COMMISSIONER OF INCOME-TAX, ANDHRA PRADESH HYDERABAD versus TOSHOKU LTD. GUNTUR ETC.

Citation: [1981] 1 S.C.R. 587 · Decided: 29-08-1980 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Dismissed

cites 1 · see the full citation network in Lexace

Judgment (excerpt)

587 
COMMISSIONER OF INCOME-TAX, ANDHRA PRADESH 
HYDERABAD 
v. 
TOSHOKU LTD., GUNTUR ETC. 
August 29, 1980 
[P. N. BHAGWATI AND E. S. VENK4TARAMI~H, JJ.] 
Commission payable to non-resident foreign agent by the statutory agent-
Statutory agent making credit a1id debit entries in his books of account under 
the head "commission account" on receipt of the sale price from the foreign 
agent and thereafter on remitting the commission amount to the foreign 
agent-Whether the commission amounts sent were assessable to income tax-
.Sections 5(2), 9(1)(i), 160, 161 and 163 of the Income Tax Act. 1961 read with 
Board's Circular (XXVII-l) of 1953 No. 26 (II/53) dated July 17, 1953-
Whether the amounts should be treated as income deemed to have acr.rued or 
arisen in India. 
Dismissing the Revenue appeal by special leave, the Court 
HELD: (I) The credit entries made in the books of a 
~tatutory agent 
, -do not by themselves amount to receipt by assessees who are non-residents 
as long as the amounts so credited in their favour are not at their disposal 
-0r control. [592 F] 
The non-resident assessees in this case neither received nor could be deem-
ed to have received the sums in question when their accounts with the statu-
tory agent were credited, since a credit balance without more only represents 
.a debt and a .mere book entry in the debtor's own books does not constitut~ 
payment which will secure discharge from the debt. 
They cannot, there-
fore, be charged to tax on the basis of receipt of income actual or construc-
dive in the taxable territories during the relevant accounting period. [592 F-G] 
P. V. Raghava Reddi & Anr. v. Commissioner of Income-tax [1962] Supp. 
"1 S.C.R. 596~ distinguished. 
(2) Under clause (a) of the Explanation to clause (i) of sub-section (1) of 
section 9 of the Income Tax Act. in the case of the business of which all 
the operations are not carried out in India, the income of the business deemed 
.under that clause to accrue or arise in India shall be only such part of the 
income as is reasonably attributable to the operations carried out in India. 
If all such operations are carried out in India, the entire income accruing 
· therefrom shall be deemed to have accrued in India.-
If, however, all the 
operations are not carried out in the taxable territories, the profits and gains 
of business deemed to accrue in· India through and from business connection 
in India shall be only such profits and gains as are reasonably attributable to 
that part of the operations carried out in the taxable territories. 
If no opera-
tions of business are carried out in the taxable territories, it follows thal 
the income accruing or arising abroad through or from any business connec-
-tion in India cannot be deemed to accrue or arise in India. [593 B-D] 
A 
B 
c 
D 
E 
F 
G 
H 
A 
B 
c 
~ 
\,_ 
588 
SUPREME COURT REPORTS 
[1981] 1 S.C.R. 
In the instant case the non-resident assessees did not carry on any busi-
ness operations in the taxable territories. 
They acted as selling agents out~idc:r 
India. 
The receipt in India of the sale proceeds of tobacco remitted or 
caused to be remitted by' the purchasers from abroad does not amount to 
an operation carried out by the assessees in India as contemplated by clause 
(a) of the Explanation to section 9(1)(i) of the Act. 
The commission amounts 
which were earned by the non-resident assessees for services rendered outside 
India cannot, therefore, be deemed to be incomes which have either accrued 
or arisen in India. [593 E·G] 
Commissioner of Income-tax, Punjab v. R. D. Aggarwal & Co. & Anr. 
56 1.T.R. 20 and M/s. Carborandum Co. v. C.I.T. Madras [1977] 3 S.C.R. 
475, referred to. 
• 
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 782-783 of 
1973. 
Appeals by Special Leave from the Judgment and Order dated 
~ 
18-11-1972 o~ the Andhra Pradesh High Court in Cases Referred 
Nos. 50 and 52 of 1970. 
D 
P. A. Francis, K. C. Dua and Miss A. Subbashini 
for the 
E 
F 
G 
H 
Appellant. 
L. A. Subba Rao for the. Respondent. 
The Judgmoot of the Court was delivered by 
VENKATARAMIAH, J.-These two appeals by Special Leave are 
filed against a common judgment dated November 18, 1971 delivered 
by the High Court of Andhra Pradesh in Case Referred Nos. 50 and 
52 of 1970. 
Sri 
Bommidala 
Kotiratnam 
(hereinafter 
referred to as 'the 
statutory agent') is a dealer in tobacco at Guntur in the State of 
Andhra Pradesh. During the previous year relevant to the assessme

Excerpt shown. Read the full judgment & AI analysis in Lexace.