COMMISSIONER OF INCOME-TAX BOMBAY CITY & SUBURBAN DISTRICT, BOMBAY versus HUKAMCHAND MILLS LTD. INDORE

47

A

B

COMMI~IONER OF INCOME-TAX BOMBAY CITY &: SUBURBAN DISTRICT, BOMBAY v.

HUKAMCHAND MILLS LTD. INDORE

July 21, 1967

[J.C. SHAH, S. M. SJKRI AND V. RAMASWAMI, JI.)

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 custoiner on payment of sal.e price-Whether property .passed in British India-

C Whether Indian Income tax leviable.

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 D in all categories were mad.,-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 receiv ed at Indore through the Bank's local branch.

In the course of its assessment to Indian Income-tax for some of the yeal'S during the period 1942-43 to 1947-48, the Income-tax E Of!lcer, 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 tercitories 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 33! per cent of the profits to the activities in British India p 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 appe11ant that on the procedure adooted for the sales, the pro perty in the goods passed in British India in all the categ"°ies of sales and that the fact that the goods were sold F.O.R. at Indore did G not make any clifference to that position. The High Court had there fore 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 Income tax. [52G-H]

Pushanlal Mansingka IP) Ltd. v. The Commissioner of .Income H 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. ".rl I.T.R. 145, 150: Commissioner of Income-tax v. Bhopal Textiles Ltd., 41 I.T.R. 72, referred to.

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48

SUP!lEm: COURT ltEPORTS

[1968] l 8.0.B.

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 2178 to A

2182 of 1966.

Appeals by special leave from the judb•ment and· order dated August 28, 1961 of the Bombay High Court in Income-tax Refer ence No. 5 of 1961.

S. T. Desai, R. Ganapathy Iyer, R. N. Sachtlrey and S. P. B

Nayar, for the appellant (in all the appeals).

T. V. VJswanatha Iyer, 0. C. Mathur, and B. Parthasarathy,

for the respondent (in all the appeals).

The Judgment of the Court was delivered by

Slkrl, J.-These appeals by special leave are directed against the judgment of the High Court of Judicature at 'Bombay answer ing the following question (Question No. 3) against the Commis sioner of Income-tax, Bombay City and Suburban District, appel lant 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 Jn. come-tax?"

c

D

The High Court, in view of its answer to this question did not E 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 correct ly 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?"

F

We are not concerned with the remaining question (Question No. I) which related to sales to the Government of India, as that ques tion was answered in favour of the appellant.

Relevant facts are as follows: The respondent, Hukamchand G

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 Indore. 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, 194243, 194344. 1945-46, 194647 and 1947-48, the Income-tax Officer found that the assessee effected certain sales to merchants and B others in British India. For the assessment year 194243, the Income-tax Officer classified the total sales of Rs. 92,45,151 into four categories. Out· of the total sales, sales aggregating to

C.I.1'. V, HUKAMCllAND MILLS (Si!Ti, J.)

A Rs. 14,80,059 formed the subject-matter of the two questions re· produced above. The statement of the case details the categories in the following chart:

B

0

(•)

(b)

D

(c)

(d)

E

<

!!I

Tota} !';11lc1J

~lll(.'it t'Jl'ootC'tl ' &ltd rrceh·ed in Brith!h l1Hlift.

Bai.nee of column8 II Md III

Hti.luneo

Sale• purBU· ant to cont. raot1 lx'o.ring ~tompa of Indore State

Sft!es in })UrllU!\lll.'C of lnulint•;;s Cl\.UY811St'd by oon1pnny'11 rl'prerscutn- tiYC!f

in British India lt•,02,642 3,30,805 0,66,787

20,75g

ft,46,028 (3)

Sales to Brit.h1h Ind inn u1crchu11te through b1'o· kers nn<l agent!! !11 British India

2,Yl,891

2,91,891

!,91,891

(4)

3,85,214

2,86,224 (il)

Sales to British Indian merchants and broker• dnring thcirvi1'1it at Indore 3,83,214 Salee to Britiab Indian 1ncrchiu1te at the tlm::i of th<ifr own or their broker1' ,·isit at bu.lortJ

3,13,300

3,13,306

----------- --- --- ---- - - ---

19,93,063 3,36,86l5 16,67,198 1,77,139 1,,80,060

67,390

: 1m;,91e (9)

(The figures &t tho cxtrt·mo rjght 11how tho item numbers used by the Inoomu-tas

Officer in para 2 of tho aeaesem.ent ordt'r).

