The Institute of Chartered Accountants of India Certificate Course on International Taxation

Representative Assessee An overview and Future outlook

Agenda
Introduction Relevant Provisions

Overview of Sections
Definitions Rights and Liabilities

Case Studies Key Takeaways

24 July, 2011

Representative Assessee

Slide No. 2

Representative Assessee

Introduction

Representative Assessee

24 July, 2011 Slide No. 3

Introduction

Representative Assessee

WHY?

Representative Assessee

24 July, 2011 Slide No. 4

Introduction

Outside India India

Non-resident

How to catch the income of non-resident ???

Let me catch the agent as Representative Assessee of NR

Agent of non-resident or deemed agent

Representative Assessee

Tax Officer
24 July, 2011 Slide No. 5

Introduction
A person liable to tax in India is assessed under the Act In certain instances e.g. Non-residents, there is difficulty in assessing the actual assessee Provision of representative assessee therefore relevant Representative assessee is assessed on behalf of the actual assessee Secure tax payment from non-resident on the income chargeable through the agent

Dubash Executors Vs CIT (SC); Abdul Azeez Vs CIT

Objective is to catch the income at the earliest point of time Tax the profits where they are found instead of waiting to reach the person who is beneficially entitled to

Representative Assessee

24 July, 2011 Slide No. 6

Introduction
Fundamental basis upon which income-tax is made chargeable The basis of chargeability under the Income-tax Act was laid down by Viscount Cave in Williams v. Singer ((1920) 7 Tax Cas 387, 411) as under:
that the person charged with the tax is neither the trustee nor the beneficiary as such, but the person in actual receipt and control of the income which it is sought to reach. The object of the Acts is to secure for the state a proportion of the profits chargeable, and this end is attained (speaking generally) by the simple and effective expedient of taxing the profits where they are found.

Representative Assessee

24 July, 2011 Slide No. 7

Representative Assessee

Relevant Provisions

Relevant Provisions
Overview of Sections Sec 149(3) Time limit for issuing notice to Agents Sec 160 Sec 161 Sec 162 Definition of Representative Assessee Liability of Representative Assessee Rights of Representative Assessee to recover tax paid

Sec 163(1) Definition of Agent Sec 166 Sec 167 Sec 173 Direct assessment or recovery from the beneficial owner Remedies against property in case of Representative Assessee Recovery of tax in respect of non-resident from his assets

Sec 246A -Right of Appeal

Representative Assessee

24 July, 2011 Slide No. 9

Overview of Sections - Snapshot

Description Definition and Liability of Representative assessee 1922 Act Section 40, 41, 42 1961 Act Section 160 and 161 Direct Tax Code Section 170 and 171

Right of Representative assessee to recover tax paid

Who may be regarded as agent Direct assessment or recovery not barred Remedies against property in cases of Representative assessee
Representative Assessee

Second and third Proviso to section 42(1) (Right of retention only to agents of NR)
Section 40(2) & 43 Section 41(2)& 42(1)

Section 162(2) & 162(3) Section 171

Section 163 Section 166

Section 170(2) 172

Section 167

173

24 July, 2011 Slide No. 10

Representative Assessee

Definitions

Definitions
Section 160(1) of the Income-tax Act (Act)

For the purposes of this Act, Representative Assessee means

(i) In respect of the income of a non-resident specified in section 9(1), the agent of the non-resident, including a person who is treated as an agent u/s 163

(ii) In case of a minor, lunatic or idiot - guardian or manager (iii) In case of Court proceedings trustee or manager appointed who manages the property (iv) In case of Trust (duly executed instrument in writing) for benefit of any person -Trustee(s) (v) In case of Oral Trust for benefit of any person -Trustee(s)

Representative Assessee deemed to be an assessee (Section 160(2))

Representative Assessee
24 July, 2011 Slide No. 12

Definitions Non-Resident

The appointment and vicarious liability of an agent are in respect of the income of nonresidents only and not in respect of residents.
- Kanga, Palkhivala and Vyas - page 1958 Section 9(1) r.w.s. Section 160 Deals with taxability of an agent of a non-resident and does not apply to agents of Indian residents

What would happen to NOR???

