Holding

A credit entry of royalty in the Indian company's books amounts to receipt by the non‑resident and is taxable under Section 5(2), and the method of accounting is irrelevant; Section 145 cannot override this charge.

Summary

Standard Triumph Motor Co. Ltd., a UK non‑resident, entered a 1939 collaboration agreement with an Indian company to receive a 5% royalty on sales. The Indian company credited the royalty in its books each year, but the royalty was only remitted to the UK in sterling. The assessee claimed that, because it maintained its accounts on a cash‑receipt basis and had not actually received the money in the UK, the royalty was not taxable in India. The Income Tax Officer, the Appellate Assistant Commissioner and the Tribunal held that the credit entry constituted receipt in India and that the method of accounting was irrelevant. The Madras High Court upheld the revenue’s view, and the Supreme Court dismissed the appeals, holding that the credit entry amounts to receipt and is taxable under Section 5(2) and that Section 145 cannot override this charge.

Issues considered

Whether a credit entry of royalty in the Indian company's books, without actual remittance to the non‑resident, constitutes receipt of income taxable in India under Section 5(2).
Whether the method of accounting adopted by a non‑resident (cash basis vs mercantile basis) can affect the taxability of such royalty income.
Whether Section 145(1) of the Income‑Tax Act can be invoked to assess the royalty on a cash‑receipt basis, thereby defeating the charge under Section 5(2)(b).
Whether the Tribunal was correct in remanding the matter for fresh assessment based on the alleged method of accounting.

Legislation cited

Income Tax Act, 1961s. 145(1), s. 4(1)(a), s. 5(2)

Subjects

non‑residentroyaltyincome taxmethod of accountingcash basismercantile basisSection 5(2)Section 145receipt of incomeassessment

Judgment

'"</

A STANDARD TRIUMPH MOTOR CO. LTD.
v.
COMMISSIONER OF INCOME TAX, MADRAS y-
FEBRUARY 25, 1993

B (B.P. JEEVAN REDDY AND N. VENKATACHALA, JJ.)

Income Tax Ac4 1961:
)-
Sections 5(2) and 145-Non Resident Company and Indian Com-
c pany-Collaboration agreement-Indian Company to apy royalty to non resi-
dent company on all sales-Royalty to be remitted to non resident in pounds
Sterli11g-Royalty credited by Indian Compa11y to non resident in its account -
books-Credit entries-Whether amount to receipt of income-Whether non
resident liable to tax-Method of accounting ad<ipte~W/1ether relevant.

D The assessee-appellaot in the appeal is a non resident company ---\
having its place of business at Coventry in tbe United Kingdom. It entered
into a collaboration agreement with an Indian company in November, 1939
the assessee being entitled to royalty of 5% on all sales effected by the
Indian Company, and this amount less the Indian tax had to be remitted
by the assessee in Sterling currency. The assessee's accounting year was
E
the year ending 30th September and with respect to its Indian income, it
was tiling its returns through tbe Indian Company. The aforesaid col·
laboratioo agreement expired in the, year 1965, but it was-renewed and the
renewed agreement also expired in November, 1970.

F
-
For the assessment years 1967-68 and 1968-69 the assessee tiled
returns in which it stated that it was maintaining its accounts on mercan-
tile basis, and did not dispute its liability to assessment. In these returns,
•
it disclosed a royalty income of Rs. 7,21;600 and Rs. 4,57,311 respectively.
When it came to the tiling of the return for the assessment year 1969-70 ~'

the assessee admitted a royalty of Rs. 9,25,357 but tiled a nil return saying
G
that it was maintaining its accounts on cash basis and not on mercantile
basis, that no part of the royalty amount had been received by it and,
therefore, nothing was taxable. For the next assessment year 1970-71 as
well, the same stand was taken by the assessee.
~
H Thelncome-Tax Officer completed the asses1ment for the first two
96 .
MOTOR CO. v. COMMISSIONER 97

- --._,.· assessment years on the basis of the returnes, but for the assessment years A
1969-70 and 1970-71, he refused to accept the plea of the assessee; and held
that the assessee maintaining its accounts on mercantile basis alone and
that the royalty amount disclosed be brought to tax.

