TMI Blog2012 (3) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... isions for treating person in India as agent of the non-resident does not prevent either the direct assessment of the person on whose behalf or for whose benefit income therein referred to is receivable, or the recovery from such person of the tax payable in respect of such income - Held that: CIT(A)fell into an error in accepting the plea of the appellant and canceling the order under section 163 of the Act - Appeals are allowed - IT Appeal Nos. 2212 to 2214 and 4771 & 4772 (Mum.) of 2002 - - - Dated:- 29-2-2012 - R.S.SYAL, N.V.VASUDEVAN, JJ. ORDER N.V. Vasudevan, Judicial Member ITA No.2212/M/02 to ITA No.2214/M/02 are appeals by M/S.Jet Airways India Pvt. Ltd., hereinafter referred to as the Appellant, against three orders all dated 22/2/2002 of CIT(A) 31, Mumbai relating to assessment year 1998-99. All these appeals are against orders passed under section 163 of the Income Tax Act, 1961 (the Act) treating the appellant herein as the Agent of M/s. Murcurbank Aaktiengeseuschaft, Austria (MA), M/s. Malaysian Airlines System, Berhad (MAS) M/s. Airline Rotables Ltd. UK,(ARL) respectively. All these appeals arise out of identical facts and circumstances and, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RL had to be estimated at 10% of the total billing. The AO accordingly assessed the income. On further appeal by ARL the CIT(A) by his order dated 28.2.2006 confirmed the order of the AO. On further appeal by ARL to the Tribunal, the Tribunal in ITA No.3254/Mum/2006 by order dated 21.5.2010 held that ARL had no Permanent Establishment in India and therefore income from business that accrued to it in India cannot be taxed. However, the Tribunal remanded the issue of taxability of consideration attributable to the right to use replacement component under Article 13(3)(b) of the India UK DTAA. 4. When the proceedings against ARL for assessment for AY 98-99 were pending, the AO issued a notice u/s. 163 of the Act dated 26.2.2001 calling upon the Appellant to show cause as to why the appellant should not be treated as Agent and Representative Assessee of ARL. The AO passed an order dt. 12.3.2001 treating the appellant as agent and representative Assessee of ARL holding that (a) the appellant has a business connection with ARL and (b) ARL was in receipt of any income directly or indirectly from the Appellant. The AO held that the appellant's case was squarely covered u/s. 163(1) (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a monthly fixed variable lease rental. The claim of the Appellant in response to show cause notice dt. 16.3.2001 of AO for treating the appellant as agent of MA and representative Assessee u/s.163 of the Act, was that the Aircraft was taken on lease outside India and, therefore, none of the clauses in section 163 were attracted so as to treat the appellant as agent of the non-resident. The AO however, held that the Aircraft was used for business operation in India and, therefore, the place where the agreement of lease was signed was irrelevant. Since the activities were carried in India which resulted in generation of Income by the non-resident the income was taxable in India as it accrues or arise in India. For other identical reasons given in the case of ARL the AO treated the assessee as an agent of MA. 8. In the case of M/S.Malaysian Airlines System, Berhad (MAS), the facts were identical to the case of MA namely lease of Aircraft for use by the assessee in India. The claim of the Appellant in response to show cause notice dt. 16.3.2001 of AO for treating the appellant as agent of MAS and representative Assessee u/s.163 of the Act, was that the Aircraft was taken on lease o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat as early as 11/6/1999, ARL had filed return of Income in India and the AO passed an order of assessment for A.Y 1998-99 on 30/3/2001. It was his submission that since proceedings for assessment of income of the non-resident have been initiated, it was not open to the revenue to initiate proceedings under section 163 of the Act against the appellant. In this regard our attention was drawn to the decision of the Hon'ble Bombay High Court in the case Aditya Birla Nuvo Ltd. v. DDIT, 200 Taxman 437(Bom.). In the aforesaid decision the Hon'ble Bombay High Court had held as under: "76. We are aware that continuing the assessment proceeding against the representative assessee as well as the non-resident simultaneously would operate harshly against the representative assessee, because, if the revenue can assess and collect the tax directly from the non-resident, there is no reason as to why the assessment and collection of tax should be made in the hands of the representative assessee and leave the representative assessee to collect the said amount from the non-resident. The very object of assessing the income of the non-resident in the hands of the representative assessee is, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hends 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. Sec. 