SUNANDA BHANDARE J. ( 1 ) M/s. Premnath Dieselsgrainvaying Division, a partnership firm constituted on 2-4-1969entered into a contract with a non-resident company M/s International Grain Vaying Company Incorporated which was incorporated in U. S. A. This contract was in connection with the operation in India of off-loading the grain from large tonnage vesselsto the smaller ships along the Indian Coastline and providingsuitable grain vayors and their operation for discharge of wheatfrom large vessels to the smaller ships: M/s. Premnath Dieselsgramvaying Division was to provide necessary supervisory andother staff for maintenance and operation of such grainvayors. M/s. Premnath Diesels Grainvaying Division ultimately dissolvedon 1-4-1971. On 11-1-1972 the Income-tax Officer made anassessment for the assessment year 1969-70 on the non-residentcompany namely; M/s. International Grain Vaying Companyincorporated on a total income of Rs. 2,75,000 on the basis ofreturn filed by the non-resident company. It appears that thenon-resident company subseqwntly closed its business in Indiaand its Managing Director and Director left India for New York. Thereafter, on 6-12-1972 the Income-tax Officer served a notice on M/s. Premnath Diesels Grainvaying Division requiring it toshow cause why it should not be treated as agent of the non-resident under Section 163 (1) (b) of the Income-tax Act, 1961. Theappellant firm objected on the ground that it had no businessconnection with the non-resident company and it should not becharged to tax on the income of the non-resident. By his orderdated 12-2-1974 the Income-tax Officer rejected this contentionand treated M/s. Premnath Diesels Grainvaying Division as anagent of the non-resident company. On 2-3-1974 a demandnotice for the recovery of amount of Rs. 2,55,294 was servedon the appellant. M/s. Premnath Diesels Grainvaying Divisionpreferred an appeal to the Appellate Assistant Commissioner whoconfirmed the order of the Income-tax Officer in treating theappellant as an agent of the non-resident Company. An appealwas filed against that order before the Income-tax Appellatetribunal, Delhi Bench d . The Income-tax Appellate Tribunalheld that there was a business connection between the appellantand the non-resident Company within the meaning of Section163 (1) (b) and consequently M/s. Premnath Diesels Grainvavingdivision was rightly declared as agent of the non-resident company. The Income-tax Appellate Tribunal however held that by declaring M/s. Premnath Diesels Grainvaying Division as anagent of the non-resident company, it did not automatically become liable to pay tax as a representative assessee In respect ofthe assessment made on the non-resident Company. The Income-tax Appellate Tribunal however held that by declaring M/s. Premnath Diesels Grainvaying Division as anagent of the non-resident company, it did not automatically become liable to pay tax as a representative assessee In respect ofthe assessment made on the non-resident Company. On applica-tions filed both by the Department and the assessee the Tribunalreferred the case under Section 256 (1) to this Court for opinion. In the Reference Application [no. 261 (Del) of 1975-76filed by the Department] the following question has been referred : "whether on the facts and in the circumstances of thecase the Tribunal was justified in holding that M/s. Premnath Diesels Grainvaying Division held to bethe agent of the non-resident company under section163 would not be liable to pay tax as a representative assessee in respect of the assessment made on thenon-resident company M/s. International Grainvaying Company Incorporated ?"in Reference Application [no. 252 (Del) 1975-76 filed by theassessee] the following question has been referred : "whether on the facts and in the circumstances of thecase, the Tribunal was right in holding that the appellant had a business connection with M/s. International Grainvaying Co. Incorporated within themeaning of section 163 (1) of the Income-tax Act,1961?" ( 2 ) COUNSEL for the assessee Shri G. C. Sharma made atwo fold contention before us. Firstly, it was contended thatthere was no business connection between the assessee and thenon-resident company since the assessee was only a labourcontractor. It was, therefore, contended that the appellantwas not an agent within the meaning of section 163 of the Income-tax Act. The second contention was that assuming therewas a business connection between the present assessee and thenon-resident company, no tax could be levied on the appellant asa representative assessee under section 161 of the Income-taxact. It was submitted that once the Department having chosento assess, the non-resident company it was not open for thedepartment to assess the appellant as a representative assesseeof the non-resident. A concurrent assessment could not be madeon an agent. This assessment would also be barred by timeunder section 149 (3) of the Income-tax Act since the originalassessment against the non-resident company was made on11-1-1972 and the order under section 163 (1) (b) was purported to be made on 12/02/1974. ( 3 ) IN support of his first contention reliance was placed bymr. This assessment would also be barred by timeunder section 149 (3) of the Income-tax Act since the originalassessment against the non-resident company was made on11-1-1972 and the order under section 163 (1) (b) was purported to be made on 12/02/1974. ( 3 ) IN support of his first contention reliance was placed bymr. G. C. Sharma on the judgment of the Supreme Court in thecase of Commissioner of Income-tax, Punjab vs. R. D. Aggarwaland Company, 56 (1965) ITR 20. The Supreme Court whileinterpreting the term business connection within the meaning ofsection 42 (1) of the Indian Income-tax Act, 1922 held :"the expression "business" is defined in the Act as anytrade, commerce, manufacture or any adventure orconcern in the nature of trade, commerce or manufacture, but the Act contains no definition of