1972 (9) TMI 2 - SC - Income Tax

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 lading in the names of the buyers in five cases took place outside India and, therefore, the profits derived from the said sales arose outside India - our answer to the question, is in the affirmative and against the department

Summary

Issues Involved:

1. Whether the sales covered by the bills of lading in the names of the buyers in five cases took place outside India.
2. Whether the profits derived from the said sales arose outside India.

Issue-wise Detailed Analysis:

1. Whether the sales covered by the bills of lading in the names of the buyers in five cases took place outside India:

The primary issue was whether the sales transactions, evidenced by the bills of lading, occurred outside India. The assessee company, dealing in the sale and purchase of jute in Pakistan and India, contended that sales worth Rs. 11,42,979 were effected in Pakistan. The Income-tax Officer disagreed, asserting that these sales took place in India, as the contracts were executed in Calcutta and included terms for delivery within India. The Tribunal initially found that the sales in five cases were effected in Pakistan, while in two cases, the sales occurred in India. The High Court, however, concluded that the appropriation of goods and passing of property occurred in India, based on clauses (7) and (9) of the contract, which dealt with non-acceptance of documents and claims regarding quality or moisture content. The Supreme Court, however, disagreed with the High Court's interpretation, emphasizing that once the seller presented the documents to the bank in Pakistan and received payment, the property in the goods passed to the buyer, thus concluding that the sales took place in Pakistan.

2. Whether the profits derived from the said sales arose outside India:

The determination of where the profits arose hinged on the location where the property in the goods passed. The Supreme Court analyzed the terms of the contract and the dealings between the parties, particularly focusing on the irrevocable letter of credit issued by the buyer's bank. The Court held that the seller's presentation of shipping documents and receipt of payment in Pakistan indicated that the property in the goods passed to the buyer in Pakistan. Therefore, the profits derived from these sales arose outside India. The Court distinguished this case from Commissioner of Income-tax v. Mysore Chromite Ltd., where the property in the goods passed in London due to the seller retaining control over the goods by obtaining a bill of lading in his name. In the present case, the seller did not retain any control over the goods once the documents were presented to the bank in Pakistan.

Conclusion:

The Supreme Court concluded that the sales in question took place outside India, and consequently, the profits derived from these sales arose outside India. The appeal was allowed, and the judgment was in favor of the assessee, with costs awarded against the department.