Case: P. V. Raghava Reddi And Another Vs. Commissioner Of Income-Tax

years in question, and the appellant firm could be treated as an assessee for purposes of S. 42. What was contended was that the view of the Tribunal of S. 4 (1) is the right view of the law. Section 4 (1) prior to its amendment in 1950 by the Adaptation of Laws Order, 1950, read :"4. (1) . Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which -(a) are received or are deemed to be received in British India in such year by or on behalf of such person, or(b) if such person is resident in British India during such year,-(i) accrue or arise or are deemed to accrue or arise to him in British India during such year, or(ii) accrue or arise to him without British India during such year, or(iii) having accrued or arisen to him without British India before the beginning of such year and after the 1st day of April 1933, are brought into or received in British India by him during such year, or(c) if such person is not resident in British India during such year, accrue or arise or are deemed to accrue or arise to him in British India during such year :"6. The contention is that this income cannot be deemed to be received in the taxable territories (then British India) in the year of account. It is urged that the Japaneses Company did not actually receive it in British India, and that there was only a relation of debtor and creditor between the assessee firm and the Japanese Company. Till the money was actually paid over to the Japanese Company, a mere entry in the account books of the firm was not a receipt by the Japanese Company, and mere entry of an item in the account books has not been deemed to be a receipt by any provision of the Act, which it is said, always states clearly when a fiction is to be applied. It is also argued that cl. (a) of S.4 (1) is delimited by cl. (c).7. Clauses (a) (c) of S. 4 (1) are not interdependent. In Turner Morrisons case, 1953-28 ITR 152 : (AIR 1953 SC 140 ), it was observed by this Court that,"the whole object of trial section (S. 42) is to make certain income, profits and gains to be deemed to arise in India so as to bring them to charge. The receipt of income, profits and gains being one of the rests of liability, where the income, profits and gains are actually received in India it is no longer necessary for the revenue authorities to have recourse to the fiction".After referring to certain authorities in which this was so held, this Court pointed out:"Section 4(1)(a) in terms is, unlike Section 4 (1) (b) or 4 (1)(c), not confined in its application, to any particular category of assessees. Section 4(1)(a) is general and applies to a resident or a non-resident person."It was rightly pointed out by the High Court in the judgment under appeal that :"Actual or deemed receipt of income in the taxable territories by or on behalf of non-residents attracts tax under S. 4 (1) (a) even though the income may not be chargeable under S. 4 (1) (c) by reason of its having accrued or arisen outside. Receipt of income within the taxable territories by itself attracts tax whether the recipient is a resident or non-resident and whether the income accrued or arose within the taxable territories or outside. So much is plain on the language of S. 4(1)(a) and (c).8. In our opinion, as (a) and (c) of S. 4 (1) can be read disjunctively, and cl. (a), which provides for receipt of income, profits and gains in the taxable territories cannot be subjected to the limitation that the income must also accrue or arise in the taxable territories. To make cl. (a) depend on cl. (c) is to make the "accrual" the test, while cl. (a) only considers receipt in the taxable territories sufficient. The clauses are capable of being read independently, though, sometimes, they may operate together.9. 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, cl. (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 way as if it was credited in a Bank to 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 S. 4 (1) (a). Indeed, the Japanese Company did dispose of a part of those 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.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]4. Under S. 42, all income, profits or gains accruing or arising, whether directly or indirectly, through or from any business connection in the taxable territories are deemed to be income accruing or arising within the taxable territories, and if the person entitled to the income, profits or gains is not resident in the taxable territories, it is chargeable to income-tax either in his name or in the name of his agent, and in the latter case, such agent is deemed to be, far all the purposes of the Act, the assessee in respect of such income-tax. The provisos to the section enable the application of S. 18, and the tax may be recovered by deduction under that section and the agent or any person who apprehends that may be assessed as such an agent is also enabled to retain out of the money." payable to the non-resident person a sum equal to his estimated liability. The section thus creates a vicarious liability in so far as the agent is concerned, for, the tax which the non-resident has to pay; but as a safeguard for him, he is enabled to retain from the money he has to pay, a sum equal to his own liability in the event of his being treated as the assessee. Section 43 lays down who can be deemed to be an agent, and it is provided that any person having any business connection with a nonresident person or through whom the nonresident is in receipt of any income profits or gains is to be deemed to be such an agent, if the Income-tax Officer has caused a notice to be served of his intention of treating him as the agent of the non-resident person. Such persons are conveniently described as "statutory agents".In our opinion, as (a) and (c) of S. 4 (1) can be read disjunctively, and cl. (a), which provides for receipt of income, profits and gains in the taxable territories cannot be subjected to the limitation that the income must also accrue or arise in the taxable territories. To make cl. (a) depend on cl. (c) is to make the "accrual" the test, while cl. (a) only considers receipt in the taxable territories sufficient. The clauses are capable of being read independently, though, sometimes, they may operateargument 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, cl. (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 way as if it was credited in a Bank to 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 S. 4 (1) (a). Indeed, the Japanese Company did dispose of a part of those 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.