TaxTMI 
TaxTMI 
TaxTMI 
1992 (1) TMI 317
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.... surplus of Rs. 27,91,629.58, which includes capital gains and depreciation written back as under Rs. Net profit 27,91,629.58 Less Capital gain 23,26,204.17 Depreciation written back 4,98,521.20 28,24,725.37 Net deficit on regular business 33,095.79 Further in the same report, it is explained as under: Even though the company has not incurred any production loss, it was forced to pay heavy interest on bank advances, hence the poor working result: Rs. Net profit 27,91,629.58 Carry forward from the last year 7,17,067.53 35,08,697.11 This year directors recommend to appropriate as follows Less : Provision for income-tax 3,25,000 Income-tax paid for the earlier years 1,48,520 Capital gain reserve 23,26,204 27,99,724.17 7,08,892.94 Your directors propose to reinvest the entire capital gain of Rs. 23,26,204 earned on disposal of the capital assets of machinery, on capital machines itself within the stipulated time.' From the above, it will be very clear that a capital asset, namely, machinery, has been disposed of in this year and on the same, a capital gain of Rs. 23,26,204 as per accounts has been made. (H) The Schedule of fixed assets clearly indicates t....
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.... agreement. On the basis of the above and demonstrating the prototype machine, we made a few machines on the above model successfully and supplied them to Indian Textile Goods Manufacturers. When we had assembled and manufactured such machines, we became confident to make such machines without the help of the prototype machine. Since we are not manufacturing textile goods, we decided to sell the imported prototype machine locally. One of the conditions of the import licence was that we should retain the machine for our purpose at least for two years and after that only the machine is to be resold. But, for reselling also, the seller as well as the buyer should g-et prior permission and approval from the Textile Commissioner, Bombay. The machine could not be easily sold due to cost structure and when Messrs. Garware Nylons Ltd. showed some interest in the machine, we offered the same to them. Accordingly, ourselves as seller and Messrs. Garware Nylons Ltd. as buyer applied for permission from the Textile Commissioner, Bombay, and, after obtaining the approval, we sold the machine to them on March 1, 1983.' From the above, it is clear that the machinery was actually sold on March 1....
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....ines assembled and manufactured by us, we used to give guarantee for one year for proper performance and we used to rectify the machines. Since this prototype machine was an imported one and maintained by us for manufacture for similar machines and not used for manufacturing textile items, the buyer insisted for two years' guarantee for proper running. . . .' The assessee was also asked to file the following information : (i) When sale proceeds of Rs. 49,50,000 were received. Complete details of payment, mode of payment and receipt to be filed.(ii) Whether any sale price was refunded in the 'guarantee period '. By now it had become clear to the assessee that its attempt to blatantly conceal the income by resorting to gimmicks had failed. So the assessee changed its stand under its letter dated March 4, 1986, and said that the said machine had been given on approval basis and, therefore, it changed hands only on March 1, 1985. This averment is totally false. The statement of accounts of the assessee filed with the return of income clearly established that sale had been effected on March 1, 1983, and the assessee had only given a guarantee of two years on this machine. It would be....
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....nt and wilful attempt by the assessee to evade the said capital gain tax on the sale of this machine. ' The learned Commissioner of Income-tax (Appeals) upheld the finding of the Assessing Officer and the assessee met with failure, hence this appeal, and we have heard the parties at length. The stand of the Revenue is reflected in the reasoning of the learned lower authorities, whereas the stand of the assessee is that the transaction became a sale not in the accounting year relevant to the assessment year under appeal but subsequently when the two years' condition/guarantee period was over, i.e., on March 1, 1985. With the feedback as reproduced above, the only issue which merits adjudication at this level is as to whether there was any sale of the machine in question during the accounting period relevant to the assessment year under appeal as between the assessee as vendor and Messrs. Garware Nylons Ltd. as vendees. The learned lower authorities have mainly relied on the date of receipt of the consideration as also the facts that the purchasers have simultaneously included the machinery in the gross block of their own machine and having claimed depreciation thereon on the same,....
