--

-

-

,

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 pur­

chasers 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 intima­

tion 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 per­

cent 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 con­

tracts in question

and the course of dealings

between, the parties

the property in the goods could not have passed to the buyer ear­

lier

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 sub­

sequent 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 Judica­

ture 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 ques­

tions which were expressed in the following terms :

1954

Th• Commission..­

of Income-tax,

Madras

v.

Mysore Chromite

Limited.

1

954

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, 1940-

1941, 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 Com­

pany 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 Com­

panies 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 pay­

ment under the European contract were as follows :-

"Payment.-Buyers to open a confirmed Irrevo­

cable 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 docu­

ments. 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 Tri­

bunal

was as follows. Before the goods were actually

shipped, the buyers

used to open

a confirmed irrevo­

cable 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 pro­

visional 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 in­

voice 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

ascer­

tained 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 assess­

ment. 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

Income­

tax. 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 pur­

pose

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

appro­

priation 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

indi­

cated 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 dis­

posal 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 con­

ditions 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 ascer­

tained 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 conten­

tion.

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, there­

fore, 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 out­

side British India and,

ex

hypotlzesi, the profits derived

from such

sales arose outside British India.

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 receiv~d the amount of the

bill of exchange from them in Madras.

He contends

that the receipt of this payment

by the assessee com­

pany

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 "avail­

able 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, impos­

sible 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

pay­

ment 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 respec­

tive 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].