Return of borrowed cotton under licence was a loan transaction, not a taxable sale, when repayment in kind was required.

Return of cotton borrowed under an actual user's licence was treated as a loan transaction, because the Textile Commissioner's permission required the cotton to be returned in kind and directed that neither transaction be treated as a sale. Payment made to clear the bank security was characterised as payment for release of the security, not consideration for sale. The transaction therefore did not amount to a sale and was not taxable as such.

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Issues: Whether the return of cotton borrowed under an actual user's licence constituted a sale liable to tax.

Analysis: The cotton had been borrowed with the Textile Commissioner's permission, with a direction that it be returned in the shape of cotton and that neither transaction be treated as a sale. The return of cotton was held to be only a loan transaction. Any payment made to clear the bank security attached to the cotton was regarded as payment for release of the security and not as consideration for a sale.

Conclusion: The transaction did not amount to a sale and was not taxable as such.

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