KESHAV MILLS LIMITED Vs. COMMR OF INCOME TAX BOMBAY

JUDGEMENT

(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.

(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 '.