TMI Blog2011 (5) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... the conclusion that there was a business connection within the meaning of section 163(1)(b) as well as section 9(1)(i) - non-resident had business connection in India and therefore income had accrued and arisen in India to the non-resident which is chargeable to tax - In the absence of treaty between India and Hong Kong, we have to proceed to tax income that accrues to the non-resident in India - Decided against the assessee Regarding tax deducted from source - CIT(A) has given a finding that the appellant charges its customers freight payable inclusive of the freight from the port of transshipment to the ultimate destination and this is done with the tacit understanding with the non-resident who does transshipment outside India - Held that:- There is no material on record to suggest that the appellants were acting as agents when they dealt with the Indian customer sending cargo, there is equally no material to show that the appellants were dealing with the non-residents only on a principal to principal basis - Under the 1922 Act, there were no separate proceedings by which a person in India is treated as Agent of non-resident. Under 1922 Act, in section 42, it was provided t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins a container from Agents of Shipping Lines or Shipping Lines. In the process of Cargo Consolidation, the container obtained from the agents of Shipping Lines or Shipping Lines cannot be stuffed fully for a particular destination. As the delivery schedule of the cargo has to be strictly adhere to, the appellant stuffs the cargo of various destinations on a particular route in one container and loads the container with the shipping line. This concept can be fully understood with the following examples: 1. A shipper hands over the cargo to the appellant for delivery at Sydney, Australia. The volume of the available cargo as on date for Sydney may not be equivalent to full container load. As the appellant is under an obligation to deliver the cargo within time it stuffs this cargo in a container along with cargoes for other destinations en route to Sydney and dispatches the container to Singapore. Singapore is a Hub port wherein the cargoes come from various ports for rerouting to final destinations. 2. The appellant has a business associate in Singapore who turns around the cargo and routes the same to Sydney where the cargo is ultimately destined. For this services rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative assessee has business connection with the non-resident and from whom or through whom the non-resident is in receipt of any income, whether directly or indirectly. Both these facts have not been disputed by M/s. WSA Shipping (Bombay) (P.) Ltd. It has remitted the freight collected from Mumbai to the ultimate destination without any deduction of tax. In the circumstances, Ms/ WSA Shipping (Bombay) (P.) Ltd. is treated as an Agent of WSA 1994 Pte. Ltd. Singapore." 7. Before CIT(A) the appellant submitted that in terms of section 163(1)(b) the appellant could be regarded as an agent in relation to a non-resident, if he has business in connection with the non-resident. Explanation to section 163 (1) provides that the expression business connection shall have the meaning assigned to it in Explanation -2 to clause (i) of sub-section (1) of section 9 of the Act. Referring to Explanation 2 to clause (i) of sub-section (1) of section 9 of the Act the appellant submitted that the appellant does not act on behalf of the non-resident in India. In this regard the appellant pointed out that it procures the cargo without knowing at the time of procurement whether the cargo would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the taxability of the income under the Act has to be examined before holding that section 163(1)(c) of the Act applies to the case of the appellant. In this regard the Appellant pointed out that the Income-tax Appellate Tribunal D Bench, Mumbai in the case of Asstt. CIT v. DHL Operations B.V. [2005] 142 Taxman 1 (Mag.) has held that where only that part of the income which is attributable to the activities of the non-resident in India is taxable in India. According to the Appellant, the business associates of the appellant were rendering services outside India and the appellant cannot be treated as agent so as to bring to tax in India in respect of income on the business activity rendered outside territorial waters. It was further argued that as held by the Hon'ble Bombay High Court in the case of Abdullabhai Abdul Kader v. CIT [1952] 22 ITR 241 , the tests laid down under section 163 of the Income-tax Act, 1961, corresponding to section 43 of the 1922 Act can be invoked and applied only if the income of the non-resident is taxable in India. 9. The CIT(A) however did not agree with the submissions made on behalf of the assessee. The CIT(A) firstly found that the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich yields profits or gains and some activity in India which contributes directly or indirectly to the earning of the profits or gains and that common thread of mutual interest must run through the fabric of the trading activities carried on outside and inside India which has to be real and intimate connection, the commonness of interest may be management control or financial control or sharing of profits. 11. The CIT(A) found that the appellant was remitting freight regularly to various associates at Singapore. The appellant had continued business relationship with the associates at Singapore regularly. Even the Appellant referred to the non-resident as business associate. The appellant and the non-resident were carrying on the same business activity. The business freight for onward transmission from hub (at Singapore) was being collected by the appellant and being remitted to non-resident. This activity is being conducted in a systematic manner with continuity. 12. The CIT(A) also held that onward freight charges are paid in India in the shape of remittance on the prescribed tariff rate on the basis of pre-arranged freight. Though the onward transshipment was beyond the terr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration. The Commissioner of Income-tax (Appeals) XXXI Mumbai erred in treating the Appellant as the Agent of WSA 1994 Pte Ltd. Singapore The Appellant craves leave to add, alter, amend, modify or withdraw all or any of the Grounds of Appeal stated hereinabove." 