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Dalmia Dadri Cement Ltd. Vs. Commissioner of Income-tax, Bombay City I - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 42 of 1964
Judge
Reported in[1974]94ITR303(Bom)
ActsIncome Tax Act, 1922 - Sections 4(1)
AppellantDalmia Dadri Cement Ltd.
RespondentCommissioner of Income-tax, Bombay City I
Appellant AdvocateS.P. Mehta, Adv.
Respondent AdvocateR.J. Joshi, Adv.
Excerpt:
.....with three companies for marketing and sale of its products - all three companies received sale proceeds in taxable territories - appellant contended that such sales not taxable under section 4 (1) as it sold its entire production to another company and received sale proceeds from it outside taxable territories - it did not had any contractual obligations with three companies which ultimately sold its production to public and government - department contended it was taxable under section 4 (1) as sale proceeds were received by three companies on behalf of appellants in taxable territories - in absence of facts as to where sale proceeds received court referred matter back to tribunal to decide afresh after looking into facts and circumstances of case. - - 20 of 1951 and after..........on the facts and the circumstances of the case, the tribunal was right in holding that the sale proceeds of cement manufactured by the assessee and sold by the cement marketing co. of india ltd., the dalmia cement ltd. or dalmia cement and paper marketing co. ltd., as the case may be, to the public or to the government in the accounting years 1946, 1947, 1948 were received by the said companies on behalf of the assessee in the taxable territories (3) whether the tribunal was right in rejecting the claim of the applicant company, namely, that so far as the goods were sold in the state of bikaner through the sub-agents of the cement marketing co. of india ltd., the sale proceeds thereof were not received in british india and as such it was not assessable under section 4(1)(a) of.....
Judgment:

Tulzapurkar, J.

1. In this reference which has been made to us by the Tribunal at the instance of the assessee in all three questions of law have been posed for our consideration and answer thereto and those questions are :

'(1) Whether the contentions of the assessee with regard to the assessment years 1947-48, 1948-49 and 1949-50 are competent, in view of the decision of the High Court with regard to the assessment year 1946-47 If yes,

(2) Whether, on the facts and the circumstances of the case, the Tribunal was right in holding that the sale proceeds of cement manufactured by the assessee and sold by the Cement Marketing Co. of India Ltd., the Dalmia Cement Ltd. or Dalmia Cement and Paper Marketing Co. Ltd., as the case may be, to the public or to the Government in the accounting years 1946, 1947, 1948 were received by the said companies on behalf of the assessee in the taxable territories

(3) Whether the Tribunal was right in rejecting the claim of the applicant company, namely, that so far as the goods were sold in the State of Bikaner through the sub-agents of the Cement Marketing Co. of India Ltd., the sale proceeds thereof were not received in British India and as such it was not assessable under section 4(1)(a) of the Indian Income-tax Act, 1922, to that extent ?'

2. It may be mentioned that the first two questions were referred by the Tribunal to this court under section 66(1) of the Act whereas the third question has been referred to this court by the Tribunal under section 66(2) of the Act and so far as the first two questions are concerned Mr. Mehta appearing for the assessee has fairly stated before us that he is not pressing the reference and as such those two questions need not is answered by this court. Since the reference on those two questions is not pressed, we agree with Mr. Mehta that the questions need not be answered. The only question that falls for our determination is the third question mentioned above and that question arises in these circumstances.

