MANCHANDA, J. - This is a case stated under section 66(1) of the Indian Income-tax Act, 1922. Four questions have been referred to this court :
'1. Whether the profit on estimated sales of 4 lakhs made to the Government under the tender system accrued or arose to the company in British India in whole or in part under section 4(1) (c) of the Act.
2. Whether the profit on sales of Rs. 5,59,918 during the calendar year 1942 and of Rs. 3,40,161 in the calendar year 1939 made to merchants in British India through brokers accrued or arose in whole or in part to the company in British India within the meaning of section 4(1) (c) of the Ac ?
3. Whether the company received profits in British India, within the meaning of section 4(1) (a) of the Act, when it received sale proceeds of Rs. 77,608 in the calendar year 1942 and of Rs. 49,969 in the calendar year 1939 of its goods through banks in British India, who acted as the companys agents for that purpose ?
4. Whether the profit of Rs. 38,795 on Government orders for antigas fabrics accrued or arose to the assessee-company in British India within the meaning of section 4(1) (c) of the Ac ?
The material facts in respect of question No. 1 as given in the statement of the case and the sample documents annexed thereto are as follows : The assessee-company (hereinafter called the assessee) is a non-resident and carries on the manufacture of cloth in its mill at Ujjain, Gwalior State (now Madhya Pradesh). The relevant assessment years are 1940-41 and 1943-44, the previous years being the calendar years are 1939 and 1942 respectively. The assessee supplied goods to the Government under what is known as the tender system. Under this system the Government of India invited tenders from time to time for supplies required by it. On receipt thereof, the assessee, inter alia, submitted its offer to supply goods at certain rates quoted by it. The material portion of the sample of the order which has been annexed to the statement of the case reads :
'I/We hereby offer to supply the stores detailed in the schedule annexed or such portion thereof as you may determine in strict accordance with the conditions of contract printed below and at the price quoted in the said schedule, the time and rate of delivery being as stated therein. I/we agree to hold this offer until...
(2) In the event of my/our tender being accepted, I/we hereby authorise Messrs... as my/our bankers/agents in India to receive payment and declare that payment to them will be complete and final acquittance.
To be completed only if unable to
receive payment in rupees in India
directly and give name and address in full.'
The material conditions of the contract are :
'(3) Delivery. - The contractor shall as may be required by the purchaser, either deliver free at, or despatch f. o. r. from the place or places detailed in the said schedule, the quantities of the stores detailed therein and the stores shall be delivered or despatched not later than the dates specified in the said schedule. The contractor may submit samples (normally not less than 1 per cent. of the quantity to be supplied) of stores he proposes to submit for inspection for the first consignment, for test before proceeding with bulk manufacture or delivery...'
'(6). Inspection and tests. - Notice in writing shall be sent by the contractor to the Inspector when the stores to be supplied are ready for inspection and test. No work or supply shall be considered complete in accordance with the terms of this contract until the Inspector shall have certified in writing that such work or supply has been inspected and approved by him.
(8). Inspector to certify satisfactory performance. - The whole contract is to be executed in the most approved and workmanlike manner to the satisfaction of the Inspector who... shall have full power at every stage of progress, to inspect the manufacture of the stores or any part thereof.
(9). Responsibility for executing contract. - The contractor is to be entirely responsible for the execution of the contract in all respects in accordance with the conditions of contract, notwithstanding any approval which the Inspector may have given of materials or other parts of the work involved in the contract or of tests.
(12). Packing materials. - All packing cases, containers, packing and other similar materials shall be supplied free by the contractor and will not be returned. Every bale or package shall be clearly marked with the contractors name, consignees name and address, and the gross weight and shall contain a packing note quoting the order number and date, and showing its contents in detail. A description of the contents shall be stencilled on each container. The contractor will be held responsible for stores being sufficiently and properly packed so as to ensure their safe arrival at their destination.
(13). Freight. - Unless other instructions are received from the purchaser the stores shall be despatched at public tariff rates and not military concession rates.
(14). Notification of delivery or despatch. - Notification of delivery or despatch in regard to each and every consignment shall be made to the consignee, the indentor and the Inspecting Officer concerned... Contractor shall further supply to the consignee a priced invoice and packing account quoting the order number and date of all stores delivered or despatched... and full details of contents of packages and quantity of materials are to be given to enable the consignee to check the stores on arrival at destination. The railway receipt should be forwarded to the consignee immediately after despatch of stores, otherwise the demurrage charges, if any, paid by the consignee will be deducted from the bill.
On completion of the inspection the contractor will be furnished by the inspecting officer with one copy of an inspection note duly completed to be attached to the contractors bill in support thereof.
(17). Insolvency. - Should the contractor be adjudged insolvent... the purchaser shall have power to declare the contract at an end.'
