HUKUMCHAND MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) OF the three questions which were originally referred for the decision of this Court, only question No. 2 now survives for decision and question No. 2 is as follows :

(2.) THE circumstances under which this question survives for our decision and the facts upon which it falls to be determined are as follows : The Hukumchand Mills Ltd., Indore, the assessees, were doing business of manufacturing and selling textiles in the account years relevant to the asst. yrs. 1942 -43, 1943 -44, 1945 - 46, 1946 -47 and 1947 -48. In the relevant years of account, the assessees were obliged to divert a portion of their production for meeting military requirements and such sales aggregated to Rs. 7,36,156. The total sales of the company amounted to Rs. 92,45,151. These were classified into various categories by the ITO, for the purpose of the question which survives in this reference, it is not necessary to refer to any of the other categories except categories Nos. 3, 4, 5 and 9 as classified by the ITO. In respect of these catego ries of sales, the facts have been stated in a tabular form in the statement of the case as follows : (The figures at the extreme right show the item numbers of the classification made by the ITO in paragraph 2 of the assessment order.) We are now concerned only with the figure of Rs. 14,80,059, which has been found to be the balance of the sale price which was brought to tax and with which question No. 2 is concerned. The assessee entered into these sale transactions in the different modes indicated in column No. (1). It is not necessary at this stage to mention the details of the manner in which the transactions under each of the four categories were entered into. They are found stated in paragraph 11 of the statement of the case and were verbatim accepted by the Supreme Court. When this reference had come before this Court on an earlier occasion, the question raised before the Division Bench was, whether all or any of these sales comprised in items Nos. 3, 4, 5 and 9 was assessable to income -tax in the taxable territories for the reason that the profits in respect of these items accrued in British India, and this Court took the view, after considering each of the four categories before it that no part of the profits of the said sales could be said to have accrued in British India so as to make r. 33 of the Indian IT Rules applicable to the same. Before this Court the question canvassed was that the entire formalities of the contract and its complete performance had taken place in Indore and not in British India and that the only circumstance that was established upon the facts was that the assessee -company's representative had canvassed for orders in British India and upon that point being taken this Court took the view that the mere circumstance that the company's representative had canvassed for orders in British India would not have the effect of making any part of the income accrue or arise in British India, since the formation of the contract and its complete performance had taken place in Indore and not in British India. The question as regards the passing of the property in the goods comprised in these contracts was not as such raised before this Court.

(3.) The CIT was granted special leave to appeal by the Supreme Court against this decision and the appeal was decided on the 21st July, 1967 (Civil Appeals Nos. 2178 to 2182 of 1966 (1968) 67 ITR Category of sales Total sales Sales effected and received in Br. India Balance of columns II & III Sales prursuant to contracts bearing stamps of Indore State Balance sales (a) Sales in pursuance of business canvassed by company's representatives in British India. 1002642 335855 666787 20759 646028(3) (b) Sales to British Indian merchants through brokers & agents in British India. 291891 ..... 291891 .... 291891(4) (c) Sales to British Indian merchants and brokers during their visit at Indore. 38521 ..... 385214 98990 286224(5) (d) Sales to British Indian merchants at the time of their own of their own or their brokers' visit at Indore 313306 ..... 313306 57390 255916(9) . 1993053 335855 1657198 177139 1480059 79 (SC)). Before the Supreme Court the principal point taken was that it could not be held that no part of the profits of the sales could be said to have accrued or arisen in British India because, on the affidavits and the circumstances of the case, the property in the goods passed in British India in all the four categories. It was urged that in all the four categories the method of delivery was similar. The railway receipts were made out in the name of "self" by the assessee -company and endorsed in favour of the customer and the railway receipts were handed over to the Imperial Bank of India, Indore, for being delivered to the merchants and the sale proceeds were received at Indore through the Imperial Bank of India, Indore. It was urged that the mere fact that the goods were to be delivered f. o. r. at Indore did not make the property in the goods pass at Indore. These submissions were accepted by the Supreme Court and relying upon their decisions in Seth Pushalal Mansinghka (P.) Ltd. vs. CIT (1967) 66 ITR 159 (SC), CIT vs. P. M. Rathod & Co. (1959) 37 ITR 145; , and CIT vs. Bhopal Textiles Ltd. (1961) 41 ITR 72 the Supreme Court held that the income from these sales accrued within British India and that the proportionate part of the income was assessable to income -tax in the taxable territory. Accordingly they disposed of the third question originally referred to this Court by answering it in the affirmative in favour of the Department. Now this Court had, upon the view which it had taken that no part of the profits on the said sales could be said to have accrued in British India, stated that the second question which dealt with the question of apportionment of the profits only in the event of it being held that the profits from the sales were taxable, did not survive.