# r959 Dh,.angadhra Chemical Worl<s Ltd v. The Dhrangadhra Municipality Imam]. I959 Mayzo

- **Citation:** [1960] 1 S.C.R. 401
- **Court:** Supreme Court of India
- **Decided:** 1960
- **Case number:** Civil Appeal No. 173 of 1959
- **Bench:** B. P. Sinha, J. L. Kapur, M. Hidayatullar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/r959-dh-angadhra-chemical-worl-s-ltd-v-the-dhrangadhra-municipality-imam-i959-1770
- **Pages:** 10

## Headnote

Income-tax-Place of accrual or receipt of profits-Goods sold
by a trader in a Part B State to customers in Part A or C StatesGoods sent by Value Payahle Post or by rail-Post office, whethe1
agent of seller or bailee of goods-Railway receipt sent to bankers to
be delivered to customers against payment--Concessional rate of
taxation applicable to Part B States-Indian Sale of Goods Act, I9JO
(3 of I9JO), s. 25(I)-lndian Contract Act, I872 (9 of I872), s. I48.
The respondents were manufactur<'rs of perfumery and hair
oils at Ratlam in Madhya Bharat which at the relevant time
was a Part B State. They sent out agents who canvassed orders.
The goods ordered were sent to the customers from Ratlam
either through the post office by Value Payable Post or they were
sent from there by rail and the railway receipts in favour of self
were sent through a bank with the direction that they (railway
receipts) were to be handed over against ' payment of the enclosed demand draft.' The price when received by the bank was
sent by means of a demand draft to the respondents at Ratlam
who had it cashed and credited to their account at Bombay. The
respondents were assessed to income-tax. in respect of profits
from such sales of goods to customers in Part A and C States, for
the assessment year 1950-51, at the rate or rates applicable to
income, profits or gains arising or accruing in Part A States on
the footing that the sales were effected in Part A and C States
and the payments were also received there. The respondents
claimed that the prices realised constituted receipts in Ratlam
51
r959
Dh,.angadhra
Chemical
Worl<s Ltd.
v.
The Dhrangadhra
Municipality
Imam].
I959
Mayzo.
402
SUPREME COURT REPORTS [1960(1))
I959
and that therefore they were liable to be assessed only at the
-. .
concessional rates applicable to Part B States. The Appellate
The Commissioner Tribunal held that the price of goods sent by Value Payable
of Incmne-tax
Post was received at Ratlam and .that in respect of the price
v.
received by bank drafts which had been realised through the
P. M. Rathod
bank at Bombay, the amount must be treated as having been
6- Company
received in a Part A State. At the instance of the Commissioner
of Income-tax and the respondents, the Tribunal referred two
questions to the High Court:
(1) Whether the bank drafts
payable in Part A or C States but received at Ratlam and
encashed. through the assessee's bankers at Bombay constituted
receipts in Part A State?
(2) Whether the receipt of sale
proceeds at Ratlam (which included the assessee's profits) in
respect of goods sent by the assessee to customers in Part A or C
States by V.P.P. amounted to receipts of income, profits or gains
at Ratlam in a Part B State? The High Court having answered
both the questions in favour of the respondents, the Commissioner of Income-tax preferred an appeal to the Supreme
Court:-
Held: (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 of the Case.
Narain Swadeshi Weaving Mills v. The Commissioner of
Excess Profits Tax, [1955] l S.C.R. 925, followed.
The proper question that arose on the facts of the present
case was held to be : " Whether on the facts and circumstances
of this case the 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 these States or in Ratlam which
was a Part B State."
(2) Where goods are sent by rail and the railway receipts in
favour of self are sent to a banker to be delivered to the buyer
against payment of the price, the appropriation to the contract is
only conditional and the performance is completed only when the
monies are paid and the railway receipts delivered.
Accordingly, where, as in the present case, the payment was
received by a banker from a buyer in a Part A or C State against
delivery of a railway receipt in favour of self for good

## Text

S.C.R.
SUPREME COURT REPORTS
401
expedition because if a nuisance exists it should be
removed without delay in order to preserve the health
of the community and the fertility of the soil.