The assessee filed appeals against the assessments relating to all the B
four years, taking the stand that even ltitb respect to the accounting year
relevant to the assessment years 1967-68 and 1968-69, it had been main-
taining accounts on cash basis and since it did not actually receive any
income in all these 4 years no tax was payable. The Appellate Assistant
Commissioner dismissed the appeals holding that the assessment orders
for the past years reveal that the method of accounting was mercantile, C
·that for the assessment year 1967-68, the assessee never contested its
liability to be taxed on the amonnts disclosed and further it was not open
to the assessee to change the method of acconnting to suit its convenience,
without the approval of the Income Tax Officer.

D
The assessee carried the matter in further appeals to the Tribunal
and contended that it was not following any particular method of account-
ing 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 incorporat-
ing 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 E
and that, therefore, it had committed ·a mistake in filing the returns for
the assessment years 1967-68 and 1968-69, that as soon as the mistake bad
been noticed, it was corrected and returns for the assessment year 1969-70
- on correct basis showing that the method of account cash receipt basis was
filed. The appeals were allowed the Tribunal which held that as the F
assessee had not been following any particular method of accounting
regularly over the past years, the question of the method of accounting
adopted by the assessee must be examined afresh and for that purpose
remanded the matters to the Income Tax Officer.

On a reference made at the instance of the Revenue, the High Court G
answered the reference in favour of revenue and against assessee. The High
Court held that it was 'immaterial whether the assessee was keeping his
accounts in regard to a particular income regularly on the cash basis; that
even if the assessee was keeping his accounts on the cash basis in regard
to his income the assessee was liable to tax under Section 5(2)(a); to hold H
98 SUPREME COURT REPORTS [1993] 2 S.C.R.

A 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 Section 5(2)(b) the charge to tax had taken effect; and, there-
fore, there is no possibility of Section 5(2)(b) ever coming into operation
and that Section 145(1) cannot be given such an overriding effect so as to
defeat the charge and the provisions of Section 5(2)(b).
B
The assessee appealed to this Court contending that so far as the
royalty income was concerned, the assessee was maintaining its acco.unts
at Coventry in the United Kingdom on receipt basis, that the accounting

C
year was the year ending 30th September of each year, whereas the account-
ing year for the Indian Company was the Calendar year and that not-
-
withstanding 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 or its accounting year and that this
amount was credited to the account of the assessee in the account books
D of the Indian Company and that receipt is only when the amount is
remitted to the United Kingdom in accordance with the Company.

Dismissing the appeals, this Court,

HELD: The colloboration agreement between the assessee and the
E Indian Company was as old as 1939. The assessee had been filing its
income-tax return in India through the Indian Company. Though the
collaboration agreement contemplated the royalty amount being remitted

-
in Sterling Currency to U.K., it cannot be said that until it was so remitted
to and received in the U.K., the assessee had not received the income. The
F practice evidently was that the Indian Company was maintaining an
account pertaining to the assessee in its Books. After it made up its
accounts at the end of the calender year and determined the royalty
amount payable to the assessee, the Indian Company was crediting the
said amount to the account of' the assessee in its Books, and this was
recorded as income by the assessee over all these years. The returns filed
G by the assessee even with respect to the assessment years 1967-68 and
1968-69 were based upon this premise. In the said returns, the assessee
declared a particular amount of income and offered the same for taxation. ~
It did not take the stand that the said credit entry in the Books or the
Indian Company did not give rise to income in India nor did it ever say
H that the receipt in U.K. in the shape of sterling pounds alone constitutes •
MOTOR CO. v. COMMISSIONER 99

income or for that matter receipt of income. It can also be noticed that in A
its returns relating to the assessment years 1967-68 and 1968-69, the
assessee stated that it was maintaining its accounts on mercantile basis,
and that 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. [105E-H]
B
The receipt of the said income in the U.K., ·is immaterial. It may
happen that a non-resident assessee may choose not to repat~ate his

-· Income/profits to his parent country; he may choose to plough back the
said amount in India for such purposes as be may choose. It, therefore,
cannot be said in such a situation that he has not received the income in C
India. [106H]

Raghava Reddi v. C.l. T., Andhra Pradesh, 44 l.T.R. 720; relied on.
[107A]
The credit entry to the account of the assessee in the Books of the D
Indian Company does amount to receipt by assessee and is accordingly
taxable. It is immaterial when it was actually received in U.K. [108C]

