Receipt through banking or post in taxable territories governs taxability of sale proceeds and depreciation computation for non-residents.

Negotiable instruments remitted through banks, post, cheques, drafts or hundies were treated as received in British India where the parties' course of dealing showed acceptance of that mode of payment, so the first receipt occurred in the taxable territories and the sale proceeds were taxable under section 4(1)(a). The same principle applied to remittances from British Indian merchants and from the Textile Directorate, because posting or banking of the instruments in British India constituted receipt through the assessee's agent. For depreciation, however, the written down value of a non-resident asset had to be reduced only by depreciation actually allowed in computing income taxed in the taxable territories, not by depreciation used only for world income.

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Issues: (i) whether the sale proceeds realised through bankers, drafts, cheques and hundies in the first category were received in British India so as to attract section 4(1)(a); (ii) whether the sale proceeds received by cheques, drafts and hundies from British Indian merchants were received in British India so as to attract section 4(1)(a); (iii) whether the sale proceeds received from the Textile Directorate were received in British India so as to attract section 4(1)(a); and (iv) whether, for depreciation purposes, the written down value had to be computed by deducting only depreciation referable to profits taxed in the taxable territories or the total depreciation allowed in arriving at world profits.

Issue (i): whether the sale proceeds realised through bankers, drafts, cheques and hundies in the first category were received in British India so as to attract section 4(1)(a).

Analysis: The contracts and forwarding notes indicated payment at Indore, but the actual course of dealings showed that the purchasers remitted cheques, drafts and hundies through banks in British India and the assessee accepted them in that manner. On the facts found, the bankers in British India received the amounts on behalf of the assessee, and the first receipt occurred in the taxable territories.

Conclusion: The amounts were received in British India and were taxable under section 4(1)(a), against the assessee.

Issue (ii): whether the sale proceeds received by cheques, drafts and hundies from British Indian merchants were received in British India so as to attract section 4(1)(a).

Analysis: Although the written terms referred to payment at Indore, the parties consistently adopted a different mode of performance, namely remittance by negotiable instruments through post from British India. By necessary implication, the assessee permitted that mode of remittance, so the post office functioned as the assessee's agent. Receipt took place when the instruments were posted in British India.

Conclusion: The amounts were received in British India and were taxable under section 4(1)(a), against the assessee.

Issue (iii): whether the sale proceeds received from the Textile Directorate were received in British India so as to attract section 4(1)(a).

Analysis: The Government transactions were carried out under prescribed payment forms, and the cheques were posted from British India pursuant to the manner of performance adopted between the parties. The same principle of implied request and agency of the post office applied, making the place of posting the place of receipt.

Conclusion: The amounts were received in British India and were taxable under section 4(1)(a), against the assessee.

Issue (iv): whether, for depreciation purposes, the written down value had to be computed by deducting only depreciation referable to profits taxed in the taxable territories or the total depreciation allowed in arriving at world profits.

Analysis: The controlling principle was that, for a non-resident, only the depreciation actually allowed in computing the income assessable in the taxable territories could be brought into account for the written down value. Depreciation deducted only for arriving at world income could not be treated as depreciation allowed against the taxable income in India.

Conclusion: The written down value had to be computed by deducting only the depreciation referable to the profits taxed in the taxable territories, in favour of the assessee.

Final Conclusion: The reference was answered against the assessee on the receipt questions and in its favour on the depreciation question, leaving the parties to bear their own costs.

Ratio Decidendi: Where negotiable instruments are in fact remitted and accepted through post or banking channels pursuant to the parties' implied course of dealing, the receipt occurs where the instruments are posted or realised through the assessee's agent in the taxable territories; for non-resident depreciation calculations, only depreciation actually allowed in computing taxable income in the taxable territories can be deducted in determining written down value.

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