Satyanarayana Rao, J.
(Case Referred No. 22/1945).
1. At the instance of the Commissioner of Income-tax, Madras, the Appellate Tribunal, Madras Bench, referred to us under Section 66 (1), Income-tax Act, the following two questions of law :
'1. Whether in the circumstances of the case the Bench was correct in law in holding that the entire profits from sale of timber accrued or arose to the respondent company, and were received by the respondent company outside British India ?
2. If the answer to question (1) above is in the negative, whether the Bench was correct in law in holding that Section 42 (3) would apply to profits which were received in British India or profits which actually accrued or arose (and were not merely deemed to accrue or arise) in British India?'
The reference arose on the following facts: The assessee is a company incorporated in Cochin State under the Companies Act as made applicable to that State. The company trades in timber and also has a saw mill at Chalakudi in the Cochin State for seizing timber and for converting logs of timber into scantlings of the required size. During the accounting year 1940-41 (the assessment year 1941-42) the company entered into three contracts dated 16-1-1940,11-3-1940 and 12-4-1940, for the supply of seized timber to the Government of India Supply Department. The contracts in question werethe result of tenders submitted by the respondent in pursuance of the invitation for tenders-by the Supply Department and finally accepted by them. The documents constituting the contracts have not been placed on record. A form of the invitation for tender dated 23-12-1939, which contains the conditions of the tender and also the draft terms of the contract has been made available. In addition to it, there is also a tender form which bears date 23-12-1939, and an acceptance note of 12-4-1940, from the Contracts Directorate, New Delhi, and sent to the respondent which presumably refers to the last of the three contracts. Further, there is a letter of 16-2-1940, from the Contracts Directorate to the respondent which embodies the arrangement for payment of the price of timber. This can only refer to the first of the contracts. These are the only material documents on the basis of which the matter has been disposed of by the Income-tax authorities.
2. The crucial question in the case is whether the income, profits and gains of the respondent company arose or accrued in British India. The decision of the question turns mostly, if not exclusively, on an interpretation of the documents constituting the contracts bub it is surprising that the crucial documents have not been placed on record. It is on the basis of this insufficient data that the case was argued before us and was disposed of by the Income-tax authorities. In a matter of such importance where the decision of the question rests entirely upon a construction of the terms of the contracts, it would have been more satisfactory if steps had been taken to see that all material documents were placed on record and were made available not only to the Income-tax authorities but to this Court and in cases in which a further appeal lies from our decision to the Federal Court or the Supreme Court. The disposal of income-tax matters on such inadequate data and on representations made at the time of the arguments which have not been fully and accurately placed on record have come to our notice in the course of the disposal of the income-tax reference by us. Very often, the accuracy of the statements or representations made before one or other of the authorities either on behalf of the assessee or by the department's representatives have been challenged and there is no means by which we can decide the correctness of the representations so made. We wish to draw the attention of the Income-tax authorities to this defect and it is hoped that due attention would be paid by theauthorities concerned to see that such things do not recur.
3. The terms of the contract, therefore, have to be inferred from the few documents available. There is the invitation to offer by the Supply Department and the respondent made the tender which was accepted by the Supply Department and which acceptance was communicated to the respondent by an acceptance note which the respondent had to sign and send it back to the supply department. According to the terms of the contracts, the timber contracted for has to be delivered f. o. r. Chalakudi, Kallai and/or Trichur. The Government in pursuance of the terms of the contract have to depute an Inspector to inspect the timber at Chalakudi in the premises of the company in order to ascertain whether the quality and specifications as per the terms of the contract were or were not complied with. On such inspection the Inspector has to certify and issue a note that the goods answered the description in the contract. Thereafter the timber is loaded in wagons at the siding of the company for transport by the Shoranur Cochin Railway. The land occupied by the Shoranur Cochin railway line, it has been found and is accepted before us in the course of the arguments, is not within British India but is in Cochin State, though the Income-tax Act has been applied to the railway line.
4. The Income-tax Officer and the Appellate Assistant Commissioner were of opinion that the company is resident in British India as the profits of the business accrued and had arisen in British India. According to them, the contracts were concluded in British India and the delivery of the goods was also in British India as the place of delivery, according to the contracts, was the railway station at Chalakudi and not Chalakudi mill premises. They further held that the right to receive payment in respect of the contracts arose in British India; and that for these reasons the respondent company could be assessed under the Income-tax Act, as resident in British India. The Tribunal differed from these conclusions. The contract according to them was concluded at the place where the acceptance note was signed by the company, i. e., at Cbalakudi, which is outside British India; that the goods were appropriated by the buyer under the contract and the inspection of the goods was made at the premises of the company by the Inspector; that the payment was at Trichur and therefore even the receipt of the price payable under the contracts was outside British India. The appeal was, therefore, allowed by the Appellate Tribunal and the reference was made by them tothis Court on the application of the Commissioner of Income-tax.
