Judgment

B.P. JEEVAN REDDY, J.

(1) THESE appeals are preferred by the assessee against the judgment of the Madras High court answering the income tax reference made at the instance of the Revenue, against the assessee. The assessment years concerned are 1967-68, 1968-69, 1969-70 and 1970-71. The question of law which was referred for the opinion of the High court under Section 256(2 of the Income Tax Act is:

"WHETHER, on the facts and in the circumstances of the case, the Appellate tribunal was right in holding that the royalty amounts should be assessed on cash basis for 1967-68, 1968-69 and 1969-70 assessment if the books and balance sheet of such receipts were found to be maintained on cash basis and directing fresh assessment on such basis?"

(2) IN the paper-book supplied by the assessee-appellant the statement of the case is not available nor are the orders of any of the authorities supplied. We are, therefore, obliged to draw the facts from the judgment of the High court which we presume are drawn from the statement of the case. As a matter of fact, the facts require to be appreciated clearly for a proper decision of the question arising herein.

(3) THE assessee. Standard Triumph Motor Co. Ltd. is a non-resident company, having its place of business at Coventry in the United Kingdom. It entered into a collaboration agreement with the Standard Motor Products of India Ltd. (an Indian company) in November 1939 whereunder the assessee was entitled to royalty of five per cent on all sales effected by the Indian company. This amount of five per cent less the Indian tax had to be remitted to the assessee in sterling currency. The assessees accounting year was the year ending 30th of September. With respect to its Indian income, it was filing its returns through the Indian company.

(4) THE collaboration agreement between the assessee and the Indian company expired in the year 1965. It was renewed. The renewed agreement too expired in November 1970.

(5) FOR the assessment years 1967-68 (year ending 30/09/1966 and 1968-69 (year ending 30/09/1967 the assessee filed returns in which it stated that it was maintaining its accounts on mercantile basis. It did not dispute its liability to assessment. In these returns, it disclosed a royalty income of Rs. 7,21,600.00 and Rs. 4,57,311.00 respectively. When it came to filing of the return for the assessment year 1969-70 (year ending 30/09/1968, the assessee admitted royalty of Rs. 9,25,257.00 but filed a nil return saying that it was maintaining its accounts on cash basis - and not on mercantile basis, that no part of the royalty amount has been received by it and, therefore, nothing is taxable. For the next assessment year 1970-71 (year ending 30/09/1969 as well, it took the same stand. The ITO completed the assessment for the first two assessment years on the basis of the returns. For the assessment years 1969-70 and 1970-71, however, he refused to accept the assessees plea that it was maintaining its accounts on cash basis. He held that it was maintaining its accounts on mercantile basis alone and accordingly brought to tax the royalty amount disclosed.

(6) THE assessee filed appeals against the assessments relating to all the four years. In these appeals, it took the stand that even with respect to the accounting years relevant to the assessment years 1967-68 and 1968-69, it has been maintaining accounts on cash basis and since it did not actually receive any income in all these four years, no tax is payable by it. Its case was that there was no actual payment of the royalty by the Indian company. It stated that though the Indian company had credited to the assessee in its account books for the relevant years (accounting year for the Indian company is stated to be the calendar year), the assessee did not actually receive the amount nor did it take credit for the said amounts in its books at Coventry. The Appellate Assista