TMI Blog1961 (1) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in India under section 4 or 42? The question relates to the assessment year 1947-48. The assessee is a dealer in cloth doing business in Indore. During the relevant year he sold cloth to purchasers in what was then British India. Indore was then a non-taxable territory. In respect of some of the sales the assessee charged to the purchasers interest because of the delay on the part of the purchasers in the payment of the sale proceeds. He obtained an amount of ₹ 12,261 by way of interest which was remitted to him at Indore. The Income-tax Officer held that this amount of interest accrued to the assessee in a taxable territory and was, therefore, assessable. He rejected the contention of the assessee that the interest rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merchant and to allow the purchasers to make use of the sale proceeds for such time as may be agreed upon between the parties. On the delivery of goods a debt became due to the assessee. This debt has earned interest in India. We think that the interest income has accrued to the assessee's in India and is liable to assessment at the rate applicable to the assessee's world income. Shri Chitaley, learned consel for the assessee, contended that there was no advance of money or goods by the assessee to the purchasers in the taxable territories; that there was no agreement between the parties that the sale proceeds would be treated as a loan by the assessee to the purchasers; that, therefore, the interest amount which the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be a debt without contracting a loan. Every sale of goods on credit does not amount to a transaction of loan. One must look to the facts of each transaction to find out whether the transaction amounted in substance to a transaction of loan or to a transaction of sale. Here the transactions were all pure and simple sales. There is nothing to show that the sale proceeds due from the purchasers were by agreement treated as loans by the assessee or that the parties had treated the sale proceeds as paid off in their entirety and the amount equivalent to the sale proceeds as being due from the purchasers to the assessee by way of loan. That the amount received by the assessee cannot be regarded as interest on money lent is clear enough from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of deposits and their acceptance by the bank. The interest which the assessee here obtained did not depend on the utilization for some time of the sale proceeds by the purchasers. The assessee would have got interest on the sale proceeds under section 61 of the Sale of Goods Act even if the purchasers had not utilized the money. The interest no doubt became payable by the purchasers because of the delay in the payment of the sale proceeds, but so far as the assessee is concerned it represented the advantage which he would have had if the money had been remitted to him at Indore. The source of interest was thus the actual money payable to the assessee at Indore and not the retention of the sale proceeds by the purchasers. The interest whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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