5. The liability to pay income-tax under the Income-tax Act arises by reason of the receipt of income, profits and gains, from whatever source derived, in British India in the year of account or the income, profits and gains must have accrued or arisen in British India. A distinction is made under the Act between persons resident and not resident in British India and persons 'not ordinarily resident' in British India. In the case of a person who is a. resident in British India he is liable to pay income-tax on income, profits and gains which have accrued or arisen or deemed to accrue or arise in British India or even outside British India and also in respect of income, profits and gains, though accrued before the beginning of the accounting year outside British India and after 1-4-1933, are brought into or received in British India during the accounting year. A person who is non-resident in British India is liable to pay tax on income, profits and gains either received in British India or which had accrued or arisen in British India during the accounting year. The distinction with regard to the liability of a person who is resident and who is not ordinarily resident is that in the case of the latter, income, profits and gains which had accrued or arisen without British India will not be liable to tax unless they are derived from a business controlled in or a profession or vocation set up in India or unless they are brought into or received in British India by him during such account year. 'Resident in British India' and 'not ordinarily resident' are defined in Sections 4A and 4B of the Act. The attempt on the part of the Commissioner of Income-tax is to bring tbe present case under Sub-clause (c) of Section 4A; and according to that clause a company is resident in British India in any year, (a) if the control and management of its affairs is situated wholly in British India in that year, or (b) if its income arising in British India in that year exceeds its income arising without British India in that year. Clause (a) of Sub-clause (c) does not apply to the present case as the control and management of the affairs of the respondent company is wholly situated outside British India. Clause (b) of Sub-clause (c) alone is relied on. According to this provision a company is resident in British India if the income arising in the accounting year in British India exceeds its income arising without British India. In computing the income arising within and without British India income chargeable under tbe head ''capital gain' has, of course, to be excluded. According to the finding of the Appellate Assis-tant Commissioner, the income arising in British India was ES. 60,817 and the Cochin income after allowing relief of Rs. 4500 under Section 4 (1) (c) is Rs. 7910. Thus the income arising in British India is in excess over the income that arose in the Cochin State and, therefore, it was held that the respondent company was a resident in British India during the accounting period within the meaning of the clause. This position was not accepted by the Appellate Tribunal as the income, namely amounts payable under the contracts (Rs. 60,817) did not arise in British India but without it, and, therefore, the company was not a resident in British India. The correctness of this view is disputed before us on behalf of the Income-tax Commissioner.
6. The decision rests upon a determination of the question whether under the contracts, the income arose at Chalakudi in the Cochin State or in British India, having regard to the meaning to be attached to the word 'arising' used in the section and the words 'accrue' and 'arose' used in other sections of the Act which are treated more or less as synonymous. Where were the contracts concluded and where did the income or right to receive the payment under the contracts accrue or arise The dictionary meaning of the word 'accrue' is 'to arise or spring as a natural growth or result'; 'to come by way of an increase'. 'Arising' means 'coming into existence or notice or presenting itself'. The word 'receive' is not used in the same sense as 'accrue' and 'arise'. The words 'accrue' and 'arise' do not mean actual receipt of the income, profits or gains; and they may be interpreted as conveying the idea of a present enforceable right to receive the income, profits or gains. It is something inchoate but is capable of being enforced or converted into money by the actual receipt. The words denote a point of time anterior to the actual receipt. At one time it was thought following the decisions in England that the place of the source from which the incomeaccrued or arose, was also the place of accrual or arising of the income. In other words, the place from which the operations of the business was directed and controlled and where the brain of the business was located was the place of accrual or the arising of the income also. That this view is no longer tenable has been established by the decision of the Judicial Committee in Commissioner of Income-tax, Bombay v. Chunilal B. Mehta . In thatcase the question was whether the asgessee was liable to pay income-tax upon profits derived by him from contracts made for the purchaseand sale of commodities in foreign markets, Liverpool, London, New York and other placesoutside British India. The asgessee disputed his liability on the ground that the profits on such business did not accrue or arise in British India and were not received in British India and therefore he was not liable. The main con. tention urged was that the exercise of the skill and judgment in entering into the contracts and giving directions for the formation of the contracts took place in Bombay and that therefore the place where the profit was earned by the assessee was Bombay and not outside British India. This contention was not accepted by the Privy Council. Sir George Rankin dealing with the provisions of the Act as they then stood, pointed out that the English decisions offered no guide in interpreting the Indian Act as the Indian Act is not in pari materia with the English Act. Under the English Act if a person exercised his trade in the United Kingdom, the place at which a profit accrues or arises is tbe place of the central control of the business; but that test, it was pointed out, was not applicable under the Indian Act. A place no doubt has to be assigned as that at which, to quote the language of the judgment of Sir George Rankin, 'the result of trading operations comes, whether gradually or suddenly, into existence'. Rejecting the argument that the place where the exercise of skill and judgment and directions for the control of tbe business were issued could not be the place where the profits accrued or arose the learned Judge observed :
'It is difficult indeed to see that the place at which a man takes a decision to do something in New York or to ask someone else to do something for him in New York is the place at which arises the profit which results from the action taken in consequence of the decision. And if the place from which he issues his instructions be regarded as a separate element the identity of place is no less difficult to detect. That the profit may be casually attributed to the aasessee's decision is reasonable enough ; though it be not the proximate cause nor the whole of the cause, it is, in the chain of causation tbe link which most deaerves the attention of any one who desires to explain the success of the transaction. For this, and it may be for other purposes, the selective process which ignores the intermediate links is justified. But is the same selective process justified for the purpose of assigning the place at which the result arose Their Lordships think not. It can hardly be maintained that whatever a man decides upon in Bombay and whatever may be done abroad in pursuance thereof, the profit must necessarily arise in Bombay. One must look at the transaction to see what happened in British India and what happened elsewhere. The intermediate links may be all important. Here the profit is the difference between a sale and a purchase both effected in New York and then set off and so far carried out in New York that a New York broker has money in his hands or under his control which, as between himself and the assessee, belongs to the assessee.'
