TMI Blog1982 (12) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... r back as 1-11-1931, which is still existent. That agreement describes the Indian Co. as 'dealer'. The US Co. would 'sell to the dealer for resale, goods and manufactures as covered by discount sheets' attached to the agreement 'to execute orders for the goods placed by Indian Co., and the US Co. would charge Indian Co. at net prices and list prices as per price list, less discounts'. The US Co. had reserved the right to increase or decrease the prices shown in the price list. On its part the Indian Co. agreed to make every effort to sell the goods and to pay the US Co. for all the goods shipped and the amount charged. 4. As a matter of practice, the discount allowed to the Indian Co. was 10 per cent. The modus operandi of the business would be clear from one illustrative deal, as given in the paper book furnished at the time of hearing. 5. On 8-12-1971, a purchase order was placed by Phillips Carbon Black Ltd. for spares for a compressor. The order is booked in terms of dollars and the price payable is dollar 590.40+ freight. Out of this, 10 per cent that is dollar 59.04, is payable to Indian Co. in rupees. For the balance, the customer has to open a letter of credit in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia regarding the remittance and the import policy allowing import for direct consumers require the Indian Co. to adopt this method, so that the conditions for import could be satisfied. But, that does not, according to him, alter the nature of the transaction. There is no privity of contract between the Indian customer and the US Co. If there is a default, only remedy for the Indian customer is to sue the Indian Co. He relied on the Bombay High Court decision in CIT v. Gulf Oil (Great Britain) Ltd. [1977] 108 ITR 874 to show that the transactions under these circumstances have to be treated on principal to principal basis. 12. Regarding the second submission, he stated that even if the Indian Co. is to be treated as agent, it only gives information and such information would not amount to business connection. Reliance was placed on the decision of CIT v. R. D. Aggarwal Co. [1965] 56 ITR 20 (SC). 13. To show there are no operations carried on in India, he pointed out that the documents of title are handed over to the bank in USA against letter of credit. The goods are put on board F. A. S. Title to the goods passed in USA only. The Indian customer accepts the performance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce it likes. 2. The purchase order from the Indian customer lists the price in terms of dollars and not in rupees. It is only the final invoice after the shipment of the goods are effected that the price payable is given in terms of rupees. 3. In the material papers, the Indian Co. refers to the US Co. as principal. 4. The Indian Co. does not place an order with the US Co. unless it receives an order from the Indian buyer. On receipt of such an order, an identical order with pre-determined prices is placed with the US Co. 5. In all orders received by Indian Co., 10 per cent of the value predetermined as per listed price in dollars, is payable to Indian Co. in rupees. This 10 per cent does not figure at all in the books of US Co. 6. 90 per cent of the price is paid directly by the Indian consumer to US Co. 7. The goods are despatched directly by US Co. to Indian consumer. 8. The property in the goods passes to the Indian consumer direct from US Co. The title passes to the buyer in USA. 17. The prima facie impression created by the agreement of 1931 is that it resembles a selling agency, which is not normally considered as an agency under section 182 of the Contract A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 TC 381. The Court of Appeal was dealing with similar facts. "There are two very important matters which are favourable to the appellant. One is this, that I do not think there is anything to show here that any privity whatever was created between the ultimate purchaser and the Ramic Union, and that any contract binding the Ramic Union was made by the appellants. This is an important matter but not conclusive . . . ." 20. Another test to be applied was the passing of the title to the goods. It had been urged that the deal between the Indian Co. and US Co. on the one hand, and the Indian Co. and the Indian consumer, on the other, are independent ; the title to the property passed from US Co. to Indian Co. and to Indian consumer and the US Co. gave the title to the property to Indian consumer only as a part of the performance of the contract between Indian and US Co. Passing of the title to the goods is certainly an important test. But this, again, is not conclusive ; and for this proposition also, the authority is the same, decision of Court of Appeal, ibid. 21. Some further tests may now be considered. A study of the Bombay High Court decision in Supdt. of Stamps v. Breul C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the