'(18). Removal of rejection. - Any stores submitted for inspection and rejected by the inspector must be removed within fourteen days from the date of receipt of intimation of rejection. Such rejected stores shall lie at the contractors risk
Freight to destination on stores rejected after examination at destination shall be borne by the contractor
(21). System of payment. - Unless otherwise agreed between the purchaser and the contractor payment for the delivery of the stores will be made by the Chief Auditor, Indian Stores Department, New Delhi, by cheque on a Government treasury in India or on a branch of the Imperial Bank of India or the Reserve Bank of India transacting Government business.
The amount payable in respect of each consignment will be made on due proof of acceptance by the consignee.
22. Laws governing the contract. - This contract shall be governed by the Laws of British India for the time being in force.
After the particulars of the tender were received from the assessee, the Government on November 21, 1941, wired as follows :
'Accept Eleven Thousand Five Hundred Numbers Towels Operating Conforming Specification in 1446 at Annas Eight Pies two and half each f. o. r. Ujjain Delivery Commencing end January Completing February Twentieth this concludes Contract.'
This was followed by the formal acceptance of the tender by the Deputy Controller of Purchases in India on January 5, 1942, as follows :
'I beg to inform you that your tender no... dated... for the stores specified in the schedule on the reverse hereof has been this day accepted subject to the conditions under which you tendered to the extent of the quantity and on the terms as to delivery specified therein.
6. Bill for the stores to be supplied in compliance with this order must be prepared in the special bill form obtainable from the nearest organisation of the Indian Stores Department...
7. Payment in India to Messrs nominated by you in your tender as your authorised agents will be a complete and final acquittance for supplies against this order.
8. Payment will be made at New Delhi and should in no case be obtained direct from the consignee.
The terms of payment will be as under :
10. (a) 90% of the cost of each consignment on proof of despatch after inspection and the balance of 10% on acceptance of the goods by the consignee, or
(b) 100% on proof of acceptance of the goods by the consignee.'
To be scored out where not required.
After a sample inspection the particular goods were forwarded to the destination indicated by the Government which was in this particular case, the Ordnance Central Provision Depot, Dehu. The first consignment was despatched by goods train on May 15, 1942, of 12 bales addressed to the Chief Ordnance Officer, Dehu, freight paid. Railway receipt was enclosed. The relevant portion of the assessees letter reads :
'The relative R/R No. 5577/27 dated 15-5-1942 with freight paid is enclosed herewith which please receive.
Please also find enclosed one copy of our packing note No. I/T. O. 1402/1 dated 15-5-1942 which we hope will help you to identify the goods.
The copy No. 4 of the relevant inspection note No. 14591/21 case No. 7/6 OTS/dated 23-4-1942 duly endorsed by us for... bill submitted on account payment is enclosed herewith. Kindly send us the relative balance of payment in triplicate duly completed and signed.
Therefore, a receipt certificate was issued -
1. Items noted on reverse have been received in good condition subject to the remarks below and have been brought on charge in my...
3. Details of Recoveries proposed by the consignee in respect of short receipt, brokerage and/or freight, etc., which should be made from the contractor under the terms of the contract.'
Bills duly signed and stamped for payment were submitted along with the relevant inspection note as required by the terms of contract with a request for early payment. At the foot of the bill the following endorsement was made. Please pay by cheque to self on Bank at Ujjain. The Government of India through its Controller of Supply Accounts then made the payment by draft; vide its registered letter dated New Delhi, August 31, 1942.
'I am to forward herewith a demand draft no... dated... for Rs. 7,164 on the Imperial Bank of India, Ujjain, in payment of your bills quoted above. The bank draft was sent by registered post from New Delhi.'
The receipt of the demand draft was acknowledged the assessee. It may be noted that the payment was made on the Bank of Ujjain at the express request of the assessee as contained in the instructions at the foot of the said bill submitted by him. The request was however for payment by cheque but the payment was made by draft. The demand drafts were collected by the Imperial Bank, Ujjain.
On the above facts the Tribunal held that the profits accrued or arose to the assessee in British India.
Learned counsel for the assessee contends that the inference drawn by the Tribunal from the facts proved is erroneous and further that the approach was wrong; the real question to be considered according to him was where and when did the sale take plac Relying on the decision of the Madras High Court in Commissioner of Income-tax v. Anamallais Timber Trust Ltd., he urges that the present case, like the Madras case, is a complicated case of a contract entered into at one place in regard to goods manufactured at another place, delivery to be made at a future date at the destination named by the consignee. Such a case, so he contends, would be governed by the provisions of section 23 of the Sale of Goods Act and the goods stood appropriated to the contract at Ujjain, as soon as the Inspector whose approval was to be final and conclusive had inspected the goods at Ujjain and, therefore, no part of the income, profits or gains accrued or arose in British India.
