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Seth Pushalal Mansinghka Pvt. Ltd. Bhilwara v. Commissioner Of Income Tax

Rajasthan High Court

Apr 29, 1964

Judgment

Subsequent
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Structured Summary of the Opinion — Shinghal, J.

Factual and Procedural Background

The reference arises under sub-section (1) of section 66 of the Indian Income-tax Act, 1922 at the instance of the assessee, Messrs Seth Pushalal Mansinghka Private Limited, Bhilwara. The referred question was whether the assessee was entitled to any rebate under the Part B States (Taxation Concessions) Order, 1950 in respect of income from its mining business for the assessment years 1950–1951 and 1951–1952.

The assessee was a private limited company incorporated in the former State of Udaipur on 12-11-1946, carrying on mica mining, cutting, processing, sorting and packing at Bhilwara (then a Part B State). The mica consignments were sent largely by rail to Kodarma and Girdih (then Part A and Part C States). The assessee used mercantile (accrual) accounting. Sales proceeds over the two years totaled Rs. 19,77,544; bills were tendered to the local branch of the Bank of Rajasthan to the extent of Rs. 15,64,475 and payment received at Bhilwara to that extent, according to the assessee's claim.

The Income-tax Officer held that the consignments were made to "self" and that property and title did not pass until delivery of railway receipts at Kodarma, rejecting the assessee's contention that discounted bills represented receipt at Bhilwara. Similar conclusions were reached on appeal by the Appellate Assistant Commissioner and by the Income-tax Appellate Tribunal (Bombay Bench 'C'), after which the present consolidated reference was made to the court.

Key undisputed factual findings recorded in the proceedings and accepted in the record include: (i) written contracts (exemplified by Annexure A) specifying "Bhilwara go-down delivery", consignments to be sent to Kodarma/Girdih and railway receipts to be sent "through bank"; (ii) presentation of railway receipts with bills of exchange to the Bank of Rajasthan, Bhilwara, after endorsement in favour of the Bank; (iii) the Bank endorsing the railway receipts to its branches in Kodarma/Girdih; and (iv) delivery of goods to buyers only when they paid the price to the Bank and obtained the railway receipts.

Legal Issues Presented

Whether, on the facts and circumstances, the assessee was entitled to any rebate under the Part B States (Taxation Concessions) Order, 1950 in respect of its income from the mining business for assessment years 1950–1951 and 1951–1952.
More specifically, whether the property in the goods (mica) passed to the buyers at Bhilwara (Part B State) when the contracts were made, or whether property passed at Kodarma or Girdih (Part A/Part C States) when railway receipts and documents were delivered to the buyers against payment.
Ancillary questions framed in the proceedings included whether the sale contracts were unconditional within the meaning of section 20 of the Sale of Goods Act, and whether the Bank acted as agent of the buyers (or otherwise) such that title passed at Bhilwara.

Arguments of the Parties

Assessee's Arguments

The contracts were made in Rajasthan (a Part B State) for ascertained goods in a deliverable state and were unconditional; therefore, under section 20 of the Sale of Goods Act the property in the goods passed to the buyers when the contracts were made (dates of contract).
The buyers required that railway receipts be sent through a bank; this did not make the bank the seller's agent — instead, the Bank was the buyers' agent, and by endorsing railway receipts in favour of the Bank the assessee passed title to the buyers' agent at Bhilwara.
Alternatively, there was unconditional appropriation at Bhilwara within the meaning of section 23 of the Sale of Goods Act.
In the further alternative, even if sales were held to take place in Part A/Part C States, the assessee sought apportionment of profits because extraction, processing, sorting, packing and dispatch occurred at Bhilwara.
The assessee relied on a number of authorities (listed in the record) in support of the position that property passed at Bhilwara or that the bank operated as agent for the buyers.

