TMI Blog1949 (11) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... chin State under the Companies Act as made applicable to that State. The company trades in timber and also has a saw mill at Chalakudi in the Cochin State for seizing timber and for converting logs of timber into scantlings of the required size. During the accounting year 1940-41 (the assessment year 1941-42) the company entered into three contracts dated 16-1-1940, 11-3-1940 and 12-4-1940, for the supply of seized timber to the Government of India Supply Department. The contracts in question were the result of tenders submitted by the respondent in pursuance of the invitation for tenders-by the Supply Department and finally accepted by them. The documents constituting the contracts have not been placed on record. A form of the invitation for tender dated 23-12-1939, which contains the conditions of the tender and also the draft terms of the contract has been made available. In addition to it, there is also a tender form which bears date 23-12-1939, and an acceptance note of 12-4-1940, from the Contracts Directorate, New Delhi, and sent to the respondent which presumably refers to the last of the three contracts. Further, there is a letter of 16-2-1940, from the Contracts Directora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red f. o. r. Chalakudi, Kallai and/or Trichur. The Government in pursuance of the terms of the contract have to depute an Inspector to inspect the timber at Chalakudi in the premises of the company in order to ascertain whether the quality and specifications as per the terms of the contract were or were not complied with. On such inspection the Inspector has to certify and issue a note that the goods answered the description in the contract. Thereafter the timber is loaded in wagons at the siding of the company for transport by the Shoranur Cochin Railway. The land occupied by the Shoranur Cochin railway line, it has been found and is accepted before us in the course of the arguments, is not within British India but is in Cochin State, though the Income-tax Act has been applied to the railway line. 4. The Income-tax Officer and the Appellate Assistant Commissioner were of opinion that the company is resident in British India as the profits of the business accrued and had arisen in British India. According to them, the contracts were concluded in British India and the delivery of the goods was also in British India as the place of delivery, according to the contracts, was the rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o or received in British India by him during such account year. Resident in British India and not ordinarily resident are defined in Sections 4A and 4B of the Act. The attempt on the part of the Commissioner of Income-tax is to bring tbe present case under Sub-clause (c) of Section 4A; and according to that clause a company is resident in British India in any year, (a) if the control and management of its affairs is situated wholly in British India in that year, or (b) if its income arising in British India in that year exceeds its income arising without British India in that year. Clause (a) of Sub-clause (c) does not apply to the present case as the control and management of the affairs of the respondent company is wholly situated outside British India. Clause (b) of Sub-clause (c) alone is relied on. According to this provision a company is resident in British India if the income arising in the accounting year in British India exceeds its income arising without British India. In computing the income arising within and without British India income chargeable under tbe head ''capital gain has, of course, to be excluded. According to the finding of the Appellate Assist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Commissioner of Income-tax, Bombay v. Chunilal B. Mehta, I. L. R. (1938) Bom. 752 : (A. I. R. (25) 1938 P. C. 232). In that case the question was whether the asgessee was liable to pay income-tax upon profits derived by him from contracts made for the purchase and sale of commodities in foreign markets, Liverpool, London, New York and other places outside British India. The asgessee disputed his liability on the ground that the profits on such business did not accrue or arise in British India and were not received in British India and therefore he was not liable. The main contention urged was that the exercise of the skill and judgment in entering into the contracts and giving directions for the formation of the contracts took place in Bombay and that therefore the place where the profit was earned by the assessee was Bombay and not outside British India. This contention was not accepted by the Privy Council. Sir George Rankin dealing with the provisions of the Act as they then stood, pointed out that the English decisions offered no guide in interpreting the Indian Act as the Indian Act is not in pari materia with the English Act. Under the English Act if a person exercised his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take that as the basis for deciding the place of accrual. To ask the question, says the learned Judge, 'What in the sense of Section 6 is the source of these profits and is it situate in British India?' is to divert attention from that to which the statute points and to devote attention to what it discards. Nothing could fee easier than to Bay 'from whatever source derived if situate in British India' had this been intended. Again at p. 767 the following observations occur: Profits are frequently if not ordinarily regarded as arising from many transactions each of which has a result--not as if the profits need to be disintegrated with difficulty but as if they were an aggregate of the particular results. In the present case the assessment order has discriminated between the Bombay and the 'foreign' business income. To discriminate between all kinds of profits according to the place at which they accrue or arise is a plain dictate of the statute. And