K.L.Roy, J. -
(1.) By an agreement in writing, dated the 21st December, 1953, entered into between the petitioner, Associated Pigments Ltd., an Indian company, and Sakai Chemical Industry Company Ltd. of Japan (hereinafter referred to as the "Japanese company") in consideration of the Japanese company providing the petitioner with all technical assistance and "know-how" for the erection of the petitioner's factory in India, the petitioner undertook to make certain payments and also to allot certain fully paid-up shares in the petitioner-company to the Japanese company. In terms of the said agreement certain amounts in U.S. dollars were remitted to the Japanese company by the petitioner after having obtained the requisite permission from the Reserve Bank of India, Exchange Control Department. Such remittances were as follows :
(2.) As under the said agreement the petitioner had to make further remittances to the Japanese company it applied to the Reserve Bank of India, Exchange Control Department, for permission to remit $1,050 out of the balance of $2,450 still payable to the Japanese concern but the Reserve Bank wanted a certificate from the income-tax department to the effect that the proposed payment does not attract any tax under the Indian Income-tax Act. By its application dated the 3rd June, 1965, the petitioner applied to the first respondent, the Income-tax Officer, H-Ward, Companies District II for the necessary certificate m order to enable it to obtain the permission from the Reserve Bank for remittances to the Japanese concern. Several reminders were thereafter sent to the respondent No. 1 and also to the Inspecting Assistant Commissioner of Income-tax, Range II, and ultimately, by one of the impugned letters dated the 4th January, 1966, the respondent-Income-tax Officer, informed the petitioner that remittance to the Japanese company represented income of that concern accruing or arising in India and as such tax should have been deducted at source under Section 18(3B) of the Income-tax Act, 1922, on the remittances already made and on the value of the shares issued to that concern. The petitioner was requested to show cause in writing why it should not be treated as a defaulter in respect of the tax under Section 18(7) of that Act. Regarding the proposed remittance the respondent was of the opinion that Section 195(1) of the 1961 Act was applicable and the petitioner was, therefore, required to show cause why necessary deduction of tax should not be made before making any such remittance. By the second impugned letter dated the 19th January, 1966, the respondent-Income-tax Officer requested the petitioner to pay tax on the remittances already made and the value of the shares issued to the Japanese company without further delay. The petitioner was also requested to deduct tax and pay the same for the proposed remittance to Japan. This rule was obtained by the petitioner on the 24th March, 1966, requiring the respondents to show cause why the impugned letters dated the 4th January and the 19th January, 1966, should not be quashed and why the respondents should not be directed to forbear from enforcing or giving any effect to the demand contained in the aforesaid letters.
(3.) Dr. Pal for the petitioner has raised two main contentions against the legality of the demand by the respondent-officer for tax in respect of the remittances already made to Japan. He has referred me to the provisions of Sections 18(3B) and 18(7) as well as Sections 34(3) and 46 of the 1922 Act and to the corresponding provisions of the 1961 Act for his contention that an order under Section 18(3B), being an order of assessment, must be made within four years from the end of the relevant accounting year under Section 34(3), and as in this case four years have long elapsed since the end of the respective accounting years in which the remittances had been made no order under Section 18(3B) treating the petitioner as an assessee in default could be made by the respondent. For this proposition he has relied on a decision of the Bombay High Court in S.M. Modi v. Commissioner of Income-tax,  33 I.T.R. 529 (Bom), where on the analogous provision of Section 18(3A) of the 1922 Act, the Bombay High Court held that unless there was a determination under that sub-section the assessee would be deprived of its right of appeal against that order under Section 30 and therefore there must be an adjudication which would be appealable under Section 30. Section 18 provides for payment by deduction at source. Sub-section (3A) requires any person responsible for paying to a person not resident in the taxable territories or to a company which is neither an Indian company nor a company which has made the prescribed arrangement for the declaration and payment of dividends within India any sum chargeable under the provisions of that Act to deduct at the time of the payment, unless he was himself liable to pay income-tax and super-tax thereon as an agent, to deduct income-tax and super-tax at the prescribed rates. Sub-section (3A) which has since been repealed, provides for similar deductions in respect of payment of salary to nonresident persons. Section 18(7) enacts that if any person or the principal officer of a company does not deduct tax or after deducting fails to pay the sums deducted as required by or under that section, he or the company as the case may be, shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax. Section 34(3) provides that no order of assessment shall be made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable. If a person is to be held responsible for payment of tax on the ground that he had failed to deduct such tax when making payment to a non-resident and for that purpose must be deemed to be a defaulter, it would obviously follow that any order directing him to pay any such amount must be, an order of assessment or must be a determination which is equivalent to an order of assessment so as to entitle him to appeal against such determination. The decision of the Bombay High Court relied on by Dr. Pal leaves no room for doubt on this question. If a determination under Section 18(3B) is to be a determination of liability which attracts tax, such determination must be made within the period prescribed under Section 34(3), i.e., within four years from the end of the accounting year in which the amount was assessable. In this case the petitioner became liable as an assessee in default as and when remittances were made without deduction of tax and it must be held that so far as the past remittances are concerned four years have already elapsed from the end of the respective accounting year when the impugned letters were issued by the respondent and no demands could be made on the petitioner by the said letters.;