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TMI Blog1949 (9) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... o the first item of ₹ 12,68,480 the company debited in their books of account a sum of ₹ 13,41,744 to Messrs. Jagmohandas Ramanlal Co. and credited it to the sales account, thereby representing that the goods covered by this amount had been sold by the company for this sum. I may mention that the company maintains its accounts on a mercantile basis and not on cash basis. Messrs. Jagmohandas Ramanlal Co. realised from various merchants from Ahmedabad to whom goods had been sold the sum of ₹ 12,68,480, and they utilised that sum in paying off various creditors of the company at Ahmedabad. On these facts there can be no doubt that the sum of ₹ 12,68,480 was received by the assessee company in Ahmedabad. A contention was put forward by the assessee company that the company was not concerned with the payments made by the merchants in Ahmedabad and that they were only concerned with Messrs. Jagmohandas Ramanlal Co. being their guaranteed brokers. It was argued that the sum of ₹ 13,41,744 was debited to Messrs. Jagmohandas Ramanlal Co. and the company only looked to Jagmohandas Ramanlal Co. for the payment. It must not be forgotten that Messrs. Jagm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee company. It must be shown that these profits were received or deemed to be received in British India in the year of assessment in order that they can be taxed. Now, in my opinion, there is a clear distinction between the accrual or arising of an income and the actual receipt of an income, and there is also a clear distinction between the notional accrual or arising of an income and a notional receipt of an income. In this case we are not concerned with whether the income or profits accrued or arose in British India, because as I stated before, we are not dealing with an assessee resident in British India. What we are concerned with is whether in this case a non-resident assessee received any income or profits in British India in the year of assessment. Mr. Kolah contends that once the income accrues or arises in Baroda it can never be received in British India. I cannot accept that contention as correct. Accrual or arising of an income has nothing whatever to do with the actual receipt of a particular income. Income may accrue or arise in a particular place and it may be received in an entirely different place. Mr. Kolah was therefore forced to contend that when an assessee m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis for keeping accounts contended that she was not liable to pay tax on certain amounts which had not in fact been received by her. In the judgment of the learned Chief Justice the distinction between receipt and accrual is clearly illustrated. At page 232 this is what the Chief Justice says : ''Where the assessee has himself chosen a mercantile basis, then the Income-tax Officer is bound to concede that basis to the assessee, provided the assessee's accounts, regularly kept on that basis, afford a proper and sufficient means of deducing what the profits or gains on that basis have been. In such a case the Income-tax Officer has no option but to do what he has done in the present case, that is to say, to take the assessee's own method of accounting and to compute from it what profits or gains had 'arisen' or 'accrued' to (not merely been 'received' by) the assessee according to it. The next case on which Mr. Kolah has relied is Kanwalnen Hamir Singh v. Commissioner of Income-tax, Ajmer [1938] 6 ITR 675. There the Court was dealing with the case of a resident assessee and what they held was that the particular two sums with which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Straits Settlement. Under the old law if profits or income accrued outside British India unless they were received in or brought into British India they were not taxable and therefore the Court had to consider whether they were received in British India and the Court came to that conclusion on the special facts of the case having considered the unusual characteristics of tawanai loans. Therefore, I do not read this decision to lay down that when income or profits have accrued in a particular place they should be deemed to have been received in that place. As a matter of fact this case has made a distinction between the accrual of income or profits at a particular place and the receipt of that income at a different place, because although the income had accrued in Ceylon and the Straits Settlement as the income was received in British India the Court held that the sum of ₹ 5,578 was liable to tax. The next case relied on by Mr. Kolah was A.T.K.P.L.S.P. Subramanyam Chettiar v. Commissioner of Income-tax [1927] 2 ITC 365. There two questions were submitted for the opinion of the Court and they were : (1) In the circumstances of this case can the interest on the loans or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenable and its refutation is to be found on the face of the contention. As I have held that the sale proceeds cannot be deemed to have been received at Baroda the rather curious proposition advanced that the sale proceeds should be deemed to be received a second time in British India does not arise for determination. It cannot be disputed that if we came to the conclusion that ₹ 12,68,480 were received in British India then this sum will include the profits and gains of the business of the assessee company. As to what is the proportion that the profits bear to the total sale proceeds is a matter of calculation which will have to be done by the Department. Turning now to the second item of ₹ 4,40,878 the same contention has been put forward by Mr. Kolah with regard to this item as was put forward with regard to the item of ₹ 12,68,480. But with regard to the receipt the facts are much stronger with regard to this item because the position is that the assessee company sent goods to British India and they drew hundis on the merchants who got delivery of the railway receipts representing the goods only on their discharging these hundis. Mr. Kolah has contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 6 lacs odd as interest in respect of an unsecured loan. In discharge of that liability the assessee took over assets worth ₹ 20 lacs and hand notes for ₹ 17 lacs odd. The question then arose whether the execution of hand notes of ₹ 17 lacs had been a payment and therefore liable to tax. The Assistant Commissioner held that they were not and this is what their Lordships of the Privy Council said at page 108 :- A debtor who gives his creditor a promissory note for the sum he owes can in no sense be said to pay his creditor ; but merely gives him a document or voucher of debt possessing certain legal attributes. So far then as this item of ₹ 17,34,596 is concerned the assessee did not receive payment of any taxable income from his debtor or indeed any payment at all. Therefore, before we can express an opinion as to the correctness of the decision of the Tribunal we should like to have further facts found by the Tribunal and what we direct is that the Tribunal should submit a supplementary statement of case and state therein as to whether there was any arrangement or agreement between the assessee and the merchants that the giving of cheques or hund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the assessee. With regard to the question submitted to us with regard to the items of ₹ 12,68,480 and ₹ 4,40,878 the questions framed by the Tribunal with respect to them are not properly framed. The real and only questions that we have to consider are whether these two items represent sale proceeds or debts, and further if they were sale proceeds they were received in British India. We therefore frame the questions in the following terms : (1) Whether the sums of ₹ 12,68,480 and Rs.. 4,40,878 were sale proceeds of the goods sold by the assessee to merchants in British India or were debts due by the said merchants? and we answer that they were sale proceeds. (2) Whether, if they were sale proceeds, they were received in British India? and we answer that they were received in British India. As the third question has also been submitted to us by the Tribunal, although we feel that the answer is consequential upon our answer to the first two questions, we may formally answer the question which we frame as follows: Whether the profits of the assessee's business are included in the sums of ₹ 12,68,480 and ₹ 4,40,878? and we answer that they ..... X X X X Extracts X X X X X X X X Extracts X X X X
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