2009 (7) TMI 58

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....r a mutually agreed percentage on every completed transaction. In the application, it is broadly stated that the role of Zaikog is to communicate the details of the interested parties to the applicant who will pursue the proposal for confirmed orders. Such confirmed orders will be executed directly by the applicant. The sale consideration will be received in India by the applicant. The amount of commission payable to Zaikog is paid from India by the applicant. The applicant submits that Zaikog renders all services outside India i.e., in South Africa and no services of whatsoever nature are performed in India and Zaikog does not maintain any establishment in India. As the income received by Zaikog is business income, it is contended that the same cannot be taxed under the Income-tax Act 1961 in the absence of business connection and permanent establishment in India. 2. At the time of arguments, the learned counsel for the applicant has clarified that the business transactions between the applicant and the Zaikog have not yet started. It is further stated that Zaikog offers to tax the income received on account of the transactions with the applicant as its business income in South....

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.... Assessing Officer has conducted enquiries and found that the company was incorporated on 29.03.2008 and that the return of income for the first year of operation upto 31.3.2009 relevant to the Asst. Year 2009-10 is due on 30.09.2009 which is yet to be filed by the assessee. In the absence of return of income, we are not in a position to send the comments/records called for in the above case." 6. The learned counsel for the applicant contends that the payments made to Zaikog towards commission for services rendered by it abroad are not liable to be taxed in India either going by the provisions of the Income-tax Act or the Double Taxation Avoidance Agreement (DTAA) between India and South Africa. Consequently, the applicant is not liable to deduct any tax at source under Section 195 of the Income-tax Act. Viewed from the angle of Section 9(1) of the Income-tax Act, it is submitted that Zaikog does not earn any income on account of business connection in India. As per the provisions of DTAA, Zaikog cannot be subjected to tax in India in the absence of permanent establishment here. Reliance has been placed on the circulars issued by CBDT, apart from the case law. 7. The applican....

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....e expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment." 8.1 Thus, the profits received by Zaikog in South Africa on account of commission received can be taxed only in South Africa based on the principle of tax residency. The exception is carved out in a case where the enterprise carries on business through a permanent establishment situated in the other country. If such PE exists, only such part of the profits as are attributable to the PE can be taxed by the contracting state in which the PE is located. The expression 'permanent establishment' has been defined in Art.5 of DTAA. The relevant portion thereof is extracted hereunder : "1. For the purposes of this Agreement, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially : (a) a place of management; (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) a mine, an oil....

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.... exist here. 9.2 Relying on the decision of the Supreme Court in CIT Punjab vs. RD Aggarwal & Co. and CIT, Kolkata vs. T.I. and M. Sales Ltd., it is contended that Zaikog has no business connection in India. In the latter case (TI and M Sales Ltd.). It was observed thus : "The position, therefore, is that in a case like this, there can be no business connection unless the Indian assessee has the authority to accept offers or enter into contracts on behalf of the non-residents". It is pointed out by the learned counsel with considerable force that the above enunciation of law applies a fortiori to the instant case. Irrespective of the existence or otherwise of the business connection, the Explanation fully supports the stand of the applicant. Where no business operations are carried out in India by Zaikog, the attribution in terms of clause (a) of the Explanation is not possible and therefore no income can be deemed to accrue or arise in India merely because Zaikog promotes the business of the applicant in South Africa. If any authority is needed for this proposition, the decision of the Supreme Court in Commissioner of IT, Andhra Pradesh vs. Toshoku Ltd. may be referred to. In t....