TMI Blog1995 (1) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... equipped for deep-sea-fishing. As per clause 5 of the said agreement, the vessels were employed for carrying on the business of fishing/ processing/ storage/ packing as approved by Government of India. They were operated only from such Indian ports where coast guard calls existed except ports disallowed by Govt. of India. Clause 6 of the agreement provided for owner's liability as under :--- " 6. (a) The disponent owners to provide and pay for all provision and wages, for the Insurance of the said vessel, for all dock and engine room stores and maintain them in a thoroughly efficient state in hull and machinery during service as also charges, costs and expenses, taxes, fines, penalties to in connection with and incidental to the operation contemplated under these presents and also the annexures thereto. The disponent owners shall be fully responsible for the operation, maintenance of equipment, supply of manning and navigation of the said fishing vessels. The disponent owners to provide one winchman per hatch. (b) The disponent owners to provide and pay for fuel, lub oil and other oils and all other consumables for running the said fishing vessels, port charges, pilotage (whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent owners for any reason whatsoever, which is in excess to any limits stipulated above. It is further agreed and understood that the terms of payment set out in this clause shall only apply if there is a catch. In case the charterers are prevented from making use of the said vessels for a continuous period of one week or more for any reason whatsoever the Charterers shall not be liable to pay to the disponent owners any hire charges for such period of non-use. Any hire paid in advance to be adjusted accordingly. (b) The disponent owners, M/s South Glory International (pte) Ltd., Singapore will open revolving and confirmed L/C in favour of Indian Charterers or make advance payment to the Indian Charterers towards the balance 15% of the catch value, i.e., after deducting the charter fee for each voyage. " Clause 10 provided for the operational rights of the assessee. It reads as under : " 10. The whole reach and burthen of the said fishing vessels including lawful deck capacity to be at the disposal of the charterers. The Charterers will have full control over the masters, officers, crew members of the vessels, and they shall be under the administrative and operational control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an port. The charter hire will be US$ 600,000 per vessel per annum payable to M/s South Glory International Pvt. Ltd., Singapore. However, the total payment required to be made by the charterer for the operation of these vessels will not exceed 85% of the sale value of the catch per vessel per annum. The owners will bear all the expenses for operation of the vessels during the charter period and also the expenditure on the voyage to the Indian port of operation and back. (ii) The base of operation shall be Madras. The Chartered Fishing Vessels shall operate beyond 12 nautical miles from the main land and the shore of the islands, Andaman Nicobar, Lakshadweep and Minicoy Group of islands and man-made islands like Bombay High and other off-shore installation. (iii) That Charterer shall operate only from Port where Coast Guard Cells exist. (iv) The charterer will convey in writing to the Taiwanese vessel to be used by him on lease or in any other manner that --- (a) the flying of Taiwanese flag by that ship while within the maritime zones of India will not constitute recognition of their Government of its registry or flag by the Government of India; and (b) the Taiwanese v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the catch, i.e., Rs. 86.77 lakhs, was adjusted towards hire charges. For the balance 15% the assessee raised a bill against the owner. In his order under section 163 the Assessing Officer held : ". . . there is clear business connection of the foreign company with the Indian Company, i.e., the assessee. The income which accrues to the non-resident company through this business connection is 85% of the catch in each voyage undertaken by the trawler hired by the Indian company. The terms and conditions of the agreement clearly point towards the conclusion that income here is deemed to have accrued or arisen in India under section 9(1)(i) of the I.T. Act to M/s South Glory International Private Limited, Singapore. As such provisions of section 163(1)(c) are attracted. " He, therefore, treated the assessee as statutory agent of M/s South Glory International Private Ltd., Singapore. Alleging that a substantial part of the activities were carried on in the Economic Zone, the Assessing Officer held that 7.5% of the income from hire charges of Rs. 86.77 lakhs, being Rs. 6,50,000, should be deemed to accrue to the non-resident company and assessed the same in the hands of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e @7.5% of hire charges paid of Rs. 86.77 lakhs works out to Rs. 6.50 lakhs (roundly). " 4.The CIT (Appeals), in his order in the appeal against order under section 163 of the ITO, held that the tentative conclusion of the ITO that the foreign company had derived income from business connection in India which accrued from the value of 85% of the catch in each voyage of its vessels and such income, when represented in the form of hire charges from Srinivasa Sea Foods Ltd. (SSF in brief), has been correctly held to be one that can be deemed to have accrued or arisen in India. He, therefore, held that the next logical step was to declare SSF as the statutory agent of the foreign company under clause (c) of sec.1 and it was from the former that the latter was in receipt of such income. He further held that as in his view the categories of the persons mentioned in section 163(1) are not mutually exclusive, SSF would also fall within the category under clause (b) having close business connection with the foreign company. 5. In the appeal against the order under section 143(3) on SSF as agent of the foreign company, the CIT (Appeals) held that the non-resident had a business connectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the non-resident alone though a provision is made under section 195 for deduction of tax at source at the time of payment to him. In the case of income deemed to accrue or arise in India, the liability is also cast upon a resident in a representative capacity by appointing him a statutory agent of the non-resident under section 163. We have to determine in this case whether the assessee could be treated as an agent under section 163, and if so, whether any income of the non-resident could be assessed in its hands as representative assessee. 