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....ation charts for the above period. (iii) Entire correspondence for purchase/sale, lease, etc., on machineries with Messrs. Marchon Textile Industries Pvt. Ltd., or its allied concern, including agreement, if any, for purchase/lease, etc., was re quired to be produced. (iv) Particulars of monies advanced during 1980 to 1984 by way of loan/advances for purchase, etc., to Messrs. Marchon Textile Industries Pvt. Ltd., or its allied concern or its directors for the above three years were called for. (v) They were also required to furnish the details of orders placed with Messrs. Marchon Textiles or its allied concern for the above period for purchase of machinery. (vi) The copy of account of Messrs. Marclion Textiles in the books of Messrs. Garner Nylons Ltd., for the above period was also called for. (4) A copy of the summons was sent to Mr. T. R. Kapur/Mr. K. G. Menon of Messrs. Marchon Textiles Pvt. Ltd., to attend if they desired to cross-examine Shri Ashok Garner. (5) Shri Ashok Garware attended on June 20, 1988, and his statement on oath was recorded. The information called for in the summons was furnished on June 20 and 22 'of 1988. I am enclosing herewith a copy of the sta....
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....on, when clause No. 3 mentioned therein was high lighted in these discussions ; as at the time of making the application to the authorities, such a clause was not envisaged by either, therefore, a suggestion under the circumstances, after receipt of Government letter emanated from Marchon, as mentioned in their letter of February 24, 1983. As can be seen, the discussions took place on more than one occasion with intervals of several days. Marchon's letter dated February 24, 1983, symbolises these discussions and the accord reached. Therefore, it is not correct also to state that the letter dated February 24, 1983, from Marchon is suo motu. (6) From the records, it is seen that in all, Messrs. Garware Nylons purchased five machines from Messrs. Marchon Textiles. The first three machines, i.e., Machines Nos. 19, 20 and 21 of the fixed assets register were capitalised in the year 1981-82, while Machines Nos. 22 and 26 were capitalised in the year 1983-84. The prototype machine in question was Machine No. 4, which was capitalised along with the other machine in March, 1984. The date of installation, March 1, 1984. 1 am enclosing as annexure 2 the working of the depreciation on these m....
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....etics, Goregaon. 1 do not know whether it came directly from Nirlon's premises or from Marchon. Whether the transportation was arranged by Marchon or Garware, I do not recollect. Incidentally, letter dated October 5, 1981, referred to above does request Garware to arrange the transport. Q. : How long was the machine with you for demonstration ? A. : Soon after October, 1981, Garware Nylon and Marchon both applied to the authorities for sale of the machine to Garware Nylons. This permission was eventually received in January, 1983. The machine was in the premises of Garner Nylon in this period for demonstration/ testing. Q. : When was the purchase order placed with Marchon Textile and what is the date of their sale bill? A. : The written date of the purchase order is March 14, 1983,. and the date of their bill is March 1, 1983. However, it was orally decided to purchase the machine soon after receipt of permission from the authorities in January, 1983. Q. When was the sale consideration settled ? A. In October, 1981, when the intention to purchase was also conveyed subject to Government agreeing to the same. Q. : Is there any evidence with you to show that the price of Rs. 55....
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....erefore, a suggestion under the circumstances after receipt of Government letter emanated from Marchon, as mentioned in their letter of February 24, 1983. As can be seen, the discussion took place on more than one occasion with interval for several days. The Marchon letter dated February 24, 1983, symbolised these discussions and the accord reached. Therefore, it is not correct also to state that the letter dated February 24, 1983, from Marclion is suo motu. Q. When did you start making payment for this purchase? A. From the records, 1 find that the first payment was made on October 3, 1981, for this machine. This payment was in the form of a deposit. Thereafter, the next payment as evident from records was on December 17, 1981, and so on, as is clear from the chart filed. (Sd.) A. K. Gautam/27-6-1988Deputy Commissioner, Assessment Range III-13, Bombay." The assessee has ( at our behest ) placed the following information on our file during the course of the hearing of the appeal : Messrs. Marchon Textile Industries Private Limited comparative chart of six machines sold to Garwares. SI. Invoi ce No. Date Indigenous/ Ex-works Total sale No. of No. Imported price (Rs.) price (....