The situation of the source from which the profits accrue is not the place of the accrual of the profits as held by the learnei Judge. It would be straining the language of Sections 4 and 6 to take that as the basis for deciding the place of accrual. To ask the question, says the learned Judge,
' 'What in the sense of Section 6 is the source of theseprofits and is it situate in British India?' is to divertattention from that to which the statute points andto devote attention to what it discards. Nothing couldfee easier than to Bay 'from whatever source derivedif situate in British India' had this been intended.'
Again at p. 767 the following observationsoccur:
'Profits are frequently if not ordinarily regarded as arising from many transactions each of which has a result--not as if the profits need to be disintegrated with difficulty but as if they were an aggregate of the particular results. In the present case the assessment order has discriminated between the Bombay and the 'foreign' business income. To discriminate between all kinds of profits according to the place at which they accrue or arise is a plain dictate of the statute.'
And the conclusions of the learned Judge are summarised at p. 768 in these words :
'These considerations lead their Lordships to the conclusion that under the Indian Act a person resident in British India carrying on business there and controlling transactions abroad in the course of such business is not by these mere facts liable to tax on the profits of such transactions. 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--to use the language of Lord Esher (sic) in Erischen v. Last, (1881) 8 Q. B. D. 414 : 51 L. J. Q. B. 86. 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 Court's conclusion that the profits accrued or arose outside British India is well founded.'
From this summary it follows that the place of formation of the contract need not be taken as decisive of the question of the place of accrual. Acts done under the contract, in other words, the performance of the contract, may be taken into consideration. If the contracts were neither framed nor carried out in British India, it would be a clear case where the profits accrued or arose outside British India.
7. It would be impudence on my part to attempt to evolve a rule of general application relating to foreign transactions or even in res-pect of the sale of goods, when eminent Judges ruled that it is unwise to do so. It would be sufficient to confine the observations to the facts before me and to decide the question in the light of the principles embodied in the deci-sions bearing on the point, particularly the decision in Chunilal Mehta's case .
8. I will now come to the facts of the case. The contracts started with invitations to tender. The tender was made from Chalakudi and was accepted in British India. No doubt the acceptance note was sent from British India to Chalakudi to be signed in token of the receipt of the acceptance of the offer ; and it was signed at Chalakudi. When the offer was accepted by the Supply Department in British India the contract was concluded and the formation of the contract, therefore, was undoubtedly in British India. In this respect I differ from the conclusion of the Appellate Tribunal which thought that it was the signing of the acceptance note that concluded the contract and aa this was at Chalakudi, the place of acceptance was also at Chalakudi. The contract was, however, carried out entirely at Chalakudi. It must be remembered that the contracts related to unascertained goods and until the goods were ascertained and appropriated towards the contracts, the property in the goods did not pass to the buyer. The Supply Department sent their own Inspector to inspect the goods to find out whether the goods made ready for delivery answered the description of the goods contracted for. This was done at Chalakudi in the mill premises of the respondent company and the goods became ascertained and were appropriated towards the contract with the assent of the buyer's agent acting under due authority. The Inspector had to certify and pass an inspection note. Along with the invoice and the provisional note issued by the Inspection Officer certified copies of railway receipts had to be presented before asking for payment of 80 per cent. of the total amount of the price. Under the Sale of Goods Act, Sections 18 to 26, which relate to the transfer of property as between a seller and buyer, the property in the goods passed to the buyer at Chalakudi when the goods were ascertained and appropriated towards the contract. All that the seller had to do thereafter was to put the goods on rail free of charge and this was also done at Chalakudi and the place of delivery was not within British India. The right, therefore, to demand the price accrued to the seller at that moment. The fact that an inspection note had to be obtained and that the railway receipt had to be attached to it along with the invoice would not prevent the property in the goods after they were ascertained and appropriated, from passing to the buyer. Even if further checking were necessary in order to find out whether the