1. A rule nisi has been served upon the assessee calling upon it to show cause why the three questions referred to therein should not be made a subject-matter of the reference and why the rule nisi should not be made absolute. Mr. Palkhivala, who appears on behalf of the assessee, with a view to oppose the making of the rule nisi absolute, has asked me to proceed on the assumption without accepting the said position that for the purpose of this rule nisi there is a business connection between a German concern by name M/s. Linchema G. m. b. H. and the assessee-company and further it should be assumed that the assessee should be treated as the agent of the German concern.
2. In that view of the matter the only question that survives for consideration is question No. 1 in respect of which the rule nisi is issued. Under this question the revenue wants to assess the assessee on the income which arose to Messrs. Lichema. Now, such income can only be assessed in the return of the assessee having regard to the provisions of section 9(1)(i) of the Act. This section contains a deeming provision as regards the income deemed to accrue or arise in India. Under sub-section (1)(i) 'all income accruing or arising, whether directly or indirectly, through or from any business connection in India..... shall be deemed to accrue or arise in India'. If the matter had rested there, then as it is admitted for the purposes of argument that the business connection existed, it will be deemed to accrue or arise in India. However, there is an Explanation to this sub-section and we are concerned with clause (a) of the Explanation to this sub-section which says :
'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 revenue can succeed in assessing such income qua the assessee only if they are able to show that the income sought to be assessed is reasonably attributable to the operations carried out in India. We plainly asked the counsel for the revenue whether it is their case that all the operations were carried out in India, and the counsel, though he did not specifically concede, was unable to dispute the position that this is a case where all the operations are not carried out in India.
3. Having regard to the provisions of this clause, before it can be treated as the income of the assessee, the income sought to be assessed must be reasonably attributable to the operations carried out in India. What are the operations carried out in India in respect of which there is an income sought to be assessed, is always a question of fact and the Tribunal has considered the various provisions of the agreement dated October 1, 1953, entered into between the German concern and the assessee. Under this agreement, there are various provisions under which remuneration has to be paid to the German concern for the things to be done thereunder. Clauses 9 of this agreement deals with services to be rendered by sending experts to India in order to assist the assessee to commence production. It is not the case of the revenue that the income sought to be assessed is covered by this clause. It is clearly conceded by Mr. Joshi on behalf of the revenue that the income which is sought to be assessed is only covered by clause 13 of the agreement which provides for payment of remuneration for services to be rendered. Undoubtedly, the clause starts with the words, 'As remuneration for services to be rendered in Germany', but, in our opinion, such a recital is not conclusive. Notwithstanding such label, it has to be determined in each case whether the income sought to be assessed is reasonably attributable to the operations carried out in India. This is a question of fact on which the Tribunal has given a reasoned finding to the effect that the income which arose to Messrs. Lichema of West Germany did not accrue or arise or could not be deemed ever to have accrued or arisen in the taxable territory. This finding is based upon a question of fact whether any of the operations were carried out in India in respect of which the income was sought to be assessed. They have pointed out before coming to this conclusion that the information was given by Lichema to the assessee in Germany. So everything in this behalf was done outside the taxable territory. Secondly, it is pointed out that no material is brought by the revenue with a view to contend or show that any services were rendered in the taxable territory by the non-resident. The Tribunal also emphasised the fact that the amount had to be paid in German currency. Reliance was placed as regards the entries made in the books of account of the assessee, but the Tribunal has pointed out that every businessman has to bring into account all his expenses connected with his business and in that process the entry has been made and as such there is nothing wrong in the assessee crediting the remuneration payable to the German concern in its books in the manner it has done. We clearly asked the counsel for the revenue whether he is able to point out any operations carried out in India in respect of which the income is sought to be assessed and the learned counsel was only able to rely upon the finding given by the Appellate Assistant Commissioner. The finding given by the Appellate Assistant Commissioner can be summed up only summarily as under :
'The Appellate Assistant Commissioner was persuaded to take the view that as the information for services was utilised in India and as the patent rights were exploited in India operations are carried out in India.'
4. In our opinion, that finding is not correct and the Tribunal on the material on record clearly came to the conclusion that is has not been established in this case that any of the operations are carried out in India, the income in respect of which is sought to be assessed. In view of such a finding of fact, question No. 1 cannot survive. Accordingly, we discharge the rule with costs.