1. The facts found and/or admitted in these proceedings are as follows: Amco Furnace Contractors Ltd., the assessee, is a non-resident. By an agreement dated the 16th March, 1964, entered into by and between the assessee and Hindusthan Steel Ltd., the assessee, inter alia, undertook to design, supply, erect and commission at a site in Durgapur, West Bengal, a forge shop and sheet mill furnaces and to supply spare parts for the same. Pursuant thereto the assessee started the work in 1964, but before the same could be completed the contract was terminated in 1967. On the 7th November, 1968, a settlement was arrived at by and between the assessee and the Hindusthan Steel Ltd. whereunder the assessee received the following amounts for works done up to the date of the termination of the contract:
Accounting yearAmount Rs.
2. The assessee was assessed to income-tax in the assessment years 1965-66 to 1968-69, the relevant accounting years being the calendar years 1964 to 1967. In course of the proceedings, it was claimed by the assessee that a part of its agreement with the Hindusthan Steel Ltd. consisted of delivery of plant and equipment, etc., outside India on f.o.b. basis, and the profits in respect thereof were not taxable under the I.T. Act, 1961. In the assessment year 1965-66, the ITO negatived such claim. The assessments in the subsequent years were made accordingly on year-wise receipt and expenditure.
3. Being aggrieved, the assessee preferred appeals to the AAC and contended that the payments relating to plant and equipment, etc., supplied outside India were also received by it outside India and were not taxable and that in any event such payments in respect of sale of capital assets were receipts of a capital nature and not liable to be taxed. The AAC held that there being an admitted business connection between the assessee and the Hindusthan Steel Ltd. and there being only one contract between the parties there was no reason to treat the supply of plant, equipment, etc., as a separate contract. The AAC also held that the determination of the income on the basis of total receipts and/or expenses vis-a-vis the work done was appropriate.
4. Further appeals were preferred by the assessee before the Tribunal andit was contended that on a proper construction of the agreement the conclusion that there was only one single contract and not several contracts inrespect of various commitments undertaken by the assessee would not bejustified. The attention of the Tribunal was drawn to Clause 23 of the agreement which governed the supply of plant, equipment, etc., f.o.b., at aCanadian Port and it was submitted that as the title to the plant and equipments passed to the Hindusthan Steel Ltd. at a Canadian Port under thef.o.b. contract and since the payments to the assessee in 'respect thereofwere made outside India there was no justification for treating the profitarising out of sale of such plant and equipment as accruing or arising inIndia.
5. On behalf of the revenue, it was contended that on a proper construc-tion it would be clear that there was one single indivisible contract for theproject between the assessee and the Hindusthan Steel Ltd. The terms of payment as recorded in the agreement were not to be made in one lump sum but over a period depending upon the progress of the work.
6. The question which the Tribunal felt was necessary to be determined was whether the assessee's stipulation to supply plant and equipment could be treated as a separare contract independent of the rest of the agreement. Construing the agreement the Tribunal found that it was not possible to hold that the assessee had entered into a separate contract for the supply of plant and equipment. The Tribunal held that the agreement in question was a single indivisible contract. The Tribunal upheld the contentions of the revenue.
7. On the applications of the assessee under Section 256(1) of the I.T. Act, 1961, the Tribunal has drawn up a statement of case and has referred the following questions as questions of law arising from its aforesaid order :
'1. Whether, on the facts and in the circumstances of the case, and on a proper interpretation of the agreement, the Tribunal was justified in law in holding that the agreement entered into between the assessee and H.S.L. was a single indivisible contract and not several contracts in respect of various commitments undertaken by the assessee
2. Whether, on the facts and in the circumstances of the case, and on a proper interpretation of the agreement, the income-tax authorities were justified in treating the profits made on the sale of plant equipments, etc., under the said agreement as accruing/arising in India and as taxable in India ?'
8. At the hearing, learned counsel for the parties have made their respective submissions on the question whether the contract should be considered to be one indivisible contract or a conglomeration of separate contracts. In our view, this controversy on which the matter has proceeded from the very inception is of little relevance in the instant case.
9. A non-resident is charged to income-tax in India under Section 5, Sub-section (2), of the I.T. Act, 1961, which reads as follows :
'(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--
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.
Explanation 1.--Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance-sheet prepared in India.
Explanation 2--For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.'
The income which is received or is deemed to be received in India, the income which accrues or arises or is deemed to accrue or arise in India on which the non-resident is also liable to pay income-tax, both have to be assessed.'
10. Section 9 of the statute, which reads as follows, elaborates the nature of the latter category of income.
'9. Income deemed to accrue or arise in India.--(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 or from any money lent at interest and brought into India in cash or in kind or through the transfer of a capital asset situate in India; Explanation.--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 ;
(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;
(ii) income which falls under the head 'Salaries', if it is earned in India;
(iii) income chargeable under the head ' Salaries' payable by the Government to a citizen of India for service outside India;
(iv) a dividend paid by an Indian company outside India.'
11. In spite of the clear statutory provisions noted above it appears that none of the authorities below applied their mind to the said sections and assessed the income of the assessee on the basis of the same. It was necessary to determine first as to what income was received or is deemed to be received in India. It was necessary to determine thereafter as to what income accrued or arose or would be deemed to accrue or arise to the asses-see in India under Section 9. In connection with this enquiry the authorities were to determine the nature of the 'business connection' in India and what was the business which was being carried on by the assessee in India.If in any business carried on by the assessee where only some of the operations were carried out in India it had to be determined to what extent the income of the business could be reasonably attributed to such local operations.
12. In this view of the matter, an enquiry as to whether the contract between the assessee and the Hindusthan Steel Ltd. was a single or a divisible contract has no relevance.
13. For the reasons as stated above, we decline to answer the questions referred to us and remand the matter to the Tribunal to be determined in accordance with law as has been indicated above. The Tribunal is directed to give further opportunity to the parties of being heard and is also directed to take fresh evidence if necessary. We record that there is no dispute between the parties that the assessments have to be made on the basis of receipts and/or expenses on a yearly basis and not on a lump sum basis. The Tribunal is directed to proceed on such basis. In the facts and circumstances, there will be no order as to costs.
14. I agree.