Department's Arguments

The railway receipts were endorsed by the assessee in favour of the Bank, and because the Bank would deliver the railway receipts to buyers only on payment, the buyers could not obtain delivery (and hence title) at Bhilwara. Therefore the property passed only when the railway receipts were delivered at Kodarma/Girdih.
Accordingly, the contracts were not contractual sales where property passed immediately on contract (i.e., not unconditional contracts within section 20 of the Sale of Goods Act).
The Department relied upon precedents (including Commissioner of Income Tax, Madras v. Mysore Chromite Limited and others) that hold in analogous circumstances that property and accrual of income occur where and when the documents of title are handed over against payment.
The Department challenged the reliability of the bank manager's statement relied upon by the assessee and maintained the findings of the Income-tax Officer and Tribunal that the Bank retained title by endorsements and passed title only on payment by buyers to the Bank's branches in Kodarma/Girdih.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
E.D. Sassoon & Co. Ltd. v. Commissioner of Income-tax, Bombay City	Principle that income may accrue to an assessee without actual receipt; accrual occurs when the assessee acquires a right to receive the income.	The court invoked this authority to explain accrual accounting under section 13 of the Act and to underline that accrual depends on acquisition of a right to receive income — hence the importance of the time when property passes.
Dolatram v. B.B. & C.I. Railway Company	The opinion lists this case as relied upon by the assessee; the provided text does not state the specific rule or principle taken from it.	The opinion records the citation among cases relied on by the assessee; no specific application or reliance by the court on its legal proposition is stated in the text.
Ford Automobile v. Delhi Motor Company	The opinion lists this case as relied upon by the assessee; the provided text does not state the specific rule or principle taken from it.	Cited by the assessee; the court's opinion does not set out a distinct application of this case in the reasoning contained in the text.
Shamji & Co. v. North Western Railway Company	Cited by the assessee; the opinion does not state the concrete rule or principle from it.	Cited by the assessee as supporting material; the court's reasoning does not rest on any articulated principle from this case in the text.
Jalan & Sons v. G.G. in Council	Cited by the assessee; the opinion does not state the specific legal rule cited.	Cited by the assessee; no specific application in the court's reasoning is described in the opinion.
Firm Pearelal Gopi Nath v. E.I.R. Company	Cited by the assessee; the opinion does not set out the particular rule from this decision.	Listed among authorities relied upon by the assessee; the court does not indicate a direct reliance on it in the text.
Sheo Prasad v. Dominion of India	Cited by the assessee; the opinion does not explain the precise principle taken from it.	The opinion records the citation but does not describe any direct application in the court's analysis.
Erochshaw v. Dominion of India	Cited by the assessee; the text does not state the concrete rule or principle cited.	Cited by the assessee; no explicit use of the precedent appears in the court's reasoning as recorded.
Bayyana Bhimayya v. Government of Andhra Pradesh	Cited by the assessee; the opinion does not specify the rule relied upon.	Included in the list of cases relied upon by the assessee; the opinion does not describe a particular application.
State of Andhra Pradesh v. Kolia Sreerama Murthy	Cited by the assessee; the provided text does not articulate the legal proposition drawn from it.	Referenced by the assessee; the court's written reasoning does not explicitly rest on this authority in the text.
Commissioner of Income Tax, Madras v. Mysore Chromite Limited	Held that property in goods passed where the bill of lading was handed over to the buyers' bank against acceptance of the bill of exchange (on the facts of that case).	The court treated this authority as directly governing the present case on the principle that where documents of title are delivered to buyers' bank against acceptance/payment, property passes where and when those documents are handed over; the case was applied to support holding property passed at Kodarma/Girdih rather than at Bhilwara.
Commissioner of Income-tax, Delhi v. P.M. Rathod & Co.	Held that when railway receipts in favour of "self" are sent through bank to be delivered to buyers only against payment (demand draft), the appropriation is conditional and performance completes when monies are paid and receipts delivered.	The court relied on this authority to support the conclusion that the transactions in the present case were conditional on payment and that profits accrued where/when the railway receipts were delivered (Kodarma/Girdih).
Commissioner of Income Tax, Madhya Pradesh & Bhopal v. Bhopal Textiles Ltd.	Held that the document of title remained the property of the seller until payment was received and the document handed over; income deemed received where the railway receipts were delivered.	The court invoked this decision to support the view that income accrued in the Part A/Part C States where the railway receipts were delivered against payment, and thus the assessee could not claim the Part B rebate.
Mysore Glass & Enamel Ltd. v. Commissioner of Income-tax, Madras	Cited by the department; the opinion does not state the precise rule or principle extracted from this case.	Cited in the course of submissions by the department; the court's opinion does not elaborate a discrete application of this authority in the text.
The Mewar Textile Mills Ltd. v. Commissioner of Income-tax, Delhi & Rajasthan, Delhi	Cited by the department; the provided text does not specify the rule or principle cited.	Listed among authorities relied on by the department; no detailed application by the court is recorded in the opinion.
Commissioner of Income Tax v. Ogale Glass Works Ltd. & Commissioner of Income Tax v. Patney & Co.	These cases relate to posting of cheques and the post office being treated as agent for purposes of delivery of payment; the opinion explains their context.	The court explained these cases were not relevant to the present facts because they concerned posting cheques and the post office's agency for delivery; the court declined to apply them to the present bank/railway receipts facts.
Commissioner of Income-tax, Bombay v. Scindia Steam Navigation Co. Ltd.	The Supreme Court's summary on what questions "arise out of" a Tribunal's order (four propositions about when issues are treated as arising out of an appellate order).	The court applied these principles to hold that the question of apportionment of income was not raised before the Tribunal and therefore did not arise out of the Tribunal's order; accordingly the court declined to entertain the apportionment plea.