theexpression "business connection" and its precise connotation is vague and indefinite. The expression"business connection" undoubtedly means somethingmore than "business". A business connection insection 42 involves a relation between a businesscarried on by a non-resident which yields profits orgains and some activity in the taxable territorieswhich contributes directly or indirectly to the earning of those profits or gains. It predicates an element of continuity between the business of the nonresident and the activity in the taxable territories: astray or isolated transaction is normally not to beregarded as a business connection. Business connection maytake several forms : it may include carrying on a part of the main business or activity incidental to the main business of the non-residentthrough an agent, or it may merely be a relationbetween the business of the non-resident and the activityin the taxable territories, which facilitates orassists the carrying on of that business. In each casethe question whether there is a business connectionfrom or through which income, profits or gains ariseor accrue to a non-resident must be determined uponthe facts and circumstances of the case. A relation to be a "business connection" must be real andintimate, and through or from which income mustaccrue or arise whether directly or indirectly to thenon-resident. In each casethe question whether there is a business connectionfrom or through which income, profits or gains ariseor accrue to a non-resident must be determined uponthe facts and circumstances of the case. A relation to be a "business connection" must be real andintimate, and through or from which income mustaccrue or arise whether directly or indirectly to thenon-resident. In the case before the Supreme Court though the assesses washaving commercial activity with the non-president inasmuch asorders were procured by the assessee for the non-resident company, which resulted in contracts for sale by the non-residentof goods to merchants at Amritsar, the Supreme Court held thatthere was no real and intimate relation between the non-residentcompany and the Indian assessee and, therefore, no businessconnection resulted from this transaction between the assesseeand the non-resident company. Section 42 (1) of the Indianincome-tax Act, 1922 is pari matria with Section 163 (l) (b) ofthe Income-tax Act. It was submitted by the counsel that thepresent case stood on stronger footing. In the present case theappellant was only a labour contractor who provided necessarysupervisory and other staff for maintenance of operation of grainvayors. According to the contract dated 8-4-1968 between theappellant and the non-resident Company, the appellant was to bepaid direct expenses in and towards the actual cost of the labourand supervisory staff phis additional provision for gratuity andprovident fund for the labour and certain office and miscellaneous expenses. Counsel submitted that if the appellant had refusedto supply the labour the non-resident Company could have engaged labour directly or through other sources and the businessof the non-resident Company would not have affected in anymanner whatsoever. There was no profit sharing between thenon-resident Company and the appellant firm. No amount waspaid by the appellant Company to the non-resident Companyand in fact a sum of Rs. 2,18,432 was paid by the non-residentcompany to the appellant for which the appellant firm was separately assessed and tax on that income had already been paid. ( 4 ) MR. Wazir Singh, learned counsel for the Department submitted that it was not necessary to have any profit sharing between the non-resident Company and the appellant firm in orderto show that there was a business connection between the two. It was submitted that there was intimate relation between thenon-resident Company and the appellant Company inasmuchas all the work was done by the appellant Company. It was submitted that there was intimate relation between thenon-resident Company and the appellant Company inasmuchas all the work was done by the appellant Company. Reliancewas placed by the counsel for the Department on the judgmentof the Supreme Court in the case of Barendra Prasad Ray andothers vs. Income Tax Officer a Ward, Foreign Section and Others, (1981)129 ITR 295. The Supreme Court while dealing with the question whether the expression business connection would also include professional connection between a solicitor and a barristerheld that the expression business does not necessary mean tradeor manufacture only. The expression included within its scopeprofessions, vocations and callings. The word business is oneof wide import and meant an activity carried on continuously andsystematically by a person by the application of his labour andskill with a view to earn an income. In that case the Supremecourt observed that the barrister Mr. Blanco White who came toindia and appeared before the Calcutta High Court, though notpaid by the Calcutta Solicitor, was engaged by the Solicitor atcalcutta on instructions from the London solicitor. Mr. Blancowhite could not have appeared before the Calcutta High Courtunless he was assisted or instructed by a solicitor to do so. Thesupreme Court, therefore, held that the connection was not acasual one and it was real and intimate relation. The facts ofthe case before the Supreme Court were different than the factsof the present case. The relationship betwen a solicitor andbarrister in a dual system is of a peculiar nature. A barrister inthis system cannot argue a case in court unless he is instructedand assisted by a solicitor. In the present case, if the firm hadrefused to assist the non-resident Company in procuring labourthe non-resident company could have directly engaged labourand carried on the business activity. The promts or the businessof the non-resident Company could have been earned bythe non-resident Company even without the assistance of theappellant firm. ( 5 ) IT is not