Jain, J.:— The Income-tax Appellate Tribunal, Delhi Bench A, has made this reference for answering the following question of law:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 35,302 was the income of the assessee which accrued in Part ‘C’ State and not in Part ‘B’ State?”

2. The assessee, M/s. Mansinghka Bros. (P.) Ltd., Bhilwara, is a private limited company having its head office at Bhilwara which was at the material time in a Part ‘B’ State. The assessee company had advanced loans to Shree Bijay Cotton Mills Ltd. and to Shree Bijay Sugar Mills Ltd., Bijainagar in a Part ‘C’ State. The assessee company had earned an income of Rs. 1,10,369 during the accounting year ending 31st March, 1951, which included income from interest amounting to Rs. 35,302. It had an income of interest of Rs. 22,526 from Shree Bijay Cotton Mills Ltd. and Rs. 12,776 from Shree Bijay Sugar Mills Ltd. The ITO by his assessment order dated November 29, 1952, held that the amount of interest accrued to the assessee in a Part ‘C’ State and as such no rebate is admissible according to the Part ‘B’ States (Taxation Concessions) Order. The assessee went in appeal before the AAC of Income-tax, ‘B’ Range, Delhi, who by his order dated April 23, 1954, while dismissing the appeal of the assessee, found that both the interest items in question accrued to and were really earned by the appellant at Bijainagar and not at Bhilwara. The assessee-further went in appeal before the Income-tax Appellate Tribunal, Delhi Bench, which by its order dated April 11, 1955; accepted the contention of the assessee and held that the income from interest on the loan was received by the assessee in a Part ‘B’ State. However, on rectification application, that order was set aside by the Tribunal by its order dated March 14, 1956, and the appeal was reheard and on August 11, 1958, the order of the AAC was set aside and the case was sent back to the AAC. to make further inquiries on the lines directed by the Tribunal and to dispose of the appeal afresh according to law. The AAC reheard the appeal and again decided the question against the assessee by its order dated April 8, 1968. The assessee further went in appeal before the Tribunal and the Tribunal, by its order, dated May 18, 1970, rejected the appellant's contention and held that the income from interest accrued to the assessee in a Part ‘C’ State. Further, Misc. Application was presented for rectification of a mistake, but the Tribunal by its order dated December 3, 1970, rejected the application and a reference application was made by the assessee, on which the Tribunal has referred the above question of law for being answered by this court. The Tribunal in its order dated May 18, 1970, observed as under:

“Though the charging sections of the Income-tax Act assume that income, profits or gains have a situs, in the absence of proper indication as to how the situs is to be determined, we are to consider it according to general principles of law and how there was inter-related connection between accrual of interest and situs of accrual of interest. Sufficiency of territorial connection involves consideration of two elements: (a) connection should be real and not illusory, (b) liability sought to be imposed must be pertinent to the connection. From the facts of the case, we cannot hold that the connection upon which the counsel for the assessee relied was real. According to us, connection is illusory because purchasing agents are no independent entities, amounts were adjusted in the head offices of the debtor companies, whatever entries had been made were made in the primary books of account of the head offices of debtor-companies. Title to money lent passed to the debtor-companies in Part C States, goods were purchased for manufacturing purposes and manufacturing operations were made in Part C States and nothing could be found that any part of the income of the assessee accrued or arose in Part B States. Purchasing agents are agents for limited purposes of purchasing goods for their principals. An authority to purchase does not imply authority to borrow capital for the purpose of purchase. In commercial transactions, an agent is to be understood to have a meaning which is accorded to it by the Indian Contract Act, 1872. Nothing was brought on record to hold that purchasing agents were authorised to take loans on behalf of debtor-companies. On the other hand, position of accounts maintained by the head offices of the debtor-companies and their purchasing agents belies the position that these purchasing agents acted on behalf of the head offices of the debtor-companies to take loans at Bhilwara.”

