This is a reference under section 66 (1) of the Indian Income-tax Act, 1922, at the instance of the Commissioner of Income-tax, M. P. The question which has been formulated by the Income-tax Appellate Tribunal for our decision, is :
'Where, on the facts and in the circumstances of the case, there was any receipt of sale proceeds of Rs. 11,43,712 and Rs. 47,20,885 on behalf of the assessee in the taxable territories so as to justify assessment of the profits include therein under section 4(1) (a) of the Indian Income-tax Act, 1922 ?'
The assessee, Shri Shivnarayan Harigopal, Indore, is an unregistered firm. In the accounting year from 20th June, 1947, to 8th July, 1948, it carried on business in the sale and export of cloth at Indore, which was then in non-taxable territory. In that year, there was an all-India control over the disposal of cloth. On receiving allotment orders for supply of cloth in Indore market, paid the price of the same and shocked the cloth purchased in its godowns for some time. Later on, the goods were dispatched by rail to the concerned parties in taxable territories. The relevant bills, which included the assessees commissioner, interest and some nominal profit, along with the bills of exchange and railway receipts, were endorse and handed over to bankers at Indore and to M/s. Laxmichand Muchhal of Indore. The local bankers and M/s. Laxmichand Muchhal allowed full credit to the assessee on the day they received the railway receipts with the D. Ds. or bills of exchange. The bankers and M/s. Laxmichand Muchhal did not charge the assessee any interest for period during which the amount remained unrealised. They, however, realised interest and bank charges and the sale price from purchasers in the taxable territories.
The Income-tax Officer, Indore, taxes the profit made by the assessee as a non-resident on the transactions of these supplies of cloth taking the view that the proceeds of the transactions were received by the assessee in taxable territories. In appeal, the Appellate Assistant Commissioner also came to the conclusion that the sale proceeds were received by the assessee in taxable territories. He, however, made a reduction in the amount of the assessable profit. In the second appeal, which the assessee then preferred before the Appellate Tribunal, it was held that the amount of profit received by the assessee in respect of these transactions was not received in taxable territories.
The facts and circumstances in which this reference has been made are similar to those found in Commissioner of Income-tax v. Laxmichand Muchhal In Muchhals case also, a similar question was propounded for decision and that was :
'Where, on the facts and in the circumstances of the case, the profit along with interest of Rs. 33,784 and commissioner of Rs. 19,179 included in the sale proceeds amounting to Rs. 28,93,802 and Rs. 9,31,000 could be said to have been received by the bank on behalf of the assessee in British India so as to attract levy of tax under section 4(1) (a) of the Indian Income-tax Act, 1922 ?'
The Division Bench, hearing the reference in Muchhals case observed :
'It cannot be disputed that if a bank after purchasing or discounting an instrument from a customer, credits the customer with the amount of the instrument and allows him to dry against the amount so credited before the bill or instrument is cleared, then the bank would be collecting the money not for the customer but chiefly for itself. In such a case, the bank does not act as a mere conduit pipe for conveying the instrument to the person on whom it is drawn and receiving the money from him for its customer, and the position of the bank as a holder for value of the instrument is not converted into one as an agent for collection on behalf of the customer merely because in the even of default in payment by the person in whose name the negotiable instrument is drawn the bank is entitled to the statutorily prescribed protection by the customer drawing the instrument.'
The Division Bench also pointed out that :
'The question as regards the character in which a bank receives payment of a negotiable instrument is a question of fact. In each case, it is a question of fact whether a negotiable instrument is taken by the bank from a customer for collection or security or discounted for him...'
On the findings arrived at by the Tribunal, this court held in Muchhals case that the State Bank of Indore collected the amount from the consigns on its own behalf and not as a collecting agent for the assessee and the sale proceeds must, therefore, be held to have been received by the assessee at Indore and not at the places in taxable territories where the bank received the amounts from the consignees.
Learned counsel on either side did not suggest that the facts found in the present case were so different from those in Muchhals case that the referred question cannot be answered in the same way as in Muchhals case In our judgment, this reference is governed by the decision in Commissioner of Income-tax v. Laxmichand Muchhal. We accordingly answer the referred question in the negative. The assessee shall have costs of this reference Counsels fee is fixed at Rs. 200.
Question answered in the negative.