Ita/204/2010 Of The Director Of Income Tax v. M/S Mondial Orient Ltd

IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 9 DAY OF JUNE, 2014 PRESENT THR HON’BLE Mr. JUSTICK N. KUMAR| ANT) THR HON’BLE Mr. JUSTICK B. MANOHAR| I.T.A. NO.204/2010 c/w I.T.A.Nos.203/2010, 205/2010, 206/2010, 207/2010 &2208/201 I.T.A.NO.204/2010 BETWEEN 1.The Director ot Income Tax. International Taxation Rashtrothana Bhavan Nrupathunga Road Bangalore. 2.The Assistant Commissioner ot Income-Tax International Taxation Circle-19 (1) Rashtrothana Bhavan Nrupathunga Road Bangalore. _ APPELLANTS) (BY Sri.K.V.Aravind, Adv..,) AND M/s Mondial Orient Ltd.,Mallika BuildingPlot No.74-75Millers RoadBangalore. _ RBSPONDENT (By Sri.Rupesh Jain Adv. For M/s Anandarama Prashanth & Vikram, Advs.) — This I.T.A. is filed under Section J60-A of the Income Tax|Act, 1961 arising out of order dated 29.01.2010 passed in ITA|No.388/Bang/2008, tor the assessment year 2005-06, praying|to (i) formulate the substantial questions of law stated therein,(11) allow the appeal and set-aside the order passed by the.Income Tax Appellate Tribunal, Bangalore Bench in I.T.A.|No.388/Bang/2008 dated 29.01.2010 confirming the order of|the Appellate Commissioner and confirm the order passed by|the Assistant Commissioner of Income Tax, International|Taxation, Circle-19(1), Bangalore, in the interest of justice and|equity. I.T.A.NO.203/2010 BETWEEN 1.The Director of Income Tax.International TaxationRashtrothana BhavanNrupathunga RoadBangalore. 2.The Assistant Commissioner ot Income-TaxInternational TaxationInternational Taxation Circle-19 (1)Rashtrothana BhavanNrupathunga RoadBangalore. APPBRLLANTS| (BY Sri.K.V.Aravind, Adv.,) AND M/s Mondial Orient Ltd.,_Mallika BuildingPlot No.74-75Millers RoadBangalore. .. RESPONDEN (By Sri.Rupesh Jain Adv. For M/s Anandarama Prashanth & Vikram, Advs.) — This I[.T.A. is filed under Section 2J60-A of the Income TaAct, 1961 arising out of order dated 29.01.2010 passed in ITANo.38/7/Bang/2008, for the assessment year 2005-06, prayingto (i) formulate the substantial questions of law stated therein,(ii) allow the appeal and set-aside the order passed by theIncome Tax Appellate Tribunal, Bangalore Bench in I.T.A.No.38/7/Bang/2008 dated 29.01.2010 confirming the order ofthe Appellate Commissioner and confirm the order passed bythe Assistant Commissioner of Income Tax, InternationalTaxation, Circle-19(1), Bangalore, in the interest of justice and|equity. I.T.A.NO.205/2010 BETWEEN 1.The Director ot Income Tax.International Taxation Rashtrothana Bhavan.Nrupathunga RoadBangalore. 2.The Assistant Commissioner ot Income-Tax International TaxationCircle-19 (1)Circle-19 (1) Rashtrothana BhavanNrupathunga RoadBangalore.Nrupathunga RoadBangalore. _ APPELLANTS) (BY Sri.K.V.Aravind, Adv.,) AND M/s Mondial Orient Ltd.,Mallika BuildingPlot No.74-75Millers RoadBangalore. _ RBSPONDENT (By Sri.Rupesh Jain Adv. For M/s AnandaramaPrashanth & Vikram, Advs.) — This I[.T.A. is filed under Section 2J60-A of the Income TaAct, 1961 arising out of order dated 29.01.2010 passed in ITANo.383/Bang/2008, for the assessment year 2005-06, prayingto (i) formulate the substantial questions of law stated therein,(ii) allow the appeal and set-aside the order passed by theIncome Tax Appellate Tribunal, Bangalore Bench in I.T.A.No.383/Bang/2008 dated 29.01.2010 confirming the order ofthe Appellate Commissioner and confirm the order passed bythe Assistant Commissioner of Income Tax, InternationalTaxation, Circle-19(1), Bangalore, in the interest of justice and|equity. I.T.A.NO.206/2010 BETWEEN 1.The Director ot Income Tax. International Taxation Rashtrothana Bhavan Nrupathunga RoadBangalore.Bangalore. 2.The Assistant Commissioner ot Income-TaxInternational TaxationCircle-19 (1) International TaxationCircle-19 (1) Rashtrothana Bhavan Nrupathunga Road Bangalore. I.T.A.NO.206/2010 BETWEEN 1.The Director ot Income Tax. International Taxation Rashtrothana Bhavan Nrupathunga RoadBangalore.Bangalore. 