STANDARD TRIUMPH MOTOR CO. LTD. versus COMMISSIONER OF INCOME TAX, MADRAS

Citation: [1993] 2 S.C.R. 96 · Decided: 25-02-1993 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Dismissed

Judgment (excerpt)

'"</ 
A 
STANDARD TRIUMPH MOTOR CO. LTD. 
v. 
COMMISSIONER OF INCOME TAX, MADRAS 
y-
FEBRUARY 25, 1993 
B 
(B.P. JEEVAN REDDY AND N. VENKATACHALA, JJ.) 
Income Tax Ac4 1961: 
)-
Sections 5(2) and 145-Non Resident Company and Indian Com-
c pany-Collaboration agreement-Indian Company to apy royalty to non resi-
dent company on all sales-Royalty to be remitted to non resident in pounds 
-
Sterli11g-Royalty credited by Indian Compa11y to non resident in its account 
books-Credit entries-Whether amount to receipt of income-Whether non 
resident liable to tax-Method of accounting ad<ipte~W/1ether relevant. 
D 
The assessee-appellaot in the appeal is a non resident company 
---\ 
having its place of business at Coventry in tbe United Kingdom. It entered 
into a collaboration agreement with an Indian company in November, 1939 
the assessee being entitled to royalty of 5% on all sales effected by the 
Indian Company, and this amount less the Indian tax had to be remitted 
E 
by the assessee in Sterling currency. The assessee's accounting year was 
the year ending 30th September and with respect to its Indian income, it 
was tiling its returns through tbe Indian Company. The aforesaid col· 
laboratioo agreement expired in the, year 1965, but it was-renewed and the 
renewed agreement also expired in November, 1970. 
F 
For the assessment years 1967-68 and 1968-69 the assessee tiled 
returns in which it stated that it was maintaining its accounts on mercan-
-
tile basis, and did not dispute its liability to assessment. In these returns, 
• 
it disclosed a royalty income of Rs. 7,21;600 and Rs. 4,57,311 respectively. 
When it came to the tiling of the return for the assessment year 1969-70 
~' 
G the assessee admitted a royalty of Rs. 9,25,357 but tiled a nil return saying 
that it was maintaining its accounts on cash basis and not on mercantile 
basis, that no part of the royalty amount had been received by it and, 
therefore, nothing was taxable. For the next assessment year 1970-71 as 
well, the same stand was taken by the assessee. 
H 
Thelncome-Tax Officer completed the asses1ment for the first two 
~ 
96 
.
- --._,.· 
MOTOR CO. v. COMMISSIONER 
97 
assessment years on the basis of the returnes, but for the assessment years A 
1969-70 and 1970-71, he refused to accept the plea of the assessee; and held 
that the assessee maintaining its accounts on mercantile basis alone and 
that the royalty amount disclosed be brought to tax. 
The assessee filed appeals against the assessments relating to all the B 
four years, taking the stand that even ltitb respect to the accounting year 
relevant to the assessment years 1967-68 and 1968-69, it had been main-
taining accounts on cash basis and since it did not actually receive any 
income in all these 4 years no tax was payable. The Appellate Assistant 
Commissioner dismissed the appeals holding that the assessment orders 
for the past years reveal that the method of accounting was mercantile, C 
·that for the assessment year 1967-68, the assessee never contested its 
liability to be taxed on the amonnts disclosed and further it was not open 
to the assessee to change the method of acconnting to suit its convenience, 
without the approval of the Income Tax Officer. 
The assessee carried the matter in further appeals to the Tribunal 
and contended that it was not following any particular method of account-
ing 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 incorporat-
ing the figures as per its profit and loss account, that the Indian Company 
D 
was not aware of the assessee's system of accounting in regard to royalty E 
and that, therefore, it had committed ·a mistake in filing the returns for 
the assessment years 1967-68 and 1968-69, that as soon as the mistake bad 
been noticed, it was corrected and returns for the assessment year 1969-70 
-
on correct basis showing that the method of account cash receipt basis was 
filed. The appeals were allowed the Tribunal which held that as the 
F 
assessee had not been following any particular method of accounting 
regularly over the past years, the question of the method of accounting 
adopted by the assessee must be examined afresh and for that purpose 
remanded the matters to the Income Tax Officer. 
On a reference made at the instance of the Revenue, the High Court G 
answered the reference in favour of revenue and against assessee. The High 
Court hel

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