# The Chamber of Commerce, Ha/UT, and three Others v. The State of Uttar Pradesh and two Others

- **Citation:** [1955] 1 S.C.R. 849
- **Court:** Supreme Court of India
- **Decided:** 1955
- **Bench:** Mehr Chand Mahajan C.J, s. R. DAS, GHl)LAM HASAN, Bhagwati, Venkatarama Ayyar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-chamber-of-commerce-ha-ut-and-three-others-v-the-state-of-uttar-pradesh-and-1207
- **Pages:** 13

## Headnote

Indian Income-tax Act, 1922 (Act XI of 1922), s.
4-Profits
derived by the assessee-W hether arose or were 1·eceived in British
India in the present case.
The assessee
con;ipaqy with its registered office in
Mysore
State and its management vested in
Oakley
Bowden Co.
Ltd.,
Madras, sold Chrome ore to buyers mostly outside India who were
in America and Europe.
The sales to the purchasers in Europe
were put through in London by
Bowden Oakley and Co. Ltd.,
London, the agent of the assessee company in
Europe, the said
'-..
agent signing the contracts for sale in London. The sales to pur-
<. chasers in America were effected through W. R. Grace & Co., New
York, who bought for undisclosed principals, the contracts for sale
to American purchasers being signed by W. R. Grace & Co., Ltd.,
New York, in America and by Oakley Bowden & Co. Ltd. (Madras),
in Madras.
Under both forms of contracts with European purchasers and American
purchasers the price was
f.O.B.
Madras.
•
Provision was made for weighment, sampling and assay of goods at
destination.
The course of dealing between the assessee company
and the purchasers was as follows :-
>
Before the goods were actually shipped, the buyers used to
open a confirmed irrevocable Bankers' credit with some first class
Bank in London. Being informed of the opening of such credit the
1954
The Chamber of
Commerce, Ha/UT,
and three Others.
v.
The State of
Uttar Pradesh
and two Others.
1954
November r.
1954
Tht Commissiontr
of lnco~·lax,
Madrru
v.
Mysore ·Chromite
Limilfd.
850
SUPREME COURT REPORTS
[1955]
Eastern Bank Ltd., London, sent inti111ation to the
Eastern Bank
Ltd., Madras, and the latter in its turn used to_ pass on the intimation by letter addressed to the assessee company. On receipt of
such intimation ·the asscssee company placed the contracted goods
on board· the steamer at Madras and obtained a bill of lading in its
own name.
Thereafter the assessee company used to make out a
provisional· invoice on thC basis of the bill of lading
\Veight and
contract price for 48 percent Cr. 203 and used to draw a bill of
exchange on the buyers' Bank, where the letter of credit had been
opened, for 90 percent of
the amount of
the provisional invoice
payable at sight in the case of European contracts and 80 percent
of the an1ount of the provisional invoice at 90 days' sight in the.
case of A1nerican contracts and in either case the bills of exchange
used to be dra\vn in favour of the Eastern Bank Ltd., London. The
bill of exchange together with the bill of lading endorsed in blank
by the assessee company and
the provisional
invoice \Vas
then
negotiated \Vith the Eastern Bank Ltd., Madras, the bankers of the
assessee con1pany, who used to credit the assessee
company
\Vith
the a1nount of the bill of exchange. The Eastern Bank Ltd., Madras,
then forwarded the documents to the Eastern Bank Ltd., London,
who used to present the bill of exchange to the buyers'
Bank in
London, and upon the bill of exchange being accepted the Eastern
Bank Ltd., London, used to deliver the bill of lading and the invoice
to the buyers' Bank. The buyers' Bank in due course used to pay
the
amount ~f the bill of exchange to the Eastern Bank Ltd.,
London.
Thereafter, on arrival of the goods and after weighment
and assay, the sale price \Vas ascertained and the balance of price
after deducting the payments made against the bill of exchange,
used to be paid to the Eastern Bank Ltd., London, which was the
assessee company's agent and Banker in London.
It was common ground
between the
Income-tax department
and assessee company that the incon1e
arose at the place v.•here
the sales took place.
