1967 (10) TMI 14 - HC - Income Tax

State Bank of Indore collected the amount from the consignees on its own behalf and not as a collecting agent for the assessee - sale proceeds must be held to have been received by the assessee at Indore and not at the places in taxable territories where the bank received the amounts from the consignees - assessment of the profits u/s 4(1)(a) of the IT Act 1922 not justfied

Summary

Issues:
Assessment of profits under section 4(1)(a) of the Indian Income-tax Act, 1922 based on the receipt of sale proceeds in taxable territories.

Analysis:
The case involved a reference under section 66(1) of the Indian Income-tax Act, 1922, initiated by the Commissioner of Income-tax, M.P., regarding the receipt of sale proceeds by an unregistered firm in taxable territories. The firm conducted business in the sale and export of cloth in Indore, a non-taxable territory, during the relevant accounting year. The firm purchased cloth in Indore, stocked it in godowns, and later dispatched it to taxable territories based on allotment orders. The bills, including the firm's commission and interest, were endorsed to bankers and another party in Indore. The local bankers and the other party allowed credit to the firm without charging interest until realization from purchasers in taxable territories.

The Income-tax Officer and the Appellate Assistant Commissioner taxed the profits as non-resident income, considering the receipt of sale proceeds in taxable territories. However, the Appellate Tribunal, in the second appeal by the firm, concluded that the profits were not received in taxable territories. The reference case was similar to a previous judgment involving a bank and the receipt of sale proceeds on behalf of the assessee. The Division Bench in that case clarified that the character in which a bank receives payment is a factual determination, emphasizing that if a bank credits the customer before realizing the instrument, it collects the money for itself, not as an agent for the customer.

Based on the findings in the previous case and the similarity of facts, the High Court held that the sale proceeds were received by the firm at Indore, not in the taxable territories where the bank received the amounts from consignees. The court relied on the principle that the bank collected the amount for itself, not as a collecting agent for the assessee. Consequently, the referred question was answered in the negative, aligning with the decision in the previous case. The firm was awarded costs of the reference, and the counsel's fee was fixed at Rs. 200.

In conclusion, the judgment clarified the distinction between collection for the customer and collection for the bank itself, emphasizing the factual determination of the character in which a bank receives payment. The decision was based on precedent and established principles regarding the receipt of sale proceeds in taxable territories under the Income-tax Act, 1922.