1. The respondent assessee is a nonresident American company. It is operating in Latin America having a chain of hotels. It was also contemplating to operate hotels in various other countries. It is well-known in hotel circles as 'IHC'. It entered into what is known as membership and service agreements with two hotels in India. They are: East India Hotels Ltd. having Oberoi Intercontinental in Delhi and Indian Hotels Co. Ltd. running Taj Intercontinental at Bombay. There were also other agreements with the two Indian companies in respect of construction, design, etc., with which we are not concerned in the present appeals. Since the membership and service agreements entered into by the assessee with the aforesaid two companies is almost on identical terms, we will consider in these appeals, the agreement entered into by the assessee with East India Hotels Ltd. on 6-8-1962.
This agreement, inter alia, provides that the East India Hotels Ltd., which is in brief called East India, would become member of the 1HC Intercontinental group of hotels and would be entitled to all the benefits available to hotels in the said group. Clause 1 of the agreement provides that East India would be entitled to use of the word 'Intercontinental'as a part of the name of the hotels run by it. Clause 1 further provides that East India would get advantage resulting from IHC's access to the international travel market and availability to IHC's technical and consulting services designed to promote modern and efficient hote) management and operating methods. Clause 2 mentions about promotion and advertising by IHC wherein East India will also be included. Clause 3 mentions of sales and reservations services to be rendered by the IHC abroad. Clause 5 mentions that the reports regarding sales, financial statements, room occupancy, etc., etc., are to be provided by East India to IHC. Consulting services are to be provided by the IHC to East India as per clause 6. It also included sending of staff for the said purpose. Clause 7 will be very relevant, which deals with compensation to be paid to IHC by East India for the services rendered. This is what it states: As compensation for membership of the Hotels in the Intercontinental Group, for the sales, advertising and promotional services rendered by IHC hereunder, for IHC's maintenance of a staff of experts available to the Hotels, and for the informational services of IHC, East India will pay annually to IHC, in U.S. Dollars at IHC's office in New York, N.Y., compensation at the rate of $ 100 per guestroom for each hotel which is a member of the Intercontinental Group during each year, payments thereof to be made in quarter-annual instalments during the term of this agreement.
The term of the agreement is stipulated in clause 8. This agreement was approved by the Government of Indi, Department of Tourism, by their letter dated September, 1962. The approval takes note of the following: In accordance with the Membership Agreement the hotels of the Company will be recognised as Members of the Intercontinental Group of Hotels. This will entitle the hotels of the Company to all facilities of Intercontinental's electronic booking system which is being installed and will enable the hotels of the company to avail of booking assistance to sell rooms in any Intercontinental Hotel across the counter. The Intercontinental Hotels world-wide publicity will also include hotels of the Company. For these services the Company will pay $ 100 per Guest-room of the New Delhi, Agra and Bombay hotels during each calendar year.
2. The question that arose before the ITO for all these years is whether the assessee-IHC is liable under the Income-tax Act in respect of the compensation receivable from the constituents, namely, the two companies with whom the assessee entered into Membership and Service agreements as mentioned above. The ITO on a consideration of the matter held that the assessee will be liable for income-tax. By applying Rule 10 of the Income-tax Rules, 1962, he adopted 20 per cent as the profit calculated on the turnover.
