Export sale profits arise outside India when title and sale proceeds are realised abroad through reserved documents of title.

Profits from export sales of unascertained goods were held to arise outside British India where the seller reserved control over the goods and documents of title until completion of the foreign documentary exchange. Although shipped F.O.B. from Madras, title passed only on unconditional appropriation and delivery of the bill of lading after acceptance of the bill of exchange in London, so the place of accrual was outside India. The amounts first advanced in Madras were security advances, not sale proceeds, and the sale price was first realised abroad through the buyer's banks and the seller's foreign agent. Book entries in India did not amount to receipt in British India.

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

Issue (i): Whether the profits derived from sales made to European and American buyers arose outside British India.

Analysis: The contracts were for unascertained goods. Under the law relating to sale of goods, property passes only on unconditional appropriation, and the seller may reserve the right of disposal until contractual conditions are fulfilled. Although the shipments were on F.O.B. terms from Madras, the contracts required confirmed irrevocable letters of credit and the bill of lading was retained and not delivered until the buyers' bank accepted the bill of exchange in London. The bill of lading, being the document of title, showed that the seller had reserved control over the goods until completion of the London documents exchange. On the facts, property could not have passed earlier than the acceptance and delivery of documents in London.

Conclusion: The profits arising from the sales arose outside British India and the finding was in favour of the assessee.

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

Analysis: The payments made in Madras by the Eastern Bank were advances to the assessee on the security of the goods and the bill of exchange, not payment of the sale price by or on behalf of the buyers. The first receipt of the sale price occurred when the buyers' London banks paid the Eastern Bank in London, which acted as the assessee's agent. The balance price, after weighment and assay, was also received in London through the same agency arrangement. The subsequent book adjustments in India did not amount to receipt of profits in British India.

Conclusion: The profits were received outside British India and the finding was in favour of the assessee.

Final Conclusion: The tax liability on these export sales could not be sustained on the footing that the profits arose or were received in British India, so the appeal failed.

Ratio Decidendi: In a sale of unascertained goods, property does not pass, and profits do not arise or get received in India, where the seller reserves control over the documents of title and the sale price is first realized only abroad through the buyer's bank and the seller's foreign agent.

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