Appeal No 488 of 1975
Appeal by Special Leave from the Judgment and Order dated 24 9 1973 of the Calcutta High Court in Appeal from Original Order  No 33573
172 Hardayal Hardy for appellant No 1
K Sen SK Mehta M Qamaruddin and PN Puri for respondent No 2
SC Manchanda PL Juneja and SP Nayar for respondents
The Judgment of the Court was delivered by GUPTA J
The first appellant performing Right Society Limited hereinafter called the Society is a company incorporated under the English Companies Acts 1908 and 1913 having its registered office at Copyright House 33 Margaret Street Cavendish Square London a company limited by guarantee and having no share capital
The Society is an association of composers authors and publishers of copy right musical works established to grant permission for the performing right in such works Performing right  means the right of performing in public broadcasting and causing to be transmitted to subscribers to a diffusion service in all parts of the world
The members of the Society are required to assign to the Society the performing right in their works and the Society exercises and enforces on their behalf all rights and remedies in respect of any exploita tion of such works
The Society collects royalties for the issue of licences granting such permission and distributes the royalties to the members of the society namely the composers authors music publishers and other persons having an interest in the copyright in proportion to the extent to which a member s work is publicly performed or broadcast after a pro rata deduction of the expenses
Arti cle 43 of the Articles of Association of the Society pro vides that the business and operations of the Society shall be conducted and managed by a General Council and Article 48 authorises the General Council to apply the receipts also for certain other purposes
Article 48 reads as follows 48
The General Council may before making any distri bution among the Members a Apply out of the receipts such sums as it thinks proper or has agreed to contribute as  i Gratuities donations pensions and emolu ments to any Member or ex Member of the Society or any person at any time in the employment of the Society or engaged in any business acquired by the Society and the wives widows families and dependants of any such person ii Contributions to any benevolent pension or similar fund which may be established for the benefit of Members ex Members or employees of the Society or their wives widows families or depend ants 
b Set aside out of the receipts such sums as it thinks proper as subscriptions donations loans gifts other payments for any of the purposes for which powers is given by paragraphs iii and iv of Clause 3f of the Memorandum of Association provided 173 that without the assent of the Society in General Meeting the aggregate of all such payment shall not in any one year exceed the sum of one thousand pounds and four thousand pounds under the provi sions of those paragraphs respectively
c Set aside out of the receipts such sums as it thinks proper as a reserve fund to meet contingen cies or for future distribution or for repairing improving and maintaining any of the property or premises of the Society and for such other purposes as the General Council shall in its absolute dis cretion think necessary or conducive to the inter ests of the Society and may invest for the several sums so set aside in such investments as it may think fit and from time to time deal with or vary such investments and dispose of all or any part thereof for the benefit of the Society and may divide the reserve fund into such special funds as it thinks fit and employ the reserve fund or any part thereof for the general purposes of the Socie ty and that without being bound to keep the same separate from the other assets
 On December 13 1953 the Society entered into an agreement with the President of India owning and controlling broadcasting stations in India and organizing and conducting the same under the name of All India Radio hereinafter referred to as the licensee whereby the Society granted to the licen see the authority a to broadcast from the licen see s sound broadcasting stations in India all musical works included in the repertoire of the Society and b to utilize solely for the pur pose of sound broadcasting as aforesaid any origi nating performance of such musical works irrespec tive of the source of such performance and the means whereby the such performance is conveyed to the point of broadcast transmission from the licen see s stations
The agreement was executed in England
It may be stated here that previous to this agreement the parties had entered into a similar agreement in the year 1940
The agreement of 1953 states that the licence granted thereby shall be deemed to have come into force on April 1 1949 and shall continue from year to year until determined by either party giving to the other three calendar months  notice in writing to expire on March 31 in any year
The agreement provides that the licensee shall send to the Society at its registered office in London the lists of all musical works broadcast in each week during the term of the licence from each of the licensee s main stations Delhi Bombay Calcutta and Madras and the external services and requires the licen see to furnish a return after the first day of April every year during the period of licence stating the agreegate number of hours occupied during the period ended on the previous 31st March in broadcasting Western music from each of the licensee s main and external Service Stations
The agreement further provides that for the rights granted the licensee will pay to the Society annually a sum calculated at the rate of 2 Two pounds per hour of broadcasting Western music from each of the licensee s 174 main and external Service Stations and that such annual payments must be made to the Society in London
