1967 (5) TMI 1 - SC - Income Tax

Court dismisses appeals, denies rebate under Tax Concessions Order, 1950. No apportionment, appellant not eligible.

The court dismissed the appeals, ruling that the appellant was not entitled to a rebate under the Part B States (Taxation Concessions) Order, 1950, as the ... Accrual of income - place where profits accrue - passage of property in goods - reservation of right of disposal - appropriation of unascertained goods - receipt versus accrual - bank discounting and negotiability of hundi - Part B States (Taxation Concessions) Order, 1950 - rebateAccrual of income - place where profits accrue - passage of property in goods - receipt versus accrual - Part B States (Taxation Concessions) Order, 1950 - rebate - Entitlement to rebate under the Part B States (Taxation Concessions) Order in respect of income from sales for the assessment years 1950-51 and 1951-52. - HELD THAT: - The Court held that 'accrue' and 'arise' denote acquisition of a right to receive income and are distinct from actual receipt. Where profits of a sale accrue depends on facts, but as a general proposition profits in a trading sale accrue where the sale is effected, i.e., where property in the goods passes. Applying the Sale of Goods Act rules on unascertained goods, appropriation must be unconditional or the seller must not reserve a right of disposal. In the present contracts the consignments were sent 'self', railway receipts were taken in the name of the appellant and endorsed to the bank, and delivery to purchasers was made only on payment to the bank and receipt of the endorsed railway receipts. Those facts constitute a prima facie reservation of the right of disposal; the appellant retained title until the purchaser paid or accepted the draft. Therefore the right to the purchase money (and hence accrual of profit) arose only in Kodarma and Giridih where title passed on payment, not at Bhilwara in the Part B State. Consequently the assessee was not entitled to the rebate under the Part B States (Taxation Concessions) Order in respect of those sales.No rebate under the Part B States (Taxation Concessions) Order; profits accrued in Part A and Part C States where property and title passed.Bank discounting and negotiability of hundi - receipt versus accrual - reservation of right of disposal - accrual of income - Whether negotiation/discounting of railway receipts or hundis with the Rajasthan Bank caused accrual or receipt of the sale proceeds in the Part B State (Bhilwara). - HELD THAT: - The Tribunal found, and the Court accepted, that the purported letter authorising discounting was forged and that, in any event, the bank's discount form retained recourse against the consignor consignor's liability until realisation from the purchaser. The bank's purchase of a hundi in its ordinary banking business does not amount to a sale of the goods nor does it transfer ownership of the goods to the bank; at most it provides a security arrangement for the bank. Because the seller retained liability to the bank in the event of dishonour, any crediting by the bank did not constitute transfer of title or extinguishment of the seller's right or risk. Thus negotiation with the bank did not cause the profits to accrue at Bhilwara; accrual occurred only when purchasers paid and obtained the railway receipts in the Part A and Part C States.Discounting or negotiation with the bank did not result in accrual/receipt of the sale proceeds in Bhilwara; accrual occurred in Kodarma and Giridih.Final Conclusion: Appeals dismissed; the profits from the sales in question accrued in the Part A and Part C States (Kodarma and Giridih) where title passed on payment, and the appellant is not entitled to rebate under the Part B States (Taxation Concessions) Order for the assessment years 1950-51 and 1951-52. Issues Involved:1. Entitlement to rebate under the Part B States (Taxation Concessions) Order, 1950.2. Applicability of section 4(1)(a) of the Income-tax Act, 1922.3. Determination of the place where income accrued or was received.4. Validity of the discounting of bills by the Bank of Rajasthan.5. Claim for apportionment of profits accrued.Detailed Analysis:1. Entitlement to Rebate under the Part B States (Taxation Concessions) Order, 1950:The appellant, a private limited company, claimed entitlement to a rebate on profits from sales under the Part B States (Taxation Concessions) Order, 1950. The Income-tax Officer, Appellate Assistant Commissioner, and Appellate Tribunal all held that the sales took place in Part A and Part C States, and thus, the appellant was not entitled to the rebate. The High Court also answered the question in the negative, agreeing that the appellant was not entitled to any rebate.2. Applicability of Section 4(1)(a) of the Income-tax Act, 1922:The appellant argued that section 4(1)(a) of the Income-tax Act, 1922, was not applicable to its transactions. However, the Income-tax Officer and subsequent appellate authorities concluded that the entire profits from the sales accrued and were received in Part A and Part C States. Section 4(1)(a) includes all income received or deemed to be received in the taxable territories, which applied to the appellant's transactions.3. Determination of the Place where Income Accrued or was Received:The key question was where the income or the right to receive payment under the contracts of sale accrued or arose. The court referred to definitions and precedents, noting that 'accrue' and 'arise' indicate a right to receive, not actual receipt. The court determined that profits accrued where the property in the goods passed to the purchasers, which in this case was at Kodarma and Giridih in Part A and Part C States, not at Bhilwara in Part B State.4. Validity of the Discounting of Bills by the Bank of Rajasthan:The appellant claimed that some sales bills were discounted by the Rajasthan Bank and thus should be treated as received at Bhilwara. The Income-tax Officer found the discounting letter to be forged and even if bills were discounted, the appellant's responsibility did not cease until the bank realized payment from the purchaser. The court agreed, stating that the bank's actions were part of usual banking transactions and did not mean the property in the goods passed to the bank. The property passed to the purchasers only when they paid the price to the bank.5. Claim for Apportionment of Profits Accrued:The appellant argued for apportionment of profits, claiming that part of the income accrued at Bhilwara due to the extraction, processing, sorting, packing, and despatching of mica. However, the court noted that this issue was not raised before the Appellate Tribunal nor considered by it. Citing precedent, the court held that it could not consider this question as it was not part of the Tribunal's order.Conclusion:The court dismissed the appeals, holding that the appellant was not entitled to any rebate under the Part B States (Taxation Concessions) Order, 1950, and that the income accrued in Part A and Part C States. The claim for apportionment of profits was not considered due to procedural grounds. The appeals were dismissed with costs.