Court's Reasoning and Analysis

The court's reasoning proceeded in a stepwise manner, grounded in the accrual method of accounting and the Sale of Goods Act (sections 18–25):

Accounting law foundation: Relying on section 13 of the Income-tax Act and the principle drawn from E.D. Sassoon, the court emphasized that income is computed on the accrual (mercantile) basis — income accrues when the assessee acquires a right to receive it. Thus, determining when property passed under the sale contracts is pivotal to fix the time and place of accrual.
Application of Sale of Goods Act provisions: The court identified the transactions as concerning specific/ascertained goods (sections 18 and 19). Section 19 directs that property in specific goods passes at the time the parties intend; sections 20–24 supply default rules for ascertaining such intention. The central question became whether the sales were "unconditional" within section 20 so that property passed at contract formation.
Examination of contract terms and commercial practice: The written contracts (Annexure A) specified "Bhilwara go-down delivery" and required that railway receipts be sent "through bank"; the contracts provided that 25% would be sent as advance and that after consignments left the godown they would be at buyers' risk. The court held that the buyer-imposed requirement that railway receipts be sent through the Bank was not innocuous: under mercantile expectations it effectively meant the Bank would deliver railway receipts to buyers only on payment (or on acceptance/honouring of the relative bill of exchange).
Conclusion on conditionality: Because the parties had stipulated delivery of railway receipts through the Bank as the mode of delivery, the court concluded that the parties intended property to pass upon payment — i.e., the appropriation/delivery was conditional. Consequently, section 20 did not apply to make the sales unconditional at contract formation; property did not pass at Bhilwara when contracts were made.
Agency and endorsements: The court rejected the assessee's argument that the Bank was the buyers' agent. The factual findings were that the assessee endorsed railway receipts in favour of the Bank (not the buyers), the Bank further endorsed them to its branches at Kodarma/Girdih, and the Bank retained title until buyers paid. That conduct was inconsistent with the Bank acting as buyers' agent; in any event, the court found the bank-manager's statement relied on by the assessee unreliable and not sufficient to overturn the factual findings of title retention by the Bank.
Section 23(2) and appropriation argument: The court considered section 23(2) (deemed unconditional appropriation where seller delivers goods to carrier without reserving right of disposal) and rejected the assessee's reliance on it — the court held the seller had not lost the right of disposal because the parties had agreed that the buyers would obtain property only upon payment to the Bank's branches against the railway receipts. Therefore, section 23(2) did not establish unconditional appropriation at Bhilwara.
Reliance on precedents: The court cited and applied authorities (notably Mysore Chromite, P.M. Rathod & Co., and Bhopal Textiles) that support the proposition that where documents of title (bills of lading/railway receipts) are delivered to a bank and the bank delivers them to buyers only against payment or acceptance, the property passes and income accrues where and when the documents are handed over against payment. The court treated these decisions as analogous and controlling on the matter of when property and accrual occur.
Apportionment plea: The court addressed the assessee's argument for apportionment (to reflect profit elements arising from processes undertaken at Bhilwara). The court invoked principles from Scindia Steam Navigation regarding what questions arise out of a Tribunal's order and found that apportionment was not raised before the Tribunal and did not arise out of its order. Consequently, the court declined to entertain the apportionment plea; additionally, on the merits the court held there was no entitlement to apportionment because the income was deemed to have been received in Part A/Part C States where property passed.

Holding and Implications

Core Ruling: The court answered the referred question in the negative — the assessee was not entitled to a rebate under the Part B States (Taxation Concessions) Order in respect of the profits from the transactions in question.