16. We have heard the submissions of the learned counsel for the appellant and the learned D.R. The learned counsel for the appellant at the outset submitted that some of the findings given by the CIT(A) regarding the manner in which the appellants were carrying on business is factually not correct. In this regard, he filed a chart before us highlighting the factual mistakes in the findings of the CIT(A). We deal with them later. His submission was that the non-resident had no business connection in India. In this regard, he filed sample copies of Invoice, debit notes raised by the non-resident. He also highlighted as to how the appellant is a multimodal transport operator and filed copy of the Multimodal Transportation of Goods Act, 1993 by which came into effect from 16-10-1992 and how the documents of consignment in the case of multi modal transport have to be maintained and how the mode of documentation maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oreign company to the expatriate employees. The Hon'ble Supreme Court explained the purpose of the provisions relating to deduction of tax and source by observing that section 9(1)(i) of the Act performs two functions : 1. It deems five categories of income to accrue in India and applies to residents and non-residents alike; but it has no application where income actually accrues in India or is received in India. 2. It specifies the categories of income in respect of which a vicarious liability is imposed by sections 160 and 161 on an agent to be assessed in respect of a non-resident's income. In performing this function, clause (i) applies to the income of the non-resident alone; and clause (ii) specifies the categories of income in respect of which the agent is vicariously liable even if the income actually accrues in India or is received in India. Thereafter the Hon'ble Supreme Court held that the Income-tax Act, 1961 is an integrated code in which one cannot segregate the computation machinery from the collection and recovery machinery. To explain the above, the Hon'ble Supreme Court observed as follows : "Examples showing inter-linking of various provisions of the 1961 Act: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Section 160 of the Act lays down that in respect of the income of a non-resident specified in clause (i) of sub-section (1) of section 9, the agent of the non-resident, including person who is treated as an agent under section 163 of the Act will be regarded as representative Assessee of the non-resident. Section 161 casts liability on a representative Assessee and it lays down that his liability, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income. The section thus creates a vicarious liability, insofar as the agent is concerned, for the tax which the non-resident has to pay. Because of the aforesaid liability, an agent or any person who apprehends that he may be assessed as such an agent can retain out of the money payable to the non-resident a sum equal to the estimated liability. Section 163 of the Act lays down as to who can be regarded as Agent for the purpose of the Act. 163. (1) For the purposes of this Act, "age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity carried out through a person who, acting on behalf of the non-resident, (a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or (b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or (c) habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident: Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business : Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso referred to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be material for ascertaining the control that the non-residents might exercise on the appellant. Though there is no material on record to suggest that the appellants were acting as agents when they dealt with the Indian customer sending cargo, there is equally no material to show that the appellants were dealing with the non-residents only on a principal to principal basis. It cannot be said with certainty that the exporter in India has no knowledge about the transshipment and the appellant utilizing the services of non-resident for onward movement of the cargo to the ultimate destination. In the absence of the terms of the agreement between the appellant and the non-resident it cannot be said that the non-resident had no control over the freight charges collected by the appellants or the terms of contract as between the appellant and the exporter from India. As per the conditions of transshipment as given by M/S. WNS 1994 PTE Ltd., Singapore, one of the non-resident, it is seen that the non-resident charges are ex-Singapore. Another condition is that because of regulations imposed at different ports, the clients are requested to check with the transshipper for acceptance of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyed by or on behalf of a person residing out of British India, or having any business connection with such person, or through whom such person is in the receipt of any income, profits or gains upon whom the Income-tax Officer has caused a notice to be served of his intention of treating him as the agent of the non-resident person shall, for all the purposes of this Act be deemed to be such agent: Provided that no person shall be deemed to be the agent of a non-resident person, unless he had an opportunity of being heard by the Income-tax Officer as to his liability." 23. Under the 1922 Act, there were no separate proceedings by which a person in India is treated as Agent of non-resident. Under 1922 Act, in section 42, it was provided that income of the non-resident could be assessed either in his name or in that of his agent, if there was a business connection. However, under the 1961 Act, as noted above, liability of a non-resident is fixed as per separate provision and not clubbed with agent as was done under section 42 of the old Act. Under the Income-tax Act, 1961, the provisions contemplate separate proceedings for treating a person in India as Agent of a Non-resident and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s agent of non-resident. No such inference can be drawn from the fact that the liability of the non-resident to tax was found to exist in that case. The next case is that of Addl. CIT v. New Consolidated Gold Fields Ltd. [1983] 143 ITR 5993 (Pat.) which is a case which relates to AY 1960-61, wherein it was held that in order to bring within the net of taxation under the I.T. Act the income derived by a non-resident, it has to be established that there was an element of continuity between the business of the non-resident and the activity in the taxable territories. On appeal by the Revenue against the decision of the Hon'ble Patna High Court, the