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Commissioner of Income-tax, West Bengal Vs. Mahabir Commercial Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 19 of 1958
Reported in[1968]70ITR114(Cal)
AppellantCommissioner of Income-tax, West Bengal
RespondentMahabir Commercial Co. Ltd.
Cases Referred(vide B. R. Herman and Mohatta (India) Ltd. v. Pran Ballav Majumdar).
Excerpt:
- banerjee j. - this reference, under section 66(1) of the indian income-tax act, has been made in circumstances hereinafter related.the year of assessment is 1952-53 and the period of accounting is the calendar year ending on december 31, 1951.the assessee-company is a dealer in jute in east pakistan as well as in india. the head office of the assessee is in calcutta but there are branch offices at ashugunj, serajgunj and gaibandha, all in east pakistan. during the period of account, relevant for the assessment year 1952-53, the assessee sold jute of the value of rs. 23,93,767, out of which sales worth rs. 13,06,772 were made in foreign countries and sales worth rs. 2,44,015 in india. the balance of sales, worth rs. 11,42,979, according to the assessee, was made in pakistan.the income-tax.....
Judgment:

BANERJEE J. - This reference, under section 66(1) of the Indian Income-tax Act, has been made in circumstances hereinafter related.

The year of assessment is 1952-53 and the period of accounting is the calendar year ending on December 31, 1951.

The assessee-company is a dealer in jute in East Pakistan as well as in India. The head office of the assessee is in Calcutta but there are branch offices at Ashugunj, Serajgunj and Gaibandha, all in East Pakistan. During the period of account, relevant for the assessment year 1952-53, the assessee sold jute of the value of Rs. 23,93,767, out of which sales worth Rs. 13,06,772 were made in foreign countries and sales worth Rs. 2,44,015 in India. The balance of sales, worth Rs. 11,42,979, according to the assessee, was made in Pakistan.

The Income-tax Officer overruled the contention of the assessee that jute worth Rs. 11,42,979 was sold in Pakistan. He found that the quantum of sale in India amounted to Rs. 13,86,995 and assessed accordingly.

The appeal by the assessee to the Appellate Assistant Commissioner was dismissed with the following observation :

'It is contended that the Income-tax Officer of Pakistan held that the sum of Rs. 18,06,772 represented the sales effected in Pakistan because of the fact the delivery of the goods had been made on the common carrier and the consideration money was also paid in Pakistan through the State Bank of Pakistan. The Income-tax Officer of Pakistan held that the purchaser took constructive delivery in Pakistan and as such sales were legally made in Pakistan. The appellants representative contends that the finding of the Pakistan Income-tax Officer was not justified in including this sum of Rs. 10,06,772 as the sale proceeds of goods in India.

I find from the contract papers that, apart from the fact that all the contracts for sale were made in India, the procedure adopted was that the Indian mills opened letter of credit in Hind Bank Ltd., and the bill of landing in respect of jute was made over by the assessee to the banks branch at Narayangunj, who sent the same to its office in Calcutta where the bill of lading was made over to the buyer. The contract memos, I find, also clearly stated that the buyers should open irrevocable confirmed letter of credit for payment against goods in India and the buyer would hand over to the seller the import licence for goods in India. The bills also showed that the goods were not directly dispatched to the Indian Mills but the bills were made out in the name of the assessees agents, M/s. Mahabir Trading Co. Ltd. and they were dispatched C. I. F. to Calcutta. In the circumstances I do not think that there is any reason to hold that the sale was effected in Pakistan because the goods were placed on a common carrier and the consideration money was received there.'

