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TMI Blog1964 (10) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... outside the taxable territories and trading activity within the territories, the relation between the two contributing to the earning of income by the non-resident in his trading activity. In this case such a relation is absent. Appeal dismissed. - C.A. 808 OF 1963 - - - Dated:- 6-10-1964 - Judge(s) : K. SUBBA RAO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SHAH J.--- R. D. Aggarwal and Company-called for the sake of brevity " the assessees "--- are a registered firm having their place of business at Amritsar in the State of Punjab. The assessees carry on business as importers and as commission agent of non-resident exporters with two of whom we are concerned in these appeals. These two non-resident exporters, Comptoirs Lainiers Osterieth s.a. Anvers (Belgium) and Filature Tessitura Di Tollengno Biella (Italy) are exporters and manufacturers of worsted woollen yarn. The assessees communicate orders canvassed by them from dealers in Amritsar to the non-residents for acceptance, if a contract results and price for the goods purchased is paid by the Amritsar dealer to the non-resident exporter, the assessees become entitled to comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and 43(1) may first be set out. Section 40, in so far as it is material, by sub-section (2) provides : " Where the ... agent of any person not resident in the taxable territories ... (such person being hereinafter in this sub-section referred to as a beneficiary) is entitled to receive on behalf of such beneficiary, or is in receipt on behalf of such beneficiary of, any income, profits or gains chargeable under this Act, the tax, if not levied on the beneficiary direct, may be levied upon and recovered from such ... agent in like manner and to the same amount as it would be leviable upon and recoverable from the beneficiary if in direct receipt of such income, profits or gains . . . " Section 40(2) is an enabling section providing machinery for assessment and recovery of tax from an agent of a non-resident in the taxable territories on income taxable under the Act which the agent is entitled to receive or in fact receives on behalf of the principal if tax be not levied on the principal direct. The clause, it may be noticed, deals with charge to tax on income which the agent is entitled to receive or in fact receives on behalf of a non-resident beneficiary. Section 42, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h agent. : . . . " This section authorises the Income-tax Officer to appoint a person as statutory agent of a non-resident, and to assess him as agent of a non-resident in respect of the income of the non-resident in the taxable territories. The only question that falls to be determined in these appeals is whether there was in the two cases between the non-resident companies and the assessees such a relation as may be called " business connection " in the taxable territories. If the answer to this question be in the affirmative, the assessees would as statutory agents be chargeable to tax on behalf of the non-resident companies on profits and gains reasonably attributable to those parts of the operations which were carried on in the taxable territories. The expression " business " is defined in the Act as any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture, but the Act contains no definition of the expression " business connection " and its precise connotation is vague and indefinite. The expression " business connection " undoubtedly means something more than " business ". A business connection in section 42 involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, but with a view to illustrate what relation between the non-resident and the activity in the taxable territories which contributes to the earning of income may or may not be regarded as business connection. In Commissioner of Income-tax. v. Remington Typewriters Co. (Bombay) Ltd. a company incorporated under the Indian Companies Act, 1913, which was a subsidiary of an American company was deemed for the purposes of the Indian Income-tax Act to be the statutory agent of the latter company and was charged to tax under section 42(1) in respect of profits made by that company upon machines exported to the taxable territories and in respect of dividends received from the Indian company, although the assessee-company was not an agent for the American company under section 40, as it had not received the profits and gains in question. In that case, in consideration of transfer of the goodwill of the American company in a specified territory in India shares were allotted by the assessee-company to the American company. In respect of those shares dividend was paid to the American company by the assessee-company : the American company also sent machines to the assessee-company for sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old in the Mysore State and deliveries were effected in that State, but the agents collected the price of the goods sold in British India and credited it in their books to the account of the assessee as they also acted as bankers of the assessee. It was held by the Income-tax Officer that the assessee-company was liable to pay tax under the Indian Income-tax Act under two heads : (i) on the profits attributable to the sale proceeds received in British India, and (ii) on the profits that accrued or arose outside British India to the assessee by reason of business connection in British India. The High Court of Madras held that the managing agents purchased in British India raw materials required for the business continuously for several years, received the sale proceeds of manufactured goods in British India and credited in their books to the account of the company acting as bankers, met all the expenditure from out of the collections in their hands, paid for the purchase, made also other payments referred to in the managing agents' accounts. This was a clear case of a business connection in British India in respect of income which accrued or arose to the assessee outside British Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of manufacturing cloth at Ujjain in the Indian State of Gwalior and sent cloth to Cawnpore in British India. Goods were sold by the company's salesman at Cawnpore and the sale proceeds were collected by him at Cawnpore. In these transactions, income accrued or arose to the company in British India within the meaning of section 4(1) The company's goods were also marketed in British India through brokers who were not the company's employees and who were not canvassing orders exclusively for the company. Offers of purchase sent by brokers to Ujjain were not in any special form. They were either accepted or rejected by the company at Ujjain, but all contracts were for delivery " F.O.R. Ujjain." Goods were generally consigned to " Self " at the place of destination and the merchants took delivery after paying the invoiced price plus freight and insurance to a broker or banker in British India in exchange of endorsed railway receipts. On these facts the Allahabad High Court held that there was no business connection in British India. The distinction between Abdullabhai Abdul Kadar's case and the Hira Mills' case may be noticed. In the former the commission agents had purchased cloth ..... 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