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TMI Blog1967 (11) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... that the quantum of sale in India amounted to Rs. 13,86,995 and assessed accordingly. The appeal by the assessee to the Appellate Assistant Commissioner was dismissed with the following observation : " It is contended that the Income-tax Officer of Pakistan held that the 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 on the common carrier and the consideration money was also paid in Pakistan through the State Bank of Pakistan. The Income-tax Officer of Pakistan held that the purchaser took constructive delivery in Pakistan and as such sales were legally made in Pakistan. The appellant's representative contends that the finding of the Pakistan Income-tax Officer was correct and when the sales were effected in Pakistan the Income-tax Officer was not justified in including this sum of Rs. 18,06,772 as the sale proceeds of goods in India. I find from the contract papers that, apart from the fact that all the contracts for sale were made in India, the procedure adopted was that the Indian mills opened letter of credit in Hind Bank Ltd., and the bill of lading in respect of jute was made over by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in two cases, in the name of Mahabir Trading Co. Ltd., an agent of the assessee-company. The assessee then made invoices or bills on the basis of bill of lading and contract price and drew bill of exchange on the buyers' bank where the letter of credit had been opened. The bill of exchange together with the bill of lading and the invoices were then negotiated with the bank and the bank forwarded the documents to their offices in Calcutta which in their turn sent the documents to the purchasers. There were certain amendments to the contract form and the relevant amendments were as follows : (1) Transit insurance was to be cared for by the buyers at contract value plus 10% under their open cover and premium to be paid for by sellers in India. The sellers had to advise the buyers the quantity and assortment in maunds to be shipped immediately loading was commenced. (2) Buyers were to open letter of credit with the Pakistan bank in favour of the sellers' nominee. A complete set of shipping documents were to be presented to the bank and payments of the invoices value, in terms of the contract, to be made to the shippers, in the equivalent Pakistan currency at the exchange rate ruling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said affidavit, called for a demand report from the Income-tax Officer in respect of the statement of facts mentioned by the assessee in that affidavit. .. . The Income-tax Officer submitted his report on the 26th June, 1957 .. . In his remand report, the Income-tax Officer mentioned the further facts on the basis of which the Tribunal passed its order. It appears, the Tribunal also referred to the contract No. 3807 dated 4th June, 1951, by the assessee for delivery of goods to Titaghur Jute Mills No. 2, in paragraph 1 of which it is mentioned that the delivery of the goods will be given free to buyers mill siding and /or ghat' . . . The facts mentioned by the Tribunal in paragraphs 1 and 2 of its order, it appears, are on the basis of the affidavit ,dated the 24th August, 1956, the remand report of the Income-tax Officer dated 26th June, 1957, contract No. 3807 dated 4th June, 1951, between the assessee and Titaghur Jute Mills No. 2... " In respect of the second point on which the supplementary statement has been called for, the Tribunal, in paragraph 2 of its order, has observed as follows : " The fact that letters of credit had been opened was communicated by the respectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 value 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 4 as amended). It further appears from the affidavit of the assessee before the Tribunal hereinbefore mentioned as follows : " 5. From the terms of the said contract it will further be seen that the buyers were to open an irrevocable letter of credit with a bank in Calcutta. In these transactions the buyers opened letters of credit with the Imperial Bank of India, the Chartered Bank of India, Australia & China, and the Hind Bank Ltd., Calcutta, and not, only with the Hind Bank Ltd. as stated by the learned Appellate Assistant Commissioner in his order dated the 17th October, 1955. 6. That all these banks, viz., the Imperial Bank of India, the Chartered Bank of India, Australia & China and the Hind Bank Ltd. have their branches in Pakistan at Chittagong and Narayangunj and the company's Ashu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lia and China and the Hind Bank Ltd. have their branches in Pakistan at Chittagong and Narayangunj. The fact that letters of credit had been opened was communicated by the respective banks in Calcutta to their branches in Pakistan and which in their turn informed the assessee that they were prepared to negotiate the draft drawn as per terms of the contract. On receiving this information the assessee placed the contracted good on board the steamer at Ashugunj and obtained a bill of lading in the name of the buyers. The assessee then made an invoice or bill on the basis of bill of lading weight and contract price and the assessee drew a bill of exchange on the buyer's bank