[The judgment of the Division Bench of the Calcutta High
Court consisting of B. C. MITRA and A. K, JANAH JJ in A.F.O.O. No. 335 of 1973].
JANAH J.---(24-9-1973).---The first appellant, the
Performing Right Society Ltd., is a company (hereinafter referred to as "
the Society ") incorporated under the English Companies Act, having its
registered office at Copyright House, 33 Margaret Street, Cavendish Square in
the county of London, England. The said society is an association of composers,
authors and publishers of copyright musical work established to grant permission
for the public performance, and in accordance with more recent copyright
legislation, broadcast by diffusing by relay service of copyright music. The
society collects royalties for issuing licence granting such permission and
distributes such royalties to the members of the society, namely, the composers,
authors, music publishers and other persons having interest in the copyright.
The society's constitution is that of a company limited, by guarantee having no
share capital. It makes no profit for itself, pays no dividend and does not
charge its members any agency commission or any fees or subscription. All
royalties collected and an receipts from other sources are distributed among the
composers, authors and publishers concerned in proportion to the respective
extent to which their works are publicly performed and/or broadcast. The society
does not deduct from the royalties anything beyond a bare pro rata cost of
administration.
The second appellant, Messrs. Natsin India Private Ltd.
(hereinafter referred to as the " India agent "), is a private limited
company incorporated under the Indian Companies Act having its office at 26,
Chowringhee Road, Calcutta 13. The second appellant was appointed by the society
to be its lawful attorney in India by virtue of a power-of-attorney granted by
the society to the second appellant. The second appellant is the agreement in
India for the first appellant and it has the power, inter alia, to commence,
prosecute, enforce suits, actions and other proceedings and to engage advocates,
counsels and to sign, execute plaints, petition, etc., on behalf of the first
appellant. On January 19, 1940, the society entered into an agreement with All
India Radio which provides that the licensee (i.e., All India Radio) shall send
to the society at its registered office in England the list of all musical work
broadcast in each week during the term of licence from each of the licensee's
main stations (Delhi, Bombay, Calcutta and Madras) and the external service,
indicating--
(i) The name and location of the said station.
(ii) The name and location of any broadcasting station or
other place from which the performances are relayed other than the licensee's
own studio.
(iii) The date and time of the broadcast.
(iv) The title of each work.
(v) The name of the respective composer, author, arranger
and publisher and also
(vi) (Where gramophone records are used). The name of the
manufacturer and identification number of each record ; together with such
further details as will enable the society to identify the work for the purpose
of distribution of fees. Such lists are to be certified by the licensee as
correct. The agreement further provides that the licensee will pay to the
society at the rate of pound 2 (two pounds) per hour of broadcast of western
music from each of the licensee's main and external service station and such
annual payment must be made by All India Radio to the society in England.
With regard to the royalties realised by the Indian agent
on behalf of the society from cinema houses and other sources where music, over
which the society has copyright, is played, the society has been paying
income-tax to the income-tax authorities in India, and there is no dispute with
regard to the receipts of such royalties by the society through its Indian
agent. The society filed income-tax returns before the Income-tax Officer at
Madras. The said officer later on issued a notice under section 34(1) of the
Indian Income-tax Act, 1922, on the ground that in the statements filed at the
time of original assessment the Indian broadcasting fees had not been included
in the income. In the assessment year 1947-48 the Income-tax Officer held that
though All India Radio paid fees to the society in England for the transmission
of music from India the income accrued or arose or was deemed to accrue or arise
to the society in India and as similar facts exist in every year also, he
assessed such income to tax after deducting proportionate distribution expenses
for all the years. The society, thereafter, preferred a revisional application
under section 264 of the Income-tax Act before the Commissioner of Income-tax,
West Bengal (where the society's income-tax files had been transferred in the
meantime). By an application dated July 4, 1970, in support of its revisional
application filed before the Commissioner of Income-tax, West Bengal, the
society took a plea that the business in India is carried on by All India Radio
and not by the society and that payments were made by All India Radio to the
society in England in terms of the agreement and as such the royalties received
by the society in England cannot be said to have been received in India and,
therefore, this income was not taxable under the Income-tax Act by the
income-tax authorities in India. It was further contended by the society before
the Additional Commissioner of Income-tax, West Bengal, who heard the revisional
application, that in so far as its transaction with All India Radio was
concerned, the Indian agent of the society had no part in the same. The
agreement was made outside India and payments were received outside India and
hence the royalties received from All India Radio could not to be taxed through
the society's agent in India. The Additional Commissioner did not allow this
point to be raised before him as he was of the opinion that it was completely a
new point and the relevant facts were not on record for the purpose of deciding
whether the claim made by the society was correct or not. In that view the
revisional application was dismissed by the Additional Commissioner of
Income-tax by his order dated July 18, 1970.