Consequences and implications (as stated in the opinion):

The property in the goods did not pass at Bhilwara when the contracts were made; instead, property passed at the Part A/Part C States (Kodarma or Girdih) when the railway receipts/documents were delivered against payment to the buyers or their bankers. Accordingly, the income, profits and gains in respect of these transactions accrued in those Part A/Part C States.
Because income is deemed to have been received in Part A/Part C States, the assessee could not claim the Part B rebate under the Taxation Concessions Order; there was no apportionment of the income to allow rebate for the Bhilwara operations in the circumstances of this case.
The court considered and rejected the arguments that the Bank was the buyers' agent or that there had been unconditional appropriation at Bhilwara within the meaning of section 23(2) of the Sale of Goods Act.
The assessee was directed to pay one set of the costs of the reference to the department.

No broader new legal principle was announced; the court applied established principles of accrual accounting and the Sale of Goods Act, and followed existing Supreme Court decisions dealing with similar documentary-title and conditional-delivery situations.

Show all summary ...

Shinghal, J.:— This is a consolidated reference under sub-sec. (1) of sec. 66 of the Indian Income-tax Act, 1922 (Act XI of 1922), hereinafter called the Act, at the instance of the assessee Messrs Seth Pushalal Mansinghka Private Limited, Bhilwara. The question which has been referred for our consideration on the reference is as follows—

“Whether on the facts and in the circumstances of the case, the assessee was entitled to any rebate under the Part B States (Taxation Concessions) Order in respect of its income from the mining business for the assessment years 1950–1951 and 1951–1952?”

2. The assessee is a private limited company with its mines, factory and head office at Bhilwara, in Rajasthan, and was incorporated as a company in the former State of Udaipur on 12-11-1946. The assessee carried on mining business at Bhilwara and was engaged in the cutting, processing, sorting and packing of mica which was sent almost entirely by railway to Kodarma and Girdih villages in Part A and Part C States, as they then were. The assessee followed the mercantile method of accounting and the assessment years in question are 1950–1951 and 1951–1952, the corresponding previous years being the years from November 2, 1948 to October 21, 1949, and October 22, 1949 to November 9, 1950, respectively. The total sale proceeds of the assessee during the two assessment years amounted to Rs. 19,77,544/- and the assesse tendered bills to the local branch of the Bank of Rajasthan to the extent of Rs. 15,64,475/- and received that much of the payment at Bhilwara. As Rajasthan was then a Part B State, the assessee claimed that it was entitled to the benefit of rebate under the Part B States (Taxation Concessions) Order, 1950, and that sec. 4(1)(a) of the Act was not applicable to its transactions. By his order dated 31-5-1954, for the assessment year 1951–1952, the Income-tax Officer held that since the railway receipts were obtained by the assessee for “self” and were sent by the assessee through its banker to the buyers, the ownership in the goods continued to vest in the assessee until their actual delivery to the buyers, so that the title in the goods passed only at Kodarma when the delivery of the railway receipts was made by the bank on behalf of the assessee. The Income-tax Officer rejected the assessee's contention that as bills to the extent of Rs. 15,64,475/- had been discounted by the bank at Bhilwara, the payment to that extent should be deemed to have been received at Bhilwara. He reached that conclusion on the ground that the assessee's letter dated July 13, 1948, for the discounting of the bills was not genuine, and also because he arrived at the conclusion that, at any rate, the profits were earned by the assessee at Kodarma on the passing of the title to the buyers in respect of the consignments in question. The Income-tax Officer refused to place reliance on the statement of the bank's manager Raghuwardayal that if the bills of exchange presented by the assessee along with the railway receipts had been dishonoured, the bank could not have debited the amount to the assessee. In reaching his conclusion, the Income-tax Officer went on to hold that the assessee must have filed in the necessary discount form and that the contents of that form were sufficient to negative the manager's statement to the contrary. In the alternative he also held that the mere giving of credit by way of overdraft, against railway receipts, was a matter of no consequence as such a facility might have been provided to the assessee because the bank in question was controlled by some of the directors of the assessee company. A similar order was passed by the Income-tax Officer for the assessment year 1950–1951. Appeals were preferred against both the orders, but were rejected by the Appellate Assistant Commissioner on September 20, 1957, after he had made certain further inquiries from the Income-tax Officer, so that no rebate was allowed to the assessee under the part B States (Taxation Concessions) Order. The assessee once again filed an appeal before the Income-tax Appellate Tribunal, Bombay, Bench ‘C’, but the Tribunal also reached the conclusion that as the goods were consigned to “self” and not to the buyers, the property in the goods did not pass to them until they took possession of the documents from the bank. The appeal was accordingly dismissed on the 18th of August, 1958, and this is how the present reference has been made at the assessee's request. In order to appreciate the controversy, it is necessary to refer to some other facts which are not in dispute, so that the nature of the transactions which gave rise to the profits in respect of the two assessment years may be properly appreciated. The representatives of the buyers from Kodarma and Girdih used to visit Bhilwara, inspect the various qualities of mica which the assessee had for sale and entered into written contracts for their purchase. Four of such contracts have been placed on the record and marked as Annexure A, for it is admitted that they fairly represent all the contracts with which we are concerned. These contracts clearly show that the buyers purchased specified qualities of mica, “Bhilwara go-down delivery”, on the condition that the consignments would be sent to Kodarma or Girdih as the case may be, and that the railway receipts would be sent “through bank”. Then there is the further stipulation that 25 percent of the price would be sent by way of an advance, within a week's time, that the packing expenses would be payable by the buyers and that after the consignments left by the godown, they would be entirely at the buyers' risk. Apart from these written terms and conditions of the contracts, the department, as well as the Income-tax Appellate Tribunal, have recorded their further finding of fact that the assessee consigned the goods to “self” and that the railway receipts, along with the bills of exchange, were presented by the assessee to the Rajasthan Bank, Bhilwara, for collection, after endorsing the railway receipts in favour of the Bank. It has also been found that the Bank, in its turn, endorsed the railway receipts in favour of its branches in Part A or Part C States and that the goods were delivered to the buyers only when they paid the price to the Bank and obtained the railway receipts.