where the letter of credit had been opened. From the copies of the letters of credit of the Chartered Bank the most significant fact that can be noted is that drafts drawn under the letters of credit were to be treated as advance bills through their Chittagong office. The bill of exchange together with the relative bill of lading and the invoices were then negotiated with the Chartered Bank, the Hind Bank and the Imperial Bank. The respective banks then forwarded the documents to their offices in Calcutta and whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of any contract to tender the documents at any other place and not by actual physical delivery of the goods by the seller. The only obligation of the buyer, apart from express agreement, is to be ready and willing to pay the price in exchange for the documents (vide B. R. Hertnan and Mohatia (India) Ltd. v. Pran Ballay Majumdar ). In the instant case, as we have already noticed, the agreed procedure for the delivery of documents representing the goods was : (a) On receipt of information that the buyers had opened letters of credit with Calcutta banks and that the news thereof were communicated to their Pakistan branches and that the Pakistan branches were prepared to negotiate the drafts drawn as per terms of contract, the assessee was to place the goods on board the steamer at Ashugunj (in Pakistan), obtain bills of lading, prepare. bills or invoices on the basis of such bills of lading and contract price and draw bills of exchange on the buyer's bank in which the letters of credit had been opened. (b) The bills of exchange together with the relative bills of lading and the invoices were then negotiated with the relative banks in their Pakistan branches, which in their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipped, the buyers opened irrevocable banker's credit with a bank in London, in favour of the assessee. The fact that the letter of credit had been opened was communicated by the assessee's banker, in London, the Eastern Bank Ltd., to their branch in Madras, which thereupon wrote to the assessee offering to negotiate the drafts drawn in terms of the contract, provided the documents were in order subject, however, to the warning that the advice was given for the assessee's guidance without involving any responsibility on the part of the bank. On receipt of this information the assessee placed the contracted goods on board the steamer at Madras and obtained a bill of lading in its own name. The assessee then made a provisional invoice on the basis of the bill of lading and drew a bill of exchange on the buyer's bank, where the letter of credit had been opened for 90 per cent. of the amount of provisional invoice payable at sight, in the case of European contracts, and 80 per cent. of the amount of provisional invoice at 90 days sight in case of American contracts and in either case the bill of exchange was drawn in favour of the Eastern Bank Ltd,, London. The bill of exchange, togethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty in the goods passed immediately to the buyer. This argument however, overlooks the important word ' unconditionally ' used in the section. The requirement of the section is not only that there shall be appropriation of the goods to the contract but that such appropriation must be made unconditionally. This is further elaborated by section 25 which provides that where there is a contract for the sale of specific goods,or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In such a case, notwithstanding the delivery of the goods to the buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the property' in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. The question in this case, therefore, is: Was there an unconditional appropriation of the goods by merely placing them on the ship? It is true that the price and delivery was f.o.b. Madras but the contracts themselves clearly required the buyers to open a confirmed irrevocable bankers' credit for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, that in any event upon the terms of the contracts in question and the course of dealings between the parties the property in the goods could not have passed to the buyer earlier than the date when the bill of exchange was accepted by the buyers bank in London and the documents were delivered by the assessee-company's agent, the Eastern Bank Ltd., London, to the buyers' bank. This admittedly, and as found by the Appellate Tribunal, always took place in London. It must, therefore, follow that at the earliest the property in the goods passed in London where the bill of lading was handed over to the buyers' bank against the acceptance of the relative bill of exchange. " The Appellate Tribunal distinguished the Supreme Court case from the instant case on the theory that in the case before the Supreme Court, the bill of exchange and bill of lading were drawn up in favour of the assessee and not in favour of the buyers, whereas, in the instant case, the bills were drawn in favour of the buyer. We do not think that the distinction is one of substance, because even in the case before the Supreme Court, the bills of lading drawn in favour of the assessee were endorsed in blank, which s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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