The assessee appealed before the Appellate Tribunal and, by an affidavit, dispute the findings of fact by the Income-tax Officer and Appellate Assistant Commissioner. The Tribunal, thereupon, remanded the case before the Income-tax Officer, with direction to him to enquiry and send a report on facts disputed by the assessee. The Income-tax Officer did so. On receipt of the report, the Tribunal arrived at the following finding of fact :

'The sales were made under contract executed in Calcutta. The terms of the contract included the delivery free to buyers mill siding or at the that in India. Provision was also made for weighment and assay of goods for shortweight and quality claimed at the destination in Calcutta. According to the terms of the contract, before the goods were actually shipped the buyer were required to open an irrevocable letter of credit with a bank in Calcutta. In the present case, the buyer opened letters of credit with the Imperial Bank of India, the Chartered Bank Ltd., Calcutta. All these banks had their branches in Pakistan at Chittagong and at Narayangunj. The fact that letter of credit had been opened was communicated by the receive banks to their branches in Pakistan and the banks in Pakistan in their turn informed that they were prepared to negotiate the draft drawn as per terms of the contract. On receiving this information, the assessee placed the contracted goods on board the steamer at Ashuganj in Pakistan and obtained the bill of lading in the name of the buyer in five cases whereas in two cases, in the name of Mahabir Trading Co. Ltd., an agent of the assessee-company. The assessee then made invoice or bills on the basis of bill of lading and contract price and drew bill of exchange on the buyer bank where the letter of credit had been opened. The bill of exchange together with the bill of lading and the invoice were then negotiated with the bank and the bank forwarded the documents to their offices in Calcutta which in their turn sent the documents to the purchasers. There were certain amendments to the contract form and the relevant amendments were as follows :

(1) Transit insurance was to be cared for by the buyer at contract value plus 10% under their open cover and premium to be paid for by sellers in India. The sellers had to advise the buyers the quantity and assortment in monads to be shipped immediately loading was commenced.

(2) Buyers were to open letter of credit with the Pakistan bank in favour of the sellers nominee. A complete set of shipping documents were to be presented to the bank and payment of the invoice value, in terms of the contract, to be made to the shippers, in the equivalent Pakistan currency at the exchange rate ruling on the date of presentation of documents at the bank, less freight if payable in India.'

On the facts as found, the Tribunal applied the principles laid down by the Supreme Court in Commissioner of Income-tax v. Mysore Chromite Ltd. and held :

'...... it is clear in our mind that upon the terms of the contracts and the course of dealings between the parties in the present case the property in the goods passed in Pakistan where the bill of lading was handed over to the buyers bank against the acceptance of the relative bill of exchange. The sales, therefore, took place in Pakistan. This applies to the five cases in which the assessee drew the bills in favour of the buyers. In the other two cases, the bills were drawn up in favour of the assessees agent in Calcutta and, thereof, there was no delivery of goods and, hence, the property did not pass to the respective buyers. In this view of the matter, we are of opinion that the present case the assessment should be amended.'

Thereupon, the revenue induced the Tribunal to refer the following question to this court :

'Whether, on the facts and in the circumstances of the case, and on a proper construction of the terms of the relevant contracts, the sales covered by the bills of landing in the name of buyers in five cases took place outside India and, therefore, the profits derived from the said sales arose outside India ?'

When the matter came up for hearing before this court, Sinha J. (as he then was) and S. K. Dutta J. called for a supplementary statement of case 'showing the exact wording and contents of the documents from which the Tribunal arrived at the inference of facts', with further direction to the Tribunal to annex copies of documents from which the Tribunal came to the conclusion that 'Pakistan banks were prepared to negotiate the drafts drawn as per terms of the contract'. The Tribunal sent a supplementary statement of case and therein stated as follows :

'Regarding the first point we may mention that during the course of the hearing of the appeal by the Tribunal, the assessee had been called upon by the Tribunal to file an affidavit in respect of their submissions contradicting some of the findings of the Income-tax Officer and of the Appellate Assistant Commissioner. In accordance therewith, the assessee filed an affidavit dated the 24th August, 1956... The Tribunal on reading the said affidavit, called for a demand report from the Income-tax Officer in respect of the statement of facts mentioned by the assessee in the affidavit.... The Income-tax Officer submitted his report on the 26th June, 1957.... In his remand report, the Income-tax Officer mentioned the further facts on the basis of which the Tribunal passed its order. It appears, the Tribunal also referred to the contract No. 3807 dated 4th June, 1951, by the assessee for delivery of goods to Titaghur Jute Mills No. 2, in paragraph 1 of which it is mentioned that the delivery of the goods will be given free to buyers mill siding and/or ghat.... The facts mentioned by the Tribunal in paragraphs 1 and 2 of its order, it appears, are on the basis of the affidavit dated the 24th August, 1956, the remand report of the Income-tax Officer dated 26th June, 1957, contract No. 3807 dated 4th June, 1951, between the assessee and Titaghhur Jute Mills No. 2....'