Representative Assessee
24 July, 2011 Slide No. 13

Definitions

Section 9(1) Representative Assessee is not in respect of entire income of non-resident but only for income specified in section 9(1) of the Act

Representative Assessee

24 July, 2011 Slide No. 14

Definitions
Section 9(1)
Income deemed to accrue or arise in India If no income could be deemed to accrue or arise in India to the nonresident within the meaning of section 9(1), no question of treating anybody as representative assessee under section 160(1)(i) arises and nobody could be treated as such under section 163. (T. I. & M. Sales Ltd. Vs. CIT (21 CTR 258)) Only part of the income attributable to operations in India would be covered u/s 9(1)(i) and the balance income attributable to operations carried out abroad would not be taxable in the hands of the agent, even though the entire income may be receivable by the agent in India (Amco Furnace Contractors Ltd v CIT (116 ITR 868))

Income received in India by the agent is taxable in India. However, taxation on receipt basis is out of the scope of section 9(1)(i) of the Act and therefore the agent may not be held a representative assessee for the said transaction
Representative Assessee
24 July, 2011 Slide No. 15

Definitions
Section 9(1)
Section 9(1) deems the income specified therein to accrue in India. However, if the income of a non-resident is of the nature specified in that section, the agent can be assessed to tax in respect of it, even if the income actually accrues in India or is received in India and therefore the question of deeming it to accrue in India (to make it chargeable) does not arise.
- Kanga, Palkhivala and Vyas - page 1957

???
Representative Assessee
24 July, 2011 Slide No. 16

Definitions
Agent

An agent can be
An agent of the non-resident by contract / conduct or otherwise

A person treated as an agent under the Act (he may not be an actual agent at all - deemed agent)
Representative Assessee - deemed to be an assessee (Section 160(2))

Representative Assessee

24 July, 2011 Slide No. 17

Definitions
Agent
Indian Contract Act - Section 182
A person who is employed to do any act for another or represent another in dealings with third persons whether by express or implied or express content A person who has an authority to create legal relations between a person occupying the position of principal and third parties

The Supreme Court of India in the case of Bhopal Sugar Industries v. Sales Tax Officer (40 STC 42) or (3 SCC 147) describes the essence of agency as The essence of agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods and will therefore be liable to account for the sale proceeds Sell goods as the property of the principal and under instructions and directions of principal Loss suffered by agent is to be indemnified by the principal
24 July, 2011 Slide No. 18

Representative Assessee

Definitions
Agent
Gujarat High Court in the case of Varsha Engineering Pvt. Ltd. Vs. Vijay Traders (1983) (1983 AIR 166) (Gujarat HC)
describes the essential feature of an agent which is his power of making the principal answerable to third persons enabling the principal to sue third parties directly, or render him liable to be sued directly by the third party

Blacks Law Dictionary Agent

A person authorized by another to act for in place of him

One who represents and acts for another under the agency relationship
One who acts for or in place of another by authority from him A substitute, a deputy, appointed by the principal with power to do things which a principal may do
24 July, 2011 Slide No. 19

Representative Assessee

Definitions
Treated as an agent Deemed agent
Agent in relation to a non-resident includes any person in India
Who is employed by or on behalf of non-resident; or Who has any business connection with non-resident; From or through whom non-resident is in receipt of any income, whether directly or indirectly Who is a trustee of the non-resident; Also includes any other person who (resident/ non-resident) has acquired by means of a transfer, a capital asset in India

An agent need not necessarily be a Resident, can be an NR too..!!