3. The assessee-company was a company incorporated in the former Indian State of Jind and has been having a cement manufacturing factory at Dadri in that State. The relevant assessment years in respect of which the question arise in 1947-48, 1948-49 and 1949-50, with the accounting years being the calendar years 1946, 1947 and 1948, respectively, and the main question which arose before the taxing authorities and Tribunal was whether the sale proceeds of the cement manufactured by the assessee were received or were deemed to have been received in the taxable territories in the years concerned by or on behalf of the assessee within the meaning of section 4(1)(a) of the Indian Income-tax Act, 1922. Under an arrangement which was effective from January 1, 1941, evidenced by an agreement executed on June 4, 1942, the entire cement production of the assessee-company in the aforesaid accounting years was marketed or sold to the public or Government, (a) in 1946, 1947 and up to February 28, 1948, by the Cement Marketing Co. of India Ltd., (b) from March 1, 1948, to July 31, 1948, by Dalmia Cement Ltd., and (c) from August 1, 1948, to December 31, 1948, by Dalmia Cement and Paper Marketing Co. Ltd. All these three companies had been incorporated in what was then called British India and the sale proceeds in respect of the cement manufactured by the assessee and marketed by them were admittedly received by the said three companies in the taxable territories. The main contention of the assessee before the taxing authorities and the Tribunal was that its entire production was sold to one Dadri Marketing Ltd. which was also a company incorporated in the State of Jind and that the assessee received its sale proceeds directly from that company in the State of Jind and outside the taxable territories and according to the assessee, it had no contractual relation with any of the three companies which ultimately sold its production to the public or to the Government and that the receipt of sale proceeds by the said three companies could not be on behalf of the assessee and in support of this contention the assessee-company relied upon an agreement dated October 8, 1941, that was made between the assessee on the one hand and Dadri Marketing Ltd. on the other. In reply the department contended that this agreement of October 8, 1941, was a dummy agreement or a mere paper transaction and that the entire production of the assessee-company was marketed or sold by the aforesaid three companies during the relevant accounting periods and as such the sale proceeds that were received by those three companies were received by them on behalf of the assessee-company in the taxable territories and as such the income derived from such sales was taxable under section 4(1)(a) of the Act. On this principal question, relying upon the earlier decision of this court with regard to the assessment year 1946-47, given on 11th September, 1951, in I. T. Reference No. 20 of 1951 and after examining the relevant material that was produced before them, the taxing authorities as well as the Tribunal came to the conclusion that the sale proceeds of the cement manufactured by the assessee and sold by the Cement Marketing Co. of India Ltd., the Dalmia Cement Ltd. and the Dalmia Cement and Paper Marketing Co. Ltd., as the case may be, were received by the said companies on behalf of the assessee-company in the taxable territories and as the assessee failed before the taxing authorities and the Tribunal on this principal question, at the instance of the assessee, the Tribunal referred the first two questions mentioned above to this court for its opinion. However, as we have stated earlier. Mr. Mehta did not press this reference so far as those two questions were concerned and, therefore, it is clear that those two questions need not be answered by us. In other words, Mr. Mehta accepted the Tribunal's view that the agreement dated October 8, 1941, was a dummy transaction or was a mere paper transaction and the entire cement manufactured by the assessee-company had been sold to the public or the Government by the aforesaid three companies and that the sale proceeds received by those three companies had been received by them on behalf of the assessee-company in the taxable territories.

4. It may be stated that when the appeal pertaining to the assessment year 1947-48 was argued before the Appellate Assistant Commissioner a contention was raised on behalf of the assessee that a part of the sales which had been effected by the Cement Marketing Co. of India Ltd. had been effected in the State of Bikaner through M/s. Daga Bros., the sub-agents of M/s. Cement Marketing Co. of India Ltd., and that the sale proceeds thereof were not received in British India and that the profit arising under those sales was therefore not assessable under section 4(1)(a) of the Act. The Appellate Assistant Commissioner rejected the contention and took the view that even the sale proceeds that were received in respect of sales that were effected in the State of Bikaner by the Cement Marketing Co. of India Ltd. through its sub-agents had been received by the Cement Marketing Co. of India in Bombay, that is, in the taxable territories and that the profit in respect of these sales also was liable to tax under section 4(1)(a) of the Act. The contention of the assessee was disposed of by the Appellate Assistant Commissioner in paragraph 82 of his order in the following terms :

'The representative, however, points out that the agents at Bikaner also sold some cement and, therefore, it cannot be assessed at least on this portion. It has to be pointed out that the sale agreement was with C. M. I. (Cement Marketing Co. of India) who in turn got the orders executed through the sub-agent at Bikaner. The agent at Bikaner was only a sub-agent of C. M. I. and the sale proceeds were received by C. M. I. In any case it is C. M. I. who was responsible and it is they who received the sale proceeds. Therefore, the receipt is in India even in respect of those transaction.'

