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TMI Blog2004 (6) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... repairs for earning income from the activity of wet-leasing. There is therefore a direct nexus between the payments and the earning of income from sources outside India. We are satisfied that the assessee's immediate source of income is from the activity of wet-leasing of aircrafts under contracts made outside India to non-resident parties. A miniscule fraction of the lease rental (0.2%) has been earned from an Indian party. But, this cannot detract from the fact that virtually entire income has been earned from non-residents through the activity of wet-leasing of the aircrafts carried on outside India. The assessee's activity of wet-leasing of aircrafts is a distinct activity which constitutes a source from which income has been earned. Revenue is not correct in identifying this leasing activity with the transportation activity of the lessee, LCAG, Germany. The sources from which the assessee has earned income are therefore outside India as the income earning activity is situated outside India. It is towards this income earning activity that the payments for repairs have been made outside India. The payments therefore fall within the purview of the exclusionary clause of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BER For the Appellant : S.D. Kapila, Adv., Rahul Garg and Rajesh Gupta, Cas For the Respondent : B.D. Kharab, CIT DR and Prehlad Singh, Sr. DR ORDER R.K. Gupta, Judicial Member . 1. These are eight appeals filed by assessee and department against the orders of CIT (Appeals). Out of eight appeals, five appeals arise from a consolidated order passed by the CIT(A) for the three Financial Years 1997-98, 1998-99 and 1999-2000 relevant to Assessment Years 1998-99 to 2000-01, respectively. The CIT(A) has partly confirmed the orders under section 201/201(1A) passed by the Assessing Officer holding the assessee to be in default for non-deduction of tax at source on payments made to non-resident parties for overhaul of its air-crafts, engines and components etc. She however held that such payments to the residents of UK and USA are not chargeable to tax keeping in view the provisions of the DTAAs with those countries. The Assessee is in the appeal before us for all the three years. The Revenue is in appeal for Financial Years 1998-99 to 1999-2000 only. As the issues are common in all the three years, these appeals are disposed of by a consolidated order. 2. The remaining three appeals are by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the payments made to Lufthansa Technik, a Germany company (hereinafter referred to as Technik), as the model for considering the question of taxability of payments made to all other foreign companies. CIT(A) took the view that such repairs require knowledge of sophisticated technology and trained engineers are employed by the non-residents for carrying out the overhaul repairs. According to her, the repairs per se constituted 'fees for technical services' and therefore tax should have been deducted at source. 4.1 Regarding payments made to residents of UK and USA the CIT(A) held that the payments were not in the nature of fees for technical or included services as per the relevant Article 12 of the DTAA read with the Memorandum of Understanding with USA which equally applied to the UK Treaty. Payments made to the residents of USA and UK were held to be 'business profits' and since those companies did not have a PE in India, their income was not chargeable to tax. The Revenue is in appeal against the order of the CIT(A) on this point. 5. Both the assessee and Revenue have raised several grounds of appeal. The learned counsel has filed written submissions on issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esidents of Thailand, Singapore, Netherlands and Israel are not chargeable to tax keeping in view the relevant provisions of the DTAAs read with those treaties. 3. The consideration paid under agreements for purchase/exchange/ loan for spares and components is not attributable to technical services and therefore is not taxable under section 9(1)(vii)(b). 4. Payment made to Ethiopian Airlines, Ethiopia should be taxed @15% under section 115A of the Act. (This issue is relevant for the Financial Year 1997-98 relevant to Assessment Year 1998-99 only). 6. We will take up first the Issue No. 1. In support of the plea that the payments to the non-resident workshops are not chargeable to tax under the provisions of the Act, the assessee has raised three pronged grounds, which are discussed under Issue Nos. 1(a), 1(b) 1(c). Issue 1(a) Whether payments made to the foreign companies are for execution of normal maintenance repairs without any involvement of or consultation with the assessee, and therefore these do not tantamount to fees for managerial, consultancy or technical services as defined in Explanation 2 to section 9(1)(vii) of the Act? 7. This issue goes to the root of the controver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 28, 1997. Wet leasing is a term which in aviation parlance refers to the leasing of an aircraft along with the crew in flying condition to a charterer for a period of time. The responsibility for maintaining the crew and the aircrafts in airworthy condition is that of the lessor. The lessee is free to direct the flight operations by nominating the destinations in advance and load any lawful cargo for carriage. The lessee pays rental on the basis of number of flying hours during the period subject to a minimum guarantee as per the terms of the charter party. 