Representative Assessee

24 July, 2011 Slide No. 20

Definitions Agent
Specific exemption for the overseas brokers
A broker in India is not considered as an agent of a non-resident in respect of any transaction, if the following conditions are satisfied: the broker does not directly deal with, or on behalf of, the non-resident; the broker deals with or through a non-resident; the transactions are carried on in the ordinary course of business by the Indian broker; the non-resident broker is also acting in the normal course of business and not as a principal for the transaction.

(proviso to Section 163(1))

Representative Assessee

24 July, 2011 Slide No. 21

Definitions

Taxability of income of non-resident Business Connection

Business connection with NR CIT Vs R D Aggarwal & Co (1965) ( 56 ITR 20)(SC): Business connection means something more than a business Presupposes an element of continuity between the business of non-resident and the activity in the taxable territory (India) Stray or isolated transaction not normally a business connection Business connection may take several forms carrying out of incidental activity to non-residents main business or facilitating the carrying out of non-residents business

P No 8 of 1995, In re (1997) 223 ITR 416 (AAR New Delhi): Business connection must be real and intimate and through or from which income must accrue whether directly or indirectly to non-resident

Blue Star Engg Co (Bombay) P Ltd (73 ITR 283) (Bom):

Business connection must be a commercial connection which is connected really and intimately and contribution to the earnings of profits in the said trading activity to the non-resident
24 July, 2011 Slide No. 22

Representative Assessee

Definitions Taxability of income of non-resident Business Connection

Explanation 2 of section 9(1)(i) Business connection shall include any business activity carried out through a person who, acting on behalf of the non-resident, has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or

habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident:

Representative Assessee

24 July, 2011 Slide No. 23

Definitions
Taxability of income of non-resident from or through receipt of income directly or indirectly
CIT v. Cochin Company (P) Limited (104 ITR 655) (Kerala HC); CIT v. Shiv Singh (177 ITR 524) (Punjab & Haryana HC): NR should receive income directly or indirectly from or through any person in India Sometimes, a circuitous route may be designed to escape the charging provisions of the Act Normally in fiscal matters, unless the statute empowers the authorities to look into the substance of the matter, the form of the transaction alone is decisive and income may escape assessment So, power is sometimes given to find out the substance as well and the expression indirectly connotes that If anybody is benefited indirectly, power is provided to authorities/court to look into the real nature of transaction and determine the tax liability Protective or alternate assessment is allowed to determine the beneficial owner
24 July, 2011 Slide No. 24

Representative Assessee

Definitions
Taxability of income of non-resident any person whether resident / nonresident, who acquired by transfer a capital asset situated in India
Triniti Corporation (AAR)(295 ITR 258)

Under the inclusive clause of section 163 of the Act the transferee was a person who had purchased the asset and had also paid the consideration
Such transferee might be either a resident or non-resident On the basis of the deeming provisions viz. section 160(1)(i) read with section 163(1), the authorities in India would realise the tax from the transferee The transferees liability was provided under section 161 and the transferee would be an agent/authorised representative of the non-resident individual for recovery of tax under the inclusive provision of section 163 of the Act

Passing reference was also made on the obligation for deduction of tax at source

Representative Assessee

24 July, 2011 Slide No. 25

Definitions Section163 (2) Whether order necessary

Section 163(2) provides that no person shall be treated as an agent unless opportunity of being heard is provided as to his liability to be treated as representative assessee Prem Kumar Bhagat (212 CTR 130) P & H HC) Expression shall has been used, therefore an order is required to be passed by the tax officer Kanhaylal Gurumukh Singh (87 ITR 476)(P & H HC) A person should be first treated as an agent of the NR by an order u/s 163 of the Act before initiating re-assessment proceedings u/s 148 against him as agent of NR CIT vs Express Newspapers Pvt Ltd (111 ITR 347) (Mad) Order appointing a person as an agent should be made in writing Other judgments supporting above view Belapur Sugar & Allied Industries (141 ITR 404) (Mum) S G Sambanandam & Co (242 ITR 708) (Mad) Tata Engineering & Locomotive Co) (71 ITR 457) (SC)
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Representative Assessee

