Passing of Property determines place of income; where delivery and payment are collectible in destination States, income accrues there.

Passing of property and place of accrual were determined by the delivery-and-payment mechanism: goods despatched f.o.r. destination with railway receipts endorsed to purchasers and freight payable at destination constituted contractual completion in the purchasers' States. Bills (hundis) delivered to local banks for collection did not show bank acceptance or purchase; the banks acted as agents for collection rather than holders in due course. Therefore the income from the sales accrued in the Part A and C States, adverse to the assessee and favourable to the revenue.

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Issues: (i) Whether the property in the goods passed to the purchasers in the erstwhile Part A and C States so that the income from those sales accrued in Part A and C States?

Analysis: The goods were dispatched f.o.r. destination, the railway receipts were drawn in the name of "self" and were endorsed in favour of the purchasers in the Part A and C States, and the freight was payable at destination. The hundis drawn in the names of the purchasers were delivered to the local bank for collection and there is no evidence that the bank purchased the hundis or accepted them prior to collection. A bill of exchange standing alone does not create a right of action against the drawee unless accepted; accordingly the bank acted as agent for collection for the assessee rather than acquiring the hundis as holder in due course. On parity with the reasoning in the cited Supreme Court authorities, the contractual completion and passing of property for the purpose of income accrual must be assessed by reference to the delivery and payment mechanism; where delivery is to purchasers resident in Part A and C States and payment is collectible in those territories, the profit is to be treated as accruing there.

Conclusion: Issue (i) answered in the affirmative; the property in the goods passed to the purchasers in Part A and C States and the income from those sales accrued in Part A and C States. This conclusion is against the assessee and in favour of the revenue.

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