Commissioner of Income-Tax, Delhi Vs.
Messrs. P. M. Rathod & Co [1959] INSC 94 (20 May 1959)
KAPUR, J.L.
SINHA, BHUVNESHWAR P.
HIDAYATULLAH, M.
CITATION: 1959 AIR 1394 1960 SCR (1) 401
ACT:
Income-tax-Place of accrual or receipt of
Profits-Goods sold by a trader in a Part B State to customers in Part A or C
States Goods sent by Value Payable Post or by rail-Post office, whether agent
of seller or bailee of goods-Railway receipt sent to bankers to be delivered to
customers against Payment-Concessional rate of taxation applicable to Part B
States-Indian Sale of Goods Act, 1930 (3 Of 1930), S. 25(1)- Indian Contract
Act, 1872 (9 of 1872), S. 148.
HEADNOTE:
The respondents were manufacturers of
perfumery and hair oils at Ratlam in Madhya Bharat which at the relevant time
was a Part B State. They sent out agents who canvassed orders. The goods
ordered were sent to the customers from Ratlam either through the post office
by Value Payable Post or they were sent from there by rail and the railway
receipts in favour of self were sent through a bank with the direction that
they (railway receipts) were to be handed over against payment of the enclosed
demand draft.' The price when received by the bank was sent by means of a
demand draft to the respondents at Ratlam who bad it cashed and credited to
their account at Bombay. The respondents were assessed to income-tax, in
respect of profits from such sales of goods to customers in Part A and C
States, for the assessment year 1950-51, at the rate or rates applicable to
income, profits or gains arising or accruing in Part A States on the footing
that the sales were effected in Part A and C States and the payments were also
received there. The respondents claimed that the prices realised constituted
receipts in Ratlam 51 402 and that therefore they. were liable to be assessed
only at the concessional rates applicable to Part B States. The Appellate
Tribunal held that the price of goods sent by Value Payable Post was received
at Ratlam and that in respect of the price received by bank drafts which had
been realised through the bank at Bombay, the amount must be treated as having
been received in a Part A State. At the instance of the Commissioner of
Income-tax and the respondents, the Tribunal referred two questions to the High
Court: (1) Whether the bank drafts payable in Part A or C States but received
at Ratlam and encashed through the assessee's bankers at Bombay constituted
receipts in Part A State? (2) Whether the receipt of sale proceeds at Ratlam
(which included the assessee's profits) in respect of goods sent by the
assessee to customers in Part A or C States by V.P.P. amounted to receipts of
income, profits or gains at Ratlam in a Part B State? The High Court having
answered both the questions in favour of the respondents, the Com- missioner of
Income-tax preferred an appeal to the Supreme Court :- Held: (1) When a
question referred to the Court is not properly framed, it is open to the Court
to reframe the question which arises on a proper appreciation of the facts of
the Case.
Narain Swadeshi Weaving Mills v. The
Commissioner of Excess Profits Tax, [1955] 1 S.C.R. 925, followed.
The proper question that arose on the facts
of the present case was held to be: " Whether on the facts and circumstances
of this case the payment received from a buyer by a banker in Part A or C
States against delivery of railway receipts for goods sent by the seller is
payment in these States or in Ratlam which was a Part B State." (2) Where
goods are sent by rail and the railway receipts in, favour of self are sent to
a banker to be delivered to the buyer against payment of the price, the
appropriation to the contract is only conditional and the performance is
completed only when the monies are paid and the railway receipts delivered.
Accordingly, where, as in the present case,
the payment.
was received by a banker from a buyer in a
Part A or C State against delivery of a railway receipt in favour of self for
goods sent by the respondents, the contract must be taken to have been per-.
formed in Part A or C States and the income arising out of these transactions
must be held to have been received there.
(3) The principles governing the dispatch of
articles by Value Payable Post system are:- (i) that the post office is an
agent of the seller for the recovery of price against delivery of goods;
Mothi Rungaya Chetty V. The Secretary of
State for India, (1904) I.L.R. 28 Mad. 213, approved.
(ii) that the seller retains control over the
goods right up to the time goods are delivered to the buyer against payment and
403 the contract falls under s. 25(1) of the Indian Sale of Goods Act, 1930;
Mirabita v. Imperial Ottomon Bank, (1878) 3
Ex. D. 164 and The Parchim, [1918] A.C. 57, referred to.