quantity stipulated for was delivered or not, it would not prevent thepassing of the property in the goods. In this connection reference may be made to a decision of the Privy Council in Nanka Pruce v. Commonwealth Trust, 1926 A. C. 77 :94 L. J. P. c. 169. In that case the seller who was the appellant consigned cocoa to one L, by rail at 59 sh. per load of 60 lbs. l had to resell the cocoa to merchants and then assign the railway consignment notes to the persons to whom he sold the goods. The merchants had to take the weights and L was then entitled to receive the price according to weights so checked. Out of the consignment of 160 bags of cocoa sent to L the entire stock was sold by him to the respondent and the consignment note was also transferred to the respondent. The goods were delivered to the respondents and L was credited by the respondents with the purchase price against a large debt to them from L. An action for conversion and damages was instituted by the appellant against the respondents on the ground that the goods continued to remain the goods of the appellant until the checking of the weights by the merchants was made and that therefore they were guilty of conversion. It was held that the provision relating to the weighment of the goods was not a condition precedent to the sale. The property was transferred and the price was fixed and the checking was merely to enable the purchasers to see whether the goods were of the weight as represented and this provision did not suspend the rights under the contract of sale. In the present case, the balance of the 20 per cent. of the price had to be paid against the contractor's claim supported by receipt vouchers issued by the consignee concerned, that is, after the goods were received. This again is not a condition which postponed the passing of the property in goods to the Supply Department. The entire performance of the contract was completed so far as the seller was concerned at Chalakudi and he had acquired the right to receive the full payment of the value of the goods. No doubt, it is payable in instalments and the claim for payment has to be supported by certain vouchers. Though the formation of the contract was in British India, as it was carried out entirely at Chalakudi, the right to income or profits or gains in my opinion clearly accrued at Chalakudi in the Cochin State. The profit was realised there when the article was sold and the sale was complete with the passing of the property to the buyer at Chalakudi.
9. Some light is thrown on the question by the decision of the Full Benoh in Jiwan Das v. Income-tax Commissioner, Lahore, 10 Lab. 657 : A.I.R.1929 Lah. 609 . There are also other decisions to which reference wasmade at the bar during the course of the arguments but I do not think that any useful purpose would be served by a detailed examination of those cases. Sudalaimani Nadar v. Commissioner of Income-tax, Madras : 8ITR619(Mad) ; Board of Revenue v. Madras Export Co., 46 Mad. 360 : A. I. R. 1928 Mad. 422 and Rahim v. Commissioner of Income-tax : 17ITR256(Orissa) are decisions in which the place of sale is taken as the place of accrual of the profits. Hardeo Bengal Salt Co, v. Commissioner of Income-tax, B. &O; : 10ITR13(Patna) is a cage decided on facts dissimilar and some of the observations in that judgment are opposed to the decisions above referred to.
10. The question is essentially one of fact no doubt to be decided in the light of the evidence in the case. If the inference drawn from the undisputed documents and the facts proved is wrong, it will be a question of law which would justify our interference.
11. The further attempt on the part of the Income-tax Commissioner is to contend that the amount was received or receivable under the contracts in British India and therefore the assessee would be liable to pay income-tax even if he is not a resident in British India. Under the contracts payment is to be made by the Controller of Military Accounts, Poona. The system of payment provided under the contracts is by cheque on Government Treasury in India or a branch of the Eeserve Bank of India or Imperial Bank of India transacting Government business. Relying on the statement in the acceptance note it was argued that the payment was by the Controller of Military Accounts at Poona, and therefore, money is receivable or payable in British India. In fact, the actual receipt of money by the respondent was at the Imperial Bank, Trichur Branch, and that fact is not disputed, but it is contended on behalf of the Commissioner that the receipt of money was really by cashing the bills payable in British India, at the Imperial Bank, Trichur. There is nothing to justify the contention that the money was payable at Poona. All that is stated in the acceptance note is that it is the Controller of Military Accounts at Poona that has to make the payment and not that the payment should be at Poona. Choice is given for payment either at the Government Treasury in India or by cheques drawn on a branch of the Eeserve Bank of India or Imperial Bank transacting Government business, which reinforces the inference that the payment was not at Poona.
