1986 (8) TMI 111 - AT - Income Tax

Tribunal rules payments by FACT to PGC not taxable in India. Reassessment additions deleted.

Imperial Chemical Industries Limited. Versus Inspecting Assistant Commissioner.

The Tribunal held that no income from the payments made by FACT to PGC could be deemed to accrue to the assessee in India. Consequently, the additions ... Income, Deemed To Accrue Or Arise In India. Issues Involved:1. Reopening of assessments under section 147(a) of the Income-tax Act, 1961.2. Taxability of fees received by the assessee under section 9(1) of the Income-tax Act, 1961.3. Existence of business connection between the assessee and the Indian company (FACT).4. Applicability of Explanation to section 9(1)(i) regarding operations carried out in India.Issue-wise Detailed Analysis:1. Reopening of Assessments under Section 147(a) of the Income-tax Act, 1961:The assessments for the years 1968-69 to 1972-73 were reopened under section 147(a) on the grounds that certain incomes chargeable to tax had escaped assessment due to the omission of the assessee to disclose fully and truly all the material facts necessary for its assessments. The assessee contended that the reassessments were not warranted as there was no omission to disclose material facts. The Commissioner (Appeals) upheld the reopening, but the Tribunal found that the amounts were not taxable in India, rendering the reopening issue infructuous.2. Taxability of Fees Received by the Assessee under Section 9(1) of the Income-tax Act, 1961:The assessing officer deemed the fees received by the assessee under an agreement dated 1-1-1964 with Power Gas Corporation (PGC) to have accrued in India. The officer argued that the fees paid by FACT to PGC, a portion of which was transmitted to the assessee, must be deemed to accrue in India. The Tribunal, however, concluded that the amounts were not received or deemed to be received in India, nor did they accrue or were deemed to accrue in India. The Tribunal emphasized that income accrues where services are rendered, and in this case, the services were rendered outside India.3. Existence of Business Connection between the Assessee and the Indian Company (FACT):The assessing officer argued that the agreements between the assessee and PGC, and between PGC and FACT, established a business connection between the assessee and FACT. The Tribunal found no such business connection, noting that the assessee did not render any services in India and had no direct agreement with FACT. The Tribunal highlighted that the right to use the process developed by the assessee was passed to PGC in the United Kingdom, and the assessee had no involvement in the subsequent agreement between PGC and FACT.4. Applicability of Explanation to Section 9(1)(i) Regarding Operations Carried Out in India:The Tribunal referred to the Explanation to section 9(1), which states that income arising from a business connection is taxable only to the extent attributable to operations carried out in India. The Tribunal found that no operations were carried out by the assessee in India concerning the agreement dated 24-4-1965 between PGC and FACT. Therefore, even if there was a business connection, no part of the income could be deemed to accrue in India.Conclusion:The Tribunal concluded that no income from the payments made by FACT to PGC could be deemed to accrue to the assessee in India. Consequently, the additions made to the total income in the reassessments for the five assessment years under consideration were deleted, and the appeals were allowed.