Commissioner of Income Tax vs Mukesh B. Shah

H.N. Devani, J.—In this appeal u/s 260A of the Income Tax Act, 1961 (the Act) the Appellant-Revenue has proposed following question stated to arise out of order dated 2nd May, 2008 made by the Income Tax Appellate Tribunal, Ahmedabad Bench D (the Tribunal):

Whether the Tribunal is right in law and on facts in confirming the order passed by Commissioner (Appeals) in annulling the assessment order made u/s 158BD read with Section 144 of the Income Tax Act, though the definition of agent in Section 163 of the Income Tax Act is an inclusive definition?

A search was carried out on 30-4-1998 in the Khadkhad Group cases. During the course of search, it was noticed that the Assessee and his family members had advanced loans to various persons through Khadkhad Group. The Respondent-Assessee, being a non-resident Indian, a notice came to be issued on 7th Jan., 1999 u/s 158BD of the Act on Shri AshOk B. Shah, power of attorney holder of the Assessee. Initially neither the Assessee nor his power of attorney responded to the notice. However, subsequently, the power of attorney along with accountant attended on behalf of the Assessee and requested for time for furnishing required information. Subsequently, statement of the power of attorney was also recorded u/s 131(1A) of the Act. The assessing officer framed assessment u/s 158BD read with Section 144 of the Act computing the total undisclosed income of the Respondent Assessee at. Rs. 15,34,880.

The Assessee carried the matter in appeal before Commissioner (Appeals) before whom it was contended that in case of a non-resident, the assessment has to be made on the agent who is the representative Assessee as per provisions of Section 163(1) of the Act. Commissioner (Appeals) observed that the assessment order showed that the assessment had been made through Shri Ashok B. Shah as legal representative of Shri Mukesh B. Shah, who happens to be a nonresident. That assessment could have been made on the legal representative only after he was appointed as an agent within the meaning of Section 163 of the Act. In the present case no opportunity had been provided to Shri Ashok B. Shah for being treated as legal representative and in fact no order treating him as an agent had been passed. Commissioner (Appeals), accordingly, allowed the appeal and annulled the assessment.

Revenue carried the matter in appeal before the Tribunal. The Tribunal held that u/s 163(2) of the Act it is incumbent upon the assessing officer to give an opportunity of hearing to the person whom he wants to treat as an agent. The Tribunal found that, as a matter of fact, no such opportunity had been given to Shri Ashok B. Shah and accordingly dismissed the appeal and upheld the order of Commissioner (Appeals).

Mr. M.R. Bhatt, learned senior standing counsel appearing for the Appellant revenue, submitted that notice had been issued in the name of the Assessee and served on Shri Ashok B. Shah as power of attorney holder only. That Shri Ashok B. Shah had appeared in response to the notice and did not raise any objection against being treated as an agent. In the circumstances, it is deemed that opportunity of hearing had been granted to him. Hence, the Tribunal had erred in confirming the order passed by the Commissioner (Appeals), though the definition of agent in Section 163 of the Act is an inclusive definition.

In the background of the aforesaid facts, it may be pertinent to refer to the provisions of Section 163 of the Act, which provides for who may be regarded as agent:

Who may be regarded as agent--(1) For the purposes of this Act, agent, in relation to a non-resident, includes any person in India--(a) who is employed by or on behalf of the non-resident; or (b) who has any business connection with the non-resident; or (c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or (d) who is the trustee of the non-resident;(e) and includes also any other person who, whether a resident or nonresident, has acquired by means of a transfer, a capital asset in India:

Provided that a broker in India who, in respect of any transactions, does not deal directly with or on behalf of a non-resident principal but deals with or through a non-resident broker shall not be deemed to be an agent under this section in respect of such transactions, if the following conditions are fulfilled, namely:

(i) the transactions are carried on in the ordinary course of business through the first-mentioned broker; and (ii) the non-resident broker is carrying on such transactions in the ordinary course of his business and not as a principal.

Explanation--For the purposes of this Sub-section, the expression business connection shall have the meaning assigned to it in Expln. 2 to Clause (i) of Sub-section (1) of Section 9 of this Act.

(2) No person shall be treated as the agent of a non-resident unless he had had an opportunity of being heard by the assessing officer as to his liability to be treated as such.

Sub-section (2) of Section 163 of the Act lays down that prior to treating a personas the agent of a non-resident, he is required to be given an opportunity of hearing by the assessing officer as to his liability to be treated as such. In view of the provisions of Section 246(1)(d), against an order made u/s 163 of the Act treating the Assessee as the agent of a non-resident, appeal lies before; the Commissioner (Appeals). Thus, it is apparent that the statute contemplates making of an order u/s 163 of the Act treating a person as the agent of a non-resident, against which the concerned person has remedy byway of appeal. In absence of any order being made u/s 163 of the Act, the concerned person is deprived of his right to challenge the same. In the present case it is an admitted position that no order u/s 163 of the Act has been made holding Shri Ashok B. Shah to be the agent of the Assessee. Besides, apart from the fact that no opportunity of hearing as contemplated u/s 163(2) of the Act has been granted to him, Shri Ashok B. Shah does not answer the description of agent in relation to anon-resident, as envisaged u/s 163(1) of the Act, in as much as (i)he is not employed by or on behalf of the non-resident; (ii) there is nothing on record to show that he has any business connection with the non-resident; (iii) there is nothing on record to show that the non-resident is in receipt of any income, either directly or indirectly through him; and (iv) there is nothing on record to show that he is the trustee of the non-resident.

In the aforesaid factual matrix, no infirmity can be found in the impugned order passed by the Tribunal so as to warrant interference. In absence of any question of law, as proposed or otherwise, much less any substantial question of law, the appeal is dismissed.