TMI Blog1985 (9) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... he same did not come within the exception mentioned in Explanation 2 to that sub-section. The Commissioner (Appeals) held that the fees was received as consideration for construction, assembly, mining or like project and, therefore, came within the exception provided under Explanation 2. He, accordingly, deleted the addition, in the absence of a business connection of the non-resident in India. The revenue is in appeal. 3. It is seen that a non-resident company entered into two contracts. One was for making available the services of an engineer to supervise the erection of the machinery sold by the company to KIOCL. Another was for direct supply of the machinery required by KIOCL. Section 9(1)(vii) reads as follows : "(vii) income by way of fees for technical services payable by--- (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (Appeals) was in error in deleting the addition of Rs. 1,34,062 for the assessment year 1981-82. 4. There is one other point which is peculiar to the assessment year 1980-81 only. The non-resident company supplied machinery worth $ 17,88,337 to KIOCL. The IAC, who made the assessment, held that the company had business connections in India. He observes that the assessee-company is a subsidiary of Cutler Hammer Ltd., USA. The Indian company, Bharatia Cutler Hammer Ltd. was an agent of the assessee-company. The non-resident company had collaboration with Indian agents till September 1977. It withdrew its financial interest in the Indian company because of Foreign Exchange Regulations Act but continued technical collaboration. The Indian company represents the assessees who are in USA and UK. The Indian company renders technical services to various customers in India and submits quotations to Indian parties for import of various equipments. For doing services to the foreign company, the Indian company receives commission ranging between 5 and 10 per cent of the cost of components imported by the customers. The non-resident company's sales to Indian customers are secured through th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions with regard to the component and spare parts dealt with by them. The Indian company receives commission on some of these transactions but the supply of machinery to KIOCL is a separate category by itself. The Indian company received no monetary consideration as far as this transaction is concerned. He then examined the question whether the association of the Indian company with the negotiations could be termed as business connection. Although the Indian company and its representatives were actively associated with the procurement of the purchase order by the assessee-company such activities did not constitute business connection. After considering various case laws, he held that the activities of the Indian company did not amount to establishment of a business connection in India so far as the sale of 6.6 KV MCC to KIOCL was concerned. He, accordingly, deleted the addition made by the IAC. The revenue is in appeal on this point also. 6. The learned departmental representative took us in detail through the orders of the authorities below. He submitted that the Indian company was already in receipt of commission on sales made by the foreign principal. It would normally have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business relationship and no question of business connection does generally arise. (b) In CIT v. R.D. Aggarwal Co. [1965] 56 ITR 20 (SC), 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 also given outside the taxable territories. No operations 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 held that there was no business connection between the assessee and the non-residents. Business connection may take several forms ; it may include carrying on a part of a 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 activities in the taxable territories which facilitates or assists the carrying on of that business. The question has to be determined on the facts and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction, the non-resident, in effect, receives the value of the documents in his own country." (d) In the light of the above case laws and circular, we have to determine whether there was business connection in India insofar as the supply of 6.6 KV MCC is concerned. From the facts, it is seen that it is a transaction between the resident and the non-resident at arm's length. This does not lead to a business connection. The Indian company's officials might have taken part in clinching the deal but that does not mean that there is a business connection established through the participation of the Indian company. The Indian company at best is entitled to some remuneration, but the fact that remuneration is given to the Indian company for services rendered is not enough to bring the transaction within section 9(1)(i). For example, let us say that when a foreign principal arrives in India, a travel agent offers to take him to the concerned places and is remunerated for this service. This will not amount to business connection. Similarly, if the non-resident asks certain people to follow up the deal in the taxable territories that would not amount to a business connection. Even if the In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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