Full Judgment Text
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PETITIONER:
PUSHALAL MANSINGHKA (P) LTD.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, DELHI,RAJASTHAN & M.P.
DATE OF JUDGMENT:
05/05/1967
BENCH:
RAMASWAMI, V.
BENCH:
RAMASWAMI, V.
SHAH, J.C.
SIKRI, S.M.
CITATION:
1967 AIR 1626 1967 SCR (3) 961
CITATOR INFO :
F 1967 SC1907 (5,8)
ACT:
Income-Tax Act 1922 s. 4(1)(a)--Exporter in Part ’B’
State selling goods to purchasers in Part ’A’ and Part ’C’
States--Sending ’selves’ railway receipts through local bank
to be given to purchaser on payment of price--Bank
discounting some bills locally--whether property goods
passing and income accruing, outside Part ’B’
State.--Whether exemption from tax available under Part ’B’
States (Taxation Concessions) Order, 1950.
HEADNOTE:
The appellant carried on mining business at Bhilwara
which was, during the relevant period. in a Part ’B’ State
and exported mica to Kodarma and Giridih situated in Part
’A’ and Part ’C’ States respectively. The appellant entered
into. contracts with purchasers whereby the consignments
would be sent to Kodarma and Giridih by railway and the
railway receipts would be sent through the bank. The goods
were consigned t0 "self" and the railway receipts along with
the Bills of Exchange were presented by the appellant to
its bank in Bhilwara for collection after endorsing the
railway receipts in favour of the bank. The bank, in its
turn, endorsed the railway receipts in favour of its
branches in Part ’A’ ’.and Part ’C’ States and the goods
were delivered to the buyers only when they paid the price
to the bank’s branches and obtained the railway receipts.
In the course of the appellant’s assessment to income-tax
for the. years 1950-51 and 1951-52, the appellant claimed
that it was entitled the benefit of rebate under the Part
’B’ States (Taxation Concessions) Order. 1950 in regard to
profits from sales made by it and that s. 4(1)(a) of the
Income-tax Act, 1922 was not applicable to its transactions.
The Income-tax Officer held that the sales took place in
Part ’A’ and Part ’C’ States and the entire profits from
those sales accrued and were received by the appellant in
those States and therefore no rebate was admissible under
’the Order. He also rejected the appellant’s claim that in
regard to some of the sales, Bills were discounted by the
local bank and hence payment to that extent should be
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treated as having been received at Bhilwara in a Part ’B’
State. Appeals made to the Appellate Assistant Commissioner
and the Tribunal were dismissed and, the High, Court, upon a
reference, also decided against the appellant.
In the appeal to this Court it was also contended on
behalf of the appellant that as the mica was extracted,
processed, sorted and packed at Bhilwara in Part ’B’ State,
there was accrual of a part of the income at Bhilwara and
the appellant was, in any case, entitled to claim
apportionment of the profits accrued.
HELD: (i) The appellant became entitled to the purchase
money only on the passing of title to the purchasers at
Kodarma and Giridih in Part ’A" and Part ’C’ States and the
income therefore accrued to the appellant
962 .
in those States. The appellant was not therefore entitled
to exemption under the Part ’B’ States (Taxation
Concessions) Order, 1950. [970B]
When the seller draws a hundi or a bill of exchange on the
pur,chaser and delivers the hundi or the bill of exchange
with a relative railway receipt to his own banker for the
purpose of delivery of the railway receipt to the purchaser
on his honouring the hundi, the property in the goods cannot
be held to pass to the purchaser till he pays the price and
takes delivery of the railway receipt from the banker. [968
D]
Income may accrue to an assessee without actual receipt of
the same. ’If the assessee acquires a right to receive the
income, the income can be said to accrue to him though it
may be ’received later on its being ascertained. The basic
conception is that he must have acquired a right to receive
the income. [966B]
(ii) When the local bank discounted the bills, the payments
could not be regarded as income accruing in a Part ’B’
State. When the bank gave credit of part of the amount of
some of the bills to the appellant. it was apparent from the
conditions specified in the discount form of -the bank that
the responsibility of the appellant did not cease till the
bank realised payments from the purchasers. When the
appellant negotiated the documents with the bank, the latter
did so only as part of its banking business. The
discounting by the bank of the Bills could not -mean that
there was a sale of the goods to the bankers. Therefore if
any -money was paid by the bank to the appellant as price
for the hundi, it was not the sale price of the goods in any
sense and the bank was not acting at the agent of the
buyer.[969 C-H]
Colquhoun v. Brooks, [1888] 21 Q.B.D. 52 at 59; E. D.
