Judgment

VENKATARAMIAH, J.:- These two appeals by Special Leave are filed against a common judgment dated November 18, 1971 delivered by the High Court of Andhra Pradesh in Case Referred Nos. 50 and 52 of 1970.

2. Sri Bormidala Kotiratnam (hereinafter referred to as the statutory agent) is a dealer in tobacco at Guntur in the State of Andhra Pradesh. During the previous year relevant to the assessment year 1962-63, the statutory agent purchased tobacco in India and exported it to Japan, where it was sold through M/s. Toshoku Ltd. (the assessee involved in Civil Appeal No. 762 of 1973) a Japanese Company and admittedly non-resident. Under the terms of the agreement between the statutory agent and the assessee referred to above, the latter was appointed the exclusive sales agent in Japan for selling tobacco exported by the former. The assessee was entitled to a commission of 3 % of the invoice amount. The sale price received on the sale of tobacco in Japan was remitted wholly to the statutory agent who debited his commission account with the amount of commission payable to the Japanese company and credited the same in the account of the Japanese company in his books on December 31, 1961. The amount was remitted to the Japanese company on February 1, 1962 on which date an appropriate debit entry was made in the account of the Japanese company with the statutory agent.

3. The statutory agent had similarly sold some tobacco during the same accounting period through another nonresident business house by name M/s. Societe Pour Le Commerce International Des Tobacs (the assessee involved in Civil Appeal No. 783 of 1973) carrying on business in France. The terms of agreement were the same as in the case of the Japanese company referred to above, the only difference being the geographical area in which each of them had to render service as a selling agent. In this case also the statutory agent made similar entries in his books regarding the commission payable to the assessee and ultimately made a debit entry in the account of the assessee in his books when the amount was transmitted to the assessee.

4. During the assessment year the question whether the commission amounts sent to the Japanese company and the French business house (hereinafter referred to collectively as the assessees) were assessable in terms of Section 161 of the Income-tax Act, 1961 (hereinafter referred to as the Act) arose for consideration before the Income-tax Officer. The statutory agent contended that the amounts in question were not taxable in view of the clarification of the legal position by the Board Circular (XX VII-I) of 53 No. 26 (II/53) dated July 17, 1953 which stated.

"A foreign agent of an Indian exporter operates in his own country and no part of his income arises in India. Usually his commission is remitted directly to him and is therefore not received by or on his behalf in India. Such an agent in not liable to Indian income-tax."

5. The Income-tax Officer, however, came to the conclusion that the sums in question were taxable in view of the decision of this Court in P. V. Raghava Reddi v. Commissioner of Income-tax, (1962) Supp (2) SCR 596 and assessed them under S. 143 (3) read with Section 163 of the Act. The appeals preferred by the statutory agent against the orders of assessment before the Appellate Assistant Commissioner of I.-T. and the I.-T. Appellate Tribunal were unsuccessful. Thereafter the following common question of law was referred to the High Court of Andhra Pradesh under S. 256 (1) of the Act :-

"Whether on the facts and in the circumstances of the case the assessment on the appellant under Section 161 of the Income-tax Act, 1961 is justified."

6. The High Court held that the assessments were not justified and answered the question against the Department. Hence these appeals under Article 136 of the Constitution.

7. The relevant provisions of the Act on which reliance is placed before us are Sections 5 (2), 9 (1) (i), 160, 161 and 163. Sec