Jain, J. - (1.) THE Income-tax Appellate Tribunal, Delhi Bench A, has made this reference for answering the following question of law : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 35,302 was the income of the assessee which accrued in Part 'C' State and not in Part 'B' State ?"
(2.) THE assessee, M/s. Mansinghka Bros. (P.) Ltd., Bhilwara, is a private limited company having its head office at Bhilwara which was at the material time in a Part 'B' State. THE assessee company had advanced loans to Shree Bijay Cotton Mills Ltd. and to Shree Bijay Sugar Mills Ltd., Bijainagar in a Part 'C' State. THE assessee company had earned an income of Rs. 1,10,369 during the accounting year ending 31st March, 1951, which included income from interest amounting to Rs. 35,302. It had an income of interest of Rs. 22,526 from Shree Bijay Cotton Mills Ltd, and Rs. 12,776 from Shree Bijay Sugar Mills Ltd. THE ITO by his assessment order dated November 29, 1952, held that the amount of interest accrued to the assessee in a Part 'C' State and as such no rebate is admissible according to the Part 'B' States (Taxation Concessions) Order. THE assessee went in appeal before the AAC of Income-tax, 'B' Range, Delhi, who by his order dated April 23, 1954, while dismissing the appeal of the assessee, found that both the interest items in question accrued to and were really earned by the appellant at Bijainagar and not at Bhilwara. THE assessee further went in appeal before the Income-tax Appellate Tribunal, Delhi Bench, which by its order dated April 11, 1955, accepted the contention of the assessee and held that the income from interest on the loan was received by the assessee in a Part ' B ' State. However, on rectification application, that order was set aside by the Tribunal by its order dated March 14, 1956, and the appeal was reheard and on August 11, 1958, the order of the AAC was set aside and the case was sent back to the AAC to make further inquiries on the lines directed by the Tribunal and to dispose of the appeal afresh according to law. THE AAC reheard the appeal and again decided the question against the assessee by its order dated April 8, 1968. THE assessee further went in appeal before the Tribunal and the Tribunal, by its order dated May 18, 1970, rejected the appellant's contention and held that the income from interest accrued to the assessee in a Part 'C' State. Further, Misc. Application was presented for rectification of a mistake, but the Tribunal by its order dated December 3, 1970, rejected the application and a reference application was made by the assessee, on which the Tribunal has referred the above question of law for being answered by this court. The Tribunal in its order dated May 18, 1970, observed as under: "Though the charging sections of the Income-tax Act assume that income, profits or gains have a situs, in the absence of proper indication as to how the. situs is to be determined, we are to consider it according to general principles of law and how there was inter-related connection between accrual of interest and situs of accrual of interest. Sufficiency of territorial connection involves consideration of two elements: (a) connection should be real and not illusory, (b) liability sought to be imposed must be pertinent to the connection. From the facts of the case, we cannot hold that the connection upon which the counsel for the assessee relied was real. According to us, connection is illusory because purchasing agents are no independent entities, amounts were adjusted in the head offices of the debtor companies, whatever entries had been made were made in the primary books of account of the head offices of debtor-companies. Title to money lent passed to the debtor-companies in Part C States, goods were purchased for manufacturing purposes and manufacturing operations were made in Part C States and nothing could be found that any part of the income of the assessee accrued or arose in Part B States. Purchasing agents are agents for limited purposes of purchasing goods for their principals. An authority to purchase does not imply authority to borrow capital for the purpose of purchase. In commercial transactions, an agent is to be understood to have a meaning which is accorded to it by the Indian Contract Act, 1872. Nothing was brought on record to hold that purchasing agents were authorised to take loans on behalf of debtor-companies. On the other hand, position of accounts maintained by the head offices of the debtor-companies and their purchasing agents belies the position that these purchasing agents acted on behalf of the head offices of the debtor-companies to take loans at Bhilwara." The Tribunal then considered as to when and how the debtor-companies would be responsible for making payments to the assessee and where the cause of action against them would arise. It considered the provision of Section 20 of the Code of Civil Procedure and further observed that the debtor-companies had no subordinate office and they had no branch offices at Bhilwara and as such it cannot be stated that the debtor-companies carried on business at Bhilwara. So the Tribunal held that the