TMI Blog1980 (8) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... cco in India and exported it to Japan, where it was sold through M/s. Toshoku Ltd. (the assessee involved in Civil Appeal No. 782 of 1973), a Japanese company, and admittedly non-resident. Under the terms of the agreement between the statutory agent and the assessee referred to above, the latter was appointed the exclusive sales agent in Japan for selling tobacco exported by the former. The assessee was entitled to a commission of 3% of the invoice amount. The sale price received on the sale of tobacco in Japan was remitted wholly to the statutory agent who debited his commission account with the amount of commission payable to the Japanese company and credited the same in the account of the Japanese company in his books on December 31, 1961. The amount was remitted to the Japanese company on February 1, 1962, on which date an appropriate debit entry was made in the account of the Japanese company with the statutory agent. The statutory agent had similarly sold some tobacco during the same accounting period through another non-resident business house by name, "M/s. Societe Pour Le Commerce International Des Tabacs" (the assessee involved in Civil Appeal No. 783 of 1973) carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of the Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived, (a) which is received or is deemed to be received in India in such year by or on behalf of such person, or (b) accrues or arises or is deemed to accrue or arise in India during such year. Explanation 1 to s. 5(2) of the Act declares that an income arising abroad cannot be deemed to be received in India for the purpose of that section by reason only of the fact that it is included in a balance-sheet prepared in India. Section 9(1)(i) of the Act provides that all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India shall be deemed to accrue or arise in India. The Explanation to this clause provides that in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affairs in Japan in connection therewith the assessee engaged San-Ei Trading Co. Ltd., Tokyo, as its agent. The Japanese company was admittedly a "non-resident" company. Under the agreements, the assessee undertook to pay certain percentage of gross sale proceeds as commission to the Japanese company. With regard to the mode of payment of commission, the agreements provided a term which read thus (p. 721) : " 'In view of the difficulties in this country it is requested that the first party credits all these amounts to the account of the second party with them without remitting the same until definite instructions are received by the first party'. " The first party to the agreement was the assessee and the second party was the Japanese company. During the two accounting years, a total amount of Rs. 13,319-12-4 was paid to the Japanese company either directly or through others to whom the assessee was instructed by the Japanese company to pay the amount. The court rejected the contention of the assessee that the Japanese company was not in receipt of the amount in the taxable territories and the amount was not income within the meaning of s. 4(1)(a) of the Indian I. T. Act, 1922, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case either received or can be deemed to have received the sums in question when their accounts with the statutory agent were credited, since a credit balance, without more, only represents a debt and a mere book entry in the debtor's own books does not constitute payment which will secure discharge from the debt. They cannot, therefore, be charged to tax on the basis of receipt of income actual or constructive in the taxable territories during the relevant accounting period. The second aspect of the same question is whether the commission amounts credited in the books of the statutory agent can be treated as incomes accrued, arisen, or deemed to have accrued or arisen in India to the non-resident assessees during the relevant year. This takes us to s. 9 of the Act. It is urged that the commission amounts should be treated as incomes deemed to have accrued or arisen in India as they, according to the department, had either accrued or arisen through and from the business connection in India that existed between the non-resident assessees and the statutory agent. This contention overlooks the effect of cl. (a) of the Explanation to cl. (i) of sub-s. (1) of s. 9 of the Act which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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