Law:

Section:

I. Section 6, read with section 5 of the Income-tax Act, 1961 (corresponding to section 4A(c) of the Indian Income-tax Act, 1922) - Residential status - Assessment year 1952-53 - Assessee was following mercantile system of accounting - It had purchased debentures of foreign company - Due to legislative restrictions interest on debentures for year 1950 had not remained payable and it could be paid only in 1951 - Assessee claimed that income arising without taxable territories which included interest received for 1951 was in excess of income which had arisen in taxable territories and therefore assessee was liable to be assessed as non-resident - Whether so long as legislative restriction was in force interest ceased to be payable and did not arise in year 1950 - Held, yes - Whether interest due in 1950 actually arose in 1951 when said restriction was removed, and therefore, since income arising without taxable territories exceeded income arose in taxable territories, assessee was non-resident in India for assessment year 1952-53 - Held, yes FACTS-I The assessee company was incorporated in the U.K. It was maintaining its accounts on the mercantile system. In 1997, the assessee purchased debentures of the Brazilian company. Interest on the debentures was payable six-monthly in June 30 and December 31, each year. The debt of the debentures as well as the interest was payable in pounds sterling. Due to certain reasons the Brazilian Government imposed from 1946 exchange restrictions on remittances of pounds sterling and those restrictions prevented conversion of Brazilian currency to that of another country. The restrictions were continued up to 1950, but they were reimposed in the later part of 1951 and had continued till November and December, 1955. In April 1950, by a deed of arrangement, the Brazilian company agreed to hand over all its surplus cash (whether it was sufficient to cover the full interest charged or not) in pounds sterling to the Barclays Bank, London, to the credit of the interest suspense account to be operated by the trustees of debenture-holders. Thereafter, the amount towards interest due for the year 1950 was received by and paid to the…

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