The method of accounting adopted by the assessee for the relevant
'"'( accounting years is really irrelevant. The very concept of 'receipt" as E
espoused hy the assessee is untenable and nnacceptable. The order of
remand made by the Tribunal was unnecessary. It is not necessary to
express any opinion either on the question whether there is any conflict or
inconsistency between Section 5(2) and Section 145 of the Act or on the
view expressed hy the High Court that in the case of a non-resident
assessee like the appellant clause (a) of sub-section (2) of Section 5 has F
...c. no application whatsoever and that Section 5(2)(b) governs it irrespective
of the fact whether it maintains its accounts on cash basis or mercantile
basis. The question referred did not really arise in the facts and cir·
cumstances of the case and need not have been answere.il. The Tribunal
shall complete the assessments in question. [lOSD-F]
G
C.l. T. v.Machil/an & Co., 331.T.R.182 andKeshav Mills Ltd. v. C.J.T.,
Bombay, 23 I.T.R. 230, distinguished. [108GJ

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1022-24
& 423 of 1982. H
100 SUPREME COURT REPORTS [1993) 2 S.C.R.

A From the Judgment and Order dated 14.3.78 & 2.7.79 of the Madras
High Court in Tax Case Nos. 228/74 & 215 of 1975.

Uttam Reddy, Atul Sharma, A.V. Palli and Ms. Reena Agarwal for
E.C. Agrawala for the Appellant.

B G. Vishwanatha, P. Parmeshwaran and Ms. A. Subhashini (NP) for
the Respondent.·

The Judgment of the Court was delivered by

B.P. JEEVAN REDDY, J. These appeals are preferred by the asses- ---
c see against the judgment of the Madras High Court answering the Income
Tax reference made at the instance of the Revenue, against the assessee.
The assessment years concerned are 1967-68, 1968- 69, 1969-70 and 1970-
71. The question of law which was referred for the opinion of the High
Court under Section 256(2) of the Income Tax Act is:
D "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 main-
E tained on cash basis and 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
F 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 a
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.
G 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 five per cent less the Indian tax had
to be remitted to the asscssee in the Sterling currency. The assessee's
H accounting year was the year ending 30th of September. With respect to
MOTOR CO. v. COMMISSIONER [JEEVAN REDDY, J.] 101

-<its Indian income, it was filing its returns through the Indian Company. A

The collaboration agreement between the assessee and the Indian
Company expired in the year 1965. It was renewed. The renewed agree-
ment too expired in November, 1970.

B
For the assessment years 1967-68 (year ending 30.9.1966) and 1968-
69 (year ending 30.9.1967) the assessee filed returns in which it stated that
it was maintaining its accounts on mercantile basis. It did not dispute its
liability to assessment. In these returns, it disclosed a royalty income of Rs.
_7,21,600 and Rs. 4,57,311 respectively. When it came to filing of the return
for the assessment year 1969-70 (year ending 30.9.1968), the assessee c
admitted a royalty of Rs. 9,25,257 but filed a nil return saying that it was
>--maintaining its accounts o~,cash basis - and not on mercantile basis, that
no part of the royalty amount has been received by it and, therefore,
nothing is taxable. For the next assessment year 1970-71 (year ending
30.9.1969) as well, it took the same stand. The l.T.O. completed the D
assessment for the first two assessment years on the basis of the returns.
For the assessment years 1969-70 and 1970-71, however, he refused to
accept the assessee's plea that it was maintaining its accounts on cash basis.
He held that it was maintaining its accounts on mercantile basis alone and
accordingly brought to tax the royalty amount disclosed. ·
E
The assessee filed appeals against the assessments relating to all the
four years. In these appeals, it took the stand that even with respect to the

-- accounting years relevant to the assessment years 1967-68 and 1968-69, it
has been maintaining accounts on cash basis and since it did not actually
receive any income in all these four years, no tax is payable by it. Its case F
was that there was 'no actual payment' of the royalty by the Indian
..._ Company. It stated that though the Indian Company had credited to the
assessee in its account books for the relevant years (accounting year for
the Indian Company is stated to be the calendar year), the assessee did not
actually receive the amount nor did it take credit for the said amounts in
its Books at Coventry. The Appellate Assistant Commissioner dismissed G
the appeals holding that the assessment orders for the past years relating
~to the assessee reveal that the method of accounting was mercantile, that
for the A.Y. 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 H
102 SUPREME COURT REPCRTS (1993] 2 S.C.R.

