1975 (7) TMI 55 - HC - Income Tax

Summary

Issues Involved:
1. Application of Section 4(1)(a) of the Indian Income-tax Act, 1922, to the receipt of sale proceeds.
2. Receipt of sale proceeds from British Indian merchants by cheques, drafts, or hundies.
3. Receipt of sale proceeds from the Textile Directorate.
4. Calculation of written down value for depreciation under Section 10(5)(b).

Detailed Analysis:

Issue 1: Application of Section 4(1)(a) to the Receipt of Sale Proceeds
Question: Whether the sums of Rs. 16,03,437, Rs. 17,91,959, and Rs. 19,828 were received by the assessee in British India so as to justify assessment under section 4(1)(a) for the assessment years 1943-44 to 1945-46?

Facts: The assessee, a non-resident public limited company incorporated in Indore, engaged in transactions where goods were sold to purchasers in British India. The contracts were executed at Indore, and the goods were appropriated and sent to buyers from Indore. Payments were made via drafts, cheques, and hundies, often through British Indian banks.

Tribunal's Finding: The Tribunal held that the profits embedded in the sale proceeds were received in British India and were liable to income tax under Section 4(1)(a).

Court's Analysis: The court noted that the amounts were actually received by the bankers on behalf of the assessee in British India. Despite the contract terms indicating payment at Indore, the actual receipt in British India justified the Tribunal's decision.

Conclusion: The Tribunal was justified in holding that the receipt of the sale proceeds in respect of all these transactions was in the taxable territories and subject to tax for the relevant assessment years.

Issue 2: Receipt of Sale Proceeds from British Indian Merchants by Cheques, Drafts, or Hundies
Question: Whether the sums shown in column (b) of the table were received in British India so as to justify the application of section 4(1)(a)?

Facts: The sales were effected in Indore, and sale proceeds were received by cheques, drafts, or hundies on British Indian banks. These were sent by post to the assessee at Indore, who then sent them back to its bankers in British India for realization.

Tribunal's Finding: The Tribunal held that the cheques, drafts, and hundies were received through post, and there was no agreement to pay the moneys in Indore, thus making the post office the agent of the assessee.

Court's Analysis: The court emphasized the principles laid down by the Supreme Court in Ogale Glass Works' case and other relevant cases. It concluded that by necessary implication, the assessee permitted the purchasers to send cheques, drafts, or hundies by post, making the post office the agent of the assessee.

Conclusion: The Tribunal was justified in holding that such amounts were received in the taxable territories by the assessee-mills.

Issue 3: Receipt of Sale Proceeds from the Textile Directorate
Question: Whether the sale proceeds shown under column (c) of the table (sales to Textile Directorate) were received in British India so as to justify the application of section 4(1)(a)?

Facts: The sales to the Government (Textile Directorate) were made under two systems: tender system and panel system. Payments were made by cheques drawn by the Government and posted from British India.

Tribunal's Finding: The Tribunal found an implied request by the assessee to send cheques by post, making the post office the agent of the assessee.

Court's Analysis: The court referenced the decision in Indore Malwa United Mills Ltd.'s case, affirming that the post office was the agent of the assessee. Thus, the receipt of sale proceeds in British India was justified.

Conclusion: The Tribunal was justified in holding that the sale proceeds were received in British India and subject to tax under section 4(1)(a).

Issue 4: Calculation of Written Down Value for Depreciation
Question: Whether the written down value for calculating depreciation should be calculated by taking the original cost less (a) depreciation referable to the proportionate profits taxed in the taxable territories for the assessment years 1939-40 to 1942-43 or (b) the total depreciation in arriving at the world profit of which a proportionate part was taxed in the taxable territories?

Facts: The assessee contended that only the depreciation referable to the proportionate profit taxed in the taxable territories should be deducted. The Tribunal rejected this, accepting the revenue's plea to deduct the total depreciation in arriving at the world profits.

Court's Analysis: The court referred to the Supreme Court decision in Commissioner of Income-tax v. Nandlal Bhandari Mills Ltd., which clarified that only the depreciation deducted in arriving at the taxable income should be considered, not the total depreciation for world income.

Conclusion: The written down value for calculating depreciation should be calculated by taking the original cost less depreciation referable to the proportionate profits taxed in the taxable territories for the assessment years 1939-40 to 1942-43.

Final Order:
As both the assessee and the revenue have partly succeeded in this reference, each party will bear its own costs.