Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX BOMBAY CITY & SUBURBAN DISTRICT,
Vs.
RESPONDENT:
HUKAMCHAND MILLS LTD. INDORE
DATE OF JUDGMENT:
21/07/1967
BENCH:
SIKRI, S.M.
BENCH:
SIKRI, S.M.
SHAH, J.C.
RAMASWAMI, V.
CITATION:
1967 AIR 1907 1968 SCR (1) 47
CITATOR INFO :
RF 1976 SC2078 (2)
ACT:
Income Tax--Company in erstwhile State of Indore making
sales in India--Railway Receipts issued to ’self’ and
endorsed to customers in British India--Handed over to bank
to be given to customer on payment of sale price--Whether
property passed in British India--Whether Indian Income tax
leviable.
HEADNOTE:
The respondent was a limited company incorporated in the
State of Indore where it had a textile mill. During the
years from 1941 to 1946, it effected sales in British India
through canvassing by its own representatives,. through
brokers or through the purchasers’ brokers or
representatives visiting Indore. The sales in British India
in all categories were made-F.O.R, Indore; the Railway
Receipts were made out in the name of ’self’ and were
endorsed in favour of the customer concerned and handed over
to the Bank for delivery to the customer against payment of
the sale price which was received at Indore through the
Bank’s local branch.
In the course of its assessment to Indian Income-tax for
some of the years during the period 1942-43 to 1947-48, the
Income-tax Officer, apart from taxing the income actually
received in India, also held that the profits apportionable
to all the other sales made in British India accrued or
arose in the taxable territories and were therefore liable
to Indian Income-tax. He accordingly taxed the same on
accrual basis. The Appellate Assistant Commissioner in
appeal held that taking into account the fact- of the case,
it would be fair. on the analogy of Rule 33 of the Indian
Income-tax Rules 1922 to attribute 331 per cent of the
profits to the activities in British India and to assess
them to Indian Income Tax. The Tribunal confirmed this
order but the High Court, on a reference under s. 66 of the
Indian Income-tax Act, held in favour of the respondent.
In the appeal to Supreme Court it was contended on behalf of
the appellant that on the procedure adopted for the sales,
the property in the goods passed in British India in all the
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categories of sales and that the fact that the goods were
sold F.O.R. at Indore did not make any difference to that
position. The High Court had therefore wrongly taken the
view that the sales were not taxable in India.
HELD: Allowing the appeal: the income accrued within
British India and a proportionate part of it was assessable
to Indian Incometax. [52G-H]
Pushanlal Mansingka (P) Ltd. v.The Commissioner of Income
Tax, Delhi, Civil Appeal Nos. 557-558 of 1966, decided on
May 5, 1967; followed.
Commissioner of Income-tax, Delhi v. P.M. Rathod & Co. 37
I.T.R. 145, 150: Commissioner of Income-tax v. Bhopal
Textiles Ltd., 41 I.T.R. 72, referred to.
48
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 2178 to
2182 of 1966.
Appeals by special leave from the judgment and order dated
August 28, 1961 of the Bombay. High Court in Income-tax
Reference No. 5 of 1961.
S. T. Desai, R. Ganapathy Iyer, R. N. Sachthey and S. P.
Nayar, for the appellant (in all the appeals).
T. V. Viswanatha Iyer, O. C. Mathur, and, B.
Parthasarathy, for the respondent (in all the appeals).
The Judgment of the Court was delivered by
Sikri, J.-These appeals by special leave are directed
against the judgment of the High Court of Judicature at
Bombay answering the following question (Question No. 3)
against the Commissioner of Income-tax, Bombay City and
Suburban District, appellant before us:
"3. Whether on the facts and in the
circumstances of the applicant’s case the
Tribunal was right in holding that a
proportionate part of the profits determined
on sales grouped under Items 3, 4, 5 and 9 in
the assessment order by the application of
Rule 33 was assessable to Income-tax?
The High Court, in view of its answer to this
question did not answer the following question
(Question No 2):
"Whether on the facts and in the circumstances
of the applicant’s case, the Tribunal was
right in holding that in respect of sales of
Rs. 14,80,059 the profit was correctly
determined by the application of Rule 53 and
one-third of the profits so determined could
be said to accrue or arise in British India?"
We are not concerned with the remaining question (Question
No. 1) which related to sales to the Government of India, as
that question was answered in favour of the appellant.
