Appeal No 9 of 1958
Appeal by special leave from the judgment and order dated February 24 1955 of the former Bombay High Court in Income tax Reference No 50X of 1954
K N Rajagopal Sastri and D Gupta for the appellant
R J Kolah section N Andley J B Dadachanji Rameshwar Nath and P L Vohra for the respondent
August 10
The Judgment of the Court was delivered by SHAH J
Aktiebolaget Svenska Kullakerfabriken of Gothenburg is a company incorporated under the laws of Sweden and is engaged in the manufacture of ball bearing equipment
section K F Ball Bearing Co Ltd which will hereinafter be referred to as  the section K F is a company registered under the Indian Companies Act 1913
By an agreement dated January 1 1939 the section K F was appointed by the Swedish company as its sole selling agent in India
On account of the commencement of hostilities in the second world war a corporation known as the Panrope Corporation was incorporated in the Republic of Panama in 1940 to take over as a war time arrangement the assets and business of that Swedish company
With effect from July 1 1947 the Panrope Corporation conveyed the property and business to the Swedish company
In the years 1947 1948 1949 and 1950 the section K F sold in India as the agent of the Swedish and Panamian companies which will hereinafter be collectively referred to as the  foreign corporations  the goods manufactured by them
A small quantity of goods was bought by the section K F 143 and sold by it in India but no question arises in this appeal about the liability to pay income tax in respect of sale of those goods and no reference is made herein in respect of those sales
The Income tax Officer Companies Circle 113 Bombay exercising powers vested in him by section 43 of the Indian Income tax Act 1922 having appointed the section K F as the statutory agent of the foreign corporations for the assessment year 1948 49 and of the Swedish company for the assessment years 1949 50 1950 51 and 1951 52 the section K F submitted returns of income for these years in the taxable territory on behalf of the foreign corporations
Clauses 13 22 and 23 of the agreement dated January 1 1939 between the section K F and the Swedish company which are material for the purpose of this appeal are as follows Clause 13 The Agent shall render before the tenth day of each month a true and detailed statement of the said Products that have been sold by him or his Sub Agents during the preceding month
This statement is to be prepared in accordance with instructions that are to be given by section K F and it shall contain the names and addresses of the parties to whom the said Products have been supplied together with a description of the Products and the prices at which they have been sold
Clause 22 The Agent shall sell the said Products either for cash or on credit
Notwithstanding the fact that permission is hereby granted by section K F to the Agent to sell on credit any credit given by the Agent to the buyer of the said Products shall be deemed to have been given by the Agent for his own account and on his own responsibility
If the buyer has not paid the Agent the amount that is owing by the date on which the Agent is to render a statement and make payment to section K F for such sales that have been made on credit the Agent shall nevertheless be liable to effect payment to section K F in accordance with the terms and conditions that are defined in this Agreement
Clause 23 The Agent shall pay to section K F the 144 net sales value of the said Products that are sold each month after deduction of the commission that has been agreed upon cf 20 and the import expenses that have been paid of 21
Payment shall be made in Sweden thirty 30 days at the latest following the last day of the month in which the sales have been effected
The Income tax Appellate Tribunal has found that for rendering accounts of the net sales and also for making payments according to the terms of el 13 of the agreement the section K F maintained for the relevant periods a current account in the names of the foreign corporations in respect of goods  received on consignment 
When goods were sold by the section K F the account of the principal was credited with the price and the account of the buyers to whom the goods were sold on credit was debited
In a majority of cases of sales remittances of sale value after deducting commission were made after sale of the goods to the buyers but before the sale proceeds were recovered
In a few cases remittances were made even before the goods were sold and in the remaining remittances were made after the sale proceeds were realized from the buyers
The Income tax Officer assessed the foreign corporations under section 41a of the Indian Income tax Act for payment of tax on the profits included in the price realized by the section K F by sale of goods  received on consignment  without making any distinction between sales in respect of which the remittances were made after recovery of sale proceeds and sales in respect of which remittances were made before reco very of the sale proceeds
The order passed by the Income tax Officer was confirmed by the Appellate Assistant Commissioner and also by the Income tax Appellate Tribunal
At the instance of the section K F the following questions were referred to the High Court of Judicature at Bombay under section 661 of the Indian Income tax Act 1922 1 Whether there was evidence on which the Tribunal could have held that the Panrope Corporation and the non resident company had a business 145 connection in the taxable territories in the years of account  2 Whether the profits of the Panrope Corporation and the non resident company in respect of the consignment goods were received in the taxable territories on their behalf  At the hearing of the reference before the High Court counsel for the assessee having conceded that the section K F was not a purchaser of the goods  received on consignment  from the foreign corporations but was their agent for sale of the goods an answer in the affirmative was recorded on the first question
On the second question the High Court opined that as the remittances by the section K F pursuant to the terms of cl 23 of the agreement before the sale pro ceeds were realized from the buyers were received by the foreign corporations outside the taxable territory the same could not be taken into account under section 41a of the Indian Income tax Act in assessing the taxable income of the foreign corporations
The High Court observed that the section K F was liable to pay tax on behalf of the foreign corporations under section 41a only if the taxing authority established that the foreign corporations had received the sale proceeds within the taxable territories that the sale proceeds were received by the foreign corporations when the section K F made remittances under cl 23 of the agreement but somewhat inconsistently the High Court observed that the remittances made by the section K F before the sale proceeds were realized were remittances not of sale proceeds but in discharge of its obligation under el
23 of the agreement and that the realizations by the section K F from the buyers of the goods subsequent to the remittances were not of sale proceeds on behalf of the foreign corporations but were receipts on its own behalf and in its own right and in recoupment of the amounts remitted to the foreign corporations
