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TMI Blog1980 (7) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 12 per cent. less than the list price in the USA. The list price was stated to be the expected selling price at which the goods were likely to be ultimately sold by WLF to their customers in the USA. Though there was no agreement in writing, one of the terms of sale was that if the goods were sold by WLF in the USA at price lower than the list price on the basis of which the invoice was prepared, the assessee was to make good the deficiency. Similarly, in case, the exported goods were sold at a rate higher than the list price, the excess was to be made over by WLF to the assessee. For covering the loss on account of fall in the sale price, the assessee was under-drawing its invoice by about 5 per cent to 15 per cent. which amount remained in the USA with WLF, of course, on assessee's account. The ITO held that the assessee's exports of wide hessian to the USA through WLF continued to be on consignment basis. It was also found that the reasonable rate of net commission to WLF was 2 per cent. only as against the effective net commission rate of 7 per cent. allowed to them by the assessee. The case of the assessee was accepted, that, out of gross commission or gross margin of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, on the other hand, contended that the assessee had exported goods on consignment basis as was done earlier and that the apparent change in the method of export was made only with a view to avoiding exchange difficulties. Having regard to the nature of the transaction and other surrounding circumstances, the Tribunal observed that it could not easily ignore that the change-over to the new system was made with a view to avoiding exchange difficulties. According to it, the correspondence clearly showed that the assessee and WLF referred to each other as principal and agent and the assessee's interest in the goods remained till disposal by WLF. According to the Tribunal the facts justified the conclusion that whatever might be the form of the transaction, the assessee did not make an outright sale to WLF or, in other words, WLF continued to be the assessee's agent in spite of the apparent change brought about in the method of exports since December, 1955. With regard to the peculiar feature of the transaction, it held that even if the transaction could also be treated as outright sales, those were, is a matter of fact, not so, as that was never the intention of the parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve price and actually so far as the assessee was concerned, the sale price was 12 per cent. less than the price, at which the goods were ultimately sold by WLF. The accounts as per correspondence indicated that the actual sales were really over the list price and the credit balance was primarily built up on account of under-drawing or under-invoicing. Accordingly, the Tribunal held that the amount kept in the USA, by under-drawing or under-invoicing by the assessee, represented its sale price in the same manner in which the invoiced price, which was received, was the tentative sale price collected through the Bank. This, however, required adjustment on account of various receipts and disbursements on account of the assessee, keeping in view, the fact that the assessee had been held to be following the mercantile system of accountancy. In these premises to the extent the expected sale price, that is, 88% of the list price, was under-drawn or under-invoiced, according to the Tribunal, it would represent a part of the assessee's sale price. For the forgoing reasons, the Tribunal set aside the order of the ITO and the ITO was directed to compute the portion of the sale price retained b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulted in difference receipts and/or payment were hedging transaction and therefore, the loss could not be treated as a speculative loss. But no evidence was, however, placed before the authorities. In the absence of necessary materials it was not possible for the Tribunal to accept the uncorroborated statement of the assessee. This ground, therefore, was rejected. On the above facts and the findings found out by the Tribunal, the Tribunal was required to refer the following questions to this court for consideration: "(1) Whether, the finding of the Tribunal, that after December, 1955, the assessee did not make outright sales of carpet backing cloth to White Lamp Finaly, Inc. and that the relation between the assessee and White Lamb Finlay, Inc. was that of principal and agent and not seller and purchaser, is perverse ? (2) Whether there was any evidence before the Tribunal on which it could hold that (a) The parties found the system of export on consignment prior to December, 1955, to be cumbersome on account of any restrictions on remittances by the Reserve Bank; (b) There was any under-drawing on invoice after October,1959; (c) It was not the intention of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be attached to each single fact in isolation, but by asserting the cumulative effect of all the facts in their setting as a whole. Thus a finding on a question of fact is open to attack by an application for reference as erroneous in law, when there is no evidence to support it or if it is perverse. The decision in the case of CIT v. Daulatram Rawatmull [1964] 53 ITR 574 (SC), may be referred to. Having regard to the principle enunciated above, we are to enter into the facts and circumstances of the present case. In the case of CIT v. Greaves Cotton Co. Ltd. [1968] 68 ITR 200 (SC), the Supreme Court also gave a note of warning as to how to deal with such a case. Their Lordships observed: " It is well established that the High Court is not a court of appeal in a reference under s. 66 of the Indian Income-tax Act, 1922, and it is not open to the High Court in such a reference to embark upon a reappraisal of the evidence and to arrive at findings of fact contrary to those of the Appellate Tribunal. The High Court should confine itself to the facts as found by the Appellate Tribunal and to answer the question of law referred to it in the context of these facts. A finding of fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs informed the merchants, that they intended in the future to sell their goods themselves without the intervention of any agent, and thereafter they effected sales to customers directly. An action was then brought by the merchants for breach of the agreement. It was held by the court of appeal that the effect of the agreement was to confer on the plaintiffs the, sole right of selling the goods manufactured by the defendants at their works, so that neither the defendants themselves nor any agent appointed by them other than the plaintiffs, should have the right of selling such goods. It was held that the agreement was one of vendor and purchaser and not one of principal and agent: The manufacturers had no concern at what rate the sole selling agents sold the goods to customers, It was clear from these facts that the sale by the selling agents to customers was a transaction in Which the manufacturers were not interested and there was no privity of contract between the manufacturers and the ultimate purchasers. He referred to the case of Sri Tirumala Venkateswara Timber Bamboo Firm v. CTO [1968] 21 STC 312 (SC). In this case, their Lordships of the Supreme Court observed (p. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the buyer, e.g., fixation of price, submission of accounts, selling in a particular area or territory and so on. These restrictions per se would not convert a contract of sale into one of agency, because in spite of these restrictions the transaction would still be a sale, subject to all the incidents of a sale. A contract of agency, however, differs essentially from a contract of sale inasmuch as an agent on taking delivery of the property does not sell it as his own property but sells the same as the property of the principal and under his instructions and directions. Furthermore, since the agent is not the owner of the goods, if any loss is suffered by the agent, he is to be indemnified by the principal. This is yet another dominant factor which distinguishes an agent from a buyer-pure and simple. On this background, the status of the WLF was to be ascertained Admittedly, there was no agreement in writing between the parties to indicate as to the nature of the transaction. The various correspondence between the parties had been placed before the Tribunal and it was asked to draw inference from them as to the nature of transactions between the parties. We were also take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of sale by WLF at a price less than the list price, the exchange difficulties might not come in the way of remitting the necessary amount, the assessee under-drew the invoices by 5 per cent. to 15 per cent. further. In this manner, according to the Tribunal, the assessee was building up a credit balance in the USA and had a running account with WLF, in which account the surplus realised by WLF over the list price of goods exported was credited and deficiency of sale made was debited. Certain other expenses which the assessee was, obliged to incur were also debited to this account. Credits in this account were never credited by the assessee in its sales account. Similarly, the debits in this account were never debited by the assessee to its sales account. The assessee received certain amounts from WLF and also made payment when it was found that the amounts lying to its credit in the USA were not sufficient to meet the assessee's obligation or were far in excess of its obligations. On the facts stated above, it is to be seen whether the assessee exported wide hessian cloth on principal to principal basis at a price agreed upon and on terms which were considered commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein by the assessee that since commencing shipment of carpet backing cloth on a net c.i.f. basis, they had been experiencing some difficulties with the local customs authority. Next he refers to the letter dated February 18, 1956, addressed to the Chartered Bank of India regarding the letter of credit favouring WLF, New York. Letter dated February 20, 1956 is addressed to the Reserve Bank of India as to shipment of rolls of wide hessian cloth to Philadelphia. Letter dated August 10, 1956, addressed to WLF mentioned about the letter of credit. Letter dated September 13, 1956, also mentioned about the letter of credit. It states that the Reserve Bank had been pressing the assessee for details of disbursement against the assessee's revolving letter of credit. Mr. B. L. Pal, the learned advocate for the Revenue, refers