Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: Live. Part B of Chapter XV. Defines who may be treated as the agent of a non-resident for the representative-assessee machinery; sub-section (2) prescribes the mandatory opportunity of being heard.
Subject: 'Agent', in relation to a non-resident, includes any person in India employed by or on behalf of the non-resident, or having a business connection with him, or from or through whom the non-resident is in receipt of income, or who is the trustee of the non-resident; and any person, whether resident or not, who has acquired a capital asset in India by means of a transfer. No person may be treated as agent without being given an opportunity of being heard.
Finance Act, 2026: No change. Chapter XV is untouched by the Finance Act, 2026; the section stands as amended up to the Finance Act, 2025.
A. SECTION COMMENTARY
1. The hook for taxing a non-resident through a resident
Section 163 supplies the personal hook of the representative-assessee machinery as applied to non-residents. Read with section 160(1)(i) and section 161, it identifies the resident (or other) person who may be assessed and made to answer, in a representative capacity, for the Indian income of a non-resident. The categories in sub-section (1) are inclusive: employment by or on behalf of the non-resident; a business connection with him; being the person from or through whom the non-resident receives income; trusteeship; and, by clause (c) and the later limb, a person who has acquired a capital asset in India by means of a transfer from the non-resident.
2. 'Business connection' is wide and is not confined to trade
The reach of 'business connection' was settled by the Supreme Court in Barendra Prasad Ray, where an Indian firm of solicitors was held capable of being treated as the agent of a non-resident barrister who argued in India. The Court held that the language of section 9 and section 163 is comprehensive enough to embrace income under all the heads in section 14, including professional income; 'business connection' is not confined to trade or commerce. The territorial limit, however, remains: under section 9 income can be deemed to accrue in India only to the extent of operations carried out in India (Carborundum), so the agency mechanism cannot reach income with no Indian operations behind it.
3. Conditions precedent: status in the relevant year; connected income only
Two limits confine the section. First, the represented person must answer the description 'non-resident' in the relevant previous year; if he was not a non-resident in that year, section 163(1)(c) cannot be invoked (Comverse). Second, the agent's liability, like that of any representative assessee under section 161, is confined to income with which he has a real connection; appointment as agent is of no consequence unless there is income in respect of which he can be held a representative assessee (WABCO India; the General Electric line).
4. The mandatory hearing under sub-section (2)
Sub-section (2) is a mandatory safeguard: no person may be treated as the agent of a non-resident unless he has been given an opportunity of being heard by the Assessing Officer as to his liability to be so treated. An order under section 163 must precede the assessment, and a failure to afford the section 163(2) hearing vitiates the order. The order treating a person as agent is appealable, and the agent retains his right of indemnity/recovery against the non-resident under section 162.
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
163. (1) For the purposes of this Act, "agent", in relation to a non-resident, includes any person in India—
(a) who is employed by or on behalf of the non-resident; or
(b) who has any business connection with the non-resident; or
(c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or
(d) who is the trustee of the non-resident; and includes also any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India :
Provided that 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, namely:—
(i) the transactions are carried on in the ordinary course of business through the first-mentioned broker; and
(ii) the non-resident broker is carrying on such transactions in the ordinary course of his business and not as a principal.
Explanation.—For the purposes of this sub-section, the expression "business connection" shall have the meaning assigned to it in Explanation 2 to clause (i) of sub-section (1) of section 9 of this Act.
(2) No person shall 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. Charge of tax where share of beneficiaries unknown.
C. AUTHORITIES
Section 163 is richly litigated, both on the substance of 'business connection' and on the conditions precedent. All citations below are web-verified; citations flagged by research as needing a direct-report check are marked.
Cluster A — Scope of 'agent': business connection includes profession
Barendra Prasad Ray v. ITO
Citation: (1981) 129 ITR 295 (SC)
Facts: An Indian firm of solicitors was sought to be treated, under section 163(1), as the agent of a non-resident UK barrister who argued patent suits in India.
Held: The words of section 9(1) and section 163 are comprehensive enough to cover all heads of income in section 14, including professional income; 'business connection' is not confined to trade or commerce. The firm could be treated as the non-resident's agent.
Relevance: The foundational Supreme Court authority on the breadth of 'agent'/'business connection' under section 163.
Carborundum Co. v. CIT
Citation: (1977) 108 ITR 335 (SC)
Facts: A non-resident company providing technical/managerial services; whether the income could be brought to tax in India through an Indian connection.
Held: Even where a business connection exists, income cannot be deemed to accrue or arise in India unless the operations giving rise to it were carried out in India; situs follows where the operations/services are performed.
Relevance: Sets the territorial limit on what income can be reached through the section 163 agency mechanism (read with section 9). (Verify the report directly before quoting.)
