Satyanarayana Rao, J.
1. Two questions were referred to us for decision by the Appellate Tribunal under Section 66(1) of the Indian Income-tax Act.
'1. Whether on the facts and in the circumstances of the case, the loss in respect of the transactions 3, 5 and 6 accrued or arose in an Indian State, within the meaning of proviso 3 to Section 5 of the Excess Profits Tax Act?
2. Whether the splitting up of the loss relating to 308 bales into two-thirds as representing the contracting for the sale of goods and one-third as representing delivery and receipt of the price is erroneous in law.' (2) The facts as they appear from the statement of the case were: The assessee is a registered firm and carried on business at Madras in cotton and other goods. It carried on business in cotton in Hyderabad State as-well as in British India. The accounts relating: to the cotton business also were maintained at Madras. During the relevant chargeable accounting periods, the assessee bought cotton through Sanjivappa and Sons a firm at Adoni. A portion of the goods purchased from Sanjivappa and Sons could not be brought from Hyderabad as there were no transport facilities and so they were stocked at Nanded where the assessee owned a godown. The cotton was subsequently sold by the assesee, and the process adopted was, according to the assessee, that when the customer came to Madras for purchase of cotton the contracts were entered' into at Madras sometimes written and sometimes oral and delivery of the goods and payment of the price were at Nanded where a clerk or some representative of the firm of the assessee went to deliver the goods, The goods were otherwise in the custody of a watchman at Nanded.
During the chargeable accounting period, the assessee incurred a loss in respect of his dealings relating to the cotton at Hyderabad. The Excess Profits Tax Officer declined to allow theassesses to set off the loss in respect of the goods delivered at Hyderabad State and adjust it against the profits earned, by him in British India. On appeal to the Appellate Assistant Commissioner, however, he allowed the claim in full as the entire loss occurred in British India itself and no part of it outside British India. On appeal to the Appellate Tribunal, this decision was modified. There were six transactions during the chargeable accounting periods of which transaction 4 may be left out of consideration, as it was merely a speculative contract in respect of which the differences were adjusted. As regards transactions 1 and 2 relating to 308 bales of cotton, the opinion of the Appellate Tribunal was that the contracts were entered into in British India at Madras, but the purchase price was paid at Nanded where the goods were delivered.
The Appellate Tribunal concluded that part of the business was outside British India in a Native State and therefore under proviso 3 to Section 5 of the Excess Profits Tax Act, the loss should be apportioned in respect of the transactions 1 and' 2. The loss was apportioned, one-third as representing delivery of the goods and receipt of the price at Hyderabad and two-thirds as representing the contracting for the sale of the goods at Madras. As regards transactions 3, 5 and 6 the Appellate Tribunal held that the contracts also were entered into in Hyderabad State and that the delivery of the goods and payment of the price were in Hyderabad, It was, therefore, held that to the extent indicated in the decision of the Appellate Tribunal, the assessee was not entitled to have the loss accrued in Hyderabad adjusted against the profits in British India.
3. In this reference it was argued on behalf of the assessee by his learned advocate, Mr. Viswanatha Aiyar, that the accrual of the loss even in respect of transactions 1 and 2 was entirely in British India, as the assessee practically did not carry on any business at Nanded. The accounts were maintained at Madras. The contracts were entered into at Madras. The control of the entire business was at Madras. And all that was done at Nanded was as the goods were there, delivery under the contract had to be made there and the price recovered. We do not think that the effect of the delivery of the goods and the payment of the price at Nanded in respect if the contracts entered ' into in British India could be so belittled as to reduce the activities at that place to ministerial acts having no reference to the business.
Under the provisions of the Sale of Goods Act, unless there is a contract to the contrary, the price for the goods is payable only against delivery and it is for that reason, in respect of transactions 1 and 2 the price was paid at Nanded, where alone the delivery was effected. Therefore part of the business was done under the contracts in Hyderabad State. We, therefore, think that the view taken by the Appellate Tribunal that part of the business was carried on in a Native State, viz., Hyderabad, was correct. We do not see any reason for altering the proportion fixed in respect of these two transactions by the Appellate Tribunal. Nothing has been shown to establish that that proportion was unreasonable or was not warranted by the facts and circumstances of the case. The answer, therefore, to question No. 2 must be in the negative and against the assessee.
4. There remain, however, transactions 3,5 and 6. As regards these the finding of the Appellate Tribunal, that the contracts were entered into in Hyderabad was vigorously attacked by learned advocate for the assessee on the ground that there was absolutely no evidence on record in support of that finding and the finding of the Appellate Tribunal was based on pure speculation. The department it is that is claiming to apply the proviso (3) to Section 5 of the Excess Profits Tax Act and it is for them to establish by evidence that the contracts were in fact entered into in the Native State. There is nothing in the accounts maintained by the assessee which were produced before us under our direction to indicate or suggest that these contracts were entered into in the Hyderabad State, nor is there any evidence to establish that there was an accredited representative clothed with authority and power to enter into contracts on behalf of the assessee at Hyderabad.
In these circumstances it must be presumed that the assessee followed the practice which he had applied in the case of other transactions' and there is no reason, in our opinion, to differentiate transactions 3, 5 and 6 from transactions 1 and 2 except the fact that in respect of those two transactions there was a written contract. Whether the contract was written or was oral, it makes no difference as it is not thereby established that the oral contract must have been entered into in a Native State. It is a fact which must be ascertained and established from positive evidence on record of which there is none in the present case. It, therefore, follows that there is no justification in support of the finding of the Appellate Tribunal in respect of transactions 3. 5 and 6. They also stand on the same footing as transactions 1 and 2 and for the reasons given by the Appellate Tribunal for holding that part of 'the business in respect of transactions 1 and 2 accrued and arose in a Native Slate, it follows that in respect of these transactions also the same inference must be drawn. There is no reason for not working out the proportion of the loss in the manner in which it was done in the case of transactions 1 and 2.
We. therefore, direct the apportionment of the loss even in respect of transactions 3, 5 and6 in the proportion of one-third as representingdelivery of goods and receipt of theprice and two-thirds as representing thecontracting f or the sale of the goods inBritish India. The answer, therefore to thefirst question that is referred to us must be asstated above and is answered partly in favourof the assessee and partly in favour of theCommissioner. We think that in the circumstances of the case, there should be no orderas to costs.