1951 (3) TMI 46 - HC - Income Tax

Court rules sales profits outside British India jurisdiction. Property passed in London, sale price received in London.

The profits derived by the assessee company from sales to European and American buyers were held to have arisen and been received outside British India. ... - Issues Involved:1. Whether the profits derived by the assessee company from sales made to European and American buyers arose outside British India.2. Whether the profits derived by the assessee company from sales made to European and American buyers were received outside British India.Detailed Analysis:Issue 1: Whether the profits derived by the assessee company from sales made to European and American buyers arose outside British India.The assessee company, Mysore Chromite, Ltd., engaged in selling chromite ore to buyers in Europe and America. The contracts for these sales were signed by agents in London and New York, respectively. The main terms of these contracts included delivery of goods on an F.O.B. basis from Madras or Marmagoa, with payment facilitated through confirmed letters of credit from banks in London. The goods were shipped from Madras, and the documents (bill of lading, bill of exchange, and provisional invoice) were negotiated through the Eastern Bank Ltd., Madras, which advanced 80-90% of the invoice value to the sellers.The court examined where the property in the goods passed to determine where the sale took place. Under the Sale of Goods Act, the property in unascertained goods passes upon unconditional appropriation to the contract, which in this case occurred when the buyer's bank accepted the bill of exchange in London. The court concluded that the property in the goods and thus the sale was completed in London, not in British India. Therefore, the profits arose outside British India.Conclusion: The profits derived by the assessee company from sales to European and American buyers arose outside British India. The answer to the first question is in the affirmative and against the Income-tax Commissioner.Issue 2: Whether the profits derived by the assessee company from sales made to European and American buyers were received outside British India.The department argued that the advance payment of 80-90% of the invoice value by the Eastern Bank Ltd., Madras, constituted receipt of part of the purchase price in British India. However, the court clarified that this payment was merely an advance or loan secured against the documents of title and not part of the purchase price. The actual receipt of the sale price occurred when the buyer's bank paid the Eastern Bank Ltd., London, upon acceptance of the bill of exchange. The Eastern Bank Ltd., London, then adjusted this amount against the advance paid by its Madras branch and remitted the balance to the sellers.The court emphasized that the receipt of the sale price, which constituted the profits, first occurred in London. The subsequent adjustment of the advance in Madras did not constitute a receipt of profits in British India. The adjustment merely reduced the liability of the assessee to the Eastern Bank Ltd., Madras, and did not equate to receiving the sale proceeds in British India.Conclusion: The profits derived by the assessee company from sales to European and American buyers were received outside British India. The answer to the second question is in the affirmative and against the Commissioner of Income-tax.Final Judgment:The court answered both questions in the affirmative, ruling that the profits arose and were received outside British India, thereby siding with the assessee and against the Income-tax Commissioner.