Sassoon & Company Ltd. v. C.I.T. Bombay City, 26 I.T.R. 27,
51; C.I.T. Bombay Presidency & Aden v. Chunilal B. Mehta 6
I.T.R. 521; Mirabita v. Imperial Ottoman Bank, [1878] 3
Ex.D.164, 172 and Prinz Adalbert, [1917] A.C. 586, 589;
referred to.
The contention that the profits earned should be apportioned
as there was accrual of part of the income in a Part ’B’
State could not be considered as it was not raised before
the Tribunal. [970E-F]
C.I.T. Bombay v. Ahmedbhai Umarbhai & Co., 18 I.T.R. 472;
The Anglo-French Textile Co. Ltd. v. C.I.T. Madras,, 25
I.T.R. 27 and C.I.T. Bombay v. Scindia Steam Navigation Co.
Ltd., 42 I.T.R. 589, referred -to.
JUDGMENT:
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CIVIL APPELLATE JURISDICTION Civil Appeals Nos.
557 and
:558 of 1966.
Appeals by special leave from the judgment and order dated
April 29, 1964 of the Rajasthan High Court in Income-tax
Reference No. 2 of 1963.
K. D. Karkhanis, Ganpat Rai, E. C. Agarwala for P. C.
Agarwala, for the appellant (in both the appeals).
S. T. Desai, S. K. Aiyar and R. N. Sachthey, for the
respondent -(in both the appeals).
963
The Judgment of the Court was delivered by
Ramaswami, J. These appeals are brought, by special leave,.
from the judgment of the Rajasthan High Court dated April
29, 1964 in Income-tax Reference No. 2 of 1963.
The appellant is a private limited company having its mines,
factory and Head Office at Bhilwara in Rajasthan which was
at the relevant periods in a Part ’B’ State. The appellant
carried on mining ’business at Bhilwara and was engaged in
the cutting, processing, sorting and packing of mica which
was exported by it to Kodama and Giridih which were situated
in Part ’A’ and Part ’C’ States and sold there to
purchasers. The mica was sent almost entirely by railway
from Bhilwara to Kodarma and Giridih. The appellant
followed the mercantile method of accounting and the
assessment years in question are 1950-51 and 1951-52, the
corresponding previous years being the years from November
2, 1948 to October 21, 1949, and October 22, 1949 to
November9 5 1950 respectively. The ’total sale proceeds of
the appellant during the two assessment years amounted to
Rs. 19,77,544/-. The appellant tendered bills to the local
branch of the Bank of Rajasthan to the extent of Rs.
15,64,475/- and received payment of that amount at Bhilwara.
The appellant claimed that it was entitled to the benefit of
rebate in regard to profits from these, sales under the Part
’B’ States (Taxation Concessions) Order, 1950 and that s.
