A foreign professional worked on our matter in India but we neither briefed him nor paid him. Can we be treated as his agent and made liable for his tax?
Yes, on these facts. The Supreme Court held that 'business connection' in section 9(1) is not confined to trade or manufacture and takes in a professional connection. Business means an activity carried on continuously and systematically by applying labour or skill to earn income, and professions are generally regarded as businesses. The connection between the Calcutta solicitors and the English barrister was real and intimate, not casual: he argued their case with their consent, alongside their Indian counsel, and could not have earned the fees without associating himself with them. The order treating them as his agent under section 163(1) stood.
Decided by the Supreme Court (Supreme Court of India; R.S. Pathak, A.P. Sen and E.S. Venkataramiah JJ. Judgment by Venkataramiah J) on 1981-04-07, reported as (1981) 129 ITR 295; 1981 (2) SCC 693; AIR 1981 SC 1047; 1981 SCR (3) 387; (1981) 6 Taxman 19. It bears on section 9(1)(i), section 163, section 195, section 9(1), section 195(2) of the Income Tax Act 1961, in TDS Defaults, How Tax Law Is Read and Residence & Treaty Benefit matters.
This is the case that stopped the argument that section 9(1) misses professional income because it speaks of business. The Court refused to read the omission of the word profession as a deliberate exclusion or as a lacuna to be left alone, and held instead that business as used there is wide enough to cover professions, drawing on the Privy Council in Currimbhoy Ebrahim, on the partnership definitions in England and India, and on Rowlatt J's observation that all professions are businesses though not all businesses are professions. It is also the case that shows how little formal engagement is needed: no brief delivered, no fee undertaken, no right of audience as such, and the connection still existed because the work was done on the appellants' record and with their cooperation. That is the reasoning an assessing officer will use when treating an Indian party as the agent of a non-resident.
Binding on every court and authority in India.
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The appellants were partners in a firm of solicitors at Calcutta engaged by a German corporation in three suits in the Calcutta High Court. A London firm of solicitors, also acting for the corporation, instructed the appellants to retain Mr Blanco White QC, a resident of the United Kingdom with a large patent practice, to argue the suits. The appellants delivered no brief to him and neither paid nor undertook to pay his fees; the briefs had been delivered by the London solicitors. He argued the cases for thirteen days in early 1970, appearing with the Indian counsel engaged by the appellants and with the leave of the Court, and left India on 17 February 1970 without making any arrangement about tax on his fees. Correspondence between the appellants and the London solicitors went back to 1965, and a later letter put his fees at 2,200 pounds with refreshers. The Income-tax Officer proposed to treat the appellants as his agents under section 163(1) on the footing of a business connection. A single judge dismissed their writ petition as premature, and a Division Bench dismissed the appeal, holding there was a business connection and that income accrued in India.
The appeal was dismissed, each side bearing its own costs. There was a connection between the appellants and Mr Blanco White which, given the period over which it existed, was not casual but real and intimate, and it was only through that connection that he earned his fees for arguing the case in India. The words of section 9(1) and section 163 are comprehensive enough to cover all the heads of income in section 14, and Parliament cannot be taken to have meant to exclude non-residents in the learned professions from section 9(1). Business connection in section 9(1) includes a professional connection. That Mr Blanco White had no right of audience as such under the Advocates Act or the Original Side Rules, that the appellants did not engage him or undertake his fees, and that as a barrister he could not sue for them, make no difference; he argued the appellants' case with their consent and cooperation and could not have earned the fees without associating himself with them.
The Court took the two submissions in turn. The first, that Parliament intended to leave non-resident professionals outside section 9(1), it rejected for want of any reason or material supporting it. The second, that the omission of the word profession is a lacuna which a wide reading of business connection would improperly fill, required the Court to decide what business means. It noted the Privy Council's observation in Currimbhoy Ebrahim that business connection is a different phrase from business though not unrelated to it, and then showed that business itself has long included professions: the dictionary defines it as a stated occupation, profession or trade, and defines a man of business to include an attorney; the English Partnership Act, 1890 and the Indian Partnership Act, 1932 each define business to include every trade, occupation and profession, which are therefore not extended definitions peculiar to those Acts; and Rowlatt J said in Christopher Barker and Sons that all professions are businesses though not all businesses are professions, and in Marine Steam Turbine that business is used in the sense of an active occupation or profession continuously carried on. Business is therefore an activity carried on continuously and systematically by applying labour or skill with a view to income, and in the context of section 9(1) there is no warrant for excluding professional connections. Applying R.D. Aggarwal on what makes a connection real rather than casual, the facts supplied it.