The learned standing counsel on the other hand contended that the question should not be restricted to determining accrual or arising of income but whether the income was assessable under any of the sub-sections of section 4 of the Act, as that was the real question which fell to be decided. According to him, the duty of the parties only is to state the facts and the law applicable, but the particular section which ought to be invoked is a matter for the court to decide. If all the facts are on the record and no fresh facts are to be found, then this court, according to the standing counsel, should reframe the question so as to embrace therein also the provisions of section 4(1) (c) and answer it, or, if that is not possible, the case should be sent back to the Tribunal under section 66(4) for giving a finding as to the place where the income had been received. In other words, the Tribunal should be asked to determine where the cheques or drafts were posted and whether the post office was the agent of the assessee or of the Government. It is no doubt true that the facts of the present case are almost identical with the facts of the case in Commissioner of Income-tax v. Ogale Glass Works Ltd. Supreme Court on April 19, 1954, where the tender under the contract was in similar terms as in the present case and it was there laid down that as it was at the express request of the assessee to send the cheque by post and as the cheque had been posted in Delhi that amounted to payment in Delhi. This proposition was reaffirmed by the Supreme Court in Commissioner of Income-tax v. Kirloskar Brothers and again in Commissioner of Income-tax v. Patney and Co. and Commissioner of Income-tax v. New Jehangir Vakil Mills Ltd. Therefore, in the present case, in view of the said decision of the Supreme Court, it would certainly have been open to the department to contend that the income, arising out of the contracts with the Government, was received by the assessee in British India and, therefore, taxable under section 4(1) (a) of the Act. The question, however, is whether this court in its advisory jurisdiction under section 66(1) can enlarge the scope of the question which is circumscribed by the authority which seeks the advice of this court. The Supreme Court in a series of cases has pointed out the scope of the jurisdiction conferred on High Courts under section 66. In Kusumben D. Mahadevia v. Commissioner of Income-tax it was pointed out that section 66 of the Income-tax Act, which confers jurisdiction upon the High Court, only permits a reference of a question of law arising out of the order of the Tribunal. It does not confer jurisdiction on the High Court, to decide a different question of law not arising out of such order; it is possible that the same question of law may involve different approaches for its solution, and the High Court may amplify the question to take in all the approaches but the question must still be one which was before the Tribunal and decided by it. It must not be an entirely different question which the Tribunal never considered.
In the instant case it is difficult to say that the question of the receipt of income would be another facet of the question of accrual or arising of income under section 4(1) (c). Even if it could be said to be another facet of the same question, then too, the department would be up against the hurdle that such a question as to the place of the first receipt of income was never canvassed before the Tribunal nor was it decided by it. It would, therefore, in a way be an entirely different question which the Tribunal never considered.
The Supreme Court in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. reviewed the authorities on the scope of the jurisdiction of the High Court under section 66(1) and as to the meaning of the phrase 'question of law arising out of order' and authoritatively laid down their conclusion as to the scope of the enquiry under section 66(1) :
'(1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order. (2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order. (3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order. (4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it.'
In that particular case the Supreme Court at page 618 disagreed with the view of Chagla C.J. in Madanlal Dharnidharka v. Commissioner of Income-tax and held that a question not raised before a Tribunal cannot be said to arise out of its order even though on the facts of the case appearing from the order the question fairly arises. The view taken by the other High Courts was approved. Applying this test in the present case, again the hurdle in the way of the department is the fourth proposition laid down by the Supreme Court, viz., that when the question of place of receipt of the income was neither raised before the Tribunal nor considered by it, it cannot be said to be a question arising out of its order notwithstanding that it may arise on the finding given it.
Similarly, in Petlad Turkey Red dye Works Co. Ltd. v. Commissioner of Income-tax the Supreme Court was at pains to point out that the jurisdiction of the High Court under section 66 is purely advisory and is confined to giving an opinion on a question of law arising out of the order of the Tribunal. It has no jurisdiction to raise another question or to answer a different question. In order to answer the question raised in the statement of the case, the High Court may ask for a supplemental statement but that statement also is to be confined to the placing of facts already on the record. The supplemental statement of the case may contain such alterations or additions as the High Court may direct but the statement must necessarily be based on facts which are already on the record. The High Court has no power to ask for additional evidence to be taken. Accordingly, the view taken by the Supreme Court in New Jehangir Vakil Mills case was reaffirmed.
