1967 (11) TMI 24 - HC - Income Tax

Indian Sale of Goods Act 1930 - assessee-company is a dealer in jute in East Pakistan as well as in India - there was no unconditional appropriation of the goods by the buyer as soon as they were placed on board the steamer on C.I.F. terms - unconditional appropriation therefore took place in India notwithstanding the c.i.f. terms and the title to the goods passed to the buyers in India

Summary

Issues Involved:

1. Determination of the place of sale and passing of property in goods.
2. Interpretation of the terms of the contract and their impact on the place of sale.
3. Application of legal principles from previous case law.

Issue-wise Detailed Analysis:

1. Determination of the Place of Sale and Passing of Property in Goods:

The primary issue was whether the sales covered by the bills of lading in the name of buyers in five cases took place outside India and, therefore, whether the profits derived from the said sales arose outside India. The assessee claimed that the sales were made in Pakistan, while the Income-tax Officer and the Appellate Assistant Commissioner contended that the sales occurred in India.

The Tribunal found that the terms of the contracts included delivery free to buyers' mill siding or at the ghat in India, and weighment and assay of goods for shortweight and quality claims at the destination in Calcutta. The buyers were required to open irrevocable letters of credit with banks in Calcutta, which had branches in Pakistan. The assessee placed the goods on board the steamer in Pakistan and obtained bills of lading, which were then negotiated with the banks in Pakistan. The Tribunal concluded that the property in the goods passed in Pakistan where the bill of lading was handed over to the buyers' bank against the acceptance of the relative bill of exchange.

2. Interpretation of the Terms of the Contract and Their Impact on the Place of Sale:

The contracts were in the standard form of "sold note" of the Indian Jute Mills Association, executed in Calcutta, with relevant provisions such as delivery to the buyers' mill siding or ghat, transit insurance to be covered by buyers, and buyers to open letters of credit with Pakistan banks. The Tribunal noted that the agreed procedure for the delivery of documents representing the goods involved presenting the shipping documents to the Pakistan branches of the respective banks, thus indicating that the delivery was complete by presentation of the documents in Pakistan.

However, the revenue argued that the title to the goods passed to the buyers in India due to provisions for weighment, sampling, and assay of goods at the destination, and the fact that the letters of credit were treated as "advance bills" through the Pakistan office. The Tribunal distinguished the case from the Supreme Court decision in Commissioner of Income-tax v. Mysore Chromite Ltd., noting that in the present case, the bills were drawn in favor of the buyers, whereas in the Supreme Court case, the bills of lading were endorsed in blank.

3. Application of Legal Principles from Previous Case Law:

The Tribunal applied the principles laid down by the Supreme Court in Commissioner of Income-tax v. Mysore Chromite Ltd., which involved determining when and where the property in goods passed to the buyer. The Supreme Court had observed that the property in the goods could not have passed to the buyer earlier than the date when the bill of exchange was accepted by the buyers' bank and the documents were delivered by the seller's agent.

In the present case, the Tribunal found that the unconditional appropriation of the goods by the buyer did not occur until the goods were placed on board the steamer on c.i.f. terms, and the title to the goods passed to the buyers in India. The Tribunal noted that there were clauses in the contract indicating that the title did not pass unconditionally in Pakistan, such as non-acceptance of documents and options for buyers to reject goods based on quality and moisture content.

Conclusion:

The High Court concluded that the unconditional appropriation of the goods took place in India, notwithstanding the c.i.f. terms, and the title to the goods passed to the buyers in India. Therefore, the sales must be deemed to have been effected in India, and the profits derived from the said sales arose in India. The question referred to the court was answered in the negative and against the assessee, with the Commissioner of Income-tax entitled to costs.