1960 (8) TMI 3 - SC - Income Tax

Whether the profits of the Panrope Corporation and the non-resident company in respect of the consignment goods were received in the taxable territories on their behalf ? Held that - Unable to agree with the reasoning and the conclusion of the High Court. The terms of the agreement make it abundantly clear that the goods received on consignment from the foreign corporations were received by the S. K. F. as their selling agent and not as purchaser. The goods it is true were sold by the S. K. F. in its own name and not in the name of the foreign corporations but the goods were still sold for and on behalf of the foreign corporations and the sale proceeds received by the S.K.F. were received not on its own behalf but for and on behalf of its principals. In the view taken by us the question will be answered in the affirmative in respect of sale of all goods where the price has been received by the S. K. F. in the taxable territories and irrespective of whether the remittance has been made in respect of the goods sold before or after the price was received. Appeal allowed in part

Summary

Issues:
Interpretation of clauses in an agreement for tax assessment on profits received by a company acting as a selling agent for foreign corporations.

Analysis:
The case involved Aktiebolaget Svenska Kullakerfabriken (S.K.F.), a company appointed as the sole selling agent in India for a Swedish company and a corporation in Panama during World War II. The Income-tax Officer assessed the foreign corporations for tax on profits from goods sold in India by S.K.F. as their agent. The dispute centered on whether the profits included in the price realized by S.K.F. were taxable under section 4(1)(a) of the Indian Income-tax Act. The High Court held that remittances made by S.K.F. before the sale proceeds were realized were not taxable as they were received by the foreign corporations outside the taxable territories.

The Supreme Court disagreed with the High Court's reasoning, emphasizing that the goods were received by S.K.F. as a selling agent, not a purchaser. The Court highlighted clauses in the agreement showing that the goods remained the property of the foreign corporations until sold. It asserted that the profits embedded in the sale price were taxable if received in the taxable territories. The Court rejected the argument that remittances made before realizing the price did not constitute income, stating that the income was received when the price was realized by S.K.F. on behalf of the foreign corporations.

Furthermore, the Court dismissed the notion of a suretyship contract between the foreign corporations and S.K.F., clarifying that the price received by S.K.F. on behalf of the foreign corporations was taxable income. The Court held that the realization of the price, regardless of when remittances were made, determined the tax liability under section 4(1)(a) of the Income-tax Act. Consequently, the Court answered the second question in the affirmative for all sales where the price was received by S.K.F. in the taxable territories, allowing the appeal in part and awarding costs to the appellant.

In conclusion, the judgment clarified that the receipt of income, determined by the place where the price is received, is crucial for tax liability under the Income-tax Act. It underscored the agency relationship between S.K.F. and the foreign corporations, establishing that the profits from sales made by S.K.F. on behalf of the foreign corporations were taxable in India, irrespective of when remittances were made.