the conclusions of the learned Judge are summarised at p. 768 in these words : These considerations lead their Lordships to the conclusion that under the Indian Act a person resident in British ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supply Department in British India the contract was concluded and the formation of the contract, therefore, was undoubtedly in British India. In this respect I differ from the conclusion of the Appellate Tribunal which thought that it was the signing of the acceptance note that concluded the contract and aa this was at Chalakudi, the place of acceptance was also at Chalakudi. The contract was, however, carried out entirely at Chalakudi. It must be remembered that the contracts related to unascertained goods and until the goods were ascertained and appropriated towards the contracts, the property in the goods did not pass to the buyer. The Supply Department sent their own Inspector to inspect the goods to find out whether the goods made ready for delivery answered the description of the goods contracted for. This was done at Chalakudi in the mill premises of the respondent company and the goods became ascertained and were appropriated towards the contract with the assent of the buyer's agent acting under due authority. The Inspector had to certify and pass an inspection note. Along with the invoice and the provisional note issued by the Inspection Officer certified copies o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the weight as represented and this provision did not suspend the rights under the contract of sale. In the present case, the balance of the 20 per cent. of the price had to be paid against the contractor's claim supported by receipt vouchers issued by the consignee concerned, that is, after the goods were received. This again is not a condition which postponed the passing of the property in goods to the Supply Department. The entire performance of the contract was completed so far as the seller was concerned at Chalakudi and he had acquired the right to receive the full payment of the value of the goods. No doubt, it is payable in instalments and the claim for payment has to be supported by certain vouchers. Though the formation of the contract was in British India, as it was carried out entirely at Chalakudi, the right to income or profits or gains in my opinion clearly accrued at Chalakudi in the Cochin State. The profit was realised there when the article was sold and the sale was complete with the passing of the property to the buyer at Chalakudi. 9. Some light is thrown on the question by the decision of the Full Benoh in Jiwan Das v. Income-tax Commissioner, Lahore, 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not that the payment should be at Poona. Choice is given for payment either at the Government Treasury in India or by cheques drawn on a branch of the Eeserve Bank of India or Imperial Bank transacting Government business, which reinforces the inference that the payment was not at Poona. 12. On behalf of the assesses it was represented before the Appellate Tribunal that with regard to the payment the place of payment was changed by a subsequent arrangement and in accordance with that arrangement the payment was received at the Imperial Bank of India, Trichur. This statement was accepted by the Tribunal and the reason for accepting it was stated to be that the department did not dispute that the payment was in fact made at the Imperial Bank, Trichur. Of course, there is no admission of the arrangement put iorward on behalf of the respondent regarding the change of the place of payment; and it rested entirely upon the statement of the counsel for the respondent. It was contended on behalf of the Commissioner that without proof a statement from the bar should not have been accepted. There is considerable force in this contention and on such an important matter if there was a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal exhibits an embarrassing statement of facts. The material documents have not been made available to us and the documents that have been produced and relied upon by the Department are disconnected. It is elementary that you must look into the offer and acceptance before you arrive at the terms and the construction of a contract. Yet in respect of none of the contracts with which we are concerned, have both the offer and acceptance been produced. On a topic which is so replete with fine distinctions and refinements as income-tax, it is impossible to reach a satisfactory conclusion unless the statement of facts is full and precise or at least the relevant material is made available to us. On one of the crucial points in the case, a statement is made by the Tribunal purporting to be based on the admission of the representative of the Department, but its correctness has been challenged and, in my opinion, with ample justification, by the counsel for the Commissioner of Income-tax. There is no record of the so-called admission, and even according to the statement of the Tribunal it is of an extremely ambiguous and inconclusive character. It will save the time of this overworke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipulation, however, did not prevent the passing of the property in the goods to the buyer as soon as the goods were ascertained, inspected and appropriated to the contract in the Cochin State. One of the general conditions published by the Government of India as applicable to all contracts for the supply of goods to the Government was that payment by the Government would be by a cheque on a Government Treasury in India or a Branch of the Reserve Bank of India or Imperial Bank of India transacting Government business. 