The High Court accordingly answered the second question in the affirmative  to the extent that the remittances were made after the sale proceeds were received by the assessee company
19 146 We are unable to agree with the reasoning and the conclusion of the High Court
The terms of the agreement make it abundantly clear that the goods  received on consignment  from the foreign corporations were received by the section K F as their selling agent and not as purchaser
The goods it is true were sold by the section K F in its own name and not in the name of the foreign corporations but the goods were still sold for and on behalf of the foreign corporations and the sale proceeds received by the section K F were received not on its own behalf but for and on behalf of its principals
Clauses 9 12 13 14 17 18 and 20 of the agreement clearly show that the goods received by the section K F continued to remain the property of the foreign cor porations till they were sold to the buyers
In the price received for sale of the goods the profit of the owner was in truth embedded and that profit was liable to be taxed under section 41a of the Indian Income
tax Act if it was received in the taxable territory
It is not disputed that the sale proceeds realized by the section K F in the taxable territory as agent of the foreign corporations before remittances under the terms of the agreement were liable to be taxed
Does the circumstance that the section K F had in discharge of an obligation undertaken by it made remittances under the terms of the agreement before it realized the price of the goods sold alter the nature of the realizations  The remittances made by the section K F indisputably reached the foreign corporations in respect of all sales outside the taxable territory
But the section K F was their agent for sale of the goods and for receiving the price in the taxable territory
The relation between the section K F and the foreign corporations was not altered because before realizing the price from the buyers remittances were made to the foreign corporations
The price of goods sold by the section K F whether before or after remittance was realized as the agent of the foreign corporations
If remittance in respect of a sale was made before the price was realized the section K F became entitled to adjust the account and to take credit for the amount paid out of the realization
What the foreign corporations received under remittances 147 made before or after realization of the price was not the sale proceeds in respect of sales but amounts
due by the section K F under an obligation expressly undertaken by it under cl 23 of the agreement
The price of goods sold by the section K F were in all cases received by it within the taxable territory  and the section K F being the agent for sale and for receiving the price the income embedded in the sale proceeds must be deemed to be received by the foreign corporations also within the taxable territory
It is the receipt of income which gives rise under section 41a of the Indian Income tax Act to liability to pay tax and the place where the price is received is determinative of the question whether the income is received in the taxable territory
The price for the goods sold was received only when the buyer paid it and not before and when the price was received by the section K F the income was received
The remittances by the section K F to the foreign corporations before the price was received did not include income because income in fact was never received till the price was realized
Again we are unable to agree with the contention of counsel for the section K F that there was a contract of suretyship between the foreign corporations and the section K F and the receipt by the former of the remittances amounted to receipt of the price of the goods
It is not pretended that there was a tripartite contract and the foreign corporations sold the goods directly to the purchasers in India the section K F having guaranteed payment of the price by the buyers to whom the goods had been sold
The price received by the section K F being received within the taxable territory for and on behalf of the foreign corporations in respect of goods sold we are unable to hold that the realization of the price in which is embedded the profit is not liable to tax under section 41a as income received merely because under an independent obligation the section K F has rendered itself liable to pay the amount equivalent to the price less commission even before the price has been realized and has discharged that obligation
In the view taken by us the second question will be 148 answered in the affirmative in respect of sale of all goods where the price has been received by the SKF in the taxable territory and irrespective of whether the remittance has been made in respect of the goods sold before or after the price was received
The appeal is accordingly allowed to the extent indicated
The appellant will be entitled to his costs in this court and also the costs of the reference in the High Court
Appeal partly allowed


Summary:
N borrowed rupees one lakh from D on mortgage of a house and Zamindari interest on March 1 1924
Interest was 8 per annum compoundable with six monthly rests
In 1932 the mortgagee filed a suit on the mortgage and a decree was passed for the recovery of Rs 18378159 principal and interest upto the date of the suit and Rs 49280 26 interest from date of the suit upto the date fixed for payment with future interest at 6 per annum simple on the principal sum
On the failure of the mortgagor to pay by the date fixed a final decree was passed on May 9 1935 for sale of the property for recovery of a sum of Rs 23750356 which had become due
On October 26 1936 N made an application under section 4 of the U P Encumbered Estates Act 1934 requesting that the provisions of the Act be applied to him
Section 144a of the Act provided that  the amount of interest held to be due on the date of application shall not exceed that portion of the principal which may still be found to be due on the date of the application 
N contended that in view of section 144a D was not entitled to recover any sum as interest in excess of the principal sum of rupees one lakh
D contended that it was not necessary to reopen the decree as the principle of section 144a had not been violated in passing the decree
Held that the proper decree that should have been passed on the application was for rupees two lakhs for the principal and interest plus costs and interest pendente lite and future interest at 4 per annum
The words  on the date of the application  in section 144a of the Act had been deliberately used to benefit the applicant by reducing the interest to the amount of the principal found still due on the date of the application whatever amount of interest may be due under the contract
The fact that there had been a decree did not make any difference in giving the benefit of the section to the applicant
Pandit Ramsagar Prasad vs Mst
Shayama AIR 1939 Oudh 75 disapproved
Rukun uddin vs Lachhmi Narain ILR 1945 All
307 referred to 119