Definitions Sec 163(2) - Whether order for each year

Assessment for each year is self contained Therefore a determination under this section should be made afresh in respect of each year The mere fact that the person was found to be an agent in one year does not lead to necessary influence that he is also an agent in the next year Hence notice is to be given by the tax officer for each assessment year to appoint a person as agent

Representative Assessee

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Representative Assessee

Rights and Liabilities

24 July, 2011

Representative Assessee

Sec 161 - Liability of a representative assessee

Sec 161 Representative Assessee shall be liable to assessment in his own name in respect of the income of the principal Representative Assessee has the same responsibilities, duties and liabilities as if the income was earned by him beneficially (as though it was his income) Representative Assessee steps into the shoe of principal assessee Income retains the same character in the hands of the Representative Assessee and the person so represented

If Revenue is not sure as to

Whose hands income is to be taxed Which assessment year income is assessable

then, Revenue has powers to initiate assessments both in the hands of the NR and RA on protective basis.

Representative Assessee

24 July, 2011 Slide No. 29

Sec 161 - Liability of a representative assessee

In like manner and to same extent - CWT v Nizams Family Trust (108 ITR 555) Every representative assesee is liable to tax under 161(1) in like manner and to the same extent as the person beneficially entitled to the income. There may be many assessment on trustees as there are beneficiaries, but only one assessment order in respect of income of each beneficiary. Assessment of trustee in the same status as that of beneficiary whose interest is sought to be taxed. Tax payable by trustee would same as that payable by each beneficiary if he were assessed directly. Liability of the trustee is co-extensive with that of the beneficiary. All exemptions, deductions and abatements should be given to the trustees as the beneficiary would have been entitled to in case of direct assessment.
Representative Assessee
24 July, 2011 Slide No. 30

As many agents for each category of income

If NRs income falls under more than one categories of income per sec 9(1) and the persons (agents) concerned with such categories of income are more than one, then, each one of such person shall have to be appointed as an agent in respect of the particular category of income with which he is connected

Even within one category of income (e.g. business connection), there could be more than one person in India through whom the NR transacts business in India (E.g., export business of NR and sales business of NR)
A single NR may have more than one RA. E.g., if the NR is a beneficiary in 10 different trusts having different trustees, then there would be 10 RAs for such NR Each trustee would have to file a separate tax return for such beneficiary One Representative Assessee may not know that the NR has other sources of income Also, if the revenue has such information, the Revenue cannot include such income in the hands of the RA

Also, as many separate assessments on agents as number of principals

Representative Assessee

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Section 161- Liability of a representative assessee case laws

Saipem UK Limited vs DDIT (TIOL 243 ) (ITAT Mumbai)(2007) Primary reason for enactment of Sec 163 was to protect interest of revenue where it was difficult to make assessment and recover tax from a NR by assessing its agent in India as RA But, once the actual assessee is independently assessed, then protective assessment in the hands of agent u/s 163 is unjustified. To sum up, income of NR taxable in India can either be assessed in its own hand independently or in the hands of its agent as Representative Assessee on protective basis, but not on both, as this would amount to double taxation, which is against the principles of taxation and illegal

Barium Chemicals Ltd vs ITO (100 ITR 637) (AP) (1975)

Even if the proceedings of assessment had commenced against the nonresident principle, still they can be continued as agent of the NR principal or
Simultaneously, action for reassessment and recovery of tax can be taken both against the non-resident principal as well as NR
24 July, 2011 Slide No. 32

Representative Assessee

Section 161 - Liability of a representative assessee case laws

Prem Nath Diesels Grainvaying vs. CIT [1984] 159 ITR 575 (Delhi HC) once an income has been assessed in the hands of a non-resident (principal assessee), the same income could not again be assessed in the hands of his Representative Assessee

Claggett Brachi Co. Ltd vs. CIT (1989) 177 ITR 0409 (SC) It cannot be disputed also that if an assessment is made on one there can be no assessment on the other, and therefore, in this case if the assessment had been made on the Indian agent, the assessment could not have been made on the assessee