cause of action in the instant case cannot arise in a Part 'B' State, and, it also found that the debtor-companies cannot be said to reside in a Part 'B' State and carried on business at that place. It also recorded a finding that no contract for taking loan was made in a Part 'B' State. It further observed that in the instant case there was no written agreement between the assessee and debtor-companies regarding taking of loan by the debtor-companies from the assessee at Bhilwara and it also could not be established that there was a verbal agreement of taking loan by debtor-companies from the assessee in Part 'B' States. It concluded that after taking the chain of integrated circumstances of the present case, we are to hold that title to money passed to the debtor-companies in Part 'C' States and interest payable thereon accrued also in Part 'C' States. On behalf of the assessee, strong reliance was placed on the decision of the Madras High Court in C.G. Krishnaswami Naidu v. CIT [1966] 62 ITR 686. It was stated in respect of that authority that the observation and view taken in that case are in respect of the facts of that particular case and the observation made in the Madras case was also considered that there may be cases where conceivably terms of an agreement of lending may decide the situs of interest. This court is required to answer the question referred to it in the light of the factual findings arrived at by the Tribunal. It has been found that the debtor-companies had their purchasing agents at Bhilwara and the purchasing agents had no authority to borrow loans. The entries relating to money-lending transactions were made in the books of account of the head offices of the debtor-companies. It is to be seen as to what circumstances can be taken into consideration on the basis of which it can be said that the accrual of interest has a particular territorial connection and whether that connection is a real connection or an illusory one. In money-lending transactions, there may be several factors which may have different territorial connection. These factors may be as to the place, where an agreement verbal or written, to advance loan, is entered into ; the place where the money is actually lent; the place where the money is used or utilised; the place where entries thereof are made ; the place where money, including interest, is agreed to be paid. In order to determine the situs of accrual of interest, these and several other factors may enter into consideration. It is true that in the present case the debtor-companies had no branch offices. They had only purchasing agents, who used to purchase goods on behalf on the debtor-companies and the purchasing agents had no authority to borrow loan. But still two questions prominently crop up for consideration, (1) what was the place where the money was lent, and (2) what was the place where the money lent, including interest, was to be repaid ? On behalf of the assessee, Shri H.N. Calla urged that in the present case the money was actually lent at Bhilwara, as the same was received by the purchasing agents on behalf of the debtor-companies and there was no written or verbal stipulation between the parties regarding the place of repayment. But in the instant case the general principle should be found to have application that the debtor should seek the creditor and the debtor is under an obligation to repay the loan, including interest, at the place where the creditor resides, unless the creditor changes its place of residence after advancement of loan. Such a change of place of residence, in certain circumstances, may be considered in the manner that the debtor may be under no obligation whatsoever to find out the creditor as to where he resides and approach him to make payment of the loan at that changed place. Mr. Calla urged that a cause of action accrues to the creditor also at the place where the loan is payable and applying the above principle, it can be said that the money was payable at Bhilwara, where the assessee was carrying its business. Thus, the right to receive repayment of the loan, including interest, accrued to the assessee at Bhilwara and a corresponding obligation or liability arose for the debtor companies to make payment to the assessee at Bhilwara. Mr. Calla also urged that from a perusal of the orders passed by all the revenue authorities, it would be evident that in fact the loan was advanced by the assessee to the purchasing agents of the debtor-companies at Bhilwara. He submitted that it is one thing to say that the purchasing agents had no authority to take loan. It is entirely different to say that the debtor-companies at Bijainagar borrowed the loan from the assessee through their purchasing agents at Bhilwara, so the situs of advancement of loan was at Bhilwara, That was also a very relevant consideration to determine the question of accrual of interest income at Bhilwara. He submitted that C.G. Krishnaswami Naidu's case [1966] 62 ITR 686 (Mad), had not been properly considered by the Tribunal. He urged that the case does throw light on the question in issue and has a material bearing on the present case.