12. On behalf of the assesses it was represented before the Appellate Tribunal that with regard to the payment the place of payment was changed by a subsequent arrangement and in accordance with that arrangement the payment was received at the Imperial Bank of India, Trichur. This statement was accepted by the Tribunal and the reason for accepting it was stated to be that the department did not dispute that the payment was in fact made at the Imperial Bank, Trichur. Of course, there is no admission of the arrangement put iorward on behalf of the respondent regarding the change of the place of payment; and it rested entirely upon the statement of the counsel for the respondent. It was contended on behalf of the Commissioner that without proof a statement from the bar should not have been accepted. There is considerable force in this contention and on such an important matter if there was a subsequent variation of the terms of the contract and if the contract originally provided for payment at Poona, there should have been some evidence in support of it. But, in my opinion, this does not affect the question as under the terms of the contract the place of payment was not in British India and in fact payment was received at Trichur. If really the department were serious in their contention that this payment at Trichur was by cashing bills payable in British India it was up to them to have placed material in support of that plea as they wanted to establish that the receipt of the money was in British India and therefore the assessee was liable to pay income-tax. On the facts, therefore, the only conclusion possible is that the receipt was at Trichur in Cochin State and not in British India.
13. For these reasons the answer to the first question in my judgment should be in the affirmative.
14. The second question need not detain us long as it has now been decided in this Court that Section 42 (3) applies only to profits and gains which are deemed under the section to accrue or arise in British India and not to profits and gains which actually accrued or arose in British India : (See Baruga Nagayya v. Commissioner of Income-tax : 17ITR194(Mad) . As the Income-tax Commissioner has failed in his contentions on the first question he should pay the assessee his costs of this reference which I fix at Rs. 250.
15. Case Referred No. 21 of 1945:--This also relates to the same company ; but relates to the assessment for the year 1940-41. In this case the respondent company supplied timber to the South Indian Railway, Gun-carriageFactory at Jubbulpore, and Messrs. Sathar & Co. In this case also, under the contracts the goods were passed and appropriated at the mill premises outside British India. The Appellate Tribunal found with regard to the contracts that the goods were deliverable outside British India. They therefore held that the profits arose outside British India. The facts are similar to the facts in R. C. No. 22 of 1945 and for the reasons given in the judgment in that case, the answer to the two questions is the same as in that case. The assessee is entitled to his costs which I fix at Rs. 250.
Viswanatha Sastri, J.
Case Referred Nos. 31 and 22 of 1945:--
16. This reference by the Tribunal exhibits an embarrassing statement of facts. The material documents have not been made available to us and the documents that have been produced and relied upon by the Department are disconnected. It is elementary that you must look into the offer and acceptance before you arrive at the terms and the construction of a contract. Yet in respect of none of the contracts with which we are concerned, have both the offer and acceptance been produced. On a topic which is so replete with fine distinctions and refinements as income-tax, it is impossible to reach a satisfactory conclusion unless the statement of facts is full and precise or at least the relevant material is made available to us. On one of the crucial points in the case, a statement is made by the Tribunal purporting to be based on the admission of the representative of the Department, but its correctness has been challenged and, in my opinion, with ample justification, by the counsel for the Commissioner of Income-tax. There is no record of the so-called admission, and even according to the statement of the Tribunal it is of an extremely ambiguous and inconclusive character. It will save the time of this overworked Court and considerable loss of revenue if the relevant findings and the evidence or material on which they are based, are clearly and precisely stated and facts which are disputed are not assumed to exist. The conclusions of fact of the Tribunal are binding on this Court only if there is any relevant material to support them.
17. The facts so far as they can be gathered may be summarised as follows. It will be convenient to refer to the state of things as they stood in the years of assessment 1940-42 without reference to the subsequent constitutional changes as a result of which British India ceased to be British and Cochin ceased to exist as a separate State. The assessee is a limited company incorporated in the Native State of Cochin and trading in timber and having itssaw mills at Chalakudi in that State. Daring the accounting year the assesses entered into contracts with the Government of India represented by the Director of Contracts for the supply of timber. The offers or tenders, as they have been called, were sent by tbe assessee from Chalakudi and were accepted on behalf of the Government by written acceptance notes sent from New Delhi. It was agreed between the parties that the goods were to be made ready for inspection by the buyer at Chalakudi or other places in Cochin and deliveries of the goods approved on such inspection were to be made f. o. r. at Chalakudi or to other railway stations in the Cochin State. The assessee got the timber from forests in Cochin of which it was a lessee or from merchants in British India and worked the timber into the required sizes and shapes in its saw mills at Chalakudi in order to execute its contracts with the Government. No place of payment was specified in the contract, but the person to whom payment should be applied for by the seller was described aa the Controller of Military Accounts, Poona. By a subsequent arrangement between the parties it was agreed that 80 per cent. of the price of the goods sold could be had by the assessee on production of his invoice supported by the inspection note of the Chief Timber Inspector of the Government and certified copies of railway receipts for the goods loaded by the assessee in railway wagons. The balance of 20 per cent. was payable to the assessee on production of receipt vouchers issued by the consignees to whom the goods were despatched from Cochin. This stipulation, however, did not prevent the passing of the property in the goods to the buyer as soon as the goods were ascertained, inspected and appropriated to the contract in the Cochin State. One of the general conditions published by the Government of India as applicable to all contracts for the supply of goods to the Government was that payment by the Government would be by a cheque on a Government Treasury in India or a Branch of the Reserve Bank of India or Imperial Bank of India transacting Government business.