3. The Tribunal then considered as to when and how the debtor-companies would be responsible for making payments to the assessee and where the cause of action against them would arise. It considered the provision of s. 20 of the Code of Civil Procedure and further observed that the debtor-companies had no subordinate office and they had no branch offices at Bhilwara and as such it cannot be stated that the debtor-companies carried on business at Bhilwara. So the Tribunal held that the cause of action in the instant case cannot arise in a Part ‘B’ State, and, it also found that the debtor-companies cannot be said to reside in a Part ‘B’ State and carried on business at that place. It also recorded a finding that no contract for taking loan was made in a Part ‘B’ State. It further observed that in the instant case there was no written agreement between the assessee and debtor-companies regarding taking of loan by the debtor-companies from the assessee at Bhilwara and it also could not be established that there was a verbal agreement of taking loan by debtor-companies from the assessee in Part ‘B’ States. It concluded that after taking the chain of integrated circumstances of the present case, we are to hold that title to money passed to the debtor-companies in Part ‘C’ States and interest payable thereon accrued also in Part ‘C’ States. On behalf of the assessee, strong reliance was placed on the decision of the Madras High Court in C.G Krishnaswami Naidu v. Commissioner Of Income-Tax, Madras., [1966] 62 ITR 686. It was stated in respect of that authority that the observation and view taken in that case are in respect of the facts of that particular case and the observation made in the Madras case was also considered that there may be cases where conceivably terms of an agreement of lending may decide the situs of interest.

4. This court is required to answer the question referred to it in the light of the factual findings arrived at by the Tribunal. It has been found that the debtor-companies had their purchasing agents at Bhilwara and the purchasing agents had no authority to borrow loans. The entries relating to money-lending transactions were made in the books of account of the head offices of the debtor-companies. It is to be seen as to what circumstances can be taken into consideration on the basis of which it can be said that the accrual of interest has a particular territorial connection and whether that connection is a real connection or an illusory one. In money-lending transactions, there may be several factors which may have different territorial connection. These factors may be as to the place, where an agreement verbal or written, to advance loan, is entered into; the place where the money is actually lent; the place where the money is used or utilised; the place where entries thereof are made; the place where money, including interest, is agreed to be paid. In order to determine the situs of accrual of interest, these and several other factors may enter into consideration. It is true that in the present case the debtor-companies had no branch offices. They had only purchasing agents, who used to purchase goods on behalf on the debtor-companies and the purchasing agents had no authority to borrow loan. But still two questions prominently crop up for consideration, (1) what was the place where the money was lent, and (2) what was the place where the money lent, including interest, was to be repaid?

5. On behalf of the assessee, Shri H.N Calla urged that in the present case the money was actually lent at Bhilwara, as the same was received by the purchasing agents on behalf of the debtor-companies and there was no written or verbal stipulation between the parties regarding the place of repayment. But in the instant case the general principle should be found to have application that the debtor should seek the creditor and the debtor is under an obligation to repay the loan, including interest, at the place where the creditor resides, unless the creditor changes its place of residence after advancement of loan. Such a change of place of residence, in certain circumstances, may be considered in the manner that the debtor may be under no obligation whatsoever to find out the creditor as to where he resides and approach him to make payment of the loan at that changed place. Mr. Calla urged that a cause of action accrues to the creditor also at the place where the loan is payable and applying the above principle, it can be said that the money was payable at Bhilwara, where the assessee was carrying its business. Thus, the right to receive repayment of the loan, including interest, accrued to the assessee at Bhilwara and a corresponding obligation or liability arose for the debtor companies to make payment to the assessee at Bhilwara. Mr. Calla also urged that from a perusal of the orders passed by all the revenue authorities, it would be evident that in fact the loan was advanced by the assessee to the purchasing agents of the debtor-companies at Bhilwara. He submitted that it is one thing to say that the purchasing agents had no authority to take loan. It is entirely different to say that the debtor-companies at Bijainagar borrowed the loan from the assessee through their purchasing agents at Bhilwara, so the situs of advancement of loan was at Bhilwara. That was also a very relevant consideration to determine the question of accrual of interest income at Bhilwara. He submitted that C.G Krishnaswami Naidu's case, [1966] 62 ITR 686 (Mad), had not been properly considered by the Tribunal. He urged that the case does throw light on the question in issue and has a material bearing on the present case.

6. Mr. J.P Joshi, learned counsel for the Revenue, on the other hand, urged that the accrual of interest at Bhilwara has only an illusory connection and not a real connection. The debtor-companies had their head offices at Bijainagar. The moneys were entered into the books of account at the head office. Entries relating to accrual of interest were also made in the books of account of the head offices of the debtor-companies. The debtor-companies had no branch offices at Bhilwara and were having only their purchasing agents. The liabilities of the debtor-companies arose at Bijainagar for payment of loan and interest and it may also be considered that a finding has been arrived at by the Tribunal that the money was not lent at Bhilwara. When the Tribunal has observed that the purchasing agents had no authority to take loans on behalf of the debtor-companies and that the position of accounts at the head offices and the purchasing agents belies the position that the purchasing agents had authority to take loans at Bhilwara for the purposes of determination of the situs of accrual of interest. Shri Joshi urged that when the liability to repay the amount of loan and interest can be said to arise at Bijainagar, then for the purpose of determination of that question, the principle that the debtor should find the creditor should not be made applicable.

