TMI Blog1978 (2) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and the non-resident company for rendering technical co-operation during the construction of Plate and Vessels Plant at Visakhapatnam. These agreements provided for training selected personnel of the assessee in CSSR, for rendering consultancy services and technical assistance in the construction of the plant to the extent mentioned in the several articles of the agreement, for preparation and supply of technical documentation, for production, for preparation and supply of drawing documentation, for production of operating tools, for production of non-standard equipment, for rendering personnel technical assistance and consultancy services for the starting and in the initial run of the production. In the various articles of the agreement there were common stipulations concerning respective duties of the non-resident and the assessee in regard to the training of the assessee's selected personnel. For the purpose of carrying out the consultancy activities it is provided that the non-resident shall depute to India a group of designing experts. The non-resident and the assessee have the right to change the composition and number of experts during the course of performance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licant was an agent of M/s. Skoda Export, Praha, Czechoslovakia, a non-resident, within the meaning of section 163(1) of the Income-tax Act, 1961, for each of the assessment years 1969-70, 1970-71, 1971-72 and 1972-73 ? (2) Whether, on the facts and in the circumstances of the case, there is any material or evidence to establish that M/s. Skoda Export, Praha, had business connection in the taxable territories through the applicant, during the previous years relevant to the assessment years 1969-70 and 1970-71 ? " The relevant provisions of the I. T. Act bearing on the question may be extracted : Section 9(1)(i) is as follows : " (1) 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 or from any money lent at interest and brought into India in cash or in kind or through the transfer of a capital asset situate in India. " Section 160(1)(i) and s. 160(2) are as follows : " 160. (1) For the purposes of this Act, " representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT [1950) 18 ITR 423 (Mad), the Madras High Court, construing the word "business connection", observed as follows : " In order to constitute a business connection there must be some continuity of relationship between a person in British India who makes profits and the non-resident who receives them ...... A business connection, therefore, may arise by reason of the existence of a branch of the non-resident company or organisation in British India or by the existence of a factory or even by the existence of an agent ...... The business connection may be even a connection arising out of financial relations. The non-resident business and the resident business may be two separate legal entities and they may be closely connected or associated either by reason of some common control or by reason of the non-resident company or firm financing the resident company or firm. The goods of a non-resident company may be sold by a broker or commission agent residing in British India or the person resident may render various services to the non-resident or conduct business activities. These are some of the factors which result in a business connection within the meaning of the section." The Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her directly or indirectly to the non-resident. But it must in all cases be remembered that by section 42 income, profit or gain which accrues or arises to a non-resident outside the taxable territories is sought to be brought within the net of the income-tax law, and not income, profit or gain which accrues or arises or is deemed to accrue or arise within the taxable territories. Income received or deemed to be received, or accruing or arising or deemed to be accruing or arising within the taxable territories in the previous year is taxable by section 4(1)(a) and (c) of the Act, whether the person earning is a resident or non-resident. If the agent of a non-resident receives that income or is entitled to receive that income, it may be taxed in the hands of the agent by the machinery provision enacted in section 40(2). Income not taxable under section 4 of the Act of a non-resident becomes taxable under section 42(1) if there subsists a connection between the activity in the taxable territories and the business of the non-resident, and if through or from that connection income directly or indirectly arises ............ The expression 'business connection' postulates a real and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and assembly drawings, technical information and other documentation. These rights were assigned by the non-resident company to the assessee up to December 31, 1968. The price for technical documentation was fixed at Rs. 30,00,000 and the fee for consulting activity was fixed at Rs. 11,91,735. Both parties had to continually inform each other of the progress of deliveries and all, facts necessary for the fulfilment of the obligations and they have to mutually co-operate and render assistance to each other. The non-resident company had to deliver machinery, equipment and instruments inclusive of standard accessories and spare parts and special accessories accompanying documentation for the production purposes of the plant. The total purchase price of the machinery was mentioned as Rs. 2,02,27,994. It is not a mere purchase of machinery as contended by the learned counsel for the assessee. The non-resident company had agreed to supply necessary personnel and also to train the personnel and to supply the requisite machinery for purposes of plate and vessels by erecting the machinery and equipment at Visakhapatnam. It is not as though these personnel were employed by the assessee-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no business connection between the non-resident company and the assessee. It is, therefore, necessary for us to consider the facts of the said case in detail. In the said case, the agreement between the non-resident company and the Indian company related to certain technical and know-how services, namely :-- (1) furnishing of technical information and know-how with respect to the manufacture of bonded abrasive and coated abrasive products ; (2) providing technical management including factory design and lay-out, plant and equipment production, purchase of materials, manufacturing specifications and quality of product ; (3) furnishing comprehensive technical information of all developments in the manufacture of the special products ; (4) providing the Indian company with a resident factory manager for starting the plant and superintending its operations during its initial production stages, as also other technical personnel necessary for the operation of the plant ; and (5) training Indian personnel to replace the foreign technical personnel as quickly as possible. Having regard to the terms and conditions of the agreement, the Income-tax Appellate Tribunal in that case had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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