2.The Assistant Commissioner ot Income-TaxInternational TaxationCircle-19 (1) International TaxationCircle-19 (1) Rashtrothana Bhavan Nrupathunga Road Bangalore. _ APPELLANTS) (BY Sri.K.V.Aravind, Adv..,) AND M/s Mondial Orient Ltd.,Mallika BuildingPlot No.74-75Millers RoadBangalore. _ RBSPONDENT (By Sri.Rupesh Jain Adv. For M/s Anandarama Prashanth & Vikram, Advs.) — This I[.T.A. is filed under Section 2J60-A of the Income TaAct, 1961 arising out of order dated 29.01.2010 passed in ITANo.384/Bang/2008, for the assessment year 2005-06, prayingto (i) formulate the substantial questions of law stated therein,(ii) allow the appeal and set-aside the order passed by theIncome Tax Appellate Tribunal, Bangalore Bench in I.T.A. No.384/Bang/2008 dated 29.01.2010 confirming the order ofthe Appellate Commissioner and confirm the order passed bythe Assistant Commissioner of Income Tax, InternationalTaxation, Circle-19(1), Bangalore, in the interest of justice and|equity. I.T.A.NO.207/2010 BETWEEN 1.The Director ot Income Tax. International Taxation Rashtrothana BhavanNrupathunga RoadBangalore.Nrupathunga RoadBangalore. 2.The Assistant Commissioner ot Income-Tax International TaxationCircle-19 (1) Circle-19 (1) Rashtrothana Bhavan Nrupathunga Road Bangalore. _ APPELLANTS) (BY Sri.K.V.Aravind, Adv..,) AND M/s Mondial Orient Ltd.,Mallika BuildingPlot No.74-75Millers RoadBangalore. _ RBSPONDENT (By Sri.Rupesh Jain Adv. For M/s Anandarama Prashanth & Vikram, Advs.) — This I[.T.A. is filed under Section 2J60-A of the Income TaAct, 1961 arising out of order dated 29.01.2010 passed in ITANo.385/Bang/2008, for the assessment year 2005-06, prayingto (i) formulate the substantial questions of law stated therein,(ii) allow the appeal and set-aside the order passed by theIncome Tax Appellate Tribunal, Bangalore Bench in I.T.A.No.385/Bang/2008 dated 29.01.2010 confirming the order ofthe Appellate Commissioner and confirm the order passed bythe Assistant Commissioner of Income Tax, InternationalTaxation, Circle-19(1), Bangalore, in the interest of justice and|equity. I.T.A.NO.208/2010 BETWEEN 1.The Director ot Income Tax.International TaxationRashtrothana BhavanNrupathunga RoadBangalore. 2.The Assistant Commissioner ot Income-TaxInternational TaxationCircle-19 (1) Rashtrothana BhavanNrupathunga RoadBangalore.International TaxationCircle-19 (1) Rashtrothana BhavanNrupathunga RoadBangalore. _ APPELLANTS) (BY Sri.K.V.Aravind, Adv.,) M/s Mondial Orient Ltd.,_Mallika BuildingPlot No.74-75 Millers Road Bangalore. .. RESPONDEN (By Sri.Rupesh Jain Adv. For M/s AnandaramaPrashanth & Vikram, Advs.) — This I.T.A. is filed under Section J6O0O-A ot thIncome Tax Act, 1961 arising out of order dated|29.01.2010 passed in ITA No.386/Bang/2008, for the|assessment year 2005-06, praying to (i) formulate the.substantial questions of law stated therein, (11) allow theappeal and set-aside the order passed by the Income Tax|AppellateTribunal, BangaloreBench.1n L.T.A..No.386/Bang/2008 dated 29.01.2010 confirming the|order of the Appellate Commissioner and confirm the.order passed by the Assistant Commissioner of Income|Tax, International Taxation, Circle-19(1), Bangalore, in)the interest of justice and equity. These I.T.As coming on for|admission,this day, |N.Kumar J., delivered the following: JUDGMENT These appeals are by the Revenue challenging a’common order passed by the Income Tax Appellate|Tribunal, Bangalore branch holding that the assessee’s|income is exempted under Section 9(i) Explanation 1(b) of the Income Tax Act, 1961 (for short hereinafter referred toaS|‘the Act’) These I.T.As coming on for|admission,this day, |N.Kumar J., delivered the following: JUDGMENT These appeals are by the Revenue challenging a’common order passed by the Income Tax Appellate|Tribunal, Bangalore branch holding that the assessee’s|income is exempted under Section 9(i) Explanation 1(b) of the Income Tax Act, 1961 (for short hereinafter referred toaS|‘the Act’) 2. The assessee is a Hong-Kong based company,|which has established a branch office in India, having|three branches at Bangalore, Tirupur & Delhi. For the|assessment years 2003-04, 2004-05 & 2005-06, the|assessee filed the returns disclosing|‘nil’‘income. Theassessing Officer noticed that the assessee claimed|exemption under Section 9 (1) (i) (b) on the ground that|the assessee carried out its operations in India, which)were confined to purchase of goods in India, for the|purpose of exports and therefore, no income was deemed.to have accrued or arisen in