It was contended on behalf of the department that the sales
must be regarded as having taken place in British
India because
(i) the price and delivery of goods were on F.O.B. terms, (ii) that in
the European contracts, the insurance, if any, was to be the concern
of the buyers, (iii) that the payment of the 80 percent or 90 percent as the case may be w

## Text

--
-
-
,
S.C.R.
SUPREME COURT REPORTS
849
Instead of adopting that
straightforward
course the
officers of the State have
sought to
circumvent
the
decision of this Court on a flimsy pretext and
covertly
to challenge its correctness
on an obviously untenable
plea which has not even the
merit
of a
seeming
plausibility. This
conduct
verges dangerously on a
contempt of this
Court. We desire to make it quite
clear that we view with great disfavour such unworthy
attempt to get round the decision of this Court.
THE COMMISSIONER OF INCOME-TAX,
MADRAS
v.
MYSORE CHROMITE LIMITED.
[MEHR CHAND MAHAJAN C.J., s. R. DAS,
GHl)LAM HASAN, BHAGWATI
and VENKATARAMA AYYAR JJ.)
Indian Income-tax Act, 1922 (Act XI of 1922), s.
4-Profits
derived by the assessee-W hether arose or were 1·eceived in British
India in the present case.
The assessee
con;ipaqy with its registered office in
Mysore
State and its management vested in
Oakley
Bowden Co.
Ltd.,
Madras, sold Chrome ore to buyers mostly outside India who were
in America and Europe.
The sales to the purchasers in Europe
were put through in London by
Bowden Oakley and Co. Ltd.,
London, the agent of the assessee company in
Europe, the said
'-..
agent signing the contracts for sale in London. The sales to pur-
<. chasers in America were effected through W. R. Grace & Co., New
York, who bought for undisclosed principals, the contracts for sale
to American purchasers being signed by W. R. Grace & Co., Ltd.,
New York, in America and by Oakley Bowden & Co. Ltd. (Madras),
in Madras.
Under both forms of contracts with European purchasers and American
purchasers the price was
f.O.B.
Madras.
•
Provision was made for weighment, sampling and assay of goods at
destination.
The course of dealing between the assessee company
and the purchasers was as follows :-
>
Before the goods were actually shipped, the buyers used to
open a confirmed irrevocable Bankers' credit with some first class
Bank in London. Being informed of the opening of such credit the
1954
The Chamber of
Commerce, Ha/UT,
and three Others.
v.
The State of
Uttar Pradesh
and two Others.
1954
November r.
1954
Tht Commissiontr
of lnco~·lax,
Madrru
v.
Mysore ·Chromite
Limilfd.
850
SUPREME COURT REPORTS
[1955]
Eastern Bank Ltd., London, sent inti111ation to the
Eastern Bank
Ltd., Madras, and the latter in its turn used to_ pass on the intimation by letter addressed to the assessee company. On receipt of
such intimation ·the asscssee company placed the contracted goods
on board· the steamer at Madras and obtained a bill of lading in its
own name.
Thereafter the assessee company used to make out a
provisional· invoice on thC basis of the bill of lading
\Veight and
contract price for 48 percent Cr. 203 and used to draw a bill of
exchange on the buyers' Bank, where the letter of credit had been
opened, for 90 percent of
the amount of
the provisional invoice
payable at sight in the case of European contracts and 80 percent
of the an1ount of the provisional invoice at 90 days' sight in the.
case of A1nerican contracts and in either case the bills of exchange
used to be dra\vn in favour of the Eastern Bank Ltd., London. The
bill of exchange together with the bill of lading endorsed in blank
by the assessee company and
the provisional
invoice \Vas
then
negotiated \Vith the Eastern Bank Ltd., Madras, the bankers of the
assessee con1pany, who used to credit the assessee
company
\Vith
the a1nount of the bill of exchange. The Eastern Bank Ltd., Madras,
then forwarded the documents to the Eastern Bank Ltd., London,
who used to present the bill of exchange to the buyers'
Bank in
London, and upon the bill of exchange being accepted the Eastern
Bank Ltd., London, used to deliver the bill of lading and the invoice
to the buyers' Bank. The buyers' Bank in due course used to pay
the
amount ~f the bill of exchange to the Eastern Bank Ltd.,
London.
