1960 (10) TMI 3 - SC - Income Tax

Whether the proportionate profits on the goods of the value of ₹ 4,10,785 were received or were deemed to be received in British India, in the year of account, by or on behalf of the assessee company within the meaning of section 4(1)(a) of the Indian Income-tax Act, 1922 ? Held that - The income, profits or gains must be deemed to have been received in the taxable territories, and the answer to the question ought to have been in the affirmative. We accordingly allow the appeal, and answer the question in the affirmative. Appeal allowed.

Summary

Issues:
Interpretation of section 4(1)(a) of the Indian Income-tax Act, 1922 regarding the receipt of profits in British India; Determination of the place of receipt of income by the appellant company; Analysis of the role of agents in the transaction and the passing of property under the Indian Sale of Goods Act, 1930.

Analysis:

The Supreme Court heard an appeal against the judgment of the Nagpur High Court regarding the receipt of profits by an assessee company in British India under section 4(1)(a) of the Indian Income-tax Act, 1922. The company, initially treated as non-resident, supplied goods to the Government of India or its nominees at various locations. The goods were sent f.o.r. Bhopal, and the railway receipts were handled by the Imperial Bank, Bhopal, and its branches at Agra, Allahabad, and Delhi. The Department contended that a total sum was received in British India, leading to the reference question. The High Court focused on the passing of property under the Sale of Goods Act, deeming the bank and its branches as agents of the buyers, thereby concluding that the profits were not received in British India.

The Tribunal had not decided on the accrual of income but on the actual receipt in British India or Bhopal. The Supreme Court highlighted doubts about the passing of property to buyers and the role of the bank as an agent. The Court noted that the company's instructions to the bank indicated agency, and the buyers could not countermand these instructions, establishing the bank as the company's agent. The Court referenced a previous case to support this view, emphasizing that the location of payment to the agent determines the place of receipt.

Regarding the argument that the goods were to be sent f.o.r. Bhopal and payment made there, the Court found that the transaction deviated from the agreement, with the bank acting as the agent of the sellers. The Court concluded that the money was received at Agra, Allahabad, or Delhi, where payment was made to the agent, thereby deeming the income received in the taxable territories. Consequently, the appeal was allowed, and the question was answered in the affirmative, entitling the appellant to costs in both courts.

In summary, the judgment delved into the interpretation of tax laws, the role of agents in commercial transactions, and the determination of the place of income receipt, ultimately deciding in favor of the appellant company based on the agency relationship with the bank and the location of payment.