Against the said order the petitioner obtained a rule
under article 226 of the Constitution. The rule came up for final hearing before
Banerjee J. who discharged the same by his judgment and order dated March 23,
1973, (see [1974] 93 ITR 44 (Cal)) holding that the royalties received by the
society in London from All India Radio was liable to tax under the Income-tax
Act by the income-tax authorities in India. Against the said order the
appellants have preferred this appeal.
The point which requires consideration in this appeal,
therefore, is whether the royalties received by the society in London in terms
of its agreement with All India Radio, is liable to be taxed by the income-tax
authorities in India.
Mr. Arun Kumar Dutt, learned counsel for the appellants,
has contended before us that such royalties are not liable to be taxed because
the contract was entered into in England, the society does not carry on any
business in India in so far as the receipt of such royalties is concerned, and
also because the payments for such royalties are made in England by All India
Radio. In order to deal with the contention which has been raised in this appeal
we have to consider the relevant provisions of the Income-tax Act, 1961, which
are to be found in sections 5 and 9 of the said Act. The relevant provisions of
the said two sections are as follows :
" 5. Scope of total income.---(1) Subect to the
provisions of this Act, the total income of any previous year of a person who is
a resident includes all income from whatever source derived which ---......
(2) Subject to the provisions of this Act, the total
income of any previous year of a person who is a non-resident includes all
income from whatever source derived which---
(a) is received or is deemed to be received in India in
such year by or on behalf of such person ; or
(b) accrues or arises or is deemed to accrue or arise to
him in India during such year .........
9. Income deemed to accrue or arise in India.---(1) The
following incomes shall be deemed to accrue or arise in India---
(i) all income accruing or arising, whether directly or
indirectly, through or from any business connection in India, or through or from
any property in India, or through or from any asset or source of income in
India, or through or from any money lent at interest and brought into India in
cash or in kind or through the transfer of a capital asset situate in India ;
..........."
Learned counsel for the appellants has submitted that
section 5(2)(b) is controlled by section 9(1). According to him any income for
the purpose of section 5(2)(b) relating to a non-resident must be income as
could be found in section 9(1)(i). He has contended that before any liability
can be fixed by virtue of section 9(1)(i) it must be an income accruing or
arising, directly or indirectly, through or from any asset or source of income
in India and not merely from a source in India. He submits that unless it was so
section 5(1)(a) would have applied and there was no necessity of applying
section 5(2)(b) read with section 9(1)(i) as has been done by the income-tax
authorities in the present case. According to Mr. Dutt if the society receives
income from the income which All India Radio is getting by its broadcast then it
can be said to be an income from a source royalties which the society gets from
All India Radio are not liable to be taxed.
In support of this contention reliance was placed on the
decision of the Privy Council in Rhodesia Metals Ltd. v. Commissioner of Taxes
[1941] 9 ITR (Suppl.) 45 (PC). In that case the head office and the directing
power of the company was in England, the contract for the purchase and sale of
lands was made in England and the consideration for sale was also received in
England. The Judicial Committee held that the company is assessable for income
accrued in Rhodesia observing that " source means not a legal concept but
something which a practical man would regard as real source of income."
That case, therefore, in our opinion does not support the contention of Mr.
Dutt, on the contrary it goes against him. Counsel for the appellants invited
our attention to the decision in Commissioner of Income-tax v. Lady Kanchan Bai
[1970] 77 ITR 123 (SC) in support of his contention. We do not see how this
decision is of any assistance to the appellants in the present case. In that
case the Supreme Court followed the decision of the Privy Council in Rhodesia
Metals Ltd. v. Commissioner of Taxes [1941] 9 ITR (Suppl.) 45 (PC) regarding the
" source " of income.
Relying upon the decision in Caltex India Ltd. v.
Commissioner of Income-tax [1952] 21 ITR 278 (Bom) counsel for the appellants
contends that there must be a territorial nexus between the person who is sought
to be taxed and the country which seeks to tax, and, according to him, this
territorial nexus is absent in the present case. It has been contended that the
first appellant has no control over the alleged source of income in India,
namely, All India Radio. It has been further contended that in a particular year
All India Radio may not earn any income but it has to pay royalties if it
broadcasts the music over which the society has a copyright. Similarly, All
India Radio may have a great deal of income, in a particular year, but no
royalties would be payable by it to the society, if it does not broadcast any
music over which the society has a copyright. In the case in Caltex (India) Ltd.
v. Commissioner of Income-tax [1952] 21 ITR 278 (Bom), it was contended that the
territorial nexus was between the assessee-company and British India because the
assessee-company earned its profit in British India but when it comes to the
question of the dividends the mere fact that dividends were paid by the
assessee-company out of profits which it earned in British India does not
constitute the territorial nexus between the assessee-company and British India
which country was taxing the assessee-company, because the assessee-company was
registered in the Bahamas Island and the situs of share was outside British
India. In that connection the Bombay High Court observed that in order to decide
that question one important fact had to be borne in mind, and that is the
dividend income of the California company arises out of profits which have been
made by the assessee-company in British India. In the present case the source of
income admittedly is broadcasting of western music by All India Radio. That
being so, it is quite clear that the royalties which the society receives from
All India Radio should be deemed to accrue or arise in India within the meaning
of section 9(1)(i) of the Income-tax Act, 1961.