(3.) MR. J. P. Joshi, learned counsel for the Revenue, on the other hand, urged that the accrual of interest at Bhilwara has only an illusory connection and not a real connection. The debtor-companies had their head offices at Bijainagar. The moneys were entered into the books of account at the head office. Entries relating to accrual of interest were also made in the books of account of the head offices of the debtor-companies. The debtor-companies had no branch offices at Bhilwara and were having only their purchasing agents. The liabilities of the debtor-companies arose at Bijainagar for payment of loan and interest and it may also be considered that a finding has been arrived at by the Tribunal that the money was not lent at Bhilwara. When the Tribunal has observed that the purchasing agents had no authority to take loans on behalf of the debtor-companies and that the position of accounts at the head offices and the purchasing agents belies the position that the purchasing agents had authority to take loans at Bhilwara for the purposes of determination of the situs of accrual of interest. Shri Joshi urged that when the liability to repay the amount of loan and interest can be said to arise at Bijainagar, then for the purpose of determination of that question, the principle that the debtor should find the creditor should not be made applicable. We have carefully considered the rival submissions advanced by the learned counsel for both the sides. We may first consider as to whether the question of situs of accrual of interest can be examined in the light of the principle that the debtor should find the creditor. In our opinion, it cannot be denied that the place of repayment has a material bearing on the question, for, it can be said that the place where the right to recover the principal amount of loan arises, income from interest would also accrue or arise at the place where the amount of loan is required to be repaid. There may be a stipulation between the creditor and the debtor, with regard to the place of repayment. Where there is no agreement, verbal or written, then in such cases, the principle that the debtor should find the creditor has also been found applicable in India. Of course there may be facts and circumstances where this principle may not be made applicable. Such a situation may be where the creditor had left his original place and had migrated to some other place beyond the national frontiers or otherwise and the new place may be known or may not be known to the debtor. This court had an occasion to consider the applicability of the rule relating to the debtor's obligation to find out the creditor in Balloram v. Firm Seth Uttamchand Bishandas [1960] RLW 397; AIR 1961 Raj 93. After considering the available law and statutory provisions, the principles were stated as follows (p. 97 of AIR): "(1) The technical rule that the creditor's residence at the commencement of the suit should determine the forum in the absence of a contract to the contrary should not be applied in India. India is a vast country and it is hardly fair to impose a burden upon the debtor to seek the creditor wherever he happens to go in this vast country. The Privy Council case, Soniram Jeetmull v. Tata R.D. & Co. Ltd., AIR 1927 PC 156, is consistent with this proposition. The contrary authorities in cases Tusliman Bibi v. Abdul Latif Mia, AIR 1936 Cal 97 and Bharumal Udhomal v. Sakhawatmal Veshomal, AIR 1956 Bom 111, do not in my judgment state the correct law. (2) If the place of performance of contract or, for that matter, the place of payment of debt can be shown to be fixed expressly or impliedly and irrespective of or despite the inferences arising from the obligation of the debtor to seek the creditor involved in the obligation to pay him, the applicability of the rule does not arise. (3) Even though the place has been fixed at the time of agreement expressly or impliedly, but if it has been subsequently fixed under Section 49 of the Contract Act on an application of the promisor and with the consent of the promisee, the rule should not be applied. (4) If it is not possible to establish an agreement respecting the place of performance or payment, express or implied, the court should apply the rule and should presume that the place of the creditor's residence at the time of the agreement was implied to be the place of performance or payment. The cases which have taken the view that the rule is only one of the factors that should be considered in determining the place of performance have not correctly interpreted the Privy Council decision. Obviously, if on a consideration of the various circumstances, it is not possible to arrive at a finding as to an express or implied agreement regarding the place of performance or payment, I cannot see how other factors should be considered along with this rule for determining the place of performance, as the rule implies a clear-presumption in the absence of a contract to the contrary". ;