COMMISSIONER OF INCOME TAX Vs. BARIUM CHEMICALS LIMITED

JUDGEMENT

(1.) The Income-tax Appellate Tribunal, Hyderabad has referred the following question under section 256(1) of the Income-tax Act, 1961 :

(2.) The facts relevant to the question are that the assessee-company, Barium Chemicals Limited, Ramavaram, entered into an agreement with a foreign company, viz., Chemical and Technical Service Limited, on July 9, 1967, whereunder, the assessee-company undertook to remit certain amounts to the foreign company from time to time. During the previous year relevant to the assessment year 1968-69, the assessee-company remitted certain amounts to the foreign company. No tax was deducted at source by the assessee-company as required under section 195 of the Income-tax Act. For that reason, the Income-tax Officer added the tax component and worked out the total taxable income at a particular figure. On appeal, the Appellate Assistant Commissioner determined the income accruing to the non-resident company at pounds 2,000 and held "in the instant case, it is quite clear from the agreement that the appellant company had to bear the tax, if any, that may arise in respect of the payments made and to that extent, the benefit that arises to the non-resident firm, is a perquisite includible. As I have now fixed the total income accuring at pound 2,000 the Income-tax officer is directed to value the perquisite on the basis (taking it as tax on tax and including this amount) and computing the business income and allow relief accordingly."

(3.) Against the order of the Appellate Assistant Commissioner quantifying the income, no appeal was preferred by the Department. Only the assessee-company filed an appeal. The Income-tax Appellate Tribunal held that under clause H of the contract between the parties, the assessee-company had not undertaken the liability to pay tax and, therefore, it is not possible to come to the conclusion, in the present case, that the payments made to the foreign company were free from income-tax. It observed further that the statutory liability accruing to the non-resident company continued to exist and that, therefore, the question of assessing the tax perquisite as directed by the Appellate Assistant Commissioner in the hands of the assessee (Indian company) in its capacity as the agent of the non-resident company would not arise.