Escaped income reassessment and place of receipt principles governed taxability of sales profits and posted cheque payments

Reassessment of escaped income was treated as valid where the assessee had not returned income liable to British Indian tax, and payment of tax in another State did not remove liability under the Indian Act. On the sales issue, profits from goods sent under reserve and financed through discounted hundis were held to accrue where the sales were completed in British India, because title did not pass until payment or acceptance and the bank's discounting was only a financing arrangement. For Government supply contracts, cheques posted in accordance with the parties' course of dealing were received at the place of posting, so the income was received there. The departmental apportionment of profits was sustained.

---

---

Issues: (i) Whether reassessment under section 34(1)(a) of the Income-tax Act was valid for the relevant years; (ii) Whether the disputed profits from sales through hundis and direct supplies to the Government of India accrued or were received within British India so as to be taxable, and if so, to what extent apportionment was permissible.

Issue (i): Whether reassessment under section 34(1)(a) of the Income-tax Act was valid for the relevant years.

Analysis: The assessee had not filed returns under the Indian Income-tax Act for income liable to British Indian tax, and part of the income from the transactions in question had escaped assessment. Payment of tax to another State did not extinguish liability under the Indian statute. The statutory jurisdiction to reopen escaped income therefore existed.

Conclusion: The reassessment proceedings were valid and the issue was answered against the assessee.

Issue (ii): Whether the disputed profits from sales through hundis and direct supplies to the Government of India accrued or were received within British India so as to be taxable, and if so, to what extent apportionment was permissible.

Analysis: For sales where goods were sent under reserve and hundis were discounted by the bank, the title to the goods did not pass to the buyer until payment or acceptance of the hundi, because the seller retained the right of disposal and the bank held only a security interest. The banker's discounting of the hundi was an independent financing arrangement and did not constitute receipt of the sale price by the assessee at Bangalore. The profits on such sales therefore accrued where the sales were completed in British India. As the assessee manufactured in Mysore but sold in the taxable territories, apportionment of profits was appropriate. For the Government supply contracts, payment by cheque posted by the Government pursuant to the parties' course of dealing amounted to payment at the place of posting, since the assessee had impliedly authorised payment by post. The cheques were posted at Delhi and the income was received there.

Conclusion: The disputed profits were taxable in British India, and the departmental apportionment was sustained; the issue was answered against the assessee.

Final Conclusion: Both referred questions were answered in favour of the Revenue, and the assessee remained liable to tax on the relevant profits according to the stated apportionment and place of receipt principles.

Ratio Decidendi: Where a seller retains control over goods and discounts a hundi merely as a financing device, the sale price is not received until the buyer pays or accepts the instrument; and where payment by cheque is made pursuant to an implied request to remit by post, receipt occurs at the place of posting.

---