1. The assessee company is a resident company and was appointed the sole selling agent of the goods manufactured by a non-resident company of Sweden. The assessee company was appointed the statutory agents of the foreign company under section 43 of the Income-tax Act and was assessed to tax in respect of the receipts arising from the sale of the goods of the foreign company by the assessee company within the taxable territories. The assessee company contended that by reason of the agreement it sold goods as a principal and not as an agent of the foreign company. That contention is now given up by Mr. Kolah and the only contention that he has put forward is that in respect of certain transactions the sale proceeds were not received by the principal, the foreign company, in the taxable territories and to the extent that the sale proceeds were not received these receipts cannot be taxed under section 4(1)(a) of the Income-tax Act.
2. Now, the finding of fact is that the assessee company in most cases makes remittances to the foreign company after the sale of the goods, but before the sale proceeds are recovered from the purchaser, and in a few cases the remittance is made even before the sale of the goods. Turning to the agency agreement, the assessee as agent guaranteed the solvency of the purchasers. In other words, they really are constituted the del-credere agents of the principal, and there is an obligation under the agreement upon the agents to make payment within 30 days to the principal irrespective of whether the agents receive the sale proceeds from the purchaser and also irrespective of when the sale proceeds are received by them from the purchaser. Therefore, as soon as a sale is effected there is an obligation upon the agent to make payment of the sale price to the principal in Sweden within 30 days of the sale.
3. On these facts the question is whether in respect of the remittances made by the assessee company before the sale proceeds are recovered or realised could it be said that those remittances constitute 'receipt' within the meaning of section 4(1)(a) of the Income-tax Act Now, it must be remembered that what is being taxed is receipt in the hands of the foreign principal through his statutory agent. Therefore, before the statutory agent can be made liable to pay tax on behalf of his principal under section 4(1)(a) the taxing authority must establish that the foreign principal has received the sale proceeds within the taxable territories. It is clear that the remittances made by the assessee before the sale proceeds were realised were remittances made not of the sale proceeds but were remittances in discharge of the assessee's obligation arising under clause 23 of the agreement by which they were bound to pay to the principal within 30 days of the sale, and when in fact the assessee did receive the sale proceeds subsequent to the remittances, what the agent was receiving was not the sale proceeds on behalf of the principal but was receiving it on his own behalf, in his own right, and in order that he should recoup himself having already made the remittances in respect of the sale to his principal, or, in other words, when the agent received the sale proceeds after he had made the remittances he was receiving a debt due to him, the debt arising from the fact that he had already discharged his obligation to the principal under clause 23 of the agreement. Therefore what the agent received after he had made the remittances to the principal was not the sale proceeds on behalf of the principal but was an amount due to him by virtue of, or by reason of, an obligation which he had already discharged towards his principal, that obligation arising under the agreement between him and the principal.
4. The matter may be looked at from another point of view. It is clear and it is well settled that the receipt which is liable to tax under section 4(1)(a) is the first receipt, and what we have to consider is when were the sale proceeds first received which are liable to tax. It is obvious that the sale proceeds were received by the principal in Sweden when his agent made the remittance. The agent made the remittance without himself having received the sale proceeds from the purchasers. Therefore quae those remittances the receipt was not within the taxable territories but was the receipt in Sweden. It is equally clear that when the agent made a remittance after he had received the sale proceeds all that he was doing was transmitting the sale proceeds which had already been realised. He was not discharging his obligation under clause 23 of the agreement. In making those remittances he was merely acting as an agent of the principal for forwarding the sale proceeds which he had already realised. It is not suggested by Mr. Kolah that with regard to the remittances made before the receipt of the sale proceeds the agent is not liable. What he says is that he is not liable on the receipt basis under section 4(1)(a) although he may be liable on the accrual basis under section 4(1)(c), and it is clear that on accrual basis those profits will have to be apportioned according to the principles now well settled.
5. Two questions have submitted to us by the Tribunal. With regard to the first question Mr. Kolah gives up his contention and therefore that question must be answered in the affirmative. With regard to question No. 2, our answer will be 'Yes' to the extent that the remittances were made after the sale proceeds were received by the assessee company. The assessee to get 3/4ths of the costs of the reference. The notice of motion dismissed. No order as to costs.
6. Reference answered accordingly.