Vildirect: IncomeTax-caselaws-1983-VIL-444-MAD-DT

1983-VIL-444-MAD-DT

Equivalent Citation: [1987] 165 ITR 612, 55 CTR 395

MADRAS HIGH COURT

Date: 14.02.1983

MASSEY FERGUSON PERKINS LIMITED

COMMISSIONER OF INCOME-TAX

BENCH

Judge(s) : SHANMUGAM., RAMANUJAM

JUDGMENT

The judgment of the court was delivered by

RAMANUJAM J.-The following questions of law have been referred to this court for its opinion under section 256(1) of the Income-tax Act, 1961, in all the above cases at the instance of the assessee.

"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in its view that there was a business connection in India within the meaning of section 42(3) of the Indian Income-tax Act, 1922, or section 9 of the Income-tax Act, 1961, for the assessment years 1958-59, 1959-60, 1966-67 to 1973-74 ?

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that 75% of the income from engineering fees is income accruing in India ? "

The assessee, M/s. Massey Ferguson Perkins Limited, Peterburough, England, is a non-resident and the assessment years involved in these references are 1958-59, 1959-60 and 1966-67 to 1973-74. For the assessment year 1958-59, the assessee received a total sum of Rs. 3,86,117 from the Indian company (M/s Simpson & Company) out of which the sums of Rs. 91,335, Rs. 1,57,320 and Rs. 6,674 were claimed as deduction towards expenditure incurred in India, United Kingdom, and as depreciation, respectively, and the balance of Rs. 1,28,788 was taken as the income of the assessee. The assessee returned Rs. 32,197 being 25% of the above (Rs. 1,28,788) as the income of the assessee accruing or arising in India. On the basis of the said return, the Income-tax Officer determined the income of the assessee at Rs. 32,197 for the assessment year 1958-59 by an order dated March 31, 1962. Thereafter, the Commissioner of Income-tax, acting under section 33B of the Indian Income-tax Act, 1922, revised the order of the Incometax Officer suo motu holding that 75% of the consolidated sum paid to the assessee by the Indian company should be brought to tax as against 25% of Rs. 1,28,788 as determined by the Income-tax Officer.

In the assessment year 1959-60, the assessee, as in the earlier year, returned Rs. 94,827 being 25% of its income calculated in the same manner as in the earlier year as taxable in India. The Income-tax Officer brought to tax the said sum of Rs. 94,827 by an order dated March 31, 1962. As in the preceding year, the Commissioner of Income-tax suo motu revised the assessment under section 33B of the Indian Income-tax Act, 1922, for the same reason as in the earlier year holding that 75% of the income was taxable subject to the expenses.

Against the said orders of the Commissioner of Income-tax, the assessee appealed to the Income-tax Appellate Tribunal which, by an order dated September 17, 1976, allowed the appeals of the assessee and set aside the orders of the Commissioner of Income-tax. In doing so, the Tribunal followed its earlier order in Carborandum & Company's case. Thereafter, the Commissioner obtained a reference to this court on the following question:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified and was right in law in holding that the order of the Commissioner of Income-tax under section 33B adopting 75% of the technical fees as income accruing in India is not justified or cannot be supported? "

This court has answered the question against the assessee in Tax Case No. 90 of 1969 by its order dated April 22, 1975. Following the decision rendered by this court in Carborundum Company's case [1973] 92 ITR 411, wherein the decision of the Tribunal in Carborandum & Company's case was not upheld. The result was that the appeals in relation to the said two orders came again before the Tribunal for passing necessary orders under section 66(5) of the Indian Income-tax Act, 1922.

In the years 1966-67 to 1973-74, the Income-tax Officer had brought to tax 75% of the income of the assessee as assessable in India as was done in the earlier years referred to above. The assessee appealed to the Appellate Assistant Commissioner who disposed of the appeals relating to 1966-67 to 1970-71 by a common order dated February 8, 1972, holding that 25% of the assessee's net income has alone accrued in India and directing the Income-tax Officer to modify the assessments accordingly. The Appellate Assistant Commissioner passed separate but similar orders for the assessment years 1971-72, 1972-73 and 1973-74. As against the said orders of the Appellate Assistant Commissioner, appeals were filed by the assessee to the Income-tax Appellate Tribunal. All the said appeals as also the proceedings under section 66(5) of the Indian Income-tax Act, 1922, in respect of the years 1958-59 and 1959-60 were heard together by the Tribunal. The Tribunal, after a detailed reference to the terms of the agreement between the assessee and the Indian company, held that there was a business connection within the meaning of section 42(1) of the Indian Income-tax Act, 1922, and section 9 of the Income-tax Act, 1961, and that in view of the decision of this court in Carborundum Company's case [1973] 92 ITR 411, there was no case for any apportionment. In this view, the Tribunal dismissed the first two appeals which had come before it under section 66(5) and allowed the departmental appeals relating to the subsequent years. Aggrieved by the common order of the Tribunal, the assessee has obtained a reference to this court on the above questions of law.

According to learned counsel for the assessee, the view taken by the Tribunal is purely based on the decision of this court in Carborundum Company's case [1973] 92 ITR 411 and as the said decision of this court has been reversed by the Supreme Court in Carborandum Co. v. CIT [1977] 108 ITR 335, the order of the Tribunal has to be set aside. In that case, the Supreme Court, while dealing with a more or less similar " knowhow " agreement between the Indian company and the foreign company, has held that furnishing of technical information by post was a service rendered outside India, that putting the information to use in India was not relevant, that the activities of the foreign personnel lent or deputed by the foreign company did not amount to a business activity carried on by them in India, that even assuming that there was any business connection between the earning of the fees and the affairs of the Indian company, no part of the activity or operation could be said to have been carried on by the foreign company in India, that the fees paid to the foreign company did not accrue or arise in India nor could it be deemed to have accrued or arisen in India and that, therefore, no portion of the fees received by the foreign company could be brought to charge under section 4(1)(c) read with section 42.

Having regard to the said decision which was rendered by the Supreme Court subsequent to the decision of the Tribunal and which is binding on this court, the questions referred in these tax cases are to be answered in the negative and against the Revenue. The references are answered accordingly. There will be no order as to costs.

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