Recently, again the Supreme Court in Keshav Mills Co. Ltd. v. Commissioner of Income-tax was specifically asked to reconsider and affirm the position of law as laid down by it in New Jehangir Vakil Mills Ltd. and Petlad Turkey Red Dye Works Co. Ltd. v. Commissioner of Income-tax. The court observed at page 381 that when the matter goes to the High Court, it has to be dealt with on the evidence which has already been brought on the record. If the statement of the case does not refer to all the relevant and material facts which are already on the record, the High Court may call for a supplemental statement under section 66(4) but the power of the High Court under section 66(4) can be exercised only in respect of material and evidence which has already been brought on the record. And again at page 382 it observed : 'and so, if the High Court finds that, in order to deal with the question referred to it satisfactorily, it is necessary to ascertain some relevant and material facts, it should be open to the High Court to direct the Tribunal to make a supplementary statement containing the said material facts. There is no provision in section 66(4) which prevents the exercise of such a power. In some cases, the question of law referred to the High Court may have to be considered in several aspects some of which may not have been appreciated by the Tribunal. There is no doubt that if a question of law is framed in general terms and in dealing with it several aspects fall to be considered, they have to be considered by the High Court even though the Tribunal may not have considered them. In such a case, if in dealing with some aspects of the matter, it becomes necessary to ascertain additional facts, it would be unsatisfactory to require the High Court to answer the question without such additional facts on the ground that they have not been introduced bon the record already.'
In the present case, unfortunately for the revenue, the question referred is not in general terms but is clearly circumscribed. If the question had been referred in general terms as to whether the income was assessable under section 4 without specifying the sub-section, it would undoubtedly have been within the jurisdiction of this court to call for a further statement of the case upon the materials already on the record. That not being the position here, it is difficult, if not impossible, to say that the question referred as to assessability under section 4(1) (c) cannot be answered without determining the place of the posting of the cheque and as to whether the post office was the agent of the assessee or not. It is, therefore, not possible to accede to the submission of the assessee or not. It is, therefore, not possible to accede to the submission of the learned standing counsel that the question as framed is wide enough to include consideration of section 4(1) (a). Questions Nos. 1, 2 and 4 will therefore have to be considered in the light of the provisions of section 4(1) (c) only and the assessability will depend on whether the income can be said to have accrued or arisen or deemed to have accrued or arisen in British India.
The words 'accrue' or 'arise' have not been defined in the Act or in the General Clauses Act and therefore the ordinary dictionary meaning has to be attributed to them. The Supreme Court in Commissioner of Income-tax v. Ahmedbhai Umarbhai & Co. observed at page 496 :
'... it can be said without hesitation that the words accrue or arise though not defined in the Act are certainly synonymous and are used in the sense of bringing in as a natural result. Strictly speaking, the word accrue is not synonymous with arise, the former connoting the idea of growth or accumulation and the latter of the growth or accumulation with a tangible shape so as to be receivable. There is a distinction in the dictionary meaning of these words, but throughout the Act they seem to denote the same idea or ideas very similar and the difference only lies in this that one is more appropriate when applied to a particular case.'
Both these words are, however, used in contradistinction to the word B 'received' and indicate a right to receive. They represent a stage anterior to the point of time when the income becomes receivable and connote an income which is more or less inchoate. In Commissioner of Income-tax v. Chunilal B. Mehta, when dealing with the case of an assessee who was carrying on buying and selling operations in commodities in the various foreign markets and where no delivery was ever taken and profits of such forward contracts were not received in British India, it was held that the contracts having been neither framed nor carried out in British India the profits derived from the contracts did not accrue or arise in British India within the meaning of sub-section (1) of section 4 of the Act. In the concluding part of the judgment their Lordships observed :
'If such profits have not been received in or brought into British India, it becomes, or may become, necessary to consider on the facts of the case where they accrued or arose. Their Lordships are not laying down any rule of general application to all classes of foreign transactions, or even with respect to the sale of goods. To do so would be nearly impossible, and wholly unwise.... They are not saying that the place of formation of the contract prevails against everything else. In some circumstances it may be so, but other matters-acts done under the contract, for example - cannot be ruled out a priori. In the case before the Board the contracts were neither framed nor carried out in British India; the High Courts conclusion that the profits accrued or arose outside British India is well founded'.
In Commissioner of Income-tax v. Diwan Bahadur S. L. Mathias Judicial Committee had occasion to consider the meaning of the expressions unused in the Act 'received', 'accrued' or 'arose.' It was observed :
'It may be taken that all three expressions would not have been used unless it was thought that they exhibited some variation in meaning and that a case might possibly arise which would come under one only of the three. If on a question as to the exact meaning of accruing it were to be suggested that this only means received, it would be reasonable to object that this can hardly be correct, even though the difficulty of distinguishing between accruing and arising may be great. In this sense, perhaps not a very important sense, the expressions are antithetical. But it is very plain that there is here no question of a complete disjunction or of the presentation of three mutually exclusive qualifications.'
