Representative assessee [Section 160] under Liability in Special Cases :

•  General : Besides the legal representatives mentioned above, in certain cases, the income received by one person can be assessed in the hands of

another. Persons who are liable to be assessed on behalf of other because of their association with the real recipient of the income are known as representative assessees. The expression ‘representative assessee‘ means:

(i) the agent of a non-resident including a person who is treated as an agent under section 163 in respect of the income of the non- resident which is deemed to accrue or arise to him in India;

(ii) the guardian or a manager of a minor, a lunatic or an idiot in respect of the income of such latter person;

(iii) the Court of Wards, Administrator-General, Official Trustee, Receiver or Manager appointed by or under any order of a Court in respect of the income which they received or are entitled to receive on behalf of or for the benefit of any person; and

(iv) a trustee appointed under a trust deed by a duly executed instrument in writing, whether, testamentary or otherwise, in respect of any income which he is entitled to receive on behalf of or for the benefit of any person;

(v) a trustee appointed under an oral trust in respect of the income which he receives or is entitled to receive on behalf of or for the benefi t of any person.

Explanation 1 makes it clear that a trust which is not declared by a duly executed instrument in writing (including a Wakf deed which is valid under the Mussalman Wakf Validating Act, 1913) will be deemed to be a trust declared by a duly executed instrument in writing if a statement in writing signed by the trustee or trustees and setting out the purpose or purposes of the trust, particulars of the trustee or trustees, the beneficiar y or beneficiaries and the trust property, is prepared and forwarded to the Assessing Officer within the specified time limit. The specified time-limit will be three months from date of the declaration of the trust. For this purpose, the item ‘oral trust‘ means a trust which is not declared by a duly executed instrument in writing including any Wakf deed and which is also not deemed under Explanation 1 to be a trust declared by a duly executed instrument in writing.

Every representative assessee is deemed to be an assessee under the Income-tax Act.

•  Liability of a representative assessee [Section 161]: Every representative assessee, therefore, has the same responsibilities, duties and liabilities as if

the income were being received by or accruing to or in favour of him beneficially. He is liable to be assessed in his own name in respect of such income but the assessment is deemed to have been made upon him in his representative capacity. The tax is levied on and is recovered from such an assessee, in like manner and to the same extent as it would have been levied upon and recovered from the person represented by him.

Where any income in respect of which the trustee, appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise, including any valid wakf deed, is liable as a representative assessee, consists or includes profits and gains of business, tax shall be charged on the whole of the income in respect of such a person at the “maximum marginal rate”. However, this provision will not apply in cases where such profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance and such is the only trust so declared by him.

Where any person is, in respect of any income, assessable under this Chapter in the capacity of a representative assessee, he shall not, in respect of that income, be assessed under any other provision of the Act.

The provisions of sections 160 and 161 contain only a machinery to levy and collect the tax but do not, in any way, affect the incidence of tax on a certain income and the scope of total income that must be subjected to tax.

•  Right of a representative assessee to recover tax paid [Section 162]: Every representative assessee who is charged to tax as such is entitled to recover

the tax paid from the person on whose behalf he had paid it or to adjust it against any moneys in his possession, but belonging to the other persons. The representative assessee has the right to retain out of the moneys in his representative capacity, an amount equal to any sum paid or payable by him under the Act in addition to the right to recover the same from the beneficial owner of the income. An agent who apprehends that he may be assessed as a representative assessee has the right to retain such sum irrespective of the fact that the non-resident may turn out to be not at all assessable to tax in India when the assessment is ultimately made upon him.

•  Statutory agent of non-residents: An agent is considered a representative assessee but only if he is the agent of non- resident person. According to

section 163, an agent, in relation to a non-resident person, includes any person in India:

(i) who is employed by or on behalf of the non-resident;

(ii) who is having any business connection with the non-resident;

(iii) from or through whom the non-resident is in receipt of any income, whether directly or indirectly;

(iv) who is trustee of the non-resident; and

(v) any other person who (whether resident or non-resident) has acquired a capital asset in India by means of a transfer from the non-resident.

In the first four cases stated above, the person sought to be assessed as the agent of a nonresident must necessarily be in India whereas it need not be so in the fifth case. Thus, a non – resident may be treated as the agent of another non-resident. The appointment of the agent may be made any time before or after the expiry of the relevant previous year. An agent of a non- resident may be appointed under this section even if at the date of such appointment the non-resident is not alive.

According to the proviso to this section, where transactions are carried on in the ordinary course of business through a broker in India and the broker does not deal directly with or on behalf of a nonresident principal but deals with or through a non-resident broker the broker in India cannot be treated as statutory agent in respect of the income arising to the non-resident from such transactions. Thus, where bona fide hedging transactions take place through a broker in India and a foreign broker acting for an undisclosed principal, the Indian broker cannot be deemed to be agent of the foreign principal. But generally a broker is not deemed to be the agent of a nonresident person so long as he functions exclusively in his capacity as a broker.

For the purposes of section 163(1), the expression “business connection” shall have the meaning assigned to it in Explanation 2 to clause (i) of section 9(1) of the Income-tax Act, 1961.

Before a person can be treated as an agent of a non-resident he must be given a reasonable opportunity of being heard by the Assessing Officer as to his liability to be so treated.