Points considered in case of Indian agents of foreign suppliers. - Income Tax - 928/CBDT

INSTRUCTION NO. 928/CBDT Dated : February 28, 1976 Section(s) Referred: 92 Statute: Income - Tax Act, 1961 The Public Accounts Committee in their 160th Report have dealt with the question of commission paid to Indian agents of foreign suppliers from whom fertilisers are procured by the Supply Department. They have observed that there is a tendency on the part of the foreign suppliers and also their Indian agents to avoid disclosing the commission with a view to evading payment of proper taxes and with the object of accumulating foreign exchange abroad in violation of the Foreign Exchange Regulations Act. They have commented that most likely many of the Indian agents arrange to receive the commission directly from the foreign suppliers abroad in foreign exchange which is not repatriated and it is likely to be utilised for various purposes. 2. The Public Accounts Committee desired that the matter should be examined by the Central Board of Direct Taxes in consultation with the Reserve Bank of India and the Enforcement Directorate both from the foreign exchange and taxation angles and measures should be taken to plug leakage of revenue and foreign exchange. 3. This matter has since been examined. It has been decided that the cases of Indian agents of foreign suppliers should be subjected to a more detailed study and scrutiny and they should receive special attention as is being paid to certain categories of tax payers like doctors, lawyers, architects etc. 4. While making assessments in the case of the Indian agents of foreign suppliers, the following points inter alia should be kept in view:- (i) The Income-tax Officer should carefully scrutinise the contract between the foreign principal and the Indian agent with a view to ascertaining complete particulars regarding the Indian agents, the remuneration payable, the services to be rendered and also the relationship between the foreign principal and the Indian agent (i.e., whether the agent is a subsidiary of the foreign principal). (ii) If complete information in respect of the contracts is not made available to the Income-tax Officer, he should make a reference to the Directorate of Inspection (Income-tax and Audit) through his Commissioner of Income-tax. The information in respect of purchase of contracts would, henceforth, be available with the Directorate of Inspection (Income-tax and Audit). (iii) It should be verified by the assessing authority whether the dealings by the principal are at arm's length or the provisions of Section 92 of the Income-tax Act, 1961, can be invoked. In this process, the Income-tax Officer will of course go into the extent of properly admissible expenses. (iv) In respect of countries with which India has tax treaties containing a provision for exchange of information for prevention/detection of tax evasion, it may be possible to request the foreign country in suitable cases to supply inter alia the relevant information Income-tax Officers are advised to make a reference to the Board through their respective Commissioners of Income-tax whenever occasion arises. (v) In order to unearth secret deals, the usual investigation techniques of search and seizures, examination of the source of investments and expenses of foreign trips, etc., etc., may be resorted to. (vi) Enquiries should not be confined to the fertiliser contracts or to contracts entered into by the Supply Department only. Such enquiries should be made in respect of all the contracts entered into by the various Government agencies including Defence Ministry, Railways, P T and Public Sector Undertakings. 5. The above instructions may please be brought to the notice of all the Officers working in your charge.