TMI Blog1972 (9) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... arose outside India ?" The High Court answered the question in the negative and against the assessee against which this appeal is by special leave. The aforesaid question related to the assessment year 1952-53 of which the accounting year is 1951-52 ending 31st December, 1951. The assessee company deals in sale and purchase of jute in Pakistan as well as in India. During the year of account relevant for the assessment year it sold jute of the value of Rs. 23,93,767 out of which Rs. 10,06,772 were sales in foreign countries and Rs. 2,44,015 in India. The balance of sales worth Rs. 11,42,979 according to the assessee were effected in Pakistan. The Income-tax Officer overruled the contention of the assessee and found that the quondam sales in India amounted to Rs. 13,86,995 which included Rs. 11,42,979 alleged to have been sold in Pakistan and assessed the appellant accordingly. It appears from the statement of the case that the sales were made under a contract executed in Calcutta between the buyer and the seller. The terms of the contract included delivery free to the buyer's mill-siding or at the ghat in India. It further contained provisions for weighment and assay of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner, the assessee further contended that the Income-tax Officer in Pakistan held that a sum of Rs. 18,06,772 represented the sales effected in Pakistan because of the fact that the delivery of the goods had been made to the common carrier and the consideration money was also paid in Pakistan through the State Bank of Pakistan. In this view, the Income-tax Officer assessed the appellant in Pakistan on the ground that he had taken constructive delivery in Pakistan where according to him the safes were made. This finding, the assessee submitted, was correct. The Appellate Assistant Commissioner, however, rejected the contention and dismissed the appeal. When the matter was agitated in appeal before the Tribunal the assessee filed an affidavit disputing the findings. The Tribunal, having regard to the facts stated therein, remanded the matter to the Income-tax Officer and directed him to enquire and send a report on the facts disputed by the assessee. After the remand report was received, the Tribunal having considered the terms of the contract, the course of the dealings between the parties and applying the principles, laid down in Commisssioner of Income-tax v. Mysore Chromit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey were placed on board the steamer on c.i.f. terms which appropriation took place in India where the title to the goods passed to the buyers. It may be mentioned that clauses (7) and (9) deal with the non-acceptance of documents in the event of the buyer's failure to accept or pay against documents and/or in cases where buyers make any claim in respect of quality or excess moisture in which case an option was given to the buyer either of accepting the goods with allowances or of cancelling the contract in respect of particular lot or lots or of rejecting the particular lot or lots or claiming fresh tender. What is to be considered in this case therefore is, under the terms of the contract and the dealings between the parties, where did the property in the goods pass ? Is it in Pakistan where the seller pursuant to an irrevocable letter of credit placed the goods on board the ship, drew the bills of exchange and invoices and along with the bill of lading, etc., negotiated them through a constituent of the buyer's ; bank in Pakistan or as held by the High Court having regard to clauses (7) and (9) of the contract no unconditional appropriation of the goods was effected in India eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case. If the seller omits so to do, and the goods are lost or damaged in course of transit or whilst in the custody of the wharfinger, the buyer may decline to treat the delivery to the carrier or wharfinger as a delivery to himself, or may hold the seller responsible in damages. (3) Unless otherwise agreed, where goods are sent, by the seller to the buyer by a route involving sea transit, in circumstances in which it is usual to insure, the seller shall give such notice to the buyer as may enable him to insure them during their sea transit, and if the seller fails so to do, the goods shall be deemed to be at his risk during such sea transit. It is apparent that for the purposes of sub-section (1) of section 23 there should be an unconditional appropriation with the assent of the parties as indicated before the property in the goods passes to the buyer. This sub-section is quite independent of sub-section (2) and does not contemplate an unconditional appropriation in pursuance of the contract. Sub-section (2), on the other hand, requires the delivery to a carrier in pursuance of a contract which operates or is deemed to operate as an unconditional appropriation. Where, in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seller's domicile. This may be effected by the buyer requesting the bank to facilitate a letter of credit in the country of the seller where the bank or its constituent assumes liability for payment of the price for some consideration which may either be by loan or an over-draft arrangement perhaps on the security by the pledge of documents of title to the goods or by some other arrangement arrived at between them. An understanding of the mechanism of credit made, available to the buyer and the seller by the banks in the sale of goods and the manner in which these transactions take place through the banking institutions will greatly facilitate the ascertainment of the question when and at what place the property in the goods passes from the buyer to the seller. Inasmuch as those innovations of commercial credit have been developed by the maritime powers of which England was the leader a reference to English decisions will be of assistance. In Guaranty Trust Company of New York v. Hannay Col. Lord Justice Scrutton set out at page 659, the manner in which commercial credit operates. He said : "The enormous volume of sales of produce by a vendor in one country to a purchaser in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s exported. Where the device of commercial credit is resorted to--as indeed in all overseas transactions this has become a general practice--there is to be a prior contract for the sale of goods the payment of price for which is to be made by a banker. We are here not concerned for the purpose of this case, with the various intricacies and practical technicalities of different means which are adopted to meet different situations. But, a simple example of the device may be indicated. The buyer requests his bank and arranges with it the issuance of credit for payment at the place of the seller's domicile specifying the documents against which it has to make payment. The buyer agrees also to indemnify the bankers in respect of such advances and of any claim arising out of the credit. The letter constitutes the memorandum of the buyer's instructions to the banker. On receipt of this application the banker issues the credit which is addressed to and sent to the seller or it may take the form of a request to an intermediary banker who is asked either merely to advise the seller or advise and to add his confirmation. The credit may be issued by cable which is later followed by writing. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and assurance that the jute as shown in the margin is under a mark entered in the said register and that its baling and packing is in strict accord with the particulars contained therein. Should tenders not be in accordance with it the buyers shall be entitled to reject the goods and the sellers shall be liable for all losses sustained including the difference between the contract and the market prices. Clause (2) provides for delivery to the mills specified therein and the carrier-or carriers through which that delivery should be made to the mills. Clause (3) which is varied deals with the transit insurance to be covered by the buyers at contract value plus 10% under their open cover and premium to be paid for by sellers in India advise buyers the contract and assortment in maunds to be supplied immediately loading is commenced. Clause (4) which deals with reimbursement of cash is again varied by the following : "Buyers to open letter of credit with the Pakistan bank in favour of seller's nominee. A complete set of shipping documents to be presented to the bank and payment of invoice valid in terms of the contract to be made to the shippers in the equivalent of Pakistan c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... import of this letter we give below its contents in entirety : "THE CHARTERED - BANK OIF INDIA, AUSTRALIA CHINA. Messrs. Mahabir Commercial Co. Ltd., Calcutta, 14th August 1951. P. O. Ashurganj, This Letter of Credit was wired Dist. Tipperah, through the Chartered Bank, East Pakistan. Chittagong, on and is only to be delivered to beneficiaries against surrender of the letter advising contents of the telegram, and any negotiations made in the interval are to be transferred to the original credit before it is handed over. Confirmed Letter of Credit No. 94/743 Irrevocable. Dear Sirs, You are hereby authorised to draw on M/s Thomas Duff Co. (India) Ltd. a/c. The Titaghur Jute Factory Co. Ltd. of Calcutta for a sum not exceeding Rs. 2,00,750 (Rupees two lakhs seven hundred and fifty) available by your drafts on them at sight accompanied by : (1) Complete set, of Bills of Lading and/or Railway receipts to order and blank endorsed, 'Shipped on Board' ......................... Bills of Lading are essential and the statement 'freight paid' must appear thereon. The Bills of Lading must cover shipment as detailed below. (2) The Insurance to be covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy the seller when it is likely to arrive which is a condition precedent to the seller's duty to bring the goods to the port. On the ship's arrival the seller must deliver the goods on board at his own expense. Thereafter, the goods are at the buyer's risk and he is responsible for the freight and any subsequent charges. In a c.i.f. contract the seller has first to ship at the port of shipment goods of the description contained in the contract. He must then procure the shipping documents (contract of affreightment) as contemplated by the contract upon the terms current covering the whole transit of the goods. He must arrange for an insurance for an amount equal to their reasonable value of shipment upon the terms current in the trade which will be available and it should, be for the benefit of the buyer. He must also make out an invoice which is