Royalty income accrues in India where broadcasts originate; post-receipt distribution to members is only application of income.

Royalties received in England under a broadcasting agreement were held to accrue or arise in India because the real source of the receipts was the broadcast of copyright music from stations in India, making them taxable under the Income-tax Act. The place of payment and execution of the contract was treated as irrelevant, and there was no need to rely on the deeming rule in section 9(1)(i). The society's obligation to distribute the royalties to members was only a post-receipt application of income, not a diversion by overriding title, because the amounts first became the society's own receipts. The appeal therefore failed.

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Issues: (i) Whether royalties received in England under the broadcasting agreement with All India Radio accrued or arose in India so as to be taxable in India under the Income-tax Act, 1961. (ii) Whether the society's obligation to distribute the royalties to its members constituted a diversion of income by overriding title so that the receipts were not the society's income.

Issue (i): Whether royalties received in England under the broadcasting agreement with All India Radio accrued or arose in India so as to be taxable in India under the Income-tax Act, 1961.

Analysis: For a non-resident, section 5(2)(b) includes income that accrues or arises in India during the relevant year. The Court treated the place of payment and execution of the contract as irrelevant where the real source of the receipts was the broadcast of copyright music from stations in India. The income had in fact arisen in India, and there was no need to resort to the deeming provision in section 9(1)(i) to sustain taxability.

Conclusion: The royalties were taxable in India and this issue was decided against the assessee.

Issue (ii): Whether the society's obligation to distribute the royalties to its members constituted a diversion of income by overriding title so that the receipts were not the society's income.

Analysis: The Court applied the distinction between income diverted before it reaches the assessee and income received as the assessee's own income and thereafter applied to an obligation. The society first received the royalties as its own receipts; the obligation to distribute them to members arose only after receipt. The articles of association permitted deductions for expenses and other allocations, which showed application of income rather than diversion at source.

Conclusion: The royalties were the society's income and this issue was decided against the assessee.

Final Conclusion: The appeal failed because the receipts from the broadcasting agreement were held to have arisen in India and to belong to the society as its own income before distribution to members.

Ratio Decidendi: For a non-resident, income from activities carried on in India is taxable where it actually accrues or arises in India, and a post-receipt obligation to distribute such income does not amount to diversion by overriding title.

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