Bhagwati - (1.) THIS is an appeal from the judgment and order of the High court of Judicature at Bombay upon a reference by the Income-tax Appellate tribunal under Section 66 (1) of the Indian Income-tax Act, 1922, whereby the High court upheld the decision of the Appellate tribunal that two amounts of Rs. 12,68,480.00 and Rs. 4,40,878.00 were the sale proceeds of goods sold by the appellant to merchants in British India, were received in British India and were liable to income-tax in British India.
(2.) THE appellant is a company registered in the Baroda State, as it then was, prior to its merger with India. It manufactures textile goods in Petlad in the Baroda State and after the goods are manufactured they are sold by the company ex-mills. THE company employs Messrs. Jagmohandas Ramanlal and Co. as guaranteed brokers. That firm guarantees the sale price of goods sold by the company ex-mills to the purchasers from Ahmedabad and receives commission as consideration for the guarantee and the work which it does for the company. THE company is a non-resident and its accounts are maintained according to the mercantile system. In the assessment year 1942-43 (the previous year being the calendar year 1941) the total sales of the goods by the company amounted to Rs. 29,68,808.00. In making the assessment on the company for that assessment year the following three amounts were considered for the purpose of determining the company's liability to British Indian tax. JUDGEMENT_187_AIR(SC)_1953Html1.htm As regards item (a) the company debited the account of the firm of Messrs. Jagmohandas Ramalal and Co. with Rs. 13,41,744.00 which represented sales made by the company to merchants of Ahmedabad whose payments were guaranteed by that firm, and credited the sales account with the amount of the bills. Messrs. Jagmohandas Ramanlal and Co. collected the amounts of the bills from the merchants at Ahmedabad and credited the sums recovered in the company's accounts with banks and/or shroffs at Ahmedabad and also made disbursements under instructions of the company to the creditors of the company in British India. All these payments were credited by the company to the account of Messrs. Jagmohandas Ramanlal and Co. and during the relevant accounting year the company thus received Rs. 12,68,480.00 against the total debits of Rs. 13,41,744.00. 189 As regards item (b) the company received Rs. 4,40,878.00 by drawing hundies or drafts for the amounts of its sales bills (including the forwarding charges and the cost of transit from the mills premises to the station) on the merchants in favour of recoginised banks and shroffs in British India, by sending the same to those banks or shroffs with the railway receipts duly endorsed in favour of the merchants and by instructing the banks or shroffs to recover the amounts including the costs of transmitting the same to them. The amounts of these sales bills were debited by the company to the accounts of the respective merchants and credited to the sales account and the sums recovered by the banks or shroffs from the merchants in British India against the delivery of the relative railway receipts were on receipt of the same by the company credited to the accounts of the respective merchants in their books of account. As regards item (c), the company received Rs. 6,71,735.00 from the merchants by cheques and hundies drawn on banks and shroffs in British India in favour of the company. These cheques and hundies were negotiated by the company in Petlad and sent back for credit to its accounts with those banks and shroffs. The said cheques and hundies were cashed in British India and the sale proceeds remitted by the banks and shroffs to the company. The amounts of the sales bills were debited to the accounts of the merchants in the books of the company when the goods were invoiced to the merchants and these accounts were credited with the moneys thus received by the company from the merchants.
(3.) THE Income-tax Officer brought to tax the profits derived by the company represented by the said three items in the assessment year on the basis that the sale proceeds having been received in British India the profits were received in British India. THE Appellate Assistant Commissioner on appeal held that profits from items (a) and (c) were exempt from British Indian tax while those represented by item (b) were rightly taxed. THE Department filed an appeal to the Appellate tribunal against the decision of the Appellate Assistant Commissioner in regard to items (a) and (c) and the company filed an appeal in respect of item (b). THE Appellate tribunal held in regard to item (a) that the merchants in British India were not absolved either in law or in fact from their responsibility to pay to the company its dues by virtue of the debit entries in the account of Messrs. Jagmohandas Rainanlal and Co. and in regard to item (b) that the payment of the amounts due was a condition precedent to' the delivery of goods by the banks in British India on behalf of the company. THE tribunal therefore held that profits arising from items (a) and (b) were rightly subjected to tax. As regards item (c) the tribunal held that Rs. 6,71,735.00 'were received by the assessee company directly from the merchants in British India by cheques and hundies drawn on banks and shroffs in British India in favour of the company but were negotiated in Petlad and sent for credit to the company's account. THE amounts were received at Petlad and once they were received there, they could not be held to have been received again in British India '. The Department asked the tribunal to refer to the High court the question of law arising on item (c) and the company asked the tribunal to refer to the High court the question of law arising on items (a) and (b) and the tribunal therefore referred the following question of law to the High court:- ' Whether on the facts and in the circumstances of the case, the sums of Rs. 12,68,480.00, Rs. 4,40,878.00 and Rs. 6,71,735.00, or any of them, which, represents receipts by the assessee company of its sale proceeds in British India, include any portion of its income in British India?' The High court held that Rs. 12,68,480.00 were received in British India and included the profits and gains of the business of the assessee company. It held that Rs. 4,40,878.00 also were received in British India 956 and the company was liable in respect of that amount. In regard to the item of Rs. 6,71,735.00, the High court found that the facts stated by the tribunal were not sufficient to enable it to reach a decision and therefore directed that the tribunal should submit a supplementary statement of case setting out the several aspects set out in the judgment. The High court reframed the question in regard to the two items of Rs. 12,68,480.00 and Rs. 4,40,878.00 in the manner following:- (1)Whether the sums of Rs. 12,68,480.00 and Rs. 4,40,878.00 were sale proceeds of the goods sold by the assessee to merchants in British India or were debts due by the said merchants ? (2)Whether if they were sale proceeds, they were received in British India ? and answered them by stating that they were sale proceeds and they were received in British India. There was also a third question which was comprised in the reference and that question was framed as under:- Whether the profits of the assessee's business are included in the sums of Rs. 12,68,480.00 and Rs. 4,40,878.00 ? This question was also answered by stating that they were included in these two sums. The company obtained leave from the High court to appeal against the decision in regard to the two sums of Rs. 12,68,480.00 and Rs. 4,40,878.00 and hence this appeal. ;