(iii) that even if the post office were
considered to be a bailee of goods for transmission to the buyer, the contract
would fall under s. 25 of the Indian Sale of Goods Act and the appropriation is
conditional and until the condition is fulfilled the property in the goods does
not pass; and, (iv) that it is the duty of the bailee to dispose of the goods
in accordance with the directions of the bailor which in this case was to
deliver the goods against payment.
Hence the bailee received the price at the
place of delivery of goods and did so on behalf of the bailor.
Consequently, in the present case, in respect
of goods sent by Value Payable Post to a Part A or C State the price was
received there and not at Ratlam.
Commissioner of Income-tax v. Ogale Glass Works
Ltd., [1955] 1 S.C.R. 185 and The Badische Anilin Und Soda Fabrik v. The Basle
Chemical Works, [1898] A.C. 200, distinguished.
CIVIL APPELLATE JURISDICTION :Civil Appeal
No. 373 of 1957.
Appeal from the judgment and decree dated
September 20, 1955, of the former Madhya Bharat High Court at Indore in Civil
Misc. Case No. 40 of 1954. , C. K. Daphtary, Solicitor-General of India, K. N. Rajagopal
Sastri, R. H. Dhebar and D. Gupta, for the appellant.
S. S. Shukla, for the respondent.
1959. May 20. The Judgment of the Court was
delivered by KAPUR J.-This appeal on a certificate by the High Court is brought
against the judgment of the High Court of Madhya Bharat in a Reference by the
Income-tax Appellate Tribunal under s. 66(1) of the Income-tax Act. The
appellant is the Commissioner of Income-tax and the respondents are a firm of
manufacturers of perfumery and hair oils at Ratlam in Madhya Bharat and their
goods are sold throughout India. At the relevant time Madhya Bharat was a Part
B State and the sole question for determination is where were the income,
profits and gains, 404 received or were deemed to be received and on that would
depend the rate at which the respondents would be liable to be assessed because
of the concessional rates applicable to Part B States.
The facts lie in a short compass. The
respondents, a registered firm, were assessed for the assessment year 1950- 51,
at the rate or rates applicable to income, profits and gains arising or
accruing in Part A States. The course of their business was this: they sent out
agents to various parts of India. They canvassed orders and sometimes took
advance payments in full or in part and after deducting their expenses,
remitted the balance to the respondents at Ratlam through Bank drafts etc. The goods
ordered were sent to the customers either by V. P. P. or by rail. In the latter
case the Railway Receipts in favour of self were sent through a Bank
deliverable against payment of the Demand Draft drawn upon the buyers and sent
with the Railway Receipts. This price when received by the Bank was sent by the
Bank by means of Bank Draft to the respondents at Ratlam who sent them for
being cashed and credited to their account at Bombay.
The Income-tax Officer held that the major
quantity of goods was supplied to the customers in what was Part A & C
States either by V. P. P. or by rail, the Railway Receipts being in favour of
the respondents and payment was received as stated above.
The assessees' banker was the Bank of India
Ltd., Bombay, and the sale proceeds were, according to the Income-tax Officer,
mainly realised through this Bank. He held that the sales were effected in Part
A & C States and the payments were also received there. He therefore made
the assessment on an estimated profit of Rs. 1,60,340 on sales of Rs. 5,09,424
without allowing any rebate on account of concessional rates applicable to Part
B States. On appeal the Appellate Asstt. Commissioner reduced the estimated
profit by Rs. 20,000. The Income-tax Appellate Tribunal on further appeal reduced
the total income from Part A & C States to Rs. 2,85,376. It found that the
income received through the Post Office, i.e., by V.P.P. 405 was Rs. 1,23,710
and that received in respect of goods sent by rail and realized by the Bank
drafts was Rs. 2,85,376 making a total of Rs. 4,21,955. It also held that the
advances received with orders were income, profits and gains received at Ratlam
and not in Part A & C States and similarly the price of goods sent by V. P.
P. was also money received at Ratlam. In regard to the price received by Bank
drafts it held that they were received at Ratlam but were sent to the
assessee's banker in Bombay for being cashed and therefore they must be taken
to have been received in a Part A State. This amount was Rs. 2,85,376. The
Tribunal after referring to the decision of the Bombay High Court in Kirloskar
Bros. Ltd. v. The Commissioner of Income-tax(1) said :- " The facts,
however, in this case are entirely different. It appears from the printed
advice sent by the assessee to its bankers in every case that the bankers are
to hand over the goods against 'payment of t he enclosed demand draft'. It is
not a case where the assessee gives unconditional discharge on the receipt of
either a cheque or a bank draft. We agree with the Appellate Assistant
Commissioner that sale proceeds to the extent of Rs. 2,85,376 were received at
Bombay." Both the assessees and the Commissioner applied for a reference
-to the High Court under s. 66(1) of the Income- tax Act and following two questions
were referred :- Q.1 "Whether the receipt of sale proceeds at Ratlam
(which included the assessee's profits) in respect of goods sent by the
assessee to customers in Part A or C States by V. P. P. amounted to receipts of
income, profits or gains at Ratlam in Part B States?" Q. 2. " Whether
the bank drafts payable in Part A or C States but received at Ratlam and
encashed through the assessee's bankers at Bombay constituted receipts in Part
A State ?" The High Court answered both these questions in favour of the
assessees but gave a certificate and the (1) [1952] 21 I.T.R. 82.