The appeal is accordingly allowed with costs.
A petition (No. 174 of 1958) under Art. 32 of the
Constitution was also filed by the appellant. It is
unnecessary to pass any formal order on this petition
as, the appellant has i:mcceeded in the Civil Appeal
No. 173 of 1959, and it is dif-!posed of accordingly
except that there will be no order for costs in this
petition.
Appeal allowed.
COMMISSIONER OF INCOME-TAX, DELHI
v.
MESSRS. P. M. RATHOD & CO.
(B. P. SINHA, J. L. KAPUR and
M. HIDAYATULLAR, ,JJ.)
Income-tax-Place of accrual or receipt of profits-Goods sold
by a trader in a Part B State to customers in Part A or C StatesGoods sent by Value Payahle Post or by rail-Post office, whethe1
agent of seller or bailee of goods-Railway receipt sent to bankers to
be delivered to customers against payment--Concessional rate of
taxation applicable to Part B States-Indian Sale of Goods Act, I9JO
(3 of I9JO), s. 25(I)-lndian Contract Act, I872 (9 of I872), s. I48.
The respondents were manufactur<'rs of perfumery and hair
oils at Ratlam in Madhya Bharat which at the relevant time
was a Part B State. They sent out agents who canvassed orders.
The goods ordered were sent to the customers from Ratlam
either through the post office by Value Payable Post or they were
sent from there by rail and the railway receipts in favour of self
were sent through a bank with the direction that they (railway
receipts) were to be handed over against ' payment of the enclosed demand draft.' The price when received by the bank was
sent by means of a demand draft to the respondents at Ratlam
who had it cashed and credited to their account at Bombay. The
respondents were assessed to income-tax. in respect of profits
from such sales of goods to customers in Part A and C States, for
the assessment year 1950-51, at the rate or rates applicable to
income, profits or gains arising or accruing in Part A States on
the footing that the sales were effected in Part A and C States
and the payments were also received there. The respondents
claimed that the prices realised constituted receipts in Ratlam
51
r959
Dh,.angadhra
Chemical
Worl<s Ltd.
v.
The Dhrangadhra
Municipality
Imam].
I959
Mayzo.
402
SUPREME COURT REPORTS [1960(1))
I959
and that therefore they were liable to be assessed only at the
-. .
concessional rates applicable to Part B States. The Appellate
The Commissioner Tribunal held that the price of goods sent by Value Payable
of Incmne-tax
Post was received at Ratlam and .that in respect of the price
v.
received by bank drafts which had been realised through the
P. M. Rathod
bank at Bombay, the amount must be treated as having been
6- Company
received in a Part A State. At the instance of the Commissioner
of Income-tax and the respondents, the Tribunal referred two
questions to the High Court:
(1) Whether the bank drafts
payable in Part A or C States but received at Ratlam and
encashed. through the assessee's bankers at Bombay constituted
receipts in Part A State?
(2) Whether the receipt of sale
proceeds at Ratlam (which included the assessee's profits) in
respect of goods sent by the assessee to customers in Part A or C
States by V.P.P. amounted to receipts of income, profits or gains
at Ratlam in a Part B State? The High Court having answered
both the questions in favour of the respondents, the Commissioner of Income-tax preferred an appeal to the Supreme
Court:-
Held: (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 of the Case.
Narain Swadeshi Weaving Mills v. The Commissioner of
Excess Profits Tax, [1955] l S.C.R. 925, followed.
The proper question that arose on the facts of the present
case was held to be : " Whether on the facts and circumstances
of this case the 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 these States or in Ratlam which
was a Part B State."
(2) Where goods are sent by rail and the railway receipts in
favour of self are sent to a banker to be delivered to the buyer
against payment of the price, the appropriation to the contract is
only conditional and the performance is completed only when the
monies are paid and the railway receipts delivered.
Accordingly, where, as in the present case, the payment was
received by a banker from a buyer in a Part A or C State against
delivery of a railway receipt in favour of self for goods sent by
the respondents, the contract must be taken to have been performed in Part A or C States and the income arising out of these
transactions must be held to have been received there.
