1981 (4) TMI 1 - SC - Income Tax

Non-resident - Indian solicitors and non-resident barrister - Income earned by U.K. barrister - ITO made an order on March 23, 1977, treating the appellants firm as the agent of non-resident - held that business connection includes professional connection-assessee s appeal is dismissed

Issues Involved:
1. Liability under Section 195(2) of the Income Tax Act, 1961.
2. Business connection under Section 163(1) of the Income Tax Act, 1961.
3. Jurisdiction of the Income Tax Officer (ITO) to treat the appellants as agents of Mr. Blanco White.
4. Definition and scope of "business connection" under Section 9(1) of the Income Tax Act, 1961.
5. Professional connection versus business connection.

Issue-wise Detailed Analysis:

1. Liability under Section 195(2) of the Income Tax Act, 1961:
The appellants received a notice from the ITO asking them to furnish information about the fees earned in India by Mr. Blanco White and drawing their attention to the liability under Section 195(2) of the Act, which required them to deduct tax payable at source on payments made to a non-resident. The appellants denied their liability, stating they neither briefed Mr. Blanco White nor incurred any liability to pay his fees. The ITO, however, proceeded to treat the appellants as agents of Mr. Blanco White under Section 163(1) of the Act.

2. Business connection under Section 163(1) of the Income Tax Act, 1961:
The ITO proposed to treat the appellants as agents of Mr. Blanco White, asserting that there was a business connection between them. The appellants contested this, arguing that they had no business connection with Mr. Blanco White and had not engaged or briefed him in the suits. The Division Bench of the High Court held that there was a business connection between the appellants and Mr. Blanco White, noting that the relationship was not a solitary and isolated one but had an element of continuity.

3. Jurisdiction of the Income Tax Officer (ITO) to treat the appellants as agents of Mr. Blanco White:
The appellants questioned the jurisdiction of the ITO to treat them as representative assessees of Mr. Blanco White. The High Court dismissed the petition on the grounds that the question of whether the case came within the purview of Section 163(1) had to be determined after ascertainment of facts by the ITO, and thus, the petition was premature.

4. Definition and scope of "business connection" under Section 9(1) of the Income Tax Act, 1961:
The Supreme Court examined whether the connection between the appellants and Mr. Blanco White could be termed as a business connection. The court referred to various provisions of the Act, including Sections 160(1)(i), 161(1), 163(1)(b) and (c), and 9(1). It concluded that there was a connection between the appellants and Mr. Blanco White, which was real and intimate, and not casual. The court held that the connection satisfied the test laid down in CIT v. R. D. Aggarwal and Co. [1965] 56 ITR 20.

5. Professional connection versus business connection:
The appellants contended that a professional connection could not amount to a business connection attracting Section 9(1) of the Act. The court examined the definitions of "business" and "profession" under Sections 2(13) and 2(36) of the Act, respectively. It noted that the expression "business" is of wide import and includes professions, vocations, and callings. The court held that in the context of Section 9(1), there was no warrant for excluding professional connections from the scope of "business connection." The court also dismissed the argument that Mr. Blanco White's inability to appear as counsel as of right under the Advocates Act or Calcutta High Court Rules negated the existence of a business connection.

Conclusion:
The Supreme Court upheld the judgment of the Division Bench of the High Court, concluding that there was a business connection between the appellants and Mr. Blanco White, and that the connection was not casual but continuous and systematic. The appeal was dismissed, and the parties were directed to bear their own costs.

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