Decided on October 28,1965



MANCHANDA, J. - (1.)THIS is a case stated under section 66(1) of the Indian Income-tax Act, 1922. Four questions have been referred to this court :
"1. Whether the profit on estimated sales of 4 lakhs made to the Government under the tender system accrued or arose to the company in British India in whole or in part under section 4(1) (c) of the Act.

2. Whether the profit on sales of Rs. 5,59,918 during the calendar year 1942 and of Rs. 3,40,161 in the calendar year 1939 made to merchants in British India through brokers accrued or arose in whole or in part to the company in British India within the meaning of section 4(1) (c) of the Ac ?

3. Whether the company received profits in British India, within the meaning of section 4(1) (a) of the Act, when it received sale proceeds of Rs. 77,608 in the calendar year 1942 and of Rs. 49,969 in the calendar year 1939 of its goods through banks in British India, who acted as the companys agents for that purpose ?

4. Whether the profit of Rs. 38,795 on Government orders for antigas fabrics accrued or arose to the assessee-company in British India within the meaning of section 4(1) (c) of the Ac ?

(2.)THE material facts in respect of question No. 1 as given in the statement of the case and the sample documents annexed thereto are as follows : THE assessee-company (hereinafter called the assessee) is a non-resident and carries on the manufacture of cloth in its mill at Ujjain, Gwalior State (now Madhya Pradesh). THE relevant assessment years are 1940-41 and 1943-44, the previous years being the calendar years are 1939 and 1942 respectively. THE assessee supplied goods to the Government under what is known as the tender system. Under this system the Government of India invited tenders from time to time for supplies required by it. On receipt thereof, the assessee, inter alia, submitted its offer to supply goods at certain rates quoted by it. THE material portion of the sample of the order which has been annexed to the statement of the case reads :
"I/We hereby offer to supply the stores detailed in the schedule annexed or such portion thereof as you may determine in strict accordance with the conditions of contract printed below and at the price quoted in the said schedule, the time and rate of delivery being as stated therein. I/we agree to hold this offer until...

(2) In the event of my/our tender being accepted, I/we hereby authorise Messrs... as my/our bankers/agents in India to receive payment and declare that payment to them will be complete and final acquittance.

Yours faithfully,

To be completed only if unable to

receive payment in rupees in India

directly and give name and address in full."

The material conditions of the contract are :

"(3) Delivery. - The contractor shall as may be required by the purchaser, either deliver free at, or despatch f. o. r. from the place or places detailed in the said schedule, the quantities of the stores detailed therein and the stores shall be delivered or despatched not later than the dates specified in the said schedule. The contractor may submit samples (normally not less than 1 per cent. of the quantity to be supplied) of stores he proposes to submit for inspection for the first consignment, for test before proceeding with bulk manufacture or delivery..."

"(6). Inspection and tests. - Notice in writing shall be sent by the contractor to the Inspector when the stores to be supplied are ready for inspection and test. No work or supply shall be considered complete in accordance with the terms of this contract until the Inspector shall have certified in writing that such work or supply has been inspected and approved by him.

(8). Inspector to certify satisfactory performance. - The whole contract is to be executed in the most approved and workmanlike manner to the satisfaction of the Inspector who... shall have full power at every stage of progress, to inspect the manufacture of the stores or any part thereof.

(9). Responsibility for executing contract. - The contractor is to be entirely responsible for the execution of the contract in all respects in accordance with the conditions of contract, notwithstanding any approval which the Inspector may have given of materials or other parts of the work involved in the contract or of tests.

(12). Packing materials. - All packing cases, containers, packing and other similar materials shall be supplied free by the contractor and will not be returned. Every bale or package shall be clearly marked with the contractors name, consignees name and address, and the gross weight and shall contain a packing note quoting the order number and date, and showing its contents in detail. A description of the contents shall be stencilled on each container. The contractor will be held responsible for stores being sufficiently and properly packed so as to ensure their safe arrival at their destination.

(13). Freight. - Unless other instructions are received from the purchaser the stores shall be despatched at public tariff rates and not military concession rates.

(14). Notification of delivery or despatch. - Notification of delivery or despatch in regard to each and every consignment shall be made to the consignee, the indentor and the Inspecting Officer concerned... Contractor shall further supply to the consignee a priced invoice and packing account quoting the order number and date of all stores delivered or despatched... and full details of contents of packages and quantity of materials are to be given to enable the consignee to check the stores on arrival at destination. The railway receipt should be forwarded to the consignee immediately after despatch of stores, otherwise the demurrage charges, if any, paid by the consignee will be deducted from the bill.

On completion of the inspection the contractor will be furnished by the inspecting officer with one copy of an inspection note duly completed to be attached to the contractors bill in support thereof.

(17). Insolvency. - Should the contractor be adjudged insolvent... the purchaser shall have power to declare the contract at an end."

"(18). Removal of rejection. - Any stores submitted for inspection and rejected by the inspector must be removed within fourteen days from the date of receipt of intimation of rejection. Such rejected stores shall lie at the contractors risk

Freight to destination on stores rejected after examination at destination shall be borne by the contractor

(21). System of payment. - Unless otherwise agreed between the purchaser and the contractor payment for the delivery of the stores will be made by the Chief Auditor, Indian Stores Department, New Delhi, by cheque on a Government treasury in India or on a branch of the Imperial Bank of India or the Reserve Bank of India transacting Government business.

(3.)THE amount payable in respect of each consignment will be made on due proof of acceptance by the consignee.
22. Laws governing the contract. - This contract shall be governed by the Laws of British India for the time being in force.

24. Arbitration."

After the particulars of the tender were received from the assessee, the Government on November 21, 1941, wired as follows :

"Accept Eleven Thousand Five Hundred Numbers Towels Operating Conforming Specification in 1446 at Annas Eight Pies two and half each f. o. r. Ujjain Delivery Commencing end January Completing February Twentieth this concludes Contract."

This was followed by the formal acceptance of the tender by the Deputy Controller of Purchases in India on January 5, 1942, as follows :

"I beg to inform you that your tender no... dated... for the stores specified in the schedule on the reverse hereof has been this day accepted subject to the conditions under which you tendered to the extent of the quantity and on the terms as to delivery specified therein.

6. Bill for the stores to be supplied in compliance with this order must be prepared in the special bill form obtainable from the nearest organisation of the Indian Stores Department...

7. Payment in India to Messrs nominated by you in your tender as your authorised agents will be a complete and final acquittance for supplies against this order.

8. Payment will be made at New Delhi and should in no case be obtained direct from the consignee.

The terms of payment will be as under :

10. (a) 90% of the cost of each consignment on proof of despatch after inspection and the balance of 10% on acceptance of the goods by the consignee, or

(b) 100% on proof of acceptance of the goods by the consignee."

To be scored out where not required.


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