disputed that in the present case the appellantapart from procuring labour supplied, supervisory and other services for which the appellant was paid actual expenses and commission. The non-resident Company carried on its business activity because of the contract with the Government of India underpl-480 Programme. The services rendered by the appellantcould have been rendered by any other labour contractor orcould have been obtained by the non-resident Company by engaging direct labour. There was. The non-resident Company carried on its business activity because of the contract with the Government of India underpl-480 Programme. The services rendered by the appellantcould have been rendered by any other labour contractor orcould have been obtained by the non-resident Company by engaging direct labour. There was. therefore no real and intimate relation between the appellant and the non-resident Company. Theappellant cannot, therefore, be held to be an agent having anybusiness connection with the non-resident as envisaged underaction 163 (1) (b) of the Income-tax Act, 1961. ( 6 ) WE now come to the second contention raised by Mrg. C. Sharma, Advocate for the appellant. It is an admitted factthat the non-resident Company M/s. International Grainvayingincorporated filed its return on 25-8-1969 and was assessedunder section 143 (3) of the Income-tax Act on 11-1-1972. Itwas only on 12/02/1974 that an order under section163 (1) (b) was passed by the Income-tax Officer declaring thepresent appellant as an agent and treating him as a representative assessee of the non-resident. In none of the cases cited bycounsel on both the sides an order under section 163 (l) (b)was sought to be made after the non-resident was assessed onthe return filed by the non-resident and without giving any opportunity to the agent to make its objections and subjecting it tothe normal process of the assessment under the Income-taxact. ( 7 ) IN the case of Commissioner of Income-tax vs. Claggettbrachi and Co. Limited, 100 (1975) ITR 46 the Andhrapradesh High Court held that the department cannot make theassessment on both the agent and the principal. If on exerciseof the option the assessment is made on the agent, the authorities cannot make an assessment on the principal. The Andhrapradesh High Court in this case was dealing with a question of reassessment proceedings and whether the same could be startedagainst the principal instead of on the agent when original assessment was made on the agent. ( 8 ) REFERENCE may be made to the full Bench judgment ofthe Punjab and Haryana High Court in the case of Commissionerof Income-tax vs. Kanhaya Lal Gurumukh Singh, (1973) 87 ITR476 where the majority expressed the view that sections 246and 249 of the Income-tax Act leave no manner of doubt thatthe Income-tax Officer has to pass an order under section 163before initiating proceedings by issuing a notice under section148 of the Act. In that case simultaneously notices were issuedboth under section 163 and section 148 of the Act. In the present case, no notice was issued to the appellant asking it to filea return. The assessment was made on the non-resident, andonly a demand notice was issued on the appellant, for the recovery of the amount after declaring it an agent under section163, that too after the period of 2 years had expired. It wasopen to the Income-tax Officer to assess either the representativeor the non-resident at the initial stage. However, once the nonresident Company was assessed, the representative assessee couldnot be assessed after the statutory period of two years had expired. In fact, on the date when an order under section163 (l) (b) was passed, no assessment could have been made onthe appellant since two years had already expired, which is arequirement under section 149 (3) of the Income-tax Act. Therefore, even if the appellant was treated as an agent having business connection with the non-resident he could not be taxedwithout assessment being made on him. There is no doubtthat the appellant bad to be given an opportunity of being heardas to its liability. Therefore, a notice under section 139 (2)calling for a return of income would be essential. In the presentcase by denying this opportunity the appellant was also deniedthe valuable right of appeal to challenge the quantum of tax. If the Income-tax Department finds that the agent is to be taxedas representative assessee then the Department must call uponthe agent to file the return and then only the agent can betaxed as a representative assessee. The Department havingchosen to assess the non-resident, assuming the appellant couldbe treated as an agent, could not tax the agent asrepresentativeassessee. ( 9 ) THE only thing that could be done at this stage would beunder section 167 of the Act to recover the amount of tax payable by the non-resident from the assets which had vested in thehands of the agent. In the present case no property of the non-resident had vested in the hands of the agent. Therefore, norecovery could be made under section 167 of the Act. In anyevent the question of recovery of tax was not before the Appellate Assistant Commissioner. The only question before theappellate Assistant Commissioner was whether the appellantcould be treated as an agent under section 163 (3) (b) of thenon-resident. Therefore, norecovery could be made under section 167 of the Act. In anyevent the question of recovery of tax was not before the Appellate Assistant Commissioner. The only question before theappellate Assistant Commissioner was whether the appellantcould be treated as an agent under section 163 (3) (b) of thenon-resident. ( 10 ) WE, therefore, answer the first question in Referenceapplication No. 261 (DEL of 1975-76) in the affirmative infavour of the assessee and against the Department and the secondquestion in Reference Application No. 252 (DEL of 1975-76)in the negative in favour of the assessee and against the Department. The parties are left to bear their own costs.