Relevant facts are as follows: The respondent, Hukamchand
Mills Ltd., Indore, hereinafter referred to as the assessee,
is a limited company incorporated in the State of Indore and
had a textile mill at Tadore. It carried on the business of
manufacture and sale of textiles in the calendar years 1941,
1942, 1944, 1945 and 1946. For the relevant assessment
years, namely, 1942-43, 1943-44, 1945-46, 1946-47 and 1947-
48, the Income-tax Officer found that the assessee effected
certain sales to merchants and others in British India. For
the assessment year 1942-43, the Income-tax Officer
classified the total sales of Rs. 92,45,151 into four
categories. Out of the total sales, sales
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Rs. 14,80,059 formed the subject-matter of the two questions
reproduced above. The statement of the case details the
categories in the following chart:
Sales Balance Sales
effected of pursu-
Total and columns ant to
Category of Sales Sales received II and cent. Balance
in British III racts
India bearing
Stamps
of
Indore
State
-----------------------------------------------------
(a,) Sales in pursuance of
business canvassed by
company’s represemita.
tives in British India 10,02,642 3,35,855 6,66,787
20,759 6,46,028 (3)
(b) Sales to British Indian
merebants through birokers and agents in British
India.....2,91,891 2,91,891 2,91,891 (4)
(c) Sales to British
Indian merchants and brokers
during their visit at lndore 3,85,214
3,85,214 2,86,224 (5)
(d) Sales to British Indian merchants at the time of their
own or their brokers’ visit at Indore 3,13,306 3,13,306
57,390 2,55,916 (9)
____________________________________________________________
19,93,0533,35,855 16,57,1981,77,13914,80,059
____________________________________________________________
(The figures at the extreme right show the item numbers used
by the Income-tax officer in para 2.of the assessment
order).
The modus operandi for effecting the sales enumerated in the
chart referred to above is described as follows in the
statement of the case:
"(a) Sales of Rs. 6,66,787:-The assessee had a
paid representative at Bombay who canvassed on
behalf of the Company to British Indian
Merchants. The orders were sent by such
merchants to Indore. On acceptance of orders
by the Company at Indore the Company prepared
the contracts, signed them and forwarded the
same for being signed by the customer. One
contract was signed by the customer and
returned to the assessee. Thus ’the Company
signed at Indore and the customer signed, in
British India. The contracts were signed on
company’s forms. On some contracts there were
stamps of Holkar State. On the remainder
there were ’British India’ stamps. Sales on
which Holkar Stamps were affixed aggregated to
Rs. 20,759 which were deleted by the Appellate
L/P(N)1SCI-5
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Assistant Commissioner from the said sales of
Rs. 6,66,787. Sales of Rs. 3,35,855 under
this category received in British India by the
representative of the assessee at Bombay were
taxed on receipt basis and the same was not
contested, as stated above. The goods under
the contracts referred to hereinabove were
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delivered F.O.R. Indore. The relevant railway
receipt made in the name of ’self’ was
endorsed in favour of the customer and was
handed over to Imperial Bank of India, Indore,
for being delivered to the merchant. Sale
proceeds were received at Indore through the
Imperial Bank of India, Indore.
(b)Sales of Rs. 2,91,891 :-The brokers in
British India who were described as free lance
brokers transmitted the offers to the company.
These offers were made on the brokers’ own
forms and were communicated to the merchants
through the brokers. Such orders were placed
by the brokers in the normal course of
business of these brokers who were not en,-
aged by the Mill as such. The goods were
delivered F.O.R. Indore. The relevant railway
receipt made in the name of ’Self’ was
endorsed by the assessee in favour of the
merchants and handed over to the Imperial Bank
of India.
(c)Sales of Rs. 3,85,214:-These sales were
made to British Indian merchants and
customers, who came to Indore to negotiate and
place orders. The orders were accepted at
Indore. On some contracts made for sales
under this item, stamps of Holkar State were
affixed. Sales pursuant to contracts on which
stamps at Holkar State were affixed aggregated
to Rs. 98,990 which was deleted by the,
Appellate Assistant Commissioner from the
aforesaid sales of Rs. 3,85,214. The goods
were delivered, F.O.R. Indore. The railway
receipt was made out in the name of ’Self’ and
was endorsed by the assessee in favour of the
customer and handed over to the Imperial Bank
of India for being delivered to the party
concerned. The sale proceeds were received at
Indore as in other cases.
(d)Sales of Rs. 3,13,306:-Sales under this
category were made to British Indian merchants
on their or their broker’s personal visit to
Indore. Contracts for such sales were made in
the same manner as stated hereinbefore. Such
sales, in respect of which relevant contracts
bore the Holkar State stamps aggregated to Rs.
57,390 which were deleted by the Appellate
Assistant Commissioner from the aforesaid
sales of Rs. 3,13,306. The goods were
delivered F.O.R. Indore. The railway receipt
was made in the name of ’self’ and was
endorsed in- favour
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of the customer and handed over to the
Imperial Bank of India for being delivered to
the merchants. The sale proceeds were
recovered from the Imperial Bank of India,
Indore, at Indore as in other cases."