Representative Assessee

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Revenue Whether empowered to collect all taxes of NR from a single Representative assessee
Ramnarayan Rajmal (24 ITR 442) (Bombay HC)
Agent of the NR is liable to be charged only on income accruing to NR through dealing with him If the Revenue chooses to tax a NR in his own name, no difficulty can arise as there would be one assessment however, if the Revenue chose to tax NR in the name of agent, then in respect of each agency, there must be a separate assessment, because each agent is different and is treated as an assessee for all purposes of the Act

Representative Assessee

24 July, 2011 Slide No. 34

Revenue Whether empowered to collect all taxes of NR from a single Representative assessee
Eastern Scales (Pvt) Ltd (115 ITR 323) (Calcutta HC) An agent of the NR can be assessed only on the income received through him and not the total income of the NR Sec 161 The rate at which tax to be computed is the rate applicable to income of agent received by him on behalf of NR

Representative Assessee

24 July, 2011 Slide No. 35

Liability for payment of Advance Tax

Premier Automobiles Limited vs S N Srivastava ITO (76 ITR 1) (SC) Once AO passes an order and treats a person as an agent of NR to recover tax on NRs income, his liability to pay tax is not excluded under any provision of the Act Hence, Representative Assessee is liable to pay advance tax as well as tax on regular assessment A person treated as Representative Assessee of the NR after the close of the financial year cannot be burdened with the liability to pay advance tax for any past financial year

Similar proposition held in the following cases Income-tax vs T I & M Sales Limited (114 ITR 59) (Cal HC) Tata Engineering & Locomotive Co (49 ITR 866) (Mumbai HC)

Representative Assessee

24 July, 2011 Slide No. 36

Liability of penalty for defaults of non-resident

G K Ravi vs CIT (235 ITR 208) (Madras HC) Sec 161 Every Representative Assessee as regards the income in respect of which he is Representative Assessee shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing or in favor of him beneficially and shall be liable to assessment in his own name in respect of that income The expression such duties, responsibilities and liabilities found in sec 161 clearly indicates that Representative Assessee is duty bound to file the return and if there is any delay or default on his part in filing of such a return, then the liability for such delay or default is also liable to be imposed on him

Representative Assessee

24 July, 2011 Slide No. 37

Liability of Representative assessee is personal

Liability of Representative Assessee appointed under section 163 and assessed under section 161 is personal and not conditional upon his having any funds of the non-resident

If the Representative Assessee is unable to recover the tax from the nonresident, he cannot claim it as a bad debt/business loss on ordinary principles of commercial account

Representative Assessee

24 July, 2011 Slide No. 38

Reassessment proceedings against Representative assessee of non-resident

Jyothendrasinhji v Tripathi (201 ITR 611)(SC) (1993) Sec 166 AO has the option to tax either the Representative Assessee or the person represented (NR), however, he cannot tax both However, if income escapes assessment, it may be possible to make reassessment on the NR, even if the original assessment is on the RA

Prem Nath Diesels Grainvaying vs. CIT [1984] 159 ITR 575 (Delhi HC)
Sec 167 - Revenue is empowered to recover tax assessed on the NR from the property vested or under the control or management of RA

Sec 149 Notice cannot be issued beyond 2 yrs from end of AY to RA for initiating reassessment proceedings

Representative Assessee

24 July, 2011 Slide No. 39

Agents rights vis--vis non-resident

Sec 162 the Act empowers Representative Assessee to recover the tax paid by him as a Representative Assessee from the person on whose behalf it is paid. Representative Assessee may recover such amount from the moneys which he possesses on behalf of NR or from such moneys which comes to his possession The Act also entitles the Representative Assessee to retain estimated tax liability out of any moneys payable by him to NR In case there is a disagreement on the amount to be retained, the Representative Assessee may approach the AO and obtain a certificate for the amount retained till the time the final tax liability is determined Once such certificate is issued, the tax authorities cannot recover an amount higher than the amount specified in the certificate, unless the Representative Assessee owns more assets of the person represented

