August IO v. S. K. F. BALL BEARING CO., LTD

The Income- tax Officer assessed the foreign corpo rations under s. 4(l){a) of the Indian Income-tax Act for payment of tax on the profits included in the price realized by the S. K. F. by sale of goods "received on consignment" without making any distinction between sales in respect of which the remittances were ma.de after recovery of sale proceeds a.ad sales in respect of which remittances were made before reco very of the sale proceeds. The order passed by the Income-tax Ofllcer was confirmed by the Appellate Assistant Commi•sioner and al~o by the Income- tax Appellate Tribun1tl. At the instance of the S. K. F., the following q uestion8 wero referred to the High Court of J udicaturn at Bombay under s. 66(1) of the Indian Income-tax Act, 1922: (l) Whether there was evidence on which the Tribunal could have held that the Panrope Corpora tion and the non-resident company ha.d a business 1 S.C.R. SUPREME COURT REPORTS 145 connection in the taxable territories ·in the years of account? I960 (2) Whether the profits of the Panrope Corpora- The Commissioner d h f h t . t e non-res1 ent company m respect o t e 10n an consignment goods were received in the taxable terri- tories on their behalf? ·d · of Income-tax. Bombay v. s. K. F. Ball At the hearing of the reference before the High Bearing co., Ltd. Sh-;J · a Court, counsel for the assessee having conceded that the S. K. F. was not a purchaser of the goods "receiv- ed on consignment " from the foreign corporations, but was their agent for sale of the goods, an answer in the affirmative was recorded on the first question. On the second question, the High Court opined that as the remittances by the S. K. F. pursuant to the terms of cl. 23 of the agreement before the sale pro- ceeds were realized from the buyers were received by the foreign corporations outside the taxable territory, the same could not be taken into account under s. 4(l)(a) of the Indian Income-tax Act in assessing the taxable income of the foreign corporations. The . High Court observed that the S. K. F. was liable to pay taiy on behalf of the foreign corporations under s. 4(l)(a) only if the taxing authority established that the foreign corporations had received the sale proceeds within the taxable territories ; that the sale proceeds were. received by the foreign corporations when the S. K. F. made remittances under cl. 23 of the agree- ment, but somewhat inconsistently the High Court observed that the remittances made by the S. K. F. before the sale proceeds were realized, were remitta, nces not of sale proceeds, but in discharge of its obliga- tion under cI. 23 of the. agreement; and that the realizations by the S. K. F. from the buyers of the goods subsequent to the remittances were not of sale proceeds on behalf of the foreign· corporations but were receipts on its own behalf and in its own right, and in recoupment of the amounts remitted to the foreign . corporations. The High Court accordingly answered the second question in the affirmative "to the extent that the remittances were made after the sale proceeds were received by the a~sessee company", 19 ·, 146 SUPRE:\IE COURT REPORTS [1961] Thr Cnmmis.qonrr liea""C Co .. · h h d 1 Jlom1'ay Slinh }. 196° -- . k • b d v. s. I< F. 11011 We a.re unable to agree with the reasoning and the conclusion of the High Court. The terms of the a.gree- l of 1"ccmc-tax, ment ma e 1t a un ant y c ear t at t e goo s "rece1v- ed on consignment" from the foreign corporations were received by the S. K. F. as their selling a.gent and not as purchaser. The goods, it is true, were sold by the I.Id. S. K. F. in its own name and not in the name of the foreign corporations, but the goods were still sold for and on behalf of the foreign corporations and the sale proceeds received by the S. K. F. were received not on its own behalf but for and on behalf of its principals. Clauses 9, 12, 13, 14, 17, 18 and 20 of the agreement clearly show that the goods received by the S. K. F. continued to remain the property of the foreign cor In the porations till they were sold to the buyers. price received for sale of the goods, the profit of tho owner was in truth embedded and that profit was liable to be taxed under s. 4(l}(a) of the Indian Income. tax Act if it was received in the taxable territory. It is not disputed that the sale proceeds realized by the S. K. F. in the taxable territory as a.gent of the foreign corporations before remittances under the terms of tho agreement were liable to be taxed. Does the circum stance that the S. K. F. had in discharge of an obliga tion undertaken by it made remittances under the terms of the agreement before it realized the price of tho goods sold alter the nature of the realizations? The remittances made by t.he S. K. F. indisputably reached the foreign corporations in respect of all sales outside the taxable territory. But the S. J(. F. was their a.gent for sale of the goods, and for receiving the price in the taxable territory. The relation between the S. K. F. and the foreign corporations was not altered because before realizing the price from the buyers remittances were made to the foreign corpora tions. The price of goods sold by the S. K. F. whether before or after remittance was realized as the agent of the foreign corporations. If remittance in respect of a sale was ma.de before the price was realized, the S. K. F. became entitled to adjust the account and to take credit for the amount paid out of the realization. What the foreign corporations received under remittances 1 S.C.R. SUPREME COURT REPORTS 147 o . l f d b d z960 ncome-tax, made before or after realization of the price was not the sale proceeds in respect of sales, but amounts due by the S. K. 1!'