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TMI Blog2012 (3) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... r aircraft to aircraft operators. Pursuant to an agreement with the appellant, ARL was to providerotables (aircraft components) to the appellant. This process involves obtaining faulty components from appellant in exchange of components in good condition, and repair or overhaul of the faulty components. ARL was to provide to the appellant consignment stock of good components at the Appellants' operating base. The appellant is entitled to obtain components from this stock on need basis. The appellant had made a request u/s. 195 for non deduction of tax from the payment made to ARL. This request was made to the DCIT, TDS Circle-1(1), Mumbai ('DCIT'). The request was rejected by the DCIT, TDS Circle-1(1), vide his order u/s. 195 dt. 1.12.1998. It was held by him that the ARL has Permanent Establishment ('PE') in India within the meaning of Article 5 of the Indo UK Double Taxation Avoidance Agreement ('DTAA'). The DCIT accordingly held that the tax is required to be deducted at source. He estimated the income of the ARL at 10% of the total billing (payments) and accordingly directed deduction of tax at the rate of 4.8% of the total billing. The appellant filed appeal against this order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India. In this regard appellant placed reliance on the decision of the Hon'ble Gujarat High Court in the case of CIT v. S.G Pgnatal 124 ITR 391 (Guj), wherein it was held that if the liability to income arises out of India and the same is receivable and payable outside India, the same cannot be deemed to have accrued or arising in India. It was also submitted that the income received by the non-resident from the appellant was not taxable in India and, therefore, the assessee could not be treated as an agent of the non-resident. Reliance was also placed on the decision of the SC in the case of CIT v. R.D.Aggarwal and Co. 56 ITR 20 and it was contended that the appellant has not received any income for and on behalf of ARL accordingly, it could not be treated as an agent u/s. 163 of the IT Act, 1961. The Appellant further relied on the decision of the Hon'ble S C in the case of Carborandum v. CIT 108 ITR 335 wherein it was held that if all the operations are not carried out in India, the profit and gains deemed to accrue arise in India, can only be such profits and gains as are reasonably attributable to that part of operations which are carried in side India. 6. The CIT(A) held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant as agent and representative Assessee of MA & MAS by following the order and reasons given in the case of ARL. 9. Aggrieved by the orders of the CIT(A) the revenue has preferred the present appeals before the Tribunal. 10. The ld. D.R relied on the findings of the AO and submitted that the case of the appellants squarely falls within the ambit of section 163(1)(c) of the Act. In this regard it was submitted by him that the receipt of income by the non-resident would alone be relevant. As to whether the receipts by the non-resident from the appellant were chargeable to tax in India would not relevant at the stage of proceedings under section 163 of the Act. In this regard ld. D.R submitted that the CIT(A) fell into an error in going into the question regarding chargeability of tax of the receipts by the non-resident from India, which is not the mandate of the provisions to section 163 of the Act. 11. The Ld. Counsel for the appellant on the other hand, submitted that as far as the case of ARL is concerned, this Tribunal has already taken a view that the receipts in question are not chargeable to tax. In this regard our attention was drawn to the order of the ITAT in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer must not proceed against the representative assessee once the assessment proceedings are initiated against the non-resident but in exceptional cases like the present one, where complex issues are involved relating to the computation of capital gains and the Assessing Officer is unable to make up his mind on account of suppression of material facts, then, it would be open to the Assessing Officer to continue with the assessment proceedings against the representative assessee and the non-resident simultaneously till he decides to assess either of them." 12. The next submission of the ld. Counsel for the appellant was that once income has been brought to charge of tax in the hands of the principal the same income cannot be once again assessed in the case of representative assessee. In this regard reliance was placed on the decision of the ITAT, Mumbai Bench in the case of Hindalco Industries Ltd. v. DCIT, ITA No.3667/Mum/2005 order dated 14/5/2010. 13. We have considered the rival submissions. The provisions regarding liability in respect of taxes payable by a non-resident have been laid down in Sec. 160, 161 of Act. Sec. 160 of the Act lays down that in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 9 of this Act. (2) No person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be treated as such. Expln.to Sec. 163(1) which lays down that the expression "business connection" shall have the meaning assigned to it in Expln.2 to Clause(i) of Sub-Section (1) of Section 9 of the Act. This explanation was inserted by the Finance Act, 2003 w.e.f 1-4-2004. Expln.-2 to clause(i) of Sub-Section (1) of Sec.9 was also simultaneously inserted by the finance Act, 2003, w.e.f. 1-4-2004 reads as follows: 9. (1) Income deemed to accrue or arise in India. - The following incomes shall be deemed to accrue or arise in India:- (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India. Explanation 2.-For the removal of doubts, it is hereby declared that "business connection" shall include any business activity carried out through a person who, acting on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act) were contained Sec.42 and 43 of the 1922 Act, which read as follows: "Sec.42(1) In the case of any person residing out of British India, all profits or gains accruing or arising to such person, whether directly or indirectly, though or from any business connection or property in British India, shall be deemed to be income accruing or arising within British India, and shall be chargeable to income-tax in the name of the agent of any such person, and such agent shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income-tax: Provided that any arrears of tax may be recovered also in accordance with the provisions of this Act from any assets of the non-resident person which are, or may at any time come, within British India." Sec.43. Any person employed 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not a criteria. Such chargeability to tax will arise for consideration only in assessment proceedings either on the non-resident or the Agent or person treated as Agent of the non-resident u/s. 160 read with Sec. 163 of the Act. Therefore the contention of the appellant that since the Tribunal has already held in the case of ARL that receipts from the Assessee by ARL is business income but not chargeable to tax in the hands of the non-resident because of absence of PE in India the proceedings under section 163 of the Act are an exercise in futility, cannot be accepted. Moreover the chargeability to tax of receipts attributable to the right to use replacement component has been directed to be examined afresh by the CIT(A) in the light of Article 13(3)(b) of the India UK DTAA by the Tribunal in its order. 16. Now we will examine as to whether the parameters laid down in Sec. 163(1)(b) of the Act 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. Agarwal and co.(supra), the Hon'ble Supreme Court held as follows: "Business connection contemplated by section 42 involves a relation betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udes a person from or through whom the non-resident is in receipt of any income, whether directly or indirectly. The appellant makes payment to the non-residents for the services rendered by them in India either in the form of supply of spare parts for aircraft or for hire of aircraft. Thus the non-residents are 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. Therefore the provisions of Sec.163(1)(c) are also attracted. As already stated receipt of income alone is relevant in proceedings u/s. 166 of the Act and their chargeability of such income to tax under the Act is not relevant. For the reasons given above, we reverse the orders of CIT(A) and restore the orders of the AO passed u/s. 163 of the Act. All these appeals by the Revenue are accordingly dismissed. 19. With regard to the arguments of the ld. Counsel for the appellant that simultaneous proceedings for assessment of the same income in the hands of the agent as well as principal should not be resorted, we are of the view that the proceedings under section 163 of the Act, as we have already observed, is only for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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