SCOPE OF ‘ON BEHALF OF’ IN TAXATION

[Dr. Sanjiv Agarwal]

Literal dictionary meaning of the term ‘on behalf of’ is, in the interest of a person, group, or principal or as a representative. On behalf of means in the interest of a person, group, principal or as a representative of. In other words the word on behalf of connotes an agency, when a person acts on behalf of another, the former acts as agent of the later. It means that there should be same principal agent relation should be in place. Phrase “on behalf” of signifies that there should be three parties.

(a) The client (Principal)

(b) The person rendering service (Production of goods)

(c) The third party.

It may be noted that every job work for production of goods cannot be counted as production on behalf client. If the principal and agent relation exists then only it will be treated as production of goods on behalf of the client. However, if the relation between the two parties are on principal-to-principal basis, then the work cannot be treated as done on behalf of the client. For example, if a manufacturing company gives an order to a SSI unit for production of units on job work basis to meet the excess demand in the market, the SSI unit producing such will not be covered as units the production is for the client and not on behalf of the client. The words ‘on behalf of’ in clause (v) and (vi) of Section 65(19) of the Finance Act, 1994 were very important in the definition of business auxiliary service.

The various meanings attributed to ‘on behalf of’ are as under:

• On behalf of means :

(a) in the interests of a person, group, or principal;

(b) as a representative of. [Oxford Concise Dictionary]

• the expression ‘on behalf of ’ connotes some benefit to the person on whose behalf another person acts. [39 CAL 344].
• The words ‘on behalf of’ connote an agency; when one person acts on behalf of other, the former acts as agent of the latter.

[THE STATE VERSUS GANGAMMA (A-4) - 1964 (12) TMI 76 - KARNATAKA HIGH COURT. – Criminal Procedure Code –S. 198]

• The expression ‘on behalf of’ means that holder of property is only a representative of the real owner.

[KRIPA SHANKAR D. WORAH VERSUS COMMISSIONER OF WEALTH TAX - 1966 (4) TMI 91 - PATNA HIGH COURT]

• A contract by certain parties on behalf of others prima facie implies that they made the contract only as agents.

P. Ramanatha Aiyar Advanced Law Lexicon explains the interpretation of word ‘on behalf of’ in following terms:

• A contract by certain parties 'on behalf of’ others prima facie imports that they made the contract only as agents.

• The expression 'on behalf of connotes some benefit to the person on whose behalf another person acts.

• The words 'one behalf of connote an agency. A relative, authorised to file complaint by a wife, acts on behalf of the wife and after the death of the wife, the relative no longer acts on behalf of the wife.

• The expressions 'for the benefit of and 'on behalf are not synonymous with each other. They convey different meanings. The former connotes a benefit which is enjoyed by another thus bringing in a relationship as between a trustee and a beneficiary or cestui que trust, the latter connotes an agency which brings about a relationship as between principal and agent between the parties, one of whom is acting on behalf of another.

Relevant Judicial Pronouncements

• In THE STATE VERSUS GANGAMMA (A-4) - 1964 (12) TMI 76 - KARNATAKA HIGH COURT., it was held that the words 'on behalf of' connote an agency; when one person acts on behalf of other, the former acts as agent of the latter.

• In KRIPA SHANKAR D. WORAH VERSUS COMMISSIONER OF WEALTH TAX - 1966 (4) TMI 91 - PATNA HIGH COURT, it was held that the expression 'on behalf of' means that holder of property is only a representative of the real owner.

• In M/S INTEROCEAN SHIPPING COMPANY VERSUS COMMISSIONER OF SERVICE TAX, DELHI - 2012 (12) TMI 477 - CESTAT NEW DELHI, it was held that the words, on behalf of in the statute connote and agency when one person acts on behalf of the other. The former acts as the agent of the latter. No doubt, ordinarily, an agency is the relationship of principal and agent in terms of a contract express or implied while an agency may also be created by a statute.