1995 (1) TMI 131 - AT - Income Tax

Assessment Year Business Connection Carrying On Business Indian Company Representative Assessee Set On Statutory Agent

Summary

Issues Involved:
1. Whether the assessee can be treated as an agent of M/s South Glory International Pvt. Ltd., Singapore under section 163 of the I.T. Act, 1961.
2. Whether the income of the non-resident company is deemed to accrue or arise in India under section 9(1)(i) of the I.T. Act, 1961.
3. Whether the assessment made on the assessee as a statutory agent under section 143(3) is valid.

Issue-wise Detailed Analysis:

1. Whether the assessee can be treated as an agent of M/s South Glory International Pvt. Ltd., Singapore under section 163 of the I.T. Act, 1961:

The facts indicate that the assessee entered into an agreement with M/s South Glory International Pvt. Ltd., Singapore, for hiring fishing vessels. The vessels were employed for carrying on the business of fishing/processing/storage/packing as approved by the Government of India. The assessee had full operational and administrative control over the vessels during the charter period. The agreement stipulated that the payment of hire charges would only be in the form of the value of the catch by the vessels, and if there was no catch, no payment would be made.

The Assessing Officer held that there was a clear business connection between the foreign company and the Indian company, and the income accrued to the non-resident company through this business connection. The CIT (Appeals) upheld this view, stating that the foreign company derived income from a business connection in India, and thus, the assessee was correctly held to be a statutory agent under section 163(1)(c).

The Tribunal noted that section 163(1) provides an inclusive definition of "agent" and includes any person in India who has any business connection with the non-resident or from or through whom the non-resident is in receipt of any income. The Tribunal observed that the continued relationship between the assessee and the non-resident company, the operational rights given to the assessee, and the payment terms established a clear business connection. Thus, the assessee was rightly treated as an agent under section 163(1)(b) and (c).

2. Whether the income of the non-resident company is deemed to accrue or arise in India under section 9(1)(i) of the I.T. Act, 1961:

The Assessing Officer deemed that 7.5% of the hire charges should be considered as income accruing to the non-resident company in India. The CIT (Appeals) held that the non-resident had a business connection in India, and the income was received in India, thus taxable under section 9(1). However, he also noted that since the income was received in India, the provisions of section 9(1) could not be invoked, and the assessment was canceled.

The Tribunal examined the provisions of section 9(1)(i) and noted that the income is deemed to accrue or arise in India if it is through or from any business connection in India. The Tribunal observed that the hire charges were paid in India in the form of 85% of the catch, and the value of the catch was realized at the Indian port. Thus, the non-resident received income through the assessee in India, establishing a business connection under section 9(1)(i).

However, the Tribunal also noted the exception provided in Explanation (a) to clause (i) of sub-section (1) of section 9, which states that in the case of a business of which all operations are not carried out in India, only the income reasonably attributable to the operations carried out in India shall be deemed to accrue or arise in India. Since the vessels were operated beyond 12 nautical miles (outside Indian territory), no operations were carried out in India. Thus, the income from hiring the ships did not accrue in India.

3. Whether the assessment made on the assessee as a statutory agent under section 143(3) is valid:

The CIT (Appeals) canceled the assessment on the ground that the income was received in India, and thus, the provisions of section 9(1) could not be invoked. The Tribunal upheld the cancellation of the assessment but on different grounds. It held that since no operations were carried out in India, the income from hiring the ships did not accrue in India, and thus, the assessee was not liable as a statutory agent for assessment on the income deemed to accrue or arise to the non-resident under section 9(1)(i).

Conclusion:

The appeals by both the assessee and the revenue were dismissed. The Tribunal concluded that while the assessee could be treated as an agent under section 163, no income was deemed to accrue or arise in India under section 9(1)(i) due to the lack of operations carried out in India. Thus, the assessment made on the assessee as a statutory agent was invalid.