India. However, on verifying|the profit and loss account of the Branch, the Assessing|Officer formed an opinion that in fact, the Branch office isnot involved in any purchase activity in India. Therefore,he concluded that the Branch office has not exported any|goods from India. According to him, the Branch olftice is actually engaged in the business of supply chain| management for garments, which include services like|product design & development, sourcing, merchandising,follow up, quality control, factory evaluation and shippingcoordination. All the branches of the company in India|WeETEactuallyengaged1n similar.activitiesonly.Theretore, a survey action under Section 133A of the Act|was initiated on 12.01.2006. During the course of survey|and also post survey, statements were recorded from the|officials of the assessee, which led to the conclusion that|the assessee is not carrying out liaison activities, but in|fact was carrying out business activities under the guise|of liaison office. 3. A notice under Section 148 of the Act was issuedand served on the assessee. In response to the notice,|the assessee filed the return on 22.05.2006 showing|‘nil’income. The assessing officer recorded the statement ofOneSri.LalithFernando,|CountryManagerOT)16.01.20061nNrespect|otthedetallsaboutttheorganization and activity of the Branch located at! Bangalore. He also recorded the statements of Mr.|P.J.Vora, Accounts Supervisor, Mondial Orient Ltd., of|Indian Branch, Mr.Nihal Mudalige, Quality Managr, Indiasub-continent on 12.01.2006 and Mr.David D’Souza, MDof Garden City Fashions P.Ltd., was also recorded on|08.12.2006. 4 On consideration of the aforesaid material theassessing officer held that the assessee’s activities were|not confined to liaison activities alone, but it consisted of.substantial business activities also. The [Indian Branch|Office was doing the quality inspection services as per theagreement entered into between the assessee and the|Indian Office. The assessee was only receiving cost + 5%|on the services rendered to the Branch offices in [ndia.The Branch office in India was reimbursed for the cost ofadministration expenditure incurred by it. The assessee|was only rendering certain services and certain quality|inputs and received charges for the same for the services| rendered. The said receipt is attributable to the activity|in India and accordingly, taxable in India. Aggrieved by|the said order, the assessee preferred an appeal beforethe Commissioner of Income Tax (Appeals). rendered. The said receipt is attributable to the activity|in India and accordingly, taxable in India. Aggrieved by|the said order, the assessee preferred an appeal beforethe Commissioner of Income Tax (Appeals). >. The Appellate Commissioner came to theconclusion that the activities of the assessee Branch in|India including the authority to enter into negotiations|with local exporters/manutacturers would constitute.course of dealing or continuity of relationship, which can|be said to contribute directly or indirectly to the earning|of income by the assessee outside India. Consequently,|this activity of the Branch would tantamount to a_“business connection” in India. It is not a casual|connection or a stray nexus comprising of a few isolated|transactions. It 1s rather a real and intimate relation,which contributes directly or indirectly to the earning ofincome by the assessee in its business. This is a regular|course of dealing or relationship between the business of the assessee outside [ndia and the activities of branch|office in India. Therefore, the income would have deemed.to accrue or arise through the Branch office in India and|therefore, it is taxable under Section 9 1 (i) (b) of the Acct,in India. 6. However it is held that the Assessing Authorityshould have brought to tax the income of the appellant|from rendering of service of supply chain management|earned by the assessee at cost + 9% as specified in the|agreement between the assessee and the MSL. Therefore|the Assessing Authority was directed to re-compute the|income of the assessee on the basis of cost + 9% as per.the agreement between the parties and accordingly|allowed the appeal in part. Aggrieved by the said order|both the assessee as well as the revenue preferredappeals. That is how there are six appeals relating to|three assessment years. 