TMI Blog1972 (9) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... in India and the Tribunal's decision is accepted by the Department. The Tribunal has also dealt with the consequences of the agreement with the Export company as well. But that does not form the subject-matter of the present reference. Let us at the outset set out the relevant provisions of the statute. Section 3 of the Indian I.T. Act, 1922, is the charging section. Under s. 4, incomes which are received or which accrue or arise or are deemed to be received, to accrue or to arise in taxable territories during a year are taxable. In the instant case, it is common ground that, so far as the assessee is concerned, no income was received nor did any income accrue in India. The question is whether any income should be deemed to have been received or deemed to accrue. Section 4(1)(c) also provides that if the person to be assessed is a non-resident in the taxable territories during the assessment year in question, the income which arises or accrues or is deemed to accrue or arise to him in the taxable territories would also be taxed here. We now come to s. 42 of the 1922 Act. The relevant provisions are as follows : " 42. Income deemed to accrue or arise within the taxable ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sponding to Explanation (a) to s.9(1)(i) of the 1961 Act would be attracted to the facts of the case. The Tribunal has referred to this court the following questions " 1. Whether, on the facts and in the circumstances of the case and on a proper construction of the agreement between the Indian company and the export company, the Tribunal was right in holding that the six non-resident companies in Group A had a business connection with the Indian company and, therefore, that the Indian company was correctly treated as an agent of the said non-resident companies under section 163 of the Income-tax Act, 1961 ? 2. If the answer to question No. 1 is in the affirmative, then, whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that any profit could be deemed to accrue or arise in India to the six non-resident companies in U.K. in respect of the goods sold by them to customers in India ? 3. Whether, on the facts and in the circumstances of the case and on a proper construction of the agreement dated March 22, 1955, between the Indian Company and Crane Packing Ltd. (company in Group B), the Tribunal was right in holding that the non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law. Mr. Balai Pal, on behalf of the Department, has argued before us that the assessee was not a mere canvassing agent or a freelance broker either for the Group A or the Group B companies. The assessee was the sole authorised agent of the export company in India with full power to enter into contracts. The agreement with the export company was not all agreement on principal to principal basis but an agreement of agency only. With regard to the Group A companies, Mr. Pal says that though these companies had no direct agreement with the Indian company, they accepted the terms of the agreement between the Indian company and the export company and by reason of this acceptance, the Indian company became the sole selling agent of the Group A companies as well. With respect to the Group B companies, according to Mr. Pal, there were not only direct contracts between these companies and other Indian concerns but the Indian company was also acting as their sole agent in India having the authority to enter into contracts on their behalf. Mr. Pal submits that the affidavit of Mr. Carol Stuart Cameron, Secretary of the Indian company, affirmed on the 27th December, 1965, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s we find from the documents on record. On the facts and in the circumstances of this case, the only relevant decision of the Supreme Court that requires consideration is the case reported in CIT v. Aggarwal Co. [1965] 56 ITR 20. In this case, the assessee canvassed orders from dealers in Amritsar for the supply of goods and communicated them to certain non-resident exporters. The assessee had no authority to accept the orders on behalf of the non-residents. The orders were accepted by the non-residents, price was received by them and delivery was also given outside the taxable territories. No operation such as procuring raw materials or manufacture of finished goods took place within the taxable territories. The assessee was entitled to certain commission on these sales. The Supreme Court has held that there was no business connection within the meaning of s. 42(1) of the Indian I.T. Act, 1922, of the assessee with the non-resident, and the assessee could not be treated as the agent of the non-residents for the purpose of taxing the profits that accrued to them from their export business. In the last but one paragraph of this judgment, at page 28, it was observed : " Turning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resident in London and intimation of such acceptance was communicated either to the Indian company or to the Indian customers and the orders became binding contracts only after being accepted in this manner. In other words, the Indian company had no authority to accept any offers on behalf of any of these non-residents whether they belonged to Group A or Group B. The Department, as we have stated, has not adduced any evidence to contradict the facts stated by Cameron either from the course of dealings between the parties or otherwise. The position, therefore, is that in a case like this there can be no business connection" unless the Indian assessee has the authority to accept offers or to enter into contracts on behalf of the non-residents. The Tribunal has found that in the case of one company only there was an express prohibition against the acceptance of offers. But in the other contracts, there was no such express prohibition. The Tribunal has granted relief in the case of express prohibition but has taken a different view with regard to those contracts in which there was no such prohibition. In our opinion, having regard to the facts stated by Cameron and the course of deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration of receiving half commission of business introduced by him to bear half of any loss sustained by the other in connection with such business was held to constitute not a del credere agency, but a contract of indemnity. A del credere agency does not need to be in writing because being merely incidental to another transaction, it is not a promise to answer for the debt, default or miscarriage of another within section 4 of the Statute of Frauds." In Anson's Law of Contract, 21st edition, page 517, a del credere agent has been described as " an agent employed for the purpose of sale, but who, in return for extra remuneration, also becomes responsible to his principal for payment by the buyer. He undertakes that the parties with whom his principal is brought into contractual relations will pay the money which may become due under the contract into which they enter. He does not, however, become responsible to the buyer for the due performance of the contract by his principal." Lastly, in Halsbury's Laws of England, 3rd edition, article 362, at page 152, it is stated: " A del credere agent is one who, usually for extra remuneration, undertakes to indemnify his employer against lo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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