1978 (4) TMI 24 - HC - Income Tax

Summary

Issues:
1. Whether the Tribunal correctly rejected the claim of the assessee-company regarding the status of non-resident brokers and its liability as an agent under section 163(1) of the Income-tax Act, 1961.
2. Whether the Tribunal was justified in holding that profits and gains accrued to non-residents due to business connection in India under section 9(1)(i) of the Income-tax Act, 1961.
3. Whether the Tribunal was correct in treating the assessee-company as the agent of the non-resident under section 163(1) of the Income-tax Act, 1961.

Analysis:

The case involved a reference under section 256(1) of the Income-tax Act, 1961, concerning the assessment years 1968-69 to 1970-71. The Income Tax Officer (ITO) treated the assessee-company as the agent of two non-residents, M/s. Invest Export of East Germany and M/s. Machinio Export of Bulgaria, under section 163 of the Act. The primary issue revolved around the status of M/s. Invest Export as a non-resident broker and the business connection between the assessee-company and M/s. Invest Export.

The Tribunal initially rejected the assessee's claim that M/s. Invest Export was a non-resident broker, leading to the dispute. The ITO attributed part of the business income that accrued in India to M/s. Invest Export, based on the business connection established through their agreement. The Tribunal upheld the ITO's findings, dismissing the appeals filed by the assessee.

The High Court analyzed the agreement between the parties, highlighting clauses that established a clear business connection between the assessee-company and M/s. Invest Export. The Court referred to the case law of CIT v. R. D. Aggarwal & Co. [1965] 56 ITR 20 (SC) to emphasize the concept of 'business connection' and the criteria for determining the same.

The Court concluded that the agreement, coupled with the income accrued in India to M/s. Invest Export, demonstrated a business connection that justified treating the assessee-company as the agent of the non-resident. The judgment emphasized the real and intimate nature of a business connection, as outlined by the Supreme Court, and how it applied to the present case.

Ultimately, the Court answered the reframed questions in favor of the revenue, affirming the Tribunal's decision. The judgment highlighted the importance of factual evidence and the terms of the agreement in determining the existence of a business connection and the liability of the assessee as an agent under the Income-tax Act, 1961.

The judgment concluded without any order as to costs, acknowledging the valuable assistance provided by the learned counsel for both parties.