10. The Government of India is party to several International Conventions governing the maintenance of the aircrafts. Those under the Aircraft Act of India, 1934 read with Aircraft Rules, 1937, the necessary regulatory and enforcement powers have been delegated by the Government to the DGCA, which issues notifications and guidelines etc. from time to time in regard to the maintenance and upkeep of aircraft. Every aircraft operator has to strictly abide by these guidelines. Failure to do so would result in immediate withdrawal of the license and the aircraft would be grounded. It is stated that since the assessee was under obli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewise, the technical personnel employed by the assessee did not participate or involve themselves in the overhaul repairs carried out abroad by Technik or other foreign workshops. 13. It was further submitted that the CIT(A) has highlighted certain services enumerated in attachments 'A' and 'B' of the Technik contract to say that the contract envisaged rendering of technical services. These services are:- (a) Provision of Personnel (b) Engineering Support Service's including: (i) engineering work which include airworthiness (ii) directives and alert services (iii) development design and modification (iv) familiarization course. 13.1 It was contended that the CIT(A) has failed to appreciate that the Art. 2 of the Agreement clearly states that such services would be provided by Technik at the request of the assessee only. It is submitted that the agreement that the responsibility for keeping the aircraft in a state of airworthiness is that of the assessee. Ld. Counsel emphasized before the CIT(A) that these services were not availed of by the assessee and no payment was made on this account. Ld. Counsel took us through the invoices raised by Technik which were fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges paid by ATC Lasham, UK, whenever the assessee's crew flew the aircrafts to its facilities in UK for aircraft overhaul (C-Check). The attention of the Bench was drawn on the invoices of ATC Lasham at Pages 176 and 180, 250 225 of Paper Book 'B' filed before us which show that hotel charges were paid for stay in a hotel in UK. It is stated that the assessee's crew had to necessarily fly the aircraft to UK for C check (involving overhaul of the entire aircraft) and later for flying the aircraft back after the overhaul. The crew's lodgings etc. in UK were arranged for by the ATC Lasham and were billed to the assessee. It was explained to the CIT(A) that no hotel bills were paid for by Technik, as it overhauled components only. The components were flown to Technik facilities in Germany with airway bills without any personnel of the assessee accompanying them. However, in so far as payments to ATC, UK are concerned, the CIT(A) has herself finally held that these payments did not constitute 'fees for technical services' as per the provisions of the DTAA with UK. It was further stated that the assessee did not pay any hotel bill for any personnel of Techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gerial' 'technical' and 'consultancy services as defined under Explanation 2 to section 9(1)(vii)(b) of the Act. 16. With reference to the decisions relied upon by the authorities below, it was submitted that those decisions are distinguishable and have no application to facts of the present case. 17. The Ld. Counsel, relied on the judgment of Delhi High Court in the case of S.R.F. Finance Ltd. v. CBDT [1995] 211 ITR 861, wherein the Hon'ble High Court has observed that it is most inappropriate to equate the rendering of a service with carrying out a work and that, rendering of a professional services which is otherwise described as carrying on a profession is in contrast to the concept of 'carrying on any work'. Reference was also made to the Supreme Court decision in the case of Hindustan Aeronautics Ltd. v. State of Karnataka [1984] 55 STC 314, wherein the contract for maintenance repairs of aircrafts have been held to be works contract. Reliance was also placed upon the decision of Hon'ble Supreme Court in the case of State of Madras v. Ganon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 and Builders 'Association of India v. Union of India [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n , maintenance of current files of all the engines specification , providing warehousing and inventories control and supervising transportation coordination for Sahara's equipment from India to France and back. Sochata was obliged to designate to Sahara a 'Liaison Officer' to be stationed in India whose primary responsibilities were to ensure successful programme by providing Sahara with engines status reports on a weekly basis, and any unusual airworthiness