Judgment

HIDAYATULLAH, J.: The appellant is a firm at Gudur (Andhra Pradesh), which was doing business in Mica under the name and style of the Continental Export and Import Company. During the years of account, 1948-49 and 1949-50 (corresponding to the assessment years, 1949-50 and 1950-51), the assessee firm exported Mica to Japan. Mica was not directly exportable to Japanese buyers during these years, as Japan was under military occupation, but to a State Organisation called Boeki-Cho (Board of Trade). To negotiate for orders and to handle its other affairs in Japan in connection therewith the assessee firm engaged SanEi Trading Co. Ltd., Tokyo, as its agents. The Japanese Company was admittedly a non-resident Company. Two agreements were entered into by the assessee firm and the Japanese Company, the first for the quarter, July to September 1948, during which period a commission of 4 per cent. on the gross sale proceeds was payable to the Japanese Company,and the second, for an indefinite period, with the commission reduced to 2 per cent.

2. During the years of account, the amount of commission due to the Japanese Company was respectively Rs. 26,254-9-1 and Rs. 11,272-8-8. These amounts (included in the price of Mica exported) were received by the assessee firm in India, but due to the restrictions imposed by the Exchange Control laws, they could not be sent to the Japanese Company. The agreements between the assessee firm an the Japanese Company, therefore, provided for this contingency by the inclusion of the following term :

"In view of the difficulties in this country, it is requested that the first party credits all these amounts to the account of the second party with them without remitting the same until definite instructions are received by the first party."

During the two account years, a total amount of Rs. 13,3l9-l2A was paid to the Japanese Company either directly or through others, to whom the assessee firm was instructed by the Japanese Company to pay the amount. The Income-tax authorities treated the assessee firm as the statutory agent of the Japanese Company, and assessed tax on the two amounts in the respective years of assessment. The order of the Income-tax officer was confirmed on appeal; but the Tribunal set aside the order on the ground that the income to the Japanese Company had accrued or arisen in Japan and could not be said to have been received by the Japanese Company in the taxable territories, since S. 4(1)(a) was subordinate to S. 4 (1)(c). The Tribunal thus concluded :

"The reference in Section 4(1)(a) to income received in India can, in our opinion, refer only to the situation more specifically provided for in section 4(1)(b) as sub-section (a) provides a general cover for both the immediately following sub-sections (b) and (c). Section 4(1)(a) cannot therefore by itself add a new liability to non-residents, the extent of which is clearly delimited under section A(1)(c) of the Act to only incomes that accrue to them within the taxable territories. To read any further in section 4(1)(a) will totally nullify the effects of section 4(1)(c).

Income that has accrued once abroad cannot by any means accrue again in India. If such income is later remitted to India and received by or on behalf of such nonresidents in India such subsequent receipt cannot be chargeable under the Act."

The assessment was, therefore, ordered to be cancelled. The Commissioner of Income-tax, however, obtained a reference to the High Court of Madras on the question :

"Whether the aforesaid sum of Rs. 26,255-0-0 and Rs. 11,272-0-0 being selling commission credited to the aforesaid nonresident company s account in the books of the assessee are chargeable in the hands of the assessee under S. 4(1)(a) for the assessment years 1949-50 and 1950-51?"

3. The High Court answered the question against the assessee firm. The High Court observed that the learned advocate for the assessee firm "confessed his inability to support the decision