A the Income Tax Officer. The assessee carried the matter in further appeals
to the Tribunal. It was contended by the assessec 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 asscssee by incorp0rating the figures as
per its profit and loss account, that the Indian Company was not aware of
B
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
1%7-68 and 1968-69. The assessee submitted that as soon as it noticed that
said mistake it corrected the same and filed the return for the assessment
year 1969-70 on correct basis, showing that the method of accounting was
-
c cash receipt basis. The appeals were allowed by the Tribunal. The Tribunal
held that the assessee had not been following any particular method of
accounting regularly over the past years. For example, it said, for the ~
assessment year 1963-64 it did not say anything regarding the method of
accounting. For the assessment year 1964-65, it said it was on cash basis.
D For the assessment years 1967-68 and 1968-69 it stated it was maintaining
accounts on mercantile basis and again for the two subsequent years it
stated as cash basis. The Tribunal was, therefore, of the opinion that the
question of method of accounting adopted by the assessec must be ex-
amined afresh and for that purpose allowed the appeals and remanded the
matters to the Income Tax Officer. The Tribunal gave liberty to the parties
E to adduce additional evidence in that behalf. It directed further that if it is
found that the assessee was maintaining its accounts and balance sheets on
cash basis in respect of the royalty, it should be assessed on cash basis.

Or. a Reference made at the instance of Revenue, the High Court
F answered the question in the negative, i.e., in favour of the revenue and against
the 2ssessee. It would be appropriate at this stage to notice the contentions
urged hy the assessee and how they were met by the High Court. Though the
High Court has not set out the arguments of the assessee as such, the argu-
ments advanced can .easily be gleaned from the judgment. The assessee
reiterated his contention that though the Indian Company made a credit entry
G in the account of the assessee in its Books, it did not actually receive the
amount. The argument appears to be that the asscsscc can be said to have
received the royalty amount only when it receives the same in U.K. in the shape
of pounds and makes an entry to that effect in its own Books at Coventry. Since
it is maintaining its accounts, \vith respect to the said royalty on cash basis, it
H argued, receipt means receipt in U.K. Section 145 was relied upon by the

•
MOTOR CO. 1•. COMMISSIONER [JEEVAN REDDY, J.] 103

assessee to say that the method of accounting regularly adopted by an assessee A
. '"'(
is binding upon the department; on that basis it was argued that if the assessee
is proved to have maintained its accounts with respect to royalty amount on
cash basis, then there is no receipt until it is received by ·it in U.K. It is this
argument which led the High Court to say that acceptance of the said argu-
ment would mean escapement of income from taxation in India altogether.
B
This is what the High Court said : "If the contention of the assessee that the
A,
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 C
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 who1n 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 eventuality will nevet
arise in regard to the income with which '.\'C are concerned, because thal D
income will have to be remitted to the non-resident by obtaining an ir-
revocable letter of credit and will thus be received only outside India." Pursu-
ing the said reasoning the High Court held further:

"So it is clear that there can be cases of non-residents lo
whom section 5(2)(a) will never apply in regard to a E
particular income. The question then is, whether in such
circumstances the assessee concerned (non-resident lo
whom income had accrued in India) can insist it, since he
has kept his accounts in regard to that income on the cash
basis, he is not liable to be taxed on tl:.o accrual basis. !n F
other words, the question is •Y!io<hcr Sec. 145(1) can be
applied in such circumstan<"es. Tho elfoc.l uf applying t:1c
section would be to take the income outside the purview
of taxalio", though the charge to tax on that income had
taken effect on the accrual basis. Further, no occasion for
imposing tax on receipt outside India would arise in the G
case of a non-resident, because Section 5{2)(a) will apply
only to receipt in India. In such circumstances, to apply
Section 145(1) would be to defeat the charge under Sec-
tion 4 and to obliterate the provisions of section 5(2)(h)
and let the income which is taxable escape te.x. Such a H
104 SUPREME COURT REPORTS [1993) 2 S.C.R.

