# THE COMMISSIONER OF INCOME-TAX, BOMBAY v. S. K. F. BALL BEARING CO., LTD

- **Citation:** [1961] 1 S.C.R. 141
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Bench:** Das, M. HIDAYATULLAH anq 'J. C. SHAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-commissioner-of-income-tax-bombay-v-s-k-f-ball-bearing-co-ltd-1915
- **Pages:** 8

## Headnote

Income-tax-Agent selling goods manufactured by principalRemittances of sale proceeds made to the principal before and after
the recovery of price of goods-Profits-Whether include' remittances
made before recovery of price by the Agent-The Indian Income-tax
Act, r922'(II of r922),
s. 4(r){a).
.
A Swedish company manufacturing ball bearing equipment
entered into an agreement with the respondent, S. K. F. Ball
Bearing Co. Ltd. registered under the Indian Companies Act,
1913, appointing the latter as its sole selling agent in India.
The material portion of the Agreement ran thus:- -
·
"Clause 23 :- _ The Agent shall pay to S. K. F. net sales
value of the said products that are sold each month, after deduction of the Commission that has been agreed upon and the
import expenses that' have been paid: Payment shall be made
in Sweden thirty days at the latest following the last day of the
month in which the sales have been effected."
During the second world war a corporation known as the Panrope Corporation was incorporated in the Republic of Panama
to take over the assets and business of the Swedish company
and the said Panrope Corporation in its turn conveyed the· property and business to the Swedish company. Thereafter the
respondent company sold in India as the agent of _the foreign
Corporations goods manufactured by' them, and in a majority of
the sales the respondent company remitted the "sale value" to
the foreign corporations after the goods were sold lmt before the
sale proceeds were recovered from the buyers. In some cases
remittances were made even before th_e goods were sold and in
. others remittances were made after the sale proceeds were realis-
-ed from the buyers. The Income-tax Officer assessed the foreign corporations under s. 4(1)(a) of the Indian Income-tax Act
for payment of tax on the profit included in the price realised
by the respondent company without making any distinction between remittances made before recovery of the sale proceeds and
remittances made after recovery of the sale proceeds. This order
was confirmed ·by the higher income-tax authorities. On a reference made at the instance of the respondent company the High
Court came to the conclusion that the foreign corporations had a
business connection in the taxable territories in the years of
account and the respondent company was liable to pay tax on
their behalf only with regard to remittances _made after the
sale proceeds were recovered. On appeal by the Commissioner
of Income-tax by special leave,
August IO.
142
SlJPREME COURT REPORTS
[1961]
1960
Held, that the liability to pay income-tax under s. 4(1)(a)
,
arose on the receipt of the income and the question whether the
TM Commi_(sioncr income \Vas received in the taxable territory v.•as determined by
of 1,icr,ir.e-ta.t,
the μla~c ~-here the price \\'as received.
Hoinbay
Profits \Vere received by the respondent company on behalf
v.
of the foreign corporations in the taxable territory in respect of
S. K. F Hall
all sales of consigned goorls irrrspcctivc of \vhether the rcmitRcaring Co., Ltd. lances \Vere made either before or after the price was received.
Shah J.
CIVIL
APP.EI.LATE JURISDICTION:
Civil
Appeal
:\! o. 9 of 1958.
Appeal by special leave from the judgment and
order dated February 24, 1955, of tho former Bombay
High Court in fncomc-tax Reference No. 50/X of 1954.
K. N. Rajagopal Sastri and D. Gupta, for the appellant.
R. J. Kolah, S. N. Andley, J.B. Dadachanji, Ramesh.
war Nath and P. L. Vohra, for the respondent.
1960.
August 10. The Judgment of the Court
was deli vercd by
SHAH, J.-Aktiebolagct Svenska Kullakerfabriken
of Gothenburg is a company inco1;porated uncler the
laws of Sweden, and is engaged in the manufacture of
ball bearing equipment. S. K. F. Ba.II Hearing Co.,
Ltrl., which will hereinafter be refcrrod to as "the
S. K. F." is a company registered under the Indian
CompanicA Act, 1913. By an agreement rlated ,January
I, l!l39, t.he S. JC F. was appointerl by tho Swedish
company

## Text

-
-
1 S.C.R. SUPREME COURT REPORTS
141
THE COMMISSIONER OF INCOME-TAX,
BOMBAY
v.
S. K. F. BALL BEARING CO., LTD.
(S. K. ,DAS, M. HIDAYATULLAH anq 'J. C. SHAH, JJ.)
Income-tax-Agent selling goods manufactured by principalRemittances of sale proceeds made to the principal before and after
the recovery of price of goods-Profits-Whether include' remittances
made before recovery of price by the Agent-The Indian Income-tax
Act, r922'(II of r922),
s. 4(r){a).
