Case Law Details
RELEVANT PARAGRAPH
6. Admittedly, the assessee in these appeals are non-resident companies having no permanent establishment in India. It is also not disputed that after the contract received by the assessee companies in the year 1983 and before, fresh contract was given to them by the ONGC only in the year 1999. Learned counsel for the appellant (revenue) argued that since the respondent / assessee did no business in India between 1993 to 1998, as such, they cannot claim any set off under Section 71 of the Act. It is further argued on behalf of the appellant (revenue) that since during the relevant period the assessee were not doing any business in India, as such, the A.O. had rightly disallowed the expenses and the claims of depreciation, which were upheld by the CIT(A). On the other hand, learned counsel for the respondent / assessee argued that the assessee were very much in business and were making attempt to get a new contract, but they could get fresh contract only in 1999.. It is contended on behalf of the respondent/assessee that merely for the reason that there was `lull in business’ it cannot be said that the assessee were `not in business’ during the relevant period.
7. Learned counsel for the respondent/assessee drew attention of this Court to Annexure –1 filed with the counter affidavit in Income Tax Appeal No. 49 of 2005, showing that in October 1996, the assessee was making correspondence with ONGC relating to hiring of manpower services in respect of export key personnel for drilling in deep waters. On perusal of said letter we find that this letter has been issued from Dubai office of the assessee in aforesaid appeal. In our opinion, this does not reflect that the business was being done in India as the earlier contract had long been expired and new contract by then had not been given to the assessee. Merely for the reason that the assessee sent some letters and made some offer from Dubai to ONGC does not amount doing business in India. We do agree that `lull in business’ does not mean that the assessee has ceased its business. But, when the assessee has neither permanent office, nor any other office in India, nor any contract was in execution during the relevant period, it cannot be said that they were in business in India, as such, it cannot be said that assessee was entitled to set off claimed by it under Section 71 of the Act.
8. Learned counsel for the respondent/assessee drew attention of this Court to sub-section (3) of Section 176 of the Act, and submitted that the assessee had not given any notice of discontinuance of business to the Income-tax Department, as such, it cannot be said that the business had stopped. We have examined the issue raised by learned counsel for the respondent/assessee . We are of the view that the respondent/assessee cannot take benefit of his own wrong. Apart from this, what is relevant is that from the record it is clear that in one of the assessment proceedings in question, the assessee company itself has given an affidavit to the Department that it has stopped business in India. Thereafter, it is not open for the assessee to say that it was doing business in India between the period 1993 to 1999. In our considered opinion, the ITAT has erred in law in holding that the assessee was in business and passing through a lean period, as such, entitled to deduction on account of expenses, depreciation and set off, claimed by them.
9. On behalf of respondent / assessee our attention is drawn to the case of Union of India and another Vs. Azadi Bachao Andolan and another; 2003 ITR (263) 706 (at page 722), and it is argued that the provision of Section 90 of the Act relating to double taxation relief under Agreement with foreign countries is a beneficial provision and should be interpreted to favour the assessee. Having gone through the said case law, we are of the view that the principle laid down in aforesaid case would help the assessee only when he was in business in India and not during the period he had done no business. Also, learned counsel for the respondent / assessee drew attention of this Court to the case of Sayaji Iron and Engineering Company Vs. Commissioner of Income-tax; 2002 ITR (253) 749(at page 752), and it is argued that any expenditure incurred by officers of the company in India amount to the expenditure incurred by the company in doing its business. On perusal of said case law we find that the facts of said case were different and it was not a case where the company was not in business in India. Similarly, para 99 in Ishikawajima- Harima Heavy Industries Ltd. Vs. Director of Income-tax, Mumbai; 2007 ITR (288) 408 (at page 446), which was read out before us by learned counsel for the respondent/assessee , in our opinion does not help the respondent/assessee in this case for the reason that in that case the assessee company registered in Japan had its business activities in India during the relevant period, and in that situation the Apex court observed – `there exists a distinction between a business connection and a permanent establishment. As the permanent establishment cannot be said to be involved in the transaction, the aforementioned provision will have no application. The permanent establishment cannot be equated to a business connection, since the former is for the purpose of assessment of income of a non-resident under a Double Taxation Avoidance Agreement, and the latter is for the application of Section 9 of the Income Tax Act.’
10. Lastly, it is argued on behalf of the respondent/assessee that the finding of fact recorded by the ITAT cannot be disturbed by the High Court in an appeal under Section 260-A of the Act. Having heard learned counsel for the parties and after going through the impugned orders, we do not find that it is a case where the finding of fact has been challenged by the Revenue, but it is a question of law which has been raised as to whether, when the assessee had its permanent business establishment outside India (with no office in India) and the contract under which it worked had expired long back in that situation can it be said that it was in business in India, thereafter, till it received a new contract after a gap of some more than five years, and is it entitled to set off under Section 71 of the Act (for the period it did not work in India). We have already discussed above that in such a case it cannot be said that the assessee was in business in India and expenditure shown by him in India are not liable to be allowed, or set off. Therefore, we find that the A.O. and CIT(A) have committed no error of law, and the ITAT has erred in law in taking the view that even in the situation mentioned above, the assessee had been in business in India, and as such, entitled to the set off.