7. The Tribunal, on re-appreciation of the entirematerial on record, after taking note of the judgments on)which reliance was placed, after interpreting Section 9(1)and explanation (1) held that it is not necessary that an|assessee who directly export if the non-resident operates|through assessee but confined to purchase of goods for|the purpose of export is exempted. Therefore, purchase|per se for the purpose of export is not the requirement ofthe Section. A careful reading of the Section will make it|clear that first of all there is nothing in the Section to say|that the assessee cannot purchase on behalf of any other|party. The assessee should directly purchase and export|it. In the case of a non-resident no income shall be!deemed to accrue or arise in India to him (to such non-resident) through or from operations which are confined|to the purchase of goods in India actually for the purposeof exports. In other words not only the purchase of goodsas such but if the assessee does the operations which are|limited to the purchase of goods in India for the purpose| of export is exempted. Then they referred to explanation 3of Section 9(1)(i1) of the Act and held that income earnedby the assessee is exempted from tax and accordingly|allowed the appeal of the assessee, dismissed the appealof the revenue. Aggrieved by the said order the revenue|has preferred these appeals. 8. The appeals are admitted to consider thefollowing substantial question of law. Whether the Tribunal was correct 1n/holding that the activity of a. Trading of mostreliable,qualifiedsuppliersofTextileproducts, b. Checking and expediting the|production of merchandise, c. Attending upon|buyers and other representatives of thebuyers, dad. To follow-up of orders, e. Tprovide quality assurance, f. To arrange for'inspection and g. To arrange for logistics andexport as contended by the assessee, would|amount to purchase of goods in India for the|purpose of export and therefore as _ peExplanation to Section 9(1)(i)(b) of the Act the|income earned was not liable to tax in India? 8. The appeals are admitted to consider thefollowing substantial question of law. Whether the Tribunal was correct 1n/holding that the activity of a. Trading of mostreliable,qualifiedsuppliersofTextileproducts, b. Checking and expediting the|production of merchandise, c. Attending upon|buyers and other representatives of thebuyers, dad. To follow-up of orders, e. Tprovide quality assurance, f. To arrange for'inspection and g. To arrange for logistics andexport as contended by the assessee, would|amount to purchase of goods in India for the|purpose of export and therefore as _ peExplanation to Section 9(1)(i)(b) of the Act the|income earned was not liable to tax in India? 9. The learned counsel for the revenue assailing theimpugned order contended that in the instant case|neither the assessee nor it branch offices at India placed.an»nordersforpurchase.oT garmentwiththemanufacturers. They are rendering services such as|tracing of most reliable, qualified suppliers of textile|products,checkingand|exporting, productionot|merchandise,attendinguUporbuyersand|other|representatives of the buyers, to follow up the orders, to|provide quality assurance, to arrange for inspection and|to arrange for logistics and export. It is for the services|which they render they are paid for. When they are not|making purchase for the purpose of exporting goods|explanation 1(b) is not attracted and the income accrued|to the assessee for the services so rendered to the non-resident buyer cannot be exempted from payment of tax. 10. Per contra learned counsel appearing for the}assessee supporting the impugned order contended that| admittedly the foreign buyer do not approach the Indian|manufacturer directly. He approaches the assessee,|inform him about his requirements and also the price.which he is willing to pay for the merchandise. It is|thereafterthe|ASSESSEEapproachesthe|Indian|manufacturer, negotiates with him the price and when|once the contract is concluded the assessee provides the|necessary expertise for manufactured goods according to the specifications and see that the standards