In respect of the second point on which the supplementary statement has been called for, the Tribunal, in paragraph 2 of its order, has observed as follows :

'The fact that letters of credit had been opened was communicated by the respective banks to their branches in Pakistan and the banks in Pakistan in their turn informed that they were prepared to negotiate the draft drawn as per terms of the contract.'

This fact is to be found mentioned in paragraph 6 (though not numbered) of the Income-tax Officers aforesaid remand report dated the 26th June, 1957, in which the following sentence occurs :

'The fact that letters of credit had been opened was communicated by the respective banks in Calcutta to their branches in Pakistan and which in their turn informed assessee that they were prepared to negotiate the draft drawn as per terms of the contract..... we may state that the statement A, annexed to the affidavit dated the 24th August, 1956, filed by the assessee, will indicate the buyers concerned in these cases. It will also indicate the quantity of jute sold as also the invoice numbers and bill numbers. The said chart further indicates the price of the goods sold in terms of Pakistan money and the bank through which the letters of credit were negotiated as also the parties on whom the bills were drawn.'

The Tribunal also supplied copies of five contracts with Albion Jute Mills Ltd. Kamarhatty Jute Mill, Victoria Jute Mill, Titaghur Jute Mill No. 1, Titaghur Jute Mill No. 2 and also copies of letters of credit not, however, be obtained from the assessee, as they were said to have been destroyed.

It was contended before us, by the learned counsel for the revenue, that title to the goods passed to the buyers in India and as such the sales must be deemed to have been effected in India. In order to examine this argument, it is necessary for us to look to the terms of the contracts. The contracts were all in the standard form of 'sold note' of the Indian Jute Mills Association, executed in Calcutta, and the relevant provisions were :

(a) delivery to the buyer mill siding or that. Weight guaranteed at buyer mill (clause 1);

(b) transit insurance to be cared for by buyers at contract value plus 10 per cent. under their open cover and premium to be paid for by sellers in India (clause 3 as amended);

(c) the amount of tax payable under the Bengal Raw Jute Taxation Act, 1947, is to be on the sellers account and to be deducted by the buyers from the price quoted, for payment to the Provincial Government (clause 1);

(d) buyers to open letter of credit with the Pakistan bank in favour of seller, nominee. A complete set of shipping documents to be presented to the bank and payment of invoice value in terms of the contract, to be made to the shippers in the equivalent of Pakistan currency at the exchange rate ruling on the date of presentation of documents at the bank, less freight, if payable in India (clause 4 as amended).

It further appears from the affidavit of the assessee before the Tribunal, hereinbefore mentioned as follows :

'5. From the terms of the said contract it will further be seen that the buyers were to open an irrevocable letter of credit with a bank in Calcutta. In these transaction as the buyers opened letters of credit with the imperial Bank of India, the Chartered Bank of India, Australia & China, and the Hind Bank Ltd., Calcutta, and not, only with the Hind Bank Ltd. as stated by the learned Appellant Assistant Commissioner in his order dated the 17th October, 1955.

6. That all these banks, viz., the imperial Bank of India, the Chartered Bank of India, Australia & China and the Hind Bank Ltd. have their branches in Pakistan at Chittagong and Narayangunj and the companys Ashugunj branch delivered the documents to these banks at their officers at Chittagong and Narayangunj and in terms of the contract received payments from the said banks in Pakistan in Pakistan currency. The Pakistan office of these banks received then sent the documents, etc., to their offices in Calcutta, who in their turn sent the documents to the mills and companies concerned.

