Tax Tribunal Upholds CIT Orders on Taxable Income Credited to Assessees' Accounts

The Tribunal dismissed the appeals, upholding the CIT's orders for both assessment years. It held that the income was taxable in India when the rupee equivalent was credited to the assessees' accounts, under section 5(2)(a) of the Income-tax Act. The Tribunal found no evidence of the Hongkong office acting as a substituted agent and deemed the arrangement a tax avoidance scheme. The assessees' resident status under FERA further supported the department's position.

---

---

Issues: Whether dividend on foreign shares, collected abroad through the banking arrangement and remitted to India, was taxable in India in the hands of non-resident assessees; and whether the Hongkong branch of the bank acted as a substituted agent of the assessees so as to make the receipt abroad a receipt of income outside India.

Analysis: The assessees were accepted as non-residents, so the decisive question was the place of first receipt of the dividend income. The arrangement showed that the Bombay branch of the bank, acting under the power of attorney, directly authorised the Hongkong bank to pay the dividends to the Hongkong office of the bank, which functioned only for collection and onward remittance. The evidence did not establish any direct authority from the assessees to the Hongkong office, nor any privity of contract between the assessees and that office. The dividends remained beyond the assessees' control until the rupee equivalent was remitted and credited in India. The authorities relied on by the assessees were distinguished on facts, and the surrounding circumstances also indicated a planned arrangement to avoid tax.

Conclusion: The dividend income was first received in India when the remitted rupee equivalent was credited to the assessees' Indian accounts, and it was taxable under section 5(2)(a) of the Income-tax Act, 1961. The contention that the Hongkong office was the substituted agent of the assessees failed.

---