are.maintained and thereafter the goods are exported outside|the Country to the buyer. Therefore the income which|arises in India to the assessee is on account of purchase.and export of merchandise and therefore falls under|section 9(1)(i)(b) and the Tribunal rightly upheld the|contention of the assessee. Therefore he submits that no!case for interference is made out. 11. In order to appreciate the rival contentions first|let us look at the undisputed facts. The assessee is a.Hongkong based company which is a non-resident. It has branches in India at 3 places. According to the statementof Sri. Lalith Fernando, Country Manager each branch|has four departments — merchandising, quality control,|administration and shipping. The activities of the branch|officesincludeevaluatingCOTTect|manutacturers/suppliers and assessing their suitability|to clients/buyers. Most of the times the suppliers|approachthe.ass€sse€ethroughemailOT|letters. Depending on information of suppliers, the quality|technicians of the assessee and the merchandiser visit|the factory premises and gives a report to the Office|Manager. The Oftice Manager thereafter discusses with|the Country Manager. After evaluation by the Country|Manager, if found proper and suitable, the information is passed on to the Sourcing Product Manager who cross-verifies the information with the merchandiser and depending on client’s requirements, the supplier is either|approved or rejected or kept in the panel for future.reference and use. Thereafter when the buyer makes an enquiry either with the SPM or with the merchandiser themerchandising team of the branch office will decide on|the appropriate supplier for the client, discuss the price.and delivery period with the supplier and communicate|the same either directing to the buyer with the copy|marked to the SPM. If the terms are accepted, order is|confirmed to the supplier. At this stage the order|placement is completed. After this the merchandiser|follows up the order to ensure that the delivery date is|met. In the meantime the quality technicians obtain the|approved samples from the suppliers and after checking|send it to the buyer for final approval. If the product is approved then pre-production meetings are held by the|quality department — inspectors with the production team|of the supplier. Decisions taken at these meetings are|binding on the buyer and the supplier. After this, in-line|inspection meetings are held when goods are under|production the quality technicians visits the supplier|premises to check the quality of goods and the| proceedings are discussed in these in-line inspection|meetings. This is a meeting between the quality|technicians of the company with the production staff ofthe supplier to ensure to quality parameters of the|products are met. After the goods are ready, Inspectors|carry out the final inspection of the products. During the|in-line inspection stage, if there are defects found, the|supplier is given an opportunity to correct these defects|before the final inspection. If by chance the defects are|found in the final inspection stage then a random sample|is selected and sent to the buyer for final acceptance. Thebuyer reserves the right to refuse or reject the order at|this stage or accept the order with a price negotiation. If|the goods are found according to the required standard,|then the supplier will hand over the goods to the shipping|forwarder of the company who will coordinate the|shipment. If the price is different from the target then|price negotiations are made with the supplier by the|assessee and the information is passed on to the buyer.