7. The bills were made by the Ashugunj branch in the name of the respective buyers or their agents. It is not correct to say that all the bills were made in the name of Mahabir Trading Co. Ltd., the fact is that out of seven bills only two were made in the name of Mahabir Trading Co., Ltd. and the rest in the name of other mills and companies.

8. That it is further not correct to say as stated by the learned Appellant Assistant Commissioner that the bills also showed that the goods were not directly dispatched to Indian mills but the bulls were made out in the name of the assessees agents, M/s. Mahabir Trading Co. Ltd., and they were dispatched C. I. F. Calcutta as will be evident from the copy of a bill attached herewith and marked as statment B

9. That the bills were made by the Ashugunj branch of the company at Ashugunj and the payments received by the company in Pakistan currency through the bankers of the Pakistan offices of the bank with which the original letter of credit was opened.'

The Income-tax Officer, in his report to the Tribunal after remand, had reported as follows :

'From the details of these sales, namely, jute worth Rs. 11,42,979-9-3, it will be seen that jute was sold to certain mills and companies in India. The contracts for sale in India were entered by the head office with parties in India at Calcutta. Provision was also made for weighment and assay of goods for short weight and quality claim at destination, i.e., at Calcutta.

As per terms of contract before the goods were actually shipped the buyers were to open an irrevocable letter of credit with a bank in Calcutta.

In these transactions the buyers opened letters of credit with the Imperial Bank of India, the Chartered Bank of India, Australia and China and the Hind Bank Ltd. at Calcutta, and not only with the Hind Bank Ltd. as stated by the Appellate Assistant Commissioner in his order dated 17th October, 1955.

All these banks, viz. the Imperial Bank of India, the Chartered Bank of India, Australia and China and the Hind Bank Ltd. have their branches in Pakistan at Chittagong and Narayangunj. The fact that letters of credit had been opened was communicated by the respective banks in Calcutta to their branches in Pakistan and which in their turn informed the assessee that they were prepared to negotiate the draft drawn as per terms of the contract.

On receiving this information the assessee placed the contracted goods on board the steamer at Ashugunj and obtained a bill of lading in the name of the buyers. The assessee then made an invoice or bill on the basis of bill of lading weight and contract price and the assessee drew a bill of exchange on the buyers bank where the letter of credit had been opened. From the copies of the letters of credit of the Chartered Bank the most significant fact that can be noted is that drafts under the letters of credit were to be treated as advance bills through their Chittgong office.

The bill of exchange together with the relative bill of lading and the invoice were then negotiated with the Chartered Bank, the Hind Bank and the Imperial Bank. The respective banks then forwarded the documents to their offices in Calcutta and which in their turn sent the documents to the mills and companies concerned.

The contention of the assessee that bill were made by the Ashugunj branch in the name of the respective buyers or their agents is correct. It is also a fact that out of 7 bills only 2 were made in the name of Mahabir Trading Co. Ltd. and the rest were made in the name of other mills and companies and as such it will not be correct to say that 'bills also showed that the goods were not directly dispatched to Indian mills and that the bills were made out in the name of the assessees agents Messrs. Mahabir Trading Co. Ltd. The insurance was to be covered by buyers and the premium was deducted from the bill. The freight was paid by the assessee.

The bills with respect to transactions with the Albion Jute Co. Ltd. were made in the bills printed for the head office with the word Ashugunj written on it. The invoice with respect to the other contracts have been made by the Ashugunj branch of the company at Ashugunj.'

