1973 (6) TMI 4 - HC - Income Tax

A rule nisi has been served upon the assessee calling upon it to show cause why the three questions referred to therein should not be made a subject-matter of the reference and why the rule nisi should not be made absolute - Whether the question, if an income is attributable to operations in India is one of fact and whether a reference lies to High Court on the Tribunal finding that no income was attributable to operations in India - In our opinion, that finding is not correct and the Tribunal on the material on record clearly came to the conclusion that it has not been established in this case that any of the operations are carried out in India, the income in respect of which is sought to be assessed - There is no question of law for a reference to the High Court

Summary

Issues: Assessment of income deemed to accrue in India based on business connection with a German concern. Interpretation of Section 9(1)(i) of the Income Tax Act regarding income attribution to operations in India.

Analysis:
The judgment concerns a rule nisi served on the assessee to justify why certain questions should not be a subject of reference and why the rule nisi should not be made absolute. The primary issue revolves around the assessment of income that arose to a German concern, M/s. Lichema, in the return of the assessee based on a business connection. The relevant provision is Section 9(1)(i) of the Income Tax Act, which deems income to accrue in India through business connections. However, the Explanation to this section clarifies that only income attributable to operations in India can be assessed. The court emphasized the need for the revenue to establish that the income sought to be assessed is reasonably attributable to operations carried out in India, a factual determination. The Tribunal analyzed an agreement between the German concern and the assessee, highlighting provisions for remuneration for services rendered in Germany and India, specifically focusing on clause 13 for payment of services rendered. The Tribunal found that no operations were carried out in India concerning the income sought to be assessed, as the information and activities were conducted outside the taxable territory. Additionally, the revenue failed to provide evidence of services rendered in India by the non-resident, emphasizing the necessity for operations in India for income attribution. The Tribunal concluded that the income did not accrue or arise in the taxable territory, leading to the discharge of the rule nisi.

The Appellate Assistant Commissioner's finding, suggesting that operations were carried out in India due to the utilization of services and exploitation of patent rights in India, was deemed incorrect by the Tribunal. The Tribunal's detailed analysis of the facts led to the conclusion that no operations were conducted in India regarding the income subject to assessment. The judgment underscores the importance of factual determinations in assessing income attributable to operations in India based on business connections, as per the provisions of the Income Tax Act. The court's decision to discharge the rule nisi with costs signifies the lack of evidence supporting the revenue's claim of income attribution to operations in India, ultimately leading to the dismissal of the case.