8. Section 163 of the IT Act gives an inclusive definition of the term "agent" commonly called a statutory agent of the non-resident company. It reads as under : "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 aquired by means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such connection in India, be that with the agent or somebody else in India [Bikaner Textile Merchants Syndicate Ltd v. CIT [1965] 58 ITR 169 (Raj.)], whereas in section 163, the requirement is that the person in India who is being treated as agent should have any such 'business connection'. 11. What is a 'business connection' has been subject-matter of pronouncements of various High Courts and Supreme Court in relation to the provisions of section 9(1) of the IT Act, 1961, and section 42B of the UT Act, 1922. As long back as in 1935, Privy Council in CIT v. Currimbhoy Ebrahim Sons Ltd. [1935] 3 ITR 395, held that the term "business connection" is different from the term "business' though doubtless not unrelated to such business. The classical case on the subject is CIT v. R.D. Aggarwal Co. [1965] 56 ITR 20 (SC). The following observations of the Supreme Court in that case are relevant :--- "A business connection in section 42 involves a relation between a business carried on by a non-resident which yields profits or gains and some activity in the taxable territories which contributes directly or indirectly to the earning of those profits or gains. It predicates an element o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed use of the vessels contemplated under the agreement and thus a continued relationship between the assessee and the non-resident company. The vessels, during the period of hire, were to remain the property of the non-resident. They were to be employed for carrying on the business of fishing/processing/storage/packing as approved by Govt. of India. They were to be operated only from such Indian ports where coast guard cells existed. The non-resident was to provide and pay for all provisions and wages etc. as enumerated in clause 6 of the agreement. As per clause 10, which is extracted above, the assessee had the operational rights and was given full control over the masters, officers, crew members of the vessels and they were to be under the administrative and operational control of the assessee during the charter period. The masters were to abide by such instructions as may be given by the assessee or through its authorised representative. Under clause 11, if the assessee had any reason to be dissatisfied with the conduct of the masters, officers or engineers, the owner was to investigate the matter and, if necessary, change the appointments. It was also provided in clause 7 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, whether there was a business connection or not, this much is clear that the non-resident had received income through or from the assessee in India. Hence, the assessee would be agent under section 163(1)(a) and there would be a deemed accrual under section 9(1)(i) to the non-resident. When that is the situation, the assessee's objection that it cannot be treated as a statutory agent of the non-resident company on the ground that there was no business connection would not be of any relevance. The assessee is thus a statutory agent within the meaning of clause (b) as well as clause (c) of sub-section (1) of section 163. 16. The further question raised by the assessee is that a statutory agent can be appointed only for an assessment in a representative capacity. Section 161 is the only section which imposes a substantive liability on the representative assessee and it confines the liability to the income in respect of which he is a representative assessee. The term "representative assessee" is defined in section 160(1)(i) to mean "the agent of the nonresident, including a person who is treated as an agent under section 163" in respect of the income of the non-resident spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal, as aforesaid, held that the income of the non-resident company was received as well as deemed to have accrued under section 9(1) of the IT Act. But, he has cancelled the assessment on the ground that when the income is received in India, the further question of deeming would not arise. That, in our opinion, is fallacious. Under the Income-tax Act, two modes are provided for assessment : One is directly in the hands of the person who earns the income and the other is in the hands of the representative assessee and, in the case of a non-resident, an agent. As regards the income which is deemed to have accrued to the non-resident, the statutory agent is made liable to be assessed in relation to that income under section 161 of the IT Act. By virtue of the provisions of section 166, an assessment can also be made directly on the said non-resident. Therefore, the department has an option to assess the income by adopting either of the modes. We are not concerned with the assessability of the non-resident for direct assessment under section 166 in the hands of the non-resident. What we have to see is whether any income is deemed to have accrued to the non-resident and if that is so, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... useful reference may be made to the decision of the Supreme Court in the case of CIT v. Toshoku Ltd [1980] 125 ITR 525, wherein the question was deemed accrual of commission under section 9(1)(i) read with Explanation thereto. It was held by their Lordships of the Supreme Court as under : " The second aspect of the same question is whether the commission amounts credited in the books of the statutory agent can be treated as incomes accrued, arisen, or deemed to have accrued or arisen in India to the non-resident assessees during the relevant year. This takes us to section 9 of the Act. It is urged that the commission amounts should be treated as incomes deemed to have accrued or arisen in India as they, according to the department, had either accrued or arisen through and from the business connection in India that existed between the non-resident assessee and the statutory agent. This contention overlooks the effect of clause (a) of the Explanation to clause (i) of sub-section (1) of section 9 of the Act which provides that in the case of a business of which all the operations are not carried out in India, the income of the business deemed under that clause to accrue or arise in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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