TMI Blog1967 (11) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... 23,93,767, out of which sales worth Rs. 13,06,772, were made in foreign countries and sales worth Rs. 2,44,015 in India. The balance of sales, worth Rs. 11,42,979, according to the assessee, was made in Pakistan. The Income-tax Officer overruled the contention of the assessee that jute worth Rs. 11,42,979 was sold in Pakistan. He found 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hes in Pakistan and the banks in Pakistan in their turn informed that they were prepared to negotiate the draft drawn as per terms of the contract. On receiving this information, the assessee placed the contracted goods on board the steamer at Ashuganj in Pakistan and obtained the bill of lading in the name of the buyers in five cases whereas 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal by the Tribunal, the assessee had been called upon by the Tribunal to file an affidavit in respect of their submissions contradicting some of the findings of the Income-tax Officer and of the Appellate Assistant Commissioner. In accordance therewith, the assessee filed an affidavit dated the 24th August, 1956 .. . The Tribunal on reading the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by buyers at contract value plus 10 per cent. under their open cover and premium to be paid for by sellers in India (clause 3 as amended); (c) the amount of tax payable under the Bengal Raw Jute Taxation Act, 1947, is to be on the seller's account and to be deducted by the buyers from the price quoted, for payment to the Provincial Gcvernment (clause 1) (d) 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 Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions the buyers opened letters of credit with the Imperial Bank of India, the Chartered Bank of India, Australia and China and the Hind Bank Ltd. at Calcutta, and not only with the Hind Bank Ltd. as stated by the Appellate Assistant Commissioner in his order dated 17th October, 1955. All these banks, viz., the Imperial Bank of India, the Chartered Bank of India, Australia 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng documents they must prima facie be tendered at the residence or place of business of the buyer." The essential feature of an ordinary c.i.f. contract, as compared to an ordinary contract for sale of goods, rests in the fact that performance of the bargain is to be fulfilled by delivery of documents representing the goods at the buyer's residence or place of business, in the 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 Pak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the buyer's and assessee's agents in London. The contracts of sale to persons in America were signed by the assessee's managing agents in Madras and by an American company, which purchased 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 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. It is suggested that as soon as the assessee-company placed the goods on board the steamer named by the buyer at the Madras Port the goods became ascertained and the property 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that, that being the position, the property in the goods passed and the sales were concluded outside British India, for the weighment, sampling, assay and the final fixation of the price could only take place under all these contracts outside British India. It is not necessary for us to express any opinion on this extreme contention. Suffice it to say, for the purposes of this case, 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 Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration as provided for in clause 13 provides for an allowance of not less than 50 per cent. on the market difference between the grades of the goods contracted for and the goods supplied and/or finds a moisture content in the goods supplied in excess of the maximum percentage of moisture allowed under clause 8 by not less than 3 per cent, and stipulates an allowance therefor. Buyers shall thereupon be entitled to exercise any of the following options: (a) Of accepting the goods with the allowances awarded. (b) Of cancelling the contract in respect of the particular lot or lots of goods supplied and changing sellers for the market difference on the goods as contracted for and those offered in fulfilment of the contract and on which the award has been made. (c) Of rejecting the particular lot or lots of goods supplied and claiming a fresh tender in lieu thereof to be made within 30 days from the date on which the option is declared. The unconditional appropriation, therefore, took place in India, notwithstanding the c. i. f. terms and the title to the goods passed to the buyers in India. In the result, we answer the question referred to us in the negative and against t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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