Thereafter, on arrival of the goods and after weighment
and assay, the sale price \Vas ascertained and the balance of price
after deducting the payments made against the bill of exchange,
used to be paid to the Eastern Bank Ltd., London, which was the
assessee company's agent and Banker in London.
It was common ground
between the
Income-tax department
and assessee company that the incon1e
arose at the place v.•here
the sales took place.
It was contended on behalf of the department that the sales
must be regarded as having taken place in British
India because
(i) the price and delivery of goods were on F.O.B. terms, (ii) that in
the European contracts, the insurance, if any, was to be the concern
of the buyers, (iii) that the payment of the 80 percent or 90 percent as the case may be was made in :r...fadras by the Eastern Bank
Ltd., Madras, and as on these facts the property passed at Madras,
the sales were completed in British India.
Held, (repelling the contention) that 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 the documents were delivered by the
assessee company's agent, the Eastern
Bank Ltd., London, to the
buyers' Bank and this admittedly always took place in London and
in the premises the sales took place outside
British India and ex
'
,..
~·
y
•
,
-
S.C.R.
SUPREME COURT REPORTS
851
hypothesi the profits derived from such sales arose outside British
India.
Held further, that the contention
submitted on
behalf of the
department that irrespective of the place where the
sales
may
have taken place the profits derived from such sales were receiYed
in Madras, as after shipment the assessee
company, through its
managing agents in Madras, prepared 2rovisional invoices and drew
bills of exchange for 80 percent or 90 percent 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 and 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, was also devoid
of force because 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 was by the
Eastern
Bank
Ltd., London, on
behalf of the sellers and the balance of the price ascertained after
weighment and assay and deducting the amount paid on the bill
of exchange was
similarly
received
111
London by the
Eastern
Bank Ltd.,
London, on behalf of the assessee company and subsequent adjustment made in the books of
Eastern
Bank
Ltd.,
London, did not operate as receipt of profits in British India.
Promz Adalbert (L.R. [1917] A.C. 586) referred to.
CIVIL
APPELLATE
JmusDICTION :
Civil
Appeal
No. 117 of 1953.
Appeal from the
Judgment and Order dated the
29th day of March, 1951, of the High Court of Judicature at Madras in Case Referred No. 44 of 1948.
C. K. Daphtary, Solicitor-General for India ( G. N.
Joshi, with him) for the appellant.
R. Ganapathy Iyer and M. S. K. Aiyangar for
the
,.
' respondent.
1954. November 1. The
Judgment of the Court
was delivered by
DAs J.-This
1s an appeal
from the
judgment
pronounced by the
High Court of Judicature at Madras
on the 29th March, 1951, on a consolidated
reference
by the
Income-tax Appellate Tribunal
under section
66(1) of the Income-tax Act whereby the High Court
answered in the affirmative
both the
referred questions which were expressed in the following terms :
1954
Th• Commission..-
of Income-tax,
Madras
v.
Mysore Chromite
Limited.
1954
TI~ Commissioner
•f Income-ta.-.:,
Madras
v.
Mysurt Cliromite
Limittd.
Das].
852
SUPREME COURT REPORTS
[19551
(1) Whether on the facts and in the circumstances
of the case the profits derived by the assessee company
from sales made to
European and
American buyers
arose outside British India ?
(2) Whether on the facts and in the circumstances
of the case the profits derived by the asscssee company
from sales made to European and American
buyers
were received outside British India ?
The above questions of law arose out of proceedings
for the assessment to income-tax
of the
respondent,
Mysore
Chromite Ltd. (hereinafter referred to as the
assessee
company), for
the
years
1939-40,
19401941, 1941-1942
and
1942-1943.
The facts leading up
to the reference as found by the Income-tax
Appellate
Tribunal are shortly as follows :
-~ ,.
The assessee company is a private limited company
registered in the Mysore State under the Mysore Company
Regulations
and has
its
registered
office at
Sinduvalli in Mysore
State. The management
and
control of the asscssce con1pa11y was vested in Messrs.
