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TMI Blog1962 (7) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... port licence before the time of the shipment and the buyers had to open an irrevocable confirmed credit in favour of the assessee in Bombay before the time of shipment. Cotton was, however, not shipped as was contemplated by the said contract. But ultimately on 24th January, 1948, reverse contract was entered into whereunder Raw Cotton Traders Ltd. resold the said 4,000 bales of cotton at ₹ 835 per candy c.i.f. Shanghai. Annexure "B", which is a letter written by Raw Cotton Traders Ltd. to the assessee, mentions the following terms: "This contract is in settlement of our purchase No. U-13 as we have been unable to obtain the necessary import licence and open irrevocable confirmed credit." As a result of this re-sale, the assessee had to pay ₹ 1,40,000 to the Mills: ₹ 1,05,000 out of ₹ 1,40,000 was paid by the assessee to the China Mills Ltd. and ₹ 35,000 were paid by the assessee to M/s. Lee Hsing Cotton Spinning & Weaving Co. Ltd. The payment was made in the following manner: Amount Date Rs. M/s. Volkart Bros. Ltd. on account of China Cotton Mills Ltd. of Shanghai ... 60,000 8-4-1948 Chartered Bank in the joint account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's brokers. M/s. Raw Cotton Traders Ltd., could arrange that the delivery was not to be given. The reason advanced for the non-delivery was that the export licence could not be arranged in Pakistan from where they were to be shipped. 10. An attempt was made to show that the two cotton Mills obtained delivery from elsewhere. The fact that the assessee paid ₹ 20,000 and ₹ 60,000 ultimately to M/s. Kilachand Devchand & Co. and M/s. Volkart Bros. Ltd. who were both shippers of cotton, tend to support the assessee's contention. The importance of looking at the transactions as a whole rather than the isolated transaction of purchase and sale between the assessee and Raw Cotton Traders Ltd. is that this would lead to the inference that the assessee could reasonably believe that what they were paying was merely in the nature of the part of the price of the cotton which they could not supply to the non-residents at the stipulated rates, even though in isolation it looks as if the sum of ₹ 1,40,000 was in the nature of a profit paid to them. We hold that section 18 has not been properly invoked in these two cases." At the instance of the Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contentions. Firstly, he contends that on the material evidence the Tribunal has found as a fact that the assessee wanted to wriggle out of the contract because the prices were rising at the time. The assessee, therefore, instead of carrying out his part of the contract, had contracted to pay the difference in price to the China Mills because the China Mills at that time were required to purchase cotton from other dealers. The payment made thus, though it was in the form of purchase price for the cotton, was really in the nature of payment of part of the price of cotton which the China Mills were required to purchase on account of the failure on the part of the assessee to perform the contract. There is evidence to support these findings of the Tribunal and this court would, therefore, be not justified in going behind those findings. Mr. Mehta next contends that even if it is held that the transaction was one of resale of cotton bales by the China Mills to the assessee, the profit made by the China Mills was not chargeable to tax, it being receipt of a casual and non-recurring nature within the meaning of clause (vii) of sub-section (3) of section 4 of the Indian Income-tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... informed the assessee that they would be soon obtaining the import licence and even if on account of the political riots the shipment is a little bit delayed, it would not matter. The mills would not like the contract to be cancelled. The mills have already sold cloth against their purchase of 4,000 bales and, therefore, the bales should be delivered to them even though shipment may be delayed on account of the political riots in Karachi. This letter further suggests to the assessee that the mills may consider the question of reselling the cotton to the assessee if the assessee so desired and if the terms were found suitable. It further appears that the assessee was directed to give delivery of the cotton bales to Volkart Bros. after they had approved the cotton. The letter of 13th January is a reply sent by the assessee to Umrigar and Co. This letter clearly shows that the assessee was ready to give delivery of the 4,000 bales to Volkart Bros., though he had therein protested against the selection of cotton by M/s. Volkart Bros. In this letter the assessee mentioned that, according to the terms of the contract, he would be giving delivery of the bales marking them R.C.T. and B.C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port licence and open irrevocable confirmed credit. There is another letter written on 11th February, 1948, by Umrigar & Co. to the assessee and that letter shows that even up to that date the mills had not purchased cotton from any other dealer. But negotiation was for purchase of cotton from dealers in Pakistan, who perhaps were in a position to ship cotton to the Mills. This letter, which is on record, clearly shows that at the time of resale the China Mills had not purchased cotton from any other dealer. It necessarily follows that the payment of ₹ 1,40,000 made by the assessee could not be in the nature of part of the price of cotton paid by the assessee to the China Mills on account of their failure to supply the same. Our attention was also drawn by Mr. Mehta to the two affidavits filed by two persons, who were at the material time directors of the Raw Cotton Traders Ltd., which are in identical terms and, therefore, it is sufficient to reproduce only one of the two affidavits: "It is within my own personal knowledge that Raw Cotton Traders Limited sold to the Mills in Shanghai, 4,000 bales of cotton and that owing to certain circumstances the said sale was ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. The profit resulting therefrom was only a casual receipt and was not a business receipt and, therefore, no tax was attracted to this receipt. It is indeed true that the normal business of the China Mills was manufacture of cloth and there is evidence on record to show that the mills had the bona fide intention of taking delivery and it appears that till the 12th of January, 1948, the Mills were hopeful of getting a permit and insisting on delivery, but were ultimately unable to get permit and the transaction of resale was therefore entered into. But, for these reasons, it is difficult to hold that the profits earned by the China Mills as a result of the transaction of resale was not a business receipt or was only a casual transaction having no connection with the business. It cannot be lost sight of that for the purpose of the business of the Mills, viz., manufacture of cloth, the Mills had to purchase cotton. The expenditure incurred in purchasing cotton was, therefore, a revenue expenditure. For certain reasons already discussed, the Mills were not in a position to take delivery of the cotton. In these circumstances, this raw cotton, which they had purchased for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a revenue receipt arising from the business. A decision in George Thompson & Co. Ltd. v. Commissioners of Inland Revenue [1927] 12 Tax Cas. 1091, would come very near the facts of the present case. The assessee company was carrying on business, inter alia, as ship-owners, merchants, ship-brokers, etc. For the purpose of business it had entered into a contract for purchase of coal. Subsequent thereto some of the company's ships were requisitioned by the Government. This resulted in a surplus of coal in the hands of the assessee company. The assessee company, therefore, sold the benefits of the contract for purchase of coal to another company. The question arose whether the profits resulting from this transaction of sale of the benefits of the contract for purchase of coal was business income liable to tax. It was, inter alia, contended on behalf of the assessee that even if the transaction amounted to sale of coal by the assessee company, it was an isolated transaction, which did not amount to the carrying on of a trade. Any profit made was, therefore, a casual profit from an isolated purchase and sale and should not, therefore, attract liability to tax. This contention was r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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