(3) The principles governing the despatch of articles by
Value Payable Post system are:-
(i) that the post office is an agent of the seller for the
recovery of price against delivery of goods;
Mothi Rungaya Chetty v. The Secretary of State for Ind;a,
(1904) I.L.R. 28 Mad. 213, approved.
(ii) that the seller retains control over the goods right up to
the time goods are delivered to the buyer against payment and
S.C.R.
SUPREME COURT REPORTS
403
the contract falls under s. 25(1) of the Indian Sale of Goods Act,
rg39
1930;
Mirabita v. Imperial Ottoman Bank, (1878) 3 Ex. D. 164 and The Commi.sioner
The Parchim, [1918] A.C. 157, referred to.
of Incomi-ta;
(iii) that even if the post office were considered to be a
P M v.
bailee of goods for transmission to the buyer, the contract would
· 'c' Rathod
fall under s. 25 of the Indian Sale of Goods Act and the approc;.
ompany
priation is conditional and until the condition is fulfilled the
property in the goods does not pass ; and,
(iv) that it is the duty of the bailee to dispose of the goods
in accordance with the directions of the bailor which in this case
was to deliver the goods against payment. Hence the bailee
received the price at the place of delivery of goods and did so on
behalf of the bailor.
Consequently, in the present case, in respect of goods sent
by Value Payable Post to a Part A or C State the price was
received there and not at Ratlam.
Commissioner of Income-tax v. Ogale Glass Works Ltd., [1955]
i S.C.R. i85 and The Badische Anilin Und Soda Fabrik v. The
Basle Chemical Works, [1898] A.C. 200, distinguished.
CIVIL APPELLATE JURISDICTION:
Civil Appeal No.
373of1957.
Appeal from the judgment and decree dated September 20, 1955, of the former Madhya Bharat High
Court at Indore in Civil :Misc. Case No. 40 of 1954.
0. K. Daphtary, Solicitor-General of India, K. N.
Rajagopal Sastri, R. H. Dheba1r and D. Gupta, for
the appellant.
S. S. Shukla, for the respondent.
1959. May 20. The Judgment of 'the Court was
delivered by
KAPUR J.-This appeal on a certificate by the High
Court is brought against the judgment of the High
Court of Madhya Bharat in a Reference by the
Income-tax Appellate Tribunal under s. 66(1) of the
Income-tax Act. The appellant is the Commissioner
of Income-tax and the respondents are a firm of
manufacturers of perfumery and hair oils at Ratlam
in Madhya Bharat and their goods are sold throughout India. At the relevant time Madhya Bharat was
a Part B State and the sole question for determination is where were the income, profits and gains,
Kapur J.
404
SUPREME COURT REPORTS [1960(1)]
x959
received or were deemed to be received and on that
-
would depend the rate at which the respondents
The Commissioner
Id b
l" bl
b
d b
f h
of Income-ta•
"'.'ou
e Ia e ~o e assesse
ecause o. t e conces-
. v.
s10nal rates applicable to Part B States. \
P. M. R.,hod
The facts lie in a short compass. The respondents,
.s. Company
a registered firm, were assessed for the assessment
year 1950-51, at the rate or rates applicable to income,
Kapu• J.
profits and gains arising or accruing in Part A States.
The course of their business was this : they sent out
agents to various parts of India. They canvassed
orders and sometimes took advance payments in full
or in part and aher deducting their expenses, remitted
the balance to the respondents at Ratlam through
Bank drafts etc. The goods ordered were sent to the
customers either by V. P. P. or by rail. In the latter
case the Railway Receipts in favour of self were sent
through a Bank deliverable against payment of the
Demand Draft drawn upon the buyers and sent with
the J{ailway Receipts. This price when received by
the Bank was sent by the Bank by means of Bank
Draft to the respondents at Ratlam who sent them
for being c11shed and credited to their account at
Bombay.