.
A Swedish company manufacturing ball bearing equipment
entered into an agreement with the respondent, S. K. F. Ball
Bearing Co. Ltd. registered under the Indian Companies Act,
1913, appointing the latter as its sole selling agent in India.
The material portion of the Agreement ran thus:- -
·
"Clause 23 :- _ The Agent shall pay to S. K. F. net sales
value of the said products that are sold each month, after deduction of the Commission that has been agreed upon and the
import expenses that' have been paid: Payment shall be made
in Sweden thirty days at the latest following the last day of the
month in which the sales have been effected."
During the second world war a corporation known as the Panrope Corporation was incorporated in the Republic of Panama
to take over the assets and business of the Swedish company
and the said Panrope Corporation in its turn conveyed the· property and business to the Swedish company. Thereafter the
respondent company sold in India as the agent of _the foreign
Corporations goods manufactured by' them, and in a majority of
the sales the respondent company remitted the "sale value" to
the foreign corporations after the goods were sold lmt before the
sale proceeds were recovered from the buyers. In some cases
remittances were made even before th_e goods were sold and in
. others remittances were made after the sale proceeds were realis-
-ed from the buyers. The Income-tax Officer assessed the foreign corporations under s. 4(1)(a) of the Indian Income-tax Act
for payment of tax on the profit included in the price realised
by the respondent company without making any distinction between remittances made before recovery of the sale proceeds and
remittances made after recovery of the sale proceeds. This order
was confirmed ·by the higher income-tax authorities. On a reference made at the instance of the respondent company the High
Court came to the conclusion that the foreign corporations had a
business connection in the taxable territories in the years of
account and the respondent company was liable to pay tax on
their behalf only with regard to remittances _made after the
sale proceeds were recovered. On appeal by the Commissioner
of Income-tax by special leave,
August IO.
142
SlJPREME COURT REPORTS
[1961]
1960
Held, that the liability to pay income-tax under s. 4(1)(a)
,
arose on the receipt of the income and the question whether the
TM Commi_(sioncr income \Vas received in the taxable territory v.•as determined by
of 1,icr,ir.e-ta.t,
the μla~c ~-here the price \\'as received.
Hoinbay
Profits \Vere received by the respondent company on behalf
v.
of the foreign corporations in the taxable territory in respect of
S. K. F Hall
all sales of consigned goorls irrrspcctivc of \vhether the rcmitRcaring Co., Ltd. lances \Vere made either before or after the price was received.
Shah J.
CIVIL
APP.EI.LATE JURISDICTION:
Civil
Appeal
:\! o. 9 of 1958.
Appeal by special leave from the judgment and
order dated February 24, 1955, of tho former Bombay
High Court in fncomc-tax Reference No. 50/X of 1954.
K. N. Rajagopal Sastri and D. Gupta, for the appellant.
R. J. Kolah, S. N. Andley, J.B. Dadachanji, Ramesh.
war Nath and P. L. Vohra, for the respondent.
1960.
August 10. The Judgment of the Court
was deli vercd by
SHAH, J.-Aktiebolagct Svenska Kullakerfabriken
of Gothenburg is a company inco1;porated uncler the
laws of Sweden, and is engaged in the manufacture of
ball bearing equipment. S. K. F. Ba.II Hearing Co.,
Ltrl., which will hereinafter be refcrrod to as "the
S. K. F." is a company registered under the Indian
CompanicA Act, 1913. By an agreement rlated ,January
I, l!l39, t.he S. JC F. was appointerl by tho 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.
Corporati:m was incorporated in the Hepublic of
Panama in 1940, to take over as a war-t.ime arrangement the assets and business of that Swerlish company.
With effect from ,July l, l\l47, the Panrope
Corporation conveyed the property and business to
the Swedish company. In the years 1947, 1948, 1949
and 1950 the S. K. F. ~old in India.. a.s the agent of
the Swe<lish and Pa.namian compani!'s-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 S. K. F.
1 S.C.R. SUPREME COURT REPORTS
143 ·
and sold by it in India, but no question arises in this
r96o
appeal about the liability to pay income-tax in respect Tl
Commissioner
of sale of those goods and no reference is made herein :1 Income-tax
in respect of those sales.
The Income-tax Officer,
Bombay
•
Companies Circle II(3), Bombay, exercising powers
v.
vested in him by s. 43 of the Indian Income-tax Act,
s. K. F. Ball
1922, having appointed the s. K. F. as the statutory Bearrng Co., Ltd.
agent of the foreign corporations for the assessment
Shah J.
year 1948-49, and of the Swedish company for the
assessment years 1949.50, 1950-51 and 1951-52, the
S. K. F. submitted returns of income for these years
in the taxable territory on beli'alf of the foreign corporations.
