Royalty accrual in India governs taxability on due basis; overseas receipt accounting and remittance delay do not postpone chargeability.

Royalty payable to a non-resident accrued in India when it became due under the agreement during the accounting year and had to be computed quarterly on sales, so it was taxable on accrual basis under section 5(2)(b) of the Income-tax Act, 1961. The assessee's overseas accounts showing receipt basis did not control Indian tax chargeability, section 145 did not assist in the absence of Indian books for the relevant source, and delay or refusal in seeking remittance permission did not defer accrual. Section 115A governed only the tax rate, not the year of taxability, and section 205 afforded no relief because no tax had been deducted at source.

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Issues: Whether royalty income payable to a non-resident assessee accrued in India in the relevant previous year and was taxable on accrual basis notwithstanding the assessee's practice of showing the income on receipt basis in its overseas accounts.

Analysis: The royalty became payable under the agreement during the relevant accounting year and was required to be computed quarterly on sales. On those facts, the income had accrued in India within section 5(2)(b) of the Income-tax Act, 1961. The assessee's overseas accounting treatment did not govern chargeability in India, and in the absence of books maintained in India for the relevant source, section 145 did not assist the assessee. The refusal or delay in seeking remittance permission did not postpone accrual, and section 115A dealt only with the rate of tax, not the year of taxability. Section 205 also gave no relief because no tax had actually been deducted at source. The principles applied in the cited authorities supported taxation on accrual and not on receipt.

Conclusion: The royalty income was taxable in the relevant year on accrual basis and the addition was in law, against the assessee.

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