1986 (7) TMI 184 - AT - Income Tax

Assessee-Company Deemed To Accrue Or Arise In India. Income Assessment Period Of Limitation

Summary

Issues:
1. Taxability of royalty payment under Explanation 1 to section 9(1)(vi)
2. Validity of assessment order under section 163
3. Time limitation for reassessment under section 147

Analysis:

Issue 1: Taxability of royalty payment under Explanation 1 to section 9(1)(vi)
The case involves the taxability of a royalty payment made by the assessee to a foreign company under section 9(1)(vi) of the Income-tax Act, 1961. The agreement for technical know-how was executed after 1-4-1976, and the non-resident company did not exercise the option as required by Explanation 1 to section 9(1)(vi). As a result, the proviso to the section does not apply, making the royalty payment liable to be taxed as income accruing or arising in India. The absence of the non-resident's option declaration means the agreement cannot be considered as made before 1-4-1976, leading to the conclusion that the payment is taxable. The assessment treating the remittance as income of the foreign company and taxing it through the assessee as its agent is upheld.

Issue 2: Validity of assessment order under section 163
The Income Tax Officer (ITO) had passed an order treating the assessee as the agent of the non-resident company under section 163, which was not appealed against. The assessee had also accepted this position in a letter to the ITO. The failure to file the option letter by the non-resident company and the acceptance of being treated as an agent by the assessee validate the ITO's decision. The order under section 163 was deemed final, and the subsequent assessment based on this status is considered legally sound.

Issue 3: Time limitation for reassessment under section 147
The reassessment was initiated under section 147(a) due to the non-resident's failure to file a return. The assessment was made within the permissible time frame as per section 153(2)(a), allowing assessments within four years from the end of the assessment year in which the notice under section 148 was served. In this case, the assessment order was passed within the prescribed time limit, making the reassessment valid. The contention that the assessment is time-barred under section 147(b) is dismissed as the reassessment falls under section 147(a).

In conclusion, the appellate tribunal upheld the Commissioner (Appeals)'s decision, dismissing the appeal and confirming the validity of the assessment order.