1988 (8) TMI 136 - AT - Income Tax

Issues Involved:
1. Whether M/s Schreiner Airways B.V. can be treated as an agent of M/s Aviation Personnel Recruitment and Management Limited (APRAM) under Section 163 of the IT Act, 1961.
2. Whether M/s Schreiner Airways B.V. can be treated as an agent of M/s Inter Aviation Service Co.
3. Justification of the CIT(A)'s order in excluding living allowances from the assessable income of M/s APRAM for the assessment years 1984-85 and 1985-86.
4. Validity of the CIT(A)'s orders under Section 154 of the IT Act, 1961.

Issue-wise Detailed Analysis:

1. Whether M/s Schreiner Airways B.V. can be treated as an agent of M/s APRAM under Section 163 of the IT Act, 1961:

The Tribunal examined the agreements between M/s Schreiner and APRAM, and between APRAM and the professional personnel. M/s Schreiner had entered into a Time Charter agreement with ONGC, requiring them to provide helicopters and qualified personnel. M/s Schreiner, lacking its own pilots and engineers, entered into an agreement with APRAM to supply expatriate personnel.

The Tribunal noted that the professionals recruited by APRAM were under its employment and continued to have a relationship with APRAM even after being placed at various bases, including India. APRAM was responsible for paying their remuneration and covering them with insurance. The Tribunal found that the relationship between M/s Schreiner and APRAM fell under clause (c) of Section 163(1) of the IT Act, 1961, as APRAM received income (service fee) from M/s Schreiner for services rendered in India. Therefore, M/s Schreiner could be treated as an agent of APRAM.

2. Whether M/s Schreiner Airways B.V. can be treated as an agent of M/s Inter Aviation Service Co.:

The Tribunal upheld the CIT(A)'s decision that M/s Schreiner could not be treated as an agent of M/s Inter Aviation Service Co. The CIT(A) relied on a certificate from M/s Inter Aviation Service Co., which stated that no employees or technicians visited India, no repairs were carried out in India, and no helicopters or parts were sent to or from India for repairs. The Tribunal concluded that there was no business connection or payment between M/s Schreiner and M/s Inter Aviation Service Co. in India, justifying the CIT(A)'s inference.

3. Justification of the CIT(A)'s order in excluding living allowances from the assessable income of M/s APRAM for the assessment years 1984-85 and 1985-86:

The Tribunal agreed with the CIT(A) that the living allowances paid by M/s Schreiner to the personnel sent by APRAM were not remittances to APRAM but expenses incurred directly by M/s Schreiner in India. These allowances were for the upkeep, messing, and transportation of the personnel and did not form part of APRAM's income. The Tribunal upheld the CIT(A)'s decision to exclude these allowances from APRAM's total income.

4. Validity of the CIT(A)'s orders under Section 154 of the IT Act, 1961:

The Tribunal considered the Revenue's contention that the CIT(A) could not pass orders under Section 154 without giving an opportunity of being heard to the ITO. The Tribunal noted that while Section 154(3) does not mandate issuing a notice to the ITO, modifying the order under Section 251 requires notice to both the assessee and the ITO. The Tribunal emphasized the importance of equity and natural justice and set aside the CIT(A)'s orders, directing the CIT(A) to pass fresh orders after giving both parties an opportunity to be heard.

Conclusion:

The Tribunal dismissed the appeals regarding the agency relationship between M/s Schreiner and APRAM, and the exclusion of living allowances from APRAM's income. It upheld the CIT(A)'s decision that M/s Schreiner could not be treated as an agent of M/s Inter Aviation Service Co. The Tribunal allowed the appeals concerning the CIT(A)'s orders under Section 154, directing the CIT(A) to pass fresh orders after proper hearings.

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