TaxTMI 
TaxTMI 
1977 (4) TMI 2
X X X X Extracts X X X X
X X X X Extracts X X X X
....any entered into an agreement dated June 22, 1955, with Messrs. Carborandum Universal Ltd. (hereinafter called " the Indian company "), having its registered office at Madras. As per the terms of the agreement the American company was to render and did render to the Indian company certain technical and know-how services of the following nature: (i) furnishing of technical information and know-how with respect to the manufacture of bonded abrasive and coated abrasive products; (ii) providing technical management including factory design and lay-out, plant and equipment production, purchase of materials, manufacturing specifications and quality of product; (iii) furnishing comprehensive technical information of all developments in the manufacture of the special products; (iv) providing the Indian company with a resident factory manager for starting the plant and superintending its operations during its initial production stages, as also other technical personnel necessary for the operation of the plant ; (v) training Indian personnel to replace the foreign technical personnel as quickly as possible. In lieu of all the services aforesaid, as per the agreement, the American compa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x payable on the basis of 5%, the Tribunal was obliged to maintain the order of the Income-tax Officer. The Tribunal took some new materials into consideration at the appellate stage in order to ascertain the true nature of the service rendered by the American company to the Indian company as per the terms of the agreement and the place of rendering such service. The findings of the Tribunal are: (1) The American company rendered service to the Indian company for the starting of the factory in India in the shape of examination of the factory design and lay-out prepared by the latter and sending its advice by post. These services were not proved to have been rendered in India. (2) The pamphlets and bulletins incorporating the results of research made by the American company were also furnished to the Indian company by post and thus the said service was also rendered outside India. (3) That the services of the foreign technical personnel were made available to the Indian company by the American company outside the country. The former employed such personnel in India on the basis of the various agreements of employment entered into between the Indian company and such personnel. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....embrace within its ambit the point of applicability of section 42(1) of the Act to the transactions in question. Upholding this stand taken on behalf of the revenue the High Court answered the question referred to it in its favour and against the assessee-company. Hence this appeal. Mr. N. A. Palkhivala, learned counsel for the appellant-company, urged the following four points in support of this appeal : (1) That the High Court could not go into the matter of business connection between the two companies when such a question was never raised or in issue at any earlier stage. (2) That the High Court was wrong in founding the tax-liability of the assessee-company on the basis of the alleged business connection. Its finding or view in that regard is wholly erroneous. (3) That even assuming that the High Court was right in its view of basing the tax liability of the assessee-company on the alleged business connection, it failed to examine the question of apportionment under section 42(3) of the Act. (4) That apportionment under section 42(3) and determination of the tax liability of the assessee-company in pursuance thereof could not be more than the liability to pay tax on 5% of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onably attributable to that part of the operations carried out in the taxable territories." In Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC) it has been pointed out that when a question of law was neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it. In the instant case the question of law based upon the theory of business connection was neither raised before the Tribunal nor considered by it, nor did it arise on the findings of fact recorded by it. The High Court, therefore, was wrong in entertaining this new point at the reference stage on the basis of the allegedly general and compendious nature of the question referred to it by the Tribunal. But we do not propose to rest our judgment only on this technical aspect of the matter as we find that even on merits the assessee-company has a good case to succeed before us. The High Court agreed with the Tribunal that the technical information furnished by the assessee-company by post was a service which could not be said to have been rendered in India; putting it to use in India....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h J., as he then was, speaking for this court, said at page 24 : " A business connection in section 42 involves a relation between a business carried on by a non-resident which yields profits or gains and some activity in the taxable territories which contributes directly or indirectly to the earning of those profits, or gains. It predicates an element of continuity between the business of the non-resident and the activity in the taxable territories: a stray or isolated transaction is normally not to be regarded as a business connection. Business connection may take several forms: it may include carrying on a part of the 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 activity in the taxable territories which facilitates or assists the carrying on of that business. In each case the question whether there is a business connection from or through which income, profits or gains arise or accrue to a non-resident must be determined upon the facts and circumstances of the case." The learned judge says further: " A relation to be a 'business connection....