4(1) (a) of the Income-tax Act 1922. (hereinafter, called
the ’Act’) was not applicable to its transactions; By his
orders dated March 24, 1955 and May 31, 1954 the Incometax
Officer held that the sales took place in Part ’A’ and Part
C’ States and the entire profits from those sales accrued
and were received by the appellant in Part ’A’ and Part ’C’
’States and’ therefore no rebate was admissible under the
Part ’B’ States (Taxation Concessions) Order, 1950. The
Income-tax Officer’ also, rejected the claim of the
appellant that in regard to some of the sales bills were
discounted by the Rajashan Bank and payment to that extent
should be treated as having been received at Bhilwara in the
Part ’B’ State. It was held by the Income-tax Officer : (1)
that the letter for discounting was forged, (2) that even
assuming that the appellant tendered some of its bills for
discounting, the responsibility of the appellant under the
conditions, stipulated by the Bank in its form did not cease
till the Bank realised payment from the purchaser and hence
there was no discounting of the bills which were merely
handed to the Bank for collection. On appeal, the Appellate
Assistant Commissioner by his order dated September 20, 1957
held that the lncome-tax Officer was justified in holding
that the appellant was not entitled to any rebate under the
Part ’B’ States (Taxation Concessions) Order, 1950. On
further appeal, the Appellate Tribunal held by its order
dated August 18, 1958 that the appellant received the
964
sale proceeds in regard to the goods consigned to the
purchasers in Part ’A’ and Part ’C’ States and not in Part
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’B’ State and therefore the appellant was not entitled to
the rebate claimed by it. The Appellate Tribunal thereafter
stated a case under s. 66(1) of the Act and referred the
following question of law for the opinion of the High Court
:
"Whether on the facts and in the circumstances
of the case, the assessee was entitled to any
rebate under the Part ’B’ States (Taxation
Concessions) Order.in respect of income from
the mining business for the assessment years
1950-51 and 1951-52 ?"
By its judgment dated April 29, 1964, the High Court
answered the question in the negative and against the
appellant.
The method of the appellant in making sales was as follows
The representatives of the buyers from Kodanna and Giridih
used to visit Bhilwara, inspect the various qualities of
mica which the appellant had for sale and entered into
written contracts for purchase. The aforesaid contracts are
marked as Annexure ’A’ to the statement of the case and it
is admitted by the parties that -they represent all the
contracts with which we are concerned in these appeals.
These contracts plainly show that the buyers purchased
specified qualities of mica, "Bhilwara go down delivery" on
the condition that the consignments would be sent to Kodarma
or Giridih as the case may be and the railway receipts would
be sent "through bank". There is the further stipulation
that 25 per cent of the price would be sent by way of an
advance, within -a week’s time, that the packing expenses
would be payable by the buyers and that after the
consignments left the godown at Bhilwara, they would be
entirely at the buyer’s risk. Apart from these written
terms and conditions of the contract,the Income-Lax
Appellate Tribunal has recorded the further finding of fact
that the appellant consigned the goods to "self" and that
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
receipt;.
Paragraph 4 (I) (iii) of the Part ’B’ States (Taxation
Conccssions) Order, 1950 is to the following effect :
"4. Scope of the main concessions-(1) The
provisions of paragraphs 5, 6, sub-paragraph
(1) of paragraphs 11, 12 and 13 of this Order
shall apply-
.........................................
9 6 5
(iii) in the case of any other assessee who is
not resident in the previous year in the
taxable territories or in the taxable
territories other than Part B States, to so
much of the income, profits and gains included
in his total income as accrue or arise in any
Part B State and are not deemed to accrue or
arise, or are not received or deemed to be
received within the meaning of clause (a) of
sub-section (1) of section 4 of the Act, in
the taxable territories other than the Part B
States." Section 4 (I) (a) of the Act reads :
"4. Application of Act.-(1) Subject to the
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provisions of this Act, the total income of
any previous year of any person includes all
income, profit and gains from whatever source
derived which-
(a) are received or are deemed to be
received in the taxable territories in such
year by or on behalf of such person, or"
.LM0
The question to be considered in this case is
:-Where did the income or the right to receive
the payment under the contracts of sale accrue
or arise ? According to the Oxford English
Dictionary the meaning of the word "accrue" is
"to fall as a natural growth or increment; to
come as an accession or advantage". The word
"arise" is defined as "to spring up, to come
into existence". The word "receive" is not
used in the same sense as "accrue" and "arise"
in para 4 (I) (iii) of Part B States (Taxation
Concession) Order. The words "accrue" and
"arise" do not mean actual receipt of the
profits or gains. Both these words are used
in contra-distinction to the word "receive"
and indicate a right to receive. In Colquhoun
v. Brooks(1) Lord Justice Fry had to construe
the expression "profits or (rains, arising or
accruing" in 16 and 17 Victoria Chapter 34,
Section 2, Schedule ’D’ and observed in that
connection as follows :
"In the first place, I would observe that the
tax is in respect of ’profits or gains arising
or accruing’. I cannot read those words as
meaning ’received by’. If the enactment were
limited to profits and gains ’received by’ the
person to be charged, that limitation would
apply as much to all Her Majesty’s subjects as
to foreigners residing in this country. The
result would be that no income-tax would be
payable upon profits which accrued but which
were not actually received, although profits
might have been earned in the kingdom and
might have accrued in the kingdom. I think,
(1) [1888] 21 Q.B.D. 52 at 59.