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....ince, according to Messrs. Garwares, the date of installation of the said machine is March 1, 1984 ; (iii) That, in respect of the machine in question, which has not been capitalised and not taken into the fixed assets register of Messrs. Garwares, in relation to the accounting period relevant to the assessment year under appeal, depreciation has also not been claimed because Messrs. did not claim the ownership over the machine ; and (M that the assessee and Messrs. Garwares were having a current account in between themselves as the statement of account of Messrs. Garware Nylons Ltd. reveals and, accordingly, although the assessee has debited the account of Messrs. Garware Nylons Ltd. with a sum of Rs. 55,20,000 on March 1, 1983, payment has not been received because the balance due from Messrs. Garwares to the assessee as on March 31, was Rs. 25,05,712.51. With the above factual position being on the file and the assessee having always been giving guarantee/warranty of twelve months from the date of despatch of the machine or else, nine months from the date of erection and the commissioning of the machine, since, according to the assessee, this was a prototype imported machine,....
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....he subject thereof may be a condition or a warranty. (2) A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated. (3) A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a Claim for damages but not to a right to reject the goods and treat the contract as repudiated. (4) Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract. A stipulation may be a condition, though called a warranty in the contract. In terms of section 13 of the Sale of Goois Act, when a condition is to be taken as a warranty has been put in the following words : "13. When condition to be treated as warranty. - (1) Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated. (2) Where a contract of sale is not saveable and the buyer has accepted the goods or part thereof, the breach of any conditio....
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....3. This belies the date of invoice and that is incorrect because the invoice date could not be prior to the date of the purchase order hence no sale was there on March 1, 1983. The assessee has debited the amount of Rs. 55,20,000 in his accounts to Messrs. Garware Nylons Ltd. but has not been paid the amount, since in the current account as appearing in the books of account of the assessee, Garware Nylons Ltd. had a debit balance of Rs. 25,05,712.51 as on March 31, 1983. After March 1, 1983, the credit entries W the account of Garware Nylons Ltd. are Rs. 5 lakhs, Rs. 4,66,200, Rs. 25,000, Rs. 4,042.50, Rs. 41,195, Rs. 7 lakhs and sixty-six. The vendor had capitalised the machine, the subject-matter of this appeal, as also taken the same into the fixed assets register in March, 1984. All these facts speak of the mind and the intention of the parties to the transaction and it can safely be inferred from these facts and the assessee who has always been giving guarantee/warranty of nine months to one year for all machines as from the date of installation or, alternatively, as from the date of the invoice, this machine being a prototype one, i.e., an old one which was being used loosely....
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....ents, etc., cannot be the subject-matter of disallowance and in the absence of any evidence for the parties, we will estimate it at 50 per cent. On this issue, the assessee succeeds partially. The third ground relates to disallowance of the amount of Rs. 7,210 claimed by the assessee to be an expenditure incurred on advertisement. The assessee presses into service circulars issued by the Central Board of Direct Taxes which stand published on pages 508 and 509, Vol. 1 Central Board of Direct Taxes' Circulars by Taxman. Following the same, we allow this expenditure as one in the nature of revenue. The disallowance stands deleted. On this issue, the assessee succeeds. The appeal stands allowed partly in the above terms. R. N. SINGHAL (Accountant Member).- I have had the benefit of reading the order proposed by my senior brother-Shri S. P. Kapur, judicial Member. The assessee has raised three points out of which 1 agree with the decisions given on two points in paragraphs 9 and 10 of the proposed order on pages 24 and 25 thereof. However, I have not been able to persuade myself to agree with the view taken in that proposed order on one point which is about the existence of capital g....
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....imed that, in the eye of law, the sale had taken place only on March 1, 1985, i.e., after expiry of two years of the date of sale bill of March 1, 1983. It may be further mentioned that the assessee is claiming benefit under section 54E of the Income-tax Act, 1961, on the footing that the sale took place on March 1, 1985, and the capital gains chargeable would be on the asset other than short-term capital asset (commonly spoken of as long-term capital gains ). The Department has not accepted its claim and held that the sale took place on March 1, 1983, itself and the whole of the capital gains is exigible to tax as on sale of a short-term capital asset. It may also be noted that, in pursuance of the collaboration agreement, the assessee assembled similar machines which the assessee termed as " indigenous ". To M/s. Garware Nylons Ltd., first the " indigenous " machine was sold through a bill dated October 7, 1981, for ex-works price of Rs. 50,50,000 and in between from October/November, 1981, to September, 1982, four more machines had been sold-all being termed " indigenous " machines at ex-works price falling in the same range of Rs. 49,50,000 to Rs. 54,50,000. Before going to t....