18. Before considering the question of law that has been argued it is as well that two errors in the statement of the Tribunal should be pointed out and isolated from the rest of the case. I am of the opinion that the Tribunal erred in law in reversing the conclusion of the Appellate Assistant Commissioner and holding that the contracts for the sale of timber were concluded at Chalakudi in Cochin. The assessee company was making an offer when it sent its tender to the Government at Delhi and the acceptance note of the Governmentsent from Delhi constitutes an acceptance of the assessee's offer. The fact that the acceptance note might have related--and this is a purely speculative suggestion--to a portion of the goods offered and not the whole quantity does not convert the acceptance of the Government into a counter offer when regard is had to the facts that in the tender itself the Government was empowered to accept the whole or any portion of the goods tendered at the price specified by the assessee. Nor does the fact that the assessee company was asked to acknowledge the receipt of the acceptance note by the Government have the effect of converting its acknowledgment posted from Chalakudi into an acceptance of a counter offer as erroneously supposed by the Tribunal. The acknowledgment was required as a matter of business routine obviously with a view to prevent any dispute as to whether the accep-tance by the Government reached the assessee. Acceptance of an offer takes place when the offeree expresses his acceptance of the offer in a manner reasonable under the circumstances, in this instance, by post. The acceptance was made and the contract was concluded at the moment when the acceptance note was posted by the Government at New Delhi for transmission to the assessee at Chalabudi. I am also of the opinion that the Tribunal had no material for coming to the conclusion that payments of the price of the timber sold were made to the assessee by or on behalf of the Government of India at Trichur in Cochin. There was no admission of this fact by the Department and before us the accuracy of this statement has been challenged by the learned counsel appearing for the Department. This fact--if it were a fact--could easily have been demonstrated by the assessee by the production of his bank pass book or account book. This has not been done. Even if the assessee company received monies from the Imperial Bank of India at Trichur in respect of these contracts this might be due to the credit facilities obtained from the Imperial Bank at Trichur by endorsing the bills of the Government in favour of the Bank and authorising the Bank to realise the bills from the Government as the agent of the assessee. If that were the case, the admission stated to have been made by the representative of the Department before the Tribunal that some money in respect of these contracts might have been received by the assessee from the Imperial Bank at Trichur would not prejudice the case of the Department. It would not amount to an admission that under the contracts the price was payable to the assessee by the Government of Indiathrough the Imperial Bank at Trichur, that ia to say, at a place outside British India. The omission of the Department to furnish relevant information on this point ia said to be due to the lack of any response from the Departments which were in charge of supplies and purchases of stores during the period of war.
19. All that we have on this question of payment of the price of the goods sold consists of contradictory assertions of the parties even at this stage. I have therefore to deal with the case by an application of the general principles of law and presumptions. Here the contracts were for the sale of unascertained goods. The goods were appropriated to the contracts by the seller after approval by the buyer at Chalakudi and other places in Cochin State, The property in the goods passed to the buyer when the goods were so approprited and when they were put on rail for transmission to the buyer they were unconditionally appropriated, no right of disposal having been reserved by the seller. Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions. The delivery was, under the terms of the contract, to be effected at Chalakudi or other railway stations in Cochin by putting the goods on rail for despatch to the consignee. There is no evidence as to the exact place where the price of the goods was to be paid. All that ia known ia that 80 per cent. of the price was to be paid immediately the goods were booked by rail and the balance on production of the consignee's receipts. If the Eevenue authority wants to levy a charge on a non-resident company on the ground that the income, profits and gains have arisen or accrued or have been received in British India it has to establish a prima facie case for the levy of the charge : See Chunilal Mehta's case, I.L.R. 1938 Bom. 752 : A. I. R. 1938 P. C. 932. It has not been established in this case that the price of. the goods was payable or paid to the assessee in British India and the further discussion must proceed on this basis.
20. Even so, it is argued for the Eevenue authority that the profits made by the assessee by the sale of timber under the contracts in question are liable to Indian Income-tax as having arisen or accrued in British India. The argument runs on these lines: Though the assesaee is a company incorporated in Cochin and doing business there, it was resident in British India in the year of account within the meaning of Section 4A (c), Income-tax Act as its income arising in British India in that year exceeded its income arising outside. Therefore its entire profits and gains whether accruing or arising in British India or outside in the yearof account would be taxable under Section 4 (1) (b). Even if the assesaee were hot resident in Bri-tiah India, ita profits from the timber contracts with the Government of India accrued or arose in British India and would be taxable under Section 4 (1) (c). In any case, even if the entire profits were not chargeable, such portion of the profits as was reasonably attributable to the business operations carried on in British India, must be deemed to have accrued or arisen in. British India by reason of Section 42 (3) of the Act and therefore liable to tax.