3. The question is whether, in these facts and circumstances, the property in the goods could be said to have passed to the buyers at Bhilwara, as has been claimed by the assessee, or whether it passed at Kodarma or Girdih as has been held by the department and the Income-tax Appellate Tribunal.

4. It has been argued by the learned counsel for the assessee that the contracts in question undoubtedly took place in the Parts State of Rajasthan and were for ascertained goods, which were in a deliverable state, and that as the contracts were unconditional, the property in the goods passed to the buyers on the dates when the contracts were made and that it was immaterial whether the time of the payment of the price or the time of the delivery of the goods was postponed. The learned counsel has based his argument on the provisions of sec. 20 of the Sale of Goods Act. He has further argued that a serious mistake was committed by the Income-tax authorities, as well as the Income-tax Appellate Tribunal, in holding that the bank was the agent of the seller, inasmuch as the buyers themselves made it a condition of the contracts that the railway receipts would be sent through the bank. In this connection he has pointed out that the sale became complete in all respects when the railway receipts were endorsed by the assessee in the Bank's favour and were delivered to the Bank because such an endorsement was sufficient to pass a title in favour of the Bank who was the buyers' agent. Further, the learned counsel has pointed out that the question whether the goods were uncondionally appropriated towards the contract at Bhilwara within the meaning of sec. 23 of the Sale of Goods Act has not been properly considered and appreciated and that since the appropriation was at Bhilwara, the subsequent process for the purpose of effecting actual delivery of the goods to the buyers, or obtaining the price from them, was of no consequence. These arguments have been supported by reference to certain decided cases, and we shall have occasion to refer to them a little later. It may be mentioned here that an alternative argument has been made by the learned counsel for the assessee that even if it was held that the sales in question took place in a Part A or Part C State, the assessee was entitled to apportionment of the profits as it has not been disputed that the mica in question was extracted, processed, sorted, packed and despatched at Bhilwara.

5. Now, as we have stated earlier, the assessee regularly employed the mercantile method of accounting and there can be little doubt that by virtue of sec. 13 of the Act, its income, profits and gains shall have to be computed in accordance with that method of accounting, i.e, on the basis of accrual, and not on the basis of receipt. We may in this connection refer to the well-known case of E.D Sassoon and Company Ltd. v. Commissioner of Income-tax, Bombay City (1) in which their Lordships of the Supreme Court have laid down that income may accrue to an assessee without the actual receipt of the same so that if the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later, on its being ascertained. Thus the basic conception for the accrual of income is that the assessee must have acquired a right to receive it. It does not matter if the valuation of the income is postponed or that the materialisation of the income may depend on the contingency that the making up of the accounts would show income, profits or gains. But, as is obvious, profit in a case like the present can accrue only on transfer of properly from the seller to the buyer, and, therefore, the time when the property passes from the seller to the buyer is one of considerable importance.

