TMI Blog1958 (10) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... gistered in the United Kingdom. The assessment years are 1948-49 to 1951-52. The assessee has been treated as non-resident in the taxable territories in respect of each of the fourth assessment years. Its business is to manufacture and sell pharmaceutical preparations and medicines. Prior to 1947 it had a branch in India which used to sell its goods in the taxable territories. Early in 1947, the Evans Medical Supplies (India) Ltd. for brevity called Indco -was incorporated and registered under the Indian law. The Tribunal has found that the business which was formerly carried on by the assessee came to be carried on thereafter by the Indian company. An agreement was arrived at between the two companies and it is dated 1st April, 1947. The terms of that agreement which have particular relevance to this reference are as under: (1) Evans (assessee) appoint Indco their sole authorised agents in India and Burma. (2) Evans will allow Indco commission on all goods supplied to Indco's territories as defined in... (4) Evans reserve to themselves the right to reduce the rate of commission on any goods which may be sold at special low prices for exceptional quantities or und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company direct to the Indian company as well as goods shipped directly to the Indian company under clause 10 as also goods sold by the assessee directly to customers in India. The assessee did not dispute its liability in respect of goods sold directly to its customers in India nor did it raise any dispute in respect of goods invoiced by it to the Indian company under clause 7 of the agreement. It, however, raised a dispute in respect of products supplied and shipped directly to the Indian company under clause 10 of the agreement. It was common ground before the income-tax authorities that the sales in respect of products supplied and shipped directly to the Indian company under clause 10 had taken place outside the taxable territories,. The objection raised by the assessee company before the authorities was that the sales made by the assessee to the Indian company under clause 10 of the agreement were between principal and principal and as such there was no business connection in the taxable territories within the meaning of section 42(1). The ground on which the objection was based was that those sales had taken place outside the taxable territories. The Department on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess connection in the taxable territories has no particular bearing on the present case. The question before us is not whether business connection envisages a single transaction or requires continuous activity of dealings between an assessee and his business connection in the taxable territories. It is also urged that there was no restriction on the price which the Indian company could charge in respect of goods invoiced by the assessee directly to the Indian company or products supplied by the assessee and shipped directly to the Indian company under clause 10. Reliance is also placed by learned counsel on clause 18 of the agreement, whereby the Indian company is prohibited from dealing with products of any other merchants. On the other hand, it has been argued by Mr. Palkhivala that the findings of fact recorded by the Tribunal on certain points are in favour of the assessee. It will be necessary for us to ascertain what those findings are. Undoubtedly, as we have already said, we shall be deciding the matter solely on the findings recorded by the Tribunal. We put it to learned counsel that there was a clear finding recorded by the Tribunal that there was no difference in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at business; and (iii) the assessee must have directly or indirectly earned income by virtue of or through that connection. It is not necessary that the profit or gain should directly flow from the business connection. It is to be deemed to be the income of the assessee, who may well be a non-resident, even if it has arisen indirectly through the business connection in the taxable territories. Business connection is an expression of wide and indefinite import and the Legislature has avoided any attempt at definition of the same for it seems extremely difficult, if not impossible, to except a definition exclusive or inclusive which will aptly meet with every mode or method of business dealings and not fail in some circumstances. Actions of businessmen are so diverse and infinite that any attempt at a comprehensive meaning would fail to serve its own purpose. The only safe guide, therefore, seems to us to be that it should be gathered from the context in which the expression finds place in the Act itself and the object of the Legislature in laying down this friction of law--albeit to be gathered from the language of the enactment itself--whereby putative income is to be treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the agreement. Clause 7 read in its proper context evidently refers to goods invoiced by the assessee directly to the Indian company but it is of considerable importance and significance to note that the price which the assessee is to get is what is mentioned in the invoice and nothing more. What the Indian company charges thereafter is not the concern of the assessee. Clause 10, as we have already mentioned, relates to products supplied by the assessee and shipped directly to the Indian company. The price to be charged is the current export price. Mr. Palkhivala sought to make a point relying on the wording of clauses 7 and 10, that there was some difference in the matter of the price charged by the assessee to the Indian company under clauses 7 and 10. The finding of the Tribunal clearly negatives that contention. The Tribunal has in terms found--that must have been on the entire evidence before the Tribunal--that the rate at which the assessee sold the goods to the Indian company or to its Indian constituents was the same, and if Mr. Palkhivala's contentions were correct, that finding could not have been recorded. In any way that finding has not been challenged in this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement and propaganda allowance of 20 per cent. is to be paid by the assessee company to the Indian company in respect of all its products which find way in the Indian market no matter in what manner mode those goods were sold or supplied. We need not examine all the terms of the agreement some of which raise points which are of minor importance, through those clauses also read along with the other clauses would lend some support to the case of the Revenue. The Indian company as required by clause 16 undertook to effect the entire advertisement and propaganda campaign in connection with the products of the assessee in the taxable territories and it is of significance to note that the Indian company was bound to spend the whole amount calculated at 20 per cent. of the net invoice value paid to it regardless of the fact that that amount was paid in respect of sales made by the assessee company under clause 7 or clause 10 of the agreement. Then comes clause 18 of the agreement, which, when considered in the light of the whole arrangement and the nature of dealings between the assessee company and the Indian company, definitely carries the matter in the region of business connection and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as all the operations connected with the said sales were performed outside the taxable territories. This argument evidently was founded on the proviso to sub-section (3) of section 42. Mr. Palkhivala drew our attention at this stage to what the Tribunal had said about this aspect of the matter. It is true that before the Tribunal the assessee had raised two contentions. The first related to the absence of existence of any business connection and the second related to the position which may arise in a case under sub-section (3) of section 42. What the Tribunal has stated in its order is this: Here once the English company sells its goods to Indco, whatever activity is carried on by Indco within the taxable territories is carried on by it for its own benefit. Hence we would accept the assessee's first of the two contentions mentioned in paragraph 4 above and on the view we have taken on the first contention, it naturally follows that the second contention has also to be accepted . Now, the two contentions cannot be said to be overlapping or substantially similar. In the absence of any reasons stated by the Tribunal on this second question, it is somewhat difficult for us ..... X X X X Extracts X X X X X X X X Extracts X X X X
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