3.—Representative assesses—Special cases.
Who may be regarded as agent.
306(1)
For the purposes of this Act, “agent”, in relation to a non-resident, includes––
(a) any person in India— (i) who is employed by or on behalf of the non-resident; or (ii) who has any business connection with the non-resident; or (iii) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or (iv) who is the trustee of the non-resident;
(b) any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India.
306(2)
A broker in India who, in respect of any transactions, does not deal directly with or on behalf of a non-resident principal, but deals with or through a non-resident broker shall not be deemed to be an agent under this section, in respect of such transactions, if the following conditions are fulfilled:—
- (a) the transactions are carried on in the ordinary course of business through the first-mentioned broker; and
- (b) the non-resident broker is carrying on such transactions in the ordinary course of his business and not as a principal.
306(3)
A person shall not be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be treated as such.
306(4)
In this section, “business connection” shall have the meaning assigned to it in section 9(8)(b).
Section Summary:
This section defines who can be considered an "agent" of a non-resident for tax purposes under the Income Tax Act. It outlines the circumstances under which a person in India or abroad can be treated as a representative assessee for a non-resident, making them responsible for the non-resident's tax obligations in India. The section also provides exceptions for certain brokers and ensures that a person cannot be treated as an agent without being given an opportunity to present their case.
Key Changes:
- Clarification of "Agent" Definition: The section explicitly lists the types of relationships (e.g., employment, business connection, trusteeship) that qualify a person as an agent of a non-resident.
- Broker Exception: Introduces a specific exception for brokers in India who deal with non-resident brokers, provided certain conditions are met.
- Right to Be Heard: Ensures that a person cannot be treated as an agent without being given an opportunity to present their case before the Assessing Officer.
Practical Implications:
- For Non-Residents: Non-residents with income-generating activities in India must ensure that their agents (e.g., employees, trustees, or business partners) comply with Indian tax laws. Failure to do so could result in the agent being held liable for the non-resident's tax obligations.
- For Agents: Individuals or entities acting as agents for non-residents must be aware of their potential tax liabilities and ensure proper documentation and compliance.
- For Brokers: Brokers in India who deal with non-resident brokers can avoid being treated as agents if they meet the specified conditions, reducing their compliance burden.
Critical Concepts:
- Business Connection: Defined under Section 9(8)(b), this term refers to a significant and continuous commercial relationship between a non-resident and a person in India, which results in income accruing or arising in India.
- Representative Assessee: A person who is treated as the taxpayer on behalf of a non-resident for the purpose of fulfilling tax obligations in India.
- Broker Exception: A broker in India is not considered an agent if they deal with a non-resident broker in the ordinary course of business and the non-resident broker is not acting as a principal.
Compliance Steps:
- Identify Potential Agents: Non-residents must identify individuals or entities in India who may qualify as agents under this section.
- Maintain Documentation: Agents should maintain records of transactions and relationships with non-residents to demonstrate compliance with the law.
- Respond to Notices: If the Assessing Officer considers treating someone as an agent, the person must respond to the notice and present their case during the hearing.
- Brokers: Ensure transactions with non-resident brokers are conducted in the ordinary course of business and that the non-resident broker is not acting as a principal.
Examples:
- Example 1: A non-resident company hires an Indian firm to manage its operations in India. The Indian firm is considered an agent under this section and is responsible for filing tax returns and paying taxes on behalf of the non-resident company.
- Example 2: An Indian broker deals with a non-resident broker for stock market transactions. If the transactions are conducted in the ordinary course of business and the non-resident broker is not acting as a principal, the Indian broker is not treated as an agent under this section.
- Example 3: A non-resident individual appoints an Indian trustee to manage their assets in India. The trustee is treated as an agent and must comply with Indian tax laws on behalf of the non-resident.