2011 (5) TMI 568 - AT - Income Tax

International transaction - appellant submitted that the business associates did not having Permanent Establishment (PE) in India - With regard to the conclusion of the AO that the non-resident is in receipt of income from the assessee and therefore section 163(1)(c) would be applicable the appellant submitted that the taxability of the income under the Act has to be examined before holding that section 163(1)(c) applies to the case of the appellant - Whether the parameters laid down in section 163(1)(b)are satisfied in the case of the appellant - Held that - A mere relation between the business of the non-resident and the activity in India which facilitates or assists the carrying on of the business of the non-resident would result in a business connection - The business of the non-resident was transshipment of cargo and the appellant engaged their services for shipment of cargo from India to a destination which the appellant could not reach without the assistance of the transshipment through the non-resident - All these facts in our opinion are sufficient to justify the conclusion that there was a business connection within the meaning of section 163(1)(b) as well as section 9(1)(i) - non-resident had business connection in India and therefore income had accrued and arisen in India to the non-resident which is chargeable to tax - In the absence of treaty between India and Hong Kong we have to proceed to tax income that accrues to the non-resident in India - Decided against the assessee Regarding tax deducted from source - CIT(A) has given a finding that the appellant charges its customers freight payable inclusive of the freight from the port of transshipment to the ultimate destination and this is done with the tacit understanding with the non-resident who does transshipment outside India - Held that - There is no material on record to suggest that the appellants were acting as agents when they dealt with the Indian customer sending cargo there is equally no material to show that the appellants were dealing with the non-residents only on a principal to principal basis - Under the 1922 Act there were no separate proceedings by which a person in India is treated as Agent of non-resident. Under 1922 Act in section 42 it was provided that income of the non-resident could be assessed either in his name or in that of his agent if there was a business connection - At the stage of treating a person in India as agent of a non-resident the liability to tax of the non-resident need not be established. Against assessee.

Issues Involved:
1. Whether the appellant can be treated as an agent of the non-residents under section 163 of the Income-tax Act, 1961.
2. Whether the income received by the non-residents from the appellant is chargeable to tax in India.

Detailed Analysis:

1. Treatment of the Appellant as an Agent under Section 163:

The primary issue in the first 18 appeals was whether the CIT(A) was justified in treating the appellant as an agent of various non-residents under section 163 of the Income-tax Act, 1961. The appellant, engaged in cargo consolidation, made payments to non-residents for services rendered outside India without deducting tax at source. The AO issued a show-cause notice to the appellant, questioning why it should not be treated as an agent of the non-residents. The appellant argued there was no principal-agent relationship and that the non-residents did not have a Permanent Establishment (PE) in India. The AO, however, held that the appellant had a business connection with the non-residents and thus should be treated as their agent under section 163.

The CIT(A) upheld the AO's decision, finding that the appellant collected freight for the ultimate destination of cargo and remitted it to the non-residents, indicating a business connection. The CIT(A) referred to various judicial pronouncements and concluded that the appellant had a business connection with the non-residents and that income accrued in India because of this connection. The Tribunal agreed with the CIT(A), stating that there was a business connection between the appellant and the non-residents, and upheld the orders of the CIT(A).

2. Taxability of Income Received by Non-Residents:

In the last two appeals, the issue was whether the income received by the non-residents from the appellant was chargeable to tax in India. The AO initiated proceedings against the appellant as the representative assessee of the non-residents, estimating 10% of the freight income earned by the non-residents as their business income. The CIT(A) reduced the estimation to 7.5%. The appellant argued that the facts of their case were similar to the case of DHL Operations B.V., where it was held that no income accrued in respect of outbound consignments. However, the Tribunal distinguished the present case from DHL Operations B.V., noting that the terms of the agreement between the appellant and the non-residents were not provided, and there was a business connection in India.

The Tribunal upheld the CIT(A)'s orders, confirming that the non-residents had a business connection in India and that the income received by them from the appellant was chargeable to tax in India. The absence of a treaty between India and Hong Kong meant that the income had to be taxed under Indian law.

Conclusion:

The Tribunal dismissed all the appeals, confirming the treatment of the appellant as an agent of the non-residents under section 163 and the taxability of the income received by the non-residents from the appellant in India. The Tribunal's decision was based on the existence of a business connection between the appellant and the non-residents and the absence of a treaty between India and Hong Kong.

← Previous Next →