The contracts were thus in substance c.i.f. contracts, of which the classic insignia, in the language of Lord Atkinson in Johnson v. Taylor Bros. & Co. Ltd. :

'First, to make out an invoice of the goods sold. Second, to ship at the port of shipment goods of the description contained in the contract. Third, to procure a contract of affreightment under which the goods will be delivered at the destination contemplated by the contract. Fourth, to arrange for an insurance upon the terms current in the trade which will be available for the benefit of the buyer. Fifthly, with all reasonable dispatch to send forward and tender to the buyer these shipping documents, namely, the invoice, bill of lading and policy of assurance, delivery of which to the buyer is symbolical of delivery of the goods purchased, placing the same at the buyers risk and entitling the seller to payment of their price... These cases also establish that if no place be named in the c.i.f. contract for the tender of the shipping documents they must prima facie be rendered at the residence or place of business of the buyer.'

The essential feature of an ordinary c.i.f. contract, as compared to an ordinary contract for sale of goods, rests in the fact that performance of the bargain is to be fulfilled by delivery of documents representing the goods at the buyers residence or place of business, in the absence of any contract to tender the documents at any other place and not by actual physical delivery of the goods by the seller. The only obligation of the buyer, apart from express agreement, is to be ready and willing to pay the price in exchange for the documents (vide B. R. Herman and Mohatta (India) Ltd. v. Pran Ballav Majumdar).

In the instant case, as we have already noticed, the agreed procedure for the delivery of documents representing the goods was :

(a) On receipt of information that the buyers had opened letters of credit with Calcutta banks and that the news thereof were communicated to their Pakistan branches and that the Pakistan branches are prepared to negotiate the drafts drawn as per terms of contract, the assessee was to place the goods on board the steamer at Ashugunj (in Pakistan), obtain bills of lading, prepare bills or invoice on the basis of such bills of lading and contract price and draw bills of exchange on the buyers bank in which the letters of credit had been opened.

(b) The bills of exchange together with the relative bills of lading and the invoice were then negotiated with the relative banks in their Pakistan branches, which in their turn forwarded the documents to their offices in Calcutta, which again, in their turn, sent the documents to the mills or companies concerned.

The terms of the contract (clause 4 as amended) contemplated presentation of the shipping documents and bills and invoices to the Pakistan branches of the respective banks. Thus, if there was nothing else, indicating a contrary state of affairs contained in the contract, the delivery was complete by presentation of the documents to Pakistan branches of the banks concerned and title to the goods passed to the buyer at Pakistan.

