# PERFORMING RIGHT SOCIETY LTD. & ANR v. COMMISSIONER OF INCOME-TAX & OTHERS

- **Citation:** [1977] 1 S.C.R. 171
- **Court:** Supreme Court of India
- **Decided:** 1977
- **Bench:** A. C. Gupta, Jaswant Singh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/performing-right-society-ltd-anr-v-commissioner-of-income-tax-others-6900
- **Pages:** 7

## Headnote

171
Income Tax Act, 1961~. 5(2)-Non-reSipent · cdmpany receb1ing income
outside Jndia-I.ncon1e if accrued in India.
A,
B,
The appeliant Society which is an associationJ>f composers, authors and
publishers of copyright musical works was incorporated under the
English
Cempanies Act, 1903 and 1913 with its registered office ih London.· It collects
royalties for the is'sue of licences, granting permission for performing right in
the works of its memberg and distributes the :royalties to its members. The C
Society entered into an agreement in England .with the President of India by
v,1hich it granted to the All India Ra.did (the licensee) authority to broadcast
from its sound broadcasti.pg stations in ]ndia the musical works of the Society.
Under· the agreement the licensee had to. pay in England anhual licence fee
payable to the Society.
.
The appellant eontended (i) that the agreement between the appellant and
the licensee having been executed in England ahd the royalties being also payable
in England, the income out of thig agreement was not liable to be taxed in Il
India and (ii) the Society being under an obligation to distribute the income ta
its members, royalties realised are hot reaily income of the Society.
__
Rejecting the contentions,
HELD: (l)(a) Whether a certain income accrued or arose in India within
the meaning of s. 5(2)" isl a question of fact "'which should be looked at and
decided in the light or commonsense and plain thinking. ty The Society is a
non-re~ident company and though it received the income 9Ut Of the agreement
executed, not in India but England, the income undoubtedly accrued or arO<Jei
E
in India. [175H and Fl
(b) The quCstion whether the agreemeht 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 inoome of the non-resident assessee if the
income accrues or arises in India during the relevant year. The income in this
case had ·infact accrued in India and by virtue of s. 9 no question arises
whether it should be udeemed• to accrue or arise in India. [175 G]
In the matter of V.G. Every: (1937) 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 1he expenses and al50- such
other sums as in the discretion of the General Council should be set aside for
the purposes mentioned .ih 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]
Raia Beioy Siizgh Dudhuria v. Commissioner of Income-tax, Bengal (1933)
1 I.T.R., 135. P. C. Mullick and another (Executors) v. Commissioner of
Inceme-tax, Bengal (1938) 6 l.T.R. 206 and Com1nissioner of Income-tax,
Bombay City v. Sitaldas Tirathdas [1961] 41 I.T.R 367 (pp. 374-375) distinguished.
F
G
Civ!L APPELLATE JURISDICTION: Civil Appeal No. 488 of 1975.
(Appeal by Special Leave from the Judgment and --Order dated H
24-9-1973 of the Calcutta High Court in Appeal from Original Order &
No. 335/73).
A
B
c
D
E
F
G
H
172
SUPREME COURT REPORTS
[1977] 1 S.C.R.
Hard(}yal Hardy, for appellant No. 1.
A. 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.