The Income-tax Officer held that profits apportionable on
sales of Rs. 16,57,198 accrued or arose in British India and
as such taxed the same on accrual basis. Rs. 3,35,855
having been received in British India were taxed on accrual-
cum-receipt basis. The Appellate Assistant Commissioner on
appeal held that taking into account all facts of the case
it would be fair to take 3 3-1/3 % of the profits realised
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on sales amounting to Rs. 16,57,198 as attributable to
activities in British India. Out of this amount he deducted
sales totalling Rs. 1,77,139 as the contracts in respect of
these were signed at Indore and accepted at Indore. On the
balance of sales of Rs. 14,80,059 the Appellate Assistant
Commissioner held that, on the analogy of Rule 33 of the
Indian Income-tax Rules, 3-1/3% profits out of the total
profits apportionable to such sales should be attributable
to the activities in British India and as such taxed in the
hands of the assessee. The Tribunal confirmed the order of
the Appellate Assistant Commissioner. In compliance with
the order of the Bombay High Court, the Appellate Tribunal
drew up a statement of the case under s. 66(4) of the Indian
Income-tax Act, and referred three questions mentioned
above. The High Court, as stated above, answered Question
No. 3 in favour of the assessee, and the appellant having
obtained special leave, the appeal is now before us.
Mr. S. T. Desai the learned counsel for the appellant, con-
tends that the High Court was wrong in holding that no part
of the profits of the sales could be said to have accrued or
arisen in British India. He says that on the facts and
circumstances of the case, the property in the goods passed
in British India in all the four categories. He says that
the method of delivery in the four categories was similar,
namely, that the railway receipts were made in the name of
’self’ and endorsed in favour of the customers and were
handed over to the Imperial Bank of India, Indore, for being
delivered to the merchant and sale proceeds were received at
Indore through the Imperial Bank of India, Indore. He
further says that the fact that the goods were to be
delivered F.O.R. at Indore does not make the property in the
goods pass at Indore. There. is considerable force in the
learned counsel’s submissions. In Pushanlal Mansinghka (P)
Ltd. v. The Commissioner of Income Tax. Delhi,(1), this
Court, on similar facts, held that the property in the goods
passed in Part A and Part C States where the delivery was
made. This Court further held that the income accrued only
(1) Civil Appeals Nos. 557-558 of 1966; judgement delivered
on May 5, 1967.
52
when the purchaser paid the price through the bank. The
method of delivery. in that case was as follows:
"The appellant consigned the goods to ’self’
and the railway receipts alongwith the bills
of exchange were presented by the appellant to
the Rajasthan Bank. Bhilwara, for collection
after endorsing the railway receipts in favour
of the Bank. It has also been found that the
Rajasthan Bank in its turn endorsed the
railway receipts in favour of its branches in
Part ’A’ and Part ’C’ States and that the
goods were delivered to the buyers only when
they paid the price to the Bank and obtained
the railway receipts."
We may mention that in Commissioner of Income-tax, Delhi v.
P. M. Rathod & Co.(1) Kapur, J., speaking for the Court, on
similar facts, observed:
"The railway receipts in favour of self could
not be delivered to the buyer till the money
was paid and although the goods had been
handed over to a common carrier the
appropriation to the contract was only
conditional and the performance was completed
only when the monies were paid and the railway
receipts delivered."
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This case was followed in Commissioner of Income-tax v.
Bhopal Textiles Ltd.(2). It is true that the Court in these
cases was concerned with the question of the receipt of
income, but there is no difference in principle as in both
cases the question of passing the property in the goods or
performance of the contract had to be considered-.
The learned counsel for the assessee contends that no such
point was raised before the Appellate Tribunal and we should
not allow the appellant to raise this point at this stage.
It seems to us that before the High Court stress was laid on
the "formation of the contract and its complete performance"
and not on the aspect of the passing of property in the
goods. These questions are perhaps relevant to the
answering of Question No. 2 but we are unable to regard this
aspect as a new question. Following our judgment in
Pushanlal Mansinghka (P) Ltd. v. The Commissioner of Income-
tax, Delhi(1) we hold that income accrued within British
India and that a proportionate part of the income was
assessable to incometax. In view of this the answer to the
question (Question No. 3) must be in the affirmative.
(1) 37 I.T.R. 145, 150.
(2) 41 I.T.R. 72.
(3) Civil Appeals Nos. 557-558 of 1966; judgment delivered
on May 5,1967.
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Regarding Question No. 2, the learned counsel for the appel-
lant invited us to answer the question. The learned counsel
for the assessee raised a number of points on which the High
Court has not expressed its views. Under the circumstances
we think it would be proper if we remand the case to the
High Court for answering Question No. 2 according to law.
In the result the appeals are allowed and question No. 3
answered in the affirmative, and the case remitted to the
High Court to answer question No. 2 in accordance with law.
The High Court did not allow any costs. Under the circum-
stances there will be no order as to costs in this Court.
R.K.P.S. Appeals
allowed.
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