AMARSINHJI MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) TWO questions are referred to us for our determination in this reference. The first relates to four assessment years, namely, 1945 46, 1946 47, 1947 48 and 1948 49, while the second relates to the first three of these assessment years. The facts in regard to the two questions are quite distinct and it would, therefore, be convenient to set them out separately in regard to each question. The first question raises the point as to whether certain sale proceeds received by the assessee in respect of sales effected to British Indian buyers were received in British India or outside British India. If they were received in British India, the profit embedded in them would be taxable under s. 4(1)(a) as profit received in British India, but it would not be so taxable if they were received outside British India. This position obtained because the assessee was a non resident during the relevant assessment years and its liability to British Indian tax depended on its receipt of income within British India under S. 4(1)(a). The assessee, which is a limited liability company, owned a textile mill and carried on the business of manufacture and sale of cotton textile goods in Wankaner, which was at the material time an Indian State outside what was then known as British India. Prior to May, 1944, the assessee used to sell its cloth freely to various merchants within British India as also outside British India in the open market but from May, 1944, the distribution and sale of cloth was brought under control by the Government. Thereafter, the textile mills could sell the cloth manufactured by them only to quota holders and the quota of each quota holder was fixed with reference to a particular textile mill on the basis of the average purchases of cloth made by him from that textile mill during the preceding three years. There were, therefore, quota holders also in regard to the assessee's textile mill who were entitled to purchase cloth from the assessee according to the quotas respectively allotted to them. This system of controlled distribution and sale of cloth which came into force from May, 1944, continued throughout the remaining part of the calendar year 1944 and also throughout the calendar years 1945, 1946 and 1947 and sales of cloth were accordingly made by the assessee to the quota holders in accordance with their respective quotas. Amongst the quota holders were several British Indian merchants and the question arose in the course of the assessment of the assessee for the asst. yrs. 1945 46, 1946 47, 1947 48 and 1948 49, for which the corresponding accounting years were the calendar years 1944, 1945, 1946 and 1947, whether the sale proceeds from those British Indian buyers were received by the assessee in British India. The sale proceeds were admittedly received by the assessee by cheques sent by the British Indian buyers by post to the assessee at Wankaner. The revenue claimed that the cheques were posted by the British Indian buyers pursuant to the request of the assessee and the post office was, therefore, constituted the agent of the assessee for the purpose of receiving payment and, consequently, when the cheques were posted, there was receipt by the assessee of the sale proceeds and such receipt took place in British India where the cheques were posted. The assessee on the other hand argued that there was an express agreement between the assessee and the British Indian buyers that the sale proceeds, whether by cheque or by cash, should be paid to the assessee in Wankaner and, consequently, the post office was the agent of the British Indian buyers in the matter of transmission of cheques to the assessee and the receipt of the sale proceeds was accordingly in Wankaner outside British India. The determination of the validity of these rival contentions obviously depended on the proper interpretation of the terms of the contract under which the sales were effected by the assessee to the British Indian buyers. Now the mode in which the sales were effected by the assessee to the quota holders was as follows: The assessee every month addressed a letter to each quota holder in regard to the goods allotted to him for that month in accordance with his quota. The letter to each quota holder was in the same terms and we shall, therefore, take as a typical letter, the letter dt. 14th May, 1944, addressed by the assessee to one Mayabhai Manilal. The letter is in Gujarati and an English translation of it has been annexed by the Tribunal as annexure "K" to the statement of the case. But it was common ground between the parties that the translation as given in this annexure was not a correct translation. The assessee, therefore, produced before us a true copy of the letter in Gujarati and by consent of parties it was accepted by us as forming part of the statement of the case. Now the parties could not agree upon a correct translation of the letter and particularly the translation of cl. (2) of the terms of normal procedure set out in the letter on which depended primarily the decision of the entire controversy in the present reference which formed the subject matter of considerable debate between the parties. Since there was conflict between the parties in regard to the correct translation and the translation depended on the true interpretation to be put on the words used in the original Gujarati letter, so that the translation involved the process of interpretation, we had to undertake the task of translating the material portions of the letter including cl. (2) of the terms of normal procedure set out in the letter. The letter commenced by pointing out to Mayabhai Manilal that, in accordance with the purchases made by him during the preceding three years, he had been allotted goods of the value of Rs. 13,915 8 0 in respect of his quota out of the production for the month of May and referring to a bill for that amount sent along with the letter, the letter asked him:

(2.) THE letter then proceeded to state that on the cheque for the price of the goods being honoured, the assessee would despatch the goods of the quota in accordance with the instructions of the buyer, having regard to the availability of booking facilities, and send the railway receipt to the buyer on the goods being despatched. There was an insistence in the letter that the buyer should:

(3.) THE English translation of cls. (2) and (6) was as follows: