A) ABSTRACT / HEADNOTE

The case examines whether profits from sales by a manufacturer in a Part B State (Ratlam, Madhya Bharat) to customers in Part A or C States—executed via Value Payable Post (V.P.P.) or by rail with railway receipts sent through banks—were receivable in the seller’s state or in the buyer’s state. The question directly influenced the applicability of concessional income tax rates granted to Part B States under the Income Tax Act, 1922. The Supreme Court clarified the legal principles regarding the place of receipt of sale proceeds, the nature of conditional appropriation under Section 25(1) of the Indian Sale of Goods Act, 1930, and the role of the post office and banks as agents. It held that when goods were sent by V.P.P. or when railway receipts were delivered through banks against payment, the sale was complete and payment received at the buyer’s location, not in Ratlam. Consequently, the income accrued in Part A/C States, disqualifying the assessee from concessional rates. The Court distinguished CIT v. Ogale Glass Works Ltd. and reaffirmed agency principles from Mothi Rungaya Chetty v. Secretary of State for India.

Keywords: Income-tax accrual, Part B States concessional rate, Value Payable Post, conditional appropriation, agency of post office, railway receipts, place of receipt of income.

B) CASE DETAILS

i) Judgement Cause Title: Commissioner of Income Tax, Delhi v. Messrs. P. M. Rathod & Co.

ii) Case Number: Civil Appeal No. 373 of 1957

iii) Judgement Date: May 20, 1959

iv) Court: Supreme Court of India

v) Quorum: B. P. Sinha, J. L. Kapur, and M. Hidayatullah, JJ.

vi) Author: J. L. Kapur J.

vii) Citation: 1960 (1) SCR 401

viii) Legal Provisions Involved:

• Section 25(1), Sale of Goods Act, 1930

• Section 148, Indian Contract Act, 1872

• Section 66(1), Income Tax Act, 1922

ix) Judgments overruled: None directly overruled

x) Case is Related to Law Subjects: Taxation Law, Contract Law, Sale of Goods, Agency Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The case arose during a transitional era in Indian taxation when Part B States enjoyed concessional tax rates to balance economic integration after the Constitution’s commencement. Ratlam, located in Madhya Bharat, fell in a Part B State category. The respondents, manufacturers of perfumery and hair oils, distributed their products nationwide. Their sales outside Madhya Bharat were conducted either through Value Payable Post (V.P.P.) or by rail with railway receipts sent via banks. The crux was to determine where the income was “received”—whether at Ratlam (entitling concessional rates) or in Part A/C States (denying concessional treatment). The answer required a deep dive into the law of sales, appropriation, and agency, especially under Section 25(1) of the Sale of Goods Act and Section 148 of the Indian Contract Act.

The Income Tax Officer assessed the entire profits from sales to Part A and C States at full rates, holding that sales were completed in those states. The Tribunal partly agreed, distinguishing between receipts via V.P.P. and bank drafts. The High Court sided with the assessee, but the Commissioner appealed to the Supreme Court, prompting a landmark interpretation.

D) FACTS OF THE CASE

The respondents operated from Ratlam, Madhya Bharat, manufacturing perfumery and hair oils. They appointed agents who canvassed orders nationwide. Payment modes and delivery methods varied:

1. V.P.P. Deliveries: Goods dispatched by post under V.P.P. ensured delivery to customers only upon payment.

2. Rail Deliveries with Railway Receipts: Goods sent by rail were booked in the seller’s name (“self”), and the railway receipts were sent through banks. These banks were instructed to release the receipts to customers only upon payment via demand drafts.

The sale proceeds collected by banks were remitted to the respondents’ Bombay account. The respondents claimed that all receipts, whether via V.P.P. or bank drafts, constituted receipts in Ratlam. The Revenue argued that payments were received where the buyer made them, i.e., in Part A/C States.

The Tribunal’s findings:

• Income via V.P.P.: ₹1,23,710

• Income via railway receipts/bank drafts: ₹2,85,376

• Advances received with orders: income in Ratlam.

The High Court held that both V.P.P. and bank draft receipts were at Ratlam.

E) LEGAL ISSUES RAISED

i) Whether receipts from goods sent via V.P.P. to customers in Part A/C States constituted income received at Ratlam or at the buyer’s place?

ii) Whether receipts from goods sent by rail with railway receipts released through banks against payment were received at Ratlam or at the place of payment?

F) PETITIONER/APPELLANT’S ARGUMENTS

The counsel for the Commissioner argued that:

• Under Section 25(1) of the Sale of Goods Act, appropriation in both delivery modes was conditional, and property passed only upon payment.

• In V.P.P., the post office acted as the seller’s agent, recovering price at the buyer’s place, as in Mothi Rungaya Chetty v. Secretary of State for India (1904) ILR 28 Mad 213.

• For railway consignments, banks acted as agents receiving payment where delivery occurred.

• Since payment took place in Part A/C States, income accrued there, excluding concessional rates for Part B States.

G) RESPONDENT’S ARGUMENTS

The respondents contended that:

• In V.P.P., the post office acted as the buyer’s agent, so payment was deemed received in Ratlam.

• For railway consignments, bank drafts sent to Ratlam and credited in Bombay represented receipt at Ratlam.

• They relied on CIT v. Ogale Glass Works Ltd. [1955] 1 SCR 185, where posting of cheques was held to constitute payment at the place of posting.

• They also cited Badische Anilin Und Soda Fabrik v. Basle Chemical Works [1898] AC 200 to argue that the post office could be an agent of the buyer.

H) JUDGEMENT

a. Ratio Decidendi

• The post office in V.P.P. acts as the seller’s agent for recovery, not as the buyer’s agent. Delivery is conditional upon payment, satisfying Section 25(1) Sale of Goods Act. Payment is received at the buyer’s place.

• In railway consignments, the bank acts as agent for delivering railway receipts only against payment. Such conditional appropriation means the sale completes and payment occurs where the buyer pays.

• Both modes result in income being received in Part A/C States, thus no concessional rate applies.

b. Obiter Dicta

• Even if the post office were considered a bailee under Section 148 Contract Act, it must follow the bailor’s instructions to deliver only upon payment, thus receiving price at the place of delivery.

c. Guidelines

1. In conditional appropriation, property passes only upon fulfilment of the condition (payment).

2. The place of receipt is where payment occurs, not where goods are dispatched.

3. Agency determination depends on contractual control—post office/bank in these cases acted for the seller.

I) CONCLUSION & COMMENTS

The Supreme Court’s reasoning reflects a strict contractual approach to determining the place of receipt. By focusing on control over goods and the conditional nature of delivery, the Court avoided superficial reliance on dispatch location. This decision harmonises tax law with commercial realities in V.P.P. and bank-mediated railway consignments. It also limits the scope of Ogale Glass Works to cases without conditional appropriation, reinforcing that taxation consequences depend on actual contractual arrangements, not mere formalities.

J) REFERENCES

a. Important Cases Referred

1. Mothi Rungaya Chetty v. Secretary of State for India, (1904) ILR 28 Mad 213.

2. Mirabita v. Imperial Ottoman Bank, (1878) 3 Ex. D. 164.

3. The Parchim, [1918] AC 157.

4. CIT v. Ogale Glass Works Ltd., [1955] 1 SCR 185.

5. Badische Anilin Und Soda Fabrik v. Basle Chemical Works, [1898] AC 200.

6. Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax, [1955] 1 SCR 952.

b. Important Statutes Referred

1. Section 25(1), Sale of Goods Act, 1930

2. Section 148, Indian Contract Act, 1872

3. Section 66(1), Income Tax Act, 1922