Section 163 for the purpose of recovery under Section 201, were not permissible in law. The court set aside the notices and issued a writ of prohibition restraining the respondents from taking any steps based on the impugned notices. The court clarified that the income-tax authorities could proceed afresh, either under the provisions related to agents or those related to the deduction of tax at source, but not both simultaneously. The court did not pronounce on other contentions raised by the petitioner, leaving them open for future proceedings if initiated by the income-tax authorities.