COMMISSIONER OF INCOME TAX BOMBAY CITY BOMBAY Vs. S K F BALL BEARING COMPANY LIMITED
SUPREME COURT OF INDIA (FROM: BOMBAY)
COMMISSIONER OF INCOME TAX,BOMBAY CITY
S.K.F.BALL BEARING COMPANY LIMITED
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(1.), J. : Aktiebolaget Savenska Kullakerfabriken of Gothenburg is a company incorporated under the law of Sweden, and is engaged in the manufacture of ball bearing equipment. S.K.F. Ball Bearing Co. Ltd., which will hereinafter be referred to as "the S.K.F." is a company registered under the Indian Companies Act, 1913. By an agreement dated 1/01/1939, the S.K.F. was appointed by the Swedish company as its sole selling agent in India. On account of the commencement of hostilities in the second world war, a corporation known as the Panrope Corporation was incorporated in the Republic of Panama in 1940, to take over as a war-time arrangement the assets and business of that Swedish company. With effect from 1/07/1947, the Panrope Corporation conveyed the property and business to the Swedish company. In the years 1947, 1948, 1949 and 1950 the S.K.F. sold in India as the agent of the Swedish and Panamian companies - which will hereinafter be collectively referred to as the "foreign corporations" - the goods manufactured by them. A small quantity of goods was brought by the S.K.F. and sold by it in India, but no question arises in this appeal about the liability to pay income-tax in respect of sale of those goods and no reference is made herein in respect of those sales. The Income-Tax Officer, Companies Circle II(3) Bombay exercising powers vested in him by S. 43 of the Indian Income-tax Act, 1922, having appointed the S.K.F. as the statutory agent of the foreign corporations for the assessment year 1948-1949, and of the Swedish company for the assessment years 1949-50, 1950-51 and 1951-52, the S.K.F. submitted returns of income for these years in the taxable territory on behalf of the foreign corporations.
(2.)CLAUSES 13, 22 and 23 of the agreement dated 1/01/1939, between the S.K.F. and the Swedish company which are material for the purpose of this appeal are as follows :
Clause 13 :
The Agent shall render before the tenth day of each month a true and detailed statement of the said Products that have been sold by him or his Sub-Agents during the preceding month. This statement is to be prepared in accordance with the instructions that are to be given by S.K.F. and it shall contain the names and addresses of the parties to whom the said Products have been supplied, together with a description of the Products and the price at which they have been sold.
Clause 22 :
The Agent shall sell the said Products either for cash or on credit. Notwithstanding the fact that permission is hereby granted by S.K.F. to the Agent to sell on credit, any credit given by the Agent to the buyer of the said Products shall be deemed to have been given by the Agent for his own account and on his own responsibility. If the buyer has not paid the Agent the amount that is owing by the date on which the Agent is to render a statement and make payment to S.K.F. for such sales that have been made on credit, the Agent shall nevertheless be liable to effect payment to S. K. F. in accordance with the terms and conditions that are defined in this Agreement.
Clause 23 :
The Agent shall pay to S.K.F. the net sales value of the said Products that are sold each month, after deduction of the commission that has been agreed upon (cf. 20) and the import expenses that have been paid (cf. 21). Payment shall be made in Sweden thirty (30) days, at the latest, following the last day of the month in which the sales have been effected.
The Income-tax Appellate Tribunal has found that for rendering accounts of the net sales and also for making payments according to the terms of cl. 13 of the agreement, the S.K.F. maintained for the relevant period a current account in the names of the foreign corporation in respect of goods "received on consignment". When goods were sold by the S.K.F., the account of the principal was credited with the price and the account of the buyer to whom the goods were sold on credit was debited. In a majority of cases of sales, remittances of "sale value" after deducting commission were made after sale of the goods to the buyers but before the sale proceeds were recovered. In a few cases remittances were made even before the goods were sold, and in the remaining, remittances were made after the sale proceeds were realised from the buyers.
(3.)THE Income-tax Officer assessed the foreign corporations under S. 4(1)(a) of the Indian Income-tax Act for payment of tax on the profits included in the price realised by the S.K.F. by sale of goods "received on consignment" without making any distinction between sales in respect of which the remittances were made after recovery of sale proceeds and sales in respect of which remittances were made before recovery of the sale proceeds. THE order passed by the Income-tax Officer was confirmed by the Appellate Assistant Commissioner and also by the Income-tax Appellate Tribunal. At the instance of the S. K. F., the following questions were referred to the High Court of Judicature at Bombay under S.66 (1) of the Indian Income-tax Act, 1922:
1. Whether there was evidence on which the Tribunal could have held that the Panrope Corporation and the non-resident company had a business connection in the taxable territories in the years of account?
2. Whether the profits of the Panrope Corporation and the non-resident company in respect of the consignment goods were received in the public territories on their behalf?
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