The second appellant Ms Natsin India Private Limited is a private limited company incorporated under the Indian Companies Act having its office at 26 Chowringhee Road Calcutta
The second appellant was appointed by the Society to be its lawful attorney in India by virtue of a power of attorney granted by the Society to the second appellant in July 1967
As agent in India for the Society the second appellant realises on its behalf royalties from cinema houses and other sources where music over which the Society has copyright is played in this country and has inter alia the power to commence and prosecute suits and other proceedings engage lawyers and sign plaints petitions etc
Prior to July 1967 the Society a non resident company used to file its returns of income before the Income tax Officer Madras through its former agent in India Ms Vernon and Company of Madras
The royalties or fees realised from the licensee were not included in its returns for the assessment years 1947 48 to 1950 51
Later the Income tax Officer Madras issued notices under section 341 of the Income Tax Act 1922 and assessed the said income after deducting the proportionate administrative ex penses
The appeals taken by Vernon and Company against the supplementary assessment orders for the aforesaid years were dismissed by the Appellate Assistant Commissioner Madras
The matter rested there and the Society had been paying tax on its income in India including the income from royal ties
received from the licensee without objection until the assessment year 1967 68 for which the accounting year ended December 31 1966
In the said assessment year also the Income tax Officer Companies Circle LII Madras by his order dated October 23 1963 assessed the total income of the Society treating the income arising out of the agreement with the licensee as chargeable as was being done all these years
Against this order of assessment the Society through the second appel lant made a revisional application under section 264 of the Income Tax Act 1961 hereinafter re ferred to as the Act to the Commissioner of In come tax West Bengal where the Society s income tax file had been transferred in the meantime
The Additional Commissioner of Income tax who dealt with the application dismissed the same by his order dated July 18 1970
The Society then moved a writ petition before the Calcutta High Court chal lenging the order of the Additional Commissioner of Income tax
A rule nisi was issued on the petition by a learned Judge of the High CoUrt but ultimately the rule was discharged and the petition was dis missed
On appeal by the Society a Division Bench of the High Court affirmed the view taken by the learned single Judge and dismissed the appeal on September 24 1973
In this appeal by special leave the appellants question the correctness of that decision and challenge the order of assessment on two grounds 1  the agreement between the Society and the Licensee having been executed in England and the royalties being also payable in England the income out of this agreement is not liable to be taxed in India 175 2 the Society being under an obligation to distribute the income to its members the royalties realised are not really the income of the Society
The first point seems to be covered by the provi sions of section 52 b of the Act
Section 52 reads as follows 5
Scope of total income 1 x x x 2 Subject to the provisions of this Act the total income of any previous year of a person who is a non resident includes all income from whatever source derived which a is received or is deemed to be received in India in such year by or on behalf of such person or b accrues or arises or is deemed to accrue or arise t0 him in India during such year
Explanation 1 
Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India
Explanation 2
For the removal of doubts it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India 
 The Society is a non resident company and though it receives the income out of the agreement execut ed not in India but in England the income undoubt edly accrues or arises in India
On behalf of the appellants it was contended that the source of income was really the agreement which was entered into in England
We do not think that the question as to the source of the income is relevant because subsection 2 of section 5 provides that all income from whatever source derived is to be included in the total income of the non resident assessee if the income accrues or arises in India during the relevant year
Reference was also made to section 9 of the Act which enumerates the in comes that shag be deemed to accrue or arise in India though actually accruing elsewhere to establish that the income in question could not be deemed to accrue or arise in India
But the income in this case has in fact accrued in India and no question arises whether it should be deemed to accrue or arise in India Whether a certain income accrued or arose in India within the meaning of section 52 is a question of fact which should be looked at and decided in the light of commonsense and plain thinking as the Calcutta High Court considering a similar question under section 41 176 of the Income Tax Act 1922 observed1 In the case before us the High Court and the income tax authorities considered it a hard matter of fact that the income derived from broadcast of copyright music from the stations of All India Radio arose in India
In our opinion this was the correct view to take and we find no reason to differ from it
The next question is whether the income from the royalties was the Society s own income
It was Contended on the authority of Raja Bejoy Singh Dudhuria vs Commissioner ofIncome Tax Bengal that the obligation to disburse the sum among its members diverted the income from the Society to the members and it could not be called the income of the Society