related defect. Sochata France was also to provide engineering management programme and training at Sochata facilities. It is contended that for the contracted consideration, Sochata was obliged to render such services without any request from Sahara. That the payments were admittedly made to Sochata for such services. The Ld. Counsel submitted a chart, comparing the terms of Sochata Sahara Contract vis-a-vis the Technik contract. A copy of this chart was also given to the Ld. DR and he has not disputed the contents. The chart is reproduced below:- Comparative Chart of terms of contract between Sochata France Sahara Airlines vis- -vis Lufthansa Technik, Germany LCI S. No. Sochata-Sahara Contract Art II Technik LCI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Article III(A) : A. Deliver to Sochata all equipment CFM 56 engines owned by Sahara for repairs or maintenance No such requirement. LCI may send any engine or component to any authorised workshop in any other country as indeed it often did so. A. (1) Labour at US$ 48 per man hour For work performed for repair, overhaul etc., charges will be as per Techniks prevailing man-hour rates. (2) On-site technical assistance service on a case by case basis. No technician visited India. B. (1) New parts, material and supplies at list price plus 10.5% handling charges. For material consumed list price +25%. (2) Used serviceable parts at 8.5% of the list price. New or old parts to be loaned or exchanged or sold under separate contracts for each and every such part on (1) Rental of 5% of Unit Price + 1% of the price per day for first ten days and 1.5% of the listed price per day (pp. 437 and 438 of PB III). (2) In case of sale list price + 75%. (3) Cost of packing, custom duty, taxes and forwarding to be borne by the customer. Optional Service No Optional service. All support services including training is covered by the consideration under the contract. The entire management of inventories an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmits that the CBDT has clarified that routine maintenance repair jobs are in the nature of 'works contract' and not contract for technical services . Question No. 29 of the circular reads as under:- Ques. 29.: Whether a maintenance contract including supply of spares would be covered under section 194C or 194J of the Act? Ans: Routine, normal maintenance contracts which include supply of spares will be covered under section 194C. However, where technical services are rendered, the provision of section 194J will apply in regard to tax deduction at source . (Reproduced from pg. 6530 of Chaturvedi Pithisaria's Income Tax Law, Fifth Edition, and Vol. 4). It was submitted that Technik carried out normal maintenance repairs including supply of spares, and therefore, had Technik been a domestic-company the payments to it would be covered by the provisions of section 194C and not by the provisions of section 194J, which cover fees for technical services as defined in section 9(1)(vii). The Ld. Counsel contends that periodic overhaul repairs of components carried out in accordance with the instructions issued by the DGCA were routine normal repairs as against 'out-of-ordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e orders of the authorities below and the materials on record. The case of the Department is that the fee paid to Technik is covered by Explanation 2 to section 9(1)(vii) of the Act, which reads as under:- Explanation 2.- For the purpose of this clause 'fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salaries'. The Explanation defines fees for technical services to mean that any payments made to a non-resident for rendering services like 'managerial' 'technical' or 'consultancy' services would be treated as fees for technical services . The three types of services envisaged above also include the provision of the services of technical or other personnel. 24. It cannot be disputed that the assessee is under legal as well as contractual obligation to keep its aircra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1250 flight hours after redelivery to the Customer, whichever may be first. The Customer agrees to arrange, at his own risk and expense, for transport of such parts. Article 12 'Excusable Delays' Lufthansa Technik shall not be held responsible for excess of performance dates and/or non-performance of the agreed work. If unforeseen major defects on airframe, systems, power plants or components have to be rectified, if material ordered from suppliers is temporarily or definitely not supplied, etc... Article 14 Legal Provisions 14.1 This Agreement shall be subject to, and construed exclusively in accordance with, the existing laws of the Federal Republic of Germany. The exclusive place of jurisdiction for any legal actions that should arise out of, or in connections with, this Agreement shall be Hamburg/Germany. 