Appeal Nos
1022 24  423 of 1982
100 From the Judgment and Order dated 14378  2779 of the Madras High Court in Tax Case Nos
22874  215 of 1975
Uttam Reddy Atul Sharma AV Palli and Ms Reena Agarwal for EC Agrawala for the Appellant
G Vishwanatha P Parmeshwaran and Ms A Subhashini NP for the Respondent
The Judgment of the Court was delivered by BP JEEVAN REDDY J
These appeals are preferred by the assesagainst the judgment of the Madras High Court answering the Income Tax reference made at the instance of the Revenue against the assessee
The assessment years concerned are 1967 68 1968 69 1969 70 and 1970 71
The question of law which was referred for the opinion of the High Court under Section 2562 of the Income Tax Act is Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in holding that the royalty amounts should be assessed on cash basis for 1967 68 1968 69 and 1969 70 assessment if the books and balance sheet of such receipts were found to be maintained on cash basis and directing fresh assessment on such basis In the paper book supplied by the assessee appellant the Statement of the Case is not available nor are the orders of any of the authorities supplied
We are therefore obliged to draw the facts from the judgment of the High Court which we presume are drawn from the Statement of the Case
As a matter of fact the facts require to be appreciated clearly for a proper decision of the question arising herein
The assessee Standard Triumph Motor Co Ltd is a non resident company having its place of business at Coventry in the United Kingdom
It entered into a collaboration agreement with the Standard Motor Products of India Ltd Indian Company in November 1939 whereunder the assessee was entitled to royalty of five per cent on all sales effected by the Indian Company
This amount of five per cent less the Indian tax had to be remitted to the assessee in the Sterling currency
The assessee s accounting year was the year ending 30th of September
With respect to 101 its Indian income it was filing its returns through the Indian Company
The collaboration agreement between the assessee and the Indian Company expired in the year 1965
It was renewed
The renewed agreement too expired in November 1970
For the assessment years 1967 68 year ending 3091966 and 196869 year ending 3091967 the assessee filed returns in which it stated that it was maintaining its accounts on mercantile basis
It did not dispute its liability to assessment
In these returns it disclosed a royalty income of Rs 1600 and Rs 457311 respectively
When it came to filing of the return for the assessment year 1969 70 year ending 3091968 the assessee admitted a royalty of Rs 925257 but filed a nil return saving that it was maintaining its accounts on cash basis and not on mercantile basis that no part of the royalty amount has been received by it and therefore nothing is taxable
For the next assessment year 1970 71 year ending 3091969 as well it took the same stand
The ITO completed the assessment for the first two assessment years on the basis of the returns
For the assessment years 1969 70 and 1970 71 however he refused to accept the assessee s plea that it was maintaining its accounts on cash basis
He held that it was maintaining its accounts on mercantile basis alone and accordingly brought to tax the royalty amount disclosed
The assessee filed appeals against the assessments relating to all the four years
In these appeals it took the stand that even with respect to the accounting years relevant to the assessment years 1967 68 and 1968 69 it has been maintaining accounts on cash basis and since it did rot actually receive any income in all these four years no tax is payable by it
Its case was that there was no actual payment  of the royalty by the Indian Company
It stated that though the Indian Company had credited to the assessee in its account books for the relevant years accounting year for the Indian Company is stated to be the calendar year the assessee did not actually receive the amount nor did it take credit for the said amounts in its Books at Coventry
The Appellate Assistant Commissioner dismissed the appeals holding that the assessment orders for the past years relating to the assessee reveal that the method of accounting was mercantile that for the AY 1967 68 the assessee did never contest its liability to be taxed on the amounts disclosed and further that it was not open to it to change the method of accounting to suit its convenience without the approval of 102 the Income Tax Officer
The assessee carried the matter in further appeals to the Tribunal
It was contended by the assessee before the Tribunal that it was not following any particular method of accounting regularly in the past years that it was the Indian Company which was finally filing the returns of income on behalf of the assessee by incorporating the figures as per its profit and loss account that the Indian Company was not aware of the assessee s system of accounting in regard to royalty and that therefore it had committed a mistake in filing the returns for the assessment years 1967 68 and 1968 69
The assessee submitted that as soon as it noticed that said mistake it corrected the same and filed the return for the assessment year 1969 70 on correct basis showing that the method of accounting was cash receipt basis
The appeals were allowed by the Tribunal
The Tribunal held that the assessee had not been following any particular method of accounting regularly over the past years