Hon'ble Supreme Court in Addl. CIT v. New Consolidated Gold Fields Ltd. [2002] 257 ITR 7704 found that the issue relates to assessment year 1960-61, more than forty years old and that in absence of details as to the service rendered in India, when such service was carried out both in India and England, it was too late after a lapse of almost forty years to attempt to determine the extent of activities in India and the consequent liability. This case is not an authority for the proposition canvassed by the learned counsel for the appellant b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are satisfied in the case of the appellant. The term "Business Connection" as explained in various judicial pronouncements have to be seen. In R.D. Aggarwal Co. (supra), the Hon'ble Supreme Court held as follows : "Business connection contemplated by 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 of continuity between the business of the non-resident and the activity in the taxable territories, a stray or isolated transaction not being normally regarded as a business connection. Business connection may take several forms: it may include carrying on a part of the main business or activity incidental to the main business of the non-resident through an agent, or it may merely be a relation between the business of the non-resident and the activity in the taxable territories, which facilitates or assists the carrying on of that business. In such cases the question whether there is business connection from or through which income, profits or gains arise or accrue to a non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not have business connection in India. The transaction as between the person in India and the customer in India, would not be complete unless the cargo reaches the final port of destination. All these facts in our opinion are sufficient to justify the conclusion that there was a business connection within the meaning of section 163(1)(b) as well as section 9(1)(i) of the Act. We uphold the conclusion of the income-tax authorities to this effect. 29. We are also of the view that the parameters laid down in section 163(1)(c) of the Act are satisfied. Under the above provisions agent includes a person from or through whom the non-resident is in receipt of any income, whether directly or indirectly. The appellants based on the debit notes raised by the non-resident make payment for transshipment of cargo. Thus the non-resident is in receipt of income from the appellant. It is not a case where the non-resident is in receipt of income "through" the appellant but "from" the appellant. We also do not find any qualification that income so received from the non-resident from the resident in India should be found to be chargeable to tax at the time when the person in India is treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present appeal before the Tribunal. 32. Before us, the learned counsel for the appellant submitted that the facts of the appellant's case is identical to the case decided by the Hon'ble ITAT in the case of DHL Operations B.V. (supra). The learned counsel for the appellant submitted before us that the appellant was transporting cargo from India and was not doing any inward transport of cargo to India. In the case of DHL Operations B.V. (supra) the facts were as follows. The assessee non-resident entered into an agreement dated 19-5-1989 with Airfreight Ltd., an Indian company, with retrospective effect from 1-1-1989. As per the terms of the new agreement, it was provided that Airfreight Ltd. would render services to the assessee as forwarders, couriers and transporters of urgent business documents and small parcels in India and that the assessee will render such services to Airfreight Ltd. outside India. In the agreement it was specifically provided that the services would be rendered on a principal to principal basis. The new agreement dated 19-5-1989 between the assessee and Airfreight Ltd. was granted permission under section 27 of the Foreign Exchange Regulation Act by the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India in respect of inbound consignments as well as for outbound consignments without any apparent consideration. Nevertheless, it is well established principle of law that suspicion does not take the place of proof. Suspicion is mother investigation but not a substitute for evidence since there is nothing on record except the suspicion, we are bound to give effect to the terms conditions of the agreement between the parties especially when the said agreement has been approved by the Government of India. Reverting back to the agreement, it is clear that the respondent had agreed to provide services to Airfreight Ltd. outside India in regard to outbound consignments. Airfreight Ltd. was allowed to collect the consignment as principal without the respondent being involved in regard to such consignments. It was the obligation of Airfreight Ltd. to deliver the consignments to respondent outside after necessary clearance from custom authorities. Therefore, in regard to outbound consignments, no activity was carried out by the respondent in India. By allowing the use of trade name in respect of even outbound consignments, the respondent was also benefited in getting substantial busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that in the light of the findings which we have given in para-21 of this order, the facts of the present case are distinguishable from the facts of the case decided by the ITAT in the case of DHL Operations BV (supra). The terms of the agreement was the main reason why the Tribunal held that there was no accrual of income in the hands of the non-resident in India. However in the present case, we have already seen that no such terms existed as between the appellant and the non-residents. In such circumstances, we are of the view that the decision of the ITAT in the case of DHL Operations BV (supra) is not applicable to the facts of the present case. We have already held while deciding the appeals arising out of the order under section 163 of the Act that the non-resident had business connection in India and therefore income had accrued and arisen in India to the non-resident which is chargeable to tax. The revenue authorities have held that the income so charged to tax is business income. In the absence of treaty between India and Hong Kong, we have to proceed to tax income that accrues to the non-resident in India. However in the case of non-resident who is a resident of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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