18. Before considering the question of law that has been argued it is as well that two errors in the statement of the Tribunal should be pointed out and isolated from the rest of the case. I am of the opinion that the Tribunal erred in law in reversing the conclusion of the Appellate Assistant Commissioner and holding that the contracts for the sale of timber were concluded at Chalakudi in Cochin. The assessee company was making an offer when it sent its tender to the Government at Delhi and the acceptance note of the Government sent from Delhi constitutes an acceptance of the assessee's offer. The fact that the acceptance note might have related--and this is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the contracts the price was payable to the assessee by the Government of India through the Imperial Bank at Trichur, that ia to say, at a place outside British India. The omission of the Department to furnish relevant information on this point ia said to be due to the lack of any response from the Departments which were in charge of supplies and purchases of stores during the period of war. 19. All that we have on this question of payment of the price of the goods sold consists of contradictory assertions of the parties even at this stage. I have therefore to deal with the case by an application of the general principles of law and presumptions. Here the contracts were for the sale of unascertained goods. The goods were appropriated to the contracts by the seller after approval by the buyer at Chalakudi and other places in Cochin State, The property in the goods passed to the buyer when the goods were so approprited and when they were put on rail for transmission to the buyer they were unconditionally appropriated, no right of disposal having been reserved by the seller. Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mittee, the wisest course is to deal with the particular facts before us and decide as best as we can whether they are sufficient to bring the assessee within the charging section. It is difficult to formulate affirmatively a general principle with full confidence in its accuracy or legitimacy. It is a still more difficult task to reconcile all that has been said on this topic in the authorities cited. 22. There being no evidence of the place of receipt of the income, profits and gains in this case, the only material question is whether the profits accrued or arose in British India during the year of account, the place of accrual or arising of the income, profits and gains being the crucial matter under Section 4 (1) (b) and (c) of the Act. Profits and gains accruing or arising in British India are words which in their ordinary meaning, seem to require a place to be assigned as that at which the result of the trading operations comes whether gradually or suddenly into existence : (Chunilal Mehta's case, I. L. R. 1938 Bom. 752 : (A. I. R. (25) 1933 P. C. 232).) What then is the place of the accrual or arising of the profits and gains according to the Act? The words accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Committee distinguished the decisions in Sulley v. Attorney General, (1860) 5 H. N. 711 at p. 717 : (29 L. J. Ex. 464) and Robinson Bros. v. Assessment Committee, (1938) 54 T.L.R. 568 at p. 571 : (1938 A.C. 321) and held that the test under the Indian Act was not where the profits came home to the assessee but the place where they accrued or arose and that business profits might arise in more than one place and might be considered distributively. Profits are frequently if not ordinarily regarded as arising from many transactions each of which has a result--not as if the profits need to be disintegrated with difficulty but as if they were an aggregate of the particular results. In the present case the assessment order has discriminated between the Bombay and the 'foreign' business income. To discriminate between all kinds of profits according to the place at which they accrue or arise is a plain dictate of the statute; other discrimination is involved in the exemptions and in such sections as Section 42. In a later judgment of the Board delivered by Sir George Eankin in Commissioner of Income-tax, Madras v. S. L. Mathias, I. L. R. (1939) Mad. 178 : (A. I. R. (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he goods are sold and monies realised, but other tests have to be applied such as the place where the contracts are formed and concluded, where acts are done pursuant to the contracts, where the right to receive the income, profits or gains springs, and so on. In Chunilal Mehta's case, I.L.R. (1938) Bom. 752 : (A.I.R. (25) 1938 P. C. 232), the Judicial Committee observed : 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 Erischen v. Last, (1881) 8 Q. B. D. 414 ; (51 L. J. Q. B. 86). 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. Having reached this not very satisfactory stage an the discussion of the autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so created as part of the profits of the year in which the debts are incurred and the obligations so incurred would be treated as firm obligations, as good as cash on hand. There is no fear of the assessee's expectations of realisation being disappointed and its being obliged to claim an allowance or deduction for bad debts later on as the debtor in this case is the Government of India. The assessee would normally treat the profits and gains arising from these contracts as realised at Chalakudi as soon as the goods were inspected and approved by the Government and delivery was effected by putting them on rail at Chalakudi or other places in the Cochin State. In these circumstances, the question is, where did the operations take place from which the profits in substance arose ? My answer is that both the manufacture and sales of the goods were carried on outside British India and the resulting profits accrued or arose outside British India and were therefore not chargeable to Indian income-tax, the assessee being a non-resident. I agree with my learned brother in the answer he has given to the questions propounded in both the cases and in the direction for costs of the reference ..... X X X X Extracts X X X X X X X X Extracts X X X X
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