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1937 Supreme(SC) 75
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD THANKERTON, SIR SHADI LAL, AND SIR GEORGE RANKIN.
COMMISSIONER OF INCOME-TAX, PUNJAB, NORTH-WEST FRONTIER PROVINCE AND DELHI - Appellant
Versus
NAWAL KISHORE-KHARAITI LAL - Respondents
On appeal from the High Court at Lahore.
Decided On : November 9, 1937.
Solicitor for the appellant:Solicitor, India Office. Solicitors for the respondents: Sanderson, Lee & Co.
A formal order declaring agency is not required before serving a notice for return of income; notice of intention and an opportunity to be heard suffice. Proceedings validly initiated within the limitation period under Section 34 need not be completed within that same period.
Headnote:(A) Income-tax Act, 1922 - Sections 22, 34, 42, and 43 - Agency of non-residents - Notice of intention to treat as agent - Requirement of formal order - Validity of assessment - Under Section 43, a formal order declaring a person to be an agent of a non-resident is not a prerequisite for serving a notice calling for a return of income under Section 22. The Income-tax Officer may postpone the final determination of the question of agency until the time of making an assessment under Section 23.
(B) Income-tax Act, 1922 - Section 43 - Notice of intention - Specification of assessment year - A notice of intention to treat a person as an agent does not need to specify the particular year of assessment to be valid, provided that the subsequent notice requiring a return of income under Section 22, sub-section 2, specifies the year or years concerned.
(C) Income-tax Act, 1922 - Section 34 - Limitation period - Initiation of proceedings - If proceedings to assess escaped income are validly initiated by serving a notice within the prescribed one-year limitation period, the proceedings are not required by the Act to be completed within that same time limit.
Facts of the case:
A firm of jewellers received loans from a banker residing outside the jurisdiction and paid interest thereon. The tax authorities served a notice requiring the firm to show cause why they should not be treated as agents of the non-resident banker. Following this, notices for return of income were served for specific assessment years. The authorities later formally held the firm to be agents and issued an assessment order. The lower court had held the assessment illegal and time-barred, reasoning that no formal order declaring the firm as agents had been passed at the time the initial notices for return of income were served.
Findings of Court:
The court found that the Act does not impose a technical requirement for a formal order of agency to precede a notice for return of income. The notice of intention and the opportunity to be heard are the only statutory requirements under Section 43. The court also found that the initial notice of intention was valid despite not specifying the assessment year, as the subsequent notice for return did so.
Issues: (1) Whether a formal order treating a person as an agent is necessary before serving a notice for return of income under Section 22; (2) Whether a notice of intention to treat a person as an agent under Section 43 must specify the particular year of assessment; (3) Whether proceedings under Section 34 are time-barred if the final assessment is made after the one-year limit, provided the notice was served within that period.
Ratio Decidendi: The court ruled that Section 43 only requires notice of intention and an opportunity to be heard; it does not mandate a formal declaration of agency before initiating assessment proceedings. The determination of agency can be finalized during the assessment process. A notice of intention is valid even without a specified year if the subsequent return notice is specific. Once proceedings are validly initiated within the limitation period under Section 34, there is no statutory requirement for them to be completed within that same period.
Result: Appeal allowed.
Legal Category Hierarchy
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taxation
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income tax
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non-resident taxation
- agency
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assessment procedure
- notice and return
- limitation
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non-resident taxation
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income tax
Judgement
Appeal (No. 129 of 1936) by special leave, from a judgment of the High Court (June 26, 1934) upon a reference by the Commissioner of Income-tax under s.66, sub-s.2, of the Income-tax Act (XI. of 1922).
The respondents were a firm of jewellers carrying on business in Delhi. They received loans from a banker carrying on business in Jaipur, outside British India, and paid interest thereon. The Income-tax Officer, on February 2, 1928, served a notice on the respondents calling on them to show cause why they should not be treated as agents of the banker in Jaipur for the purposes of the Act. No year of assessment was mentioned in the notice.
0 Law. Rep. 65 Ind. App. 12 ( 1937- 1938) Commnr. of Income-Tax, v. Nawal Kishore-Kharaiti Lal
181
The respondents appeared and were heard on February 13, 1928. No formal order declaring them agents of the banker was made, but a note was recorded and they were served with notice under ss. 22 and 34 of the Act for the years 1926-27 and 1927-28 as agents of the banker. An appeal by the respondents was dismissed. On May 5, 1931, notice was served on the respondents stating that it was proposed to treat them as agents of the banker for the year 1926-27. On May 8, 1931, after hearing their objections, the Income-tax Officer held they were agents of the banker, and on June 8, 1931, an order of assessment was made. Appeals against the order were dismissed by the Assistant Commissioner. The respondents applied to the Commissioner for a reference to the High Court, under s. 66, and the Commissioner referred the questions which are quoted in the judgment of the Board.
The High Court answered the questions as follows "The answer to the first question referred to us by the Commissioner is that the petitioner could not be held in 1926 to be the agent for Seth Banji Lal for the purposes of assessment of 1926-27 since no order by the Income-tax authorities treating him as such agent was passed until May 8, 1931."
"Our answer to the third question referred to us is that the assessment proceedings actually taken against the petitioner under s. 34 on May 18, 1931, for the year 1926-27 were time barred."
The High Court further held that in view of the answers to the first and third questions the second did not arise.
1937. July 20 and 22. Dunne K.C., and Hubert Hull for the appellant. The question here turns on the construction of s. 43 of the Act, and is whether a formal order has to be made that the person whom it is proposed to be charged is going to be treated as an agent. It is submitted that by giving notice a person may be deemed to be an agent and can be assessed. There is nothing in the Act requiring an order to be made. Under s. 43 it has first to be ascertained whether a person is an agent. That having been ascertained, the question of assessment arises. It is a distinct question; Nawal Kishore Kharaiti Lal v. Commissioner of Income-tax .(( 1930) 4 I. T. C. 451.)
[Reference was made to Commissioner of Income-tax, Bombay v. Bombay Trust Corporation , (( 1929) L. R. 57 I. A. 49.)]
Where there is a pending case, there is nothing to prevent assessment at any time Maharajadhiraj of Darbhanga v. Commissioner of Income-tax, Bihar and Orissa (( 1934) L. R. 61 I. A. 312.); Commissioner of Income-tax, Burma v. N. N. Burjorjee .(( 1931) I. L. R. 9 R. 161.) Here there was a proceeding pending from 1928. The notice given was a valid notice under s. 43. If notice is given of intention to treat a person as agent, that is sufficient. The agent can ask for what year it is intended. In any event he would know, when he is assessed, for what particular year he is assessed. Here there can be no doubt what year was intended.
Hull, following, referred to Nawal Kishore Kharaiti Lal v. Commissioner of Income-tax (( 1930) 4 I.
T. C. 451.), and s. 30, sub-s. 2. Sect. 31 makes the matter plainer.
De Gruyther K.C., and S. Hyam for the respondent. There are two questions—namely, the liability to be assessed, and how
