2003 (4) TMI 232 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee-company can be treated as an agent under section 163 of the Income-tax Act for two non-resident foreign buyers in respect of refund of excise duty drawback and central excise rebate received in India.
2. Whether the refunded duty drawback and excise duty rebate received by the assessee-company for and on behalf of the non-resident foreign buyers are chargeable to tax in India.
3. Applicability of Explanation (b) to section 9(1)(i) of the Income-tax Act and relevant CBDT Circulars.
4. Validity and jurisdiction of the order passed under section 163 of the Income-tax Act against the assessee-company.
5. The correctness of the CIT(A)'s order in holding that no income would arise on the amounts received by way of central excise rebate or duty drawback.

Detailed Analysis:

1. Treatment of Assessee-Company as an Agent:
The assessee-company was treated as an agent under section 163 of the Income-tax Act for two foreign buyers, namely M/s. State Establishment for Food Stuffs Trading, Baghdad, Iraq, and M/s. MISR Import & Export, Cairo, A.R.E., UAR. The Assessing Officer (AO) assessed the foreign buyers to income tax on refunds of duty drawback and excise duty rebate received in India by the assessee-company on their behalf. The CIT(A) upheld this action, and the Tribunal further examined whether the assessee-company could lawfully be treated as an agent under section 163.

2. Taxability of Refunded Duty Drawback and Excise Duty Rebate:
The Tribunal noted that the amounts received by the assessee-company on account of customs duty drawback and excise duty rebate were held in a fiduciary capacity for the foreign buyers. It was established that these amounts were not the real income of the assessee-company but belonged to the foreign buyers. The Tribunal held that these receipts were taxable in the hands of the non-resident foreign buyers as they were actually received in India and thus fell within the scope of section 5(2)(a) of the Act.

3. Applicability of Explanation (b) to Section 9(1)(i) and CBDT Circulars:
The Tribunal clarified that Explanation (b) to section 9(1)(i) applies only to income deemed to accrue or arise in India and does not apply to income actually received or accrued in India. The Tribunal rejected the assessee's reliance on CBDT Circular No. 20 dated 7-7-1964 and Circular No. 163 dated 29-5-1975, stating that these circulars pertain to income deemed to accrue or arise in India and not to income actually received in India.

4. Validity and Jurisdiction of the Order under Section 163:
The Tribunal concluded that the passing of the order under section 163 against the assessee-company was within jurisdiction, legal, valid, and justified. The assessee-company was rightly treated as an agent for the non-resident foreign buyers in respect of the refunded duty drawback and central excise rebate received in India.

5. Correctness of CIT(A)'s Order:
The Tribunal found that the CIT(A) erred in holding that no income would arise on the amounts received by way of central excise rebate or duty drawback. The Tribunal held that such receipts are includible in the total income of the non-resident foreign buyers under section 5(2)(a) and are taxable. The Tribunal set aside the CIT(A)'s order and restored the AO's order, computing the total income at Rs. 5,19,595 on account of central excise rebate and custom duty drawback.

Conclusion:
The appeals filed by the assessee-company were dismissed, and the appeal filed by the revenue was allowed. The Tribunal upheld the AO's action of treating the assessee-company as an agent under section 163 and taxing the refunded duty drawback and central excise rebate received in India on behalf of the non-resident foreign buyers.