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TMI Blog1993 (2) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Act, 1961, is (at page 574 ) : " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the royalty amounts should be assessed on cash basis for 1967-68, 1968-69 and 1969-70 assessment if the books and balance-sheet of such receipts were found to be maintained on cash basis and in directing fresh assessment on 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 fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry. The Appellate Assistant Commissioner dismissed the appeals holding that the assessment orders for the past years relating to the assessee reveal that its method of accounting was mercantile, that for the assessment year 1967-68, the assessee did never contest its liability to be taxed on the amounts disclosed and further that it was not open to it to change the method of accounting 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... U. K. It is this argument which led the High Court to say that acceptance of the said argument would mean escapement of income from taxation in India altogether. This is what the High Court said (at page 582 ) : 'If the contention of the assessee that the royalty should be assessed to income-tax only on its actual receipt under section 5(2)(a) of the Act on the ground that it maintains 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sibility of section 5(2)(b) ever coming into operation. We cannot give to section 145(1) such an overriding effect as to defeat the charge and the provisions of section 5(2)(b). " In this court, learned counsel for the assessee contended that so far as the royalty income is concerned, the assessee was maintaining its accounts at Coventry in the United Kingdom on receipt basis. Its accounting 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 royal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, for that matter, receipt of income. It may also be noticed that in its returns relating to the assessment years 1967-68 and 1968-69, the assessee stated that it was maintaining its accounts on mercantile basis. Only in the returns relating to the assessment year 1968-69, did it raise the plea that it was maintaining its books, with respect to the said royalty amount, on cash receipt 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 ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. The Income-tax Officer assessed the amounts credited in the accounts of the assessee as the income of the non-resident company. The contention of the assessee was that mere entry in the books of the assessee cannot amount to receipt and that the amounts cannot be assessed until they were actually paid over to the non-resident company or dealt with according to its directions. Rejecting 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 qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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