JAGANMOHAN REDDY C.J. - The Income-tax Appellate Tribunal has referred the case under section 66(1) on the following question namely :
'Whether, on the facts and in the circumstances of the case, the commission earned by the non-resident was liable to tax under section 4(1)(a) of the Act ?'
The assessee, Messrs. Westmercurr Handelmiji (referred to as 'Westam') was a non-resident firm of Dutch nationality. It acted as the sales agent in Europe of the Gudur Mica Produce Co., Gudur (referred to as 'G.M.P.C.'), which mines mica and exports it abroad. Under section 43 of the Income-tax Act, the G.M.P.C. appointed the assessee, Westam, as the selling agent on the basis of commission payable in accordance with the terms of the agreement (annexure 'A' to the statement of the case). Under clause 5(a) of the agreement, the G.M.P.C. will pay to Westam commission in respect of all orders from the continent of Europe placed with G.M.P.C. via Westam and as well placed direct by customers with G.M.P.C., and a certain percentage of commission has been stipulated therefor Sub-clause (d) provides that commission is due immediately after the G.M.P.C. has received 100 per cent. payment. Under sub-clause (f), the G.M.P.C. will apply for a licence after the receipt of the commission statement issued by Westam and provide the remittance without delay. According to the agreement, the G.M.P.C., on receipt of all the remittances, will calculated the commission and credit the assessee-company in their books with the commission. Immediately thereafter, it would apply for a licence to remit the amounts abroad and as soon as the licence is given, the amount would be remitted. The Income-tax Officer assessed Westam under section 4(1)(a) of the Act on the commission as if it was received by the non-resident company in India. The Appellate Assistant Commissioner as well as the Tribunal maintained this order.
The assessees contention is that since there is no agreement to retain the money here, the G.M.P.C. is merely a debtor and, consequently the amount cannot be said to have been received in India but, on the other hand, it should be deemed to have been received in Holland at the time when the amount in fact is remitted after obtaining the licence. This very contention was considered by a Bench of this court is commissioner of Income-tax v. P.V. Raghava Reddi [ 29 I.T.R. 929.], which decision on appeal to the Supreme Court was affirmed in Raghava Reddi v. Commissioner of Income-tax [ 44 I.T.R. 720 (S.C.).]. In the above cases the non-resident concern was a Japanese firm and the money was received in India by that firm as soon as its statutory agent credited the amount to its account in their books. Their Lordships of the Supreme Court held that, as soon as the assessee credited the amounts to the company in the assessees account, the relationship between the parties ceased to be that of debtor and creditor, and that when thiamines were credited in the accounts, they should be treated as moneys deposited by the Japanese company with the assessee. It was also held that the moneys were thus received by the Japanese company in India on the date when they were credited, and the assessee could be assessed as their statutory agent in respect of such moneys. Mr. Rama Rao, however, tries to distinguish that case on the ground that, under the agreement, the statutory agent had to credit the amount in the books and send the money only when the non-resident firm instructed him to do so, and that in fact the non-resident firm untilised the money for its own purposes in India from out of its own amounts held in credit with Raghava Reddi and Sons. But in this case, he says there is no such agreement. We cannot accept this contention which is seeking to make a distinction without a difference. In both the cases, the salient fact upon which the non-resident company was held to receive the money in India is the crediting of the amount of commission in the books of its statutory agent. The commission is first to be ascertained on the basis of the percentage on the amounts received from the sales of mica and then the amount so computed would be credited to the account of the company. Once that amount is credited in the agents account, the non-resident firm would be deemed to have received that amount. Though it may happen that both the seller as well as the statutory agent is the same person, that would make no difference to the application of the principle set out above. In Commissioner of Income-tax v. P.V. Raghava Reddi [ 29 I.T.R. 929.], Subba Rao C.J., delivering the judgment of the Bench consisting of himself and Viswanatha Sastri J., dealing with this aspect of the matter at page 934 observed as follows :
'The agency commission accrued at the place where the services were performed by the non-resident agent. The gross sale proceeds of the mica were received from Japan by the assessee in Gudur. A certain percentage of the sale proceeds was payable as commission to the non-resident on whose direction the amount payable as commission was credited to his account in the books of the assessee. The commission was not payable until the sale proceeds was received by the assessee and was payable out of the sale proceeds. The non-resident should be regarded as having received his commission in India for the fist time when the amount of commission was separated from the sale proceeds and credited to his account according to the terms of the agreement between the parties.'
On the same page, the learned judge has further observed :
'The position is the same as if the commission had been credited, on his direction, to his account with a bank in India. There is no foundation in fact for the contention of the assessee that the commission was received by the non-resident in Japan. The gross sale proceeds were remitted by the purchaser of mica to the assessee at Gudur. The commission was payable to the non-resident by the assessee who was in India. The amount of commission had to be ascertained with reference to gross sale proceeds received by the assessee. They were so ascertained at Gudur and paid into the account of the non-resident with the assessee. It is only then that the assessee could be regarded as having received the commission. The non-residents income qua income was received by him or on his behalf only in India.'
In Raghava Reddi v. Commissioner of Income-tax [ 44 I.T.R. 720, 725 (S.C.).], Hidayatullah J., delivering the judgment of their Lordships in the appeal, observed at page 725 as follows :
'The argument is that the money was not actually received, but the assessee-firm was a debtor in respect of that amount and unless the entry can be deemed to be a payment of receipt, clause (a) cannot apply. We need not consider the fiction, for it is not necessary to go to the fiction at all. The agreement, from which we have quoted the relevant term, provided that the Japanese company desired that the assessee-firm should open an account in the name of the Japanese company in their books of account, credit the amounts in that account, and deal with those amounts according to the instructions of the Japanese company. Till the money was so credited, there might be a relation of debtor and creditor; but after the amounts were credited the money was held by the assessee-firm as a depositee. The money then belonged to the Japanese company and was held for and on behalf of the company and was at its disposal.'
In our view, it makes little difference whether under the agreement the money has to be retained in India until the non-resident firm gives instructions for its remittance or that it should be remitted immediately. The fact that it is credited is an important element in determining the receipt of the money.
Applying these principles, our answers to the reference is in the affirmative and in favour of the department with costs. Advocates fee Rs. 250.