appeal is by revenue, ITO made assessment on Hindustan Aeronautics Ltd. (HAL) for assessment year 1978-79 as agents of Dunlop Ltd. By order under section 163 of Income-tax Act, 1961 ('the Act'), passed on 10-3-1981, ITO held HAL were to be treated as agents of Dunlop Ltd., England. During course of proceedings under section 163, HAL challenged ITO's right to appoint them as agents of Dunlop Ltd. They urged that payments made by them towards technical assistance fees and royalty were exempt from tax and do not come under purview of provisions of section 9 of Act. ITO held that it was sufficient if non-resident had received some income from or through Indian company in order to attract provisions of section 163 and so long as this fact was not in dispute HAL cannot escape its liability to be treated as agent of non-resident. He also held that question regarding liability of non-resident to be assessed in India was separate from liability of HAL being treated as agent of non- resident. In other words, what he meant was that once Dunlop Ltd. receives income through HAL, latter can be appointed as agent of Dunlop Ltd. During assessment proceedings, it could be determined whether non- resident was assessable or not. There was no appeal against this order. 2. During assessment proceedings, it was pleaded that as royalty income had arisen in India, it cannot be charged under section 9(1) which deals with income deemed to accrue or arise in India. ITO rejected this contention stating that section 9 deals with not only income deemed to arise in India but also income actually arising in India through or from agent. 3. ITO then considered taxability of sum of pound 800 received b y non-resident from Indian company for transfer of know-how which took place outside India. agreement for transfer of know-how was also entered into before 1-4-1976. He held as follows: ". . . facts of case are assessee supplies technical know-how to agent in form of documents, drawings, etc., from outside India. These materials are made use of in India by agent for his business purposes. Though materials are prepared and posted outside India, it is not disputed that such material has been received in India and exploited in India in furtherance of activities of agent, which in turn raised income for assessee. In any event it is exploitation of such material that has given rise to income in form of licence fee. I, therefore, hold that licence fee arises in India and has to be included in assessment." Regarding assessee's claim to deduct expenditure at flat rate of 50 per cent of receipts as relatable to business, ITO allowed only 20 per cent. He, accordingly, allowed expenses of Rs. 2,406 out of technical assistance fees of Rs. 12,038 and taxed assessee on Rs. 9,632 in addition to royalty of Rs. 43,811. 4. In appeal, assessee relied upon decision of Supreme Court in case of Carborandum Co. v. CIT [1977] 108 ITR 335. It contended that fees did not accrue or arise in India nor could it be deemed to accrue or arise in India. Reliance was also placed on decision of Karnataka High Court in case of VDO Tachometer Werke v. CIT [1979] 117 ITR 804. main argument on behalf of assessee was that although provisions of section 9(1)(iv) applied to case of this type, as assessee received fees for technical services by virtue of agreement entered into before 1-4-1976, no income could be deemed to accrue or arise in India. It, thus, pleaded that non-resident was not liable to be taxed through agent. Commissioner (Appeals) held as follows: "I have considered facts and circumstances of case as seen from licence agreement dated 18-2-1966 and perused case law relied on by appellant. In my view, appellant is justified in its contention. In view of proviso to section 9(1)(vii), law as laid down in above cited decisions applies to appellant's case even though assessment year is 1978-79. Consequently, I must hold that income from licence fees would not be liable for taxation in India either as having accrued or arisen in India or deemed to accrue or arise in India." Since he held that no part of income accrued or arose in India, it was unnecessary to consider question of giving adequate allowance towards expenditure incurred in earning technical fees. revenue is in appeal. 5. learned departmental representative submitted that decisions relied upon by assessee before Commissioner (Appeals) were not applicable in instant case. Those are cases on business connection. In present case, ITO did not deem that income accrued or arose to assessee because of business connection. He held that there was direct accrual of income in India to non-resident. Technical know-how was stock-in-trade of non-resident. It was sold in India. asset, viz., technical know-how possessed by non-resident assessee was capable of continuously producing income and irrespective of fact that agreement was executed outside India, asset was exploited in India. Thus, there was direct accrual of income to non-resident in India. He invited our attention to clauses 1(3), 2(1), and 4(1) of agreement which, according to him, amply demonstrated that income accrued to assessee in India. He also sought to meet point raised on behalf of assessee, viz., that Indian company could be appointed as agent of non-resident under section 163, only in case of deemed income under section 9(1). He relied on observations at page 958 of Law and Practice of Income-tax by Kanga and Palkhivala, Vol. 1, 17th edn. If income of non-resident is of nature specified in section 9 then agent can be assessed to tax in respect of same even if income actually accrues in India or is received in India. He submitted that order of Commissioner (Appeals) should be reversed. 6. We have heard rival submissions. In our view, Commissioner (Appeals) was not right in deciding case on basis of decisions relied upon by him. We are not dealing with case of business connection. question here is whether income accrued or arose to non-resident assessee in India. agreement between non-resident assessee and Indian company was with regard to exploitation of former's technical know-how. In clause 1(3) 'territory' has been defined as Republic of India, Nepal, Bhutan and Sikkim. This means that agreement for exploitation of non-resident's technical know-how covered taxable territories. Clause 2(1) reads as follows: "In respect of licensed equipment for each type of such aircraft Dunlop shall furnish to licensee in territory within one hundred and twenty days of request all information and technical data in its possession relating to development by it and its subsidiaries of licensed equipment including all information relating to processes [as defined in clause 1(2)] which should enable licensee to manufacture, assemble, modify, test, maintain, inspect, overhaul, dismantle and repair licensed equipment. Such information and technical data (hereinafter collectively called 'The Technical Knowledge') shall include . . . ." Here also it is clear that exploitation of assets, designs, etc., was to be within territory of India. Clause 4(1) reads as follows: "Dunlop hereby grants to licensee sole and exclusive right to manufacture in territory and to use or sell in territory licensed equipment so manufactured by licensee." above clauses, therefore, should have been examined by Commissioner (Appeals) to find out whether revenue's case regarding accrual of income in territory was justified. He was in error in holding that income could be deemed to accrue or arise to non-resident under amended provisions of section 9 without examining relevant agreement between non-resident and Indian company. 7. revenue's argument that agent under section 163 could be appointed in all cases where non-resident is in receipt of royalties and technical service charges is also justified. heading of section 9(1) indicates that section was for purposes of determining what types of income that could b e deemed to accrue or arise in India. That section is also fairly clear that it covers royalties and income by way of fees for technical services. Section 160(1) of Act states that representative assessee means, in respect of income of non-resident specified in sub-section (1) of section 9, agent of non- resident including person who is treated as agent under section 163. Therefore, income of non-resident being royalty and fees for technical services which are specified in section 9, agent of non-resident is assessable with regard to those incomes. Therefore, objection taken on behalf of assessee to assessment through agent with regard to royalty and fees for technical services is not well founded. 8. If conclusion reached on examination of various clauses of agreement is that income accrued or arose to assessee in taxable territories, further question regarding allowability of expenses has to be considered. Commissioner (Appeals) did not go into this question in view he had taken viz., that non-resident was not assessable to tax in India. 9. For these reasons, we set aside order of Commissioner (Appeals) and restore appeal to him for fresh decision according to law. 10. In result, revenue's appeal is treated as allowed for statistical purposes. *** INCOME TAX OFFICER v. DUNLOP LIMITED