406 appeal is therefore brought by the
Commissioner of Income- tax.
Apart from the sales which were deemed to
have taken place in Ratlam itself the goods were, as stated above, supplied to
the customers in one of the following two ways. The goods were either sent from
Ratlam through the post office by V.
P. P. or they were sent from there by rail
and the Railway Receipts in favour of self were sent through a Bank with the
direction that the goods were to be handed over against 'payment of the
enclosed demand draft'.
We Shall first deal with that part in which
the goods were sent by post under the V. P. P. system. The purpose of this
system is given in Rule 133 of the Post Offices guide as under:- " The V.
P. P. system is designed to meet the requirements of persons who wish to pay
for articles sent to them at the time of the receipt of the articles or of the
bill or railway receipt relating to them and also to meet the requirements of the
traders and others who wish to recover through the agency of the post office,
the value of articles supplied by them. " In the case of delivery of goods
by V. P. P. it is im- material whether the buyer directs the goods to be sent
by V. P. P. or the seller does so on his own accord because the goods handed
over to the Post Office by the seller can only be delivered to the buyer
against payment and this payment is received for and on behalf of the seller.
The buyer does not pay till the goods are received by him and once he has paid
-the price it is the Post Office that is responsible for payment of the money
received by it to the seller. The buyer has no longer any responsibility in
regard to it.
Therefore a payment to the Post Office is
payment to the seller and at the place where the goods are delivered and
payment is made. Further before the goods are delivered to the buyer the seller
has under the V. P. P. Rules the power to direct the Post Office to make the
delivery to the addressee free or to deliver against a sum different from that
originally specified. This would negative the Post Office being an agent of the
buyer. This shows that 407 whatever be the jural relationship between the
seller and the post office in respect of carriage of goods sent by the seller
under the V. P. P. system it becomes an agent of the seller for the recovery of
the price and if it fails to recover the price and delivers the goods it is
liable in damages to the seller: Mothi Rungaya Chetty v. The Secretary of State
for India (1).
Under the V. P. P. system the seller retains
control over the goods right up to the time the goods are delivered to the
buyer against payment of price and therefore the contract would fall under s.
25 of the Indian Sale of Goods Act which provides:- Section 25(1). " Where
there is a contract for the sale of specific goods or where goods are
subsequently appropriated to the contract, the seller may, by the terms of the
contract or appropriation, reserve the right of disposal of the goods until
certain conditions are fulfilled. In such case, notwithstanding the delivery of
the goods to a buyer, or to a carrier or other bailee for the purpose of
transmission to the buyer, the property in the goods does not pass to the buyer
until the conditions imposed by the seller are fulfilled." The principle
then is this that if the seller when sending the articles which he intends to
deliver under the contract does so, with the direction that the articles are
not to be delivered to the purchaser till the payment of price, the
appropriation is not absolute but conditional and until the price is paid the
property in the goods does not pass to the purchaser. Mirabita v. Imperial
Ottomon Bank (2 ) at pp.
172-173 (Cotton, L.J.). See also The Parchim
(3 ) at pp. 170-171 (Per Lord Parker). And the goods pass at the place where
the price is paid, i.e., which in the present case was in an A or C State. Thus
the price was received by the seller in A or C State.
But it was submitted on behalf of the
respondents that to the present case the judgment of this Court in Commissioner
of Income-tax v. Ogale Glass Works Ltd.(4) applies. There the assessee was a
company which was (1) (1904) I.L.R. 28 Mad. 213, (2) (1878) 3 Ex. D. 164.
(3) [1918] A. C. 1157. (4) [1955] 1 S.C.R.
185.
408 carrying on business in an Indian State
(outside British India) and its liability to Indian Income-tax depended upon
its receipt of money within British India. The assessee had to be paid for
goods supplied to the Government of India and at his request the Government of
India agreed to make payments by cheques which were drawn in Delhi on a Bombay
Bank and were posted in Delhi and received by the assessee in the Indian State.