The matters came before the AAC for the assessment years 1971-72 and 1972-73, The AAC set aside the assessment for fresh disposal and the matters came up before the Tribunal. The Tribunal directed the AAC to dispose of the appeals in the light of their directions. Then the matters came up for hearing before the Commissioner (Appeals) for the assessment years 1971-72 and 1972-73. Other appeals have also come in due course before the Commissioner (Appeals). He accepted the assessee's plea that no income accrued or deemed to have accrued in India in regard to the amount payable under the Membership and Service agreements referred to above. The revenue being aggrieved filed the appeals and the common ground urged is as follows: On the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) is not justified in deleting the sum of Rs. 78,750 assessed by the Income-tax Officer on account of 20 per cent of membership fees from East India Hotels Ltd. under Section 9(1)(i) of the Income-tax Act, 1961. (Taken from the memo of appeal for the assessment year 1971-72.) 3. Mr. Nagarajan, learned departmental representative, at the outset submitted that though the Commissioner (Appeals) has not decided specifically as to where the agreement was completed, since the ITO raised the issue for the assessment years 1971-72 and 1972-73, he would press that question also apart from contending on the basis of Sections 5(2)(b) and 9(1) of the Income-tax Act, 1961 ('the Act'), that the income is liable to be taxed in the hands of the assessee under the Indian Income-tax Act. It may be mentioned here that the ITO did not raise the objection regarding the actual place of agreement for the subsequent years. Initially, Mr. Nagarajan argued that Section 5 itself would directly apply as the income has arisen because of various services and facilities contemplated in the agreements to be rendered by the IHC to the Indian companies and secondly, that at any rate the income is deemed to have accrued or arisen by virtue of the provisions of Section 9. In this connection, he laid particular emphasis on the point that the use of the word 'Intercontinental' is something like a right to use a patent or trade name which is definitely an asset, which is allowed to be exploited and for which the assessee received what is termed as compensation. He has also argued that the assessee is earning income from the source, namely, their name--Intercontinental. He very strongly relied on the decision of the Calcutta High Court in Performing Right Society Ltd. v. CIT  106 ITR 11, which has been approved by the Supreme Court reported in the same volume at page 18.
In reply Shri P.S. Khanna, the learned Chartered Accountant, contended that the word 'Intercontinental' is only for the purpose of identifying the members of IHC group and it has no other connotation nor can it be called as trade-name. It is also brought on record that it has not been registered as a trade name or trade mark under the Merchandise and Trade Marks Act, 1958, in India. Secondly, he referred to the approval given by the Government of India which throws light as to why the assessee is being paid compensation. Thirdly, in this case there is no income accruing or arising directly under Section 5(2)(b) as the assessee has no activity whatsoever here. Fourthly, Section 9(1) also does not apply as there is no income deemed to have arisen or accrued.
Alternatively, he contended that even if the name is treated as trade mark and, therefore, an asset, there is no business operation at all and as such the Explanation to Section 9(1) would come into the aid of the assessee. He has also pointed out that the contract was completed only outside India as per the evidence on record.
4. The first question to be considered is as to where the contract was entered into though by itself it is not decisive of the main issue involved in these appeals. The ITO mainly relied on the fact that the agreement was signed on behalf of IHC abroad and the same was sent to India, which was signed in India by affixing Indian stamps. But as rightly pointed out by the learned authorised representative for the assessee that though the agreement was signed, the acceptance was communicated outside India through the foreign agent of the Indian party and after the seal of IHC was put on the agreement, the same was completed. We have seen the correspondence which is on record and the note given by the assessee even at the time of the original hearing of the appeals by the Tribunal. To our minds, the matter is very clear that the agreement was completed only outside India. In fact the ITO raised this objection only in the assessment years 1971-72 and 1972-73 and not in the later years and rightly so.
5. The second and more fundamental issue is about the accrual of income or deemed accrual. We have first of all to see the provisions of Section 5. Section 5(2)(b) is the relevant provision on which reliance is placed by Mr. Nagarajan. It reads as under: 5. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which-- (b) accrues or arises or is deemed to accrue or arise to him in India during such year.
The above provisions speak of accrual or deemed accrual. Mr.
Nagarajan's argument that the income accrued in India is very difficult to be accepted. There is no activity whatsoever so far as the assessee is concerned. There are no operations carried on in India. The agreement itself was entered into outside India. The payment of compensation is outside India. The assessee is a non-resident. The approval of the Government of India has been obtained. It is very clear that the facts of the case do not justify a finding that any income accrued or arisen in India. In order that there should be accrual or arisal, there must be a source from which the income must be derived.
There is no such source at all. The assessee has no office of its own nor any business dealings as such in India. There is no agent of the assessee in India. The argument of Mr. Nagarajan that the agreement itself is a source cannot be accepted. The agreement cannot be source of any income. Though source is of a wider connotation, it cannot cover a case of nature where an agreement is entered into for rendering certain services outside India for which the assessee gets some compensation.'We are aware of the legal position that 'source' occurring in Section 5 or in Section 9 must be understood frm repoint of view of a practical man and not in a technical sense. Even so, the agreement cannot be treated as a source from out of which the income arises. It is, therefore, difficult to bring the case of the assessee on the basis of Section 5(2)(b) as income having accrued or arisen.
6. Now we will have to consider whether there is deemed accrual or arisal. What is deemed accrual or arisal is contained in Section 9 and we have, therefore, to look to that section. The relevant provisions of Section 9 with which we are concerned, are as under: 9. (1) The following incomes shall be deemed 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.
(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 ; (b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export; Mr. Nagarajan wants us to hold and upset the finding of the Commissioner (Appeals) that the income of the assessee is liable to be assessed under the Income-tax Act by virtue of the provisions of Section 9. He generally relied on the provisions of Section 9 which speak of business connection in India. We are unable to understand how there is business connection so far as the assessee is concerned. As the Commissioner (Appeals) rightly held that there cannot be any business connection, inasmuch as, there are no operations carried on by the assessee in India. The assessee did not have any office or a post for any officer in India. No personnel of the assessee visited India at any time during the/elevant period under consideration. No services have been performed in India and no portion of the membership fees was received by the assessee in India. On these facts, it is, therefore, extremely difficult to hold that there of was any business connection so as to attract Section 7. The question whether any income arises from or through any property is next to be considered. Though some argument had been advanced by Mr.
Nagarajan that the name 'Intercontinental' should be treated as property, the argument is not acceptable. As early as in CIT v.Currim-bhoy Ebrahim & Sons Ltd.  3 ITR 395, the Privy Council held that the property referred to in Section 9(1) must be something tangible and it does not take intangible or incorporeal property. We, accordingly, hold that the name 'Intercontinental' cannot be treated as property and, therefore, that portion of Section 9(1) is to be excluded.
8. Then comes the question whether the income has arisen from or through any asset or source. In other words, whether the word 'Intercontinental' can be treated as an asset or source. It may be difficult here that it can be treated as a source. We, therefore, do not lay emphasis on the word 'source' but we would like to examine as to whether the name can be treated as an asset. What is 'asset'is not easy to define except to say that it is of a very wide connotation.
Obviously, it is wider than the meaning of the word 'property' occurring in the same section. Therefore, 'asset' takes within its fold all kinds of property, intangible or incorporeal. It is well settled that goodwill, a trade mark, patent, copyright are all assets. The Stround's Judicial Dictionary, Fourth Edition, Volume I, page 201 deals with the word 'asset'. It takes note of the principles that the assets includes intangibles also. Black's Law Dictionary, Fifth Edition, defines 'assets' as follows: Properly of all kinds, real and personal, tangible and intangible, including, inter alia, for certain purposes, patents and causes of action which belong to any person including a corporation and the estate of a decedent. The entire property of a person, association, a corporation or estate that is applicable or subject to the payment of his or her or its debts.
In this case the name 'Intercontinental' is allowed to be used by the Indian companies. Obviously, this word is the asset of IHC and, therefore, IHC is permitting the user of such word. In this connection, we may emphasise clause 1 of the agreement about which we have already mentioned. The members of the Intercontinental Group have been given the right to the use of the word 'Intercontinental' as a part of the name of the hotel. It is, therefore, clear that the terms of the membership and service agreement contemplated the right of the use of the word 'Intercontinental' given by the IHC to the hotels in India. In other words, one of the terms of the agreement is the assignment of the right of the use of the word 'Intercontinental'. In our considered view, the word 'Intercontinental' is an asset of the assessee and the right to use or exploit that asset has been given by the IHC to the Indian companies. It means that the assessee is deriving some income by virtue of the permission of the assessee to use the word 'Intercontinental' by the Indian companies. There can be no doubt that the use of the word 'Intercontinental' is of an advantage to the Indian hotels. When their name is associated with the word 'Intercontinental' specially outside India, it has the advantage of having foreign customers. It cannot be denied that the word 'Intercontinental' carries with it a sort of a goodwill or reputation.
