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TMI Blog1980 (12) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessment order on that basis. The assessee preferred an appeal contending that the ITO went wrong in converting the Ceylon income into its equivalent in Indian money applying r. 115. He contended that there were certain restrictions imposed by the Ceylon Govt. in the matter of remittances of income from Ceylon and that under these restrictions before any money earned in Ceylon was repatriated to any other country a foreign exchange entitlement certificate would have to be obtained and only to the extent of the amount shown in the certificate the amount could be remitted. Under that scheme, only 45% of the value of the income would be remittable to India and the balance would have been absorbed by the Govt. of Ceylon as premium and that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion as to whether an assessee can be considered to be in default in payment of any tax. He further contended that the same principle will have to be applied in the case of even applying r. 115 for the conversion of the money into Indian currency. In order to give an answer to this argument, it is necessary for us to see the scheme of taxation of income accruing or arising outside India. Under s. 5(1)(c) of the I.T. Act, the total income of any previous year of a person who is a resident shall include his income accruing or arising to him outside India during such year. In Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1, the Supreme Court had occasion to consider a case, where income accrued in one year was remitted in subsequent year bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f royalty was not assessable to tax on the ground that the amount had not been actually received by it abroad. After pointing out that if royalty should be assessed to income-tax only on actual receipt on the ground that it maintains its accounts on cash basis, the income could not be taxed at all as it would be received in England and not in India and it would not also be liable to tax under s. 5(2)(b), this court observed (p. 582): "The question then is, whether in such circumstances the assessee concerned (non-resident to whom income had accrued in India) can insist that, since he has kept his accounts in regard to that income on the cash basis, he is not liable to be taxed on the accrual basis. In other words, the question is whether s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng his accounts on the cash basis in regard to his income, the assessee is liable to tax under s. 5(2)(b). To hold otherwise would be to take the income outside the purview of taxation under the Act, though such income had accrued in India to a non-resident and under s. 5(2)(b) the charge to tax had taken effect and there is no possibility of s. 5(2)(b) ever coming into operation. We cannot give to s. 145(1) such an overriding effect as to defeat the charge and the provisions of s. 5(2)(b). " This leads to the necessary conclusion that in respect of an assessee, who is to be assessed in the status of resident and ordinarily resident, his foreign income would have to be assessed only on the basis of its accruing or arising outside India dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scount and if so, on what amount, does not arise for consideration in this case. Nor are we concerned with the staying of collection under s. 220(7) on any ground of prohibition or restriction on such remittances. Suffice it to state that the contention of the learned counsel that the discount under the certificate scheme will have to be taken into account in ascertaining the real income, cannot be accepted. For the same reason, the rate of exchange for conversion into rupees as provided under r. 115 had to be applied only in respect of the entire income accrued in Ceylon and not in respect of any amount that would have been discounted if it had to be remitted into India. In the result, the question is answered in the affirmative and again ..... X X X X Extracts X X X X X X X X Extracts X X X X
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