Oakley Bowden & Co. (Madras) Ltd., another private
limited company incorporated under the
Indian Companies
Act, having its
registered
office at
No. 15,
Armenian
Street, Madras. The assessee company owns
chromite mines
in Mysore
State.
Chrome
ores
are
extracted
from
the
mines and
converted
into
a
merchantable product and then sold to buyers mostly
()utside
India. A very small proportion of the total
sales is effected in India and for the purposes of this
case may be left out
of
consideration.
The sales
are
mostly to buyers in America and Europe. The sales to
the purchasers
in Europe are put through in London ' ""
by Bowden Oakley & Co. Ltd., London, which is the
agent of the assessee
company in
Europe hokling a
power of attorney from the assessee
company.
The
contracts for sale to
European purchasers are signed
by Bowden Oakley & Co. Ltd., in London.
The sales
to purchasers in America are effected through Messrs.
W. R. Grace & Co., who buy for undisclosed principals.
The contracts
for sale to
American
purchasers are
signed by W. R. Grace & Co., presumably in America
and by Oakley Bowden & Co. (Madras), Lt<l, in Madras.
'
-
J
1
S.C.R.
SUPREME COURT REPORTS
853
Specimen forms of contracts with Europe;m purchasers
and those with American purchasers are set out in the
order of the Tribunal dated the 22nd
January, 1948,
out of \vhich the present reference arises.
Under both
forms of contracts the price was
F.O.B.
Madras
or
Marmagoa.
A very small quantity of goods was sold
F.O.B. Marmagoa and the same need not be considered
here. Provision was made for
weighment, sampling
and assay of goods at destination. The terms of payment under the European contract were as follows :-
"Payment.-Buyers to open
a confirmed
Irrevocable
Bankers credit in
favour of
Messrs.
Mysore
Chromite
Ltd.,
Madras
(to
be advised
to sellers)
through the Eastern Bank Ltd., for 90 per cent. (ninety
per cent.) of the Provincial (sic) Invoice against documents. Documents to consist of :-
1. Bills of Lading,
2. Provisional Invoice.
Provisional invoice to be based on Bill of Lading
weight and contract price for 48 per
cent.
Cr. 203.
Balance on ascertainment of weight and analysis to be
paid in London to Bowden Oakley & Co., Ltd., within
10 days of the final invoice, based on outturn weights
and assays."
The corresponding terms of
payment
under the
American contracts were as follows :-
"Payment.-Letter of
credit for
eighty per cent.
(80 per cent.) of invoice value to be available
against
drafts at
ninety
(90)
days' sight
with
documents
attached to be opened immediately in London in favour
of the seller. Balance estimated twenty
(20 per cent.)
of the margin due to be paid by telegraphic transfer
duough London on receipt of information as to assay
and outturn which should be submitted within a month
after
the
arrival
of
the
steamer
at
destination.
Charges for such telegraphic transfer
for
account of
beneficiary."
The European contracts also provided for insurance
by buyers but no such provision
was
made
in
the
American contracts.
1954
The Commissionn
of lncom,·llzx,
Madras
v.
Mysore Chromit1
Limited.
Das].
!954
The Commissiorur
of /nrome-tax,
Madras
v.
Mysore Chromite
Limited.
Das].
854
SUPREME COURT REPORTS
rI955]
The course of dealing as found by the Appellate Tribunal was as follows.
Before the goods
were actually
shipped, the buyers used to open a confirmed irrevocable
Bankers' credit with
some
first
class bank in
London. Being informed of the opening of such credit
the Eastern Bank Ltd., London, sent intimation to the
Eastern Bank Ltd. Madras, and the latter in its turn
used to pass on the intimation by letter
addressed
to
the
assessee company.