The Income-tax Officer held that the major quantity
of goods was supplied to the customers in what was
Part A & C States either by V. P. P. or by rail, the
Railway Receipts being in favour of the respondents
and payment was received as stated above.
The assessees' banker was the Bank of India Ltd.,
Bombay, and the sale proceeds were, according to the
Income-tax Officer, mainly realised through this Bank.
He held that the sales were effected in Part A & C
States and the payments were also received there.
He therefore made the assessment on an estimated
profit of Rs. 1,60,340 on sales of Rs. 5,09,424 without
allowing any rebate on account of concessional rates
applicable to Part B States. On appeal the Appellate
Asstt. Commissioner reduced . the estimated profit by
Rs. 20,000. The Income-tax Appellate Tribunal on
further appeal reduced the total income from Part
A & C States to Rs. 2,85,376. It found that the
income received through the Post Office, i.e., byV.P.P.
S.C.R.
SUPREME COURT REPORTS
405
was Rs. 1,23,710 and that received in respect of goods
r959
sent by rail and realized by the Bank drafts was Th c -. .
,
Rs. 2,85,376 making a total of Rs. 4,21,955. It also
~ ;n:::~:· ..
held that the advances received with orders were
v.
income, profits and gains received at Ratlam and not
P. M. Ratltod
in Part A & C States and similarly the price of goods
&- Company
sent by V. P. P. was also mouey received at Ratlam.
In regard to the price received by Bank drafts it held
Kapwr J.
that they were received at Ratlam but were sent to
the assessee's banker in Bombay for being cashed and
therefore they must be taken to have been received in
a Part A State. This amount was Rs. 2,85,376. The
Tribunal after referring to the decision of the, Bombay
High Court in Kirloskar Bros. Ltd. v. The Commissioner of lnc01ne-tax (1) said:-
"The facts, however, in this case are entirely
different. It appears from the printed ad vic,e sent
by the assessee to its bankers in every case that the
bankers are to hand over the goods aga,inst 'payment of the enclosed demand draft'. It is not a
case where the assessee gives unconditional discharge
on the receipt of either a. cheque or a bank draft.
We agree with the Appellate Assistant Commissioner that sale proceeds to the extent of Rs. 2,85,376
were received at Bombay."
Both the assessees and the Commissioner applied for a.
reference to the High Court under s. 66(1) of the
Income-tax Act and following t.wo questions were1
referred·:-
Q. 1 " Whether the receipt of sale proceeds at
Ratlam (which included the assessee's profits) in
respect of goods sent by the assessee to customers
in Part A or C States by V. P. P. amounted to
receipts of income, profits or gains at Ratlam in
Part B States ? "
Q. 2. " Whether the bank drafts payable in Part
A or C States but received at Ratlam and encashed
through the assessee's bankers at Bombay constituted receipts in Part A State? "
The High Court answered both these questions in
favour of the assessees but gave a certificate and the
(1) [1952] .21 I.T.R. Sz.
z959
TM Commissione1
of lncom~·tax
v.
P. M. Rathotl
&-Company
Kapur J.
406
SUPREME COURT REPORTS [1960(1)]
appeal is therefore brought by the Commissioner of
Income-tax.
Apart from the sales which were deemed to have
taken place in Ratlam itself the goods were, as stated
above, supplied to the customers in one of the follow"
ing two ways.
The goods were either sent from
Ratlam through the post office by V. P. P. or they
were sent from there by rail and the Railway Receipts
in favour of self were sent through a Bank with th.e
direction that the goods were to be handed over
against ' payment of the enclosed demand draft'.
We shall first deal with that part in which the goods
were sent by post under the V. P. P. system. The
purpose of this system is given in Rule 133 of the Post
Offices guide as under :-
"The V. P. P. system is designed to meet the requirements of persons who wish to pay for articles
sent to them at the time of the receipt of the articles
or of the bill or railway receipt relating to them
and also to meet the requirements of the traders
and others who wish to recover through the agency
of the post office, the value of articles supplied by
them."
