1993 (9) TMI 101

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..... l on the instructions of the assessee and gets it stitched into garments through tailoring establishments in India and exports such garments also to the assessee. The assessee was registered with the Handloom Export Promotion Council as a merchant exporter. The Income-tax Officer was of the view that income should be deemed to accrue or arise to the non-resident in India in respect of the operations involving the purchase of material and its manufacture into readymade garments before they are exported to him. On behalf of the assessee, it was contended that his case was covered by clause (b) of the Explanation to section (9)(1)(i) of the Income-tax Act, according to which, in the case of a non-resident, no income shall be deemed to accrue .....

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..... ny kind of manufacturing process before being exported from India, stood deleted with effect from April 1, 1964. The effect of the removal of this proviso, it was argued, was that even if the non-resident maintained an office in India for the purpose of purchase of goods or even if some manufacturing operations were carried out in respect of such goods meant for export, no income would be deemed to accrue or arise from the purchase operations. After considering the submissions on behalf of the assessee, the Appellate Assistant Commissioner found force therein and held that the assessee was not liable to be taxed on any income deemed to accrue or arise from such operations. " The Department then filed an appeal to the Income-tax Appellate Tr .....

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..... to section 9(1)(i) became restricted. The deletion of the proviso obviously was with a view to encourage exports and this was followed by Circular No. 20 dated July 7, 1964, issued by the Central Board of Direct Taxes which purported to explain the effect of the removal of the said proviso. In the said Circular, it was, inter alia, stated that "any non-resident will not be liable to tax in India on any income attributable to operations confined to purchase of goods in India for export, even though the non-resident has an office or agency in India for the purpose, or the goods are subjected by him to any manufacturing process before being exported from India ". It appears to us that the case of the assessee was clearly covered by clause (b) .....

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