Clauses 13, 22 and 23 of the agreement dated
January 1, 1939, between the S. K. F. and the
Swedish .Company which are material for the purpose
of this appeal are as follows :-
Cl,ause 13 :-The Agent shall render · before the
tenth day of each month a true and detailed statement of tlie 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 S. K. F. and it shall
contain. the names and addresses of the parties to
·whom the sai!l 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. N otwithstandirig the
fact that permission ill' hereby granted by S. 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 S. · K. F. for such sales
that have been made on credit, the Agent sljall
nevertheless be liable to effect payment to S. K. F. in
accordance with the terms_ and conditions that are
defined in this Agreement.
Clause 23 :-_ The Agent shall pay to S. K. F. the
144
SUPRE.\IE COURT REPORTS
[1961]
r96o
net sales value of the said Products that a.re sold ea.ch
T , c----
month, after deduction of the commission that has
11e
omm1s_(zoncr b
,
of 1"'°""-'"'·
een agreed upon (cf. 20) and the import expenses
Jfomlmy
tilat have Ileen paid (cf. 21).
Payment shall be-ma.de
"
in Sweden thirty (30) days, at the la.test, following
s_ K. F. u.11
the la.st day of the month in which the sales ha.\•e
8 '""''" c .... Ltd. been effected.
·
Shah 1_
The Income-ta:i.: Appellate Tribun11.I has found th11.t
for rondering accounts of the net sales and also for
ma.king payments according to the terms of cl. 13 of
the agreement, the S. K. F. maintained for the relevant
periods a. current account in the names of the fortJign
corporations in respect of goods " recei vod on consign.
ment ". When goods were sold by the S. K. F., the
account of the princi pa.I was credited with the price
and the account of the buyers to whom the goods we-re
sold on credit was debited. In a. majority of cases of
sales, remittances of "sale value" after deducting
commission were ma.de after sale of the goods to the
buyers but before the sale proceeds wore recovored.
In a. few cases, remittances were made even before
the goods were sold, and in the remaining, remittances were mado after the sale proceeds were realized
from the buyers.
The Income-tax Officer assessed the foreign corporations under s. 4(l){a) of the Indian Income-tax Act
for payment of tax on the profits included in the price
realized by the S. K. F. by sale of goods "received
on consignment" without making any distinction
between sales in respect of which the remittances were
ma.de after recovery of sale proceeds a.ad sales in
respect of which remittances were made before recovery of the sale proceeds.
The order passed by the
Income-tax Ofllcer was confirmed by the Appellate
Assistant Commi•sioner and al~o by the Income-tax
Appellate Tribun1tl.
At the instance of the S. K. F.,
the following q uestion8 wero referred to the High
Court of J udicaturn at Bombay under s. 66(1) of the
Indian Income-tax Act, 1922:
(l) Whether there was evidence on which the
Tribunal could have held that the Panrope Corporation and the non-resident company ha.d a business
1 S.C.R. SUPREME COURT REPORTS
145
connection in the taxable territories ·in the years of
I960
account?
(2) Whether the profits of the Panrope Corpora- The Commissioner
t .
d h
·d
·
f h
of Income-tax.
10n an
t e non-res1 ent company m respect o t e
Bombay
consignment goods were received in the taxable terriv.
tories on their behalf?
s. K. F. Ball
At the hearing of the reference before the High Bearing co., Ltd.
Court, counsel for the assessee having conceded that
Sh-;J
the S. K. F. was not a purchaser of the goods "receiva
·
ed 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 S. K. F. pursuant to the
terms of cl. 23 of the agreement before the sale proceeds were realized from the buyers were received by
the foreign corporations outside the taxable territory,
the same could not be taken into account under
s. 4(l)(a) of the Indian Income-tax Act in assessing
the taxable income of the foreign corporations. The
. High Court observed that the S. K. F. was liable to
pay taiy on behalf of the foreign corporations under
s. 4(l)(a) 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
S. K. F. made remittances under cl. 23 of the agreement, but somewhat inconsistently the High Court
observed that the remittances made by the S. K. F.
before the sale proceeds were realized, were remitta,
nces not of sale proceeds, but in discharge of its obligation under cI. 23 of the. agreement; and that the
realizations by the S. 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 a~sessee company",
19
146
SUPRE:\IE COURT REPORTS
[1961]
196°
We a.re unable to agree with the reasoning and the
--
.
conclusion of the High Court. The terms of the a.greeThr Cnmmis.qonrr
k • b
d
1 l
h
h
d
·
of 1"ccmc-tax, ment ma e 1t a un ant y c ear t at t e goo s "rece1vJlom1'ay
ed on consignment" from the foreign corporations were
v.