21. We have been taken through a number of decisions by the learned counsel on both sides, but it is difficult to extract from them a comprehensive principle which would serve as a guide. If we are to follow the lead given by the Judicial Committee, the wisest course is to deal with the particular facts before us and decide as best as we can whether they are sufficient to bring the assessee within tbe charging section. It is difficult to formulate affirmatively a general principle with full confidence in its accuracy or legitimacy. It is a still more difficult task to reconcile all that has been said on this topic in the authorities cited.
22. There being no evidence of the place of receipt of the income, profits and gains in this case, the only material question is whether the profits accrued or arose in British India during the year of account, the place of accrual or arising of the income, profits and gains being the crucial matter under Section 4 (1) (b) and (c) of the Act.
'Profits and gains accruing or arising in British India are words which in their ordinary meaning, seem to require a place to be assigned as that at which the result of the trading operations comes whether gradually or suddenly into existence': (Chunilal Mehta's case
What then is the place of the accrual or arising of the profits and gains according to the Act? The words 'accrue' or 'arise' with reference to profits denote a stage anterior to tbe receipt of such profits. If income accrues or arises as a result of work done or services performed under a contract of service then tbe place where the services are performed would be the place where the income accrues or arises: Commissioner of Income-tax, Madras v. M. & S. M. Rly. Co., Ltd., I. L. R. 1940 Mad. 889 : A. I. R. 1940 Mad. 598 , In re V. G. Every, I. L. R. (1937) Cal. 327 : 41 C. W. N. 823, In re Sounders, Right Rev, C. J. G. : AIR1932All151 . In regard to the manufacturing profits they may be said to accrue or arise where the mills, plant and machinery are situate though the company or individual owning the mills may be incorporat-ed or resident elsewhere: In re Aurangabad Mills Ltd., 46 Bom. 1286 : A. I. R. 1921 Bom. 159, Secy., Board of Revenue v. Ripon Press, 46 Mad. 706 : A. i. R. 1923 Mad. 574 . In regard to income from investments it accrues where the monies are lent or placedat the disposal of the borrowers, where interest is realised and the loans are repayable: Boardof Revenue, Madras v. Ramanadhan Chetti, 43 Mad. 75 : A. I. R.1920 Mad. 344 Commissioner of Income-tax v. Bansilal Moti-lal, 54 Bom. 460 : : AIR1930Bom381 ,Commissioner of Income-tax, Bombay v. Bombay Trust Corporation, Ltd., 52 Bom 702 : : AIR1928Bom448 . With regard to profits arising from speculative contract of a simple character like dealings in cotton futuresentered into in New York on behalf of a Bombay merchant, the Judicial Committee approving of the principle of some of the decisions above cited, held that the profits accrued or arose in New York where the cotton futures were bought and sold : Chunilal Mehta's case . Their Lordships, however, refrained from laying down any general test applicable to allcases.
23. Not only have any precise tests for determining the place where income, profits andgains can be said to accrue or arise, not been formulated, but the observations in some ofthe decided cases have contributed to blur rather than clarify the relevant considerations. In Chunilal Mehta's case , Sir George Rankin delivering the judgment of the Judicial Committee distinguished the decisions in Sulley v. Attorney General, (1860) 5 H. & N. 711 : 29 L. J. Ex. 464 and Robinson Bros. v. Assessment Committee, I.L.R. (1938) 54 568 : 1938 A.C. 321 and held that the test under the Indian Act was not where the profits came home to the assessee but the place where they accrued or arose and that business profits might arise in more than one place and might be considered distributively.
'Profits are frequently if not ordinarily regardedas arising from many transactions each of which has a result--not as if the profits need to be disintegrated with difficulty but as if they were an aggregate of the particular results. In the present case the assessment order has discriminated between the Bombay and the 'foreign' business income. To discriminate between all kinds of profits according to the place at which they accrue or arise is a plain dictate of the statute; other discrimination is involved in the exemptions and in such sections as Section 42.'
In a later judgment of the Board delivered by Sir George Eankin in Commissioner of Income-tax, Madras v. S. L. Mathias , it was ob-served that business operations could not be arbitrarily cut into portions but should be regarded as a whole. The question, however, was left open whether business profits can be regarded as arising partly in British India and partly outside British India where the goods were produced in the Native State of Mysore but the final sales were effected in British India.