A specimen of such letter is
also set out in the order of the
Appellate Tribunal. In
such communication the Eastern Bank
Ltd., Madras,
informed the assessee company that
"in
accordance
with advices received by letter from our London Office,
a confirmed and irrevocable credit has been opened in
your favour by
Messrs. Morgan Grenfell & Co., Ltd.,
London, for account of Messrs. W. R. Grace & Co., New
York, for a sum not .exceeding £ 7,300 (seven thousand
three hundred
pounds sterling) in all, available
by
delivery to us on or before 15th January, 1940, of the
following
documents .............. " Towards
the end
of the letter the Eastern Bank Ltd., Madras, used to
write that
they
were "prepared
in our option as
customary to negotiate drafts drawn in terms
of the
arrangement provided that the documents as
above
mentioned appear to us to be in order." The letter
concluded with a warning that the advice was "given
for your guidance and without involving any responsi-
. bility on the part of this Bank." On receipt of
such
intimation the assessee company placed the contracted
goods on board the steamer at Madras and obtained a
bill of lading in its own name. As already mentioned,
the shipments were made principally at Madras
Port. , -
Thereafter the assessee company used to make out a provisional invoice on the basis of the bill of lading weight
and contract price for 48 per cent. Cr. 203 and used
to draw a bill of exchange on the buyers' Bank, where the
letter of credit had been opened, for 90 per cent. of the
amount of the provisional invoice payable at sight in
the case of European contracts and 80 per cent. of the
amount of the provisional invoice at 90 days' sight in
the case of American
contracts and in either case the
bills of exchange used to be drawn in favour of the
...
J.
1
S.C.R.
SUPREME COURT REPORTS
855
Eastern Bank Ltd., London.
The bill of
exchange
together with
the
relative bill of lading endorsed in
blank by the assessee company and the provisional invoice was then negotiated with the Eastern Bank Ltd.,
Madras, the bankers of the assessee company, who used
to credit the assessee company with the amount of
the
bill of exchange. The Eastern Bank Ltd., Madras, then
forwarded the documents to the Eastern
Bank
Ltd.,
London, who used to present the bill of exchange to the
buyers' Bank in London and upon the bill of , exchange
being accepted the
Eastern Bank Ltd., London,
used
to deliver the bill of lading and the invoice to the buyers'
Bank. The buyers' Bank in due course used to pay the
amount of the bill of exchange
to the Eastern
Bank
Ltd., London. Thereafter, on arrival of the goods and
after weighment and assay, the sale price was ascertained and the
balance of price, after deducting the
payments made against the
bill
of exchange, used
to be paid to the Eastern Bank Ltd.,
London,
which
was the assessee
company's
agent
and
banker
m
London.
On the facts stated above the
Income-tax
Officer
assessed the assessee company on the entire profits in
respect of these sales on the footing
that they arose
and were also received in
British India. On appeal, the
Appellate Assistant Commissioner confirmed the assessment. The assessee company went up on appeal to the
Income-tax
Appellate
Tribunal. The Tribunal, by its
order
dated the 22nd
January, 1948,
came
to the
conclusion
that the
sales took
place outside
British
India and that the money in respect of mch sales was
also received by the agent of the assessee
company in
London.
The
Commissioner of Income-tax thereupon
applied to the Appellate Tribunal requiring the latter
to state a case and refer
certain questions of law said
to arise out of the order of the Tribunal. The Appellate
Tribunal accordingly referred the two questions of law
hereinbefore set out. The High Court of
Madras in a
well reasoned judgment upheld the decision
of the
Appellate Tribunal and answered the two questions in
the affirmative and against the Commissioner of Incometax. fhe Commissioner of Income-tax has now preferred
1954
The Commissioner
of Income-tax,
Madras
v.
J.fysore Chromite
Limited.
Das].
Tht Commissio11er
ef lncome·tax,
A1adras
v.
Mysore Chromite
Limited.
DasJ.
856
SUPREME COURT REPORTS
[1955)
this appeal with a certificate of fitness from the High
Court.
It appears from the statement of case as also from
the order of the Appellate Tribunal that it was agreed
between the department and the assessee company that
the income arose at the place, wherever that be, where
the sales took place. This was not disputed before the
High
Court or before us although in the appellant's
statement of
case
it
was suggested
that this
was
erroneous.
The point for determination,
therefore,
1s
as to where the sales took place.