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....le' in the assessment year 1983-84, and he ought to have appreciated that the appellant was liable to refund the said amount if the said machine did not give satisfactory performance. " ( emphasis * supplied ). This also is a clear admission of the fact even by the assessee that the money was received before March 31, 1983, and, in the above-mentioned ground of appeal, all that the assessee is saying is that merely on that basis, the Commissioner (Appeals) should not have held it as sale completed on March 1, 1983. The factum of sale price having been received during the financial year 1982-83 itself is admitted by the assessee. Then, we have the statement of Shri Ashok Garware, joint managing director of Messrs. Garware Nylons Ltd., recorded on June 27, 1988, and put on pages 25 to 27 as item No. 7 of the assessee's paper book filed before the Tribunal. The last question on page 27 of the assessee's cornpilation and answer thereto are as follows Q. When did you start making payment for this purchase? A. From the records, I find that the first payment was made on October 3, 1981, for this machine. This payment was in the form of deposit. Thereafter, the next payment as evident ....
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....in the intervening periods. This is borne out by Marcho'n's letter No. MTIlWorks1540, dated October 5, 1981, to Garware Nylons Ltd. It was also decided to simultaneously apply to the Government authorities for shifting the machine to Garware Nylons Ltd. and sale of the same to Garware Nylons Ltd. Q. : You got this machine transported from Messrs. Marchon Textiles Ltd. premises or they arranged the same, when it was delivered to you in October, 1981 ? A. : To the best of my knowledge, the machine was transferred from the premises of Nirlon Synthetics, Goregaon. I do not know whether it came directly from Nirlon's premises or from Marchon. Whether the transportation was arranged by Marchon or Garware, 1 do not recollect. Incidentally, the letter dated October 5, 198 1, referred to above does request Garware to arrange the transport. " (emphasis * supplied ). From the above, it is clear that the machine was shifted to Garware Nylons Ltd. in October, 198 1, and this was referred to also in the assessee's letter No. MTI/Works/540 dated October 5, 1981. It is rather strange that the assessee has made different statements at different places and at different times in this regard. In t....
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....982 to October, 1983). Now, we can come to the assessee's arguments which are based almost solely on the assessee's letter dated February 24, 1983, addressed to Messrs. Garware Nylons Ltd. The preamble of that letter has already been extracted above and for the sake of brevity need not be reproduced again. The next two paragraphs of that letter are relevant and may be extracted below : " Since this is an imported demonstration machine, it is agreed between us as insisted by you we will extend two years guarantee for the satisfactory performance of the machine front the date of sale. It is further agreed if we are unable to fulfil our guarantee for the satisfactory running of the machine for the period of two years, we undertake that we shall refund you the above sale price of the referred machine and will take back our machine to our factory premises without charging any compensation for the use of the referred machine by you. (emphasis * supplied). On the basis of this statement contained in that letter, it is the assessee's case that, in view of that letter dated February 24, 1983, the sale had not been completed in March, 1983, but it should be treated as completed as on Mar....
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...., which were taken to the capital gain reserve account but the excess of cost of machine Rs. 26,23,796 above the written down value Rs. 21,25,275 came to Rs. 4,98,521 which was treated as part of profit. After referring to the sale bill and depreciation charges, etc., he drew our attention to section 19 of the Sale of Goods Act and, in particular, subsection (2) thereof to claim that the property in goods passes when it is intended to pass and the intention of the parties in this regard should be ascertained after considering the "terms of the contract, the conduct of the parties and the circumstances of the case". He pleaded that, by applying this test, it must be held that the property in goods did not pass in March, 1983, but it passed only in March, 1985. He drew our attention to section 24 of the Sale of Goods Act also which deals with the aspect of goods sent on approval or on sale or return and claimed that the time of two years has been fixed up to which the goods could have been returned and, therefore, the sale should be taken as completed only in March, 1985, in this case. He cited, in support, the Calcutta High Court decision in Hall and Anderson (Pvt.) Ltd. v. CIT [196....
