1955 (2) TMI 26 - HC - Income Tax

Summary

Issues:
1. Whether remittances made by the assessee company before the sale proceeds are recovered constitute "receipt" within the meaning of section 4(1)(a) of the Income-tax Act?
2. When were the sale proceeds first received which are liable to tax?

Analysis:
1. The judgment involves the assessment of tax liability on the assessee company, appointed as the sole selling agent of goods manufactured by a non-resident company. The primary contention raised by the assessee was that certain transactions involved remittances made before the sale proceeds were received by the principal company in taxable territories. The court analyzed the agency agreement, highlighting that the assessee, as an agent, guaranteed the solvency of purchasers, acting as del credere agents with an obligation to make payment to the principal within 30 days of sale, regardless of when the sale proceeds were actually received. The court emphasized that remittances made by the assessee before the sale proceeds were realized were in discharge of their obligation under the agreement, not constituting receipt of sale proceeds on behalf of the principal.

2. The judgment delves into determining when the sale proceeds were first received, which are subject to tax liability. It was established that the sale proceeds were received by the principal in Sweden when the agent made the remittance, even before receiving the sale proceeds from purchasers. In cases where remittances were made after the sale proceeds were received, the agent was merely transmitting the already realized sale proceeds on behalf of the principal, not discharging any further obligation under the agreement. The court clarified that while the agent may be liable on an accrual basis under section 4(1)(c), the tax liability under section 4(1)(a) pertains to the first receipt of sale proceeds, which, in this case, occurred when the agent made remittances before actually receiving the sale proceeds.

In conclusion, the judgment answers the questions submitted by the Tribunal, with the assessee conceding on the first question. The court ruled in favor of tax liability on remittances made after the sale proceeds were received by the assessee company. The judgment emphasizes the distinction between remittances made in discharge of obligations under the agency agreement and the actual receipt of sale proceeds on behalf of the principal, thereby clarifying the tax liability implications under the Income-tax Act.