7. We have carefully considered the rival submissions advanced by the learned counsel for both the sides.

8. We may first consider as to whether the question of situs of accrual of interest can be examined in the light of the principle that the debtor should find the creditor. In our opinion, it cannot be denied that the place of repayment has a material bearing on the question, for, it can be said that the place where the right to recover the principal amount of loan arises, income from interest would also accrue or arise at the place where the amount of loan is required to be repaid. There may be a stipulation between the creditor and the debtor with regard to the place of repayment. Where there is no agreement, verbal or written, then in such cases, the principle that the debtor should find the creditor has also been found applicable in India. Of course there may be facts and circumstances where this principle may not be made applicable. Such a situation may be where the creditor had left his original place and had migrated to some other place beyond the national frontiers or otherwise and the new place may be known or may not be known to the debtor. This court had an occasion to consider the applicability of the rule relating to the debtor's obligation to find out the creditor in Balloram v. Firm Seth Uttamchand Bishavdas, [1960] RLW 397 : AIR 1961 Raj 93. After considering the available law and statutory provisions, the principles were stated as follows (p. 97 of AIR):

“(1) The technical rule that the creditor's residence at the commencement of the suit should determine the forum in the absence of a contract to the contrary should not be applied in India. India is a vast country and it is hardly fair to impose a burden upon the debtor to seek the creditor wherever he happens to go in this vast country. The Privy Council case, Soniram Jeetmull v. Tata.(R.D) & Co. Ltd., AIR 1927 PC 156, is consistent with this proposition. The contrary authorities in cases Sm. Tusliman Bibi…Plaintiff v. Abdul Latif Mia…Defendant ., AIR 1936 Cal 97 and Bharumal Udhomal v. Sakhawatmal Veshomal, AIR 1956 Bom 111, do not in my judgment state the correct law.

(2) If the place of performance of contract or, for that matter, the place of payment of debt can be shown to be fixed expressly or impliedly and irrespective of or despite the inferences arising from the obligation of the debtor to seek the creditor involved in the obligation to pay him, the applicability of the rule does not arise.

(3) Even though the place has been fixed at the time of agreement expressly or impliedly, but if it has been subsequently fixed under section 49 of the Contract Act on an application of the promisor and with the consent of the promisee, the rule should not be applied.

(4) If it is not possible to establish an agreement respecting the place of performance or payment, express or implied, the court should apply the rule and should presume that the place of the creditor's residence at the time of the agreement was implied to be the place of performance or payment. The cases which have taken the view that the rule is only one of the factors that should be considered in determining the place of performance have not correctly interpreted the Privy Council decision. Obviously, if on a consideration of the various circumstances, it is not possible to arive at a finding as to an express or implied agreement regarding the place of performance or payment, I cannot see how other factors should be considered along with this rule for determining the place of performance, as the rule implies a clear presumption in the absence of a contract to the contrary”.

9. In C.G Krishnaswami Naidu's case, [1966] 62 ITR 686 (Mad), it was also observed as under (p. 692):

“These provisions clearly proceed on the assumption that the income, profits and gains have a situs. How the situs has to be determined, the section does not indicate. Where profits or income accrue or arise will, therefore, have to be determined according to the general principles of law and in the light of the particular facts. It has been held that ‘accrue or arise’ in section 4 have more or less a synonymous sense and income or Profits are said to accrue or arise where the right to receive them comes into existence with a corresponding liability to pay the same. Where and when such a right or liability comes into existence is a question of fact—perhaps a mixed question of fact and law”