Learned Solicitor-General appearing in support of
this appeal contends that
having regard to the terms
of the contracts
the sales must be regarded as having
taken place in
British
India. The facts strongly relied
on by him are· (i) that the price and delivery
of goods.
were on F.O.B. terms, (ii) that in the European contracts
the insurance, if any, was
to
be
the
concern of
the
buyers and (iii) that payment of the 80 per cent. or 90•
per cent. as the case may be was
made in
Madras
by
the
Eastern Bank Ltd., Madras, to the assessee company
on the delivery of the tlocuments. All these facts taken
together indicate, according to his submission, that the·
property in the goods passed at
Madras and the sales
accordingly were completed in
British
India. We are
unable to accept this line of reasoning. According
to.
section 4 of the
Indian Sale of Goods
Act a contract of
sale of goods is a contract whereby the seller transfers
or agrees to transfer the property in goods to the buyer
for a price and where under a contract of sale the pro-.
pcrty in the goods is transferred from the seller to the
buyer, the
contract is
called a sale, hut 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 are
ascertained. In
\·
•
S.C.R.
SUPREME COURT REPORTS
857
the present case, the contracts were
always for sale of
unascertained goods.
Skipping over sections 19 to 22
which deal with contract of sale
of specific goods we
come to section 23 which lays down that where there is
a contract for the sale of unascertained or future goods
by description and goods of that description and in a
deliverable state are unconditionally appropriated to the
contract, either
by the seller
with the assent of the
buyer or by the buyer with the assent of the seller, the
property in the goods thereupon passes to the
buyer.
It is suggested that
as soon as the assessee company
placed the goods on board the
steamer named by the
buyer at the
Madras Port the goods became ascertained
and the property in the goods passed
immediately to
the buyer.
This argument, 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 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 question in this
case, therefore, is : was there an unconditional appropriation of the goods
by
merely placing them on the
ship ? It is 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 term
1954
T !te Commissionett"
of l11corm-tax,
Madras
v.
Mnore Chromit~
· Limited.
Das].
1954
Thi Co1nmissioner
of Income-tax,
Madras
v.
Mysore Chrt1mite
\
Limited.
DasJ.
858
SUPREME COURT REPORTS
[1955]
the assessee company clearly reserved the right of disposal of the goods until the bill of exchange was paid.
Placing of the goods on board the steamer named
by
the buyer under a F.0.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
was
honoured. It is urged that under the provision in the
contract for weighment and assay, which was ultimately
to /ix the
price unless the buyer rightly rejected the
goods as not being in terms of the contract, the passing
of property in t11e goods could not take place until the
buyer accepted the goods and the price was fully ascertained after weighment and assay.
It is submitted that
that being the position, the property in the goods passed
and the sales were concluded outside
British
India, for
the weighment, sampling, assay
and the
final fixation
of the price could only take
place under all these
contracts outside
British
India.
ft is not necessary
for us to express any opinion on this extreme
contention.
Suffice it to say, for the
purposes
of this ca!e,
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 the
-
•
L
•
S.C.R.
SUPREME COURT REPORTS
859
documents were delivered by the assessee
company's
agent, the Eastern
Bank Ltd., London, to the buyers'
Bank. This 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 hypotlzesi, the profits derived
from such sales arose outside British India.
As to the second
question, the learned
SolicitorGeneral 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
receiv~d 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 vvithin 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 and
The Commissi•ner
ef Income-tax,
Mat!ras
v.
J'.:f;•sore Chrorniu
Lirnitetf.
Das].
1954
Tht Commissioner
ef lricM11e-tax,
Mm1'as
.... l
v.
• ..
Mysore Chromite
Limited.
IJasJ.
860
SUPREME COURT REPORTS
[1955]
the 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 jn terms of
the arrangement provided that the
-documents were in order. The concluding sentence or
that letter whereby the Eastern
Bank
Ltd., Madras
disown any responsibility
in respect of the advice
dearly 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(1 ) :
"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 lading
(1) L. R. [1917] A. C. 586, 589
•
S.C.R.
SUPREME COURT REPORTS
861
represents, 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 party's liability on the bill, and
that in so doing he acts with the permission and by the
mandate of the shipper and drawer."
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 .as:;essee 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 correcly answered the
second question also in favour of the assessee company.
For reasons stated above, this appeal must
stand
dismissed with costs and we order accordingly.
Appeal dismissed.
1954
The Commissioner
of lna>me•tax,
Madras
v.
Mysore Chromite
Limited.
Das].