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TMI Blog2011 (5) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... s is as to whether the CIT(A) was justified in treating the appellant as agent of various non-residents (18 non-residents) referred to in the orders of CIT(A) under section 163 of the Income-tax Act, 1961 (the Act). 4. The facts giving rise to these appeals are as follows : The appellant is engaged in the business of Cargo Consolidation commonly known in the business as Non Vessel Owners Cargo Carriers (NVOCC). The appellant is registered as a Multimodal Transport Operator (MTO) with the Ministry of Shipping; Directorate General of Shipping, Govt. of India. The appellant receives cargo from various shippers/consignors at Mumbai Port/Container Freight Station Mumbai/JNPT for shipments to various destinations worldwide. Once the cargo is received a document called Bill of Lading (B/L) is issued by the appellant to the shipper. The B/L specifies the consignor, the consignee, cargo description, Destination of the cargo where the delivery has to be made to the consignee. Based on the volumes of the cargo and business experience the appellant obtains a container from Agents of Shipping Lines or Shipping Lines. In the process of Cargo Consolidation, the container obtained from the agent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant are in respect of Invoices raised by the business associates for these charges in respect of services rendered outside Indian territorial waters. It was also claimed that the appellant that it was not bound to send the Cargo only to the listed business associates and it was free to send the Cargo for onward movement to anyone who offer better quotation for onward movement. The appellant submitted that the business associates did not having Permanent Establishment (PE) in India. The appellant submitted that the recipients of payment from the appellant were non-resident, and income had not accrued or arisen or deemed to have accrued or arisen to them in India. The appellants thus submitted that the receipts from the appellants were chargeable to tax under the Act in the hands of the non-residents. Therefore the appellant was not required to deduct tax at source in respect of remittances made to them. 6. The AO did not accept the Explanation of the appellant and he held as follows : "that to treat a person as an agent under section 163, what is required is to prove that the representative assessee has business connection with the non-resident and from whom or through whom the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be read as selling of services by the non-resident to the Indian resident, in the context of the facts of the appellant's case. If so read, the conclusions are as under : i. The services are availed by the appellant in India from the non-resident on its own account. That is to say, the assessee in India avails the services as an independent enterprise and not on behalf of any other person. ii. The transactions between the appellant and the non-resident are on principal to principal basis at arms length price. iii. The non-resident does not exercise any control over the business of the appellant. iv. The payment to the non-resident by the appellant is not dependant upon the service charges realized by the appellant in India. It was, therefore, submitted that not a single test of business connection specified in the Board Circular applies to the assessee's case. 8. With regard to the conclusion of the AO that the non-resident is in receipt of income from the assessee and therefore section 163(1)(c) of the Act, would be applicable, the appellant submitted that the taxability of the income under the Act has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the non-resident. The CIT(A) also found that as per various clauses of Tariff rate issued by the WSA Pte Singapore, the appellant had to obtained prior approval before accepting particular cargo also. Thus the freight remitted by the appellant is nothing but income of the non-resident that accrued in India because of its business connection. This can also be termed as sharing of cargo business as the part of freight collected belongs to appellant and later part belongs to non-resident. The appellant, therefore, satisfies the condition laid down under section 163(1)(b) and 163(c) and has been correctly held to be agent of the non-resident. 10. The CIT(A) thereafter referred to the ruling of the Hon'ble Privy Council in the case of CIT v. Currimbhoy Ebrahim & Sons Ltd. [1935] 3 ITR 395, the ruling of the Hon'ble Supreme Court CIT v. R.D. Aggarwal & Co. [1953] 56 ITR 20 and Hon'ble A.P. High Court in the case of CIT v. Hindustan Shipyard Ltd. [1977] 109 ITR 158. The proposition laid down in the above decisions briefly were that business connection would mean a relation between a business carried on by a non-resident which yields profits or gains and some activity in India which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions under the Income-tax Act, 1922, under which the procedure with regard to assessment of non-residents were different. 14. On the applicability of the Board Circular 23 dt. 23-7-1969, the CIT(A) was of the view that the appellant collected for itself and the non-resident associate and a debit note was raised for the amount payable to the non-resident associate for onward movement. According to the CIT(A), the freight collected by the appellant also included freight collected for onwards destination for which non-resident. Thus income has accrued in India to non-resident as the freight for onward is collected by the appellant behalf of the non-resident and therefore there was deemed agency established. 15. Aggrieved by the order of the CIT(A) the appellants have filed the present appeals before the Tribunal. The ground of appeal raised in all the appeals are common and for the same of reference the ground from ITA No.1174/M/09 is reproduced. "Being aggrieved by the order passed by the Commissioner of Income-tax (Appeals) - XXXI Mumbai, your appellant submits the following grounds of appeal for your kind consideration. The Commissioner of Income-tax (Appeals) XXXI Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the business activity of the non-resident in the taxable territories and is contributory to the earning of profits in the said trading activity. He reiterated the argument based on the CBDT Circular. This has already been set out in the earlier part of this order and the same is not being repeated. 