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PATNA HIGH COURT
Nagendra Prasad Singh and Ashwini Kumar Sinha JJ.
Addl.Commissioner Of Income Tax
Versus
New Consolidated Gold Fields Ltd.(London) Through Indian Copper
Taxation Case No. 27 of 1974 ;
Decided On : FEBRUARY 21, 1983
INCOME TAX - Business Connection - Non-Resident - Technical Advice - Whether payment for technical advice given from London to Indian Company constitutes income accruing through business connection in India - Held, No.
Fact of the Case:
The assessee-company entered into an agreement with a non-resident company, Gold Fields, for technical advice in regard to its mining and mineral dressing operations. Gold Fields was to be paid an annual retaining fee of 7,000 Sterling for general services, and any incidental disbursements and out of pocket expenses incurred in the execution of its duties. The Income-tax Officer held that the assessee-company was an agent of the non-resident company and that the annual remuneration payable to Gold Fields was income accruing to the non-resident which was taxable in the hands of the assessee-company.
Finding of the Court:
The Appellate Assistant Commissioner and the Tribunal held that there was no business connection between the non-resident company and the assessee-company, and that therefore the income derived by the non-resident company was not taxable in the hands of the assessee-company.
Issues: 1. Whether, on the facts and in the circumstances of the case the Tribunal was right in holding that there was no business connection in India between New Consolidated Gold Fields Ltd., London and Indian Copper Corporation Ltd., Ghatsila ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal, was right in holding that there was no income to the non-resident which could fall within the categories enumerated in Section 9(1)(i) of the Act and as such the question of bringing any such income to tax in the hands of the Agent would not arise ?
Ratio Decidendi: The court held that the payment of 7,000 Sterling to Gold Fields was not income which a non-resident had received in India or an income which had accrued to a non-resident in India, within the meaning of Clauses (a) and (b) of Sub-section (2) of Sec. 5 of the Act. The court further held that the payment of 7,000 Sterling could not be reasonably attributed to the operations carried out in India so as to be the deemed income within the meaning of Section 9(1)(i) of the Act.
Final Decision: The court answered both questions in the affirmative and against the Department.
Nagendra Prasad Singh, J.
1. The Income-tax Appellate Tribunal under Sec.256(1) of the Income-tax, Act, 1961 (hereinafter to be referred to as the Act has forwarded the statement of the case on the following questions of law:
1. Whether, on the facts and in the circumstances of the case the Tribunal was right in holding that there was no business connection in India between New Consolidated Gold Fields Ltd., London and Indian Copper Corporation Ltd., Ghatsila ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal, was right in holding that there was no income to the non-resident which could fall within the categories enumerated in Section 9(1)(i) of the Act and as such the question of bringing any such income to tax in the hands of the Agent would not arise ?
2. From the statement of the facts it appears that the assesses-Company during the assessment year in question was carrying on business of mining and treatment of copper and other ores. On 22.10.1959 an agreement was entered into between the assesses-Company and one New Consolidated Gold Fields Ltd, London (hereinafter to be referred to as the Gold fields). In that agreement the Gold fields were appointed as Technical Advisers to the assesses-Company in regard to its exploration, mining and mineral dressing operations on the terms and conditions mentioned in that agreement. In Clause 2 of the agreement, the details of the nature of technical advice the Gold Fields were required to give was mentioned. The relevant part of Clause 2 aforesaid is as follows:
2. Gold Fields shall undertake through its staff all the duties normally undertaken by technical advisers to a mining company with regard to the technical advice in respect of the operation of the said undertaking and in particular but without detracting from the general nature of the above provisions Gold Field shall: (a) Give to the Company all such technical advice including mechanical and electrical engineering matters incidental thereto as may from time to time be requested by the Company for the proper working of the said undertaking.
(b) Once in every year cause a member of its staff who shall be a mining or mechanical or electrical engineer or metallurgist as agreed between the Company and Gold Fields to visit the said property for the purpose of conferring with the General Manager or other proper officials of the Company and inspecting the said property where after Gold Fields shall report to the Company on such visits provided always that if in addition to such annual visits Gold Fields shall at the request of the Company send out to the said property for any purpose either a member of its technical staff or an independent consultant the Company shall pay to Gold Fields (in addition to the remuneration payable under Clause 6 hereof and any sums payable under Clause 8 hereof) such sum as shall be agreed between Gold Fields and the Company.
(c) Give to the Companys General Manager or other proper officials such advice and assistance as may be reasonable or advisable for the purpose of implementing any recommendations made by Gold Fields and approved by the Company.
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In Clause 6 of the agreement it was stipulated that for general services under Clause 2 aforesaid, "the company shall pay to Gold Fields a retaining fee at the rate of 7,000 per annum such remuneration being paid in sterling in London...." In Clause 8 of the agreement it was further provided that in addition to the fee payable under Clause 6 aforesaid, any sum payable by virtue of the proviso to Clause 2(b), the Company shall repay to the Gold Fields all incidental disbursement and out of pocket expenses incurred in the execution of its duties including, inter alia, all reasonable traveling, living hotel and other expenses incurred by the Gold Fields representatives in connection with the Companys business. The Company also undertook to pay to Golds Fields a commission at the rate of 21/2 percent or such other per
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