Case: The Commissioner Of Income-Tax, Madras Vs. Mysore Chromite Limited

place outside British India and, ex hypothesis the profits derived from such sales arose outside British India.8. As to the second question, the.. learned Solicitor-General contends that irrespective of the place where the sale may have. taken place the profits derived from such sales were received in Madras. It is recalled that after shipment the assessee company, through its managing agent in Madras, prepared, provisional invoices and drew bills of exchange for 80 per cent. or 90 per cent., as the case may be, of the amount of such invoices and handed over the same to the Eastern Bank Ltd., Madras, and received the amount of the bill of exchange from them in Madras. He contends that the receipt of this payment by the assessee company was really the receipt of the price of the goods and amounted to receipt of profits in Madras. He draws our attention to the terms of payment in the European contract and to the letter of intimation of the opening of the credit sent by the Eastern Bank Ltd. Madras, to the assessee company which have been quoted in part in the earlier part of this judgment. He relies on the words "through the Eastern Bank Ltd., " appearing in the contract and the words "available by delivery to us" appearing in the letter. We do not think that those words support the contention of the learned Solicitor-General. The words "through the Eastern Bank Ltd., " appear to us to go with the preceding words "to be advised to sellers" which are put within brackets which seem to have been wrongly closed after the word sellers instead of after the words the Eastern Bank Ltd. ". Ordinarily, the buyer opens a letter of credit with his Bank in favour of the seller andthe words "through the Eastern Bank Ltd., " would be meaningless unless it was intended to mean that the irrevocable credit which was in favour of the assessee company was to be operated upon by the latter through the Eastern Bank Ltd. If that were the true meaning, then that certainly does not make the Eastern Bank Ltd., the agent of the buyers. The words "available by delivery to us" occurring in the letter of the Eastern Bank Ltd., Madras, do not appear to us to indicate that this was any part of the terms of the letter of credit. This was an intimation in accordance with the advice received by the Eastern Bank Ltd., Madras, from the Eastern Bank Ltd., , London, that the assessee company might avail itself of the letter of credit by delivery of the documents to the Eastern Bank Ltd., Madras. This is made further clear by the latter part of the letter where the Eastern Bank Ltd., Madras, expressed their willingness at their option to negotiate the drafts drawn in terms of the arrangement provided that the documents were in order, The concluding sentence of that letter whereby the Eastern Bank Ltd., Madras, disown any responsibility in respect of the advice clearly militates against the suggestion of the learned Solicitor-General. It is, in these circumstances, impossible to accede to the argument that the payment of 80 per cent. or 90 per cent., as the case may be, of the amount of the provisional invoice by the Eastern Bank Ltd., Madras, was a payment on account of the price. Normally, price is paid by or on behalf of the buyer. In this case the fact found is that the Eastern Bank Ltd., Madras, and the Eastern Bank Ltd., London., were agents of the assessee company. Neither of them had any relation with the buyers. Therefore, a payment by them cannot be regarded as a payment of the price. The true position is very clearly put by Lord Sumner in The Prinz Adalbert(L.R. [1917] A.C. 586, 589) : " When a shipper takes his draft, not as yet accepted, but accompanied by a bill of lading, indorsed in this way, and discounts it with a banker, he makes himself liable on the instrument as drawer, and he further makes the goods, which the bill of ladingrepresents, security for its payment. If, in turn, the discounting banker surrenders the bill of lading to the acceptor against his acceptance, the inference is that he is satisfied to part with his security in consideration of getting this further partys liability on the bill, and that in so doing he acts with the permission and by the mandate of the shipper and drawer.9. This payment by the Eastern Bank Ltd., Madras, therefore, is nothing but an advance made by them to their own customer on the security of the goods covered by the bill of lading reinforced by the benefit of the liability taken up by the assessee company as drawer of the bill which in its turn is backed by the confirmed and irrevocable credit of the buyers London Bank. If this payment was on account of the price, why should the assessee company, as the seller, undertake any liability to the Eastern Bank Ltd., as the drawer of the bill of exchange ? The truth of the matter is that the price was paid on behalf of the buyers by their respective London Banks in London to the Eastern Bank Ltd., London which was the agent of the assessee company. The first receipt of the price, therefore, as pointed out by the High Court, was by the Eastern Bank Ltd., London, on behalf of the sellers. There is no dispute that the balance of the price ascertained after weighment and assay and deducting the amount paid on the bill of exchange was similarly received in London by the Eastern Bank Ltd., London, on behalf of the assessee company. The subsequent adjustment made in the books of the Eastern Bank Ltd., London, did not operate as a receipt of profits in British India. In our opinion the High Court correctly answered the second question also in favour of the assessee company.10.