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.... being March 14, 1983, when the sale bill had already been prepared on March 1, 1983. In the context of conditions of two years, we specifically asked for whether there were any reports on the working of that machine from October, November, 1981, to February, 1983, and we were told that no such report was available. In regard to the discrepancy of profit tinder section 41(2) being returned for taxation but not the capital gains in assessment year 1983-84 when both the items emerged from the same transaction, it was explained that perhaps there was a mistake on the part of the assessee to return for taxation profit tinder section 41(2) and further there was material difference also in the eligibility of tax on profit tinder section 41(2) on the one hand, and the capital gains tax on the other hand. The point made out was that, under section 41(2), liability to tax arises when the amounts become payable while capital gains arise on the date of transfer. As already indicated, the assessee furnished (at the behest of the Bench) the compilation for sale of machines of this type showing in all, sale of six machines from October, 1981 to March, 1983. The conditions in the sale of the othe....
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....ning the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. " So, the intention has to be gathered, from the terms of the contract, the conduct of the parties and the circumstances of the case, meaning thereby, that the totality of the circumstances has to be taken into account. For this purpose and even at the cost of repetition, it may be noted that the assessee had taken in its own account book, this transaction as sale completed in the year ending on March 31, 1983. Capital gains had been shown in the books though taken as capital gains reserve and profit under section 41(2) was returned for taxation also. The buyer had started paying for the machine though initially as a deposit right from October, 1981, and full sale price had been recovered before March 31, 1983. The machine stood already shifted to the premises of the buyer in October, 1981, i.e., one year and four months before the date of sale bill. A closer scrutiny would show that the aspect of the date from which Messrs. Garware Nylons Ltd. had claimed depreciation does not help the assessee but actually goes against it. The factual....
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....is aspect apart, let me now consider the contents. The preamble to that letter is reproduced in paragraph 5.5 on page 33 (supra p. 90) above. In paragraph 5.6., 1 have pointed out that misstatements contained in that preamble about the periods for which it was working at the premises of Nirlon and thereafter at the premises of Garware Nylons Ltd. For the sake of brevity, 1 need not repeat it. The remaining portion of the substantive contents is reproduced in paragraph 6 on page 34 (supra p. 91) above. The first paragraph thereof talks of a two-year guarantee from the date of sale. Obviously, in that paragraph, the date of sale would be meaning as March 1, 1983, because the two-year guarantee is from that date. In that paragraph, the date of sale cannot mean March 1, 1985, because on such a construction, the guarantee would extend for two years beyond March 1, 1985. Then paragraph 2 again talks of refund of sale price. The word again used is sale price and refund thereof. It implies that the price has been realised as on sale. So, even the main plank of the assessee, viz., letter dated February 24, 1983, does not take the assessee's case far enough. The position that finally emerge....
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....ng from the proposed orders of the Members constituting the Bench in 1. T. A. No. 2866/Bom of 1988 in the case of Marchon Textile Ind. Pvt. Ltd. v. IAC, Assessment Range III(B), Boinbay, involving assessment year 1983-84, is being referred to the HonUe President of the Income-tax Appellate Tribunal for making a reference to a Third Member as provided for in section 255(4) of the Income-tax Act, 1961 : " Whether, on the facts and in the circumstances of the case, the property in the goods - machine - did not pass on to the vendee and hence there was no sale in the accounting period relevant to the assessment year under appeal?" ORDER OF THIRD MEMBER CH. G. KRiSHNAMURTHY (President). - The dispute in this appeal which has come to me as a third Member under section 255(4) of the Incometax Act, 196 1, is as to whether the sale of a particular machine is complete on March 1, 1983, as claimed by the Department or on March 1, 1985, as claimed by the assessee. On this point, there was a difference of opinion between the learned Members of the Tribunal, who heard this appeal in the first instance, which was referred to me couched in the following words : Whether, on the facts and in the....
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.... it is common ground that the Government of India granted the permission in January, 1983, subject to satisfaction of certain conditions. Thereafter, the assessee raised a bill bearing No. MTI/82083/121 dated March 1, 1983, for a sum of Rs. 49,50,000 as sale price and sent it to the buyer. There was regular running account between the assessee and the buyer and adjustments were made in this running account, an analysis of which showed apparently that the sale price was received in full by the assessee by March, 1983. In the books of the assessee, the difference between the purchase price and the sale price which worked out to Rs. 213,26,204 was treated as capital gains and was transferred to an account called " Capital gains reserve account ". In the return filed for the year 1983-84, the deemed profit that arose under section 41(2) of the Income-tax Act, 1961, was also shown and was offered for tax. On February 24, 1983, i.e., before the sale bill was raised on March 1, 1983, a letter was written by the assessee to the buyer wherein it was stated that the assessee could give a guarantee of two years for the satisfactory performance of the machine from the date of the sale and furt....
