1983 (2) TMI 40 - HC - Income Tax

Court affirms Tribunal decision in favor of assessee on foreign technical advice payment

The court affirmed the Tribunal's decision, ruling in favor of the assessee-company and against the Department. It held that the payment made to Gold ... Agent, Collaboration Agreement, Non-resident Issues Involved:1. Business connection in India between New Consolidated Gold Fields Ltd., London, and Indian Copper Corporation Ltd., Ghatsila.2. Income to the non-resident falling within the categories enumerated in section 9(1)(i) of the I.T. Act, 1961.Summary:Issue 1: Business Connection in IndiaThe Tribunal held that there was no business connection in India between New Consolidated Gold Fields Ltd., London (Gold Fields), and Indian Copper Corporation Ltd., Ghatsila (assessee-company). The agreement dated October 22, 1959, appointed Gold Fields as technical advisers to the assessee-company for exploration, mining, and mineral dressing operations. The Income-tax Officer (ITO) deemed the assessee-company as an agent u/s 163 of the Act, asserting that the annual remuneration of £7,000 payable to Gold Fields was taxable in the hands of the assessee-company. However, the Appellate Assistant Commissioner (AAC) and the Tribunal concluded that no business connection within the meaning of section 9(1) of the Act was established, thus no income accruing to the non-resident could be taxed through its agent, the assessee-company.Issue 2: Income Deemed to Accrue or Arise in IndiaThe Tribunal held that there was no income to the non-resident which could fall within the categories enumerated in section 9(1)(i) of the Act. The payment of £7,000 sterling was made in London for technical advice given from London, which cannot be reasonably attributed to operations carried out in India. The Supreme Court in CIT v. R.D. Aggarwal and Co. [1965] 56 ITR 20 (SC) and CIT v. Toshoku Ltd. [1980] 125 ITR 525 (SC) emphasized that a business connection involves a relation between a business carried on by a non-resident and some activity in the taxable territories contributing to the earning of profits or gains. The Tribunal found no continuity between the business of the non-resident and the activity in India. The payment was not deemed to have accrued in India as per section 9(1)(i) of the Act.Conclusion:The court affirmed the Tribunal's decision, answering both questions in the affirmative and against the Department. The payment of £7,000 sterling to Gold Fields for technical advice given from London did not constitute income accruing or arising in India through any business connection or source of income in India. The judgment emphasized the importance of continuity and direct contribution to the earning of profits or gains in establishing a business connection under section 9(1)(i) of the Act.