6. This brings us to the provisions of secs. 18 to 25 of the Sale of Goods Act. According to sec. 18 thereof, property cannot pass to the buyer in the case of unascertained goods until the goods are ascertained. But it is not in dispute that the present is a case of ascertained goods. In fact, this would be obvious from the fact that as has been mentioned, the buyers went to Bhilwara to purchase the goods and precisely specified the quality and the quantity of the various types of mica which they purchased from the assessee. It is also not in dispute that mica of the required quality as duly sorted out and was packed and consigned to Kodarma or Girdih as the case may be. Thus the present transactions clearly related to specific or ascertained goods. The question is when the property in respect of them could be said to have passed to the buyers. Sec. 19 of the Sale of Goods Act provides that where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer frat such time as the parties to the contract intend it to be transferred.” There is the Further provision that for the purpose of ascertaining such an intention, regard shall be had to (i) the terms of the contract, (ii) the conduct of the parties and (iii) the circumstances of the case. Then there is the provision in sub-sec. (3) of sec. 19 to the effect that—

“Unless a different intention appears, the rules contained in secs. 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer.”

7. The case of the assessee is that the sales in question fall within the purview of sec. 20 because there was in each case, an unconditional contract for sale of specific goods in deliverable state and that the property in the goods accordingly passed to the buyers when the contract was made. The question is whether these could be said to be unconditional contracts within the meaning of sec. 20.

8. It has been argued by the assessee's learned counsel that there is nothing in the various letters of contract marked Annexure A or in the other evidence on the record, which could show that this was not an unconditional contract for the sale of mica, and it is in this connection that his other argument that the bank was the agent of the buyers comes in for consideration. The learned counsel has pointed out that the Income-tax Appellate Tribunal committed a serious mistake when in paragraph 8 of its order dated August 18, 1958, it referred to the bankers as the bankers of the assessee, and it has further been argued that it was only natural in view of such a mistake, that the Tribunal's finding should have gone against the assessee. The learned counsel has further pointed out that in the letters Annexure A, the buyers clearly stated that they had purchased the mica, that the delivery was ex Bhilwara godown, that the consignment was to be sent to Kodarma or Girdih, that the packing charges were to be borne by the buyers and that the risk was to be entirely of the buyers as soon as the consignments left the seller's godown. These terms of the contract, according to the learned counsel, were sufficient to show that the contract was unconditionl. As regards the other conditions about the despatch of the railway receipts through the Bank, the learned counsel has argued that the condition was imposed by the buyers and that the Bank was, therefore, the buyers' agent and that by endorsing the railway receipts in favour of the Bank, the assessee passed on the title in the goods to the buyers' agent. For this last argument, learned counsel has placed reliance on Dolatram v. B.B & C.I Raliway Company (2), Ford Automobilee v. Delhi Motor Company (3), Shamji and Company v. North Western Railway Company (4), Jalan & Sons v. G.G in Council (5), Firm Pearelal Gopi Nath v. E.I.R Company (6), Sheo Prasad v. Dominion of India (7), Erochshaw v. Dominion of India (8), Bayyana Bhimayya v. The Government of Andhra Pradesh (9) and State of Andhra Pradesh v. Kolia Sreerama Murthy (10).

9. On the other hand, it has been argued by Mr. Lodha on behalf of the department that since the railway receipts were endorsed by the assessee in favour of the Bank, the buyers could not take delivery until after the payment of the price to the Bank and that it could not therefore be said that it was a case of an unconditional contract of sale within the meaning of sec. 20 of the Sale of Goods Act. The learned counsel has placed reliance on Commissioner of Income-tax, Madras v. Mysore Chromite Limited (11), Commissioner of Income-tax, Delhi v. P.M Rathod & Company (12), Commissioner of Income-tax, Madhya Pradesh and Bhopal v. Bhopal Textiles Limited (13), Mysore Glass and Enamel Ltd. v. Commissioner of Income-tax, Madras (14) and The Mewar Textile Mills Ltd. v. Commissioner of Income-tax, Delhi and Rajasthan, Delhi (15).

10. Now, it is a well settled that the inference in respect of a mercantile contract is that each party will do what is “merchantably reasonable”. So when it was made a condition of the contract that the railway receipt would be sent through the bank, it would follow that such a term had the effect of inserting a condition in the contract of sale that the seller would deliver the railway receipt to the bank for onward transmission to the buyer, and that it would be the Bank which would secure a clearance of the transaction. Such a provision obviously had the effect of providing that the Bank would deliver the railway receipt to the buyer only against payment of its value, or, in other words, on the honoring of the bill of exchange by the buyer. We are, therefore, inclined to the view that the parties to the contract virtually stipulated, as an important condition for the sale of the goods in question, that the property in the goods would pass to the buyer on payment of the value thereof, and not otherwise. It cannot, therefore, be said that the provision for the sending of the railway receipts through the Bank was so innocuous or insignificant that it could be ignored and the contract held to be an unconditional contract for sale. As such, we are clearly of the opinion that this case is not covered by sec. 20 of the Sale of Goods Act and that the property in the goods did not pass to the buyers when the contracts were made.