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....e capital gains reserve account through the profit and loss appropriation account. Referring to the letter on which reliance was placed by the assessee to contend that the sale had taken place on March 1, 1985, the Assessing Officer observed that the guarantee period started according to that letter from the date of the sale which meant that the sale must have taken place and in fact had taken place preceding the time of reckoning of the guarantee. The assessee also pointed out by letter dated March 4, 1986, that the sale of the machine was only on approval basis. The Assessing Officer declined to accept this stand on the ground that the earlier evidence referred to above showed that the sale was complete on March 1, 1983, itself and that the theory of sale on approval basis was only an afterthought without any factual or legal basis to support it. The mere furnishing of a guarantee, according to the Assessing Officer, did not convert the sale into a sale on approval. The assessee, having failed to invest the sale proceeds in specified assets as mentioned in section 54E of the Income-tax Act, 1961, was only trying to change its stand. The sale having taken place'after obtaining the....
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....ferred to the buyer at such time as the parties to the contract intend it to be transferred. Then, sub-section (2) provides that, for the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. Then, sub-section (3) provides that, unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. The governing or determinative principle, therefore, is to find out the intention of the parties as to when the property in the goods is to pass from the seller to the buyer. It is open to the parties to agree that the property shall pass ipso facto immediately the goods are ascertained or it shall pass at some time after the delivery is effected. Thus, as per the provisions of subsections (1) and (2) of section 19, the intention of the parties is crucial and I have to ascertain as to what is the intention of the parties as to when the property in the goods (in the machine) is to pass from the seller to the buyer. As stipulated in sub-section....
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....y compensation for the user of the machine in the meantime. This letter would further show that it was on the insistence of the buyer that a guarantee of two years was given undertaking at the same time to take back the machine without charging any compensation for the user of the machine by the buyer and to refund the entire amount of sale price. In essence, these are the terms of the contract. This, the contract provided for refund of the sale price and return of the machine to the assessee during the period of guarantee. The question of refunding the sale price and taking the machine back would not arise if there had been a completed sale unless there is a separate and independent contract to buy back the machine. Once the sale is complete, the transaction is complete and the transaction of taking the machine back and refunding the sale price would not be regarded as another contract of buying back the machine as these are all integrated parts of the same single transaction of sale of the machine subject to the condition of return of the machine within two years. The agreement does not appear to be a buy-back agreement notwithstanding that it provided that, if the machine had no....
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....ng the payment in full, delivery of the machine and reducing the cost of this machine from the total cost of the block of assets shown in the balance-sheet and in not claiming depreciation thereon, etc. These aspects, by themselves, establish a complete sale transaction. In order that there is a sale, these are the necessary ingredients. But, if these ingredients are subject to another condition as to the time of passing of the title in the goods, then, notwithstanding the presence of these aspects, the title in the goods passes only as intended by the parties in accordance with those conditions. Therefore, raising of a bill, fixing a sale price, receipt of full consideration, reduction of the value of the asset from the books and delivery of the machine and user of the machine by the other party, i.e., the buyer enjoying the income yielded by it exclusively by themselves are all consistent with the "sale on approval". For "a sale on approval", there must be a sale first and a sale is complete when the above ingredients are present. The condition of approval subject to a limitation of time is the condition that will postpone the time for the passing of the title from the seller to ....
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....ght to treat the contract as repudiated. (3) A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. (4) Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract. A stipulation may be a condition, though called a warranty in the contract." A warranty is, therefore, a stipulation collateral to the main purpose of the contract the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as re repudiated. Where a condition is stipulated it gives rise on its breach to a right to treat the contract as repudiated. Thus, the essential al difference between a condition and a warranty is the right to treat the contract as repudiated. Now, in this case, the guarantee given is for due performance of the machine. Normally, if it had stopped there, that would have been construed only as a warranty giving rise to a claim for damages but not a right to repudiate the contract. It is to convert this guarantee into a condi....