In the case of delivery of goods by V. P. P. it is immaterial whether the buyer directs the goods to be sent
by V. P. P. or the seller does so on his own accord
because the goods handed over to the Post c;:>ffice by
the seller can only be delivered to the bu;l'.er against
payment and this payment is received for and on behalf
of the seller. The buyer does not pay till the goods are
received by him and once he has paid the price it is
the Post Office that is responsible for payment of the
money received by it to the seller. The buyer has no
longer any responsibility in regard to it. Therefore a
payment to the Post Office is payment to the seller and
at the place where the goods are delivered and payment
is made. Further before the goods are delivered to the
buyer the seller has under the V. P. P. Rules the power
to direct the Post Office to make the delivery to the
addressee free or to deliver against a sum different from
that originally specified. This would negative the Post
Office being an agent of the buyer. This shows that
'
S.C.R.
SUPREME COURT REPORTS
407
whatever be the jural relationship between the seller
195fl
and the post office in respect of carriage of goods sent Th c -. .
. b
e
omnnssioner
by the seller under the V. P. P. system it ecomes an
of Income-tax
agent of the selle.r for the recovery of the price and if
v.
it fails to recover the price and delivers the goods it is
P. M. Rathod
liable in damages to the seller: J1othi Rungaya Ohetty
& Company
v. The Secretary o.f State for India (1).
Under the V. P. P. system the seller retains control
over the goods right up to the time the goods are
delivered to the buyer against payment of price and
therefore the contract would fall under s. 25 of the
Indian Sale of Goods Act which provides:-
Section 25(1). "Where there is a contract for the
sale of specific goods or where goods are subsequently
appropria.ted 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 case, notwithstanding the
delivery of the goods to a buyer, or to a carrier or
other bailee 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
are fulfilled."
The principle then is this that if the seller when sending the articles which he intends to deliver under the
contract does so, with the direction that the art.icles
are not to be delivered to the purchaser till the payment of price, the appropriation is not absolute but
conditional and until the price is paid the property in
the goods does not pass to the purchaser. Mirabita v.
Imperial Ottoman Bank (2 ) at pp. 172-173 (Cotton, L.J.).
See also The Parchirn (3) at pp. 170-171 (Per Lord
Parker). And the goods pass at the place where the
price is paid, i.e., which in the present case was in an
A or C State. Thus the price was received by the seller
in A or C State.
But it was submitted on behalf of the respondents
that to the present case the judgment of this Court in
Commissioner of Income-tax v. Ogale Glass Works Ltd.(4)
applies. There the assessee was a company which was
(r) (1904) l.L.R. 28 Mad. 213.
(2) (1878) 3 Ex. D. 16-t.
(3) [1918] A. C. 157.
<•> [1955] 1 s.c.R. 185.
I<apur J.
408
SUPREME COURT REPORTS [1960(1)]
r959
carrying on business in an r ndian State (outside British
T
-. .
India) and its liability to Indian Income-tax depended
1" Commissioner
't
. t f
'th'
B 't' h I d'
Th
of Income-ta•
upon l s rece1p o money Wl
lil
r1 is
n ia.
e
v.
assessee had to be paid for goods supplied to the
P. M. Rathod Government of India and at his request the Govern-
& Company
ment of India agreed to make payments by cheques
Kapur 1.
which were. drawn in Delhi on a Bombay Bank and
were posted in Delhi and received by the assessee in
the Indian State. It was held that the Post Office was
the agent of the assessee. The principle of that case
has no application to the facts of the present case.
That case did not deal with sale of goods or receipt of
price against delivery of goods or the place where the
price of goods is received by the seller. Reference was
also made by the respondents' counsel to a judgment
of the House of Lords in The Badische Anilin Und
Soda Fabrik v. The Basle Chemical Works('). In that
case a trader in England ordered goods from a manufacturer in Switzerland to be sent by post to England.