14.3 The place of delivery and redelivery shall be the Lufthansa Technik Base performing the work. 14.4 Lufthansa Technik reserves its ownership rights on all components, engine accessories, and spares supplied until full payment of all invoices has been made. 14.5 In case of non-payment by the Customer, both parties agree that Lufthansa Technik has by virtue of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvision of repairs. We are therefore of the view that simply because Attachment 'A' and 'B' stipulate charges for optional services, it cannot be said that any payment is attributable to such services. These services are optional and could be performed on specific request by the assessee. On the facts brought out before us such option was not exercised by the assessee. Ld. DR also could not indicate any clause in the Technik Agreement which would oblige the assessee to pay the fees towards optional services even if such an option is not exercised by the assessee. In the circumstances, we hold that CIT(A) was not correct in making attachments 'A' and 'B' of the Technik Contract as the basis for concluding that the payments were primarily made for rendering of technical services. The only relevant part of the Technik contract which needs consideration is the 'Attachment C which deals with 'Components Overhaul'. 27. The relevant terms of the contract by way of attachment 'C' of the Technik Agreement are:- Attachment 'C' 1. Scope of services 1.1 Repair, overhaul, modification and test of all components as far as identical with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icially reviewed recently by the Supreme Court in the case of Hindustan Shipyard Ltd. After discussing the law on the subject, the Apex Courtin para 15 of the judgment observe: There may be three categories of contracts: (i) The contract may be for work to be done for remuneration and for supply of materials used in the execution of the work for a price; (ii) It may be a contract for work in which the use of the materials is ancillary or incidental to the execution of the work; and (iii) It may be a contract for supply of goods where some work is required to be done as incidental to the sale. The first contract is a composite contract consisting of two contracts one of which is for the sale of goods and the other is for work and labour. The second is clearly a contract for work and labour not involving sale of goods. The third is a contract for sale where the goods are sold as chattels and the work done is merely incidental to the sale. Attachment C of the Technik contract is the first type of work contract as categorised in the above quoted passage. 29. A Chart was furnished before the CIT (Appeals) and also before us giving the year-wise breakup of the payments made to Technik an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnik. We will now consider the decisions relied on by the Assessing Officer and the CIT(A). 31. The first decision is that of CBDT v. Oberoi Hotels India (P.) Ltd. [1998] 231 ITR 148 (SC) wherein the Supreme Court has held that professional services like recruitment and training of staff, promotion of the business of the Hotel in Nepal, and running and management of the hotel were in the nature of professional services. The Apex Court held that the expression 'technical services' embraces professional services. This decision has no application as no such controversy is involved in the present case. 32. In GVK Industries Ltd. v. CIT [1997] 228 ITR 564 (AP), relied upon by the Assessing Officer, the question before the Andhra Pradesh High Court was whether financial consultancy by way of advice on structuring of an international loan could be said to be technical services. The Hon'ble High Court held that such financial consultancy services were technical service by observing:- The petitioner-company intended to utilise the expert services of qualified and experienced professionals who could prepare a scheme for raising the required finances and tie up the required loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AG was covered by section 9(1)(vii). After setting out Explanation 2 to that section, this reads as follows: Explanation 2: For the purposes of this clause 'fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services including the provision of services of technical or other personnel but does not include consideration for any construction assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salaries'. The Tribunal observed:- It will be clear from this section that any consideration paid to a non-resident for rendering services like managerial services, technical services or consultancy services would be treated as technical fees. The three types of services would also include the provision of services of technical or other personnel. It might be possible to argue that in merely repairing certain machineries for which the warranty period had already expired, there is no consultancy services either the provision of technical or other personnel Normally, managerial or technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for technical services' as defined in Explanation 2 to section 9(1)(vii)(b). The section 194J reads as under:- (1) any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of- (a) fees for professional services, or (b) fees for technical services Explanation-for the purposes of this section,- (a)............... (b) 'fees for technical services' shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9 . The said circular excludes 'routine