TMI Blog1994 (5) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... t was completed by the Assessing Officer on a total income of Rs. 1,23,00,250. The Assessing Officer in completing the aforesaid assessment took due note of the fact that the assessee had not drawn up any formal income and expenditure account for its income in India nor had it got the same audited within the meaning of s. 44AB of the IT Act, 1961. 3. In view of the aforesaid facts the Assessing Officer initiated penalty proceedings and issued a show cause notice to the assessee. The sum and gist of the show cause notice informed the assessee that it had earned income in India on account of its business activities which were being regularly carried on and under the provisions of s. 44AB it was mandatory to get the accounts of the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year for earning royalty and technical fees it could not be argued that no business was carried on by the non-resident foreign company inIndia. It was further observed by the Assessing Officer that the assessee had carried on its activities since 1970 declaring income under the head "profits and gains of business" and this conduct on the part of the assessee was binding on it for all intents and purposes. The Assessing Officer thereafter referred to certain other relevant provisions of the Act and also ventured on the Double Taxation Agreement to ultimately come to the conclusion that the assessee had committed a default under s. 44AB. This led to the imposition of a penalty of Rs. 1,00,000 by means of an order passed on31st March, 1989. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement in both the Contracting States. (v) The learned counsel has submitted that if the fee and royalty is treated as business income then they are not taxable at all inIndiabecause the appellant company has no permanent establishment. (vi) The appellant has submitted that M/s Modi Rubber Ltd. duly gets its accounts audited periodically and remittance of royalty and technical service fee is made only after obtaining a "no objection" certificate from the Assessing Officer and with the approval of the Reserve Bank ofIndia. A certificate from the chartered accountant has been filed and the certificate verifies the statement of directors for calculation of royalty and technical fee. It was also argued by the appellant that the Continent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I am in agreement with the submissions of the learned counsel that the s. 44AB is not applicable because the appellant is not carrying on business inIndia. I do not agree with the learned Assessing Officer. that object of double taxation does not interfere with the procedural and substantive law for determination of the tax liability in accordance with the laws of the respective country. The issue is absolutely clear and without any ambiguity. The income from fee and royalty is to be taxed separately and not as a business income. The appellant company is not maintaining any accounts inIndia. The payment of royalty and fee is received through Reserve Bank ofIndiain quarterly instalments. The Reserve Bank ofIndiaverifies the statements of ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted." 8. We have heard both the parties at considerable length and have also perused the orders passed by the Tax authorities. The learned Departmental Representative on his part supported the penalty order and the subsequent arguments advanced by him were a reiteration of the reasons recorded by the Assessing Officer in his order. It was sought to be highlighted that since the income returned by the assessee was under the head "business" it could not now contend that it was taxable under a different head. The Departmental Representative in fact went on to argue that the provisions of the Double Taxation Agreements would not change the nature of income. It was finally urged that since the assessee had not maintained any accounts inIndiaa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of s. 44AB are not attracted as the income in question cannot be stated to be one on account of business activities and in opining so, he has referred to the relevant clauses of the Double Taxation Agreement and there is no cogent argument on the part of the Department to enable us to take a view to the contrary. That apart, we are in further agreement with the view expressed by the CIT(A) that even if the provisions of s. 44AB were to apply the assessee could exercise a bona fide belief that these were not applicable especially when he had been receiving similar type of income for the last many years and ss. 44AB and 271B having come on the statute book only w.e.f. 1st April, 1985. In the final analysis, we uphold the order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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