HIRA MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) ON an application by the assessee under Sub -S. (1) of S. 66 of the IT Act, the Tribunal has submitted a statement of the case raising the following three questions of law :

(2.) IT is not in dispute that the profits included in the sale proceeds of the aforesaid sales falling in the three categories would be taxable only in the event the sale proceeds were received in the taxable territories. It is also not in dispute that the areas within the then Native States in existence in the assessment year were not taxable territories. According to the assessee the sale proceeds of the sales falling under the three categories were not received in the taxable territories but were received by him at Ujjain, which, in the relevant assessment year, was a part of the Native State, while according to Department the sale proceeds were received in the taxable territories. The contention of the Department has been upheld by the Tribunal. It would be convenient to refer to the facts of each category of sale separately. We are here concerned with the asst. yrs. 1944 -45, 1945 -46 and 1946 -47, the relevant previous years being calendar years 1943, 1944 and 1945 respectively. The assessee is a company incorporated and carrying on the business of spinning and weaving cotton textiles in Ujjain, a part of the former Indian State in existence during the relevant assessment years. It is a non -resident company. Its products were sold in the State itself as well as in the then British India to private dealers and also to the Government of India. The contracts of sales were entered into at Ujjain under which delivery was to be f.o.r. Ujjain. The assessee - company collected the sale proceeds from the private dealers in British India as well as from the Government of India in various ways and it is these different ways adopted by the assessee in collecting the sale proceeds whihch have given rise to the three categories. We would now proceed to deal with the case relating to the proceeds of sale falling in the first category.

(3.) NOW the contention raised on behalf of the assessee before the Tribunal was that the drafts or hundis drawn by the assessee at Ujjain on the buyers in India in favour of the Imperial Bank of India were unconditional drafts or hundis drawn without any reservation. The said Imperial Bank of India, Ujjain, was accordingly the holder in due course of the said drafts or hundis and was entitled to recover the amount of the said drafts or hundis in its own right. The amounts received by the bank on presentation of these drafts were received by the bank on its own behalf and not on behalf of the assessee. The sale proceeds were thus not received by the assessee in British India but, on the other hand , were received by the assessee in Ujjain, where they drew the drafts or hundis and the bank in its turn granted facility to the assessee of overdrawing on its cash credit account. On a consideration of the material on record, the Tribunal found that the assessee had a cash credit account with the bank at Ujjain. In this account were credited the proceeds of the aforesaid hundis on realisation a few days after presentation. The collection charges were independently collected by the banker from the parties. The bank had neither discounted nor purchased the drafts or hundis and credited the sale proceeds to the assessee's cash credit account prior to collection. The bank at Ujjain was, therefore, not a holder in due course of these hundis. The bank has acted in the matter purely as the assessee's collecting banker and nothing more, faithfully carrying out its instructions to collect not only the face value of the bill but also its collection charges and interest at the rates and time usance specified in the instructions and not according to the rates usually charged by it in its transactions with the assessee. It is further held that in the circumstances of the case it could not be said that it was the banker which collected the interest and bank charges as its own profit on bills belonging to it. Dealing with the argument advanced on behalf of the assessee that it had overdrawn in this cash credit account over and above the security offered by it, the excess drawn could be considered as covered by the aforesaid drafts and hundis, which the assessee had handed over to the bank pending collection, the Tribunal held that the assessee had not shown the extent of such overdrawings and the bills pending collection on the respective dates. That data was not available and those facts have not been proved by the assessee. On the other hand, the assessee admitted before the Tribunal that no such overdrawings can be specifically earmarked or shown as having been covered by any specified bill or bills. For these reasons the Tribunal rejected the contention of the assessee that the bank was the holder in due course of these drafts and hundis and had collected the respective amounts on its own account. As already stated, the Tribunal found that the bank was acting as only a collection agent and collected the amount from various dealers in British India for and on behalf of the assessee. The Tribunal, therefore, held that the amounts of the aforesaid sale proceeds were received by the assessee in British India.