maintenance repairs' from the scope of section 194J which deals with TDS on 'fees for technical services'. Both section 9(1)(vii) and section 194J rely on the definition given in Explanation 2 to section 9(1)(vii). Therefore, the clarification issued by the Board in the context of section 194J with respect to normal maintenance repairs would be relevant for understanding true import of the said Explanation in the context of section 9(1)(vii)(b) of the Act. 36. We also find no merit in the contention of the Ld. DR that since section 195 deals only with payment to a non-resident, the assessee cannot raise the plea that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical services as defined in Explanation 2 to section 9(1)(vii). The assessee succeeds on this ground. Issue No. 1(b) Whether payments for repairs of aircrafts was made for earning income from sources outside India and therefore to be excluded from 'fees for technical services' under section 9(1)(vii)(b) of the Act ? 38. The assessee's contention is that payments made to the non-residents is for earning income from sources outside India and these are therefore to be excluded from 'fees for technical services'. Section 9(1)(vii)(b) of the Act reads as under: A person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India To fall within the ambit of the exclusionary provision of section 9(1)(vii)(b), the following conditions are required to be fulfilled:- (a) the assessee is resident of India, (b) income is earned from a source outside India, and (c) there exists a direct nexus between the payment (expenditure) and earning of the income. All the three conditions should be cumulatively s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rent for minimum guaranteed block hours. The assessee is not free to lease the cargo space to a third party without prior permission of the LCAG. 40. In support of the contention that the income was earned from sources outside India, a certificate dated 22nd December, 2000 from Lovelock Lewes, Chartered Accountants, was filed with the CIT(A) which reads as under:- To whomsoever it may concern We have verified from books and records maintained by that M/s. Lufthansa Cargo India Limited having Registered Office at Radisson Hotel, Commercial Plaza Wing B New Delhi-37 and certify that, the Company had a Capacity Purchase Agreement for wet-lease of the aircrafts with only foreign companies for the Financial Years 1997-98, 1998-99 and 1999-2000 for their international air cargo operations. One of the major customer to whom aircrafts were given on wet lease was Lufthansa Cargo AG of Germany. Annexure 'A' of the certificate gives the year-wise breakup of the lease rentals as under: Details of Traffic Revenue from wet-lease of aircrafts by Lufthansa Cargo India Private Ltd. F.Y 1997-98 F.Y. 1998-99 F.Y. 1999-2000 Traffic Revenue from wet lease of aircraft's received from Lu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract would be German Law. In this connection, reliance was placed on a decision of Supreme Court in the case of Dhanrajmal Gobindram v. Shamji Kalidas Co. [1961] (3) SCR 1020, wherein it has been held:- Whether the proper law is the lex loci contract us or lex loci solution is is a matter of presumption; but there are accepted rules for determining which of them is applicable. Where the parties have expressed themselves, the intention so expressed overrides any presumption. Reliance was also placed on the decision of the Supreme Court in the case of Kunwar Trivikram Narain Singh v. State of Uttar Pradesh [1965] 57 ITR 29, wherein it was held that in certain circumstances the contract itself can be the 'source of income'. Thus, if the wet-leasing contract were to be considered as the source from which income is earned, the said source is outside India as the contract has been made outside India. However, if the activity of wet-leasing were to be considered as the 'source', the same also took place outside India. Hence the situs of the source of the receipts was outside India. The assessee has put its aircrafts to use by wet-leasing them outside India and earned ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervations were made in the context of a non-resident earning income from a source within India, under section 9(1)(vi)(c), but the principle stated therein is equally applicable to a resident under section 9(1)(vii)(b) of the Act in determining whether income was earned from a source outside India. Lastly, it is submitted that it is indisputable that payments to the non-resident have been made for overhaul repairs for earning income from the activity of wet-leasing. There is therefore a direct nexus between the payments and the earning of income from sources outside India. 45. For the Revenue, Ld. DR stated that it could not be said that the entire income was earned from sources outside India. He drew our attention to the relevant paras in the orders of the Assessing Officer and CIT(A), wherein it was found that the entire income of the assessee could not be said to have been earned from sources outside India. He strongly relied upon the findings in the orders of the authorities below. 