Representative Assessee

24 July, 2011 Slide No. 40

Right to Appeal
Whether Representative Assessee has the right to appeal against being treated as RA

The party aggrieved (RA) would have the right to appeal before the statutory authorities
Sec 246A (1)(d) provides right to appeal against an order made under sec 163 treating the assessee as an agent of NR Whether Representative Assessee has the right to appeal against assessment framed against him as agent of NR Questions raised as to whether the Representative Assessee can be aggrieved against the assessment framed upon the NR when 246A grants the right to appeal assessment order under sec 143(3)

CIT vs Fertilizer and Chemicals (Travancore) Ltd (166 ITR 823) (Kerala HC)
It cannot be said the Representative Assessee is aggrieved by the assessment made upon him as agent of NR since section 162 gives a right to recover

The challenge against the order of assessment is not sustainable

24 July, 2011 Slide No. 41

Representative Assessee

Right to Appeal
Whether the NR has the right to appeal against the assessment framed on him through his Representative Assessee Shrimant Govindrao Narayanrao Ghorpade vs CIT (48 ITR 54) Principal has the right to appeal against the order passed against the Representative Assessee of the NR
On the other hand, it would be reasonable to hold that the person in respect of whose income an assessment order is made or under the Act held liable to pay the tax should have a right to appeal if he has any grievance about the assessment. Therefore, even if it is assumed that the assessment orders had been made against the court of wards, the applicant would be an assessee within the meaning of section 30 of the Act having a right to file the appeals

Representative Assessee

24 July, 2011 Slide No. 42

Lets ponder
If RA is filing the tax return, whether non-resident is required to file the tax return? No

If RA is aware of the loss from other sources, whether the loss can be taken into account CIT v. P. Krishna Warier (75 ITR 154)

N. Annamalai (73 ITR 809

CIT vs Smt. Veenaben Vadilal (197 ITR 156)

Representative Assessee

24 July, 2011 Slide No. 43

Lets ponder
Whether any statutory remedy against the issue of notice for treating any person as agent of NR Ramnarayan Rajmal v. CIT (24 ITR 442) P. Subramania Chetty v. CIT (46 ITR 724)

Whether RA can avail the benefit under the tax treaty in respect of income of NR arising to him

Advance Ruling P. No. 10 of 1996, In re. (224 ITR 473)

If NR has made advance payment of tax and assessment is made at RA, can RA claim the advance payment of tax? Trustees of Late Sir R. J. Vakil v. CIT (33 ITR 517)

Representative Assessee

24 July, 2011 Slide No. 44

Recent Developments The DTC effect

Sec 170 Representative Assessee Definitions and provisions similar to Sec 160 and Sec 163 of the Act Sec 171 Rights and obligations of a representative assessee Similar to Sec 161 and Sec 162 of the Act Sec 172 Direct assessment or recovery not barred Similar to Sec 166 of the Act

Reassessment proceedings No special time limit of 2yrs AO has time limit of 7 yrs from the end of financial year to reopen assessment

Representative Assessee

24 July, 2011 Slide No. 45

Representative Assessee

Case Studies

Case Study - 1
Facts Alcan, a Canadian company, acquired shares in Indian Company

Alcan (Canada Co)

Canada

Alcan sold entire holding in Indal Ltd to Hind Ltd

India 197 order passed directing Hind Ltd to deduct tax Issue: Whether Hind Ltd could be treated as representative assessee of Alcan? Whether income taxed in hands of Alcan can be taxed again in the hands of representative assessee?
24 July, 2011 Slide No. 47