In Commissioner of Income-tax v. Mysore Chromite Co. Ltd. the Supreme Court had to consider the question whether the profits derived by the assessee-company in Madras from sales made to European and American buyers accrued or arose in British India. In that case it was accepted by both the parties that the income arose at the place where the sale took place and, therefore, the only question to which the Supreme Court addressed itself was as to the place where the property in the goods passed. On the facts of that case as the bill of lading was handed over to the buyer-bank against the acceptance of the bill of exchange in London, it was held that the sales took place outside British India and, ex hypothesis, the derivation of income from such sales arose outside British India. In Keshav Mills Ltd. v. Commissioner of Income-tax the question was as to where the first receipt of money under section 4(1) (a) was The majority decision was that the amount was received in British India, because sale proceeds of the goods sold and delivered by the appellant to merchants in India were received by the guaranteed broker and by the banks and shroffs through whom railway receipts were negotiated on behalf of the appellant in British India. Bose J., in his dissenting judgment, however, considered the question of the applicability of section 4(1) (c). He observed :
'Now applying section 4(1) (c), the question is where do the profits and gains arise or accrue in a case like the present This is not free from difficulty and various views have been, and can be, taken. But as these expressions have not been defined and as they are not words of art, I think they should be construed in their ordinary meaning which businessmen would ordinarily and easily understand in a business transaction. When goods are sold it is to my mind evident that the profit or the loss on any particular transaction arises out of the sale, for until there is a sale there can be no profit. The profit may not be wholly attributable to the sale but that is another matter. It is to my mind unquestionable that they arise, in part, at any rate, out of the sale. Therefore, if the goods are sold in the taxable territories, then, to my mind, the profits or a portion of them arise there..... That brings me to the next question, where were the goods in the present case sold That is a mixed question of fact and law and must vary in each case and must, in my opinion, be answered in a commonsense way and not necessarily in the artificial manner laid down by the Sale of Goods Act to determine where and when the property passes.'
In the light of the principles deducible from these decisions, to determine the question as to where the income has arisen or accrued, it is necessary to examine the facts and circumstances of the case. It is now well-settled that sections 18 to 23 of the Sale of Goods Act only lay down rules or principles for the guidance of the court, to determine who is to bear the loss in the event of the goods being destroyed by fire or otherwise or the bankruptcy of either party. In other words, if the contract itself is silent, then these sections 18 to 23 furnish rules to determine where the property in the goods passes. In each case the intention of the parties must be ascertained and then acted upon. Section 18 to 23 of the Sale of Goods Act, on which great reliance was placed by the learned counsel for assessee, only come into play if there is no agreement between the parties. If it is possible to infer from the contract itself as to the place and the time when the property in the goods was to pass, there is no scope for pressing the Sale of Goods Act into service. It is no doubt true, as contended by learned counsel for the assessee, that the agreement in the present case was not for specific goods but unascertained goods to be manufactured after its sample had been approved and delivery was to be at a future date, and as such the acceptance of the offer would only be an agreement to sell which would become a sale when the conditions provided therein are fulfilled. Section 23(1) of the Sale of Goods Act lays down the rule that when goods are unascertained or future goods by description, the property passes when the goods are unconditionally appropriated to the contract by one party with the consent of the other, or, if the goods have first to be approved then upon the buyer signifying his approval. It is, however, always necessary even after approval that the goods must be identified and the transfer only takes place when the goods become identified or some agreed act of appropriation takes place. Under sub-section (2) of section 23 delivery to carrier in pursuance of the contract operates as an appropriation. The intention of the parties has to be gathered from the terms of the contract and, if that is not clear, then guidance is to be sought, in a case like the present, from section 23 of the Sale of Goods Act. If the terms of the contract are clear, then it is not necessary to look at the Sale of Goods Act but, if it is, then the following facts will have to be taken into consideration.
(1) The place of delivery contemplated by the contract;
(2) The railway receipt;
(3) Whether made out in the name of the consignee or consignor;
(4) Reservation of the right of disposal by the consignor;
(5) The payment of freight by the consignor or consignee; and
(6) The conduct of the parties and the course of dealing and other attending circumstances of the case.
