DIXIT C.J. - In this reference under section 66(1) of the Income-tax Act by the Appellate Tribunal at the instance of the assessee, the question which we are required to answer is :
'Whether, on the facts and in the circumstances of the case, the sum of Rs. 12,261, being the interest paid by the Indian Purchasers of goods for late payment of sale proceeds, accrued or deemed to accrue to the assessee in India under section 4 or 42 ?'
The question relates to the assessment year 1947-48. The assessee is a dealer in cloth doing business in Indore. During the relevant year he sold cloth to purchasers in what was then British India. Indore was then a non-taxable territory. In respect of some of the sales the assessee charged to the purchasers interest because of the delay on the part of the purchasers in the payment of the sale proceeds. He obtained an amount of Rs. 12,261 by way of interest which was remitted to him at Indore. The Income-tax Officer held that this amount of interest accrued to the assessee in a taxable territory and was, therefore, assessable. He rejected the contention of the assessee that the interest received by him was for a deferred payment of price and accrued to him where the sales were completed, namely, at Indore. The reasoning of the Income-tax Officer was that when goods were sent by the assessee to the purchasers in taxable territory, money was brought into that territory in the form of goods and that there was thus money lent to the purchasers and its utilization by them and consequently that was interest on money lent which was taxable 'according to the logic of section 42'. The assessee then preferred an appeal before the Appellate Assistant Commissioner which was accepted. The Appellate Assistant Commissioner held that there was no relationship of debtor and creditor between the assessee and his customers in British India and no transaction of money-lending and, therefore, the interest received by the assessee on the sale proceeds could not be taxed under section 42 as interest on money lent. The department then went up in appeal before the Appellate Tribunal Pressing the contention that the amount of interest accrued to the assessee in British India under section 42. The Tribunal accepted this contention. It observed :
'Under section 42, not only the income which accrues directly but the income which accrues indirectly can also be brought to assessment. If we were to accept the assessees contention, it would mean that to evade taxation in respect of interest earned in India is an easy matter. All that the assessee has to do is to sell goods to an Indian merchant and to allow the purchasers to make use of the sale proceeds for such time as may be agreed upon between the parties. On the delivery of goods a debt became due to the assessee. This debt has earned interest in India. We think that the interest income has accrued to the assessee in India and is liable to assessment at the rate applicable to the assessees world income.'
Shri Chitaley, learned counsel for the assessee, contended that there was no advance of money or goods by the assessee to the purchasers in the taxable territories; that there was no agreement between the parties that the sale proceeds would be treated as a loan by the assessee to the purchasers; that, therefore, the interest amount which the assessee received could not in any sense be regarded as interest on money lent and brought into the taxable territories; and that it was also not an amount which accrued to the assessee from any business connection in the taxable territory. In our judgment this contention must be accepted. It is difficult to appreciate 'the logic of section 42'which the Income-tax Officer propounded or the view of the Tribunal that on the delivery of the goods to the purchasers a debt became due to the assessee. The expression 'income, profits or gains from any money lent at interest and brought into the taxable territories in cash or in kind' contemplates that there must be a relationship of creditor and debtor between the parties concerned. Here, there was no advance India'. There was also no agreement between the assessee and the purchasers under which the assessee agreed to treat the amount due from them on account of sale proceeds as a loan by him to the purchasers repayable with interest. After receiving the delivery of the goods the purchasers no doubt incurred an obligation to pay the sale proceeds to the assessee, but they did not in any sense become debtors of the assessee. A loan is something quite different from a debt. For a loan there must be a lender, a borrower, a thing loaned for use, as well as a contract between the parties for the return of the thing loaned. A loan contracted no doubt created a debt but there may be a debt without contracting a loan. Every sale of goods on credit does not amount to a transaction of loan. One must look to the facts of each transaction to find out whether the transaction amounted in substance to a transaction of loan or to a transaction of sale. Here the transactions were all pure and simple sales. There is nothing to show that the sale proceeds due from the purchasers were by agreement treated as loans by the assessee or that the parties had treated the sale proceeds as paid off in their entirety and the amount equivalent to the sale proceeds as being due from the purchasers to the assessee by way of loan. That the amount received by the assessee cannot be regarded as interest on money lent is clear enough from the decisions of the Supreme Court in Chatturbhuj Vithaldas Jasani v. Moreshwar Parashram and Radha Kissen v. Keshardeo where the essentials of the relationship of debtor and creditor have been pointed out.
Learned Advocate-General appearing for the department found himself unable to support the view of the Tribunal that the interest received by the assessee was an interest on money lent. He, however, urged that the interest amount which the assessee got was from a source of income in the taxable territory, the source being the retention of money by the purchasers and its utilization by them. We do not agree.'Source' as used in section 42 means something from which income arises. In Rhodesia Metals Ltd. v. Commissioner of Taxes the Privy Council accepted the statement in Ingram on Income-tax that 'source' means not a legal concept but something which a practical man would regard as a real source of income. The decisions in Kamakshya Narain Singh v. Commissioner of Income-tax and Rani Amrit Kunwar v. Commissioner of Income-tax are also in similar vein. In the case of Hart v. Sangster it was held that in England, with reference to 'new source', source meant the same thing as origin and that the source of interest on a bank deposit was the actual deposit and not any contract between the bank and the deposit or about tendering of deposits and their acceptance by the bank. The interest which the assessee here obtained did not depend on the utilization for some time of the sale proceeds by the purchasers. The assessee would have got interest on the sale proceeds under section 61 of the Sale of Goods Act even if the purchasers had not utilized the money. The interest no doubt became payable by the purchasers because of the delay in the payment of the sale proceeds, but so far as the assessee is concerned it represented the advantage which he would have had if the money had been remitted to him at Indore. The source of interest was thus the actual money payable to the assessee at Indore and not the retention of the sale proceeds by the purchasers. The interest which the assessee received was a part of the price itself. It is unnecessary to refer to the authorities cited at the bar for none of them deals with the point arising for determination in the present case.
Our answer to the question, therefore, is that the sum of Rs. 12,261 received by the assessee as interest from the purchasers in the taxable territories cannot be regarded as having accrued or deemed to have accrued to him in British India under section 4 or 42. The assessee shall have costs of this reference. Counsels fee is fixed at Rs. 150.
Question answered accordingly.