10. It would appear from the above observations that the place of accrual of income is the place where the right to receive that income arises, with ‘the corresponding liability to make payment of the same there. In the present case, it has not been’ found as a fact that there was any verbal or written agreement that the place of repayment of loan, including interest, shall be Bhilwara. In the absence of such a contract, in our opinion, the aforesaid principle can be and should be made applicable and the question of situs of accrual of interest should be determined in the light of the above-said principles. The question of situs of accrual of interest, in our opinion, is directly related to the question of situs of accrual of the right of repayment of loan and interest or situs of accrual of right to receive the money advanced, including interest thereon. If the above principle is applicable, as in our opinion it is, then the right to recover or receive the amount of loan and interest accrued to the assessee at Bhilwara with a corresponding liability on the part of the debtor-companies to make payment of the amount of principal and interest at Bhilwara. This is one factor which has immensely weighed with us for determining the question of situs of accrual of interest. Along with the above factor, another important factor that cannot be lost sight of is the actual place of advancement of loan. From a perusal of various orders of the authorities, including that of the Tribunal, it can be taken that it has been found as a fact that the loans were lent to the debtor-companies at Bhilwara through their purchasing agents. The AAC, in his order of April 23, 1954, recorded that it appears that the amounts were lent to the purchasing agencies at Bhilwara. The AAC again in his order dated April 8, 1968, in para. 6 of his order, took into consideration the entries in the cash books kept by the purchasing agents at Bhilwara and observed that whatever money was received by cash or cheque was utilised only for the purpose of purchase of raw materials, which were despatched to the head office for their manufacturing activities, and he further stated that it is, therefore, quite clear that the purpose of all such loans, credits etc., was merely the making of said purchases being made by the head office from Bhilwara. The tenor of the order of the Tribunal dated May 18, 1970, also shows that the debtor-companies received the amounts of loans at Bhilwara through the hands of their purchasing agents. It may be stated that the Tribunal has simply recorded that the purchasing agents had no authority to borrow loan, but has nowhere reversed the finding recorded by the AAC that the moneys were actually lent to the debtor-companies at Bhilwara, as the same were received by the debtor-companies through the hands of the purchasing agents at Bhilwara. Mr. J.P Joshi pointed out that the Tribunal observed that the position of accounts maintained by the head offices of the debtor-companies and their purchasing agents belies the position that these purchasing agents acted on behalf of the head offices of the debtor-companies to take loans at Bhilwara. From this observation it should be taken that the moneys were not received by the debtor-companies as loans from the assessee at Bhilwara. We are unable to agree with the above submission of Shri Joshi. We are required to answer the question on the basis of the facts and circumstances appearing in the case. It may be that the purchasing agents might not have been invested with the power to borrow loan, as observed by the Tribunal. But it appears that the moneys were received by the debtor-companies at Bhilwara through their purchasing agents. In the statement of the case as well, the Tribunal, while stating the view of the AAC, clearly mentioned the finding of the AAC that the assessee gave loans to the debtor-companies at Bhilwara. Thus, we feel that we can legitimately proceed on the basis that the loan was actually advanced to the debtor-companies at Bhilwara. As regards the loan to Shri Bijai Sugar Mills Ltd., it may be stated that the loan was discharged by transfer of shares. It is true that the issue of shares had taken place at Bijainagar, but the share certificates were delivered to the assessee at Bhilwara. So the discharge of the amount of loan of that debtor-company has also some territorial connection with Bhilwara. This circumstance is not a very material circumstance, but the circumstance of the place of advancement of loans, in our opinion, is a most material circumstance, which has been considered to be the situs of accrual of commission, or, for that matter, of interest, as has been held in C.G Krishnaswami Naidu's case, [1966] 62 ITR 686 (Mad). In that case the assessee was ordinarily a resident of Madras. In the assessment year ending January 1, 1946, he claimed that a sum of Rs. 1,24,004 represented income accrued to him in the State of Mysore and as such was exempt from tax under s. 14(2)(c) of the I.T Act. The assessee entered into financing agreements with one S. Krishna Ayyar, a resident of Madras and a building contractor. He had undertaken various contracts in the former British India and the Indian States. There were two financing agreements in connection with works to be executed at two places in the Mysore State. There was specific stipulation in the agreements that the contractor would repay the assessee the advances made under the agreements in the first instance from and out of the moneys received or receivable from the Mysore authorities under the bills submitted to them from time to time for work done. One of the stipulations in the agreements was that Krishna Ayyar should not deal or part with or utilise any of the monies received or receivable under the bills otherwise than in repayment of the advances, save and except with the consent of the assessee. Krishna Ayyar also agreed to pay a sum calculated at 10 per cent, on the total value of the works executed and completed and for which bills were submitted to the Mysore authorities. Under this clause, the amount payable was to be calculated only on the bills as finally passed and accepted for payment by the concerned Mysore authorities. It was also provided in the agreements that the assessee should have the right to inspect and look into the accounts of Krishna Ayyar to ascertain, check or verify the bills finally passed from time to time as payable to Krishna Ayyar, in respect of the work specified under the agreements. The accounts of Krishna Ayyar in relation to the commission payable to the assessee were looked into and settled at Madras and the same adjusted in his books. Though the terms of the agreement did not specify where the advances were to be made, actually the assessee and Krishna Ayyar opened a joint current account in the Bangalore City Branch of the Bank of Mysore Ltd., with Rs. 20,000 sent by a bank draft from Madras out of the assessee's Madras funds. The assessee made all the advances of money to Krishna Ayyar under the two aggreements in the Mysore State. The assessee maintained that the ten per cent, commission under the two financing agreements amounting to Rs. 1,24,004 accrued to him in the State of Mysore. The ITO did not agree with the assessee, but the AAC took a contrary view and directed its exclusion from the taxable income. The Tribunal, in the appeal of the Commissioner of Income-tax, agreed with the ITO. On a reference under s. 66(1), the High Court found that the assessee was entitled to receive commission, where the bills were passed, that is, in Mysore State. The Supreme Court, on appeal by the Commissioner of Income-tax, [1964] 51 ITR 876 (SC), observed that the High Court answered a question which was not even referred to it and it had no power to decide a question not referred to it; so the matter went back to the High Court. Veeraswami J., speaking for the court, observed as under (p. 693 of 62 ITR):