It was held that the Post Office was the agent of the assessee. The principle
of that case has no application to the facts of the present case. That case did
not deal with sale of goods or receipt of price against delivery of goods or
the place where the price of goods is received by the seller. Reference was
also made by the respondents' counsel to a judgment of the House of Lords in
The Badische Anilin Und Soda Fabrik v. The Basle Chemical Works (1). In that
case a trader in England ordered goods from a manufacturer in Switzerland to be
sent by post to England. The manufacturer addressed the goods to a forwarding
agent who in turn addressed them to the trader in England and delivered them to
the Swiss Post Office by whom they were forwarded to England. The goods were
such that they invaded an invention protected by an English patent.
It was held that the contract of sale was
completed by delivery to the post office in Switzerland and as the post office
was the agent of the buyer and not of the vendor the vendor could not be said
to have contravened the invention within the ambit of the patent and that the
patentee had no right of action against the vendor for an infringement of the
patent. In that case also there was no question of the Swiss manufacturer
keeping control over the goods till the price was paid nor of any conditional
delivery to the post office as in the present case and besides that was not a
case dealing with the passing of the ownership in goods or the appropriation of
goods to the contract of sale by delivery to a carrier.
The argument raised by counsel for
respondents was that the respondents delivered the goods to the Post Office at
the instance of the buyer and that the Post (1) [1898] A.C. 200.
409 Office acted merely as a bailee for the
purpose of transmission to the buyer. But even as such bailee it cannot act
against the instructions of the bailor and deliver the goods to the buyer
without receiving their price and when he does recover he recovers it on behalf
of the bailor. Even a bailment for transmission would fall under s. 25 of the Sale
of Goods Act and there is only a conditional appropriation and until the
condition imposed is fulfilled the goods do not pass. Under s. 148 of the Indian
Contract Act a bailment ' is delivery of goods by one person to another upon a
contract that they shall, when the purpose is accomplished be returned or
otherwise disposed of according to the directions of the person delivering
them.
A bailee's duty therefore is to deal with the
goods according to the directions of the bailor and if the direction in the
present case was that the goods were to be delivered to the buyer on payment
then the bailee would receive the price on behalf of the seller at the place
where the goods were delivered to the buyer.
Thus the principle governing a despatch of
articles by V. P. P. is that the appropriation is conditional and goods only
pass when the condition is fulfilled, i.e., the price is paid against delivery.
The Post Office is an agent for the seller and receives the price from the
buyer at the place of delivery for transmission to the seller. The income in
the present case was therefore received in Part A or Part C States and not in
Ratlam. In our opinion, the answer to the first question should have been in
favour of the Commissioner. It should have been held that the income in respect
of goods sent by V. P. P. was received in Part A and C States and not in a Part
B State.
The next question is unfortunately not
properly framed and therefore it is necessary to reframe it as was done in
Narain Swadeshi Weaving Mills v. The Commissioner of Excess Profits Tax (1).
The proper question that arises on the facts is: " Whether on the facts
and circumstances of this case the payment received from a buyer by a banker in
Part A or C (1) [1955] 1 S.C.R. 952.
52 410 States against delivery of Railway
Receipt for goods sent by the seller is payment in these States or in Ratlam
which was a Part B State ". We have already set out the course of business
in regard to the second mode of supply of goods, i.e., goods were sent by rail
and the Railway Receipts in favour of self were sent through a Bank with the
direction that they were to be delivered against payment of demand drafts drawn
and sent along with the Railway Receipts. Now in this case as in the case of
goods sent by V. P. P. the Railway Receipts in favour of self could not be
delivered to the buyer till the money was paid and although the goods had been
handed over to a common carrier the appropriation to the contract was only
conditional and the performance was completed only when the monies were paid
and the Railway Receipts delivered. These contracts also must be taken to have
been performed in Part A or C States and the price paid to the Bank as agent of
the seller at the place of payment and delivery of Railway Receipts. The
income, profits and gains were therefore received in these States and not at
Ratlam. This question should also have been answered in favour of the
Commissioner and the income, profits and gains arising out of these
transactions must be held to have been received by respondents in Part A or C
States.
In both the cases the respondents would not
be entitled to a concessional rate of taxation applicable to Part B States.
The appeal is therefore allowed. The
respondents will pay the costs of the appellant of this Court and of the High
Court.
Appeal allowed.
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