9. Now then the question arises as to whether the compensation stipulated in the agreement can be said to be entirely for the use of the word 'Intercontinental'. Whether the income which the assessee received under the agreement is for permitting the use of the word 'Intercontinental' by the Indian company The answer to this question is very simple to our mind. The agreement contained various clauses and stipulations. It speaks of facilities and services to be provided by the assessee. One of the terms of the agreement is the permission to use the word 'Intercontinental' but that is only according to us a very minor stipulation. The word 'Intercontinental' will have normally more significance for the foreign customers rather than Indian customers.
Apart from this even the Government of India's approval of the payment of compensation under the terms of the agreement to the assessee is essentially for facilities and services to be rendered by the assessee.
It is nowhere mentioned that the compensation is also for the use of the word 'Intercontinental' by the Indian companies but all the same since the right to use the word is also contained in the agreement, one cannot rule out that some portion of the compensation must relate to that right. The entire compensation cannot be, therefore, attributable to a single clause of the agreement. Most of the compensation relates to facilities and services rendered by the assessee. However, since some portion of the compensation must be held to be relatable to the granting of the right to use the word 'Intercontinental', we must make an estimate of such income. Such an estimate was not done either by the ITO or by the Commissioner (Appeals) in the view they have taken. We have got two alternatives: one to send it back to the ITO to estimate that portion of income which is relatable to the right given to the Indian companies for the use of the word 'Intercontinental' or to determine it ourselves. We would prefer to follow the second course as the matters have already prolonged for a considerable time.
10. The ITO estimated 20 per cent of the receipt as income liable to be taxed under the Income-tax Act in the view he took of the agreement itself. The Commissioner (Appeals) no doubt deleted the entire income.
As already indicated a very small percentage is attributable for the right to use the word 'Intercontinental'. Having regard to all other terms and conditions of the agreement and also bearing in mind the main purpose for which the assessee received compensation, we think it will be appropriate to fix 5 per cent of the receipts only as attributable to the right given by the assessee to use the word 'Intercontinental'.
To put it differently, the assessee would be liable to be taxed in respect of income arising through or from the asset, viz., use of the word 'Intercontinental', and such income is determined at 5 per cent of the receipts. The ITO is directed to make the computation.
11. Cross-objections filed by the assessee for the assessment years 1971-72, 1972-73 and 1973-74 are not pressed and they are, accordingly, rejected. Cross-objection for the assessment year 1974-75 deals with the non-application of Rule 115-B. The Commissioner (Appeals) did not decide this issue because he has deleted the entire membership fees.
But in the view we have taken that 5 per cent of the membership fee is taxable, Rule 115B. will have to be considered and we direct the ITO to consider the same.
There is another ground relating to interest loss which according to the assessee should be treated as business loss. The Commissioner (Appeals) did not permit the assessee to raise this as an additional ground before him. We have gone through his order and also heard both the sides. We do not think that the Commissioner (Appeals) is right in rejecting the additional ground. The Commissioner (Appeals) himself allowed such a claim originally made before him for the assessment years 1975-76 and 1976-77. We may also mention here that even if the revenue filed appeals for those years, they have not challenged the finding of the Commissioner (Appeal?). We, therefore, see no reason to reject such a claim on a technical plea. We direct the ITO to verify the figures and allow the same in the same way as has been done by the Commissioner (Appeals) for the assessment years 1975-76 and 1976-77.
12. In the cross-objections for the assessment years 1975-76 and 1976-77, the common question is about Rule 115B and the same has to be applied as has already been indicated above. No other ground is pressed in the cross-objections. We may also add that even for other years, the ITO will have to apply Rule 115B while taxing the income as directed by us.
13. In the result, the appeals are treated as allowed in part, the cross-objections for the assessment years 1971-72, 1972-73 and 1973-74 are dismissed and the cross-objections for the assessment years 1974-75, 1975-76 and 1976-77 are allowed in part.