The next case relied upon by the counsel for the
appellants is Mrs. Kusumben D. Mahadevia v. Commissioner of Income-tax [1963] 47
ITR 214 (Bom). In that case, a company which was a resident and ordinarily
resident company in British India held certain shares in another joint stock
company which operated in the State of Baroda, outside British India. The
dividends received from the company at Baroda were not included in the dividends
which the resident company received from other sources. The question which was
referred to the Bombay High Court under section 66(1) of the Indian Income-tax
Act, 1922, was whether the net dividend accrued to the assessee in the former
Baroda State or whether it is income accrued or deemed to accrue to the assessee
in British India. It was held that the income which the assessee received as
dividend of Rs. 47,120 declared by the company at Baroda would be deemed to
accrue to her in British India. This decision, therefore, does not help the
appellants in the present case.
Counsel for the appellants referred to the decision in
Commisioner of Income-tax v. R.D. Aggarwal and Co. [1965] 56 ITR 20 (SC). In
that case the question which arose for decision was whether there was any "
business connection " between a non-resident company and the assessee which
was a registered company having their place of business at Amritsar. That case,
in our opinion, proceeds on a different basis altogether and it is of no
assistance to the appellants in the present case.
Mr. Dutt relied upon a circular of the Central Board of
Direct Taxes being Circular No. 223/F, 1969, dated 23rd July, 1969, regarding
liability to tax on income accruing or arising to a non-resident under section 9
of the Act. Mr. Dutt contended that this circular has statutory force under
section 119 of the Act. For our present purpose, however, we are not required to
consider whether the circular has any statutory force or not because the
circular relates to income accruing or arising through or from business
connection in India. Paragraph 7 of the said circular is as follows :
" 7. Extent of the profits assessable under section
9---Section 9 does not seek to bring into the tax net the profits of a
non-resident which cannot reasonably be attributed to operations carried out in
India. Even if they may be a business connection in India, the whole of the
profits accruing or arising from the business connection is not deemed to accrue
or arise in India. It is only that portion of the profit which can reasonably be
attributed to the operations of the business carried out in India which is
liable to income-tax. "
This circular, therefore, contemplates a situation quite
different from that in the present case.
Mr. Dutt has lastly argued that his writ application was
directed against the order passed by the Additional Commissioner of income-tax
refusing to exercise his revisional power by not allowing the appellants who
were the petitioners before the Additional Commissioner of Income-tax in the
revisional application, to raise a point on the ground that it was not taken
before the Income-tax Officer. Mr. Dutt argued that if the trial court was of
the view that there was no failure to exercise jurisdiction vested in the
Additional Commissioner of Income-tax or that there was no error apparent on the
face of the record the trial court ought to have discharged the rule without
deciding the question as to whether the royalties received by the first
appellant should be deemed to accrue or arise in India under section 9 of the
Income-tax Act, 1961. We are unable to accept this argument of counsel for the
appellants for the reason that the appellants themselves raised this question
before the trial court, and naturally, therefore, the trial court had to give
its decision on this question. The appellants cannot now turn round and say that
the trial court ought not to have recorded its findings on the contention
advanced before it. Mr. Dutt submitted further that a decision on this question
would be binding upon him for all time to come and his liability for succeeding
years would continue because of the decision of the trial court.
Mr. Pal, learned counsel for the respondent, drew our
attention to the decision of the Supreme Court in Commissioner of Income-tax v.
Brijlal Lohia [1972] 84 ITR 273 (SC) and pointed out that a finding arrived at
for the purpose of assessment in one year would not be res judicata for the
purpose of assessment for subsequent years and, therefore, there is no substance
in the appellants' contention in this regard. It is not necessary for us to
decide whether, in the facts and circumstances of the present case, the findings
of the trial court or of this court would be res judicata for the purpose of
assessment in subsequent years.
This appeal, therefore, fails and is accordingly
dismissed, but there will be no order as to costs.
B. C. MITRA J.---I agree.
JUDGMENT OF THE SUPREME COURT
The judgment of the court was delivered by
GUPTA J.---The first appellant, Performing Right Society
Ltd. (hereinafter called " the Society "), is a company incorporated
under the (English) Companies Acts, 1908 and 1913 having its registered office
at Copyright House, 33 Margaret Street, Cavendish Square, London---a company
limited by guarantee and having no share capital. The society is an association
of composers, authors and publishers of copyright musical works established to
grant permission for the performing right in such works. " Performing right
" means the right of performing in public, broadcasting and causing to be
transmitted to subscribers to a diffusion service, in all parts of the world.
The members of the society are required to assign to the society the performing
right in their works, and the society exercises and enforces on their behalf all
rights and remedies in respect of any exploitation of such works. The society
collects roya
