THE COMMISSIONER OF INCOME-TAX, MADHYA PRADESH & BHOPAL, NAGPUR vs. BHOPAL TEXTILES LTD., BHOPAL.

CIVIL APPEAL No. 755/1957Supreme Court[1961] 2 S.C.R. 917 October 1960Bench: 3 JudgesAuthor: S.K. DAS, M. HIDAYATULLAH, J.C. SHAH S.C.R. SUPREME COURT REPORTS THE COMMISSIONER OF INCOME5 pages
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What were the facts?

The assessee, Bhopal Textiles Ltd. (a non-resident company), supplied goods F.O.R. Bhopal to buyers in British India during the accounting year relevant to assessment year 1944-45. The railway receipts were handed to a bank in Bhopal with instructions to release them to the buyers only upon receipt of payment and collection charges. The bank's branches in British India collected payments from buyers and remitted them to Bhopal for the assessee's credit. The Department assessed profits of Rs. 4,40,373 as received in British India, with Rs. 29,588 (direct government supplies) no longer in dispute. The High Court, in a reference, held that the bank acted as the buyers' agent, meaning profits were not received in British India. The appeal is against this High Court decision.

What did the Supreme Court hold?

The Supreme Court held that the income, profits, or gains must be deemed to have been received within the taxable territory. The Court reasoned that the bank in Bhopal acted as the agent of the seller (assessee) because it was instructed not to hand over the railway receipts to the buyers unless payment was received, and these instructions could not be countermanded by the buyers. This made the bank an agent of the seller, and payment to the agent determines the place of receipt. The Court found the High Court's view that the bank acted as the buyers' agent to be incorrect. The Supreme Court applied its earlier decision in Commissioner of Income-tax v. P. M. Rathod and Co., stating that the distinction regarding railway receipts being 'to self' versus in the name of the consignee did not alter the principle. The Court allowed the appeal, answering the reference question in the affirmative.

What were the issues?

1. Whether the proportionate profits on goods valued at Rs. 4,10,785 were received or deemed to be received in British India within the meaning of Section 4(1)(a) of the Indian Income-tax Act, 1922. The assessee contended that the Imperial Bank of India at Bhopal acted as the buyers' agent, and the branches in British India also acted as the buyers' agents when collecting payments. Therefore, the money was received by the assessee only when it reached Bhopal, which was outside the taxable territory. The revenue argued that the bank in Bhopal acted as the assessee's agent, and payment to this agent constituted receipt in British India. The revenue also relied on the Supreme Court's decision in Commissioner of Income-tax v. P. M. Rathod and Co. The High Court had held that the bank acted as the buyers' agent.

Which sections of the Income-tax Act were involved?

Section 4(1)(a),Section 66(1)

AI-generated summary — verify with the full judgment below

2 S.C.R. SUPREME COURT REPORTS THE COMMISSIONER OF INCOME-TAX, MADHYA PRADESH & BHOPAL, NAGPUR v. BHOPAL TEXTILES LTD., BHOPAL. 9 (S. K. DAs, M. HIDAYATULLAH, and J. C. SHAH, JJ.) Income Tax-Supply of goods by non-resident company-~ Place of paymeitt, when place of receipt of money by seller-Bank when agent of seller-Railway receipt, if document of title of goods -Property in goods, when transferred to buyer. Respondent, a non-resident company, in the accounting year supplied goods which were sent F.

0.

R. Bhopal to the ' buyers in British India. The railway receipts were handed ovd to a Bank in Bhopal with instructions to hand over the railway receipts to the buyers, who were named as consignees, only on receipt of payment of the bill and collei;tion charges. The branches of the Bank within the taxable territory collected the amounts due from the buyers and transmitted them to Bhopal to the credit of the respondent. Tlie question was whether the profits in the goods were received or deemed to be received in British India, Held, that· the decision of this Court in Commissioner of Income-tax v. P. M. Rathod ©- Co. applied to this case; and the income, profit

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