In the present case, the terms of the contract themselves are clear and the conduct of the parties leaves no doubt that the property in the goods was to pass in British India and not at Ujjain. As already observed, the acceptance and confirmation of the contract was in India in rupees. If by any chance the tenderer was not able to receive payment in rupees, then he was obliged under the terms of the contract to nominate in the tender his authorised agent, who will receive in rupees in India the contract amount and whose receipt will be a final acquittance for supplies against the order. The terms of the contract provided that the contractor was to submit samples normally, not less than 1 per cent. of the quantity to be supplied of stores he propses to submit for inspection for the first consignment for test before proceedings with bulk manufacture or delivery. It was only after the sample was tested that he could proceed to manufacture in bulk and make the supplies. The inspection and tests could be carried out at any place and no work or supply should be considered complete until the Inspector shall have certified in writing that such work or supply has been inspected and approved by him. That is at the stage of preliminary test and approval of the samples. Thereafter, the Inspector is made responsible to certify satisfactory performance of the contract and he is given the authority to accept or reject stores and his decision in that respect is final and conclusive. Notwithstanding the inspection, clause (9) provides 'the contractor is to be entirely responsible for the execution of the contract notwithstanding an approval which the inspector may have given... ' Therefore, the inspection and approval by the inspector does not conclude the performance of the contract nor does it amount to the passing of property in the goods. Further, the contractor is held responsible for stores being sufficient and properly packed and for their safe arrival at the destination. The despatch of the consignment has to be notified to the consignees in India along with its price invoice and full details of contents of every package so as to enable the consignee to check the stores on arrival at the destination. It is only after the checking and identifying the goods with the order that is placed that the appropriation to the contract by the consignee will take place and as that event necessarily was to happen in British India, the sale would take place only in British India. The insolvency of the contractor does not absolve him from liability. Even after the goods are received there is power to reject the goods and the rejected stores are to lie at the contractors risk. The payment is expressly agreed to be made by the Chief Auditor, Indian Stores Department, New Delhi, on a Government treasury in India or on a branch of the Imperial Bank of India or the Reserve Bank of India transacting Government business. It is significant that the contract specifically provides 'the amount payable in respect of each consignment will be paid on due proof of acceptance by the consignee'. Apart from the contract, the conduct of the parties also shows that the goods were despatched by train with freight paid and the railway receipt was sent to the nominee of the Government of India and, in this particular case, the Ordnance Officer, Dehu, in British India. In the letter from the assessee dated May 17, 1942, it is mentioned that the packing note is enclosed so as to help the consignee to identify the goods. The payment at the request of the assessee was made out of the Imperial Bank, Ujjain, by a draft. It is immaterial that the request for payment was by cheque but it was made by draft. In these circumstances there cannot be much doubt on the terms of the contract itself that the profits and gains accrued or arose in British India. The authority relied upon by counsel for the assessee in Commissioner of Income-tax v. Anamallais Timber Trust Ltd. is of little or no avail to the assessee as the facts in that case are clearly distinguishable. There is only superficial resemblance between the facts of that case and the present case. In that case the data furnished, as pointed out by the High Court of Madras, was meager and inadequate. According to the terms of the contract the timber contracted for had to be delivered f. o. r. Chalakudi in an Indian State. The inspection had to take place at the premises of the company. It was found that only the contract was entered into in British India but everything else took place entirely ex-India. The property in the goods also passed outside India; at the moment when the inspector inspected the goods, they became ascertained and were appropriated towards the contract with the assent of the buyers agent acting under authority. Relying upon sections 2 and 23 it was held that the goods were ascertained and appropriated towards the contract ex-India because of the inspection and approval given by the inspector and all that the seller had to do thereafter was to put the goods on rail free of charge and as this was also done at Chalakudi, the income was held as not accruing or arising in British India. As already observed, the contract in the present case, which has been annexed to the statement of the case, and the various documents filed showing the actual state of affairs and the conduct of the parties leave no doubt that the authority relied upon by the learned counsel for the assessee has no application. It was next contended, relying upon a recent decision of the Bombay High Court in Hira Mills v. Commissioner of Income-tax, payment by drafts and there was nothing to show that a request to make payment by cheque was ordinarily understood in the commercial world to mean a request to make payment either by cheque or by draft, the posting of the draft in payment of the bills by the Government of India could not be said to be either on the express or implied request of the assessee and, therefore, the sale proceeds which were received by demand drafts were held to be received at Ujjain, outside British India. With the utmost respect, we cannot persuade ourselves to agree with this view. A cheque and a draft are both negotiable instruments and a draft in the business world is invariably preferred to payment by cheque. Therefore, if the request is to pay by cheque and the consignee pays by draft, it will certainly be a request which is in substance on and the same. If anything, the consignor-assessee will be in an advantageous position as a result of the receipt of the draft. The credit for payment by cheque cannot necessarily be given by the bank forthwith and is credited subject to and only on the encashment of the cheque, whereas a draft is negotiable forthwith on presentation. A businessman without any doubt would welcome payment by draft rather than by cheque. A draft is something better than a cheque and may be crossed and dealt with as such. In any event, in the present case, we are not concerned with the place of receipt and, therefore, the question whether the request was for a cheque or a draft is immaterial when considering the question of the accrual and arising of income and not the first receipt thereof.