The learned counsel indication for the revenue, however, contended that there were such contrary indications in the contract and in the documents following the contract. In the first place, there were provisions for weighment, sampling and assay of goods at destination (clause 9 of the contract). In the next place, the letters of credit with the Chartered Bank of India (at pages 46-51 of the paper book) went to show that the bank was the agent of Thomas Duff & Co. (India) Ltd. of Calcutta, and presentation of the document to the banks branch in Pakistan amounted to presentation to the principal at Calcutta. Lastly, all drafts drawn under the letters of credit were to be treated as 'advance bills' through the Pakistan office, which also amounted to presentation of the bills at Calcutta. Thus, even if the contracts be treated as c.i.f. contracts the title to the goods must be deemed to have passed in Calcutta also. The learned counsel for the revenue placed strong reliance on the supreme court decision in Commissioner of Income-tax v. Mysore Chromite Ltd. What happened in that case was that the assessee-company had its registered office in Mysore State. The office of the managing agents of the assessee was at Madras. The assessee-company owned chromite mines in Mysore State and sold chromite, converted into merchantable product, to person in America and Europe. the contract of sale to purchasers in Europe were entered into between the buyers and assessees agents in London. The contracts of sale to persons in America were signed by the assessees managing agents in Madras and by an America company, which purchased for undisclosed principals. Under the contracts, the price was f.o.b. Madras. Provision was made for weighment, sampling and assay of goods at destination. Before the goods were actually shipped, the buyers opened irrevocable bankers credit with a bank in London in favour of the assessee. The fact that the letter of credit had been opened was communicated by the assessees bankers in London, the eastern Bank Ltd. to their branch in Madras, which thereupon wrote to the assessee offering to negotiate the drafts drawn in terms of the contracts, provided the documents were in order subject, however, to the warning that the advice was given for the assessees guidance without involving any responsibility on the part of the bank. On receipt of this information the assessee placed the contracted goods on board the steamer at Madras and obtained a bill of landing in its own name. The assessee then made a provisional invoice on the basis of the bill of lading and drew a bill of exchange on the buyers bank where the letter of credit had been opened, for 90 per cent. of the amount of provisional invoice payable at sight, in the case of European contracts, and 80 per cent. of the amount of provisional invoice at 90 days sight in case Of American contracts and in either case the bill of exchange was drawn in favour of the Eastern Bank Ltd., London. The bill of exchange, together with the relative bill of lading endorsed in blank by the assessee and the provisional invoice was then negotiated with the Eastern Bank Ltd. Madras, which credited the assessee with the amount of the bill of exchange. The eastern Bank Ltd. Madras, then forwarded the documents to the Eastern Bank Ltd. London, which presented the bill of Exchange to the buyers bank in London and upon the bill of exchange being accepted, the Eastern Bank Ltd. London, delivered the bill of lading and the invoice the buyers bank. The buyers bank in due course paid the amount of the bill of exchange to the Eastern Bank Ltd., London. On arrival of the goods and after weighment and assay, the sale price was ascertained and the balance of price, after deducting the payments made against the bill of exchange, was paid to the Eastern Bank Ltd., London. The question was whether the assessee was liable to pay tax on the profits realised by the sales on the ground that the profits had accrued or arisen in British India or was received in British India, it being accepted by both the parties that the income arose at the place where the sale took place. It was contended, on behalf of the revenue that having regard to the terms of the contracts the sales must be regarded as having regard to the terms of the contracts the sales must be regarded as having taken place in British India, particularly because (1) the price and delivery of goods were on f.o.b. terms, (2) in the European contracts the insurance, if any, was to be the concern of the buyer, and (3) payment of 80 per cent. or 90 per cent. as the case may be, was made in Madras by the Eastern Bank Ltd., Madras, to the assessee-company on the delivery of the documents. The Supreme Court overruled the contention with the following observation.

'In the present case the contracts were always for sale of unascertained goods... section 23 (of the Sale of Good Act)... lays down that where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. It is suggested that as soon as the assessee-company placed the goods on board the steamer named by the buyer at the Madras Port the goods became ascertained and the property in the goods passed immediately to the buyer. This argument however, overlooks the important word unconditionally used in the section. The requirement of the section is not only that there shall be appropriation of the goods to the contract but that such appropriation must be made unconditionally. This is further elaborated by section 25 which provides that where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation reserve the right of disposal of the goods until certain conditions are fulfilled. In such a case, notwithstanding the delivery of the goods to the buyer, or to a carrier or other bile for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. The question in this case, therefore, is : Was there an unconditional appropriation of the goods by merely placing them on the ship It is true that the price and delivery was f.o.b. Madras but the contracts themselves clearly required the buyer to open a confirmed irrevocable bankers credit for the requisite percentage of the invoice value to be available against document. This clearly indicated that the buyers would not be entitled to the documents, that is, the bill of lading and the provisional invoice, until payment of the requisite percentage was made upon the bill of exchange. The bill of lading is the document of title to the goods and by this term the assessee-company clearly reserved the right of disposal of the goods until the bill of exchange was paid. Placing of goods on board the steamer named by the buyer under a f.o.b. contract clearly discharges the contractual liability of the seller as seller and the delivery to the buyer is complete and the goods may, thenceforward, be also at the risk of the buyer against which he may cover himself by taking out an insurance. Prima facie, such delivery of the goods to the buyer are strong indications as to the passing also of the property in the goods to the buyer but they are not decisive and may be negatived, for under section 25 the seller may yet reserve to himself the right of disposal of goods until the fulfillment of certain conditions and thereby prevent the passing of property in the goods from him to the buyer. The facts found in this case are that the assessee-company shipped the goods under bill of lading issued in its own name. Under the contract it was not obliged to part with the bill of lading which is the document of title to the goods until the bill of exchange drawn by it on the buyers bank where the irrevocable letter of credit was opened was opened was honoured. It is urged that under the provision in the contract for weighment and assay, goods as not being in terms of the contract, the passing of property in the goods, could not take place until the buyer accepted the goods and the price was fully ascertained after weighment and assay. It is submitted that, that being the position, the property in the goods passed and the sales were concluded outside British India, for the weighment, sampling, assay and the final fixation of the price could only take place under all these contracts outside British India. It is not necessary for us to express any opinion on this extreme contention. Suffice it to say for the purposes of this case, that in any event upon the terms of the contracts in question and the course of dealings between the parties the property in the goods could not have passed to the buyer earlier than the date when the bill of exchange was accepted by buyers bank in London and the documents were delivered by the assessee-companys agent, the Eastern Bank Ltd., London, to the buyers bank. This admittedly, and as found by the Appellate Tribunal, always took place in London. It must, therefore, follow that at the earliest the property in the goods passed in London where the bill of lading was handed over to the buyers bank against the acceptance of the relative bill of exchange.'

