Law: Income Tax Act, 1961

Section: 5(2),145

Income-tax-----Non-resident---Income---Receipt---Collaboration agreement---Indian company to pay royalty to non-resident collaborator on all sales---Royalty to be remitted to non-resident in pounds sterling---Indian company crediting royalty to account of non-resident in its account books---Credit entry amounts to receipt of income---Non-resident liable to tax---Method of accounting of non¬-resident not relevant---Indian Income. Tax Act, 1961; Ss.5(2) & 145. Under a collaboration agreement between the appellant, a non-resident company, and an Indian company, the appellant was entitled to a royalty of five per cent. on all sales effected by the Indian company. The royalty less the Indian tax had to be remitted to the appellant in pounds sterling. The Indian company credited the royalty to the appellant in its account books. With respect to its Indian income, the appellant filed its returns through the Indian company. For the assessment years 1967-68 and 1968-69, the appellant filed its returns disclosing the royalty in which it was stated that appellant was maintaining its accounts on mercantile basis. For the assessment years 1969-70 and 1970-71, the appellant admitted the royalty but filed nil returns claiming that it was maintaining its accounts on cash basis and that no part of the royalty has been received by it and, that, therefore, nothing was taxable. The Income¬tax Officer completed the assessments for the assessment years 1967-68 and 1968-69 on the basis of the returns and, rejecting the claim of the appellant for the assessment years 1969-70 and 1970-71, brought to tax the royalty income on the basis that it was maintaining its accounts on mercantile basis. The assessments were confirmed by the Appellate Assistant Commissioner. On further appeal, the Appellate Tribunal found that the appellant was not following any particular method of accounting over the past years and, therefore, the question of the method of accounting adopted by the appellant had to be examined afresh and remanded the matter to the Income-tax Officer with the direction that, if it was found that the appellant was maintaining its accounts on cash basis in respect of royalty, it…

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