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Issues:
1. Business connection in India under section 42(3) of the Indian Income-tax Act, 1922, or section 9 of the Income-tax Act, 1961 for assessment years 1958-59, 1959-60, 1966-67 to 1973-74. 2. Taxability of 75% of income from engineering fees as income accruing in India. Analysis: The judgment by the High Court of Madras dealt with multiple issues regarding the taxability of income earned by a non-resident assessee, M/s. Massey Ferguson Perkins Limited, from an Indian company. The first issue involved determining whether there was a business connection in India under the relevant tax laws for the assessment years 1958-59, 1959-60, and 1966-67 to 1973-74. The Income-tax Officer initially determined the income of the assessee based on a return, but the Commissioner of Income-tax revised the assessment, bringing 75% of the income paid by the Indian company to tax. The Appellate Tribunal later allowed the assessee's appeals, setting aside the Commissioner's orders. However, the Commissioner appealed to the High Court, questioning the Tribunal's decision. The High Court referred to a previous decision in Carborundum Company's case and upheld the Commissioner's contention, stating that 75% of the technical fees should be considered as income accruing in India. The Court highlighted the significance of the business connection between the assessee and the Indian company, emphasizing the applicability of section 42(1) of the Indian Income-tax Act, 1922, and section 9 of the Income-tax Act, 1961. The Tribunal's decision was reversed, and the matter was remanded for further assessment. The second issue revolved around the taxability of 75% of the income from engineering fees as income accruing in India. The Income-tax Officer had brought this income to tax for the years 1966-67 to 1973-74, similar to the earlier assessment years. The Appellate Assistant Commissioner initially held that only 25% of the assessee's net income accrued in India. However, the Appellate Tribunal, after considering the agreement between the assessee and the Indian company, concluded that there was a business connection justifying the taxation of the entire income in India. The Tribunal dismissed the appeals and allowed the departmental appeals for subsequent years. The assessee challenged the Tribunal's decision, citing a Supreme Court ruling in a similar case that favored the assessee's position. The Supreme Court had held that fees paid to a foreign company did not accrue or arise in India, and therefore, no portion of the fees could be taxed in India. Relying on this precedent, the High Court ruled against the Revenue, holding that the income in question was not taxable in India. The decision was based on the binding nature of the Supreme Court's judgment, and the references were answered in favor of the assessee.
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