there is no warrant for giving a restricted meaning to it excluding professional connections from its scope
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Handle my notice → Ask a CA on WhatsAppYes, on these facts. The Supreme Court held that 'business connection' in section 9(1) is not confined to trade or manufacture and takes in a professional connection. Business means an activity carried on continuously and systematically by applying labour or skill to earn income, and professions are generally regarded as businesses. The connection between the Calcutta solicitors and the English barrister was real and intimate, not casual: he argued their case with their consent, alongside their Indian counsel, and could not have earned the fees without associating himself with them. The order treating them as his agent under section 163(1) stood. This was decided by the Supreme Court (Supreme Court of India; R.S. Pathak, A.P. Sen and E.S. Venkataramiah JJ. Judgment by Venkataramiah J) and bears on section 9(1)(i), section 163, section 195, section 9(1), section 195(2) of the Income Tax Act 1961. It is reported as (1981) 129 ITR 295; 1981 (2) SCC 693; AIR 1981 SC 1047; 1981 SCR (3) 387; (1981) 6 Taxman 19. This is the case that stopped the argument that section 9(1) misses professional income because it speaks of business. The Court refused to read the omission of the word profession as a deliberate exclusion or as a lacuna to be left alone, and held instead that business as used there is wide enough to cover professions, drawing on the Privy Council in Currimbhoy Ebrahim, on the partnership definitions in England and India, and on Rowlatt J's observation that all professions are businesses though not all businesses are professions. It is also the case that shows how little formal engagement is needed: no brief delivered, no fee undertaken, no right of audience as such, and the connection still existed because the work was done on the appellants' record and with their cooperation. That is the reasoning an assessing officer will use when treating an Indian party as the agent of a non-resident. If it applies to you, the first step is this: Do not argue that a payment to a non-resident escapes section 9(1) because the recipient carries on a profession rather than a business; that argument is closed.
The appellants were partners in a firm of solicitors at Calcutta engaged by a German corporation in three suits in the Calcutta High Court. A London firm of solicitors, also acting for the corporation, instructed the appellants to retain Mr Blanco White QC, a resident of the United Kingdom with a large patent practice, to argue the suits. The appellants delivered no brief to him and neither paid nor undertook to pay his fees; the briefs had been delivered by the London solicitors. He argued the cases for thirteen days in early 1970, appearing with the Indian counsel engaged by the appellants and with the leave of the Court, and left India on 17 February 1970 without making any arrangement about tax on his fees. Correspondence between the appellants and the London solicitors went back to 1965, and a later letter put his fees at 2,200 pounds with refreshers. The Income-tax Officer proposed to treat the appellants as his agents under section 163(1) on the footing of a business connection. A single judge dismissed their writ petition as premature, and a Division Bench dismissed the appeal, holding there was a business connection and that income accrued in India. The matter was decided on 1981-04-07 by the Supreme Court (Supreme Court of India; R.S. Pathak, A.P. Sen and E.S. Venkataramiah JJ. Judgment by Venkataramiah J). On those facts the Supreme Court held as follows. The appeal was dismissed, each side bearing its own costs. There was a connection between the appellants and Mr Blanco White which, given the period over which it existed, was not casual but real and intimate, and it was only through that connection that he earned his fees for arguing the case in India. The words of section 9(1) and section 163 are comprehensive enough to cover all the heads of income in section 14, and Parliament cannot be taken to have meant to exclude non-residents in the learned professions from section 9(1). Business connection in section 9(1) includes a professional connection. That Mr Blanco White had no right of audience as such under the Advocates Act or the Original Side Rules, that the appellants did not engage him or undertake his fees, and that as a barrister he could not sue for them, make no difference; he argued the appellants' case with their consent and cooperation and could not have earned the fees without associating himself with them.