a written account of the particulars of goods delivered to the buyer With value of, the goods or their price and charges, etc., annexed. This invoice is made out debiting the buyer with the agreed price and giving him credit for the amount of freight which he will pay the ship-owner on actual delivery. And, lastly, the shipper should tender ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea can be treated as delivery of the goods themselves, this law being so old that I think it is quite unnecessary to refer to authority for it. Now in this contract there is no time fixed at which the seller is entitled to tender the bill of lading. He therefore may do so at any reasonable time ; and it is wrong to say that he must defer the tender of the bill of lading until the ship has arrived ; and it is still mare wrong to say that he must defer the tender of the bill of lading until after the goods have been landed, inspected and accepted." By a reference to section 32 of the Sale of Goods Act (corresponding to section 38 of the Indian Sale of Goods Act) Kennedy L. J. at page 956 of the judgment, to which we have referred, observed : "Two further legal results arise out of the shipment. The goods are at the risk of the purchaser, against which he has protected himself by the stipulation in his c. i. f. contract that the vendor shall, at his own cost, provide him with a proper policy of marine insurance intended to protect the buyer's interest, and available for his use, if the goods should be lost in transit ; and the property in the goods has passed to the purchaser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y (if the rules of the port permit), or warehouse the goods, for such time as may elapse before the purchaser has an opportunity of examining them. But this involves a manifest violation of the express terms of the contract 90s. per 112 lbs. cost freight and insurance. The parties have in terms agreed that for the buyer's benefit the price shall include freight and insurance, and for his benefit nothing beyond freight and insurance. But, if the plaintiffs' contention were to prevail, the vendor must be saddled with the further payment of those charges at the port of discharge which ex necessitate rei would be added to the freight and insurance premium which alone he has by the terms of the contract undertaken to defray. Even though the property in the goods may pass to the buyer when the documents are handed over, the buyer may yet retain the right to examine and repudiate the goods but this right generally which a buyer has in c.i.f. contract does not by itself indicate that the property in the goods has not passed to him. This supposed incongruity was sought to be explained per curiam in Kwei Tek Chao v. British Traders and Shippers Ltd. that if property passed when the docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arkation. On the facts as found, Commissioner of Income-tax v. Mysore Chromite Ltd., decided by this court, is clearly distinguishable, because in that case the assessee-company which is the seller had shipped the goods under a bill of lading issued in its own name and that under the contract it was not obliged to part with the bill of lading until the bill of exchange drawn by it on the buyer's bank where the irrevocable letter of credit was opened was honoured. It is not necessary to relate all the details of the contracts except to say that the contracts of sale of chromite by the Mysore company to purchasers in Europe were entered into between the buyers and the assessee's agents in London and the contracts of sale to persons in America were signed by the assessee's managing agents in Madras and by a company in America who bought for undisclosed principals. Under the contracts the price was f.o.b. Madras. Provision was made for weighment, sampling and assay of goods at destination. Before the goods were actually shipped, the buyers opened a confirmed irrevocable bankers' credit with a bank in London. The fact that letters of credit had been opened was communicated by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over to the buyers' bank against the acceptance of the relative bill of exchange." It will be observed that the terms of the contract and the course of dealings between the parties is not the same as in this case because in that case the seller clearly retained the property in the goods by having a bill of lading issued in his own name and would only part with the property after the bill of exchange was accepted by the buyers' bank in London when the documents would be delivered by him to the company's agent in London and that the fixation of price was dependent on weighment and assay. In the case before us the High Court relied on clauses 7 and 9(3) of the contract for its conclusions. In our view nothing in those clauses justifies that conclusion. Under clause 7 where there is a total failure on the part of the buyer to perform the contract, the seller has a right to cancel the contract or treat it as cancelled and resort to the remedies thereunder. But, that is a condition where the buyer fails or refuses to perform the contract altogether by not accepting the documents or in not paying against the documents. Even under clause 9 the condition as to the quality and of excessi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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