No specific order needed for agent; notice to assessee time-barred

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Case Name:

Commissioner of Income Tax vs. Madhwan Bashyam (High Court of Delhi)

ITA 1226/2007

Date: 7th January 2008

Key Takeaways

1. No specific written order is required under section 163 if there's no objection to an agent representing the assessee.

2. A notice under section 148 issued after two years from the end of the relevant assessment year is time-barred as per section 149(3).

3. The court emphasized the importance of timely notices in tax proceedings.

Issue

Was the notice issued under section 148 of the Income Tax Act to the assessee time-barred, and was a specific order required to treat Marubeni Corporation as the assessee's agent under section 163?

Facts

1. Marubeni Corporation filed a tax return on June 24, 1996, acting as the agent for the assessee (Madhwan Bashyam).

2. On January 14, 2000, the Income Tax Department issued a notice under section 148 to the assessee, which was served on January 31, 2000.

3. The assessee argued that this notice was time-barred, saying it should have been served by March 31, 1999, at the latest.

4. This argument wasn't brought up initially but was raised as an additional ground before the Tribunal.

5. The Tribunal allowed this additional ground and agreed that the notice was time-barred.

Arguments

The main arguments went like this:

Revenue's side:

- They argued that no specific order was passed under section 163 of the Income Tax Act to treat Marubeni Corporation as the assessee's agent.

- They referred to section 163(2), which states that no person shall be treated as an agent of a non-resident without being given a chance to be heard.

Assessee's side:

- They contended that the notice under section 148 was time-barred according to section 149(3) of the Act.

- They argued that no specific order was needed under section 163 since the proceedings continued without objection to Marubeni Corporation acting as the agent.

Key Legal Precedents

The court referred to the case of CIT vs. Express Newspapers (P) Ltd. 1977 CTR (Mad) 457 : (1978) 111 ITR 347 (Mad) . While this case didn't provide a conclusive decision on whether an order is required to treat a person as an agent, it suggested that only adverse orders need to be in writing to protect the right of appeal.

Judgement

The court sided with the assessee. Here's the gist:

1. The court interpreted section 163(2) to mean that a written order is only required when it's adverse to the assessee or agent.

2. If there's no objection to the agent continuing proceedings on behalf of the assessee, no specific order is needed.

3. The court found no error in the Tribunal's conclusion that the notice was issued to the assessee beyond the prescribed time limit.

4. The appeal by the Revenue was dismissed as no substantial question of law arose.

FAQs

Q1: Why wasn't a specific order required to treat Marubeni Corporation as the assessee's agent?

A: The court interpreted that a specific order under section 163 is only needed when there's an objection or an adverse decision. Since the proceedings continued without objection to Marubeni Corporation acting as the agent, no specific order was required.

Q2: What made the notice under section 148 time-barred?

A: According to section 149(3) of the Income Tax Act, the notice should have been served within two years from the end of the relevant assessment year. In this case, it was served after that period, making it time-barred.

Q3: Can the Revenue appeal this decision further?

A: The court dismissed the appeal, stating that no substantial question of law arose. This typically means there's limited scope for further appeal, but it's always best to consult with a legal expert for specific advice.

Q4: What's the significance of this judgment for future cases?

A: This judgment clarifies that tax authorities don't need to pass a specific order to treat someone as an agent if there's no objection to their representation. It also reinforces the importance of adhering to prescribed time limits in issuing notices under the Income Tax Act.

The Revenue is aggrieved by an order dt. 22nd Sept., 2006 passed by the Tribunal, Delhi Bench ‘E’ in ITA No. 4618/Del/2003 relevant for the asst. yr. 1996-97.

2. M/s Marubeni Corporation had filed a return purportedly as the agent of the assessee. The return was filed on 24th June, 1996. A notice was issued to the assessee under s. 148 of the IT Act, 1961 (for short the Act) on 14th Jan., 2000 and it was served on the assessee on 31st Jan., 2000. According to the assessee, the notice was time-barred in view of the provisions of s. 149(3) of the Act and the notice should have been served upon the assessee on or before 31st March, 1999.

3. It appears that this contention was not urged by the assessee before the AO or before the CIT(A) but it was urged as an additional ground before the Tribunal. The Tribunal examined the application filed by the assessee for urging the additional ground and that application was allowed by an order dt. 28th Aug., 2006. Against that order, the Revenue had preferred an appeal under s. 260A of the Act in this Court being IT Appeal No. 310 of 2007 but it was withdrawn by an order dt. 1st Oct, 2007.

4. The Tribunal, by the order under challenge, accepted the additional ground raised by the assessee and came to the conclusion that the notice issued to the assessee under s. 148 of the Act was barred by time. Learned counsel for the Revenue has drawn our attention to s. 163 of the Act to contend that no order was passed to the effect that M/s Marubeni Corporation was the agent of the assessee. In particular, she has referred to s. 163(2) of the Act and that reads as follows :

"163. Who may be regarded as agent.— (1) ....

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

5. On a plain reading of s. 163(2) of the Act, it appears to us that when an order adverse to the assessee/agent is passed by the AO, then a written order is required to be made. However, if there is no objection to the agent continuing the proceedings on behalf of the assessee, no specific order needs to be passed by the AO.

6. Learned counsel for the Revenue has referred to CIT vs. Express Newspapers (P) Ltd. 1977 CTR (Mad) 457 : (1978) 111 ITR 347 (Mad) . On a reading of the decision, it appears to us that the High Court has not taken a conclusive decision on the question whether an order is required to be passed treating a person as an agent of the assessee. But it appears that only an adverse order, which is appealable, is required to be made in writing so that the right of the assessee or his agent is not frustrated. In other words, if an order is passed in favour of the assessee or the proceedings continue on the basis that the assessee is represented by an agent, no specific order needs to be passed. In our opinion, this is also apparent from the language of s. 163(2) of the Act which does not provide for a specific or written order to be passed by the AO.

7. In our opinion, if a person filing a return as an agent of the assessee is not accepted as an agent for further proceedings, then the AO must pass an order so that the agent or assessee can file an appeal. But, as in the present case, if the proceedings have gone on as if there is no objection to the person filing a return being treated as an agent of the assessee, no specific order needs to be passed in this regard.

Under the circumstances, we do not find any error in the view taken by the Tribunal in coming to the conclusion that the notice was issued to the assessee beyond the period prescribed by law.

No substantial question of law arises. The appeal is dismissed.