received by the S. K. F. as their selling a.gent and not
s. I< F. 11011
as purchaser. The goods, it is true, were sold by the
liea""C Co .. I.Id. S. K. F. in its own name and not in the name of the
Slinh }.
foreign corporations, but the goods were still sold for
and on behalf of the foreign corporations and the sale
proceeds received by the S. 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 S. K. F.
continued to remain the property of the foreign corporations till they were sold to the buyers. In the
price received for sale of the goods, the profit of tho
owner was in truth embedded and that profit was
liable to be taxed under s. 4(l}(a) 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
S. K. F. in the taxable territory as a.gent of the foreign
corporations before remittances under the terms of tho
agreement were liable to be taxed. Does the circumstance that the S. 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
tho goods sold alter the nature of the realizations?
The remittances made by t.he S. K. F. indisputably
reached the foreign corporations in respect of all sales
outside the taxable territory.
But the S. J(. F. was
their a.gent for sale of the goods, and for receiving the
price in the taxable territory. The relation between
the S. 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 S. K. F. whether
before or after remittance was realized as the agent of
the foreign corporations. If remittance in respect of a
sale was ma.de before the price was realized, the S. 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
·,
1 S.C.R. SUPREME COURT REPORTS
147
z960
made before or after realization of the price was
not the sale proceeds in respect of sales, but amounts
due by the S. K. 1!'. under an obligation expressly The:f !Commissioner
d
b .
d
l
f
o
ncome-tax,
un ertaken y 1t un er c . 23 o the agreement. The
Bomba
price of goods sold by the S. K. F. were in all cases
v. Y
received by it within the taxable territory ; and the
s. K. F Ball
S. K. F. being the agent for sale, and for receiving the Bearing Co., Ltd.
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 8. 4(l)(a) 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 S. K. F., the income was received.
The remittances by the S. 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 S. K. 1!'. that
there was a contract of suretyship between the foreign
corporations and the S. 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
S. K. F. having guaranteed payment of the price by
the buyers to whom the goods had been sold.
The price received by the S. 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
s. 4(l)(a) as income received, merely because under an
independent obligation, the S. 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
Shah ].
148
SliPREME COURT REPORTS
[1961]
i960
answered in the affirmative in respect of sale of a.II
.
-. .
goods where the price has been received by the S.K.F.
1 he Comm1moner · th t
bl
·
d ·
·
f'
h h
of Income-ta<.
ill
e 8.:KB e territory, a.n
1rrespect1ve 0
W et er
Bombay
• the remittance has been made in respeut of the goods
v.
sold before or after the price wa.s received.
s. K. F. Ball
The a.ppoa.l is accordingly allowed to the extent
Btaring Co· Ud. indicated. The appellant will be entitled to his costs
Sllah ].
in this court a.nd also the costs of the reference in the
High Court.
Appeal partly allowed.
1960
THE STATE OF MADRAS AND ANOTHER
v.
M/a. M. A. NOOR MOHAMMED AND CO.
(B. P. SrnHA, C. J., J. L. KAPUR, P. B. GAJENDRA·
GADKAR, K. SuBBA RAO a.nd K. N. WANCHOO, JJ.)
Sales Tax-Sale of hides and ski11s-Exemption from 'multiple
taxation-U11licensed dealers-Whether can claim single point taxa.
lion-Validity of mies providing for multiple taxation-Madras
General Sales Tax (Turnover and Assessmrnt) Rules, 1939, r. 16(5)
-Madras General Sales Tax Act, 1939 (9 of 1939), ss. J, 5(vi), 6A.
The respondent, a firm carrying on tannery business, used
to take out licences under the provisions of the Madras General
Sales Tax Act, 1939, but did not renew the licence for the assessment year, 1952-1953, and was assessed to sales tax on the sale
value of tanned hides and skins during the year. It challenged
the validity of the order of assessment by filing a petition before
the High Court under Art. 226 of the Constitution of India, on
the grounds that under s. 5(vi) of the Act the liability to pay
sales tax in respect of hides and skins could only be at a single
point, that r. 16(5) of the Madras General Sales Tax (Turnover
and Assessment) Rules, 1939, which limited the operation of this
mode of taxation to licensed dealers \\'as ultra vircs as it contravened s. 5(vi) and had been so held in V. M. Syed M ohammed & Co. v. The S'tate of Madras, [19541 S.C.R 1117, and that
s. 6A was not applicable to the case of a dealer which did not
take out a licence .
. Held, thats. 3 of the Madras General Sales Tax Act, 1939,
envisages multipoint taxation on the total turnover of a dealer,
f