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TMI Blog1983 (3) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of case which are as follows : The assessee-company submitted an application under s. 195 dated May 24, 1974, to the ITO, 'B' Ward, Companies Dist. VI, Calcutta, requesting issue of a certificate under the aforesaid section certifying that the royalty payable to M/s. Martin Black Company (Wire Ropes) Ltd. in terms of the agreement dated July 2, 1973 (between M/s. Usha Martin Black (Wire Ropes) Ltd. (hereinafter to be referred to as " the company ") and M/s. Martin Black Company (Wire Ropes) Ltd. (U.K.) (hereinafter to be called " Martin Black ") was not taxable. According to the assessee's counsel, the ITO was not agreeable to the proposal put forward by the company which again submitted an application dated October 7, 1974, for issuance of a certificate on the basis of the ITO's decision that a portion of the royalty payable to Martin Black was taxable under the Indian I.T. laws. In pursuance of the application dated October 7, 1974, the ITO passed an order under s. 195(2) of the Act on October 8, 1974. A copy of the agreement was placed before him and it was found therefrom that the agreement was entered into for the purpose of obtaining the services of Martin B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices, viz., reports, statistics, patterns of demand and consumption and other allied services were rendered outside India. Payment were also received outside India. He further held that the restrictive clauses in the agreement referred to by the ITO did not alter the character of the services required to be rendered by the non-resident party. The AAC referred to a circular issued by the C.B.D.T. No. 7A/33/68-II(A)-II, dated July 23, 1969, in which it had been clarified that to constitute business connection, some continuity of relationship between the person in India and the person outside India who receives or realises the profit was necessary. The AAC emphasised that no personnel of Martin Black visited India and the entire services were fully rendered outside. The AAC, therefore, allowed the appeal of the assessee. The ITO appealed to the Tribunal. The Tribunal, after referring to the agreement and considering the facts of the case, held that the ITO had failed to establish any business connection of Martin Black in India because it rendered all its services outside India and sent documents and papers incorporating instruction to the company in India in exportation of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny' by 'Martin Black' under this agreement and designated confidential shall be entitled to be sub-licensed by ' the company ' provided that the terms of such sub-licence are approved by ' Martin Black ', 'the company' and the Government of India and subject thereto all such information and data shall be kept secret and confidential by 'the company' except for the purpose of this Agreement. 6. All documents and papers supplied by ' Martin Black ' to 'the company' under this Agreement shall be and remain the property of 'the company'." Mr. Bagchi submits that by cl. 4 the parties had agreed that the nonresident companies will have to pay tax in India. In our opinion, this clause merely provides that the non-resident will pay tax in India if such tax is payable in India in accordance with law. Moreover, the liability to pay income-tax in India cannot be created by an agreement between the parties. Whether the non-resident company is liable to pay tax in India or not will depend upon the provisions of the I.T Act. In order to make a non-resident company liable for payment of tax, some business activity in India on the part of the non-resident company will have to be establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med 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.-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." The non-resident company did not have any property or asset or source of income in India. The only question, in this case, is whether the non-resident company had earned any income " from any business connection in India ". In the facts of this case, in order to bring the income of the non-resident within the mischief of s. 9(1)(i), it has to be shown that there was some business operation carried out by the non-resident in India. If the entire business operation of the non-resident is carried out in India, then the income arising from such business oper ..... X X X X Extracts X X X X X X X X Extracts X X X X
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