17. His next submission was based on the observations of the Hon'ble Supreme Court in the case of CIT v. Eli Lilly & Co. (India) (P.) Ltd. [2009] 312 ITR 225 1. The Hon'ble Supreme Court in the aforesaid case was dealing with the question of liability to deduct tax at source on salaries paid abroad. The assessees in that case was joint venture company a foreign company and an Indian company. The foreign partner had appointed four expatriates to the assessee in India. Only part of their aggregate remuneration was paid in India by the assessee. It was found that the total remuneration paid was only on account of services rendered in India. No work was performed by the expatriates for the foreign company. It was held that the assessee was bound to deduct tax at source in respect of the home salary paid abroad by the foreign company to the expatriate employees. The Hon'ble Supreme Court e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of cargo and does not do the job of transportation. The freight collected by the appellant is therefore on behalf of the non-resident at least to the extent it relates to transshipment of the cargo from Singapore to its ultimate destination. Therefore it can be said that the non-resident had a business connection in India. He pointed out that the CBDT circular on which the learned counsel for the appellant placed reliance has been withdrawn (vide Circular No. 7/2009, dated 22-10-2009). Even otherwise his submission was that the said circular is applicable only to sale of goods and not for services rendered. In other respects, he placed reliance on the order of the CIT(A). 19. The learned counsel for the appellant submitted that the withdrawal of the CBDT circular has been held to be prospective by the ITAT Mumbai in the case of Dy. CIT v. Siemens Aktiengesellschatt [IT Appeal Nos. 6133 (Mum.) of 2002 and 7589 (Mum.) of 2003, dated 7-12-2009]. 20. We have considered the rival submissions. The provisions regarding liability in respect of taxes payable by a non-resident have been laid down in sections 160, 161 of Act. Section 160 of the Act lays down that in respect of the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (i) of sub-section (1) of section 9 of this Act. (2) No person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be treated as such. Explanation to section 163(1) which lays down that the expression "business connection" shall have the meaning assigned to it in Expln.2 to clause (i) of sub-section (1) of section 9 of the Act. This Explanation was inserted by the Finance Act, 2003 w.e.f 1-4-2004. Explanation -2 to clause (i) of sub-section (1) of section 9 was also simultaneously inserted by the Finance Act, 2003, w.e.f. 1-4-2004 reads as follows: Income deemed to accrue or arise in India. 9.(1) The following incomes shall be deemed to accrue or arise in India:- (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India. Explanation 2.-For the removal of doubts, it is hereby declared that "business connection" shall include any business activity carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. The same has been explained in para-4 of this order. The CIT(A) has given a finding that the appellant charges its customers freight payable inclusive of the freight from the port of transshipment to the ultimate destination and this is done with the tacit understanding with the non-resident who does transshipment outside India. According to the CIT(A), the affairs of the appellant and the non-resident appear to be in a way that the tariff charged by the non-resident business associate for transshipment does not include the tariff from the Indian Port to the transshipment port. It has been the stand of the appellant that the non-resident is not a party to the terms of contract between the Appellant and the exporter. Similarly the exporter is not a party to the terms of the contract between the Appellant and non-resident for transshipment of the cargo. From these facts it cannot be said that there was only a principal to principal relationship as between the appellant and the non-resident. This is because the terms of the agreement between the appellant and the non-resident have not been brought on record. Further we also do not know the shareholding pattern of the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the appellant had any business connection with the non-resident. 22. Before we deal with the case laws on the subject relied upon by the parties (which were decided under the 1922 Act), we have to highlight the provisions by which a person in India was treated as agent of non-resident and made liable for taxes payable by the non-resident under the Income-tax Act, 1922(1922 Act). These are contained in sections 42 and 43 of the 1922 Act, which read as follows: "Section 42(1) In the case of any person residing out of British India, all profits or gains accruing or arising to such person, whether directly or indirectly, though or from any business connection or property in British India, shall be deemed to be income accruing or arising within British India, and shall be chargeable to income-tax in the name of the agent of any such person, and such agent shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income-tax: Provided that any arrears of tax may be recovered also in accordance with the provisions of this Act from any assets of the non-resident person which are, or may at any time come, within British India." Section 43. Any pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied, then the person in India can be treated as Agent of the non-resident. 