Section 163 of ITA, 1961 : Section 163: Who May Be Regarded As Agent

Explanation using Example

Imagine a scenario where a non-resident individual, Mr. Anderson, who lives in the USA, owns a software company. This company provides services to clients in India. Mr. Anderson has employed Mr. Kumar, who resides in India, to manage the Indian operations of his company.

Under Section 163 of the Income-tax Act, 1961, Mr. Kumar could be considered Mr. Anderson's "agent" in India because he is employed by Mr. Anderson (clause a) and has a business connection with him (clause b). Consequently, Mr. Kumar may have certain tax obligations on behalf of Mr. Anderson's company, such as the responsibility to withhold and pay taxes on income generated from the Indian clients.

However, if Mr. Kumar was merely a broker who facilitated transactions between Mr. Anderson's company and Indian clients without dealing directly with or on behalf of Mr. Anderson, and all transactions were conducted through another non-resident broker in the ordinary course of business, then Mr. Kumar would not be deemed as an agent (as per the provided conditions).

Additionally, before any tax liability is determined, Mr. Kumar has the right to present his case to the Assessing Officer, ensuring he is not unfairly treated as an agent without his knowledge or without being given a chance to explain his relationship with the non-resident company (subsection 2).