Indal Ltd

Hind Ltd

Representative Assessee

Hindalco Industries Limited vs DCIT

ITAT Ruling: Hind Ltd as representative assessee: Deduction of tax under section 195, no bar from proceeding and passing an order under section 163 No time limit specified for initiating proceedings under section 163 Since no certificate obtained from AO or principal u/s 195(2), provisions of 163(3) not applicable Proceedings against principal not time barred Order of AO treating Hind Ltd as representative agent upheld Taxability of capital gains in hands of Hind Ltd: Held that income having been brought to tax in hands of principal, same income could not once again be assessed in hands of representative agent (Relied on the decisions of Trustees of Chaturbhuj Raghavji Trust, Saipem UK Ltd and Fertilizers & Chemicals (Travancore) Ltd)

Representative Assessee

24 July, 2011 Slide No. 48

Case Study - 2
Mutual Fund Structure
Investors Contributors

Mutual Fund (Trust)

Trustee Cos

AMC

Scheme 1

Scheme 2

Scheme 3

Representative Assessee

24 July, 2011 Slide No. 49

Case Study 2

Facts

BSAMC, an asset management Co made payments to few UAE based unit-holders on Non-resident Unit redemption of units of Mutual Fund without deducting tax at Holders (UAE) Non resident investors source since capital gains arising on redemption of units were not taxable in India under the DTAA. UAE BSAMC obtained confirmation from independent accountants that there was no withholding tax obligation. Issue: Whether BSAMC can be treated as an agent of non-resident unitholders. Whether parallel proceedings for treating BSAMC as assessee in default can be initiated.
24 July, 2011 Slide No. 50

BSAMC

India

Asset Management Co

Representative Assessee

Birla Sunlife Asset Management Co. Ltd. vs ITO

ITAT Ruling : BSAMC as a representative assessee Income deemed to accrue or arise in India includes income from transfer of capital asset in India. As income received from BSAMC, it is rightly treated as Representative assessee within the definition of agent u/s 163 Gains taxable in India in the hands of BSAMC u/s 161 No bar under law to treat BSAMC simultaneously as representative assessee u/s 163 and as assessee in default for non-deduction of tax u/s 201 Mere reason that BSAMC is treated as agent will not affect the benefit available to non-residents under DTAA.

Representative Assessee

24 July, 2011 Slide No. 51

Case Study - 3
Facts TCSPL, Singapore engaged in operation of ships and aircrafts. operation of ships and aircrafts Singapore JMB, an agent of TCSPL, filed voluntary return as an agent of TCSPL Subsequently, Revenue observed that TCSPL was showing revenues by way of commission and not receipt from operation of ships. TCSPL has been claiming taxability of the freight collected in India at a lower rate as per Article 8 of the DTAA between India and Singapore and it is a case of income escaping assessment. 24 July, 2011
Representative Assessee
Slide No. 52

TCSPL (Singapore)

JMB (Agent of TCSPL)

India

Case Study 3
Notices were issued u/s 148 of the Act. Assessee claimed that for first 3 AYs, the notices were issued after the expiry of time period given u/s 149(3) of the Act. AO passed an order u/s 144 r.w.s 147 and 163 ex-parte on the ground that there was no response to the notice u/s 148 by SPM Issue: Whether provisions of section 149(3) would be applicable to the JMB who has voluntarily filed the return of his principal non resident, and in whose case no order u/s 163 has been passed treating him an agent of the TCSPL.
24 July, 2011 Slide No. 53

TCSPL (Singapore)

operation of ships and aircrafts Singapore

JMB (Agent of TCSPL)

India

Representative Assessee

JM Baxi & Co vs DDIT

Special Bench Ruling : There is no distinction between agent under section 160(1)(i) and section 163(1). All are representative assessee. No option with the non resident / agent to claim to be assessed under a particular clause of Sec 163(1) instead of Sec 160(1)(i)

Section 163(2) is a machinery section for treatment of agent of every kind

Two types agents
Agents who admit their liability as agents of non-resident Agents who deny their liability to be agents of the non-resident

Provisions of 149(3) shall not be applicable since JMB is not treated as an agent

