1969 (2) TMI 50 - HC - Income Tax

Assessee is a resident-company - ITO treated the assessee-company as the agent in India of the U.K. company u/s 43 of the IT Act, 1922, and assessed a net income in its hands as the income of the non-resident, after deducting an estimated expense - Tribunal was right in holding that the assessee was not an agent of the non-resident company

Summary

Issues Involved:
1. Whether the assessee-company was an agent of the non-resident U.K. company under Section 43 of the Indian Income-tax Act, 1922.
2. Whether there was a business connection between the assessee-company and the non-resident U.K. company.
3. Whether the rent paid by the assessee-company to the non-resident U.K. company constituted income received "through" the assessee-company.

Detailed Analysis:

1. Agency under Section 43 of the Indian Income-tax Act, 1922:
The Income-tax Officer treated the assessee-company as the agent of the non-resident U.K. company under Section 43, assessing a net income of Rs. 18,648 as the income of the non-resident. The Appellate Assistant Commissioner set aside this order, ruling that the assessee was not an agent because the rent paid was not received by the non-resident "through" the assessee and there was no business connection. The Tribunal upheld this decision, stating that letting out property did not establish a business connection and that the payment was not made "through" the assessee-company.

Section 43 states: "Any person employed by or on behalf of a person residing out of the taxable territories, or having any business connection with such person, or through whom such person is in the receipt of any income, profits or gains upon whom the Income-tax Officer has caused a notice to be served of his intention of treating him as the agent of the non-resident person shall, for all the purposes of this Act, be deemed to be such agent."

2. Business Connection:
The revenue argued that the assessee had a business connection with the non-resident. However, the Tribunal found that a casual business relationship does not establish a business connection under Section 43. The Supreme Court in Commissioner of Income-tax v. R.D. Aggarwal & Co. defined business connection as involving a relation between a business carried on by a non-resident and some activity in the taxable territories contributing to the earning of profits or gains, requiring continuity and not isolated transactions.

3. Payment "Through" the Assessee:
The revenue contended that the payment of rent should be considered as made "through" the assessee. The Tribunal and the High Court disagreed, emphasizing that the term "through" is distinct from "from." The High Court noted that a direct payment by one person to another does not constitute a payment made "through" the payer. The legislature's use of both terms in Section 42 indicates they are not interchangeable. The High Court also referenced the Judicial Committee's decisions, which did not address the direct payment scenario relevant to this case.

Conclusion:
The High Court concluded that the rent paid by the assessee-company to the non-resident company was not a payment made "through" the assessee. Additionally, there was no business connection between the assessee-company and the non-resident company, as the transaction was isolated and did not involve any activity within the taxable territories contributing to the non-resident's income. Therefore, the Tribunal's decision was upheld, and the question was answered in the affirmative, against the revenue. The Commissioner of Income-tax was ordered to pay the costs of the reference.