The only question that remains to be considered is whether the whole of the income or only a part of the income accrued or arose outside British India. It is difficult to appreciate how this limb of the question can be said to arise out of the order of the Tribunal. It appears that at no stage was this question argued before any of the departmental authorities or the Tribunal. There is not a word in the order of the Tribunal and apparently that question was never argued and it is not a pure question of law as it must necessarily involve consideration of facts as to the exact nature and scope of the manufacturing process which was involved, the place from where the raw material was obtained and its conversion into finished manufactured product. It was for the Tribunal, in the first instance, in the interest of justice, to have considered this matter and not merely to have appended it as a limb of the question referred. It is true that the manufacture was of textiles which took place outside British India but that per se is not enough to answer this limb of the question. If, however, the question is one which has to be answered, it will have to be answered in favour of the assessee in view of the decision of the Supreme Court in Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax, where it was laid down that the decision in Commissioner of Income-tax v. Ahmedbhai Umarbhai & Co. excess profits tax matter, would also apply to income-tax matters and apportionment of income, profits or gains between those arising from business operations carried on in the taxable territories and those arising from business operations carried on without the taxable territories was based not on the applicability of section 42, sub-section (3), of the Income-tax Act, but on general principles of apportionment of income, profits or gains. In that case, however, the claim had been put forward for apportionment of the income before the Appellate Tribunal under the provisions of section 42(3) of the Act. In the instant case, as already observed, no apportionment at any time appears to have been claimed. Nevertheless, the matter of apportionment would appear to be one which has to be carried out by the department irrespective of whether the assessee claimed it or not. The question of apportionment on general principles, as pointed out by the Supreme Court, is implicit in the determination of the question as to whether the entire income has accrued or arisen within the taxable territories. If any portion has accrued or arisen outside, then that income cannot be said to have accrued or arisen in the taxable territories and has to be excluded. Undoubtedly, as pointed out by Das J. in Ahmedbhai Umarbhais case at page 515, 'when a raw material is worked up into a new product by process of manufacture, it obviously increases in value; in other words, there is an accretion of profit to it and the increased value represents this income or profit which is the result of manufacture. As the profits accrue by reason of manufacture, the accrual, in my opinion, cannot but be located at the place where the manufacturing process is gone through. It is immaterial that the manufactured goods are sold later on at various places. If the manufacturer is himself the seller, it might be that he receives the entire profits including that of the manufacture only at the time of the sale; but in an inchoate shape, a portion of the profits does accrue at the place of manufacture, the exact amount of which is only ascertained after the sale takes place. For purposes of computation, the two parts of the business may be conceived of as being carried on by two different sets of persons. As soon as the manufacture is complete, that part of the business is finished and the profits that accrue to that part certainly arise at the place where the manufacture is carried on and not where the sale ultimately takes place.' This passage was quoted by the Supreme Court in Anglo-French Textile Co.s case and affirmed thus : 'The quotations from the judgments clearly establish, in our opinion, that the law was laid down not because of the statutory apportionment contemplated by the Excess Profits Tax Act and the Income-tax Act as Mr. Rama Rao Saheb argued but irrespective of it.' Therefore, even though the matter was not raised before the Tribunal, the question as referred will have to be answered. Our answer to question No. 1 will, therefore, be that the whole of the profit did not arise in British India but a substantial part thereof did arise in British India. It will, however, be for the Income-tax Appellate Tribunal to determine what part of the income, profit or gain accrued or arose in British India.
Question No. 4 which is based on similar facts and was not separately argued is also answered in the affirmative, in the same manner as the first question, even though there is no specific reference made in the question, presumably as a result of inadvertence, as to whether the whole or part of the profit accrued or arose in British India under section 4(1) (c) of the Act.
Question No. 2 raises the question of accrual and arising of income under section 4(1) (c) of the Act. The material facts in respect of this question are these : There were brokers in India who were soliciting orders from their customers and passed them on for fulfillment to the assessee. The broker writes or wires to the mill and the relevant portion of a sample letter annexed to the statement of the case (page 51) reads :
'To the Binod Mills Co., at Ujjain. Written from Agra by Daudayal Dalal whose salutations you be pleased to read. Yesterday, Seth Sahib had agreed to the transaction of 75 bales of Desouti... Please enter this transaction to the name of Bhai Shyamlal Chimanlalji. The delivery in respect of the same is to be given from January to March. We are sending a receipt for Rs. 8,050 along with this letter. Please credit the same to their account and acknowledge receipt to them.'
The reply to this letter is by the letter dated January 7, 1942 (page 52 of the paper-book).
'Bhai Daudayal Dalal, Agra,
According to your letter dated 6-1-1942, we have noted down the transaction in respect of canvas and Desouti in the name of M/s. Shyamlal Chimanlal and are sending (herewith) to you the merchants contract bearing No. 1/5-1-1942 for signature. Please get it signed and send it immediately.'
