Not passing separate order u/s 161 but adding income of non-resident in hands of assessee as representative assessee bad in law.
ABCAUS Case Law Citation
ABCAUS 3476 (2021) (03) ITAT
Important case law relied referred:
CIT vs Dr Laxmichand Narpal Nagda (1995) 211 ITR 804 (Bom)
Smt Shashi Varma vs CIT (1997) 224 ITR 106 (MP)
Rajeev B Shah vs ITO (ITA No.262/Mum/2015
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the action of the Assessing Officer (AO) in treating the assessee as representative assessee u/s 160 of the Income Tax Act, 1961 (the Act).
The appellant assessee was an individual, who filed his return of income of showing income from house property, business income and interest income. The assessee did not maintain any books of account.
AIR information was received showing that the assessee had deposited cash in bank accounts during the financial year. Therefore, the case of the assessee was selected for scrutiny.
The assessee was asked to explain the deposit of cash. The assessee submitted that the source of cash deposit was sale of property made by one non-resident by whom the assessee was holding power of attorney (POA) whereby the non resient had authorised the assessee to sell the parental agricultural land on his behalf. It was further stated that the full amount of the sale consideration was transferred to the non-resident through cheque including the cash part.
The AO was of the view that said land was agricultural land but since it was situated within the municipal limits, the transfer of same was chargeable to tax under the head capital gain. Therefore, he issued show cause notice (SCN) to the asssessee.
The assessee inter alia contended that the land was not his property and he was merely a power of attorney holder. He further submitted that he did not held any money from the sale proceedings.
The AO made assessment of income earned by non-resident in the hands of the assessee by invoking section 160 and 162 of the Act as according to him assessee was a ‘representative assessee’ of non-resident and long-term capital gain was chargeable to tax in the hand of the assessee. He refused to give deduction u/s 54F for investment in another property and passed the assessment order u/s 143(3) of the Act.
The CIT(A) upheld the action of the AO.
Before the Tribunal, the claim of the assessee was that the assessee could not be treated as agent of non-resident without passing a specific order u/s 163 of the Act.
It was also contended that even otherwise the AO was required to frame a separate assessment order in the name of the assessee in his representative capacity as an agent of non-resident which was not been made by the AO who had made the addition in the hands of the assessee as his own income which was an invalid order.
The Tribunal stated that according to the provisions of Section 160(1)(i) representative with respect to a non-resident means the agent of the non-resident including a person who is treated as an agent u/s 163 of the income tax act. According to Section 163 of the act in relation to a non-resident and agent includes any person who has any business connection with the non-resident or from or through womb the non-resident is in receipt of any income whether directly or indirectly.
It was observed that in the instant case, the assessee had sold the property on behalf of a non-resident and had transferred the money to the non-resident through him. Therefore, according to the provisions of Section 163 of the act, the assessee was an agent of the non-resident.
The Tribunal further noted that the provisions of Section 161 provides that every representative assessee as regards the income in respect of which he is a representative assessee shall be subject to the same duties, responsibilities and liabilities as if income is received by or accruing to or in favour of him beneficially and shall be liable to assessment in his own name in respect of that income but such assessment shall be deemed to be made upon him in his representative capacity only.
Further the provisions states that the tax subject to other provisions of the income tax act be levied upon and recovered from him in like manner and to the same extent as would be leviable upon and recoverable from the person represented by him.
Therefore, the Tribunal stated that the assessing officer should have passed a separate assessment order from the income of the assessee with respect to the income of the non-resident holding the assessee as a representative of a non-resident.
In the present case, the Tribunal observed that the the assessing officer had passed an order in the name of the assessee without specifying that the above income was chargeable to tax in the hands of the assessee as a representative assessee of a non-resident.
The Tribunal opined that not passing a separate order but adding the income of the non-resident in the hands of the assessee was not in accordance with the provisions of Section 161 of the act. Further, the AO had also charged the tax in the hands of the assessee in the residential status of resident and not non-resident.
Accordingly, the Tribunal deleted the addition made of the income of the non-resident and the ground of the appeal was allowed in the favour of the assessee.
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