Sankar Prasad Mitra, J. - (1.) This is a reference under Section 66(1) of the Indian Income-tax Act, 1922. The assessee is a resident-company. The assessment year is 1956-57. In 1955, the Indian Industries Fair was field in New Delhi. Messrs. Auger & Turner Group Ltd., a company in the United Kingdom, was allotted a space in the fair ground. Out of the space so allotted, an area of 5,000 sq ft. was let out by the U. K. company to the assessee-company for a consideration of Rs. 50,000. The assessee paid this amount to the U. K. company in instalments. During the relevant previous year for the assessment year 1956-57, the assessee paid a sum of Rs. 32,500 to the U. K. company.
(2.) The Income-tax Officer was of the view that the assessee would be deemed to be an assessee in default under Section 18(7) of the Indian Income-tax Act, 1922, inasmuch as the assessee had not deducted income-tax and super-tax at the time of payment of the said sum of Rs. 32,500. The Income-tax Officer directed the assesses to pay an amount of Rs. 26,000 after allowing an estimated expense of Rs. 6,500.
(3.) The Appellate Assistant Commissioner annulled the order under Section 18(7) of the Act. His reason was that the amount which the assessee had paid to the non-resident company was in the nature of rental ; it was a gross earning in the hands of the non-resident company ; and such earning was not a profit from trading receipts taxable under the provisions of the Income-tax Act.;