46. We have carefully considered the rival submissions. It would be appropriate at this stage to set out the terms of the LCAG contract dated 28-4-1997. These are extracted below:- 1. Scope of Agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Geneva, Switzerland or any place mutually agreed upon between the Parties. Capacities and Flight Schedules Annex No. 2 1. Capacities to be made available by LCI Should LCAG anticipate that the capacity provided by LCI under the Agreement cannot be utilised by LCAG in its entirety in any calendar month, LCAG shall give promptly written notice of such determination to LCI. In the instance such notice is given more than 60 days before the date of the flight concerned, LCI will use its utmost efforts to re-market the capacities and flights not to be utilised by LCAG. Should LCI be able to sell any such capacities on its own behalf, LCAG shall be entitled to a refund as set forth in Annex 3 of the Agreement, but only within the minimum block Hours guaranteed to LCAG to LCI under this Agreement. Charges and Payments Annex No. 3 As set forth in Article 3.2 of the agreement the following terms and conditions apply for the calculation and payments of any charges by the LCIL for the Capacity provided under this agreement. 1. Block Hour is defined as the period of time operated by the Aircraft gate to gate expressed in hours commencing when the Aircraft moves from the blocks to begin a fligh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscule fraction of the lease rental (0.2%) has been earned from an Indian party. But, this cannot detract from the fact that virtually entire income has been earned from non-residents through the activity of wet-leasing of the aircrafts carried on outside India. 49. The assessee's activity of wet-leasing of aircrafts is a distinct activity which constitutes a source from which income has been earned. Revenue is not correct in identifying this leasing activity with the transportation activity of the lessee, LCAG, Germany. The following observations of the Supreme Court in the case of Gosalia Shipping (P.) Ltd. are apposite:- If any guidance is to be sought from the terms of the agreement between the parties, the conclusion seems inescapable that the amount which the timecharters were required to pay to the owners of the ship was not payable on account of the carriage of goods but was payable on account of the use and hire of the ship. Indeed, the other terms of the charter-party and the general tenor of the documents show that the payment was in fact to be made by the time-charterers for use and hire of the ship. If the charterers are liable to pay the amount irrespective of whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. All the aircrafts were acquired by the assessee outside India-three under hire-purchase agreement and one under dry-lease agreement-from a foreign company for which payments were made in foreign exchange. The leasing revenues were earned outside India from non-resident lessees. The Ld. Counsel referred to the Annual Accounts of the assessee for the three financial years (Paper Book-1) to show that leasing revenues were earned in foreign exchange from foreign airline companies. He also submitted a chart indicating transactions in foreign exchange for each of the three financial years as obtaining from the Annual Accounts of the assessee. As per this chart the leasing revenues earned in foreign exchange were 100%, 99.79% and 99.86% for the Financial years 1997-98, 1998-99 and 1999-2000, respectively. This chart also gives the figures of direct operational expenses in foreign exchange on actual payment basis as culled out from the Annual Accounts of the company for three years (Paper Book). As per the annual accounts, the direct expenses are mainly on account of lease rent, travelling and training, foreign office expenses, maintenance, interest on aircrafts acquired under hire-pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortionment inter se. For instance, where a person carries on manufacture, sale, export and import, it is not possible to say that the place where the profits accrue to him is the place of sale. The profits received relate firstly to his business as a manufacturer, secondly to his trading operations, and thirdly to his business of import and export. Profit or loss has to be apportioned between these business in a business like manner and according to well established principles of accountancy in such eases it will be doing no violence to the meaning of the words accrue or arise if the profits attributable to the manufacturing business are said to arise or accrue at the place where the manufacture is being done and the profits which arise by reason of the sale are said to arise at the place where the sales are made and the profits in respect of the import and export business are said to arise at the place where the business is conducted..... The above passage is also sufficient in our opinion to establish that the apportionment of income, profits or gain between those arising from business operations carried on in the taxable territories and those arising from business operations car ..... X X X X Extracts X X X X X X X X Extracts X X X X
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