24. With regard to the place where income, profits and gains accrue from a business or trade, two different lines of approach are discernible in the decisions. According to one view the place where the income springs or grows, or has its source is the place of accrual. Another view regards the place where the result of the business activities is transmuted into money or where there is a right to demand payment of the income, profits and gains as the place of accrual. With reference to a trade consisting merely of buying and selling commodities it has been held in this and other High Courts that profits accrue at the place where the goods are sold and money is realised: Board of Revenue v. Madras Export Co., 46 Mad. 360 : A.I.R. 1923 Mad. 422. Sudalai-mani Nadar v. Commissioner of Income-tax, Madras : (1941)1MLJ99 , In re Port Said Salt Association Ltd : AIR1932Cal626 , In re Mohanpura Tea Co. Ltd : AIR1938Cal148 , Jiwandas v. Income-tax Commissioner, Lahore, 10 Lah. 657 : A.I.R. 1929 Lah. 609 , Rahim v. Commissioner of Income- tax : 17ITR256(Orissa) . But the same test does not hold good where the business is of a more complicated character and consists of production or manufacture of goods, entering into contracts for the sale of goods, their actual sale and realisation of the price. In such cases, as observed by the Judicial Committee in Commissioner of Taxation v. Kirk, (1900) A.C. 588 , International Harvester Co. of Canada v. Provincial Tax Commissioner, I.L.R.(1949)Sup. 58 : A.I.R.1949 P.C. 72, Chunilal Mehta's case and Commissioner of In-come-tax, Madras v. S. L. Mathias , the place of accrual of profits and gains is not necessarily the place where the goods are sold and monies realised, but other tests have to be applied such as the place where the contracts are formed and concluded, where acts are done pursuant to the contracts, where the right to receive the income, profits or gains springs, and so on. In Chunilal Mehta's case , the Judicial Committee observed :
'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--to use the language of Lord Esher in Erischen v. Last, (1881) 8 Q. B. D. 414 ; 51 L. J. Q. B. 86. They are not saying that the place of formation of the contractprevails against everything else. In some circumstances it may be so, but other matters--acts done under the contract, for example--cannot be ruled outa priori, In the case before the Board the contractswere neither framed nor carried out in British India;the High Court's conclusion that the profits accrued or arose outside British India is well founded.'
Having reached this not very satisfactory stage an the discussion of the authorities, it remains for me to state the grounds on which I have to decide the present case. It may be that incases where profits are gathered in merely as aresult of entering into contracts as in the case of dealings'in futures [Chunilal Mehta's case or investments of monies Board of Revenue, Madras v. Ramanathan Chetti, 43 Mad. 75 : A.I.R. 1920 Mad. 344 , Commissioner of Income-tax, Bombay v. Bansilal Motilal, 54 Bom. 460 : : AIR1930Bom381 the placewhere the income producing contracts are entered into would be the place of accrual of profits and gains. Where, however, the business is one of production or manufacture of goods and their sale, the place where the contracts for sale of goods are entered into may be an important circumstance to be taken into account, but it does not prevail against everything else and does not furnish a decisive test for fixing the place where the profits and gains accrue or arise.
25. The contracts for the supply of timber in this case were, as I have held, concluded in British India. But the execution of the contracts took place wholly in Cochin State. The rough wood was sawn and manufactured into the requisite shapes and sizes by the assessee company in its own saw mills in the Cochin State. The ready goods were appropriated to the contracts and delivered to the buyer in Cochin State after inspection and approval by or on behalf of the buyer. The negotiations for the sale were started and conducted from Chala-kudi in Cochin where the assessee had its place of business and its mills and establishment.Owing to an unaccountable reluctance on the one aide and inability on the other to furnishinformation, there is no evidence of the place where the price has to be paid by the buyer or was in fact paid. In the circumstances, it may, therefore, be presumed that the debtor would seek the creditor and pay at least where thedebtor is such a respectable body as the Government. In the absence of contract fixing the place of payments, the seller, in this case the assessee, had a right to demand the payment of the price of the goods at the place where the goods were sold and delivered, that is to say, at Chalakudi or other places in Cochin State. Where, as here, goods are sold on terms of ordinary commercial credit the assessee would treat the debts so created as part of the profits of the year in which the debts are incurred and the obligations so incurred would be treated as firm obligations, as good as cash on hand. There is no fear of the assessee's expectations of realisation being disappointed and its being obliged to claim an allowance or deduction for bad debts later on as the debtor in this case is the Government of India. The assessee would normally treat the profits and gains arising from these contracts as realised at Chalakudi as soon as the goods were inspected and approved by the Government and delivery was effected by putting them on rail at Chalakudi or other places in the Cochin State. In these circumstances, the question is, where did the operations take place from which the profits in substance arose My answer is that both the manufacture and sales of the goods were carried on outside British India and the resulting profits accrued or arose outside British India and were therefore not chargeable to Indian income-tax, the assessee being a non-resident. I agree with my learned brother in the answer he has given to the questions propounded in both the cases and in the direction for costs of the reference.