For example it said for the assessment year 1963 64 it did not say anything regarding the method of accounting
For the assessment year 1964 65 it said it was on cash basis
For the assessment years 1967 68 and 1968 69 it stated it was maintaining accounts on mercantile basis and again for the two subsequent years it stated as cash basis
The Tribunal was therefore of the opinion that the question of method of accounting adopted by the assessee must be examined afresh and for that purpose allowed the appeals and remanded the matters to the Income Tax Officer
The Tribunal gave liberty to the parties to adduce additional evidence in that behalf
It directed further that if it is found that the assessee was maintaining its accounts and balance sheets on cash basis in respect of the royalty it should be assessed on cash basis
On a Reference made at the instance of Revenue the High Court answered the question in the negative ie in favour of the revenue and against the assessee
It would be appropriate at this stage to notice the contentions urged by the assessee and how they were met by the High Court
Though the High Court has not set out the arguments of the assessee as such the arguments advanced can easily be gleaned from the judgment
The assessee reiterated his contention that though the Indian Company made a credit entry in the account of the assessee in its Books it did not actually receive the amount
The argument appears to be that the assessee can be said to have received the royalty amount only when it receives the same in UK in the shape of pounds and makes an entry to that effect in its own Books at Coventry
Since it is maintaining its accounts with respect to the said royalty on cash basis it argued receipt means receipt in UK Section 145 was relied upon by the 103 assessee to say that the method of accounting regularly adopted by an assessee is binding upon the department on that basis it was argued that if the assessee is proved to have maintained its accounts with respect to royalty amount on cash basis then there is no receipt until it is received by it in UK
It is this argument which led the High Court to say that acceptance of the said argument would mean escapement of income from taxation in India altogether
This is what the High Court said  If the contention of the assessee that the royalty should be assessed to income tax only on its actual receipt under Section 52a of the Act on the ground that it maintains its accounts on cash basis is accepted the income could not be taxed at all as it would be received in England and not in India
The assessee company a non resident receiving its income outside India could be assessed to tax only under Section 52 b of the Act on accrual basis
Section 52 a cannot be made applicable to such an assessee
In the case of a non resident to whom income accrues in India Section 52a will have no application
unless the non resident receives income in India
On the facts of this case it is clear that eventuality will never arise in regard to the income with which were are concerned because that income will have to be remitted to the nonresident by obtaining an irre vocable letter of credit and will thus be received only outside India
 Pursuing the said reasoning the High Court held further So it is clear that there can be cases of non residents to whom section 52a will never apply in regard to a particular income
The question then is whether in such circumstances the assessee concerned non resident to whom income had accrued in India can insist it since has kept his accounts in regard to that income on the cash basis he is not liable to be taxed on the accrual basis
In other words the question is Sec 1451 can be applied in such circumstances
The effect of applying the section would be to take the income outside the purview of taxation though the charge to tax on that income had taken effect on the accrual basis
Further no occasion for imposing tax on receipt outside India would arise in the case of a non resident because Section 52a will apply only to receipt in India
In such circumstances to apply Section 1451 would be to defeat the charge under Section 4 and to obliterate the provisions of section 52h and let the income which is taxable escape Such a 104 result is not certainly intended by the statute
Section 1451 is only an enabling provision to effectuate the charge
The section cannot be used for destroying the charge to tax and the provisions of Sec
52b though by merely looking at the wording of Section 1451 it may appear that in all cases the method of accounting must be followed unless in any case where the accounts are correct but the method is such that in the opinion of the Income Tax Officer the income cannot properly be deduced therefrom
But it must be remembered that Sec
145 is only a machinery provision and cannot qualify the charging section so as to make the latter otioss
So Section 1451 should not be permitted to be applied in such circumstances as those while arise from the facts of this case
it is therefore immaterial whether the assessee is keeping his accounts in regard to a particular income regularly on the cash basis
Even if the assessee is keeping his accounts on the cash basis in regard to his income the assessee is liable to tax under Sec
52b
To hold otherwise would be to take the income outside the purview of taxation under the Act though such income had accrued in India to a nonresident and under Sec