A result is not certainly intended by the statute. Section
145(1) is only an enabling provision to effectuate the
charge. The section cannot be used for destroying the
charge to tax and the provisions of Sec. 5(2)(b), though
by merely looking at the wording of Section 145(1) it may
appear that in all cases the method of accounting must be
B followed, unless in any case where the accounts are cor-
..>-.
rect, but the method is such that, in the opinion of the
Income-Tax Officer, the income cannot properly be
deduced therefrom.

c But it must be remembered that Sec. 145 is only a
machinery provision and cannot qualify the charging sec-
tion so as to make the latter otioss. So Section 145(1)
should not be permitted to be applied in such circumstan-
ces as those while arise from the facts of this case. it is
therefore immaterial whether the assessee is keeping his
D accounts in regard to a particular income regularly on the
cash basis. Even if the assessee is keeping his accounts on
the cash basis in regard to his income, the assessee is liable
to tax under Sec. 5(2)(b). To hold otherwise would be to
take the income outside the purview of taxation under the
E Act, though such income had accrued in India to a non-
resident and under Sec. 5(2)(b) the charge to tax had
taken effect and there is no possibility of Sec. 5(2)(b) ever
coming into operation. We cannot give to Sec. 145(1) such
an overriding effect as to defeat the charge and the
provisions of Section 5(2)(b)."
F
In this court, the 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 years was
the year ending on 30th of September of each year whereas the accounting
G 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 royalt:i:,i...
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 me•e crediting
H to the account of the assessee in the Books of the Indian Company does not
MOTOR CO. v. COMMISSIONER [JEEVAN REDDY, J.] 105

amount to receipt of income by the assessee. Receipt is only when the amount A
is remitted to 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 royalty amount and that the alleged
statement in the.returns relating to the assessment years 1967-68 and 1968-69
to the effect that it was maintaining its accounts on mercantile basis, was an
incorrect statement made by the Indian Company which was not aware of the
B
true state of affairs relating to the assessee's accounts. The learned counsel
submitted that all that the Tribunal has done is to direct an inquiry to find out
the true state of affairs viz., whether the assessee was maintaining its accounts
on mercantile basis or on cash receipt basis in so far as the royalty amount is
concerned. He submitted further that since the Appellate Assistant Commis- c
sioner exercises all the powers of the assessing authority, it was perfectly open
to the assessee to raise the contention relating to the method of accounting
even with respect to the assessment years 1967-68 and 1968-69, in the appeals.
When the assessee has not actually received any royalty income from the
Indian Company, it is not expected to bring money from the United Kingdom D
for paying its taxes in India, the learned counsel contended.

The collaboration agreement between the assessee and the Indian
Company is as old as 1939. According to its own case, the assessee has
been filing its income-tax returns in India through the Indian Company. It
is true that the agreement contemplated royalty amount being remitted in E
Sterling currency to U .K., but it cannot be said that until it is so remitted
to and reeeived in the U.K., the assessee has not received the income. The
practice evidently was that the Indian Company was maintaining an ac-
count pertaining to the assessee in its Books. After it made up its accounts
at the end of the calendar year and determined the royalty amount payable F
to the assessee, the the Indian Company was crediting the said amount to
the account of the assessee in its Books. This was treated as income by the
assessee over all these years. The returns filed by the assessee even with
respect to assessment years 1967-68 and 1968-69 were based upon the said
premise. In the said returns, the assessee declared a particular amount of G
income and offered the same for taxation. It did not take the stand that
the said credit entry in the Books of the Indian Company does not give rise
to income in India nOr did it ever say that the receipt in U .K. in the shape
of Sterling pounds alone constitutes income or for that matter receipt of
income. It may also be notieed that in its returns relating to the assessment
years 1967-68 and 1968-69, the assessee stated that it was maintaining its H
106 SUPREME COURT REPORTS [1993] 2 S.C.R.