The Appellate Tribunal distinguished the Supreme Court case from the instant case on the theory that in the case before the Supreme Court, the bill of exchange and bill of lading were drawn up in favour of the assessee and not in favour of the buyers, where as, in the instant case, the bills were drawn in favour of the buyer. We do not think that the distinction is one of substance because even in the case before the Supreme Court, the bills of lading drawn in favour of the assessee were endorsed in blank, which served the purpose of the bills of lading drawn in the name of the buyer.

The goods, in the instant case, were unascertained goods. We have therefore to see when and where the goods were unconditionally appropriated by the buyer within the meaning of section 23 of Indian Sale of Goods Act, because then only the title would pass to the buyer. It was contended on behalf of the revenue that until assay and the weighment of the goods, at destination, the buyer would not unconditionally appropriate the goods. There was a similar condition also in Mysore Chromite Ltd. case but the Supreme Court did not desire to express any opinion on this 'extreme contention', as their Lordships described. We do not, therefore, make much of this argument. Nor are we impressed by the argument that the bank was not the bankers but merely an agent of Thomas Duff & Co. (India) Ltd. and as such the presentation of the documents were made to the principals at Calcutta. There is little to establish such an agency and even if there is any such an agency, that is limited to the extent that a banker stands as agent to the person whose banker it is. But all these, notwithstanding, the following clauses in the contract go to show that there was no unconditional appropriation of the goods by the buyer, as soon as they were placed on board the steamer on c.i.f. terms, namely :

'7. Non-acceptance of documents - should buyers fail to accept or pay against documents properly submitted under the terms of the contract seller have the right exercise any of the following options :-

(a) Cancelling the contract.

(b) Cancelling the contract and charging buyers the market difference between the contract rate and the market rate on the date of the breach of contract.

(c) Selling against buyers in the open market on the first working day following the default.

9. (3) In any case where buyers make any claim in respect of quality and/or excessive moisture and the award on the dispute being referred to arbitration as provided for in clause 13 provides for an allowance of not less than 50 per cent. on the market difference between the grades of the goods contracted for and the goods supplied and/or finds a moisture content in the goods supplied in excess of the maximum percentage of moisture allowed under clause 8 by not less than 3 per cent. and stipulates an allowance therefor. Buyers shall thereupon be entitled to exercise any of the following options :

(a) Of accepting the goods with the allowance(s) awarded.

(b) Of cancelling the contract in respect of the particular lot or lots of goods supplied and charging sellers for the market difference on the goods as contracted for and those offered in fulfillment of the contract and on which the award has been made.

(c) Of rejecting the particular lot or lots of goods supplied and claiming a fresh tender in lieu thereof to be made within 30 days from the date on which the option is declared.'

The unconditional appropriation, therefore, took place in India, notwithstanding the c.i.f. terms and the title to the goods passed to the buyers in India.

In the result, we answer the question referred to us in the negative and against the assessee.

The Commissioner of Income-tax is entitled to costs.

MASUD J. - I agree.

Question answered in the negative.


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