52b the charge to tax had taken effect and there is no possibility of Sec
52b ever coming into operation
We cannot give to Sec
1451 such an overriding effect as to defeat the charge and the provisions of Section 52b
 In this court the learned counsel for the assessee contended that so far as the royalty income is concerned the assessee was maintaining its accounts at Coventry in the United Kingdom on receipt basis
Its accounting years was the year ending on 30th of September of each year whereas the accounting year of the Indian Company was the calendar year
Notwithstanding the stipulation in the collaboration agreement for half yearly remittances the practice was that the Indian Company was determining the amount of royalty at the end of its accounting year
This amount was credited to the account of the assessee in the account books of the Indian Company but mere crediting to the account of the assessee in the Books of the Indian Company does not 105 amount to receipt of income by the assessee
Receipt is only when the amount is remitted to United Kingdom in accordance with the agreement
Counsel submitted that the assessee was not maintaining any particular method of accounting regularly in respect of the said royalty amount and that the alleged statement in the returns relating to the assessment years 1967 68 and 1968 69 to the effect that it was maintaining its accounts on mercantile basis was an incorrect statement made by the Indian Company which was not aware of the true state of affairs relating to the assessee s accounts
The learned counsel submitted that all that the Tribunal has done is to direct an inquiry to find out the true state of affairs viz whether the assessee was maintaining its accounts on mercantile basis or on cash receipt basis in so far as the royalty amount is concerned
He submitted further that since the Appellate Assistant Commissioner exercises all the powers of the assessing authority it was perfectly open to the assessee to raise the contention relating to the method of accounting even with respect to the assessment years 1967 68 and 1968 69 in the appeals
When the assessee has not actually received any royalty income from the Indian Company it is not expected to bring money from the United Kingdom for paying its taxes in India the learned counsel contended
The collaboration agreement between the assessee and the Indian Company is as old as 1939
According to its own case the assessee has been filing its income tax returns in India through the Indian Company
It is true that the agreement contemplated royalty amount being remitted in Sterling currency to UK but it cannot be said that until it is so remitted to and received in the UK the assessee has not received the income
The practice evidently was that the Indian Company was maintaining an account pertaining to the assessee in its Books
After it made up its accounts at the end of the calendar year and determined the royalty amount payable to the assessee the the Indian Company was crediting the said amount to the account of the assessee in its Books
This was treated as income by the assessee over all these years
The returns filed by the assessee even with respect to assessment years 1967 68 and 1968 69 were based upon the said premise
In the said returns the assessee declared a particular amount of income and offered the same for taxation
It did not take the stand that the said credit entry in the Books of the Indian Company does not give rise to income in India nor did it ever say that the receipt in UK in the shape of Sterling pounds alone constitutes income or for that matter receipt of income
It may also be noticed that in its returns relating to the assessment years 1967 68 and 1968 69 the assessee stated that it was maintaining its 106 accounts on mercantile basis
Only in the returns relating to the assessment year 1968 69 did it raise the plea that it was maintaining its books with respect to the said royalty amount on cash receipt basis
The Tribunal appears to have stated that for the year 1964 65 too the assessee had stated cash basis  but it is not clear for what purpose the said plea was raised
One thing is clear the assessee did not say at any time earlier to AY 1968 69 that receipt of money in UK alone is receipt by it
It also took the rather strange plea that the Indian Company was not aware of the method of accounting adopted by the assessee and therefore it made the aforesaid incorrect statement in the returns relating to the years 1966 67 and 1967 68
This plea the Appellant Assistant Commissioner refused to countenance
It is significant to notice that the assessee did not say that the method of accounting adopted by it for all its income was on cash basis
It confined the said plea to its Indian income alone
The said plea it should be noticed had no significance by itself
Its significance lies when we examine the said plea in the fight of the further contention of the assessee that it did not actually receive the amount from the Indian Company
We put a pointed question to the learned counsel for the assessee whether it was the assessee s case at any stage that the credit entry made in the account books of the Indian Company in favour of the assessee was a bogus or a mere make believe entry
The counsel replied that it was not its case at any point of time
His contention was that the mere entry in the account books of the Indian Company does not amount to receipt of income by the assessee
