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TMI Blog1961 (11) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... orth Satarah. The business of the assessee consists in the manufacture and sale of glass and enamel articles. During the relevant years sales were effected both inside and outside the Mysore state, the latter being comparatively of a larger extent. No controversy arises in regard to sales within that State as profits therefrom would not be liable to Indian Income Tax. In regard to sales in the then British India, the taxability would depend on the fact where the prices were received, accrued or deemed to have been received or accrued. It is necessary, therefore, to ascertain the mode in which the products of the assessee were sold to the customers in the taxable territories. 3. The assessee appointed distributors in various centers. Sales outside Mysore State were exclusively effected through them. They booked orders and forwarded them to the assessee who there upon dispatched the goods to the buyer. Sometimes they themselves collected the price from the buyers and remitted the same to the assessee; on other occasions, the procedure adopted was like this : The assessee used to send the consignments by rail addressed to self to draw a hundi on the buyer for the price due and to del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art to commission and balance settled by remittances to Bangalore. 4. Direct sales to Government of India. 4. The assessee was assessed to Mysore Income Tax in respect of the foregoing sales as well for all the three years which form the subject of these references. But the assessee did not file any returns under the Indian Income Tax Act for any of the years. The Income Tax Officer, Salem, came to know first of the sales to the Government of India some time during the year 1948. He pursued his enquiries and was satisfied that a part of the income earned by the assessee during certain years has escaped Indian Income Tax. After obtaining the appropriate sanction, he initiated proceedings against the assessee under section 34(I) (a) of the Indian Income Tax Act. 5. The assessee contested them on the ground that no part of its income arose within British India; but the officer held that in regard to sales classified as items Nos. 1 to 4 above, the profits should be held to have been received or accrued or arisen within British India; and that, in any event, as the sales were effected through accredited distributors in British India, the income should be deemed to have accrued ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , no substance in this contention. The liability to Indian tax is fixed by the statute; the rates fixed thereunder are also different from those prevailing in the Mysore State. Once the income in India has escaped assessment the provisions of section 34 will apply; it will be no answer to say that by reason of payment of Mysore Income Tax, the liability to the Indian tax is satisfied. In such cases, the assessee would only be entitled to relief from double taxation in accordance with the arrangements entered into between the two Governments. The Income Tax Officer has taken payment to the Mysore Government into consideration and has only levied the tax at the difference in rates between the British Indian and Mysore rates. We answer the first question referred to us in the affirmative and against the assessee. 10. Question No. 2. - This question in form relates to the entire assessment for the years in question; but in view of the fact that the assessee does not now contest the propriety of the assessment in regard to profits earned in respect of transactions coming under categories Nos. 1 and 3 the scope of the consideration of the question would be limited to the other categorie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party thereto will pass the title to the goods. Has there been such an appropriation in this case ? Admittedly, the seller had reserved a right of disposal over them at the time of their dispatch. It consigned it to "self" and took the railway receipt in its own name; it had further created a security or a lien over the goods in favour of the bank which would be entitled to proceed against them as security for the amount paid for the hundis or bills; it is clear that vesting of title in the buyer would be inconsistent with the banks of rights by way of security. Therefore, till the buyer pays the amount due on the hundi, he can have neither title nor possession. The appropriation to the contract is thus conditional on the payment of the price by the buyer. Under section 25 of the Sale of Goods Act, it will be competent for a seller to reserve his right of disposal of the goods till specified conditions are fulfilled. Where a seller delivers goods to a carrier addressed to himself and takes the railway receipt in his own name the property in the goods cannot be held to have passed on to the buyer as the seller still has his control over the goods. Again when the seller dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e buyer should take place. The banker might be satisfied with the credit of the buyer and in such a case an acceptance of the hundi or bill by the buyer would be sufficient. This is clear from the subsequent observations of Lord Summer in the same case: If, in turn, the discounting banker surrenders the bill of lading to the acceptor against his acceptance, the inference is that he is satisfied to part with his security in consideration of getting this further party's liability on the bill, and that in so doing he acts with the permission and by the mandate of the shipper and drawer. Possession of the endorsed bill of lading enables the acceptor to get possession of the goods on the ships arrival. If the shipper, being then owner of the goods, authorizes and directs the banker, to whom he is himself liable and whose interest it is to continue to hold the bill of lading till the draft is accepted, to surrender the bill of lading against the acceptance of the draft, it is natural to infer that he intends to transfer the ownership when this is done, but intends also to remain the owner until this has been done... The general law infers under these circumstances that the ownershi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income Tax, where it was held that if a cheque is given to a bank for the purpose of collection, the receipt of the money is at the place where the bank on which the cheque is drawn is situate. That was a case where there was no question of sale of goods. A payment was made by the person liable by a cheque. The assessee accepted the cheque and deposited it for collection with his bank which was outside British India. It was held that, where a creditor, who had accepted the cheque as a negotiable instrument, cashed it as such with his banker, the payment should be deemed to have been received by the assessee at the bank where he had negotiated the cheque. 16. But the assessee in the instant case is charged to Income Tax not on the receipt of moneys sent by cheques, but on the sales effected by it, i.e., on the price paid by the buyer. No cheque had been issued by the buyer. Nor can it be said as we said already that the assessees banker honored the hundis as agent of the buyer. The discounting of the hundis was an independent transaction between the bank and the assessee though it was done in connection with the sale of goods. The principle of the decision referred to abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company. Please pay by cheque to on bank at... The Government effected the payments by sending cheques for the amounts by post. In the circumstances the Income Tax Officer argued that the post officer was effectively acting as the agent of the company and, therefore, the payment was received in Delhi when the cheques were posted. 18. The Appellate Assistant Commissioner accepted the report of the Income Tax Officer. The Appellate Tribunal also affirmed it. From the facts found it is clear that there must have been an understanding between the parties that the Government of India was to send cheques for the price of articles supplied by post. 19. There can be no doubt that the issue of a cheque by the Government for the price was equivalent to payment. It may be that it was conditional on the assessee realizing the cheque; but there is no dispute that the cheques were duly realised. The question then is only where should such payment by cheque by deemed to be made : (1) was it at New Delhi where it was posted or (2) was it at Bangalore where it was realised. The answer to it will depend on the fact as to whether the post office was acting as the agent of the buyer or the seller. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that payment was to be made by cheques with no further stipulation that such cheques were to be sent by post and there being nothing more to show that sending of cheques by post authorised by the payee, the post office would not become the again for the addressee as in that case mere posting of cheque could not operate as delivery of the cheque so as to pass title thereof to the addressee. If, on the other hand, the facts and circumstances of the case disclose an implied request by the creditors to send cheques by post, the post office would be constituted as agent of the address for the purpose of receiving payments. 23. There can be little doubt in the present case that there was an implied request by the assessee to the Government of India to send the cheques by post. They were so sent and they were duly accepted during all the three years of account. It must, therefore, be held that payments made by the Government of India in respect of articles delivered to the military department under this category should be held to have taken place at New Delhi, that is, within the taxable territories. 24. We, therefore, answer the second question referred to us also in the affirmative ..... X X X X Extracts X X X X X X X X Extracts X X X X
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