TaxTMI 
TaxTMI 
1954 (11) TMI 5
X X X X Extracts X X X X
X X X X Extracts X X X X
....me-tax of the respondent, Mysore Chromite Ltd., (hereinafter referred to as the assessee-company), for the years 1939-40, 1940-41, 1941-42 and 1942-43. The facts leading up to the reference as found by the Income-tax Appellate Tribunal are shortly as follows : The assessee-company is a private limited company registered in the Mysore State under the Mysore Company Regulations and has its registered office at Sinduvalli in Mysore State. The management and control of the assessee-company was vested in Messrs. Oakley Bowden & Co. (Madras) Ltd., another private limited company incorporated under the Indian Companies Act, having its registered office at No. 15, Armenian Street, Madras. The assessee-company owns chromite mines in Mysore State. Chrome ores are extracted from the mines and converted into a merchantable product and then sold to buyers mostly outside India. A very small proportion of the total sales is effected in India and for the purposes of this case may be left out of consideration. The sales are mostly to buyers in America and Europe. The sales to the purchasers in Europe are put through in London by Bowden Oakley & Co. Ltd., London, which is the agent of the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ds were actually shipped, the buyers used to open a confirmed irrevocable bankers' credit with some first class bank in London. Being informed of the opening of such credit the Eastern Bank Ltd., London, sent intimation to the Eastern Bank Ltd., Madras, and the latter in its turn used to pass on the intimation by letter addressed to the assessee-company. A specimen of such letter is also set out in the order of the Appellate Tribunal. In such communication the Eastern Bank Ltd., Madras, informed the assessee-company that " in accordance with advices received by letter from our London Office, a confirmed and irrevocable credit has been opened in your favour by Messrs. Morgan Grenfell and Co., Ltd., London, for account of Messrs. W. R. Grace and Co., New York, for a sum not exceeding pound 7,300 (seven thousand three hundred pounds sterling) in all, available by delivery to us on or before 15th January, 1940, of the following documents .............. " Towards the end of the letter the Eastern Bank Ltd., Madras, used to write that they were " prepared in our option as customary to negotiate drafts drawn in terms of the arrangement provided that the documents as above mentioned appear....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the 22nd January, 1948, came to the conclusion that the sales took place outside British India and that the money in respect of such sales was also received by the agent of the assessee-company in London. The Commissioner of Income-tax thereupon applied to the Appellate Tribunal requiring the latter to state a case and refer certain questions of law said to arise out of the order of the Tribunal. The Appellate Tribunal accordingly refer of red the two questions law hereinbefore set out. The High Court of Madras in a well reasoned judgment upheld the decision of the Appellate Tribunal and answered the two questions in the affirmative and against the Commissioner of Income-tax. The Commissioner of Income-tax has now preferred this appeal with a certificate of fitness from the High Court. It appears from the statement of case as also from the order of the Appellate Tribunal that it was agreed between the department and the assessee-company that the income arose at the place, wherever that be, where the sales took place. This was not disputed before the High Court of before us although in the appellant's statement of case it was suggested that this was erroneous. The point for determ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the buyer at the Madras Port the goods became ascertained and the property in the goods passed immediately to the buyer. This argument, however, overlooks the important word " unconditionally " used in the section. The requirement of the section is not only that there shall be appropriation of the goods to the contract but that such appropriation must be made unconditionally. This is further elaborated by section 25 which provides that where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In such a case, notwithstanding the delivery of the goods to the buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. The question in this case, therefore, is : was there an unconditional appropriation of the goods by merely placing them on the ship? It is true that the price and delivery was F.O.B. Madras but the contracts themselves clearly re....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... this extreme contention. Suffice it to say, for the purposes of this case, that in any event upon the terms of the contracts in question and the course of dealings between the parties the property in the goods could not have passed to the buyer earlier than the date when the bill of exchange was accepted by the buyers' bank in London and the documents were delivered by the assessee-company's agent, the Eastern Bank Ltd., London to the buyers' bank. This admittedly, and as found by the Appellate Tribunal, always took place in London. It must, therefore, follow that at the earliest the property in the goods passed in London where the bill of lading was handed over to the buyers' bank against the acceptance of the relative bill of exchange. In the premises, the Appellate Tribunal as well as the High Court were quite correct in holding that the sales took place outside British India and, ex hypothesi, the profits derived from such sales arose outside British India, As to the second question, the learned Solicitor-General contends that irrespective of the place where the sale may have taken place the profits derived from such sales were received in Madras. It is recalled that after s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re in order. The concluding sentence of that letter whereby the Eastern Bank Ltd., Madras, disown any responsibility in respect of the advice clearly militates against the suggestion of the learned Solicitor-General. It is, in these circumstances, impossible to accede to the argument that the payment of 80 per cent, or 90 per cent., as the case may be, of the amount of the provisional invoice by the Eastern Bank Ltd., Madras, was a payment on account of the price. Normally, price is paid by or on behalf of the buyer. In this case the fact found is that the Eastern Bank Ltd., Madras, and The Eastern Bank Ltd., London, were agents of the assessee-company. Neither of them had any relation with the buyers. Therefore, a payment by them cannot be regarded as a payment of the price. The true position is very clearly put by Lord Sumner in The Prinz Adalbert : " When a shipper takes his draft, not as yet accepted, but accompanied by a bill of lading indorsed in this way, and discounts it with a banker, he makes himself liable on the instrument as drawer, and further makes the goods, which the bill of lading represents, security for its payment. If, in turn, the discounting banker surrende....