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TMI Blog1995 (2) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... s engaged in the, business of processing and export of sea-foods. On 28-6-1983, it entered into a contract with the said non-resident firm for chartering of some fishing vessels of the non-resident. The contract was signed at Singapore. The chartered vessels were to be delivered at Madras and the operational expenses of the vessels including wages and food for the operating personnel were to be borne by the non-resident company. The terms and the conditions of charter are regulated by the conditions laid down by the Government of India while permitting conclusion of the charter agreement. 4. Actual fishing operations were to be done outside the territorial waters of India. Hire charges per charter was US $ 7,50,000 per vessel per annum. Actual monetary payments were not to be made. On completion of each voyage of fishing operation, the vessels were to be brought to an Indian Port and the catch of fish was to be processed and thereafter valued. 85% of the value of the catch was to be paid as hire charges and the payment was to be made by actual handing over of the catch. The total payment thus made in kind, was not to exceed US $7,50,000. After processing and valuation of the catc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omes of a non-resident as specified in section 5(2) of the Act. 7. The provisions of section 9(1) deal with incomes ' deemed to accrue or arise in India '. These provisions do not apply to income ' accruing or arising ' in India or to income received in India. That is, if on analysis of the facts and circumstances of a case, one comes to the conclusion that income has accrued or has arisen in India, or has been received in India, the provisions of section 9(1) cannot be invoked for bringing to tax such income, even though applicability of the provisions of section 9(1) can be argued for - CIT v. R.D. Agarwal Co. 56 ITR 20 (SC) and Anglo French Textile Co. Ltd. v. CIT 25 ITR 27 (SC). Once an item of income is held as accruing, arising, or has received in India, provisions of section 9(1) cannot be invoked, and, therefore, in respect of such an item of income, a representative assessee cannot be made liable under section 160(1)(i) of the Act for the tax liability of the non-resident. 8. The above analysis of the provisions of I.T. Act have been made for facilitating appreciation of the facts in the appellant's case. In this case, before the agreement has been concluded outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt cannot be regarded as an agent of the non-resident since the latter does not have any income taxable as per the provisions of section 9(1). The impugned order under section 163 is, therefore, cancelled. Turning to the impugned order under section 143(3), I find that the assessment proceedings have been initiated against the appellant right from the beginning. It is not a case of assessment proceedings being initiated against the non-resident and the Indian agent being brought in as a representative assessee therefor. The impugned order of assessment is, therefore, cancelled." The revenue is in appeals against the said findings of the CIT (Appeals). 6. The appeals were fixed for hearing on 7-2-1995, on which date, the learned DR relied on the orders of the Assessing Officer and submitted that sections 5, 9 and 163 of the Act are clearly applicable to the instant case and the Assessing Officer has rightly invoked those provisions of the Act, and the CIT (Appeals) is not justified in cancelling both the orders. In this connection, the learned DR relied on the decision of Bharat Heavy Plate Vessels Ltd v. Addl. CIT [1979] 119 ITR 986 (AP). The learned AR of the assessee, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. Explanation : For the purposes of this clause--- (a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India; (b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export ; " From the above, it is more than clear that the CIT (Appeals)'s finding that non-resident has no business connection in India or income is not accruing or arising in India to non-resident is not correct. Section 9 clearly states that the charge of tax on accrual or arisal basis had significance only in relation to non-residents. Therefore, it may be stated that it is only in respect of income accruing within India alone is chargeable, but not income accruing or arising outside India. This principle is the basis and the basic economic truth and needs no statutory support for its application. The circumstances that the Explanation (a) to clause (i) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de applicable and provisions of sections 160/161 only could have been invoked and not section 163. But, this finding of the CIT (Appeals) is not correct and contrary to the facts on record. The Assessing Officer has not taxed the hire charges, he has taxed the deemed income because of its business connection, and that portion of income attributable to the operations carried out in India which is clear from the facts stated above and assessment order for the year under appeal. If the Assessing Officer treated the hire charges as income liable to tax, then he would have taxed the entire amount of Rs. 27,73,251, but it is not so, he has taxed only Rs. 13,86,626 as its income being 50% because of business connection which is attributable to the operations carried out in India. The A.O. has further given allowance for expenses and fixed the balance. 11. In this connection, we may also mention that the Board has issued Circular No. 23 of 1969 dated 23-7-1969, stating therein that section 9 of the Income-tax Act provides that income accruing or arising directly or indirectly through or from any business connection in India, shall be deemed to be income accruing or arising in India and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay income-tax. 12. As regards CIT (Appeals)'s finding that it cannot be treated as an agent of non-resident, we hold that the said findings of the CIT (Appeals) are also not in order. In this connection, we may extract the provisions of section 163 for better appreciation of the case : " 163(1) For the purposes of this Act, ' Agent ' in receipt of any income, whether directly or indirectly; or...." The above discussion clearly go to show that the assessee who has been treated as an agent on account of business connection with non-resident and non-resident also received income from the said agent. The Assessing Officer, in this connection, has issued show-cause notice for treating the assessee as an agent and there is no dispute about it. The Assessing Officer has jurisdiction to decide the question whether a particular person can be treated as an agent of non-resident or not and this issue has been decided by the Calcutta High Court in Barendra Prosad Roy v. ITO [1973] 91 ITR 82 at 89 and affirmed by the Supreme Court in Barendra Prosad Roy v. ITO [1981] 129 ITR 295. 13. It is not disputed that unless some income arose to the non-resident, the question of treating anyon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case of Srinivasa Sea-foods (P.) Ltd. (ITA No. 570/Hyd./91), the Tribunal on a consideration of the facts of that case, has recorded a finding of fact that no part of the business operations were carried out in India. On the basis of that finding of fact that not even a single operation was carried out in India and all the operations of business were carried out outside India, the Tribunal held that no assessment against the agent of non-resident as a " representative assessee " can be made in respect of the income deemed to accrue or arise as specified in section 9(1)(i) of Income-tax Act. Accordingly, the Tribunal upheld the cancellation of the assessment in that case. 15. From the material brought to our notice by the department in this appeal, we are fully convinced and satisfied that some of the operations were in fact carried out, in the taxable territories of India. It is this finding of fact recorded by us that tilts the final decision. No doubt, it is true the catching of fish which constitutes a major operation took place outside India. However, mere catching of fish in the mid-sea itself does not result in any income. The catch was brought to the Indian-shore fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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