966
therefore, that the words ’arising or
accruing’ are general words descriptive of a
right to receive profits."
It is clear, therefore, that the income may accrue to an
assessee without actual receipt of the same. If the
assessee acquires a right to receive the income, the income
can be said to accrue to him though it may be received later
on its being ascertained. The basic conception is that he
must have acquired a right to receive the income.-(See E. D.
Sassoon & Company Ltd. v. C.1.T. Bombay City) (1).
As pointed out by the Judicial Committee in C.I.T. Bombay
Presidency & Aden v. Chunilal B. Mehta (2 ) , it is
impossible to lay down any general test to determine the
place where the profits of the business accrue. In some
cases it may be the place of the formation of the contract,
but other matters-for instance the place where the contract
is carried out or acts are done under the contract-may be
decisive in certain circumstances. When the business
consists of buying and selling goods, profits accrue as a
general rule at the place where the contract of sale is made
or where sales are effected. But the question depends very
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much upon the facts and circumstances of each particular
case. At page 533 of ’the Report the Judicial Committee
observed as follows:
"Their Lordships are not laying down any rule
of general application to all classes of
foreign transactions, or even with respect to
the sale of goods. To do so would be nearly
impossible and wholly unwise-to use the
language of Lord Esher in Erichsen v. Last(3).
They are not saying that the place of
formation of the contract prevails against
everything else. In some circumstances it may
be so, but other matters-acts done under the
contract, for example-cannot be ruled out a
priori. In the case before the Board the
contracts were neither framed nor carried out
in British India; the High Court’s conclusion
that the profits accrued or arose outside
British India is well-founded."
In the context of the facts found in this case we are of the
opinion that profits accrued to the appellant at the place
where the sales were effected; in other words, where the
property in the goods passed to the purchasers. The problem
in the present case therefore is to determine whether the
property in the goods passed to the purchasers at Bhilwara,
as claimed by the appellant, or at Kodarma or Giridih, as
claimed by the respondent. In the case of a contract for
sale of unascertained goods the property does not pass to
the purchaser unless there is unconditional appropriation,
of the goods in a deliverable state to the contract.
(1) 26. T.R. 27, 5 1. (3) [1881] 8 Q.B.D. 414.
(2) 6 I.T.R. 521
9 6 7
tion 23 of the Indian Sale of Goods Act (Act 3 of 1930)
(es:
(1) Where there is a contract for the sale of unascertained
or future goods by description and goods of that description
and in a deliverable state are unconditionally appropriated
to the contract, either by the seller with the assent of
the. buyer or ’by the buyer with the assent of the seller,
the property in the goods thereupon passes to the buyer.
Such assent may be express, or implied and may, be given
either before or after the appropriation is made.
(2) Where, in pursuance of the contract, the seller
delivers the goods to the buyer or to a carrier or other
bailee (whether named by -the buyer or not) for the purpose
of transmission to the buyer, and ’does not reserve the
right of disposal, he is deemed to have unconditionally
appropriated the goods to the contract."
