Facts of the Case

  1. Mr. Francis Daly was an employee of the petitioner company, formerly known as CSG Systems India Pvt. Ltd.
  2. For Assessment Year 2003-04, Mr. Francis Daly filed his income tax return as a “Resident and Ordinarily Resident”.
  3. Subsequently, after leaving India, Mr. Francis Daly attained the status of a non-resident.
  4. On 16.03.2010, the Income Tax Department issued notice under Section 163(2) proposing to treat the petitioner company as representative assessee under Section 163(1)(c).
  5. The petitioner objected stating that during the relevant assessment year, Mr. Francis Daly was not a non-resident and therefore provisions relating to representative assessee were inapplicable.
  6. The Assistant Commissioner rejected the objections and held the petitioner company to be representative assessee.
  7. Revision petition under Section 264 was also dismissed by the Commissioner of Income Tax.
  8. Aggrieved by these orders, the petitioner approached the Delhi High Court through writ proceedings.


Issues Involved

  1. Whether a person can be treated as a representative assessee under Sections 160 and 163 of the Income Tax Act where the concerned employee was a resident during the relevant accounting year.
  2. Whether the residential status for invoking Section 163 is to be determined with reference to:
    • the relevant previous/accounting year, or
    • the date of issuance of notice under Section 163(2).
  3. Whether the petitioner company could legally be treated as an agent of the employee under Section 163(1)(c).

 

Petitioner’s Arguments

  • The petitioner argued that Section 160(1)(i) applies only in respect of income of a non-resident.
  • Mr. Francis Daly was admittedly a “Resident and Ordinarily Resident” during Assessment Year 2003-04.
  • The subsequent change in residential status could not retrospectively attract provisions of representative assessee.
  • The relevant period for determining status under Sections 160 and 163 is the accounting year for which income is assessed.
  • Reliance was placed upon the Bombay High Court judgment in Abdullabhai Abdul Kadar vs Commissioner of Income Tax (1952) 22 ITR 241 (Bom.), wherein it was held that the material period is the accounting year and not the date of appointment of statutory agent.

Respondent’s Arguments

  • The Revenue contended that on the date of issuance of notice under Section 163(2), Mr. Francis Daly had already become a non-resident.
  • It was argued that the Income Tax Act does not prohibit issuance of notice under Section 163 merely because the employee was resident during the relevant assessment year.
  • The Department further argued that no limitation period applied for issuance of notice under Section 163 for treating the employer as representative assessee.
  • The Revenue maintained that the petitioner company was liable to be treated as representative assessee because it had paid salary and deducted taxes in respect of the employee.

Court Findings / Court Order

  • The expression “representative assessee” under Section 160(1)(i) applies only in respect of income of a non-resident.
  • The relevant period for determining residential status is the accounting year corresponding to the relevant assessment year.
  • During the previous year ending on 31.03.2003, Mr. Francis Daly was not a non-resident.
  • Merely because he subsequently became a non-resident would not permit the Department to invoke Sections 160 and 163 retrospectively.
  • The Court relied upon the Bombay High Court decision in Abdullabhai Abdul Kadar vs Commissioner of Income Tax, holding that the material and relevant period is the accounting year and not the date of appointment or issuance of notice.
  • Consequently, the petitioner company could neither be regarded as an agent nor as a representative assessee under Section 163(1)(c).

 

Important Clarification by the Court

The Court clarified that:

The residential status relevant for invoking Sections 160 and 163 must be examined with reference to the accounting year pertaining to the concerned assessment year and not with reference to the date of issuance of notice under Section 163(2).

The Court further clarified that where the employee was resident during the relevant accounting year, the employer cannot subsequently be treated as representative assessee merely because the employee later became a non-resident.

Sections Involved

  • Section 160(1)(i) of the Income Tax Act, 1961
  • Section 163(1)(c) of the Income Tax Act, 1961
  • Section 163(2) of the Income Tax Act, 1961
  • Section 264 of the Income Tax Act, 1961
  • Reference discussed:
    • Section 43 of the Income Tax Act, 1922
    • Section 149(3) of the Income Tax Act, 1961

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2014:DHC:3413-DB/SID22072014CW35882013.pdf

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