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TMI Blog1956 (2) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... inspection of goods in Tokyo and facilitate their acceptance by the Japanese importer. There were two agreements relating to the employment of the non-resident by the assessee, the first of which was to last from July to September, 1948, and the second for an indefinite period thereafter until private imports of mica into Japan were allowed. The material portion of the first agreement (Annexure A) was as follows: It is hereby agreed that (1) the second party (non-resident) should secure the mica business for the first party (the assessee) from the requirements of the Boeki-Cho for the quarter July, August and September, (2) in lieu of the above, the first party to pay 4% commission on the gross sale proceeds of the mica to be sold to Boeki-Cho, (3) in view of the difficulties in this country (Japan) 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 second agreement was in similar terms excepting that the commission payable to the non-resident was reduced to 2% on the gross sale proceeds. In accordance with this arrangement t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the nonresident company in India, is, in our opinion, only recovery in India of a debt which has arisen in Tokyo simultaneously with the accrual of the income. We hold that the present assessment on the Indian firm as the agent of the non-resident company cannot, by any means, be supported. Dissatisfied with the decision of the Tribunal, the Commissioner of Income-tax applied for and obtained a reference to this court of the following question: Whether the aforesaid sums of ₹ 26,255 and ₹ 11,272 being selling commission credited to the aforesaid non-resident company's account in the books of the assessee are chargeable in the hands of the assessee under the section 4(1)(a) for the assessment years 1949-1950 and 1950-1951. The answer to the question referred does not admit of any doubt or difficulty. It is not possible to accept the reasoning of the Tribunal which proceeds on an erroneous interpretation of section 4(1)(a) and (c) of the Act and the learned advocate for the assessee confessed his inability to support the decision of the Tribunal on the grounds on which it rests. Section 4(1)(a) applies to residents as well as non-residents while sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on payable from time to time should stand as a deposit to his credit in the books of the assessee to be withdrawn or remitted later on according to his pleasure, there is a receipt of the commission by the non-resident in India. Once the commission amount was credited to the non-resident in the books of the assessee, the amount became so completely under the non-resident's control that by an act of his will he could have actually transferred it to anybody and any place he liked. The fact that owing to the conditions that prevailed in Japan during the American military occupation, the commission amount could not be drawn by the nonresident in Japan or remitted to him from India does not affect the question and the non-resident should be regarded as having received the commission in India the moment it was credited to his account in the books of the assessee. The position is the same as if the commission had been credited, on his direction, to his account with a bank in India. There is no foundation in fact for the contention of the assessee that the commission was received by the non-resident in Japan. The gross sale proceeds were remitted by the purchaser of the mica to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43 merely sets up a machinery to give effect to the substantive provisions of section 42. Therefore before we can go to section 43 we must find that the non-resident was liable to pay tax under section 42. It is only when he is so liable that the question of appointing a statutory agent under section 43 can arise. The learned Chief Justice then went on to explain the significance of the words business connection in the taxable territories occurring in section 42 as importing the idea that the non-resident must be carrying on business in India through some definite agency. The assessee's contention is that since the non-resident is not carrying on business in India through an agent, he has no business connection in the taxable territories within the meaning of section 42. Where section 42 is inapplicable, the appointment of a statutory agent under section 43 is not permissible and the agent so appointed cannot be charged to tax on the income of the non-resident. This argument overlooks the plain language of section 43. The learned Chief Justice of the Bombay High Court while emphasising that section 43 is machinery for giving effect to the provisions of section 42 did ..... 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