Dividend accrual for non-residents depends on RBI approval, and cash accounting remains available absent statutory compulsion.

Dividend declared by an Indian company to a non-resident shareholder was treated as accruing only when Reserve Bank of India approval for remittance was granted, because the dividend payable outside India became a deemed accrual on payment rather than on declaration. The text also states that a non-resident is not legally barred from maintaining accounts on the cash system and may choose either cash or mercantile accounting, subject to the Assessing Officer's power under the accounting provision to require a method that permits proper computation of income. Both issues were answered in favour of the assessee.

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Issues: (i) Whether dividend declared by an Indian company to a non-resident shareholder accrued to the shareholder on the date of declaration or only on the date when the Reserve Bank of India granted approval for remittance under the Foreign Exchange Regulation Act, 1973. (ii) Whether a non-resident assessee is precluded as a matter of law from maintaining accounts on the cash system and can be compelled to adopt only the mercantile system of accounting.

Issue (i): Whether dividend declared by an Indian company to a non-resident shareholder accrued to the shareholder on the date of declaration or only on the date when the Reserve Bank of India granted approval for remittance under the Foreign Exchange Regulation Act, 1973.

Analysis: The scope of total income under section 5(2)(b) of the Income-tax Act, 1961 was read with section 9(1)(iv), which treats dividend paid by an Indian company outside India as income deemed to accrue in India. The words used in section 9(1)(iv) are different from those in section 8, and the reasoning adopted was that dividend paid to a non-resident outside India is deemed to accrue only on payment, not on declaration. Independently, the right to receive dividend was held to remain inchoate until approval of the Reserve Bank of India under the foreign exchange law, because the obligation to remit and the debt itself crystallised only upon such approval.

Conclusion: The dividend income accrued to the assessee only when Reserve Bank of India approval for remittance was granted, not on the date of declaration of dividend. The answer to this issue was in favour of the assessee.

Issue (ii): Whether a non-resident assessee is precluded as a matter of law from maintaining accounts on the cash system and can be compelled to adopt only the mercantile system of accounting.

Analysis: Section 145(1) of the Income-tax Act, 1961 was treated as a computation provision dealing with the method of accounting, not as a charging provision. The Court held that the Act does not impose a general prohibition on non-residents maintaining accounts on the cash basis. The proviso to section 145(1), as it then stood, empowered the Assessing Officer to intervene where the method employed did not permit proper deduction of income, but absent such difficulty the assessee remained free to choose either system. The earlier non-resident cases relied on by the Revenue were distinguished on their facts.

Conclusion: A non-resident assessee is not barred from following the cash system of accounting and may choose either cash or mercantile accounting, subject to the proviso to section 145(1). The answer to this issue was in favour of the assessee.

Final Conclusion: Both referred questions were answered for the assessee. Dividend income was held taxable on the date of RBI approval for remittance, and the assessee was held entitled to adopt either recognised method of accounting subject to the statutory power to require proper computation.

Ratio Decidendi: For a non-resident shareholder, dividend payable outside India is deemed to accrue only on payment and, in the absence of a statutory bar, the assessee remains free to adopt either cash or mercantile accounting unless the chosen method prevents proper deduction of income.

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