5. Before the Tribunal all the three appeals for the relevant years were heard together and though for the assessment years 1948-49 and 1949-50 no specific contention was raised by the assessee in regard to such sales that had been effected in the State of Bikaner by the Cement Marketing Co. of India through its sub-agents in the memos of appeal filed on behalf of the assessee, the said contention though in a vague form had been raised by the assessee in its memo of appeal preferred for the assessment year 1947-48 and the contention raised in the said memo of appeal was couched in the following terms :

'The learned Appellate Assistant Commission erred in not excluding the sales of cement effected in the erstwhile native States, payments whereof were either received at the first instance in those States or were made by cheques posted from the said States to M/s. Cement Marketing Co. of India Ltd. at Bombay.'

However, during the course of hearing before the Tribunal, the points was specifically made on behalf of the assessee that the Cement Marketing Co. of India had sub-agents at various places to effect sales of cement for which the company was the marketing agent under the agreement dated June 4, 1942, and in respect of the sub-agent at Bikaner the contract could not be said to have taken place in British India and the proceeds in respect of the sales by the said to have taken place in British India and the proceeds in respect of the sales by the said sub-agent at least should be held to be no covered by section 4(1)(a) of the Act. The contention has been dealt with by the Tribunal in paragraph 12 of its order as follows :

'The last argument for the appellant was that since the sales by the C. M. I were carried through sub-agents, the sales by the sub-agent in Bikaner cannot be held to have taken place in British India, and the proceeds in respect of such sales at least should be held to be not covered by section 4(1)(a). Here too, the difficulty in the way of the appellant is that there is no evidence that any proceeds were received at Bikaner or at any other place where the C. M. I. had sub-agents. The case throughout has been fought on the footing that the proceeds were received at the head quarters of the C. M. I. at Bombay.'

6. In other words, the contention raised on behalf of the assessee was negatived by the Tribunal on the grounds indicated above, and therefore, at the instance of the assessee this court directed the Tribunal to draw up a statement of the case touching this contention under section 66(2) of the Act and accordingly a supplementary statement of case has been submitted to this court and the necessary question as indicated above has been referred to this court.

7. It may be stated at the outset that from the manner in which the question was framed by this court and required the Tribunal to submit a supplementary statement of case in that behalf it is clear that this court wanted to decide the question as to whether on merits the Tribunal was right in rejecting the claim of the assessee-company that the sale proceeds in respect of sales that were effected in the State of Bikaner were not liable to be brought to tax under section 4(1)(a) and Mr. Mehta, for the assessee, has contended before us that the justification given by the Appellate Assistant Commissioner for rejecting the claim of the assessee-company in that behalf and the reasons given by the Tribunal for rejecting the assessee company's claim in that behalf should not sustained. The Appellate Assistant Commissioner in terms has observed that the agent at Bikaner was only a sub-agent of the Cement Marketing Co. of India and therefore, the sale proceeds were received by the Cement Marketing Co. of India Ltd. In other words, according to the Appellate Assistant Commissioner, even if it were held that the sale proceeds had been received by the agent at Bikaner, when subsequently the Cement Marketing Co. of India received the amounts from the sub-agent at Bikaner at Bombay, it was that payment which the Cement Marketing Co. of India received in Bombay that could be regarded as receipt of the sale proceeds which were credited by the Cement Marketing Co. of India in Bharat Bank, Bombay, in the name of Dadri Marketing Co. initially and, thereafter, in the name of Dalmia Cement Co. and he has further taken the view that in any case since the Cement Marketing Co. of India was responsible for the payment of the price to the assessee-company, it was the Cement Marketing Co. of India who received the sale proceeds. Obviously, the Appellate Assistant Commissioner overlooked the fact that profit or income derived by effecting sales at Bikaner could be said to have been received at Bikaner when the sale proceeds were first received at Bikaner and subsequent remittance by that sub-agent to Bombay does not result in 'receipt' of income by the Cement Marketing Co. of India but such remittance would only mean that the income, after the first receipt, has merely moved as money from Bikaner to Bombay. Mr. Mehta, therefore, urged that the justification given by the Appellate Assistant Commissioner for rejecting the assessee's claim cannot be sustained and we feel that there is considerable force in this contention of Mr. Mehta.