“Where the contract to lend and the actual lending are at one and the same place, no difficulty as to situs of accrual of interest or commission may arise. But where the links in the chain of a lending transaction in which money is paid and received with interest on an understanding or under an agreement are in different places, the question may then be whether the situs of accrual of interest or commission is at one or other places where some or more of the links in the chain existed or are to be found. The answer would depend upon which of these links constitute the essence of the transaction from the point of view of accrual of interest or commission. On that view it appears to us that, although the place of contract is an important factor in the context, in a money lending transaction the decisive factor would be the place where the money is actually lent, irrespective of where it came from. This is because, without actual advance, no commission or interest can accrue or arise. It is equally true that, without an agreement to lend, there may not be a lending transaction, but the agreement may stop short of performance… There may be cases where conceivably the terms of an agreement of lending may decide the situs of interest. In our opinion, in this very case, the two agreements which were executed at Madras contain terms which throw light upon where the commission accrued or arose. As already noticed, the commission was to accrue and to be computed on the submission of final bills of works carried out and acceptance of the same by the Mysore authorities. This activity was undoubtedly in the Mysore state.

Having regard to the fact therefore, that the assessee removed funds from Madras and banked them at Mysore in a joint account and advanced moneys to Krishna Ayyar from time to time as required by him at Mysore and the final bills were all submitted, passed and accepted at Mysore by the authorities there, resulting in the accrual of commission to the assessee, we come to the conclusion that the situs of accrual of the commission was at Mysore.”

11. In C.G Krishnaswami Naidu's case, [1962] 66 ITR 686 (Mad), instead of the place of agreements, the place of advancement of loans has been considered to be the place of accrual of commission on the basis that the loans were advanced in Mysore State and were to be repaid out of the bills in Mysore and there was a check on the debtor not to utilise the moneys of the bills except in repayment of the loans including interest save with the consent of the assessee. Thus, this authority, in our opinion, throws some light, if the facts and circumstances of the present case are examined in the light of the view taken in that case. There were substantial territorial links relating to accrual of commission in the State of Mysore; so in the present case as well, we find that there are substantial territorial links with regard to accrual of interest at Bhilwara. The territorial links relate to advancement of loans at Bhilwara and further relate to accrual of right of repayment and corresponding liability thereof at Bhilwara in view of the principle that the debtor should seek the creditor, which we have found to be applicable in the present case, in the absence of any contract to the contrary.

12. We may also state that while considering the assessibility, taxability or applicability of any beneficial provision or in interpretation of facts or inferences to be drawn from the facts if two views are possible then, in our opinion, that view should be taken which may be beneficial to or in the interest of the assessee. In the light of the foregoing discussion, our answer to the question is that, on the facts and in the circumstances of the case, the income of interest amounting to Rs. 35,300 accrued to the assessee in Part “B” State and not in Part “C” State.

13. The reference is answered accordingly. The parties shall bear their own costs of this reference.