1980 (8) TMI 2 - SC - Income Tax

Indian exporter crediting commission on sales to non-resident sales agents, in his account - non-resident assessees did not carry on any business operations in the taxable territories - commission amounts which were earned by the non-resident assessees for services rendered outside India cannot, therefore, be deemed to be incomes which have either accrued or arisen in India

Summary

Issues:
Assessment of commission amounts sent to non-resident companies under section 161 of the Income Tax Act, 1961.

Detailed Analysis:

The case involved appeals against a judgment by the High Court of Andhra Pradesh regarding the taxability of commission amounts sent to non-resident companies by a statutory agent who exported goods to Japan and France. The statutory agent contended that the amounts were not taxable based on a Board Circular and challenged the assessment under section 161 of the Income Tax Act, 1961. The Income Tax Officer (ITO) assessed the amounts under section 143(3) read with section 163 of the Act, leading to appeals and a reference to the High Court. The High Court held the assessments were not justified, prompting appeals to the Supreme Court under Article 136 of the Constitution.

The key provisions of the Act relied upon were sections 5(2), 9(1)(i), 160, 161, and 163. Section 5(2) outlines the chargeability of income of a non-resident, while section 9(1)(i) deems income to accrue or arise in India through various connections. Sections 160, 161, and 163 establish the liability of a representative assessee, who is an agent of a non-resident, for assessment and tax payment. The central issue was whether the commission amounts received by the non-resident companies were taxable.

The revenue relied on a previous court decision which held that amounts received by a non-resident company were taxable in India. However, the Supreme Court distinguished the present case from the precedent. In the previous case, specific terms dictated the treatment of amounts credited to the non-resident company, indicating receipt in India. In contrast, in the current case, mere book entries by the statutory agent did not constitute receipt by the non-resident companies, as the amounts were not at their disposal or control.

The second aspect considered was whether the commission amounts could be treated as income accrued or arisen in India to the non-resident companies. The department argued that the amounts accrued through a business connection in India. However, the Court pointed out that if business operations were not carried out in India, income deemed to accrue in India would only be attributable to operations in India. As the non-resident companies acted as selling agents outside India and did not conduct business operations in India, the commission amounts earned for services rendered abroad could not be deemed to have accrued in India.

In conclusion, the Supreme Court dismissed the appeals, upholding the High Court's decision that the commission amounts were not taxable in India. The Court's analysis focused on the lack of control by the non-resident companies over the credited amounts and the absence of business operations in India, leading to the non-taxability of the commission amounts.