plaintiff and the Bhaduris. To my mind it appears that if the Bhaduris acted as the agents of the Modis there would not be subsequent contracts between the Bhaduris on the one hand and the Modis on the other hand. The most noticeable feature of the case is that the contract between the plaintiff and the Bhaduris was for the purchase of two sets at the total price of Rs. 1,40,000. The very fact that there were subsequent contracts between the Bhaduris and the Modis with the additional feature of a different price would indicate that the transactions were independent and separate. One of the tests of finding out agency is as to who was to pay the price. The Supreme Court in the recent decision of Gordon Woodroffe Co. (Madras) Ltd. v. Shaik M. A. Majid Co. AIR 1967 SC 181 considered as to whether the defendant in that case was acting as agent of the plaintiff or whether the defendant was the outright purchaser of the goods. The respondent in that case was a trader at Madras in hides and skins. The appellant Gordon Woodroffe Company (Madras) Ltd. was doing business as exporters of hides and skins. For several months commencing January 1, 1949 there were many contracts. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of "your principal". Clearly, as far as Phillips Carbon is concerned, they were treating the Indian Co. as agents of the US Co. Otherwise, the rate in dollars, reference to shipment, reference to 'your principal' are inexplicable. 24. The respondence from Indian Co. is given in the letter to Phillips Carbon dated 16-2-1973 which reads : "We thank you for your above letter. We have already released our corresponding order on our Painted Post Plant in USA under reference 297-15112. With regard to shipment schedule, we will write to you as soon as we hear from them. Assuring you of our best attention." This does not read as a letter of a trader dealing at arm's length. To recall, unlike Brvel Co.'s case, the Indian Co. does not say in substance. We accept your offer. They say 'We will execute your order'. They go on to say that 'With regard to shipment schedules, we will write to you as soon as we hear from them', i. e., the principal, according to the understanding of Phillips Carbon. In the letter of 22-1-1973, Phillips Carbon again refers to US Co. as principals at two places. The extract from Calcutta High Court decision quoted above had laid emphasis on the two i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of dollars and that only in the final invoice, after the shipment has reached India, that price is quoted in rupees. Now, suppose, there was a devaluation or revaluation of Indian currency vis-a-vis dollars. If the transaction between the Indian buyer and Indian Co. were independent, devaluation would not affect it at all. But, since the prices are quoted in dollars, it would affect, as if the transaction is entirely with US Co. 26. After considering all these facts and circumstances, we have come to the finding, with some hesitation, that the Indian Co. is the agent of the US Co. 27. We take up the next issue. The manufacture of the goods is, undoubtedly, in America. Sale also is effected there. So, it is difficult to say that any income accrues or arises under section 5 of the Act. So, we necessarily have to turn to section 9 of the Act. Under section 9, the first point we should consider is whether there is any business connection in India. It has been urged that there is none and strong reliance has been placed on Aggarwal Co.'s case. The concept of business connection has been explained in that case and if we see the facts in the light of the ratio of that decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-resident was an agent of an Indian principal and his entire operations were admittedly outside India. This case would not help us in resolving the issue. 29. Since we give a finding that some operations are in India, there is question of apportionment of the income under Explanation to section 9(1)(i). It is not necessary for us to go into full details, because we find that the point is fully covered by a circular of the CBDT. The circular has been set out fully in Sundaram's Law of Income-tax, 1978 edition [Taxmann's Direct Taxes Circular, Vol. I, 1980 edition, p. 29]. The points arising in the case of a non-resident operating through a subsidiary is set out below : "(c) Where a non-resident's sales to Indian customers are secured through the services of an agent in India, the assessment in India of the income arising but of the transaction will be limited to the amount of profit which is attributable to the agent's services, provided that : (a) the non-resident principal's business activities in India are wholly channelled through his agent ; (b) the contracts to sell are made outside India ; and (c) the sales are made on a principal-to-principal basis. In the assessment of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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