1. This is a reference under Section 256(1) of the I.T. Act, 1961. The questions before us are as follows ;
' 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the claim of the assessee-corupany that the two non-residents with which it was dealing were non-resident brokers and it was, therefore, not liable to be treated as an agent of those two non-residents by virtue of the exemption contained in the proviso to Section 163(1) of the Income-tax Act, 1961 ?
2, Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that profits and gains could be deemed to have accrued or arisen to the non-residents by reason of business connection in India, within the meaning of Section 9(1)(i) of the Income-tax Act, 1961 ?
3. Whether, on the facts and in the circumstances of the case, and on a consideration of the terms of the contract, the Tribunal was justified in holding that the assessee-company was rightly treated by the Income-tax Officer as the agent of the non-resident under Section 163(1) of the Income-tax Act, 1961 '
2. The statement of the case relates to the assessment years 1968-69 to 1970-71. The ITO passed orders under Section 163 of the Act treating the assessee-company as the agents of M/s. Invest Export of East Germany and M/s. Machinio Export of Bulgaria.
3. We are, however, no longer concerned with M/s. Machinio Export of Bulgaria in view of the facts stated by the Tribunal in para. 3 of the statement of the case and as submitted before us by the learned counsel for both the parties we reframe question No. 2 by deleting the letter ' s ' from the word ' non-residents ' in it and question No. 1 as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that M/s. Invest Export, a non-resident with which the assessee had dealings, was not a non-resident broker and therefore the assessee was liable to be treated as an agent of the said nonresident '
4. By an agreement in writing M/s. Invest Export appointed the assessee-company as its agent for certain territories in India for mediating export transactions of the products of M/s. Invest Export manufactured in East Germany and to be sold by M/s. Invest Export in those territories in India. In terms of the said agreement those products were sold by M/s. Invest Export in those territories in India through the mediation of the assessee-company.
5. The assessee-company claimed before the ITO that it has no business connection with the non-resident M/s. Invest Export and, therefore, the assessee-company was not the agent of M/s. Invest Export under Section 163(1) of the Act. In this behalf, the case of CIT v. R. D. Aggarwal & Co. : 56ITR20(SC) was cited.
6. In view of the terms of the said contract under which the assessee-company had acted, the ITO held that there was a business connection between the assessee-company and M/s. Invest Export and from the said business connection the income arose or accrued to the non-resident, M/s. Invest Export. He, accordingly, attributed that part of the business income which accrued in India and was reasonably attributable to the said operation carried out in India and passed an order under Section 163(1) of the Act treating the assessee-company as the agent of the said non-resident.
7. The appeals filed by the assessee were dismissed by the AAC. Further appeals were filed by the assessee before the Tribunal.
8. It was, inter alia, argued before the Tribunal on behalf of the assessee that M/s. Invest Export was a non-resident broker and, therefore, under the proviso to Section 163(1) of the Act the assessee could not be treated as the agent of M/s. Invest Export. The Tribunal rejected the said contention on the ground that no evidence was adduced by the assessee to show that M/s. Invest Export was a non-resident broker.
9. The Tribunal also upheld the findings of the ITO and dismissed the appeals.
10. Mr. R. N. Bajoria, learned counsel for the assessee, fairly and rightly submits before us that in view of the findings of the Tribunal, namely, that no evidence was led by the assessee to support its claim that M/s. Invest Export was a non-resident broker, it cannot be said that M/s. Invest Export was a non-resident broker.
11. In the premises, we answer the reframed question No. 1 in the affirmative and in favour of the revenue.
12. It is an admitted fact that M/s. Invest Export is a non-resident and part of the income has accrued or arisen to it in India, Now, Clause 1 of Article 1 of the agreement provides that the assessee-company shall be the agent of M/s. Invest Export for mediating export transaction of its products in certain territories in India. Article 3 says that the assessee-company shall be bound to look after the business interest of M/s. Invest Export in those territories. Clause 1 of Article 4 provides that the assessee-company shall be bound to visit those territories at regular intervals for increasing the sale of the products of M/s. Invest Export and also shall acquaint itself with the solvency of the customers. Under Article 5 the assessee-company undertook to assist M/s. Invest Export and its customers in every respect in their dealings with the authorities of the agency districts and in obtaining necessary licences. Clause 3 of Article 6 authorised the assessee-company to appoint sub-agents in the said territories. Clause 4 of Article 10 provides that it shall be the duty of the assessee-company to submit to M/s. Invest Export information, proposals and plans for the advertising measures to be taken by the assessee-company in the agency districts for a period of one year. Under Clause 6 of Article 10 the assessee-company undertook to assist the directors of M/s. Invest Export in their work in the agency districts. Clause 7 provides that the assessee shall be bound to render services to the customers to whom the products of M/s. Invest Export would be sold in the agency districts. The agreement also provides for payment of commission to the assessee on certain basis.
13. The aforesaid articles read with all other articles of the agreement, in our opinion, conclusively show that M/s. Invest Export had business connection with the assessee and from the said business connection a part of the income had directly or indirectly accrued or arisen in India to M/s. Invest Export.
14. Now, in the case of R. D. Aggarwal & Co. : 56ITR20(SC) , the activity of the assessee was solely confined to the procuring of the orders for the non-residents and, therefore, it was held that the assessee was not the agent of the non-residents and there was no business connection between them. Hence, the aforesaid case was decided on different facts. Now, in that case, at page 24 of the report, the Supreme Court says this :
'' The expression ' business connection ' undoubtedly means something more than ' business '. A business connection in Section 42 involves a relation between a business carried on by a non-resident which yields profits or gains and some activity in the taxable territories which contributes directly or indirectly to the earning of those profits or gains. It predicates an element of continuity between the business of the non-resident and the activity in the taxable territories ; a stray or isolated transaction is normally not to be regarded as a business connection. Business connection may take several forms ; it may include carrying on a part of the main business or activity incidental to the main business of the non-resident through an agent, or it may merely be a relation between the business of the non-resident and the activity in the taxable territories, which facilitates or assists the carrying on of that business. In each case the question whether there is business connection from or through which income, profits or gains arise or accrue to a non-resident must be determined upon the facts and circumstances of the case. '
15. The Supreme Court also says :
' A relation to be a ' business connection ' must be real and intimate, and through or from which income must accrue or arise whether directly or indirectly to the non-resident. '
16. It is an admitted fact that a part of the income has accrued or arisen in India to the non-resident M/s. Invest Export. In view of the aforesaid observations of the Supreme Court and the agreement read as a whole it must be held that there was not only a business connection between the assessee-company and M/s. Invest Export as already stated but also from such business connection the aforesaid business income had directly or indirectly accrued or arisen in India to the said non-resident from the aforesaid business operations carried out by it in India. The agreement read as a whole also shows that the assessee-company was employed by the said non-resident as its ' agent ' within the meaning of that term in Section 163(1) of the Act.
17. We, accordingly, answer the reframed question No. 2 and also question No. 3 in the affirmative and both in favour of the revenue.
18. In view of the valuable assistance rendered by the learned counsel for both parties, we do not propose to make any order as to costs.
Sudhindra Mohan Guha, J.
19. I agree.