## Text

PERFORMING RIGHT SOCIETY LTD. & ANR.
v.
COMMISSIONER OF INCOME-TAX & OTHERS
August IO,. 1976
[A. C. GUPTA AND JASWANT SINGH, JJ.]
171
Income Tax Act, 1961~. 5(2)-Non-reSipent · cdmpany receb1ing income
outside Jndia-I.ncon1e if accrued in India.
A,
B,
The appeliant Society which is an associationJ>f composers, authors and
publishers of copyright musical works was incorporated under the
English
Cempanies Act, 1903 and 1913 with its registered office ih London.· It collects
royalties for the is'sue of licences, granting permission for performing right in
the works of its memberg and distributes the :royalties to its members. The C
Society entered into an agreement in England .with the President of India by
v,1hich it granted to the All India Ra.did (the licensee) authority to broadcast
from its sound broadcasti.pg stations in ]ndia the musical works of the Society.
Under· the agreement the licensee had to. pay in England anhual licence fee
payable to the Society.
.
The appellant eontended (i) that the agreement between the appellant and
the licensee having been executed in England ahd the royalties being also payable
in England, the income out of thig agreement was not liable to be taxed in Il
India and (ii) the Society being under an obligation to distribute the income ta
its members, royalties realised are hot reaily income of the Society.
__
Rejecting the contentions,
HELD: (l)(a) Whether a certain income accrued or arose in India within
the meaning of s. 5(2)" isl a question of fact "'which should be looked at and
decided in the light or commonsense and plain thinking. ty The Society is a
non-re~ident company and though it received the income 9Ut Of the agreement
executed, not in India but England, the income undoubtedly accrued or arO<Jei
E
in India. [175H and Fl
(b) The quCstion whether the agreemeht 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 inoome of the non-resident assessee if the
income accrues or arises in India during the relevant year. The income in this
case had ·infact accrued in India and by virtue of s. 9 no question arises
whether it should be udeemed• to accrue or arise in India. [175 G]
In the matter of V.G. Every: (1937) 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 1he expenses and al50- such
other sums as in the discretion of the General Council should be set aside for
the purposes mentioned .ih 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]
Raia Beioy Siizgh Dudhuria v. Commissioner of Income-tax, Bengal (1933)
1 I.T.R., 135. P. C. Mullick and another (Executors) v. Commissioner of
Inceme-tax, Bengal (1938) 6 l.T.R. 206 and Com1nissioner of Income-tax,
Bombay City v. Sitaldas Tirathdas [1961] 41 I.T.R 367 (pp. 374-375) distinguished.
F
G
Civ!L APPELLATE JURISDICTION: Civil Appeal No. 488 of 1975.
(Appeal by Special Leave from the Judgment and --Order dated H
24-9-1973 of the Calcutta High Court in Appeal from Original Order &
No. 335/73).
A
B
c
D
E
F
G
H
172
SUPREME COURT REPORTS
[1977] 1 S.C.R.
Hard(}yal Hardy, for appellant No. 1.
A. 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
G.UPTA, J.
The first appellant, Performing Right Society Limited,
(heremafter 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, Londona 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 afo~r a
pro-rata deduction of the expenses. Article 43 0£ the Articles of Assodation 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 :-
(b)
(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.
Set aside out of the receipts such sums as it thinks
proper as subscriptions, donations, loans,
gifts
or
other payments for any of the purposes for which
powers is given by paragraphs (iii) a1:1d _(iv) of Cl~use
3 ( f) of the Memorandum of Associat10n, provided
PERFORMING RIGHT SOCIETY v. COMMR. OF 1.T. (Gupta, J.)
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.
A
( c) Set aside out of the receipts such sums as it thinks
proper as a reserve fund to meet contingencies, or for
B
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
C
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."
D
'
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, irrespectivie 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 agreegate 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
E
F
G
H
A
B
c
D
E
F
G
H
174
SUPREME COURT REPORTS
[ 1977) 1 S.C.R.
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 ofhce 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 10 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 licenset; were
not included in its returns for the assessment years 194 7-48 to 1950-51.
Later, the Income-tax Officer, Madras, issued notices under section
34 (1) of the Income-Tax 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 th~·
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 Socie!y's income-tax 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;
.Pl!RFORMING RIGHT SOCIETY v. COMMR. OF I.T. (Gupta, J.)
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)
i(b) of the Act. Section 5 (2) reads as follows :
"5. Scope qf total income :
(1)
x
x
x
, ( 2) Subject to the provisions of this
Ac~,
the tot~l
·income of any previous year of a person who is a nou-~es1dent includes all income from
whatever
source
denved
'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.
Explanation-1.-Income
accruing
or
arising
outsiue
.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 Mi 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 df a person on the basis that it has accrued or arisen or is deemed to have accrued or ari-
·sen to 'him. sha:l'l not again be so included on the basis
that it is .received .or deemed to be received by him in
India:"
ihe 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 ap-
-pellants 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 t'hat shall be "deemed to accrue or arise in
India" though actua:Ily accruing elsewhere, to establish that the income in question cou1d 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 shou1d 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
Ca1cutta High Court considering a similar question under section 4 ( 1)
A
B
c
D
E
F
G
H.
176
SUPREME COURT REPORTS
[1977] 1 S.C.R'.
A
of the Income-Tax Act, 1922 observed.(') 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.
B
c
D
E
F
G
H
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 of Income-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,(')
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 appHcation of the rule of diversion of income by
an overriding title has been explained by this Court in Commissioner
of Income-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 every 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 amout 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
(!)In the matter ofV.G. Every. (1937) 5 l.T.R. 216 (Coskello 1.)
(2) [19331 1 I.T.R. 135
(3) (1938) 6 T.T.R. 206.
(4) (1961) 41 I.T.R. 367 (pp. 374-375).
PERFORMING RIGHT SOCIETY v. COMMR. OF I.T. (Gupta, J.)
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
lt
as its income; A[ticle 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.
C:
The appeal is accordingly dismissed.
There will be no order as
to costs.
P.B.R.
Appeal dismissed.