JUDGMENT
Srinivasa Iyengar, J.
1. The Income-tax Appellate Tribunal, Bangalore, has referred the following two question for decision by this court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee-company cannot be treated as agents of the foreign company, M/s. Fritz Werner, West Germany ?
(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right, in law, in holding that the interest that accrued to the foreign company arose outside India ?”
2. The relevant assessment years are 1967-68, 1968-69 and 1969-70. The 2nd ITO, Company Circle, Bangalore, made an order dated February 21, 1978, treating the assessee as an agent of Messrs. Fritz Werner, West Germany. The main facts are not in dispute. The assessee purchased certain capital goods in or about the year 1965 of the total value of Rs. 23,84,552. By an agreement dated 23rd January, 1969 entered into between the assessee and the foreign company, the amount had to be repaid in 8 equal instalments together with interest at 6% per annum from 1st of March, 1965. A part of the amount, namely, Rs. 11,25,000, was appropriated towards the issue of an equity capital and consequent on the devaluation of the rupee on June 6, 1966, the assessee was required to pay an additional sum of Rs. 7,25,483. The Central Government gave its approval for the payment of such interest. To the notice issued by the ITO as to why the assessee should not be treated as an agent of the foreign company, objections were filed, inter alia, contending that the interest arose to the non-resident outside India and the said interest was also exempt under s. 10(15)(iv)(c) of the I.T. Act. The ITO merely on the grounds that for some time the assessee was showing the value of the goods as unsecured loans in its books and credited interest to the foreign company and that the approval of the Central Government to treat part of the value of goods imported as loan and part as equity capital was obtained subsequently, there was business relationship and income had accrued, treated the assessee as the agent of the non-resident company. The appeal preferred by the assessee to the AAC of Income-tax, Bangalore, did not meet with any success. However, on further appeal to the Tribunal, it held that there was no business connection between the assessee and the non-resident and that the non-resident was not in receipt of any income from or through the assessee, as defined in s. 163(1)(b) and (c) as also s. 9(1)(i) as it stood then in the relevant years. It is on these facts that the above questions are referred for the decision by this court. The finding of the Tribunal is that this purchase was a solitary transaction and that there was no other material indicating that there was any business connection between the non-resident and the assessee. The interest that was to be paid by the assessee-company was paid outside India. Accordingly, the Tribunal held that the interest that accrued to the foreign company also arose outside India. In the light of these facts, the Tribunal came to the conclusion that there was no income accruing to the foreign company which was assessable to income-tax in India.
3. Section 9(1)(i), as it stood then, specified the incomes that shall be deemed to accrue or arise in India.
“Section 9(1)(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……”
4. A business connection involves the concept of a control, supervision or a continuous activity in nature. There is absolutely no evidence that there was any such activity. The only connection was the solitary transaction of purchase of certain capital goods. By such a mere purchase, it cannot be inferred that there was any business connection as such between the assessee and the foreign company.
5. The learned counsel for the department did not contend that any other clause in s. 9(1) was attracted to the facts of this case. There was no money lent at interest and brought into India in cash or in kind. Accordingly, it cannot be said that any interest income accrued to the foreign company in India. The repayments had the approval of the Central Government and there was no other material showing that any interest accrued to the foreign company in India.
6. The conclusions reached by the Tribunal are, therefore, justified on the material on record and correct.
7. Accordingly, we answer both the questions in the affirmative and against the department. The assessee shall have its costs in these appeals, one set. Advocate’s fee Rs. 250.