The assessee had been very careful not to say that the Indian Company did not place the said amount at the disposal of the assessee
Indeed he replied to a further question by us that even if the said amount were put by the Indian Company in a Bank to the credit of the assessee it could not have been said that the assessee has received the amount
In other words according to the learned counsel the said royalty income can be said to have been received by the assessee only when it received the same in UK
It is this extreme argument which led the High Court to make the observations quoted hereinbefore
It would immediately be evident that this was not the basis put forward by the assessee at any point of time till it to the filing of return for the assessment year 1969 70
We are not suggesting that it is estopped from doing so
We are only saying that the said plea was not and is not acceptable
The receipt of the said income in the UK in our opinion is immaterial
It may happen that a non resident assessee may choose not to repatriate his incomeprofits to his parent 107 country he may choose to plough back the said amount in India for such purposes as he may choose
It cannot be said in such a situation that he has not received the income in India
In Raghava Reddi vs CL T Andhra Pradesh 44 ITR 720 the non resident company instructed the assessee in view of the difficulties in this country in remitting the monies abroad to credit the amount due to it on account of commission in the account Books of the assessee awaiting further instructions regarding its remittance
The assessee was assessed as the statutory agent of the non resident company
The ITO assessed the amounts credited in the accounts of the assessee as the income of the non resident company
The contention of the assessee was that mere entry in the Books of the assessee cannot amount to receipt and that the amounts cannot be assessed until they were actually paid over to the non resident company or dealt with according to its directions
Rejecting the contention it was held by this court that as soon as the monies were credited to the account of the non resident Japanese com pany it must be held that it received the same and are taxable
Hidayatullah J speaking for the Constitution Bench observed This leaves over the question which was earnestly argued namely whether the amounts in the two account years can be said to be received by the Japanese company in the taxable territories
The argument is that the money was not actually received but the assessee firm was a debtor in respect of that amount and unless the entry can be deemed to be a payment or receipt clause a cannot apply
We need not consider the fiction for it is not necessary to go to the fiction at all
The agreement from which we have quoted the relevant term provided that the Japanese company desired that the assessee firm should open an account in the name of the Japanese company in their books of account credit the amounts in that account and deal with those amounts according to the instructions of the Japanese company
Till the money was so credited there might be a relation of debtor and creditor but after the amounts were credited the money was held by the assessee firm as a depositee
The money then belonged to the japanese company and was held for and on behalf of the company and was at its disposal
The character of the money changed from a debt to a deposit in much the same 108 way as if it was credited in bank to the account of the company
Thus the amount must be held on the terms of the agreement to have been received by the Japanese company and this attracts the application of section 41a
Indeed the Japanese company did dispose of a part of amounts by instructing the assessee firm that they be applied in a particular way
In our opinion the High Court was right in answering the question against the assessee
 Applying the above principle it must be held in this case that the credit entry to the account of the assessee in the Books of the Indian Company does amount to its receipt by assessee and is accordingly taxable and that it is immaterial when did it actually receive it in UK
In this view of the matter it must be held that in the circumstances of the case
the method of accounting adopted by the assessee for the relevant accounting years is really irrelevant
As explained hereinbefore the very concept of receipt as espoused by the assessee is untenable and unacceptable
The order of remand made by the Tribunal was thus unnecessary
In the circumstances we do not think it necessary to express any opinion on the question whether there is any conflict or inconsistency between Section 52 and Section 145 of the Act nor is it necessary to express ourselves on the view expressed by the High Court that in the case of a non resident assessee like the petitioner clause a of sub section 2 of Section 5 has no application whatsoever and that Section 52b governs it irrespective of the fact whether it maintains its accounts on cash basis or mercantile basis
The question referred did not really arise in the facts and circumstances of the case and need not have been answered
The Tribunal shall complete the assessments in question in the light of this judgment
In view of the above it is unnecessary for us to deal with the decisions cited by the learned counsel for the assessee