This was acknowledged by letter dated January 13, 1942, by Dalal, the material portion whereof reads :
'The contract is sent herewith...
You must have consigned 25 bales of Desouti. If not, please consign them immediately on receipt of this letter because the merchant is making pressing demands.'
Paragraph 5 of the contact (page 54) provided :
'(5) That the delivery to be given to me/us against full payment; the delivery documents including railway receipts, etc., to be sent to me/us by V. P. Post or through some bank as I/we may direct.'
The brokers directed to which bank the railway receipts were to be sent by the consignor. On these facts the Tribunal came to the conclusion that the sale effected by the company through brokers in British India accrued or arose in British India. It observed, 'the contract of sale therefore is completed in British India through the companys broker in British India. Besides the Appellate Assistant Commissioner has found that the goods despatched by the company in execution of the contract remained its own property till the collecting bank acting as companys agent delivers them to customers in British India. The learned counsel for the assessee attacks the inference drawn by the Tribunal by relying upon the decision of this court in Hira Mills Ltd. v. Income-tax Officer, Cawnpore. The question there was as to whether there was a business connection between the broker and the assessee in British India, within the meaning of section 42(1) of the Act. In that case it was found that the broker did not use any special form in the case of the assessees business and apparently the contracts were for delivery for Ujjain. It was pointed out that the question did not arise under section 4(1) (a) or 4(1) (c) but under section 42 of the Act. It was observed at page 427 :
'If the question had been one under section 4(1) (a) or section 4(1) (c) of the Act it might have been very material to know more exactly in what capacity such bankers and brokers received these payments.'
The question as propounded was whether the income accrued or arose directly or indirectly through or from any business connection in British India with those brokers. On the facts of that case it was held that there was no business connection. In the present case the question has been raised only under section 4(1) (c) and not under section 42(1) and no question of business connection therefore arises. All that has to be seen is where the property in the goods can be said to pass. The delivery had not to be made by the banker in India till the full payment was made which was in India. The contract contemplated delivery only on payment of the full price, and not otherwise. Mere consignment f. o. r. to a carrier did not result in appropriation of the goods to the buyer under the contract as the seller had expressly reserved the right to jus disponendi in the goods. The terms of the contract, the conduct of the parties and the circumstances of the case leave no manner of doubt that the conclusion drawn by the Tribunal was correct. In these circumstances, question No. 2 is answered by saying that part of the profits accrued in British India within the meaning of section 4(1) (c) of the Act.
Lastly, question No. 3 raises the question of the first receipt of income under section 4(1) (a). The question as framed would appear to answer itself as the basic fact stated therein is that the payment was received through banks in British India who acted as the companys agent for that purpose. That is a finding of fact which the learned counsel for the assessee sought to challenge. We are, however, bound by the findings of fact arrived at by the Tribunal in the statement of the case and it is not open to this court in its advisory jurisdiction to reappraise the evidence and to find the facts for itself. Even if it was possible to reappraise the evidence, we would on the material on the record given in the statement of the case and the annexures thereto have no difficulty in endorsing the finding of the Tribunal on this point. According to the statement furnished by the assessee, though the contract was entered into at Ujjain and the delivery had to be taken there, the actual payment was received through banks in British India but with whom the assessee did not have current accounts. The name of the bank was suggested by the customers, railway receipts were prepared payable to self and endorsed in favour of the collecting banks and drafts drawn on the customers were made payable to such banks. These documents along with the bills were handed over to the banks who realised the money from the customers before handing over the railway receipts to the customers. A sample copy of the letter annexed to the statement of the case dated September 28, 1942, written by the assessee to the agent, Central Bank of India, Mardan, reads :
'Please deliver the abovesaid invoice and R/R to the party concerned against payment of the amount, mentioned above, subject to the terms Nos. 1, 2, 3 and 7 stated below in the footnote.'
What is stated in the footnote is not very material as it only deals with the contingency of payment by cheque and if it is not honoured. In these circumstances, although the assessee may have had no current account with these various banks who may have been nominated by the purchasers, the course of conduct clearly establishes that the bank was also acting as the agent of the assessee. In any event, the question here is not whether the income accrued or arose in British India, but whether the income can be said to have been received in India through a banker under instructions from the assessee. There cannot be much doubt that the bank, in these circumstances, was the agent of the assessee and the first receipt of income was, therefore, in British India through these various banks. Question No. 3 is therefore answered in the affirmative and against the assessee.
In the result, the questions are answered as indicated hereinabove. The assessee will pay a part of the costs of the department which we assess at Rs. 200. Counsels fee is assessed at Rs. 400.