First receipt rule under Section 4(1)(a): remittances after realisation are taxable; remittances before realisation are not.

The note clarifies application of the first receipt rule under Section 4(1)(a): where a statutory del credere agent is contractually obliged to remit to the non-resident principal before realising sale proceeds, those remittances discharge the agent's contractual obligation and constitute the principal's first receipt outside taxable territories, and thus are not taxable on the receipt basis. Conversely, where the agent first realises sale proceeds and thereafter transmits them, the first receipt occurs within the taxable territories and such remittances are taxable on the receipt basis; accrual-based taxation and apportionment on accrual principles remain available where relevant.

---

---

Issues: (i) Whether remittances by a statutory agent to a non-resident principal made before the agent has received sale proceeds from purchasers constitute "receipt" of the sale proceeds within the taxable territories under Section 4(1)(a) of the Income-tax Act; (ii) Whether remittances by the agent made after the agent has received the sale proceeds constitute "receipt" within the taxable territories under Section 4(1)(a) of the Income-tax Act.

Issue (i): Whether remittances made by the agent before realisation of sale proceeds are taxable as receipt of the principal under Section 4(1)(a) of the Income-tax Act.

Analysis: The agency agreement made the agent a del credere agent and imposed an obligation to remit to the principal within a fixed period irrespective of receipt from purchasers. The taxing provision targets the first receipt of sale proceeds by the principal through his statutory agent. Remittances made by the agent before realisation were payments discharging the agent's contractual obligation to the principal and thereby constituted the principal's first receipt occurring outside the taxable territories.

Conclusion: Remittances made by the agent before the agent received the sale proceeds are not "receipt" within the taxable territories under Section 4(1)(a) and therefore are not taxable on that receipt basis.

Issue (ii): Whether remittances made by the agent after the agent has received sale proceeds are taxable as receipt of the principal under Section 4(1)(a) of the Income-tax Act.

Analysis: Where the agent first realises the sale proceeds and thereafter transmits those realised proceeds to the principal, the agent is merely forwarding realised sale proceeds on behalf of the principal. The first receipt in such transactions occurred within the taxable territories when the agent received the sale proceeds.

Conclusion: Remittances made after the agent has received the sale proceeds constitute receipt within the taxable territories under Section 4(1)(a) and are taxable to that extent; amounts remitted after prior realisation are taxable on the receipt basis.

Final Conclusion: The reference is answered so that remittances made before the agent realised sale proceeds are not taxable as receipts in the taxable territories under Section 4(1)(a), whereas remittances made after the agent has realised the sale proceeds are taxable on the receipt basis; accrual based taxation remains available and apportionment of profits on accrual principles is applicable where relevant.

Ratio Decidendi: The first receipt rule governs liability under Section 4(1)(a): where the agent's contractual obligation effects the principal's first receipt by remittance before realisation, that receipt occurs outside the taxable territories; where the agent first realises proceeds and then remits them, the first receipt occurs within the taxable territories and is taxable.

---