| The final say of price rests with the buyer and the)assessee will not have any influence over it. 12. From the aforesaid facts it is clear that it is truethat the assessee is not placing any orders with the|manufacturers. The assessee is not purchasing the|merchandise and the assessee is not exporting the|merchandise but the fact remains that the entire effort|put torth by the assessee results in a valid buyer placing|orders with an Indian manutacturer and after the goods|are manufactured according to the specifications, they|are exported out of the Country. No foreign buyer is|approaching an Indian manufacturer directly. They are|approaching the assessee, giving him their requirements,informing him about the price which they are willing to|pay and the assessee takes the responsibility of finding|OUTthe.manufacturer,gettingthe|merchandisemanufactured according to the specifications and they|also assure the quality of the goods manutactured and in|the end, they also take the responsibility of seeing that| the goods reach the destination. It is for these services|the asessee is paid by the foreign buyer. It is in this|background let us look at Section 9 of the Act which deals with the income deemed to accrue or arise in India. It|reads as under: Income deemed to accrue or arise in India 9, (1) The following incomes shall be deemed|to accrue or arise in India :-| (i) all income accruing or arising whetherdirectly or indirectly through or from anybusiness connection in India, or through orfrom any property in India, or through or from|any asset or source of income in India [***/ orthrough the transfer of a capital asset situatein India. [Explanation 1/- 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.bDuSINeSSdeemedunderthisall the operations are not carried|out in India, the income of the.bDuSINeSSdeemedunderthis with the income deemed to accrue or arise in India. It|reads as under: Income deemed to accrue or arise in India 9, (1) The following incomes shall be deemed|to accrue or arise in India :-| (i) all income accruing or arising whetherdirectly or indirectly through or from anybusiness connection in India, or through orfrom any property in India, or through or from|any asset or source of income in India [***/ orthrough the transfer of a capital asset situatein India. [Explanation 1/- 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.bDuSINeSSdeemedunderthisall the operations are not carried|out in India, the income of the.bDuSINeSSdeemedunderthis clause to accrue or arise in [ndiq|Shall be only such part of the|income|as|1SreasonablyattributableTothe.operationscarried out in India; b)in the case of a non-resident, noincome shall be deemed to accrue|or arise in India to him through orfromoperationswhichareconfined to the purchase of goodsin Indiafor the purpose of exportincome shall be deemed to accrue|or arise in India to him through orfromoperationswhichareconfined to the purchase of goodsin Indiafor the purpose of export Ccin the case of a _ non-residentbeing a person engaged in thebDuSINeSSofrunning aTLE WAGe?rlcOT|ofpublishing newspapers,magazinesOT|journals, no income shall bedeemed to accrue or arise in India|to him through or from activities|which.areconfinedto|the collection of news and views inIndia for transmission out of|Indta;being a person engaged in thebDuSINeSSofrunning aTLE WAGe?rlcOT|ofpublishing newspapers,magazinesOT|journals, no income shall bedeemed to accrue or arise in India|to him through or from activities|which.areconfinedto|the collection of news and views inIndia for transmission out of|Indta; d)in the case of a non-resident, being- l. an individual who is not qacitizen of India; or 2. afirm which does not have|any partner who ts a citizen of India|or who ts resident in India; or| 3. a company which does not|have any shareholder who is acitizen of India or who is resident inIndia, no income shall be deemed toaccrue or arise in India to suchindividual, firm or company throughOT|fromoperationswhichareconfined to the shooting of anycinematograph film in India.|| 12. The aforesaid provisions makes it clear whatare the incomes which are deemed to accrue or arise 1n India for the purpose of levying tax. However, explanation(1)(a) introduces a deeming clause, i.e., though income.accrues or arises in India as mentioned in the aforesaid|provisions, for the purpose of this clause which shall be.deemed not to have accrue or arise in India, i.e., the.income earned by an assessee through or from operations which are confined to the purchase of goods in India for|the purpose of export. In other words, if an assessee|earns income through or from operations out of purchaseof goods in India for the purpose of export only it is|deemed not to accrue or arise in India. The argument is,for attracting this provision the assessee must be a|purchaser of goods and aiter such purchase he