The first decision cited by him is in CIT vs Macnzillan  Co  regarding the powers of the Appellate Authority
The second decision is in Keshav Mills Ltd vs CL T Bombay The principle of this decision does in no way support the principle contended for by the appellant
The appeals accordingly fail and are dismissed
No costs
NVK Appeals dismissed


Summary:
The suit plot was let out to the appellant as a monthly tenant for an automobile garage
The respondent plaintiff issued a notice on 10th July 1975 determining the lease in favour of the appellant with effect from 31st July 1975 and filed a suit for eviction
The trial Court dismissed the said suit on the finding that as the appellant was using the suit premises for manufacturing purposes a six months  notice was required before the lease could be determined and as the notice issued to the defendant appellant under section 106 of the Transfer of Property Act had purported to determine the tenancy with 15 days  notice the suit in question could not have been riled
On appeal by the respondent the Assistant Judge came to the conclusion that the premises in question had not been let out for any manufacturing purpose but for a motor workshop and as such the notice under section 106 of the Act was valid and the respondent was entitled to the possession of the plot in dispute and passed an order for possession
The second appeal filed on behalf of the appellant was dismissed in limine by the High Court saying that no substantial question of law was involved
In the appeal to this Court the finding recorded by the Court of Appeal below and affirmed by the High Court that the respondent was entitled to a decree for possession and that the appellant was liable to be 168 evicted was not questioned
However a new stand was taken on behalf of the appellant that in view of the subsequent events the decree of eviction passed against the appellant could not be given effect to
It was submitted that by CP and Berar Letting of Houses and Rent Control Second Amendment Order 1989 a new clause 13A has been introduced and that was during the pendency of the present appeal and that though clause 13 A had been introduced not with retrospective effect still it shall be applicable to proceedings pending before any Court including this court and in view of the bar imposed by the said clause 13 A no decree for eviction could be passed by this court in the present appeal against the appellant unless the respondent landlord produces a written permission of the Controller as required by sub clause 1 of Clause 13 of the Order
Dismissing the appeal this Court HELD 1 Article 1361 of the Constitution confers on this Court overriding and extensive powers of granting special leave to appeal
Article 136 does not confer a right to appeal which is in the discretion of this Court
The discretionary power under Article 136 cannot be construed as to confer a right of appeal where none exist
Although the power under Article 1361 is unfettered it cannot be held that after having entertained a special leave petition against any final or interlocutory order this court converts itself into a court of appeal for the hearing of the dispute involved and as such when the appeal is dismissed the decree passed by the High Court merges into the decree of this court and in that situation amounts to passing a decree for eviction
175G H176A Gyan Chand vs Kunjbeharilal   referred to
176B 2
The bar placed by clause 13 A of the Order shall be applicable only to a suit or proceeding which was pending in any court under provisions of any special Act or under the provision of the Code of Civil Procedure as the case may be
It shall not become applicable to a special leave petition pending or an appeal registered before this court on the basis of leave granted under Article 136 of the Constitution
This Court while exercising its discretionary power under Article 136 of the Constitution even while dismissing the appeal shall not be deemed to have passed any decree for eviction
177C D 3
The matter would have been different if clause 13 A instead of only 169 imposing a bar on passing a decree for eviction had also prescribed a bar on passing any order for recovery of possession of any premises or on initiation of execution proceedings on basis of any decree passed earlier
In that event this Court could have taken note of subsequent change in the law and in exercise of its discretionary power could have passed an order directing the respondent not to recover possession of the premises on the basis of the decree for eviction passed in his favour or to pursue the execution proceedings without complying with the requirement of clause 13 A 177E F H Shiva Rao vs Cecilia Pereira  Ms East India Corporation Ltd vs Shree Meenakshi Mills Ltd JT  Amarjit Kaur vs Pritam Singh  and Sadhu Singhi vs Dharam Dev
AIR 1980 SC 1654 referred to
172F 173G During the hearing it was brought to the notice of the Court that the amended definition of Premises  and clause 13 A which had been inserted by CP and Berar Letting of Houses and Rent Control Second Amendment Order 1989 have been struck down by a Division Bench of the Bombay High Court on 2361992
But the Counsel neither produced a copy of the said judgment nor could inform whether any special leave to appeal against the said judgment was pending before this Court
As such the effect of clause 13 A of the Order has been considered so far as the present appeal was concerned 177H 178A