Performing Right Society Ltd. & ANR
Vs. Commissioner of Income-Tax & Ors [1976] INSC 174 (10 August 1976)
GUPTA, A.C.
GUPTA, A.C.
SINGH, JASWANT
CITATION: 1976 AIR 1973 1977 SCR (1) 171 1976
SCC (4) 37
ACT:
Income Tax Act, 1961--S. 5(2)--Non-resident company
receiving income outside India--income if accrued in India.
HEADNOTE:
The appellant Society which is an association
of composers, authors and publishers of copyright musical works was
incorporated under the English Companies Act, 1908 and 1913 with its registered
office in London. It collects royalties for the issue of licences, granting
permission for performing right in the works of its members and distributes the
royalties to its .members. The Society entered into an agreement in England with
the President of India by which it granted to the All India Radio (the
licensee) authority to broadcast from its sound broadcasting stations in India
the musical works of the Society. Under the agreement the licensee had to pay
in England annual licence fee payable to the Society.
The appellant contended (i) that the
agreement between the appellant and the licensee having been executed in
England and the royalties being also payable in England, the income out of this
agreement was not liable to be taxed in India and (ii) the Society being under
an obligation to distribute the income to its members, royalties realised are
hot really income of the Society.
Rejecting the contentions,
HELD: (1)(a) Whether a certain income accrued
or arose in India within the meaning of s. 5(2) is a question of fact
"which should be looked at and decided in the light of commonsense and
plain thinking." The Society is a nonresident company and though it
received the income: out of the agreement executed, not in India but England,
the income undoubtedly accrued or arose. in India. [175H and F] (b) The
question whether the agreement is the source of the income is not relevant
because s. 5(2) provides that all income "from whatever source
derived" is to be included in the total income of the non-resident
assessee if the income accrues or arises in India during the relevant year.
The income in this case had in fact accrued
in India and by virtue of s. 9 no question arises whether it should be
"deemed" to. accrue or arise in India. [175 G] In the matter of V.G.
Every: (19'37) 5 I.T.R. 216 approved.
(2) Article 48 of the Society's Articles of
Association shows that the royalties payable by the licensee under the,
agreement are realised by the Society as its income. Out of the receipts are
deducted the expenses and also such other sums as in the discretion of the
General Council should be set aside for the purposes mentioned in that article.
This is a case where the assessee having received the income, applies it in a
particular Way; it is not a case of diversion of income by an overriding
charge. [177 C] Raja Bejoy Singh Dudhuria v. Commissioner of Income-tax, Bengal
(1933) 1 I.T.R., 135, P.C. Mullick and another (Executors) v. Commissioner of
Income-tax, Bengal (1938) 6 I.T.R. 206 and Commissioner of Income-tax, Bombay
City v. Sitaldas Tirathdas [1961] 41 I.T.R. 367 (pp. 374-375) distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 488 of 1975.
(Appeal by Special Leave from the Judgment
and Order dated 24-9-1973 of the Calcutta High Court in Appeal from Original
Order & No. 335/73).
172 Hardayal Hardy, for appellant No. 1.
K. Sen, S.K. Mehta, M. Qamaruddin and P.N.
Puri, for respondent No. 2.
S.C. Manchanda, P.L. Juneja and S.P. Nayar,
for respondents.
The Judgment of the Court was delivered by
GUPTA, J. The first appellant, performing Right Society Limited, (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 royalties for
the issue of licences granting such permission and distributes the royalties to
the members of the society, namely, the composers, authors, music publishers
and other persons having an interest in the copyright in proportion to the
extent to which a member's work is publicly performed or broadcast after a
pro-rata deduction of the expenses. Article 43 of, the Articles of Association
of the Society provides that the business and operations of the Society shall
be conducted and managed by a General Council, and Article 48 authorises the
General Council to apply the receipts also for certain other purposes. Article
48 reads as follows:
"48. The General Council may, before
making any distribution among the Members:
(a) Apply out of the receipts such sums as it
thinks proper or has agreed to contribute as :(i) Gratuities, donations,
pensions and emoluments to any Member or ex-Member of the Society or any person
at any time in the employment of the Society, or engaged in any business
acquired by the Society, and the 'wives, widows, families and dependants of any
such person;
(ii) Contributions to any benevolent, pension
or similar fund which may be established for the benefit of Members, ex-Members
or employees of the Society or their wives, widows, families or dependants .
(b) Set aside out of the receipts such sums
as it thinks proper as subscriptions, donations, loans, gifts other payments
for any of the purposes for which powers is given by paragraphs (iii) and (iv)
of Clause 3(f) of the Memorandum of Association, provided 173 that without the
assent of the Society in General Meeting the aggregate of all such payment
shall not in any one year exceed the sum of one thousand pounds and four
thousand pounds 'under the provisions of those paragraphs respectively.