8. As far as the Tribunal is concerned, it rejected the claim of the assessee-company expressly on the ground that 'the difficulty in the way of the appellant is that there is no evidence that any proceeds were received at Bikaner'. In other words, according to the Tribunal, for want of material being placed on record to prove that the sale proceeds had been received at Bikaner, the claim of the assessee company could not be accepted. Now, in our view, this approach of the Tribunal was not quite correct, for it was up to the department to place material before the taxing authorities to prove that the sale proceeds were in fact received in the taxable authorities in order to bring the case under section 4(1)(a) of the Act. It is well-settled that the burden of proof in such matters lies on the department and in this behalf we can usefully refer to the case of Parimisetti Seetharamamma v. Commissioner of Income-tax, where the legal position has been clarified. The relevant head-note runs as follows :

'By sections 3 and 4, the India Income-tax Act, 1922, imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where, however, a receipt is of the nature of income, the burden of proving that it is not taxable, because it falls within in exemption provided by the Act, lies upon the assessee.'

9. In the instant case, the taxability arose by reason of section 4(1)(a) which runs as follows :

'4. (1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which - (a) are received or are deemed to be received in the taxable territories in such year by or on behalf of such person.'

10. In other words, in order to show that the income in respect of the sales of cement that were effected by the sub-agent in the State of Bikaner could be brought to tax under the above provision it was up to the department to show that such income had been received or deemed to have been received in the taxable territories by or on behalf of the assessee company and the claim made by the assessee that the income derived from such sales was not taxable under section 4(1)(a) could not be rejected on the ground that there was no material or evidence on record to show that any sale proceeds were received at Bikaner. The burden of proving that such sale proceeds were received by the assessee or by some one on its behalf in the taxable territories was on the department and in the absence of material in that behalf the department would suffer and not the assessee company. It is true that the Tribunal has further observed that the case throughout had been fought on the footing that the proceeds were received at the headquarters of the Cement Marketing Co. of India at Bombay. It is difficult to accept this statement in the face of the express contention that was raised by the assessee-company, both before the Appellate Assistant Commissioner and the Tribunal, that in respect of sales that had been effected in the State of Bikaner the sale proceeds thereof or the income derived therefrom could not be brought to tax as falling under section 4(1)(a). In our view, however, the question raised requires further investigation into the facts without which it will not be possible to decide the question finally either in favour of the assessee or in favour of the department, but certainly the approach that was made by the Tribunal to this question was not correct.

Having regard to the aforesaid discussion it is clear that the question referred to us will to be answered in the negative and in favour of the assessee. However, this does not mean that the assessee would straight-away succeed in the claim which it made before the taxing authorities or the Tribunal, for, unless investigation into the facts is made as to where exactly the sale proceeds were received in respect of sales that had been effected in the State of Bikaner, the question cannot be finally answered one way or the other. When the matter will go back to the Tribunal, it will consider the question having regard to all the facts and circumstances of the case including the terms and conditions contained in the agreement dated June 4, 1942, especially clauses 5 and 24 thereof.

11. There will be no order as to costs.


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