1974 (9) TMI 34 - HC - Income Tax

Court rules interest on unpaid purchase price not taxable under Income-tax Act.

Commissioner Of Income-Tax, Gujarat Versus Saurashtra Cement And Chemical Industries Limited

The court held that the interest on the unpaid purchase price was not taxable in the hands of the assessee as the agent of the non-resident company under ... From Other Sources, Income From Business Issues Involved:1. Taxability of interest on the amount payable by the assessee to a non-resident company u/s 9(1)(i) of the Income-tax Act, 1961.2. Determination of whether the unpaid purchase price constitutes a loan.Summary:Issue 1: Taxability of Interest u/s 9(1)(i)The primary question was whether the interest on the amount payable by the assessee to M/s. Ansaldo under the contract in the assessment years 1962-63, 1963-64, and 1964-65 was taxable in the hands of the assessee as the agent of the non-resident company u/s 9(1)(i) of the Income-tax Act, 1961. The Tribunal held that there was no business connection in India as the non-resident company had no branch or place of business in India and was merely a supplier of goods. The contract elements were most closely connected with Italy, where the non-resident company was based. Therefore, the debt owed by the assessee was not an asset held by the non-resident company in India, and the interest was not income arising from any asset held in India. Consequently, the assessee was not liable to pay tax on the interest as an agent of the non-resident company.Issue 2: Unpaid Purchase Price as a LoanThe alternative argument by the revenue was that the interest was income accruing from money lent at interest and brought into India. However, the Supreme Court in Bombay Steam Navigation Co. (1953) (Pte.) Ltd. v. Commissioner of Income-tax clarified that an agreement to pay the balance of consideration does not constitute a loan. The unpaid purchase price was not a loan advanced by the non-resident company to the assessee, and thus, the interest payable could not be deemed as income from money lent at interest and brought into India.Conclusion:The court concluded that the interest on the unpaid purchase price was not taxable in the hands of the assessee as the agent of the non-resident company u/s 9(1)(i) of the Income-tax Act, 1961. The question was answered in the negative and in favor of the assessee, with costs awarded to the assessee.