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]According to section 4 of the Indian Sale of Goods Act a contract of sale of goods is a contract whereby the seller transfer, % or agrees to transfer the property in goods to the buyer for a price and where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. By sub-section (4) of that section an agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. Section 18 of the Act clearly indicates that in the case of sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods, areargument, however, overlooks the important word "unconditionally" used in the section. The requirement of the section is not only that there shall be appropriation of the goods to the contract but that such appropriation must be made unconditionally. This is further elaborated by section 25 which provides that where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the. terms. of the contract or appropriation, , reserve the right of disposal of the goods until certain conditions are fulfilled. In such a case, notwithstanding the delivery of the goods to the buyer, or to a carrier or other bailer for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller areis true that the price and delivery was F.O.B., Madras but the contracts themselves clearly required the buyers to open a confirmed irrevocable Bankers credit for, the requisite percentage of the invoice value to be available against documents. This clearly indicated that the buyers would not be entitled to the documents, , that is, the bill of lading and the provisional invoice, until payment of the requisite percentage was made upon the bill of exchange. The bill of lading is the document of title to the goods and by this termthe assessee company clearly reserved the right of disposal, of the goods until the bill of exchange *as paid. Placing of the goods on board the steamer named by the buyer under a F.O.B. contract clearly discharges the contractual liability of the seller as seller and the delivery to the buyer is complete and the goods may thenceforward be also at the risk of the buyer against which he may cover himself by taking out an insurance. Prima facie such delivery of the goods to the buyer and the passing of the risk in respect of the goods from the seller to the buyer are strong indications as to the passing also of the property in the goods to the buyer but they are not decisive and may be negatived, for under section 25 the seller may yet reserve to himself the right of disposal of the goods until the fulfilment of certain conditions and thereby prevent the passing of property in the goods from him to the buyer. The facts found in this case are that the assessee company shipped the goods under bill of lading issued in its own name. Under the contract it was not obliged to part with the bill of lading which is the document of title to the goods until the bill of exchange drawn by it on the buyers Bank where the irrevocable letter of credit was opened wasit to say, for the purposes of this case, that in any event upon the terms of the contracts in question and the course of dealings between the parties the property in the goods could not have passed to the buyer earlier than the date when the bill of exchange was accepted by the buyers Bank in London and thedocuments were delivered by the assessee companys agent, he Eastern Bank Ltd., London, to the buyers"admittedly, and as found by the Appellate, Tribunal, always took place in London. It must, therefore, . follow that at the earliest the ;property in the goods passed in London where the bill of lading was handed over to the buyers Bank against the acceptance of the relative bill of exchange. In the premises, the Appellate Tribunal as well as the High Court were quite correct in holding that the sales took place outside British India and, ex hypothesis the profits derived from such sales arose outside Britishdo not think that those words support the contention of the learned Solicitor-General. The words "through the Eastern Bank Ltd., " appear to us to go with the preceding words "to be advised to sellers" which are put within brackets which seem to have been wrongly closed after the word sellers instead of after the words the Eastern Bank Ltd.this case the fact found is that the Eastern Bank Ltd., Madras, and the Eastern Bank Ltd., London., were agents of the assessee company. Neither of them had any relation with the buyers. Therefore, a payment by them cannot be regarded as a payment of thepayment by the Eastern Bank Ltd., Madras, therefore, is nothing but an advance made by them to their own customer on the security of the goods covered by the bill of lading reinforced by the benefit of the liability taken up by the assessee company as drawer of the bill which in its turn is backed by the confirmed and irrevocable credit of the buyers London Bank. If this payment was on account of the price, why should the assessee company, as the seller, undertake any liability to the Eastern Bank Ltd., as the drawer of the bill of exchange ? The truth of the matter is that the price was paid on behalf of the buyers by their respective London Banks in London to the Eastern Bank Ltd., London which was the agent of the assessee company. The first receipt of the price, therefore, as pointed out by the High Court, was by the Eastern Bank Ltd., London, on behalf of the sellers. There is no dispute that the balance of the price ascertained after weighment and assay and deducting the amount paid on the bill of exchange was similarly received in London by the Eastern Bank Ltd., London, on behalf of the assessee company. The subsequent adjustment made in the books of the Eastern Bank Ltd., London, did not operate as a receipt of profits in British India. In our opinion the High Court correctly answered the second question also in favour of the assessee company.