11. In the view which we have taken, it is really a matter of no consequence that the provision regarding the sending of the railway receipts through the Bank was inserted at the request of the buyers, for the fact remains that the parties agreed to that condition as the mode for the actual delivery of the goods in pursuance of the contract for sale. Unless that condition was satisfied, there could be no question of transfer of property in the goods in favour of the buyers.

12. The argument that the Bank became the agent of the buyers is also of no avail to the assessee for at least two other reasons. Firstly, the argument is factually untenable, for it has been found as a fact that, while delivering the railway receipts to the Bank, the assessee used to make endorsements in favour of the Bank, and not in favour of the buyers, so that the title in the goods passed to the Bank and not to the buyers. Secondly, it has also been found as a fact that, in its turn, the Bank sent the railway receipts to its own office at Kodarma or Girdih after making a further endorsement on the railway receipts in favour of its own branches there, so that the Bank retained the title in respect of the goods in itself and did not pass it on to the buyers until they had paid the value thereof to the Bank. This would not have been the course of conduct if the Bank had been the buyers agent as has been argued by the learned counsel for the assessee.

13. It may be mentioned here that the learned counsel tried to place reliance on the statement of Raghuber Dayal Maihur, Manager of the Bhilwara Branch of the Bank of Rajasthan, in order to show that the Bank could not, at any rate, claim any amount from the assessee even if the bill of exchange was dishonoured by the buyer or there was a loss of the goods in transit. That statement has, however, been held to be unreliable by the departmental authorities and has not been referred to by the Tribunal. We are not, therefore disposed to take the view that the statement is reliable. Thus there in no force in the argument that the Bank was the buyers' agent and that the delivery of the railway receipts to it was on behalf of the buyers and that it passed the property in the goods to them.

14. In this view, Commissioner of Income Tax v. Ogale Glass Works Ltd. (16) and Commissioner of Income Tax v. Patney & Co. (17) which have been cited by the learned counsel for the assessee, have no relevance. Those cases relate to the posting of cheques at the request of the assessee and that was why it was held that the post office became the assessee's agent so that the delivery of the cheque to the post office amounted to delivery to the assessee so far as the receipt of the payment by the assessee was concerned.

15. An argument has also been advanced on behalf of the assessee that a serious error has been committed in drawing up the order of assessment inasmuch as the department failed to take notice of the fact that by making the endorsement in favour of the Bank, the assessee passed on the title in respect of the goods at Bhilwara and that there was at any rate, an unconditional appropriation of the goods there within the meaning of sec. 23(2) of the Sale of Goods Act. This argument also fails to convince us because the sub-section provides that where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract within the meaning of sub-sec. (1) of sec. 23. As we have already discussed above, the real arrangement between the parties was that the buyers would not get property in the goods unless they paid the price to the Rajasthan Bank's branches at Kodarma or Girdih as the case might be against the railway receipts which had been consigned to “self.” That being so, we are not prepared to hold that the assessee had transferred its right of disposal over the goods within the meaning of sec. 23(2). sec. 23 of the Sale of Goods Act is thus of no avail to the assessee. Accordingly, the profits accrued to the assessee at Kodarma or Girdih so that the assessee is not entitled to receive the benefit of the rebate under the provisions of the Part B States (Taxation Concessions) Order.

16. We are fortified in this view by a number of decisions of their Lordships, of the Supreme Court. We shall first make a reference to Commissioner of Income Tax Madras v. Mysore Chromite Limited (Supra). In that case the assessee placed the contracted goods on board the steamer at Madras and obtained a bill of lading in its own name, prepared a provisional invoice on the basis of the weight recorded in the bill of lading and the contract price and drew a bill of exchange on the buyers' bank. The bill of exchange, together with the relative bill of lading and the provisional invoice, was then negotiated by the assessee's bank at Madras and that bank forwarded the documents to its branch in London and it was that branch which presented the bill of exchange to the buyers' bank at London and upon its acceptance the bill of lading and the invoice were delivered to the buyers' bank. The sale price was ascertained thereafter on the arrival of the goods and after weighment and essay. On these facts, their Lordships of the Supreme Court held that upon the terms of the contracts and the course of dealings between the parties 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. This case was sought to be distinguished by the assessee's learned counsel on the ground that it was not a case of “ascertained goods” and that it differed from the present case also for the reason that there is an unconditional contract for the sale of the mica in this case. These so called distinguishing features are really of no importance, for the fact remains that the view which prevailed with their Lordships was that as the bill of lading was handed over to the buyers' bank against acceptance of the relative bill of exchange, the property in the goods passed in London; and that decision would amply govern the present case.