The manufacturer addressed the goods to a forwarding
agent who in turn addressed them· to the trader in
England and delivered them to the Swiss Post Office
by whom they were forwarded to England. The goods
were such that they invaded an invention protected by
an English patent. It was held that the contract of
sale was completed by delivery to the post office in
Switzerland and as the post office was the agent of the
buyer and not of the vendor the vendor could not be
said to have contravened the invention within the
ambit of the patent and that the patentee had no right
of action against the vendor for an infringement of the
patent. In that case also there was no question of the
Swiss manufacturer keeping control over the goods till
the price was paid nor of any conditional d1t!ivery to
the post office as in the present case and besides that
was not a case dealing with the passing of the ownership in goods or the appropriation of goods to the
contract of sale by delivery to a carrier.
The argument raised by counsel for respondents was
that the respondents delivered the goods to the Post
Office at the instance of the buyer and that the Post
(I) (1898] A.C. 200.
S.C.R.
SUPREME COURT REPORTS
409
Office acted merely as a bailee for the purpose of
r959
transmission to the buyer. But even as such bailee it Th c -. .
. t h .
.
f th b .1
d
e ommiss1ontr
cannot act agams t e mstruct10ns o
e
a1 or an
of Income-tax
deliver the goods to the buyer without receiving their
v.
price and when he does recover he recovers it on behalf
P. M. Rathod
of the bailor. Even a bailment for transmission would
&- Company
fall under s. 25 of the Sale of Goods Act and there is
only a conditional appropriation and until the condition
imposed is fulfilled the goods do not pass. Under s. 148
of the Indian Contract Act a ' bailment ' is delivery of
goods by one person to another upon a contract t.hat
they shall, when the purpose is accomplished be
returned or otherwise disposed of according to the
directions of the person delivering them. A bailee's
duty therefore is to deal with the goods according to
the directions of the bailor and if the direction in the
present case was that the goods were to be delivered to
the buyer on payment then the bailee would receive
the price on behalf of the seller at the place where the
goods were delivered to the buyer.
Thus the principle governing a despatch of articles
by V. P. P. is that the appropriation is conditional and
goods only pass when the condition is fulfilled, i.e., the
price is paid against delivery. The Post Office is an
agent for the seller and receives the price from the
buyer at the place of delivery for transmission to the
seller. The income in the present case was therefore
received in Part A or Part C States and not in Ratlam.
In our opinion, the answer to the first question should
have been in favour of the Commissioner. It should
have been held that the income in respect of goods
sent by V. P. P. was received in Part A and C States
and not in a Part B State.
The next question is unfortunately not properly
framed and therefore it is necessary to reframe it as
was done in Narain Su·adeshi Weaving Mills v. The
Commissioner of Excess Profits Tax('). The proper
question that arises on the facts is : " Whether on the
facts and circumstances of this case the payment
received from a buyer by a banker in Part A or C
(r) [1955] r S.C.R. 952.
,'i2
Kapur J.
410
SUPREME COURT REPORTS [1960(1)]
x959
States against delivery of Railway Receipt for goods
-
sent by the seller is payment in these States or in
T~f~:O:~~::'' Ratlatn which was a Part B State". We have already
v.
set out the course of business in regard to the second
P. M. RaJhod
mode of supply of goods, i.e., goods were sent by rail
&Company
and the Railway Receipts in favour of self were sent
_..,.
through a Bank with the direction that they were to
Kapur J.
be delivered against payment of demand drafts drawn
and sent along with the Railway Receipts. Now
in -this case as in the case of goods sent by V. P. P.
the Railway Receipts in favour of self could not
be delivered to the buyer till the money was paid
and although the goods had been handed over to a
common carrier the appropriation to the contract was
only conditional and the performance was completed
only when the monies were paid and the Railway
Receipts delivered. These contracts also must be taken
to have been performed in Part A or C States and the
price paid to the Bank as agent of the seller at the
place of payment and delivery of Railway Receipts.
The income, profits and gains were therefore received
in these States and not at Ratlam. This question
should also have been answered in favour of the Commissioner and the income, profits and gains arising out
of these transactions must be held to have been received
by respondents in Part A or C States.
In both the cases the respondents would not be
entitled to a concessional rate of taxation applicable
to Part B States.
The appeal is therefore allowed. The respondents
will pay the costs of the appellant of this Cour~ and of
the High Court.
Appeal allowed.