to the letter dated October 26, 1956, wherein WLF gave out an account of gross commission earned, interest charges warehouse charges and commission paid by WLF. He particularly draws our attention to the fact the bank interest and warehouses were a tremendous burden for WLF to bear during the inactive period. It is contended by him that such a complaint cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, 1957, WLF intimated the assessee as to real terms of business in the following lines: " Basically our arrangements for 1956; contemplated our acting as your agents for the sale of wide loom hessian. We were, to sell for you on a fixed commission basis, that commission being 5% of the list selling price. Because of currency regulations of the Reserve Bank, however, we agree to pay for the goods as shipped on the basis of your billing us at list price less 10% representing the c.i.f. price of the goods. Ex. the 10% of list price, we were to pay duty, entry and landing charges, financing charges, agent's commission, etc., all of which came to approximately 5% of the sale price ". In reply, on 20th November, 1957, the assessee intimated that they had never and could never agree that WLF or any other sales agent should receive a guaranteed 5% rate of commission. On May 20, 1958, Mr. Pilkington of Bird Company complained that in the financing of unsold goods of WLF they were paying the bank more interest than they contemplated. Mr. Pal refers to the telephonic call whereby the assessee asserted that to meet continental competition WLF had to give up 10% rebate. The assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es was to be ascertained to see whether the finding of the Tribunal was perverse. The correspondence between the parties would reveal that the assessee adopted a novel procedure for exports to the USA. On the materials on record we do not think that the Tribunal was wrong in coming to the conclusion that the assessee did not make in outright sale of carpet-backing cloth to WLF. Of course, from some of the correspondence, it would appear that there were characteristics of the transactions, indicating that the relation between the parties was not that of principal and agent but that of vendor and purchaser. Thus the argument of Mr. Ginwalla cannot be brushed aside very lightly. Be that as it may, as we have stated earlier, if the finding of the Tribunal do not appear to be unreasonable or perverse, that should be accepted or, in other words, should not be interfered with. In this view of the matter, we propose to point out that the finding of the Tribunal as per question No. 1, were neither unreasonable nor perverse. As to question No. 2(a), a reference may be made to the assessee's letter dated April 4, 1955, to WLF and their reply, dated July 29, 1955. It would appear that the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that it was admitted by the assessee that the purchases were made by the assessee from the mills outright under contract on I.J.M.A. form and that in terms of the contract the mills had no interest in the goods, once they had performed their part of the contract by placing the goods alongside the vessel as per the assessee's instruction. So the Tribunal came to the conclusion that the payment made by the assessee to the mills, or payment accepted by the assessee from the mills for making over or receiving from WLF could not be under any legal obligations or, in other words, if it had done otherwise, it had done so for extra commercial consideration. Now let us take up question No. 3. According to the assessee, it Was not following the cash system of accountancy with regard to its exports. It was claimed by the assessee that so far as its business in carpet backing cloth was concerned it kept its accounts on the cash system of accountancy and not on the mercantile system. The copies of bill registers and other books of account were produced to prove that during the period when it was under-drawing on the invoice (from July, 1957, to October, 1959) the amounts of sale price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been held to be following mercantile system of accountancy. Of course, the Tribunal also observed that the fact in this behalf, as available on records, was very much insufficient. As such the ITO was directed to compute the portion of sales price, retained by the assessee in the USA, which would be included as the assessee's income. For the reasons stated above, we are of the opinion that the Tribunal was right in holding that the assessee had not kept its accounts on the cash system so far as the sales of carpet backing cloth were concerned. As regard question No. 4, a part of the question has already been dealt with before. According to the Tribunal, for the reasons given in answer to question No. 3, the expected sale price, that is, 88 per cent. of the list price was under-drawn or under-invoiced and it would represent a part of the assessee's sale price. It was further observed that the assessee would be entitled to claim expenses incurred by WLF in the USA which, under the terms, the assessee was obliged to reimburse provided such expenses were, not contingent. In the circumstances the Tribunal had not given a finding as to the extent of under-drawing or under-invoicin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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