A 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.
B One thing is clear: the assessee did not say at any time earlier to A.Y.
1968-69 that receipt of money in 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. This plea, the Appellant Assistant Commissioner refused to
c countenance. It is significant to notice that the assessee did not say that
the method of :.ccounting adopted by it for all its income was on cash basis.
It confined the said plea to its Indian income alone. The said plea, it should
be noticed, had no significance by itself. Its significance lies when we
examine the said plea in the light of the further contention of the assessee
D that it did not ac~1a/(y receive the amount from the Indian Company."We
put a pointed question to the learned counsel for the assessee whether it
was the assessee's· case at any stage that the credit entry made in the
account books of the Indian Company in favour of the assessee was a bogus
or a mere make-believe entry. The counsel replied that it was not its case
E at any point of time. His contention was that the mere entry in the account
books of the Indian Company does not amount to receipt of income by the
asses;ee. The assessee had been very careful not to say that the Indian
Company did not place the said amount at the disposal of the assessee.
Indeed, he replied to a further question by us that even if the said amount
were put by the Indian Company in a Bank to the credit of the assessee,
F
it could not have been said that the assessee has received the amount. In
other words, according to the learned counsel, the said royalty income can
be said to have been received by the assessee only when it received the
same in U .K. It is this extreme argument which led the High Court to make
the observations quoted hereinbefore. It would immediately be evident that
G this •.vas not the basis put forward by the assessee at any point of time till
it c .•,-::o.e m the filing of return for the assessment year 1969-70. We are not
suggesting that it is estopped from doing so. We are only saying that the
said pica was not and is not acceptable. The receipt of the said income in
the U .K., in our opinion, is immaterial. It may happen that a non-resident
H assessee may choose not to repatriate his income/profits to his parent
MOTOR CO. v. COMMISSIONER [JEEVAN REDDY, J.] 107

country; he may choose to plough back the said amount in India for such A
purposes as he may choose. It cannot be said in such a situation that he
has not received the income in India. In Raghava Reddi v. C.I. T., A11dhra
pradesh, 44 I.T.R. 720 the non-resident company instructed the assessee,
in view of the difficulties in this country in remitting the monies abroad, to
credit the amount due to it on account of commission in the account Books
of the assessee awaiting further instructions regarding its remittance. The
B
assessee was assessed as the statutory agent of the non-resident company.
The I.T.O. 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 C
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) com-
pany, it must be held that it "received" the same and are taxable. HidayatuI-
lah, J. speaking for the Constitution Bench observed:
D
"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 furn was a debtor E
in respect of that amount and unless the entry can be
deemed to be a 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 quoted the relevant term, provided that the
Japanese company desired that the assessee firm should
F
open an account in the name of the Japanese company in
their books of account, credit the amounts in that account,
and deal with those amounts according to the instructions
of the Japanese company. Till the money was so credited,
there might be a relation of debtor and creditor; but after G
the amounts were credited, the money was held by the
assessee firm as a depositee. The money tJii,n belonged to
the japanese company and was held for and on behalf of
the company and was at its disposal. The character of the
money changed from a debt to a deposit in much the same H
108 SUPREME COURT REPORTS [1993] 2 S.C.R.

A way as if it was credited in bank to the account of the
company. Thus, the amount must be held, on the terms of
the agreement, to have been received by the Japanese
company, and this attracts the application of section
4(I)(a). Indeed, the Japanese company did dispose of a
part of amounts by instructing the assessee firm that they
B be applied in a particular way. In our opinion, the High
Court was right in answering the .question against the
assessee. 11

Applying the above principle, it must be held in this case that the
C credit entry lo the account of the assessee in the Books of the Indian ·-
Company does amount to its receipt by assessee and is accordingly taxable
and that it is immaterial when did it actually receive it in U.K.

In this view of the matter, it must be held that in the circumstances
of the case. the method of accounting adopted by the assessee for the
D relevant accounting years is really irrelevant. As explained hereinbefore,
the very concept of "receipt" as espoused by the assessee is untenable and
unacceptable. The order of remand made by the Tribunal was thus un-
necessary. In the circumstances, we do not think it necessary to express any
opinion on the question whether there is any conflict or inconsistency
between Section 5(2) and Section 145 of the Act nor is it necessary to
E express ourselves on the view expressed by the High Court that in the case
of a non-resident assessee like the petitioner clause (a) of sub-section (2)
of Section 5 has no application whatsoever and that Section 5(2)(b) governs
it irrespective of the fact whether it maintains its accounts on cash basis or
mercantile basis. The question referred did not really arise in the facts· and
circumstances of the case and need not have been answered. The Tribunal
F
shall complete the assessments in question in the Fght of this judgment.

In view of the above, it is unneccessary for us to deal with the
decisions ~ited. by the learned counsel for the assessee. The first decision
cited by him is in C.T. T. v. Macmillan & Co., 33 I.T.R. 182 regarding the
G powers of the Appellate Authority. The second decision is in Keshav Mills
Ltd. v. C.J. T., Bombay, 23 I.T.R. 230. The principle of this decision does in
no way support the principle contended for by the appellant.

The appeals accordingly fail and are dismissed. No costs.

N.V.K. Appeals dismissed._