Cluster B — Conditions precedent: non-resident status in the relevant year
Comverse Network Systems India (P) Ltd. v. CIT
Citation: (2014) 48 taxmann.com 1 (Del)
Facts: An Indian company was sought to be made deemed agent under section 163(1)(c) of a person who was not a non-resident in the relevant accounting year.
Held: A 'representative assessee' must be seen in respect of the income of a non-resident for the particular previous year; if the person was not a non-resident in that year, section 163(1)(c) cannot be invoked.
Relevance: Authority that the represented person's non-resident status in the relevant year is a condition precedent to section 163. (A cognate matter reached the P&H High Court — 103 taxmann.com 313 — with the Revenue's SLP dismissed; verify the forum cited.)
Cluster C — Agent's liability limited to connected income
WABCO India Ltd. v. DCIT (International Taxation)
Citation: (2018) 407 ITR 317 (Mad)
Facts: An Indian company was made agent of a non-resident for capital gains on an off-shore transfer of its own shares in which it had no role.
Held: An Indian company with no role in a share transfer effected outside India cannot be treated as agent/representative assessee of the non-resident transferor; section 163 must be read with section 161, and the agent's liability is confined to income with which it has a real connection.
Relevance: Modern authority that the section 163 agency cannot attach to income the resident had nothing to do with.
General Electric Co. v. DDIT (International Taxation)
Citation: Delhi High Court (verify precise citation)
Facts: Scope of the liability of a person appointed agent under section 163 vis-à-vis the non-resident's income.
Held: Section 163 is machinery to give effect to sections 160–161; the appointment of an agent is of no consequence unless there is income in respect of which the agent can be held a representative assessee, and the agent is taxable only on income connected with it.
Relevance: Confirms section 163 as machinery dependent on section 161, and the connected-income limit. (Citation to be confirmed before final print.)
It is well established, on the statute and consistent High-Court practice, that no person may be treated as the agent of a non-resident under section 163 without the opportunity of being heard required by section 163(2); the order must precede the assessment, and failure to comply vitiates it. A specific named decision should be verified before being cited as the lead on this point.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; three asterisks (***) denote words or a provision omitted by amendment and retained only to mark the omission. The Finance Act, 2026 amends no section of Chapter XV of the Income-tax Act, 1961 (its Part-A amendments touch ss.92CA, 139, 140B, 144B, 144C, 147A, 148, 150, 153, 153B, 220, 222, 234, 245, 245MA, 254 and 270A-276 only). Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.
CHAPTER XV — LIABILITY IN SPECIAL CASES
Section 163 — Who May Be Regarded as Agent
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: Live. Part B of Chapter XV. Defines who may be treated as the agent of a non-resident for the representative-assessee machinery; sub-section (2) prescribes the mandatory opportunity of being heard.
Subject: 'Agent', in relation to a non-resident, includes any person in India employed by or on behalf of the non-resident, or having a business connection with him, or from or through whom the non-resident is in receipt of income, or who is the trustee of the non-resident; and any person, whether resident or not, who has acquired a capital asset in India by means of a transfer. No person may be treated as agent without being given an opportunity of being heard.
Finance Act, 2026: No change. Chapter XV is untouched by the Finance Act, 2026; the section stands as amended up to the Finance Act, 2025.
A. SECTION COMMENTARY
1. The hook for taxing a non-resident through a resident
Section 163 supplies the personal hook of the representative-assessee machinery as applied to non-residents. Read with section 160(1)(i) and section 161, it identifies the resident (or other) person who may be assessed and made to answer, in a representative capacity, for the Indian income of a non-resident. The categories in sub-section (1) are inclusive: employment by or on behalf of the non-resident; a business connection with him; being the person from or through whom the non-resident receives income; trusteeship; and, by clause (c) and the later limb, a person who has acquired a capital asset in India by means of a transfer from the non-resident.
2. 'Business connection' is wide and is not confined to trade
The reach of 'business connection' was settled by the Supreme Court in Barendra Prasad Ray, where an Indian firm of solicitors was held capable of being treated as the agent of a non-resident barrister who argued in India. The Court held that the language of section 9 and section 163 is comprehensive enough to embrace income under all the heads in section 14, including professional income; 'business connection' is not confined to trade or commerce. The territorial limit, however, remains: under section 9 income can be deemed to accrue in India only to the extent of operations carried out in India (Carborundum), so the agency mechanism cannot reach income with no Indian operations behind it.
3. Conditions precedent: status in the relevant year; connected income only
Two limits confine the section. First, the represented person must answer the description 'non-resident' in the relevant previous year; if he was not a non-resident in that year, section 163(1)(c) cannot be invoked (Comverse). Second, the agent's liability, like that of any representative assessee under section 161, is confined to income with which he has a real connection; appointment as agent is of no consequence unless there is income in respect of which he can be held a representative assessee (WABCO India; the General Electric line).