Section 25 provides as follows
"(1) Where there is a contract for the sale of specific
goods or where goods are subsequently appropriated to the
contract, the seller may, by the terms of the contract or
appropriation, reserve the right of disposal of the goods
until certain conditions are fulfilled. In such case,
notwithstanding the delivery of the goods to a buyer, or
to a carrier or other bailee for the purpose of Transmission
to the buyer, the property in the goods does not pass to the
buyer until the conditions imposed by the seller are
fulfilled.
(2) Where goods ire shipped and by the bill of lading the
goods are deliverable to the order of the seller or his
agent, the seller is prima face deemed to reserve the right
of disposal.
In the present case, ’the appellant has reserved the right
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of disposal over the goods at the time of despatch. The
consignment was sent "self", the railway receipt was taken
in the name of the appellant and the railway receipt along
with the bill of exchange was presented by the appellant to
the Rajasthan Bank for collection after endorsing the
railway receipt in favour of the Rajasthan Bank. The goods
were delivered to the buyers only when they paid the price
to the bank and obtained the railway receipts endorsed in
their favour. The fact that the goods are, by the bill of
lading, made deliverable to the order of the seller or his
agent is a prima facie reservation of the right of disposal
so as to prevent the property from passing to the purchaser,
if
L9SSup or CI67
968
the seller deals with, or claims to retain, the bill of
lading, order to secure the contract price, as when he sends
forward bill of lading with a bill of exchange attached,
with direction that the ’bill of lading is not to be
delivered to the purchaser acceptance or payment of the bill
of exchange the appropriate is not absolute, but until
acceptance of the draft, or payment tender of the price, is
conditional only, and until such acceptance or payment or
tender the property in the goods does not to the
pui-chaser.-(Mirabita v. Imperial Ottoman Bank) ( If the
seller discounts a draft upon the buyer with a bank, a
authorises the bank- to hand to ’the buyer a bill of lading
to order of the seller and endorsed in blank- by him upon
his acce, and of the draft, the intention to be inferred,
according general mercantile understanding, is that the
seller- intends transfer the ownership when the draft is
accepted, but intends a to remain the owner until this has
been done. So, when seller draws a hundi or a bill of
exchange on the purchaserdelivers ’the hundi or the ’bill of
exchange with a relative railway receipt to his own banker
for the purpose of delivery of the railway receipt to tile
purchaser on his honouring the hundi, the property in the
goods cannot be held to pass to the purchaser till lie pays
the price and takes delivery of the railway receipt from the
banker. The matter is very clearly put by Lord Summer in
Prinz Adalbert(2) as follows :
"When a shipper takes his draft not as yet
accepted but accompanied by a bill of lading,
endorsed in this way, anid discounts it with a
banker, he makes himself liable on ’the
instrument as drawer, and he further makes the
goods, which the bill of lading represents,
security for its payment.
If, in turn, the discounting banker surrenders
the bill of lading to the acceptor against his
acceptance, the inference is that he is
satisfied to part with his security in
consideration of getting this further party ’s
liability on the bill, and that in so doing he
acts with the permission and ’by the mandate
of the shipper Lind drawer. Possession of the
indorsed bill of lading enables the acceptor
to get possession of the goods on the ship’s
arrival. If the shipper, being then owner of
the goods. authorises and directs the banker,
to whom he is himself liable and whose
interest it is to continue to hold the bill of
lading till the draft is accepted. to
surrender the bill of lading against the
acceptance of the draft, it is natural to
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infer that he intends to transfer the owner-
ship whether this is done, but intends also to
remain the owner until this has been
done........ The general
(1) [1978] 3 Ex. 1). 164, 172, (2)
[ 1917] A.C. 580, 589,
969
law infers under these circumstances that the
ownership in the goods is transferred when the
draft drawn against them is accepted."