17. Then we come to Commissioner of Income Tax, Delhi v. P.M Rathod & Co. (Supra). In that case, the goods ordered by the buyers were sent to them either by V.P.P or by rail and, in the latter case, the railway receipts in favour of “self” were sent through bank to be delivered to the buyers against payment of the demand draft drawn on the buyer. It was held by their Lordships of the Supreme Court that as the railway receipts could not be delivered to the buyers till the money was paid, in spite of the fact that the goods had been handed over to a common carrier, the appropriation to the contract was only conditional and that the performance was completed when the monies were paid and the railway receipts delivered in a Part A or Part C State. It has been urged before us that the case is distinguishable for the reason that there was evidence to show in that case that the assessee had advised its banker to make delivery against payment. There is no force in this contention because, as we have shown already, there was a clear condition in the present case that the railway receipts would be sent through the bank so that the parties had stipulated that the delivery of the goods would be contingent on the payment of their price.

18. In the case of Commissioner of Income Tax Madhya Pradesh and Bhopal v. Bhopal Textiles Ltd. (Supra), the assessee handed over the railway receipts to the bank and asked the bank not to deliver them to the buyers unless payment was received. It was held by their Lordships of the Supreme Court that the document of title to the goods remained the property of the assessee until payment for it was received and it was handed over, so that the income must be deemed to have been received by the assessee in a Part A State where the railway receipts were delivered. This case was also sought to be distinguished on the ground that there was evidence to show that the bank was the agent of the assessee and that the assessee had instructed it to deliver the railway receipts only against payment. For the reasons which we need not repeat, there is no force in this argument.

19. In the result, we are satisfied that as the property in the goods passed from the assessee cannot claim a rebate under the Part B States (Taxation Concessions) Order on the profits that accrued to it on the transactions.

20. It has however been strenuously urged by the learned counsel for the assessee that even when we arrive at such a conclusion, the assessee would still be entitled to claim a proportionate rebate in the income-tax as it is not disputed that the mica in question was extracted, processed, sorted, packed and despatched at Bhilwara and that the element of profit embedded in these various processes having accrued at Bhilwara i.e, in a Part B State, the assessee is entitled to a proportionate rebate thereon as the whole of the income could not be said to have arisen in a Part A or Part C State. An objection was however raised by Mr. Lodha that such a plea was not advanced before the department or the Income-tax Appellate Tribunal and that it could not be allowed to be raised for the first time before us. A point similar to that raised by Mr. Lodha arose for consideration in Commissioner of Income-tax, Bombay v. Scindia Steam Navigation Co. Ltd. (18) and, after examining the relevant provisions and the case law, their Lordships of the Supreme Court summed up the position as follows:—

“(1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order.

(2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order.

(3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order.

(4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it.

Stating the position compendiously, it is only a question that has been raised before or decided by the Tribunal that could be held to arise out of its order.”

21. We have gone through the order of the Tribunal in the light of these observations of their Lordships of the Supreme Court and we have no doubt that the question of apportionment of the income, profits and gains was not at all raised before it and it cannot be said to arise out of the Tribunal's order. We do not, therefore, feel persuaded by the argument of the learned counsel for the assessee that we should go into it at this stage. Even otherwise, there is no merit in the claim for apportionment of the income, profits and gains because we have reached the conclusion that income, profits and gains in the present case were received or should be deemed to be received in the Part A and Part C States in question where property in the goods passed to the buyers on payment of their value. It has been laid down by their Lordships of the Supreme Court in the case of Bhopal Textiles Ltd. (Supra) that where income is deemed to have been received in British India the assessee must be held to be liable to income-tax under sec. 4(1)(a) of the Act, and there would thus be no question of apportionment of the profits under the Part B States (Taxation Concessions) Order, 1950.

22. In the result, we would answer the question which has been referred to us in the negative. The assessee shall be liable to pay one set of the costs of this reference to the department.