The Court took the two submissions in turn. The first, that Parliament intended to leave non-resident professionals outside section 9(1), it rejected for want of any reason or material supporting it. The second, that the omission of the word profession is a lacuna which a wide reading of business connection would improperly fill, required the Court to decide what business means. It noted the Privy Council's observation in Currimbhoy Ebrahim that business connection is a different phrase from business though not unrelated to it, and then showed that business itself has long included professions: the dictionary defines it as a stated occupation, profession or trade, and defines a man of business to include an attorney; the English Partnership Act, 1890 and the Indian Partnership Act, 1932 each define business to include every trade, occupation and profession, which are therefore not extended definitions peculiar to those Acts; and Rowlatt J said in Christopher Barker and Sons that all professions are businesses though not all businesses are professions, and in Marine Steam Turbine that business is used in the sense of an active occupation or profession continuously carried on. Business is therefore an activity carried on continuously and systematically by applying labour or skill with a view to income, and in the context of section 9(1) there is no warrant for excluding professional connections. Applying R.D. Aggarwal on what makes a connection real rather than casual, the facts supplied it. In the words reproduced by the source cited on this page: "there is no warrant for giving a restricted meaning to it excluding professional connections from its scope"
It was decided by the Supreme Court on 1981-04-07 and is reported as (1981) 129 ITR 295; 1981 (2) SCC 693; AIR 1981 SC 1047; 1981 SCR (3) 387; (1981) 6 Taxman 19. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 9(1)(i), section 163, section 195, section 9(1), section 195(2), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was dismissed, each side bearing its own costs. There was a connection between the appellants and Mr Blanco White which, given the period over which it existed, was not casual but real and intimate, and it was only through that connection that he earned his fees for arguing the case in India. The words of section 9(1) and section 163 are comprehensive enough to cover all the heads of income in section 14, and Parliament cannot be taken to have meant to exclude non-residents in the learned professions from section 9(1). Business connection in section 9(1) includes a professional connection. That Mr Blanco White had no right of audience as such under the Advocates Act or the Original Side Rules, that the appellants did not engage him or undertake his fees, and that as a barrister he could not sue for them, make no difference; he argued the appellants' case with their consent and cooperation and could not have earned the fees without associating himself with them. It arises in TDS Defaults, How Tax Law Is Read and Residence & Treaty Benefit matters, on section 9(1)(i), section 163, section 195, section 9(1), section 195(2) of the Income Tax Act 1961, and was decided by Supreme Court of India; R.S. Pathak, A.P. Sen and E.S. Venkataramiah JJ. Judgment by Venkataramiah J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Assess your exposure as agent by asking whether the non-resident could have earned the income without associating with you, not by asking whether you engaged or paid him. Where a foreign professional is to work on an Indian matter, settle the tax arrangement before he leaves, since the Indian party on record is the one the Department will look to. Read section 9(1)(i) with the Explanations added since, which define business connection and extend it further; this judgment predates them.
Still good law. The construction of business connection as covering professional connection is settled and the source page records the decision as widely followed. It construes section 9(1) as it then stood; Explanations defining business connection and extending it have since been added, so the current text must be read alongside it. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The Court decided only that the appellants could be proceeded against as agents under section 163(1); the quantum of the income attributable to the operations in India, and the amount of the fees, were not determined, and the Court expressly declined to consider what the position would be if no fees had in fact been realised. It says nothing about the effect of a double taxation treaty, which was not in issue. The harvested page carries a reporter's headnote above the judgment, which has been disregarded. The judgment refers to the Advocates Act by an incorrect year in one place. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed, each side bearing its own costs. There was a connection between the appellants and Mr Blanco White which, given the period over which it existed, was not casual but real and intimate, and it was only through that connection that he earned his fees for arguing the case in India. The words of section 9(1) and section 163 are comprehensive enough to cover all the heads of income in section 14, and Parliament cannot be taken to have meant to exclude non-residents in the learned professions from section 9(1). Business connection in section 9(1) includes a professional connection. That Mr Blanco White had no right of audience as such under the Advocates Act or the Original Side Rules, that the appellants did not engage him or undertake his fees, and that as a barrister he could not sue for them, make no difference; he argued the appellants' case with their consent and cooperation and could not have earned the fees without associating himself with them.
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