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, "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 acquired by means of a transfer, a capital asset in India : Provided that a broker in India who, in respect of any transactions, does not deal directly with or on behalf of a non-resident principal but deals with or through a non-resident broker shall not be deemed to be an agent under this section in respect of such transactions, if the following conditions are fulfilled, namely: ( i ) the transactions are carried on in the ordinary course of business through t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 as the principal non-resident) or on behalf of such non-resident and other non-residents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non-resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status. The Explanation to Sec. 163(1) and Expln.2 to Sec.9(1)(i) which are applicable only from 1-4-2004 would not be relevant for the present cases which relates to assessment years 98-99. Even as per the Explanation-2 to Sec.9(1)(i) of the Act, the term "business connection" has only been defined to include certain business activity. The term business connection cannot therefore be confined to only business activity as mentioned in Expln.-2 to Sec.9(1)(i) of the Act. Therefore the expression "business connection" as used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. These are contained in Sec. 163 of the Act, which we have already referred in the earlier paragraphs. Under the procedure for treating a person in India as agent of non-resident, it does not appear that the liability of non-resident to tax has to be established. The provisions of Sec. 163 do not lay down any such condition. The purpose of Sec. 163 is to enable the revenue to proceed against the person in India who is regarded as agent of a non-resident, so that vicarious liability can be imposed on him, if it is found that the income of non-resident is chargeable to tax in India. The income of non-resident whether is chargeable to tax or not, and determination of income so liable to tax are to be determined in separate assessment proceedings in which the person in India who is treated as agent of the non-resident, will have full opportunity and right of appeal, as is available to any other Assessee. At the stage of treating a person in India as agent of a non-resident, the liability to tax of the non-resident need not be established. If any of the parameters laid down in Sec. 163(1) (a) to (d) are satisfied, then the person in India can be treated as Agent of the non-resident. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through which income, profits or gains arise or accrue to a non-resident must be determined upon the facts and circumstances of the case. The expression "business connection" postulates a real and intimate relation between the trading activity carried on outside the taxable territories and the trading activity within the territories, the relation between the two contributing to the earning of income by the non-resident in his trading activity". 17. Applying the tests laid down as above to the present case, we find that there was an element of continuity between the business of the non-resident and the activity in the taxable territory. A mere relation between the business of the non-resident and the activity in India which facilitates or assists the carrying on of the business of the non-resident would result in a business connection. We are of the view that applying these tests to the present case, it must be held that there was a business connection. The business of the non-resident was hiring of aircraft, supply of spare parts for aircraft respectively. The Appellant utilised the services of the non-resident in its business in India. These facts in our opinion are sufficient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r participating in the proceedings before the AO. Therefore, the contention of the appellant in this regard is rejected. With regard to the stand of the appellant that same income cannot be brought to tax in the hands of the agent as well as non-resident based on the decision of the ITAT Mumbai in the case of Hindalco Industries ( supra ), we are of the view that an order under section 163 of the Act is not an order of assessment of income and, therefore, the ratio laid down in the aforesaid decision cannot be applied. 20. For the reasons given above we are of the view that the CIT(A)fell into an error in accepting the plea of the appellant and canceling the order under section 163 of the Act. We, therefore, reverse the order of the CIT(A) and restore the order of AO in this regard. 21. In the result, all the appeals are allowed. ITA Nos.4771 4772/M/02: 22. These are appeals by the revenue against two orders, both dated 28/6/2002 of CIT(A)-31, Mumbai relating to assessment year 1998-99 passed in the case of appellant as agent MA, Austria. We have already seen that the appellant was treated as an agent of MA as well as MAS. Consequent to such order, assessment pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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