1966 (4) TMI 2 - HC - Income Tax

Since bank collected the amount from the consignees on its own behalf and not as an agent of the consignor, held that the income accrued to the consignor at Indore and not at the places in the taxable territories where the bank received the amounts from the consignees.

Summary

Issues Involved:
1. Whether the profit along with interest and commission included in the sale proceeds could be said to have been received by the bank on behalf of the assessee in British India, attracting tax under section 4(1)(a) of the Indian Income-tax Act, 1922.

Issue-wise Detailed Analysis:

1. Nature of Receipts by the Bank:
The primary issue was whether the State Bank of Indore received payments of the various instruments drawn by the assessee on the allottees in Uttar Pradesh and certain districts of Punjab for the assessee. The Income-tax Officer believed that the proceeds were received by the assessee in the taxable territory, as the bank acted as the assessee's collecting agent. The Tribunal, however, found that the bank actually purchased the documents or discounted them, and thus collected the amount for itself, not on behalf of the assessee.

2. Assessment Year and Business Operations:
The dispute related to the assessment year 1949-50. During this period, the assessee-firm carried on business in the sale and export of cloth from Indore and Ujjain, which were non-taxable territories. The firm was appointed as a nominee for the United Provinces and certain districts of Punjab under the All India Cloth Distribution Scheme.

3. Transactions and Invoicing Process:
The assessee took delivery of the allotted cloth, despatched it to various destinations, and bore all transport charges. Invoices were made in the name of the allottees, and the documents were presented to the State Bank of Indore, which discounted them and credited the full amount to the assessee's account. The Tribunal found that the bank did not charge interest on the amount credited to the assessee between the date of crediting and actual realisation, indicating that the bank purchased the documents.

4. Tribunal's Findings:
The Tribunal concluded that the State Bank of Indore purchased the documents from the assessee and collected the amounts on its own behalf. This conclusion was based on the assessee's account books, bank pass books, and correspondence between the bank and the Income-tax Officer. The Tribunal relied on the principle laid down by the Punjab High Court in Chiranji Lal Multani Mal v. Commissioner of Income-tax, which held that if a bank purchases documents and gives immediate credit, it collects the amount for itself, not for the customer.

5. Department's Argument:
The department argued that the bank acted merely as the assessee's agent for collection and did not purchase or discount the drafts or hundis. They contended that the bank's crediting of the assessee's account was by way of an overdraft, not as a holder for value. The Advocate-General asserted that the Tribunal's finding was contrary to the evidence and vitiated.

6. Legal Principles and Precedents:
The court noted that the question of whether a bank receives payment as a holder for value or as a collecting agent is a question of fact. The Tribunal's finding that the bank collected the amounts on its own behalf had to be accepted, as the department did not challenge this finding by applying for a statement of the case to the court.

7. Comparison with Other Cases:
The court distinguished this case from Hira Mills Ltd. v. Commissioner of Income-tax, where the bank acted as a collecting agent and did not purchase or discount the documents. The court also referred to Mysore Glass and Enamel Works Ltd. v. Commissioner of Income-tax, noting that it dealt with the place of accrual of profits, which was not relevant to the present case.

8. Conclusion:
The court answered the question in the negative, holding that the sale proceeds were received by the assessee at Indore and Ujjain, not in the taxable territory where the bank collected the amounts. The assessee was awarded costs of the reference, with counsel's fee fixed at Rs. 200.

Summary:
The High Court concluded that the State Bank of Indore acted as a holder for value by purchasing or discounting the documents from the assessee, and thus collected the amounts on its own behalf. Consequently, the sale proceeds were received by the assessee in non-taxable territories (Indore and Ujjain) and not in the taxable territory, negating the tax liability under section 4(1)(a) of the Indian Income-tax Act, 1922. The court's decision was based on the Tribunal's findings and relevant legal principles, distinguishing it from other cases cited by the department.