COMMISSIONER OF INCOME TAX Vs. LAXMICHAND MUCHHAL

JUDGEMENT

(1.) IN this reference under section 66(1) of the Indian Income -tax Act, 1922, at the instance of the Commissioner of Income -tax, the question which has been referred to this Court for decision is -

(2.) THE dispute in this reference relates to the assessment year 1919 -50, the relevant provisions year of which ended on 1st November 1948. During the relevant previous year, the assessee firm M/s Laxmichand Muchhal, Indore, carried on business at Indore and Ujjain in the sale and export of cloth. These two places were then in non -taxable territory. In that year, there was an All -India control over the disposal of cloth. Under the All -India Cloth Distribution Scheme, which was then in force, the assessee firm was appointed as nominee for the United Provinces and certain districts of Punjab for supply of cloth from particular Mills in Indore and Ujjain according to the allocations made by the competent Textile Commissioner. When the assessee received allotment orders for supply of cloth to United Provinces and certain districts of Punjab from Mills in Indore and Ujjain it took delivery of the allotted cloth and then dispatched the cloth to various destinations in Uuar Pradesh and other places according to the instructions received from time to time from the competent authorities. The goods were stocked by the assessee in godowns until they were actually dispatched to the allottees. They were put on rail at Indore and Ujjain and all transport charges were borne by the allottees to whom they were to be dispatched in accordance with the instructions of the competent officers. The assessee made out invoices in the name of the parties to whom goods had been allotted, and the invoices along with the railway receipts drawn in the name of the self with Hundis covering the price and other charges due to the assessee were presented by the assessee at the State Bank of Indore after being endorsed in favour of the Bank. In the invoices, besides the price of the cloth, transport charges, commission charges and interest amount on the price of cloth from the date of taking actual delivery by the assessee of cloth from the Mills till the date of dispatch of the cloth to the allottees at various destinations, were included. The State Bank of Indore discounted the documents presented by the assessee and gave it full credit for the entire amount. The assessee withdrew the amount from the Bank soon after it was credited by the Bank in its favour after the receipt of the documents. The amount thus collected by the assessee in respect of its business at Indore and Ujjain as nominee for United Provinces and certain districts of Punjab was, during the relevant previous year, Rs.28,93,802/ - at Indore and Rs.9,31,000/ - at Ujjain.

(3.) THE assessee then appealed to the Income tax Appellate Tribunal contending that the documents drawn by the assessee were negotiated by the Bank; that as the Bank credited the entire amount to the account of the assessee, the collection subsequently by the Bank of the amount specified in the invoices and document was on its own behalf and not on behalf of the assessee; and that consequently the assessee received the amount at Indore and Ujjain and not in taxable territory where the Bank recovered the money from various allottees. The assessee relied on the decision of the Punjab High Court in Chiranji Lal Multani Mal Vs. C.I.T. On a consideration of the material on record, which consisted or the assessee's account -books, Bank pass books, and the correspondence that was exchanged between the State Bank of Indore and the Income -tax Officer regarding the course of dealings between the assessee and the Bank with respect to these particular transactions, the Tribunal came to the conclusion that the State Bank of Indore actually purchased the documents from the assessee or discounted them, and when it subsequently received the sale proceeds from the allottees, it received the sum for itself and not for the assessee. On this point, the Tribunal expressed its view thus -