Case Note & Summary
The appeal arose from a reference under Section 66(1) of the Income-tax Act concerning the place of receipt of income, profits and gains of a firm manufacturing perfumery and hair oils at Ratlam in Madhya Bharat, then a Part B State. The assessee-firm sold goods throughout India through agents who canvassed orders; goods were sent either by Value Payable Post (VPP) or by rail with railway receipts in favour of self forwarded through a bank to be delivered against payment of demand drafts. The Income-tax Officer assessed the assessee for assessment year 1950-51 at rates applicable to Part A States for profits from sales to customers in Part A and C States, holding that sales were effected and payments received in those States. The assessee claimed receipts in Ratlam, entitling it to concessional rates applicable to Part B States. The firm sent out agents who canvassed orders and sometimes collected advance payments. Goods ordered were dispatched from Ratlam by VPP or by rail. In rail transactions, railway receipts in favour of the seller were sent through a bank with instructions to deliver against payment of enclosed demand drafts; the bank then sent the sale proceeds by bank draft to Ratlam, which were cashed and credited to the assessee's account in Bombay. The Income-tax Officer estimated profit at Rs.1,60,340 on sales of Rs.5,09,424, later reduced by Rs.20,000 by the Appellate Assistant Commissioner. The Income-tax Appellate Tribunal held that VPP receipts were received at Ratlam but that amounts received by bank drafts and encashed in Bombay were received in a Part A State, and referred two questions to the High Court. The High Court answered both questions in favour of the assessee; hence the present appeal by the Commissioner. The core issues were whether sale proceeds received at Ratlam for goods sent by VPP to customers in Part A or C States constituted receipts in a Part B State, and whether bank drafts payable in Part A or C States but received at Ratlam and encashed through bankers in Bombay constituted receipts in a Part A State; the Supreme Court reframed the first question to whether payment received by a banker in Part A or C States against delivery of railway receipts was payment in those States or in Ratlam. The revenue contended that because goods were delivered and payments made to bankers or post offices in Part A/C States, the income was received there and not entitled to concessional Part B rates. The assessee argued that the prices realized were receipts at Ratlam, as goods emanated from Ratlam and remittances were received there before encashment, thus only concessional rates should apply. The Supreme Court first held that a question referred could be reframed when not properly framed. On rail transactions, the court reasoned that where railway receipts in favour of self are sent to a banker to be delivered against payment of price, the appropriation to the contract is conditional and performance is completed only when monies are paid and receipts delivered; thus receipt occurred in the State where the banker received payment from the buyer. On VPP transactions, the court analyzed the post office's role under Rule 133 of the Post Offices Guide and held that the post office is an agent of the seller for recovery of price, that the seller retains control over goods until delivery against payment, so the contract falls under Section 25(1) of the Indian Sale of Goods Act, 1930. It further observed that even if the post office were a bailee, its duty to deliver goods only against payment meant it received price at the place of delivery on behalf of the seller. The court distinguished Commissioner of Income-tax v. Ogale Glass Works Ltd. and The Badische Anilin Und Soda Fabrik v. The Basle Chemical Works. The Supreme Court allowed the appeal, set aside the High Court's answers, and held that income from goods sent by rail against delivery of railway receipts was received in Part A or C States where payment was made, and similarly, for goods sent by VPP, the price was received at the place of delivery in Part A or C States, not at Ratlam. Consequently, the assessee was liable to tax at rates applicable to Part A States for such transactions.
Headnote
A) Income Tax - Reference Proceedings - Court's Power to Reframe Question - Income-tax Act, Section 66(1) - When a question referred to the court is not properly framed, it is open to the court to reframe the question which arises on a proper appreciation of the facts; Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax, [1955] 1 S.C.R. 925 followed - Held that the proper question was whether payment received from a buyer by a banker in Part A or C States against delivery of railway receipts for goods sent by the seller is payment in those States or in Ratlam which was a Part B State (Paras Not mentioned). B) Income Tax - Place of Receipt of Income - Goods Sent by Rail with Railway Receipts Delivered Against Payment - Indian Sale of Goods Act, 1930, Section 25(1); Indian Contract Act, 1872, Section 148 - Where goods are sent by rail and railway receipts in favour of self are sent to a banker to be delivered to the buyer against payment of price, the appropriation to the contract is only conditional and performance is completed only when monies are paid and receipts delivered - Held that where payment was received by a banker from a buyer in a Part A or C State against delivery of railway receipt in favour of self, the contract was performed and income received in that Part A or C State, not at the seller's place in a Part B State (Paras Not mentioned). C) Income Tax - Value Payable Post - Post Office as Agent of Seller for Recovery of Price - Indian Sale of Goods Act, 1930, Section 25(1) - Under VPP system, the post office is an agent of the seller for the recovery of price against delivery of goods; the seller retains control over goods right up to delivery against payment, so the contract falls under Section 25(1); even if post office is considered a bailee, its duty is to deliver goods against payment and it receives price at the place of delivery on behalf of the bailor - Held that in respect of goods sent by VPP to a Part A or C State, the price was received there and not at Ratlam; Mothi Rungaya Chetty v. Secretary of State for India, (1904) I.L.R. 28 Mad. 213 approved; Commissioner of Income-tax v. Ogale Glass Works Ltd., [1955] 1 S.C.R. 185 and The Badische Anilin Und Soda Fabrik v. The Basle Chemical Works, [1898] A.C. 200 distinguished (Paras Not mentioned). D) Contract Law - Conditional Appropriation and Passing of Property - Delivery of Goods by VPP or Against Railway Receipts - Indian Sale of Goods Act, 1930, Section 25(1); Indian Contract Act, 1872, Section 148 - Appropriation to contract is conditional until the condition of payment against delivery is fulfilled; property in goods does not pass until that condition is satisfied - Held that in the present case, receipt of price at the place of delivery in Part A or C States constituted receipt of income there, not at Ratlam; appeal allowed (Paras Not mentioned).
Issue of Consideration
Where were the income, profits and gains of the assessee received or deemed to be received for the assessment year 1950-51, determining the applicable tax rate; specifically, whether receipt of sale proceeds at Ratlam for goods sent by VPP to customers in Part A or C States constituted receipt in a Part B State, and whether bank drafts payable in Part A or C States but received at Ratlam and encashed through bankers at Bombay constituted receipts in a Part A State.
Final Decision
The Supreme Court allowed the appeal, set aside the High Court's answers, and held that income from goods sent by rail against delivery of railway receipts was received in Part A or C States where payment was made; similarly, for goods sent by VPP, the price was received at the place of delivery in Part A or C States, not at Ratlam. The proper question was reframed and answered in favour of the revenue.
Law Points
- Legal points not extracted
- Post office is agent of seller for recovery of price under VPP system
- seller retains control over goods until delivery against payment
- contract falls under Section 25(1) of Indian Sale of Goods Act
- 1930
- payment to post office is payment to seller at place of delivery
- banker receiving payment against delivery of railway receipts in favour of self results in receipt in that State
- court can reframe referred question if improperly framed.
