1956 (2) TMI 65 - HC - Income Tax

Commission income of non-residents in India taxable under Income-tax Act.

Commissioner of Income-Tax, Madras Versus P.V. Raghava Reddi and another

Commissioner of Income-Tax, Madras Versus P.V. Raghava Reddi and another - [1956] 29 ITR 929 Issues Involved:1. Taxability of commission income credited to a non-resident in India.2. Liability of the assessee as a statutory agent under section 43 of the Income-tax Act.Issue-wise Detailed Analysis:1. Taxability of Commission Income Credited to a Non-Resident in India:The primary issue was whether the commission income credited to the non-resident's account in the books of the assessee is chargeable to tax under section 4(1)(a) of the Income-tax Act. The Tribunal had initially held that the income accrued or arose to the non-resident in Japan and was not taxable under section 4(1)(c) of the Act. The Tribunal argued that section 4(1)(a) could not add a new liability to non-residents, as it would nullify the effects of section 4(1)(c).However, the High Court disagreed with the Tribunal's interpretation. It clarified that section 4(1)(a) applies to both residents and non-residents, and if income is received or deemed to be received by a non-resident in the taxable territories, it is taxable under this section. The Court emphasized that receipt of income within the taxable territories attracts tax regardless of the recipient's residency status or where the income accrued. The Court cited the Supreme Court's judgment in Turner Morrison and Co. v. Commissioner of Income-tax and the Privy Council's judgment in Commissioner of Income-tax v. Mathias to support its interpretation.The Court concluded that the commission was received by the non-resident in India when it was credited to the non-resident's account in the assessee's books. The mere fact that the commission could not be drawn in Japan due to prevailing conditions did not affect the taxability. The commission amount, once credited, was under the non-resident's control and could be transferred at will. Therefore, the commission credited to the non-resident in the books of the assessee was taxable as a receipt of income within the meaning of section 4(1)(a) of the Act.2. Liability of the Assessee as a Statutory Agent under Section 43 of the Income-tax Act:The second issue was whether the assessee could be charged to tax as a statutory agent of the non-resident under section 43 of the Act. The Income-tax Officer had treated the assessee as the statutory agent of the non-resident and charged the assessee to tax under section 43 read with section 40(2). The Tribunal's statement of the case indicated that the assessee's liability for any tax due from the non-resident was not challenged.The Court examined whether section 43 could be invoked only where section 42 applied, as argued by the assessee. The assessee contended that since the non-resident did not have a 'business connection in the taxable territories' as required by section 42, section 43 could not be invoked. The Court, however, noted that section 43 has a broader scope and is not limited to cases falling under section 42.Under section 43, a person can be treated as a statutory agent if they are employed by or on behalf of the non-resident, have any business connection with the non-resident, or if the non-resident receives any income through them. The Court found that there was a business connection between the assessee and the non-resident, satisfying the second condition of section 43. The Court emphasized that the language of section 43 does not limit the business connection to the taxable territories, unlike section 42.The Court also highlighted that if income, profits, or gains of a non-resident are received in India, the revenue authorities can charge the statutory agent under section 43 read with sections 40 and 4(1)(a). In this case, the assessee was in receipt of the non-resident's income and was chargeable to tax as an agent under section 40(2) of the Act. The Supreme Court's opinion in Turner Morrison and Co. v. Commissioner of Income-tax supported this interpretation.Conclusion:The High Court answered the reference in the affirmative, holding that the commission credited to the non-resident in the books of the assessee is taxable under section 4(1)(a) of the Income-tax Act. Furthermore, the assessee was rightly charged on the income of the non-resident as a statutory agent under sections 40(2) and 43. The assessee was ordered to pay the advocate's fee of Rs. 250 and other costs.