24. The learned counsel for the appellant had relied on commentary on Income-tax Act, by Sampath Iyengar page 8786 10th edition synopsis-9, wherein it has been opined that a person in India cannot be treated as agent if there is no liability on the part of the non-resident to pay tax. The cases digested in this regard were Narendra Narayan Chowdhury v. Province of Assam [1949] 17 ITR 243 (Cal.) which is a case under the 1922 Act. The next case is CIT v. Toshoku Ltd. [1980] 125 ITR 525 (SC) which is a case of assessment and not a case under section 163(1) of the Act. The next case is one of Barendra Prasad Ray v. ITO [1981] 1292 ITR 295 (SC) which is a case under section 163(1) of the Act, where the person in India who was treated as agent of a non-resident, filed a writ petition challenging the order under section 163 of the Act, was dismissed. On further appeal the Hon'ble Supreme Court held that the non-resident had business connection in India. We have perused the said decision and we do not find any proposition that if the non-resident is not liable to tax then the person in India cannot be treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like deduction of tax at source and liability of persons in India who are regarded as agents of non-resident have to be read as part of the charging provision. That does not mean that for regarding a person in India as agent of non-resident, the liability of non-resident to tax has to be established. The provisions of section 163 do not lay down any such condition. The purpose of section 163 is to enable the revenue to proceed against the person in India who is regarded as agent of a non-resident, so that vicarious liability can be imposed on him, if it is found that the income of non-resident is chargeable to tax in India. The income of non-resident whether is chargeable to tax or not, and determination of income so liable to tax are to be determined in separate assessment proceedings in which the person in India who is treated as agent of the non-resident, will have full opportunity and right of appeal as is available to any other Assessee. At the stage of treating a person in India as agent of a non-resident, the liability to tax of the non-resident need not be conclusively established. 26. Now we will examine as to whether the parameters laid down in section 163(1)(b) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration, even applying the tests laid down in decided cases, the issue has to be resolved against the assessee. There was an element of continuity between the business of the non-resident and the activity in the taxable territory. A mere relation between the business of the non-resident and the activity in India which facilitates or assists the carrying on of the business of the non-resident would result in a business connection. We are of the view that applying these tests to the present case, it must be held that there was a business connection. The business of the non-resident was transshipment of cargo and the appellant engaged their services for shipment of cargo from India to a destination which the appellant could not reach without the assistance of the transshipment through the non-resident. The appellant cannot segregate the business activity of shipment of cargo as one upto the port of transshipment and the other from the port of transshipment to the port of final destination. Both these activities are integrated activities. The absence of privity of contract between the customer in India and the non-resident will not be a ground to hold that the non-resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the findings given in the proceedings under section 163 of the Act, he held that income accrued and arose to the non-residents in India and consequently held that the income received by the non-residents from the appellants are chargeable to tax in India. The AO found that a sum of Rs. 16,82,025 and a sum of Rs. 5,33,628 was the outward remittances to WSA Lines International Ltd., Hong Kong and Fordable Group Ltd. Hong Kong, respectively. He held that the details of expenses had not been furnished and in the circumstances he estimated 10% of the freight income earned by the non-residents referred to above as business income of the non-residents and brought the same to tax through the appellant as representative Assessee of the non-residents. The CIT(A) confirmed the orders of the AO but reduced the estimation of income to 7.5% of the outward remittances to the non-residents instead of 10% determined by the AO. The CIT(A) also held that there was no treaty for avoidance of double taxation between India and Hongkong and therefore the benefit of any treaty provisions could not also be availed by the non-residents. Aggrieved by the orders of the CIT(A), the Appellants have filed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge stationed their employees in India. Neither the directors nor the shareholders of the assessee are stationed in India or are residents in India. On the above facts, the question before the Tribunal was whether the income on account of incoming consignment and outgoing consignment could be held to have accrued in India. It was held that no income accrued in respect of the outward consignment. The relevant observations of the Tribunal in this regard were as follows : "We now proceed to consider as to whether the income attributable to the outbound consignments is also taxable in India by virtue of Article 7 of the DTAA. The Assessing Officer has taxed such income also on the ground that the business of the Respondent has been carried on under the trade name of DHL Worldwide Express. He has therefore ignored the terms and conditions of the agreement between the parties. In our considered view the agreement between the parties having been approved by the Government of India, the revenue cannot ignore the same on the basis of a mere suspicion. We do agree that there is scope for a strong suspicion on account of the respondent having allowed Airfreight Ltd. to use its trade name in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. We accordingly hold that the respondent is not liable to tax in regard to the income attributable to the outbound consignments. The decision of the CIT(A) in this regard is hereby confirmed. In regard to the inbound consignments the decision of the CIT(A) is set aside and that of the Assessing Officer is restored." Based on the above decision, the learned counsel for the appellant submitted that the receipts in question are not chargeable to tax. As already stated, the appellant was admittedly doing the business only of sending consignment of cargo out of India. The learned D.R. submitted that the appellant as well as the non-residents in the present case have not produced the terms of the agreement between them for transshipment. It was his submission that the decision in the case of DHL Operations B.V. (supra) is purely based on the terms of the agreement. According to him there was no such agreement between the appellant and the non-resident. According to him the revenue was justified in drawing adverse inference in the absence of furnishing of the necessary details by the appellant as well as the non-residents. 33. We have considered the rival submissions. We are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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