Commission from overseas supervision did not accrue in India; Section 4(1) was inapplicable, with Section 42(3) the relevant provision.

Commission attributable to supervision, control and general advice rendered from London did not accrue or arise in India merely because the underlying goods were sold in India. The selling function had been transferred to another agent, so the commission was not earned through sales operations carried out in India. On those facts, Section 4(1) of the Indian Income Tax Act did not apply; if taxability was otherwise attracted, the matter would fall under Section 42(3). The reference was answered in favour of the assessee.

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Issues: Whether the commission paid to the assessee accrued or arose in India so as to fall under Section 4(1) of the Indian Income Tax Act, or whether it was only liable to be dealt with under Section 42(3) of that Act.

Analysis: The commission was not earned by sales operations carried out in India by the assessee. The selling function had been transferred to another agent, while the assessee's remuneration was attributable to supervision, control and general advice rendered from London. On those facts, the income could not be said to have accrued or arisen in India merely because the underlying goods were sold in India. The proper provision, if taxability was otherwise attracted, was Section 42, not Section 4(1).

Conclusion: The commission did not accrue or arise in India, and Section 4(1) did not apply; the assessee's case fell, if at all, under Section 42(3). The reference was answered in the affirmative, in favour of the assessee.

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