Transfer of property in unascertained goods occurs on document delivery and acceptance abroad, so profits arose and were received outside domestic territory.

Where contracts for unascertained goods provide F.O.B. delivery, provisional invoicing, confirmed irrevocable letters of credit and delivery of documents against acceptance of drafts, property passes only on unconditional appropriation-here, on acceptance of the bill of exchange and delivery of documents in the foreign place. Accordingly, the sales were completed outside British India and the profits arose outside British India. Intermediary advances by the seller's domestic bankers against discounted bills were security arrangements, not receipt of the price; actual payments under confirmed letters of credit and final balances were received abroad, so the profits were received outside British India.

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Issues: (i) Whether the profits derived by the assessee-company from sales made to European and American buyers arose outside British India; (ii) Whether the profits derived by the assessee-company from those sales were received outside British India.

Issue (i): Whether the sales to European and American buyers were completed outside British India.

Analysis: The contracts were for unascertained goods and provided for F.O.B. delivery, provisional invoicing, bills of exchange, confirmed irrevocable letters of credit and delivery of documents (including bill of lading) against acceptance of drafts. Under the sale of goods rules for unascertained goods, property passes only upon unconditional appropriation or when conditions for transfer are fulfilled. The contracts and course of dealing reserved the seller's right of disposal until the buyers' bank in London accepted the bill of exchange and the relevant documents were delivered by the seller's agent in London. The acceptance of the bill of exchange and delivery of the documents in London was the earliest point at which property could pass under the contractual scheme and practice.

Conclusion: The sales took place outside British India; the profits from those sales arose outside British India (conclusion in favour of the assessee).

Issue (ii): Whether the profits derived from those sales were received in British India.

Analysis: The assessor relied on advances credited in Madras by the seller's bank against discounted bills of exchange. The payments made by the seller's bankers in Madras were advances secured by the bill of lading and the seller's liability as drawer, not payments of the price by the buyers. The actual payments under the confirmed letters of credit were effected in London to the seller's agent and banker there, and the balance after finalisation on weighment and assay was likewise received by the agent in London. The intermediary receipts and subsequent book adjustments did not constitute receipt of the sale proceeds in British India.

Conclusion: The profits were not received in British India; they were received outside British India (conclusion in favour of the assessee).

Final Conclusion: On the contractual terms and the established course of dealing, the sales were completed and the price was received outside British India, resulting in the assessee's profits arising and being received outside British India.

Ratio Decidendi: Where contracts for unascertained goods reserve the seller's right of disposal until delivery of documents against acceptance of drafts, property and the first receipt of price are determined by acceptance and delivery of documents at the designated foreign place; intermediary advances by the seller's bankers do not constitute receipt of the price in the seller's domestic territory.

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