4. The mandatory hearing under sub-section (2)
Sub-section (2) is a mandatory safeguard: no person may be treated as the agent of a non-resident unless he has been given an opportunity of being heard by the Assessing Officer as to his liability to be so treated. An order under section 163 must precede the assessment, and a failure to afford the section 163(2) hearing vitiates the order. The order treating a person as agent is appealable, and the agent retains his right of indemnity/recovery against the non-resident under section 162.
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
163. (1) For the purposes of this Act, "agent", in relation to a non-resident, includes any person in India—
(a) who is employed by or on behalf of the non-resident; or
(b) who has any business connection with the non-resident; or
(c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or
(d) who is the trustee of the non-resident; and includes also any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India :
Provided that 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, namely:—
(i) the transactions are carried on in the ordinary course of business through the first-mentioned broker; and
(ii) the non-resident broker is carrying on such transactions in the ordinary course of his business and not as a principal.
Explanation.—For the purposes of this sub-section, the expression "business connection" shall have the meaning assigned to it in Explanation 2 to clause (i) of sub-section (1) of section 9 of this Act.
(2) No person shall 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. Charge of tax where share of beneficiaries unknown.
C. AUTHORITIES
Section 163 is richly litigated, both on the substance of 'business connection' and on the conditions precedent. All citations below are web-verified; citations flagged by research as needing a direct-report check are marked.
Cluster A — Scope of 'agent': business connection includes profession
Barendra Prasad Ray v. ITO
Citation: (1981) 129 ITR 295 (SC)
Facts: An Indian firm of solicitors was sought to be treated, under section 163(1), as the agent of a non-resident UK barrister who argued patent suits in India.
Held: The words of section 9(1) and section 163 are comprehensive enough to cover all heads of income in section 14, including professional income; 'business connection' is not confined to trade or commerce. The firm could be treated as the non-resident's agent.
Relevance: The foundational Supreme Court authority on the breadth of 'agent'/'business connection' under section 163.
Carborundum Co. v. CIT
Citation: (1977) 108 ITR 335 (SC)
Facts: A non-resident company providing technical/managerial services; whether the income could be brought to tax in India through an Indian connection.
Held: Even where a business connection exists, income cannot be deemed to accrue or arise in India unless the operations giving rise to it were carried out in India; situs follows where the operations/services are performed.
Relevance: Sets the territorial limit on what income can be reached through the section 163 agency mechanism (read with section 9). (Verify the report directly before quoting.)
Cluster B — Conditions precedent: non-resident status in the relevant year
Comverse Network Systems India (P) Ltd. v. CIT
Citation: (2014) 48 taxmann.com 1 (Del)
Facts: An Indian company was sought to be made deemed agent under section 163(1)(c) of a person who was not a non-resident in the relevant accounting year.
Held: A 'representative assessee' must be seen in respect of the income of a non-resident for the particular previous year; if the person was not a non-resident in that year, section 163(1)(c) cannot be invoked.
Relevance: Authority that the represented person's non-resident status in the relevant year is a condition precedent to section 163. (A cognate matter reached the P&H High Court — 103 taxmann.com 313 — with the Revenue's SLP dismissed; verify the forum cited.)
Cluster C — Agent's liability limited to connected income
WABCO India Ltd. v. DCIT (International Taxation)
Citation: (2018) 407 ITR 317 (Mad)
Facts: An Indian company was made agent of a non-resident for capital gains on an off-shore transfer of its own shares in which it had no role.
Held: An Indian company with no role in a share transfer effected outside India cannot be treated as agent/representative assessee of the non-resident transferor; section 163 must be read with section 161, and the agent's liability is confined to income with which it has a real connection.
Relevance: Modern authority that the section 163 agency cannot attach to income the resident had nothing to do with.
General Electric Co. v. DDIT (International Taxation)
Citation: Delhi High Court (verify precise citation)
Facts: Scope of the liability of a person appointed agent under section 163 vis-à-vis the non-resident's income.
Held: Section 163 is machinery to give effect to sections 160–161; the appointment of an agent is of no consequence unless there is income in respect of which the agent can be held a representative assessee, and the agent is taxable only on income connected with it.
Relevance: Confirms section 163 as machinery dependent on section 161, and the connected-income limit. (Citation to be confirmed before final print.)
Cluster D — The mandatory hearing under section 163(2)
It is well established, on the statute and consistent High-Court practice, that no person may be treated as the agent of a non-resident under section 163 without the opportunity of being heard required by section 163(2); the order must precede the assessment, and failure to comply vitiates it. A specific named decision should be verified before being cited as the lead on this point.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; three asterisks (***) denote words or a provision omitted by amendment and retained only to mark the omission. The Finance Act, 2026 amends no section of Chapter XV of the Income-tax Act, 1961 (its Part-A amendments touch ss.92CA, 139, 140B, 144B, 144C, 147A, 148, 150, 153, 153B, 220, 222, 234, 245, 245MA, 254 and 270A-276 only). Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.