(c) Set aside out of the receipts such sums as
it thinks proper as a reserve fund to meet contingencies, or for future
distribution, or for repairing, improving and maintaining any of the property
or premises of the Society and for such other purposes as the General Council
shall in its absolute discretion think necessary or conducive to the interests
of the Society, and may invest for the several sums so set aside in such
investments as it may think fit, and from time to time deal with or vary such
investments and dispose of all or any part thereof for the benefit of the
Society, and may divide the reserve fund into such special funds as it thinks
fit, and employ the reserve fund or any part thereof for the general purposes
of the Society, and that without being bound to keep the same separate from the
other assets." On December 13, 1953 the Society entered into an agreement
with the President of India owning and controlling broadcasting stations in
India and organizing and conducting the same under the name of All India Radio
(hereinafter referred to as the licensee) whereby the Society granted to the
licensee the authority, (a) to broadcast from the licensee's sound broadcasting
stations in India all musical works included in the repertoire of the Society,
and (b) to utilize, solely, for the purpose of sound broadcasting as aforesaid,
any originating performance of such musical works, irrespective of the source
of such performance and the means whereby the such performance is conveyed to
the point of broadcast transmission from the licensee's stations. The agreement
was executed in England. It may be stated here that previous to this agreement
the parties had entered into a similar agreement in the year 1940. The
agreement of 1953 states that the licence granted thereby "shall be deemed
to have come into force on April 1, 1949 and shall continue from year to year
until determined by either party giving to the other three calendar months'
notice in writing to expire on March 31 in any year". The agreement
provides that the licensee shall send to the Society at its registered office
in London, the lists of all musical works broadcast in each week during the
term of the licence from each of the licensee's main stations (Delhi, Bombay,
Calcutta and Madras) and the external services, and requires the licensee to
furnish a return after the first day of April every year during the period of
licence, stating the aggregate number of hours occupied during the period ended
on the previous 31st March, in broadcasting Western music from each of the
licensee's main and external Service Stations.
The agreement further provides that for the
rights granted, the licensee will pay to the Society annually a sum calculated
at the rate of 2 (Two pounds) per hour of broadcasting Western music from each
of the licensee's 174 main and external Service Stations and that such annual
payments must be made to the Society in London.
The second appellant, M/s. Natsin India
Private Limited is a private limited company incorporated under the (Indian)
Companies .Act having its office at 26, Chowringhee Road, Calcutta. 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
in July, 1967. As agent in India for the Society, the second appellant realises
on its behalf royalties from cinema houses and other sources where music over
which the Society has copyright is played in this country, and has, inter alia,
the power to commence and prosecute suits and other proceedings, engage
lawyers, and sign plaints, petitions etc. Prior to July, 1967 the Society, a
non-resident company, used to file its returns of income before the Income-tax
Officer, Madras, through its former agent in India, M/s.
Vernon and Company of Madras. The royalties
or fees realised from the licensee were not included in its returns for the
assessment years 1947-48 to 1950-51. Later, the .Income-tax Officer, Madras,
issued notices under section 34(1) of the IncomeTax Act, 1922 and assessed the
said income after deducting the proportionate administrative expenses. The
appeals taken by Vernon and Company against the supplementary assessment orders
for the aforesaid years were dismissed by the Appellate Assistant Commissioner,
Madras. The matter rested there and the Society had been paying tax on its
income in India including the income from royalties. received from the licensee
without objection until the assessment year 1967-68 for which the accounting
year ended December 31, 1966. In the said assessment year also the Income-tax
Officer, Companies Circle L(II), Madras by his order dated October 23, 1963
assessed the total income of the Society treating the income arising out of the
agreement with the licensee as chargeable as was being done all these years.
Against this order of assessment, the Society through the second appellant made
a revisional application under section 264 of the Income-Tax Act, 1961
(hereinafter referred to as the Act) to the Commissioner of Income-tax, West
Bengal, where the Society's incometax file had been transferred in the
meantime. The Additional Commissioner of Income-tax who dealt with the
application dismissed the same by his order dated July 18, 1970. The Society
then moved a writ petition before the Calcutta High Court challenging the order
of the Additional Commissioner of Income-tax. A rule nisi was issued on the
petition by a learned Judge of the High CoUrt but ultimately the rule was
discharged and the petition was dismissed. On appeal by the Society, a Division
Bench of the High Court affirmed the view taken by the learned single Judge and
dismissed the appeal on September 24, 1973. In this appeal by special leave the
appellants question the correctness of that decision and challenge the order of
assessment on two grounds:
(1 ) the agreement between the Society and
the Licensee having been executed in England and the royalties being also
payable in England, the income out of this agreement is not liable to be taxed
in India;
175 (2) the Society being under an obligation
to distribute the income to its members, the royalties realised are not really
the income of the Society.
