1954 (11) TMI 5 - SC - Income Tax

Whether on the facts and in the circumstances of the case the profits derived by the assessee-company from sales made to European and American buyers arose outside British India ? Whether on the facts and in the circumstances of the case the profits derived by the assessee-company from sales made to European and American buyers were received outside British India ? Held that - As 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. In the premises, the Appellate Tribunal as well as the High Court were quite correct in holding that the sales took place outside British India and, ex hypothesi, the profits derived from such sales arose outside British India. The first receipt of the price, therefore, as pointed out by the High Court, was by the Eastern Bank Ltd., London, on behalf of the sellers. There is no dispute that the balance of the price ascertained after weighment and assay and deducting the amount paid on the bill of exchange was similarly received in London by the Eastern Bank Ltd., London, on behalf of the assessee-company. The subsequent adjustment made in the books of the Eastern Bank Ltd., London, did not operate as a receipt of profits in British India. In our opinion the High Court correctly answered the second question also in favour of the assessee-company. Appeal dismissed.

Summary

Issues Involved:
1. Whether the profits derived by the assessee-company from sales made to European and American buyers arose outside British India.
2. Whether the profits derived by the assessee-company from sales made to European and American buyers were received outside British India.

Detailed Analysis:

Issue 1: Whether the profits derived by the assessee-company from sales made to European and American buyers arose outside British India.

The judgment revolves around the determination of the place where the sales took place, which is critical in deciding where the profits arose. The assessee-company, Mysore Chromite Ltd., sold chrome ores to European and American buyers. The sales to European buyers were conducted through Bowden Oakley & Co. Ltd., London, and to American buyers through W. R. Grace & Co. The contracts were on F.O.B. (Free on Board) terms, with the price and delivery specified as F.O.B. Madras or Marmagoa.

The court examined the nature of the contracts and the terms of payment. For European contracts, buyers had to open a confirmed irrevocable Bankers' credit in favor of the assessee-company through the Eastern Bank Ltd., London. For American contracts, a letter of credit for 80% of the invoice value had to be available against drafts at 90 days' sight with documents attached, opened in London in favor of the seller.

The court noted that the property in the goods did not pass to the buyer merely upon placing the goods on the ship at Madras. The contracts required the buyers to open a confirmed irrevocable bankers' credit, indicating that the buyers would not be entitled to the documents until payment was made upon the bill of exchange. The bill of lading, a document of title to the goods, was retained by the assessee-company until the bill of exchange was accepted by the buyers' bank in London.

The court held that the property in the goods passed to the buyer only when the bill of exchange was accepted by the buyers' bank in London and the documents were delivered by the Eastern Bank Ltd., London, to the buyers' bank. This indicated that the sales were concluded outside British India, and thus, the profits derived from such sales arose outside British India.

Issue 2: Whether the profits derived by the assessee-company from sales made to European and American buyers were received outside British India.

The court examined whether the profits from the sales were received in British India. The Solicitor-General argued that the receipt of payment by the assessee-company from the Eastern Bank Ltd., Madras, amounted to receipt of profits in Madras. However, the court found that the Eastern Bank Ltd., Madras, and the Eastern Bank Ltd., London, were agents of the assessee-company and had no relation with the buyers.

The court referred to Lord Sumner's explanation in The Prinz Adalbert case, where it was held that the payment by the bank to the seller was an advance made on the security of the goods covered by the bill of lading, reinforced by the confirmed and irrevocable credit of the buyers' London Bank. The court concluded that the price was paid on behalf of the buyers by their respective London Banks to the Eastern Bank Ltd., London, which was the agent of the assessee-company. Therefore, the first receipt of the price was in London, not in British India.

The court affirmed that the balance of the price, after weighment and assay, was similarly received in London by the Eastern Bank Ltd., London, on behalf of the assessee-company. The subsequent adjustments in the books of the Eastern Bank Ltd., London, did not constitute receipt of profits in British India.

Conclusion:

The Supreme Court upheld the decision of the High Court, affirming that both the profits derived from the sales arose and were received outside British India. The appeal was dismissed with costs.