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Issues:
1. Whether Hindustan Aeronautics Ltd. (HAL) can be treated as agents of Dunlop Ltd. for the assessment year 1978-79. 2. Taxability of royalty income under section 9(1) of the Income-tax Act, 1961. 3. Taxability of the sum received by the non-resident for transfer of know-how. 4. Allowability of expenses related to technical assistance fees. 5. Whether income accrued or arose in India to the non-resident. 6. Applicability of section 163 regarding the appointment of an agent. 7. Consideration of expenses if income accrued in taxable territories. 8. Assessment of the agent with regard to royalty and fees for technical services. Analysis: 1. The appeal involved the issue of whether HAL could be treated as agents of Dunlop Ltd. The ITO held that HAL was to be treated as agents of Dunlop Ltd. as long as the non-resident received income through HAL, irrespective of the non-resident's assessability in India. The ITO's decision was not appealed against, establishing HAL's liability as an agent. 2. The taxability of royalty income under section 9(1) was contested by HAL, claiming that as the income arose in India, it could not be charged under section 9(1). However, the ITO rejected this argument, stating that section 9 covers income actually arising in India through or from an agent, supporting the taxability of the royalty income. 3. The taxability of the sum received by the non-resident for transfer of know-how was also disputed. The ITO held that the income arose in India due to the exploitation of the technical material by the agent, leading to the inclusion of the license fee in the assessment. The ITO allowed only 20% of expenses related to technical assistance fees. 4. In the appeal, HAL relied on legal precedents to argue that the income did not accrue or arise in India, thus not liable for taxation. The Commissioner (Appeals) agreed, holding that the income from license fees was not taxable in India. Consequently, the question of allowing expenses did not arise. 5. The revenue contended that income directly accrued to the non-resident in India, emphasizing the exploitation of technical know-how in India. The departmental representative argued for the reversal of the Commissioner's decision based on the direct accrual of income to the non-resident in India. 6. The Tribunal disagreed with the Commissioner's decision, highlighting the clauses in the agreement showing the exploitation of assets in India. The Tribunal emphasized that the case was not about business connection but about income accruing to the non-resident in India, leading to the setting aside of the Commissioner's order for a fresh decision. 7. The Tribunal upheld the revenue's argument that an agent could be appointed under section 163 when the non-resident receives royalties and technical service charges. The Tribunal clarified that the agent is assessable for such incomes specified in section 9, rejecting the objection raised by the assessee. 8. The Tribunal emphasized that if income accrued in taxable territories, the question of allowing expenses must be considered. Since the Commissioner did not address this issue due to the non-assessability of the non-resident in India, the appeal was restored for a fresh decision. In conclusion, the Tribunal set aside the Commissioner's order and restored the appeal for a fresh decision, treating the revenue's appeal as allowed for statistical purposes.
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