The first point seems to be covered by the
provisions of section 5(2) (b) of the Act. Section 5(2) reads as follows:
"5. Scope of total income:
(1) x x x (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 t0 him in India during such year.
Explanation-1 .--Income accruing or arising
outside India shall not be deemed to be received in India within the meaning of
this section by reason only of the fact that it is taken into account in a
balance sheet prepared in India.
Explanation 2.--For the removal of doubts, it
is hereby declared that income which has been included in the total income of a
person on the basis that it has accrued or arisen or is deemed to have accrued
or arisen to him shall not again be so included on the basis that it is
received or deemed to be received by him in India ." The Society is a
non-resident company, and though it receives the income out of the agreement
executed not in India but in England, the income undoubtedly accrues or arises
in India. On behalf of the appellants it was contended that the source of
income was really the agreement which was entered into in England. We do not
think that the question as to the source of the income is relevant because
subsection (2) of section 5 provides that all income "from whatever source
derived" is to be included in the total income of the non-resident
assessee if the income accrues or arises in India during the relevant year.
Reference was also made to section 9 of the Act which enumerates the incomes
that shag be "deemed to accrue or arise in India" though actually
accruing elsewhere, to establish that the income in question could not be
deemed to accrue or arise in India. But the income in this case has in fact
accrued in India and no question arises whether it should be "deemed"
to accrue or arise in India. 'Whether a certain income accrued or arose in
India within the meaning of section 5(2) is a question of fact "which
should be looked at and decided in the light of commonsense and plain
thinking" as the Calcutta High Court considering a similar question under
section 4(1) 176 of the Income-Tax Act, 1922 observed.(1) In the case before us
the High Court and the income-tax authorities considered it a hard matter of
fact that the income derived from broadcast of copyright music from the
stations of All India Radio arose in India. In our opinion this was the correct
view to take and we find no reason to differ from it.
The next question is whether the income from
the royalties was the Society's own income. It was Contended on the authority
of Raja Bejoy Singh Dudhuria v. Commissioner ofIncome-Tax, Bengal,(") that
the obligation to disburse the sum among its members diverted the income from
the Society to the members, and it could not be called the income of the
Society. In Bejoy Singh Dudhuria's case there was a decree of the court
charging the appellant's whole resources with a specific payment to his
step-mother, the Privy Council held that the decree had to that extent diverted
his income from him and directed it to his step mother, and that to that extent
what he received for her was not his income.
But where payments are made by the assessee
after he has received the income as his, the position is different. This was
pointed out by the Judicial Committee in a later case, P.C. Mullick and another
(Executors)v. Commissioner of Income-tax, Bengal,(1) where the executors in
accordance with the directions in the will had paid Rs. 5,537/to the person who
performed the testator's addya Sradh, and another sum of Rs. 1,25,000/for probate
duty out of the income of the estate. It was held that this was not a case in
which a portion of the income was by an overriding title diverted from person
who would otherwise have received it as in Bejoy Singh Dudhuria's case but it
was "simply a case in which the executors having received the whole income
of the estate apply a portion in a particular way pursuant to the directions of
their testator, in whose shoes they stand". The true test for the
application of the rule of diversion of income by an overriding title has been
explained by this Court in Commissioner l,come-tax, Bombay City v. Sitaldas
Tirathdas(4) "In our opinion, the true test is whether the amount sought
to be deducted, in truth, never reached the assessee as his income.
Obligations, no doubt, there are in ever), case, but it is the nature of the
obligation which is the decisive fact. There is a difference between an amount
which a person iS obliged to apply out of his income and an amount which by the
nature of the obligation .cannot be said to be a part of the income of the
assessee. Where by the obligation income is diverted before it reaches the
assessee, it is deductible; but where the income is required to be applied to
discharge an obligation after such income reaches the assessee, the same
consequence, in law, does not follow. It is the first kind of payment which can
truly be excused and not the second. The second payment is merely an obligation
to pay another (1) In the matter of V. G. Every. (1937) 5 I.T.R.
216 (Coskello J.) (2) [1933] 1 I.T.R. 135 (3)
(1938) 6 I.T.R. 206.
(4) (1961) 41 I.T.R. 367 (pp. 374-375).
177 a portion of one's own income, which has
been received and is since applied. The first is a case in which the income
never reaches the assessee, who even if he were to collect it, does so, not as
part of his income, but for and on behalf of the person to whom it is payable."
On the facts of the present case it is clear that the royalties payable by the
licensee under the agreement are realised by the Society as its income; Article
48 of the Society's Articles of Association puts the matter beyond doubt. Out
of the receipts are deducted the expenses and also such other sums as in the
discretion of the General Council should be set aside for the purposes mentioned
in Article 48. This is a case where the assessee having received the income
applies it in a particular way; it is not a case of diversion of income by an
overriding charge.
The appeal is accordingly dismissed. There
will be no order as to costs.
P.B.R. Appeal dismissed.
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