1989 (12) TMI 4 - HC - Income Tax

Summary

Issues:
Interpretation of business connection for tax liability
Taxability of income received by a non-resident company from Indian companies

Analysis:
The judgment revolves around the taxability of income received by a non-resident company from Indian companies and the interpretation of a business connection for determining tax liability. The case involved an agreement between the non-resident company and Indian companies for setting up a factory in India. The non-resident company was to receive payments in instalments for providing technical data and supervising the construction of the factory. The Income Tax Officer held the received amount taxable under section 9(1)(i) of the Income-tax Act, 1961.

The Commissioner of Income-tax (Appeals) ruled in favor of the non-resident company, stating that since the agreement was finalized outside India, no services were rendered in India, and the money was received outside India, there was no business connection in India. The Revenue appealed this decision, leading to the Tribunal upholding the Commissioner's decision. The Tribunal emphasized that no services were provided by the non-resident company to the Indian companies in India during the relevant year, which impacted the taxability of the income received.

The Tribunal's findings were based on the provisions of the Income-tax Act, highlighting that for income to be taxed in India, there must be evidence of the income being received, accrued, or deemed to have been received in India. Since no services were rendered in India by the non-resident company, the income received in India could not be taxed. The court accepted the Tribunal's factual finding and concluded that no part of the payment received by the non-resident company accrued or arose in India, hence not subject to tax.

The judges, SUHAS CHANDRA SEN and BHAGABATI PRASAD BANERJEE, both concurred with the decision. The judgment clarifies the criteria for determining tax liability concerning income received by non-resident companies from Indian entities and underscores the importance of establishing a business connection and activity in India for tax purposes.