1976 (8) TMI 6 - SC - Income Tax

Royalties received from the Government of India in accordance with the agreement for broadcasting from the stations of All India Radio accrued or arose to the assessee in India under s. 5(2) - royalties receivable by the assessee as per the agreement were its income, the assessee received the income and merely applied it in a specific way - Assessee s appeal dismissed

Issues Involved:
1. Taxability of royalties received by a non-resident company from an Indian entity.
2. Determination of the source of income for tax purposes.
3. Application of sections 5 and 9 of the Income-tax Act, 1961.
4. Concept of income diversion by overriding title.

Detailed Analysis:

1. Taxability of Royalties Received by a Non-Resident Company from an Indian Entity:
The primary issue in this case is whether the royalties received by the Performing Right Society Ltd. (the Society) in London from All India Radio (AIR) are liable to be taxed by the Indian income-tax authorities. The Society contended that such royalties are not taxable in India because the contract was entered into in England, the Society does not carry on any business in India concerning the receipt of such royalties, and payments are made in England by AIR.

2. Determination of the Source of Income for Tax Purposes:
The Society argued that the source of income was the agreement executed in England. However, the court held that the question of the source of income is not relevant under section 5(2)(b) of the Income-tax Act, 1961, which includes all income "from whatever source derived" in the total income of a non-resident if the income accrues or arises in India during the relevant year. The court concluded that the income derived from the broadcast of copyright music from the stations of AIR arose in India.

3. Application of Sections 5 and 9 of the Income-tax Act, 1961:
Section 5(2) of the Income-tax Act, 1961, states that the total income of a non-resident includes all income from whatever source derived which accrues or arises or is deemed to accrue or arise to him in India during such year. Section 9(1)(i) further elaborates that income shall be deemed to accrue or arise in India if it accrues or arises through or from any business connection in India. The court held that the royalties received by the Society from AIR should be deemed to accrue or arise in India within the meaning of section 9(1)(i) of the Income-tax Act, 1961.

4. Concept of Income Diversion by Overriding Title:
The Society contended that the obligation to distribute the income to its members diverted the income from the Society to the members, and it could not be called the income of the Society. The court referred to the case of Bejoy Singh Dudhuria v. Commissioner of Income-tax [1933] 1 ITR 135 (PC), which established that income diverted by an overriding title does not constitute the income of the assessee. However, the court distinguished this case from the present one, stating that the royalties payable by AIR under the agreement are realized by the Society as its income. Article 48 of the Society's articles of association allows the general council to apply the receipts for various purposes, indicating that the income is first received by the Society and then applied in a particular way. This is not a case of diversion of income by an overriding charge.

Conclusion:
The Supreme Court upheld the decision of the lower courts, concluding that the royalties received by the Society from AIR are liable to be taxed in India. The court dismissed the appeal, stating that the income derived from the broadcast of copyright music from the stations of AIR arose in India and was not diverted by an overriding title before reaching the Society. The appeal was accordingly dismissed with no order as to costs.

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