The modus opercmdi for effecting the sales enumerated in the P chart referred to above is described as follows in the statement of

the case:

"(a) Sales of Rs. 6,66,787 :-The assessce 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 be- ing 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)ISCI-5

G

H

SUPREME COURT REPORTS

(1968] 1 s.r.a.

the

said

from

Assistant Commissioner sales of Rs. 6,66,787. Sales of Rs. 3,35,855 under this category received in British India by the representative of the asscssec 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 deliver ed F.O.R. Indore. The relevant railway receipt made in the name of 'self' was endorsed in favour of the cus tomer 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.

lb) 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 mer chants through the brokers. Such orders were placed by the brokers in the normal course of business of these bro kers who were not engaged by the Mill as such. The goods were delivered F.O.R. Indore. The relevant rail way 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 In· dore to negotiate and place orders. The orders were ae> cepted at Indore. On some contracts made for sales under this item, stamps of Holkar State were affixed. Sales pur suant 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. ~.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 asses5ee in favour of the customer and handed over to the Imperial Bank of India for being delivered to the party concerned. The sale pro ceeds 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 hereinbe fore. 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 Commis sioner 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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G

B

C.I.T. II.

llUKAMCl!AND lllLLB (Sim, J.)

Ill

A

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."

0

The Income-tax Officer held that profits apportioliable on B 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 acerual-t"um-receipt basis. The Appellate Assistant Commissioner on appeal held· that taking into account all facts of the case it would be fair to take 331 % of the profits realised 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 Com· missioner held that, on the analogy of Rule 33 of the Indian In come-tu Rules, 33*% profits out·of the total profits apportionable to such sales should bl) attributable to the activities in British D India and, as such tued, in the hands of the assessee. The .Tribu nal confirmed· the order of the Appellllte Assistant Commissioner. In compliance with the order of the Bonibay High Court, the Appellate Tribunal drew up a statement .of the case under ;;. 55!4) cl the Inman Income-tax Act, and referred three questions men· tioned above. The High Court. as stated above. answered Question :1 No~·3 in favour of the.~. and the a~llaQt having obtained

special leave. the appeal is now'before tis.

·

Mr. S. T. Desai the learned counsel for. the apperuuri, oon< tends ·that 1he High Court was wrong in holding that no part of the profits of the sales could be said to have accrued or arisen I' in British India; He says thaf on the facts and circumstances of in all the case, the property in the goods passed in British India the fOur categOries. He says that the method of delivery in the four categories was siniilar. namely, that the railW&y receipts were made in• the ·name •of· 'self'• and endorsed in favi>ur· of the custo mm and were handed over to the Imperial Bank of India, Indore, for being : delivered to the merchant' and sale proceeds weie re- & ceived at Indore through the Imperial Bank of India, In:!=. He further says that the fact that the goods were to be delivered F.0.R. at Ind~re d~ not m_akc the _Property in the ·p>ds. pass. at ~orC. There IS c<>nSiderable force m the learned counsel's submissions. In PushaitJa1 M"1!8in9hka (P) L!d-. v. The Commissioner of lneoMe TaJC. Delhi,('), this Court, on sunjlar facts, held tlJat the property a in _the goods passed in Part A and Part C States. where the delivery was made. This Court further held that the income accrued on1t

(') OiTIJ J.ppeoll Noo; "1Ja'i.IJll8 of !OM; judgemODt delifered an May~ 3, Iotr.

/

IS2

SUPRBIOl COUllT UPOllTI

fl968] 1 s.c.11.

when the purchaser paid the price throui:h the bank. The method A of delivery in that case was as follows:

"The appellant consigned the goods· to 'self' and the rail- way receipts alongwith the bills of exchange were present- ed 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 re- ceipts."

We may mention that in Co111missio11er of llK·omc-tax, Delhi v. P. M. Rathod & Co.(') Kapur, J., speaking for the Court, on similar facts, observed:

"The railway receipts in favour of self could not be de- livered to tbe buyer till the money was paid and although the goods had been handed over to a common carrier tbe appropriation to the contract was only conditional and the performance was completed only when the monies were paid and the railway receipts delivered."

B

a

D

This case was followed in Commissioner of Income-tax v. E

Bhopal Textiles Ltd.('). Jt 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.

F

The learned counsel for the assesscc 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 answei-ing of Question No. 2 but we are unable to G regard this aspect as a new question. Following our judgment in Pushanlal Man.ii11ghka (P) Ltd. v. The Commissio11er of lllcome tax, Delhi(') we hold that income accrued within British India and that a proportionate part of the income was assessable to income tax. In view of this thQ answer to the question (Question No. 3) must be in the affirmative.

B

<'> 37 r.r.R. 14.;, 150. (') Civil .\pP"ob Nos. ~;H.;~ of 19&1; judgment ,leliv.r•~ on l!ay S, 1967.

( 1) 41 I.T.R. 72.

C,l.T, <. HUKAMOHAND lllLLS. (Sihi, J.)

63

A

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 fpr answering Question No. 2 according to law.. In the result the appeals are allowed and question No. 3 answered in the affirma- B tive, 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.