1966 (2) TMI 4 - HC - Income Tax

Non-resident purchasing goods from Japan through firm in Bombay and selling them through Bombay firm to purchaser at Aden - Tribunal was justified in holding that the sales in respect of the transactions referred to above took place in the taxable territories and the entire profit in respect thereof arose in the taxable territories

Issues Involved:
1. Determination of the situs of sale for tax purposes.
2. Attribution of profits to taxable territories.
3. Interpretation of the Indian Sale of Goods Act, particularly sections 19 and 20.

Issue-wise Detailed Analysis:

1. Determination of the Situs of Sale for Tax Purposes:
The primary question was whether the income accrued in the taxable territories (India) from transactions involving the purchase of cloth from foreign countries and the sale of that cloth to merchants in Aden. The transactions were categorized into four types by the Tribunal:

- Category 1 & 2: Transactions where the assessee made purchases in Bombay and sold in Aden.
- Category 3 & 4: Transactions where the Bombay firm made purchases from foreign parties and sold to Aden parties.

The court was only concerned with transactions falling under categories 3 and 4. The Tribunal held that the entire profits from these transactions accrued in India. The Tribunal reasoned that, according to section 20 of the Indian Sale of Goods Act, property in the goods passed to the buyer when the contract was made in Bombay, making the sales taxable in India.

2. Attribution of Profits to Taxable Territories:
The Income-tax Officer initially held that the entire profits from transactions in categories 3 and 4 arose in India. The Appellate Assistant Commissioner modified this to attribute 90% of the profits to India and 10% to Aden. The Tribunal, however, upheld the Income-tax Officer's view that the entire profits accrued in India. The court found that the sales transactions falling under category 4 were correctly deemed to have taken place in Bombay, thus making the entire profits taxable in India.

For category 3 transactions, the court distinguished them based on the fact that the documents were sent to Aden, indicating that part of the sale process took place outside India. Therefore, the Tribunal was directed to determine the portion of profits attributable to activities in and outside the taxable territories.

3. Interpretation of the Indian Sale of Goods Act:
The court examined sections 19 and 20 of the Indian Sale of Goods Act to determine when the property in the goods passed to the buyer. Section 19 states that the property in goods passes to the buyer at the time intended by the parties, which can be ascertained from the contract terms, conduct of the parties, and circumstances of the case. Section 20 specifies that for an unconditional contract for the sale of specific goods in a deliverable state, the property passes to the buyer when the contract is made.

The court found that the goods were specific and in a deliverable state when the contracts were made in Bombay. The endorsement of documents in Aden was deemed a mere formality and not a condition of the contract. Thus, the property in the goods passed to the buyers in Bombay for category 4 transactions, making the entire profits taxable in India.

For category 3 transactions, the court noted that the delivery of documents in Aden indicated a contrary intention, suggesting that part of the sale process occurred outside India. Therefore, the Tribunal was instructed to determine the appropriate attribution of profits.

Conclusion:
The court concluded that for transactions in category 4, the entire profits arose in India and were taxable. For transactions in category 3, the profits were to be apportioned between activities in India and Aden, with the Tribunal tasked with determining the exact portions. The assessee was ordered to pay half the costs of the Commissioner.

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