Representative Assessee

24 July, 2011 Slide No. 54

Case Study - 4
Facts SPM Co in UK executed contracts in India. In order to execute the contracts it subcontracted further with other Cos. Including VLT(Gulf) LLC, UAE SPM Co. as well as VLT were assessed separately, but for relevant AY ,A.O. issued a notice to the SPM Co u/s 163 The notices were sent to the London as well as Indian office at Jamnagar of SPM Co as claimed by the A.O. but the notice sent at Indian office returned undelivered. A.O. however made an ex-parte order treating SPM Co as representative assessee of VLT on the basis that there was no response to the notice sent to London office.

Sub-contractors

VLT (UAE) UAE

SPM (UK)

UK

India Contracts in India

Representative Assessee

24 July, 2011 Slide No. 55

Saipem UK Ltd
ITAT Ruling:
Sec. 163 is enacted primarily to protect the interests of the revenue where it is difficult to assess a non resident and recover tax Tribunal held that order u/s 163 was bad in law as no meaningful opportunity was given to Assessee

Order u/s u/s 144 r.w.s147 and 163 is unsustainable as reasonable opportunity was not given to Assessee and also 7 days from receipt of notice had not expired.
In case department is not sure as to whether the assessment should be framed on agent or non resident and in such a case department, to be on safe side, will be justified in making two assessments, one substantive assessment and the other protective assessment like in the instant case but once one of the assessment is confirmed then the other is to be vacated
24 July, 2011 Slide No. 56

Representative Assessee

Saipem UK Ltd
ITAT Ruling: The income of non resident arising or accruing in India through its agent can be either assessed in its own hand independently or in the hands of its agent as representative Assessee on protective basis but not both as this would amount to double taxation which is against the principles of taxation and illegal

Representative Assessee

24 July, 2011 Slide No. 57

Case Study - 5
A Ltd (Mauritius Co)

Facts A Ltd, a Mauritius company, held shares in Indian Company B Ltd XY Ltd Singapore Singapore A Ltd sold entire holding in B Ltd to XY Ltd

B Ltd

India

Issue: Whether XY Ltd can be treated as a representative assessee of A Ltd Whether B Ltd can be treated as representative assessee of A Ltd

Representative Assessee

24 July, 2011 Slide No. 58

XY Ltd can be treated as representative assessee as it has acquired capital asset in India (Trinity Corporation, AAR 165 Taxman 272) B Ltd is not ; - an agent in general sense - employed by or behalf of A Ltd - not a trustee of A Ltd - not acquired any capital asset in India from A Ltd - A Ltd has not received income from or through B Ltd.

Whether B Ltd. forms business connection - Mere holding of substantial shares by A Ltd ought not to give rise to business connection u/s 163(1)(b)
- Even if assumed business connection, B Ltd. cannot be charged in respect of income earned by the A Ltd with respect to capital gains which are not arising through B Ltd.
Representative Assessee
24 July, 2011 Slide No. 59

Representative Assessee Whether useful to the agent

Facts I Co, entered into contract for supply of technology with F Co Ltd
F Co Ltd

Tax to be borne by I Co Contract for supply of technology I Co deducted tax @ 20 % / 10% as per order u/s 195(2)

I Co files tax as representative assessee of F Co Ltd

India I Co

pros / cons ??

Representative Assessee

24 July, 2011 Slide No. 60

Key Takeaways

Representative Assessee

24 July, 2011 Slide No. 61

Key Takeaways
Review of Agreement / Tax provisioning / Tax Advisory / Preparation of Tax Return
Review transactions with non-residents Analyse the possibility for person in India for being treated as Representative assessee or for resident / non-resident for transfer of capital asset Sections 160 to 163 vis--vis sections 195 to 201 Ring-fencing of Financial Risks - Appropriate clauses in the agreement - Obtain certificate u/s 162(2)

Representative Assessee

24 July, 2011 Slide No. 62

Thank you