It was argued on behalf of the appellant that after the
railway receipts had been endorsed in favour of the bank and
the appellant got the consideration by discount of ’the
railway receipts the title in the goods had passed from the
appellant to the Bank of Rajasthan which became thereafter
the agent of ’the purchaser. We do not think there, is any
substance in this argument. Before the Appellate Tribunal
the case of the appellant was that the railway receipt and
the bills were sent by it to the bank for collection from
the purchasers from, Part ’A’ and Part ’C’ States. It was
held by the Appellate Tribunal that the letter dated July 8,
1948 alleged to have been written by the appellant was a
faked document and no instructions were given to the
Rajasthan Bank for discounting the appellant’s bills. Even
assuming that the bank gave credit of part of the amount of
some of the bills to the appellant, it is apparent from the
conditions specified in the discount form of the bank that
the responsibility of the appellant did not cease till the
bank realised payments from the purchaser The discount form
of the bank provided :
"The bank is sending the goods at the risk of
the consigning........ In case the bill is
dishonoured by the purchaser the
responsibility will be that of the consignor
and the bank will have the right to recover
the amount from him In case the amount is not
recovered from the purchaser, the bank has the
right to debit the same amount to the account
of the consignor."
It is clear therefore that when the appellant negotiated the
hundi with the banker, the latter did so only as a part of
its banking business. Even if there was a purchase of the
hundi by the banker it cannot mean that there was a sale
of the goods to the banker. In the first place, there was
no agreement between the banker and the seller for the sale
of the goods. Secondly, the banker had only a security over
the goods till the price was paid by the buyer. To hold
otherwise would mean that the seller committed a breach of
contract with the buyer and sold the goods to the banker.
That is, however, not the case. The appellant only
performed his contract with the buyer in accordance with the
usual commercial practice. Therefore if any money was paid
by the bank to the appellant as price for the hundi, it was
not the sale price of the goods in any sense and the bank
was no acting as The agent of the buyer. On the other hand,
the purchase of the hundi by the bank was only a convenient
arrangement between the bank and its own customer, the
appellant, to L9Sup CI/67 19
9 70
avoid freezing of credit of the latter and it was done in
the course of its usual banking transactions. It follows
therefore that the price of the goods sold can be held to
’be accrued only when the purchaser pays the price or enters
into an arrangement with the bank which is the endorsee of
the hundi; for, till then, the latter will have a right of
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recourse against the appellant in case the hundi
i@dishonoured. In the present case, the appellant became
entitled to the purchase money only on the passing of title
to the purchasers at Kodarma and Giridih in Part A’ and Part
’C’ States and it must therefore be held that the income
accrued to the appellant in Part ’A’ and Part ’C’ States.
We proceed to consider the next contention of the appellant,
namely, that mica was extracted, processed, sorted, packed
and despatched at Bhilwara in Part ’B’ State and there was
accrual of a part of the income at Bhilwara and the
appellant was, in any case, entitled to claim apportionment
of the profits accrued. Counsel on behalf of the appellant
placed reliance upon the decisions of this Court in C.I.T.,
Bombay v. Ahmedbhai Umarbhai & ,Co.(1) and in The Anglo-
French Textile Co. Ltd. v. C.I.T., Madras(1), where it was
pointed out that in the case of a composite business, for
instance where a person carries on a manufacturing and
selling business it was not possible to say that the ,only
place where the profits accrue to him is the place of sale.
The profits are received by him firstly for his business as
a manufacturer and secondly for his trading operations and
profit and loss has to be apportioned between these business
according to the principles of accountancy. But it is not
possible for us to accept this argument in this case,
because the appellant did not raise the question of
apportionment of profits before the Appellate Tribunal, nor
was it considered and decided by it. In C.I.T. Bombay -v.
Scindia Steam Navigation Co. Ltd. (3) it was pointed out by
this Court that when a question of law is neither raised
before. the Tribunal nor considered by it it will not be a
question arising out of the order of the Tribunal and the
High Court will. be acting beyond its jurisdiction in
dealing with any such question. We accordingly hold that
Mr. Karkhanis is unable to make good his argument on this
aspect of the case.
For these reasons we hold that these appeals must be dis-
missed with costs--one hearing fee.
R.K.P.S.
Appeals dismissed.
(1) 18 I.T.R. 472.
(2) 25 I.T.R. 27.
(3) 42 I.T.R. 589.
971