LAKHMICHAND MUCHHAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this reference under section 66(1) of the Income -tax Act by the Appellate Tribunal at the instance of the assessee, the question which we are required to answer is :

(2.) THE question relates to the assessment year 1947 -48. The assessee is a dealer in cloth doing business in Indore. During the relevant year he sold cloth to purchasers in what was then British India. Indore was then a non -taxable territory. In respect of some of the sales the assessee charged to the purchasers interest because of the delay on the part of the purchasers in the payment of the sale proceeds. He obtained an amount of Rs. 12,261 by way of interest which was remitted to him at Indore. The Income -tax Officer held that this amount of interest accrued to the assessee in a taxable territory and was, therefore, assessable. He rejected the contention of the assessee that the interest received by him was for a deferred payment of price and accrued to him where the sales were completed, namely, at Indore. The reasoning of the Income -tax Officer was that when goods were sent by the assessee to the purchasers in taxable territory, money was brought into that territory in the form of goods and that there was thus money lent to the purchasers and its utilization by them and consequently that was interest on money lent which was taxable 'according to the logic of section 42'. The assessee then preferred an appeal before the Appellate Assistant Commissioner which was accepted. The Appellate Assistant Commissioner held that there was no relationship of debtor and creditor between the assessee and his customers in British India and no transaction of money -lending and, therefore, the interest received by the assessee on the sale proceeds could not be taxed under section 42 as interest on money lent. The department then went up in appeal before the Appellate Tribunal Pressing the contention that the amount of interest accrued to the assessee in British India under section 42. The Tribunal accepted this contention. It observed :

(3.) LEARNED Advocate -General appearing for the department found himself unable to support the view of the Tribunal that the interest received by the assessee was an interest on money lent. He, however, urged that the interest amount which the assessee got was from a source of income in the taxable territory, the source being the retention of money by the purchasers and its utilization by them. We do not agree.'Source' as used in section 42 means something from which income arises. In Rhodesia Metals Ltd. v. Commissioner of Taxes the Privy Council accepted the statement in Ingram on Income -tax that 'source' means not a legal concept but something which a practical man would regard as a real source of income. The decisions in Kamakshya Narain Singh v. Commissioner of Income -tax and Rani Amrit Kunwar v. Commissioner of Income -tax are also in similar vein. In the case of Hart v. Sangster it was held that in England, with reference to 'new source', source meant the same thing as origin and that the source of interest on a bank deposit was the actual deposit and not any contract between the bank and the deposit or about tendering of deposits and their acceptance by the bank. The interest which the assessee here obtained did not depend on the utilization for some time of the sale proceeds by the purchasers. The assessee would have got interest on the sale proceeds under section 61 of the Sale of Goods Act even if the purchasers had not utilized the money. The interest no doubt became payable by the purchasers because of the delay in the payment of the sale proceeds, but so far as the assessee is concerned it represented the advantage which he would have had if the money had been remitted to him at Indore. The source of interest was thus the actual money payable to the assessee at Indore and not the retention of the sale proceeds by the purchasers. The interest which the assessee received was a part of the price itself. It is unnecessary to refer to the authorities cited at the bar for none of them deals with the point arising for determination in the present case.