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TMI Blog1972 (9) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for their short weight and quality claimed at the destination in Calcutta. It was also a term of the contract that before the goods were actually shipped the buyers were required to open an irrevocable letter of credit with a bank in Calcutta and accordingly the buyers opened letters of credit with the Imperial Bank of India, the Chartered Bank of Australia and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Chromite Ltd. I held that in respect of the five cases in which the assessee drew the bills in favour of the buyers the sales were effected in Pakistan whereas in the two cases in which the bills were drawn in favour of the assessee's agent at Calcutta, the sales were effected in India. On hearing the reference the High Court directed the Tribunal to submit a supplemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 even though the goods were placed on board the steamer on c.i.f. terms. Before we examine the terms of the contract and the dealings between the parties to ascertain where exactly the unconditional appropriation of the goods under the contract was effected, it is, we think, appropriate to set out the principles which are applicable for the determination of that ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee whether named by the buyer or not for the purposes of transmission to the buyer and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract. The buyer's assent to the passing of the property in the said circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 another has led to the creation of an equally great financial system intervening between vendor and purchaser, and designed to enable commercial transactions to be carried out with the greatest money convenience to both parties. The Vendor, to help the finance of his business, desires to get his purchase price as soon as possible after he has despatched the goods to his, pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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. These letters may be given for the purpose of being shown to third parties who may act thereon. Letters of credit are either revocable or irrevocable and where it is the latter it may be confirmed or unconfirmed. If confirmed it means that words of confirmation of another banker is added to it by which that banker also commits himself irrevocably. The letter of credit notifies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 currency at the exchange rate ruling on the date of presentation of documents at the bank, less freight, if payable in India." Clause 6 deals with non-delivery of documents. 7 provides for non-acceptance of documents. Clause 8 provides for maximum amount of moisture the jute should contain and clause 9 provides for claims with the variation that the amount of short weight valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 buyers under Open Cover No. 1249 and premium to be deducted from shipper's invoice. (3) Signed Invoices in triplicate. (4) Freight 'To Pay' to be deducted from shipper's invoice. Shipment :-- As per overlead from Pakistan to Calcutta C & F by I.G.N., R.S.N., B.A.S.S., E.B.R.S.S., I.S. Co's steamer and/or Flat and/or Rail direct or indirect with or without transhipment. Partial shipments all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the shipping documents to enable the buyer to deal with the goods in the usual way of business. He is also required to tender such other documents as are specified in the contract and if the contract is silent, it is sufficient if the seller tenders the bill of lading, policy of insurance and invoice. All these documents must be valid on tender. Under the c.i.f. contract, prima facie, the property in the goods passes once the documents are tendered by the seller to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill 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, either conditionally or unconditionally. It passes conditionally where the bill of lading ; for the goods, for the purpose of better securing payment of the price, is made out in favour of the vendor or his agent or representative : see the judgments of Bramwell L. J. and Cotton L. J. in Mirabita v. Imperial Ottoman Bank. It passes unconditionally where the bill of lading is made out in favour of the purchaser or his agent or representative, as consignee. But the vendor, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revail, 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 documents are transferred that property is subject to the condition that the goods should revest in the seller if on an examination by the buyer he finds them not to be in accordance with the contract. It is not necessary to consider this aspect because in any case the ascerfainment of the obligations under the contract will determine to what extent the transfer of property is subject to a condition or if the property passes conditionally whether the ownership left in the seller is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary 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 assessee's bankers in London, Eastern Bank Ltd., to their branch in Madras who thereupon wrote to the assessee offering to negotiate the drafts drawn in terms of the contract provided the documents were in order and concluded the letter with a warning that the advance was given for the assessee's guidance without involving any responsibility on the part of the bank. On receipt of this intimation the assessee placed the contracted goods on board the steamer at Madras and obtained a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 excessive moisture is not a condition of the transfer of property. The right of the buyer thereunder is not a right to cancel the contract in toto but only to adjust claims in respect of the quality or moisture for which a remedy has been provided thereunder. There is nothing in the agreement which envisages the property in the goods being in the seller even after the value of the invoice had been paid by the bank under the letter of credit in Pakistan. It may be further noticed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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