TMI Blog1966 (2) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... xed in the status of a non-resident. During the years of assessment the business conducted by the assessee was wholesale business in woollen and cotton cloth. The question that arises is whether any income, in whole or in part, accrued in the taxable territories in respect of certain transactions, of purchase of cloth from dealers in foreign countries like Japan and other countries and the sale transactions of that cloth to merchants in Aden. The modus operandi of the assessee in respect of these transactions in the assessment years was that the assessee obtained import licences for importing cloth in Aden from the Aden authorities and secured permits for making remittances of money to India,. The assessee transmitted those documents to the firm of Chhaganlal Savchand Co. in Bombay, hereinafter for brevity's sake referred to as the Bombay firm. The Bombay firm after securing permission of the Reserve Bank of India obtained moneys from the assessee from Aden and then credited it with some bank in Bombay. On receiving instructions from the assessee as to the quantity and quality of goods, the Bombay firm placed orders directly with the manufacturers in Japan. Simultaneously, an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eign parties direct and sale is made by them to Aden parties. (4) Transactions in which purchases are made by the Bombay firm from foreign parties through their Bombay representatives and sales made to Aden parties through their representatives in Bombay. It may be mentioned that so far as transactions in category 3 are concerned, documents were transmitted by the Bombay firm to the Aden parties and so far as transactions in category 4 are concerned, the documents were handed over by the Bombay firm at Bombay to the representatives of the Aden parties. We are not here concerned with transactions falling under categories 1 and 2. In respect of those transactions the income-tax authorities have held that operations relating to these transactions were partly carried out in India and, therefore, profit or loss attributable to them had to be taken into account. The authorities, therefore, have held that 50 per cent. of the profit or loss in respect of the said transactions should be taken into account while determining the assessee's total income. As regards transactions falling under categories 3 and 4, the Income-tax Officer held that the mere fact that the documents were final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances, justified in holding that in respect of the above transactions the sale took place in Bombay within the taxable territories. The entire profit therefrom is to be subjected to tax. On an application made by the assessee, the Tribunal after stating the case has referred the following question of law to us : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sales in respect of the transactions referred to above took place in the taxable territories and the entire profit in respect thereof arose in the taxable territories ?" The assessee is being taxed in the status of a non-resident. It is not in dispute that the assessee would be liable to tax in respect of the profits and gains arising out of these transactions only if it is established that the said profits are received or are deemed to be received in the taxable territories or if the profits and gains accrue or arise or deem to accrue or arise to the assessee in the taxable territories during the said assessment years. It is an admitted position that the profits have not been received and the question to be considered is whether the profits arising out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct of the parties and the circumstances of each case. The rules mentioned in sections 20 to 24 have been enacted as an aid for gathering this intention. But if either the terms of the contract or the conduct of the parties or the circumstances of the case disclose a different intention of the parties, then the rules do not come into play. It would be recalled that the Tribunal has held that the rule enacted in section 20 of the Act governs the case. The arguments advanced by counsel for the parties centre round the provisions of this section. It would therefore be convenient to read that section before we proceed to deal with the respective arguments. Section 20 is as follows : " 20. Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed." It would be noticed that to attract the provisions of section 20, the following two conditions must be fulfilled : (1) the contract of sale must be for specific goods in a deliverable state, and (2) the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he seller has to do nothing more, then the buyer is bound under the contract to take delivery and the seller is bound to give delivery of those goods to the buyer. It is an admitted position that the goods that were purchased were on the high seas represented by the bills of lading. These goods were sold by the Bombay firm to the Aden parties and the Aden parties had to take delivery of those goods. The endorsement to be made on the bills of lading and the other documents was only for purposes of enabling the purchasers to obtain delivery from the shippers. The endorsement had no concern and had nothing to do with the goods or for giving finishing touches to the goods for the purpose of delivering them to the buyer. In our opinion, therefore, the first condition, namely, that the contract was in respect of specific goods in a deliverable state has been fulfilled. The second question that arises is whether the contract was unconditional. It is the argument of Mr. Mehta that the contract was a conditional one and the condition was the assessee making an endorsement on the documents in Aden. The contract made by the Bombay firm in Bombay thus was not an unconditional one. It therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructions received from the assessee. Having regard to these facts there can hardly be any doubt that obtaining the endorsement of the assessee in Aden was merely a formality, obviously because the import licence was in his name and also because the goods were transmitted or were shipped to his address, and it is therefore necessary to obtain his endorsement to enable the purchasers to obtain delivery of goods from the shippers. The statement of the case also shows that it was only for that purpose that the documents were submitted to the assessee and not for the purpose of completing the transaction of sale. The statement of the case says that the purchasers sent the documents to the assessee at Aden for endorsement of the particulars of his import licence and also for orders to the effect that the goods be delivered to them. In our opinion, therefore, the conditions mentioned in section 20 are fulfilled. The presumption that could therefore arise is that the property in the goods passed to the Aden buyers in Bombay at the time the contract was made, unless of course a different intention of the parties appears either from their conduct or from the circumstances of the case. Now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e title in the goods to the buyer at the time of the delivery after endorsement of the bill of lading. We may here reproduce the observations of Bowen L.J. which have been cited with approval by the Supreme Court and which indicate as to what the bill of lading represents. These observations are at pages 24-25 of the report I and they are : "A cargo at sea while in the hands of the carrier is necessarily incapable of physical delivery. During this period of transit and voyage, the bill of lading by the law merchant is universally recognised as its symbol, and the endorsement and delivery of the bill of lading operates as a symbolical delivery of cargo. Property in the goods passes by such endorsement and delivery of the bill of lading, whenever it is the intention of the parties that the property should pass just as under similar circumstances the property would pass by an actual delivery of the goods." So far as India is concerned, " documents of title " have been defined by sub-section (4) of section 2 of the Act and it provides : " Document of title in goods includes a bill of lading ... and any other document used in the ordinary course of business as proof of possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... title. The transfer of documents of title thus appears to have been one of the conditions of the contract between the parties for the transfer of title in the goods to the buyer. The Tribunal has made no distinction between transactions falling under category 3 and category 4 and it is on account of that reason that they have treated both the transactions on the same footing. We find it difficult in the circumstances of the case to so treat the transactions, for reasons which we have already given. In the circumstances, in our opinion, the presumption falling under section 20 would not arise so far as transactions falling under category 3 are concerned. Mr. Joshi contended that practically the major part of the transaction of sale to the Aden buyer had taken place in Bombay. Delivery of the document at Aden was also in the circumstances a mere formality and that would constitute a very insignificant part. We should, therefore, restore the order of the Appellate Assistant Commissioner in respect of transactions falling under category 3 and hold that 90 per cent. of the profits arising out of those transactions arose in India and 10 per cent. arose in Aden. Mr. Mehta, on the other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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