9911796707
TMI Blog1993 (2) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... such basis ?" In the paper-book supplied by the assessee-appellant, the statement of the case is not available nor are the orders of any of the authorities supplied. We are, therefore, obliged to draw the facts from the judgment of the High Court which we presume are drawn from the statement of the case. As a matter of fact, the facts require to be appreciated clearly for proper decision of the question arising herein. The assessee, Standard Triumph Motor Co. Ltd., is a non-resident company, having its place of business at Coventry in the United Kingdom. It entered into a collaboration agreement with the Standard Motor Products of India Ltd. (Indian company), in November, 1939, whereunder the assessee was entitled to royalty of five per cent. on all sales effected by the Indian company. This amount of five per cent. less the Indian tax had to be remitted to the assessee in sterling currency. The assessee's accounting year was the year ending September 30. With respect to its Indian income, it was filing its returns through the Indian company. The collaboration agreement between the assessee and the Indian company expired in the year 1965. It was renewed. The renewed agreement to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to suit its convenience without the approval of the Income-tax Officer. The assessee carried the matter in further appeals to the Tribunal. It was contended by the assessee before the Tribunal that it was not following any particular method of accounting regularly in the past years, that it was the Indian company which was finally filing the returns of income on behalf of the assessee by incorporating the figures as per its profit and loss account, that the Indian company was not aware of the assessee's system of accounting in regard to royalty and that, therefore, it had committed a mistake in filing the returns for the assessment years 1967-68 and 1968-69. The assessee submitted that, as soon as it noticed the said mistake, it corrected the same and filed the return for the assessment year 1969-70 by correctly showing that the method of accounting was cash basis. The appeals were allowed by the Tribunal. The Tribunal held that the assessee had not been following any particular method of accounting regularly over the past years. For example, it said, for the assessment year 1963-64, it did not say anything regarding the method of accounting. For the assessment year 1964-65, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns its accounts on cash basis is accepted, the income could not be taxed at all as it would be received in England and not in India. The assessee-company, a non-resident, receiving its income outside India could be assessed to tax only under section 5(2)(b) of the Act on accrual basis. Section 5(2)(a) cannot be made applicable to such an assessee. In the case of a non-resident to whom income accrues in India, section 5(2)(a) will have no application, unless the non-resident receives income in India. On the facts of this case, it is clear that that eventuality will never arise in regard to the income with which we are concerned, because that income will have to be remitted to the non-resident by obtaining an irrevocable letter of credit and will thus be received only outside India. " Pursuing the said reasoning, the High Court held further ( at page 582 ) : " So it is clear that there can be cases of non-residents to whom section 5(2)(a) will never apply in regard to a particular income. The question then is, whether in such circumstances the assessee concerned (non-resident to whom income had accrued in India ) can insist that since he has kept his accounts in regard to that incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting year was the year ending on September 30, of each year whereas the accounting year of the Indian company was the calendar year. Notwithstanding the stipulation in the collaboration agreement for half-yearly remittances, the practice was that the Indian company was determining the amount of royalty at the end of its accounting year. This amount was credited to the account of the assessee in the account books of the Indian company, but mere crediting to the account of the assessee in the books of the Indian company does not amount to receipt of income by the assessee. Receipt is only when the amount is remitted to the United Kingdom in accordance with the agreement. Counsel submitted that the assessee was not maintaining any particular method of accounting regularly in respect of the said royalty amount and that the alleged statement in the returns relating to the assessment years 1967-68 and 1968-69 to the effect that it was maintaining its accounts on mercantile basis was an incorrect statement made by the Indian company which was not aware of the true state of affairs relating to the assessee's accounts. Learned counsel submitted that all that the Tribunal has done is to di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. (The Tribunal appears to have stated that, for the year 1964-65 too, the assessee had stated " cash basis ", but it is not clear for what purpose the said plea was raised. One thing is clear ; the assessee did not say at any time earlier to assessment year 1968-69 that receipt of money in the U. K. alone is receipt by it). It also took the rather strange plea that the Indian company was not aware of the method of accounting adopted by the assessee and, therefore, it made the aforesaid incorrect statement in the returns relating to the years 1966-67 and 1967-68. The Appellate Assistant Commissioner refused to countenance the plea. It is significant to notice that the assessee did not say that the method of accounting adopted by it for all its income was on cash basis, It confined the said plea to its Indian income alone. The said plea, it should be noticed, had no significance by itself. Its significance lies when we examine the said plea in the light of the further contention of the assessee that it did not actually receive the amount from the Indian company. We put a pointed question to learned counsel for the assessee whether it was the assessee's case at any stage that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting the contention, it was held by this court that, as soon as the monies were credited to the account of the non-resident ( Japanese ) company, it must be held that it " received " the same and are taxable. Hidayatullah J., speaking for the Constitution Bench, observed (at page 725) " This leaves over the question which was earnestly argued, namely, whether the amounts in the two account years can be said to be received by the Japanese company in the taxable territories. The argument is that the money was not actually received, but the assessee-firm was a debtor in respect of that amount and unless the entry can be deemed to be payment or receipt, clause (a) cannot apply. We need not consider the fiction, for it is not necessary to go to the fiction at all. The agreement, from which we have quoted the relevant term, provided that the Japanese company desired that the assessee-firm should open an account in the name of the Japanese company in their books of account, credit the amounts in that account, and deal with those amounts according to the instructions of the Japanese company. Till the money was so credited, there might be a relation of debtor and creditor ; but after the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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