. under an obligation expressly The:f !Commissioner un ertaken y 1t un er c . 23 o the agreement. The price of goods sold by the S. K. F. were in all cases received by it within the taxable territory ; and the S. K. F. being the agent for sale, and for receiving the Bearing Co., Ltd. price, the income embedded in the sale proceeds must be deemed to be received by the foreign corporations also within the taxable territory. It is the receipt of income which gives rise under 8. 4(l)(a) of the Indian Income.tax Act to liability to pay tax : and the place where the price is received is determinative of the question whether the income is received in the taxable territory. Bomba v. Y s. K. F Ball Shah ]. The price for the goods sold was received only when the buyer paid it and not before, and when the price was received by the S. K. F., the income was received. The remittances by the S. K. F. to the foreign corpora tions before the price was received did not include income, because income in fact was never received till the price' was realized .. Again we are unable to agree with the contention of counsel for the S. K. 1!'. that there was a contract of suretyship between the foreign corporations and the S. K. F. and the receipt by the former of the remittances amounted to receipt of the It is not pretended that there was price of the goods. a tripartite contract and the foreign corporations sold the goods directly to the purchasers in India, the S. K. F. having guaranteed payment of the price by the buyers to whom the goods had been sold. The price received by the S. K. F. being received within the taxable territory for and on behalf of the foreign corporations in respect of goods sold, we are unable to hold that the realization of the price in which is embedded the profit is not liable to tax under s. 4(l)(a) as income received, merely because under an independent obligation, the S. K. F. has rendered itself liable to pay the amount equivalent to the price (less commission) even before the price has been realiz ed and has discharged that obligation. In the view taken by us, the second question will be 148 SliPREME COURT REPORTS [1961] i960 . - . . 1 he Comm1moner · of Income-ta<. Bombay v. s. K. F. Ball answered in the affirmative in respect of sale of a.II goods where the price has been received by the S.K.F. · d 1rrespect1ve 0 W et er • the remittance has been made in respeut of the goods e 8.:KB e territory, a.n th t h h · · f' sold before or after the price wa.s received. The a.ppoa.l is accordingly allowed to the extent Btaring Co· Ud. indicated. The appellant will be entitled to his costs in this court a.nd also the costs of the reference in the High Court. Sllah ]. Appeal partly allowed. f 1 960 THE STATE OF MADRAS AND ANOTHER v. M/a. M. A. NOOR MOHAMMED AND CO. (B. P. SrnHA, C. J., J. L. KAPUR, P. B. GAJENDRA· GADKAR, K. SuBBA RAO a.nd K. N. WANCHOO, JJ.) Sales Tax-Sale of hides and ski11s-Exemption from 'multiple taxation-U11licensed dealers-Whether can claim single point taxa. lion-Validity of mies providing for multiple taxation-Madras General Sales Tax (Turnover and Assessmrnt) Rules, 1939, r. 16(5) -Madras General Sales Tax Act, 1939 (9 of 1939), ss. J, 5(vi), 6A. The respondent, a firm carrying on tannery business, used to take out licences under the provisions of the Madras General Sales Tax Act, 1939, but did not renew the licence for the assess ment year, 1952-1953, and was assessed to sales tax on the sale value of tanned hides and skins during the year. It challenged the validity of the order of assessment by filing a petition before the High Court under Art. 226 of the Constitution of India, on the grounds that under s. 5(vi) of the Act the liability to pay sales tax in respect of hides and skins could only be at a single point, that r. 16(5) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, which limited the operation of this mode of taxation to licensed dealers \\'as ultra vircs as it con travened s. 5(vi) and had been so held in V. M. Syed M ohamm ed & Co. v. The S'tate of Madras, [19541 S.C.R 1117, and that s. 6A was not applicable to the case of a dealer which did not take out a licence . . Held, thats. 3 of the Madras General Sales Tax Act, 1939, envisages multipoint taxation on the total turnover of a dealer,