In Bejoy Singh Dudhuria s case there was a decree of the court charging the appellant s whole resources with a specific payment to his step mother the Privy Council held that the decree had to that extent diverted his income from him and directed it to his step mother and that to that extent what he received for her was not his income
But where payments are made by the assessee after he has received the income as his the position is different
This was pointed out by the Judicial Committee in a later case PC Mullick and another Executorsv
Commissioner of Income tax Bengal1 where the executors in accordance with the directions in the will had paid Rs 5537 to the person who performed the testator s addya Sradh and another sum of Rs 125000 for pro bate duty out of the income of the estate
It was held that this was not a case in which a portion of the income was by an overriding title diverted from person who would otherwise have received it as in Bejoy Singh Dudhuria s case but it was simply a case in which the executors having received the whole income of the estate apply a portion in a particular way pursuant to the directions of their testator in whose shoes they stand
The true test for the application of the rule of diversion of income by an overriding title has been explained by this Court in Commissioner lcome tax Bombay City vs Sitaldas Tirathdas4 In our opinion the true test is whether the amount sought to be deducted in truth never reached the assessee as his income
Obligations no doubt there are in ever case but it is the nature of the obligation which is the decisive fact
There is a difference between an amount which a person iS obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee
Where by the obligation income is diverted before it reaches the assessee it is deductible but where the income is required to be applied to discharge an obligation after such income reaches the assessee the same consequence in law does not follow
It is the first kind of payment which can truly be excused and not the second
The second payment is merely an obligation to pay another 1 In the matter of V G Every
1937 5 ITR 216 Coskello J 2 3 4 pp 374 375
177 a portion of one s own income which has been received and is since applied
The first is a case in which the income never reaches the assessee who even if he were to collect it does so not as part of his income but for and on behalf of the person to whom it is payable
 On the facts of the present case it is clear that the royalties payable by the licensee under the agreement are realised by the Society as its income Article 48 of the Society s Articles of Association puts the matter beyond doubt
Out of the receipts are deducted the expenses and also such other sums as in the discretion of the General Council should be set aside for the purposes men tioned in Article 48
This is a case where the assessee having received the income applies it in a particular way it is not a case of diversion of income by an overriding charge
The appeal is accordingly dismissed
There will be no order as to costs
PBR Appeal dismissed


Summary:
The appellant Society which is an association of compos ers authors and publishers of copyright musical works was incorporated under the English Companies Act 1908 and 1913 with its registered office in London
It collects royalties for the issue of licences granting permission for performing right in the works of its members and distributes the royalties to its members
The Society entered into an agreement in England with the President of India by which it granted to the All India Radio the licensee authority to broadcast from its sound broadcasting stations in India the
musical works of the Society
Under the agreement the licen see had to pay in England annual licence fee payable to the Society
The appellant contended i that the agreement between the appellant and the licensee having been executed in England and the royalties being also payable in England the income out of this agreement was not liable to be taxed in India and ii the Society being under an obligation to distribute the income to its members royalties realised are hot really income of the Society
Rejecting the contentions HELD 1a Whether a certain income accrued or arose in India within the meaning of section 52 is a question of fact which should be looked at and decided in the light of commonsense and plain thinking
 The Society is a non resident company and though it received the income out of the agreement executed not in India but England the income undoubtedly accrued or arose
in India
175H and F b The question whether the agreement is the source of the income is not relevant because section 52 provides that all income from whatever source derived is to be included in the total income of the non resident assessee if the income accrues or arises in India during the relevant year
The income in this case had infact accrued in India and by virtue of section 9 no question arises whether it should be deemed to
accrue or arise in India
175 G In the matter of VG Every 19 37 approved
2 Article 48 of the Society s Articles of Association shows that the royalties payable by the licensee under the agreement are realised by the Society as its income
Out of the receipts are deducted the expenses and also such other sums as in the discretion of the General Council should be set aside for the purposes mentioned in that article
This is a case where the assessee having received the income applies it in a particular Way it is not a case of diver sion of income by an overriding charge
177 C Raja Bejoy Singh Dudhuria vs Commissioner of Income tax Bengal  PC Mullick and another Executors vs Commissioner of Income tax Bengal and Commissioner of Income tax Bombay City vs Sitaldas Tirathdas pp
374 375 dis tinguished