should|export the goods. Then only he can have the benefit of|this provision. Nowhere in this section it 1s mentionedthat the assessee should purchase the goods in India for|the purpose of export. On the contrary it is expressly|mentioned any income accruing or arising in India to himthrough or from operations which are confined to)purchase of goods in India for the purpose of export aloneis exempt from payment of tax. In other words if an'assessee carries on operations which results in purchase|of goods in India for the purpose of export and the incomeso accrued or arising out of such transactions are|exempted from payment of income tax. The whole object| otthis|provisionbeingTOCTICOUTAREE€XportOT|merchandisefrom|India|which|enables Indian|manufacturer to earn and when it is exported the country|would earn foreign export. An incentive is given to a non-resident to carry on business in India. Otherwise the|explanation would have no meaning and that is precisely|what the Tribunal has held. 13. Reliance is placed on a judgment of this Courtin the case ot Commissioner of Income Tax [InternationalTaxation Vs. Nike Inc reported in (2013) 217 Taxman 1'(Karnataka) where a non-resident assessee was placing|order with an Indian customer for purchase of goods|which were supplied by the Indian manufacturer not to|the non-resident assessee but to its affiliates. It was/contended that the benefit of this provision was given|because the non-resident assessee was placing orders|directly for purchase of goods. In the instant case as thereis no order placed for purchase of goods by the non-resident assessee he is not entitled to the said benefit. We do not find any substance in the said contention. In the|aforesaid judgment it has been held that if the definition|is read with Clause (b) of Explanation 1 to sub-section (1)of Section 9 in the case of a non-resident, no income shallbe deemed to accrue or arise in India to him whether|directly or indirectly through or from any business|connection which are confined for the purpose of export.In the first place the assessee is not purchasing any|goods. The assessee is enabling the manufacturers to|purchase goods of a particular specification which are|required by a foreign buyer to whom the manufacturer|sells. As the orders are placed by the assessee with the|manufacturer and the goods are manufactured according|to their specification which is the requirement of the.buyer and even if itis held, though the goods are suppliedto the buyer, it is deemed to be supplied to the assessee,the whole object of this transaction is to purchase goods|for the purpose of export. Once the entire operations are|confined to the purchase of goods in India, for the| purpose of export, the income derived therefrom shall not.be deemed to accrue or arise in India and it shall not bedeemed to be an income under Section 9 ot the Act. The|object is to encourage exports thereby the Country can|earn foreign exchange. The activities of the assessee in|assisting the Indian manutacturer to manufacture the|goods according to their specification is to see that the|said goods manutactured has an international market,|therefore, it could be exported. In the instant case also.the whole object of the respondent assessee is giving its.services both to the foreign buyer and the Indian|purchaser is to export the merchandise to the foreign|buyer which results in earning foreign exchange. Merely|because the assessee do not place orders for purchase, in|law it makes no difference. Without placing an order in itsname the assessee is enabling a foreign buyer to place|order directly with the manufacturer after the assessee|approves the manufacturer and requirement and the|assessee takes the responsibility of maintaining quality| and dispatch of the goods to the destination. The|purchase and export of merchandise takes place and|therefore the object with which the said provision is|inserted is achieved. Therefore the assessee is entitled to|the benefit of exemption. 14. In that view of the matter we do not see anyerror committed by the Tribunal in passing the impugnedorder. The substantial question of law accordingly is answered in favour of the assessee and against the|TEVENUE. 99/LRS. sD/-JUDGE. | SD/-JUDGE. |