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Civil Reference Case No. 189 of 1957, decided on 23rd May, 1958.
, Ss. 18, 23 & 25‑Passing of property in goods‑To be ascertained from intention of parties as gathered from terms of contract and from parties' subsequent conduct.
The matter in dispute related to two types of contracts firstly those, in which there was no express condition to show when the property in cotton would pass to the buyer ; and secondly, those with parties in European countries, which con tained an express term that the property in cotton should pass to the buyer when the goods were put on board or when payment was made against warehouse receipt and thereafter the cotton should be at buyer's risk.
Held, that it was the intention of the parties gathered from the terms of the contract and from their subsequent con duct that really determined whether the property in the goods passed on shipment or otherwise.
The view that the bill of lading was the symbol of the title and whoever possessed the title deed held the goods was not tenable.
The subsequent conduct or the terms in the contract that the payment of the price will be made on presentation of the bill of lading does not displace the specific term of the contract that the property in the goods will pass on shipment to the buyers.
Sweeting v. Turner 1871 L R Vol. 7 Q B 310 and The Parchim 1918 AC157 rel.
Commissioner of Incomer Tax, Madras v. Mysore Chromite Ltd. 27 I T R 128 distinguished.
Abdul Aziz for Applicant.
Dingornal for Respondent.
Dates of hearing: 6th and 7th May 1958.
--- This is a reference by the Income tax Appellate Tribunal Pakistan, Lahore under section 66 (1) of the Income‑tax Act.
The matter in dispute relates to the assessment year 1948‑49. The respondent is a registered firm with its head office at Bombay and a branch office at Karachi. The respondent pur chased cotton through its branch office at Karachi and shipped the goods to foreign countries, mostly to America and the Far‑East. Some sales were also made to countries in Europe, particularly to the Board of Trade, Liverpool. The total exports amounted to Rs. 93,23,384. Out of this the sale to the Board of Trade, Liverpool aggregated to Rs. 9,74,000. The contracts are mostly C. I. F. contracts (cost, insurance and freight paid by the seller). Some of the contracts were also F. O: B. (free on Board, cost etc., paid by the purchaser). According to the contract, the price was to be paid at Bombay. The contracts of sale were made at Bombay. The head office thereafter sent instruction to the branch at Karachi to ship the goods and to pass the bills of lading and other documents to the head office at Bombay. Thereafter the head office forwarded the bills of lading together with the invoices and other docu ments to its bankers for obtaining payment against letters of credit opened by the foreign buyers. The respondent's bank after deducting the amount to its account forwarded the documents to the purchasers in the Far‑East or in Europe as the case may be. After the price was realised, the buyers or their agents were informed that the documents had been transmitted. In all the cases, except in the case of sales made to the Board of Trade, Liverpool, the bills of lading were taken to the order of the seller. These were endorsed and given to the bankers of the seller for the collection of the price of goods shipped and thereafter to part with the documents.
The Income‑tax Officer found that both the purchases and sales were effected in Pakistan and that, therefore item 7 (a) of Article IV of the Inter Dominion Agreement for Avoidance of Double Taxation did not apply to the case. In his opinion the entire profits were assessable in Pakistan, and therefore he assessed the respondent on the entire profits.
The matter was taken to the Appellate Assistant Com missioner and by his order, dated the 9th of December 1953, he came to the conclusion that the facts of the case attracted the operation of item 7 (a) of Article IV of the Inter- Dominion Agreement for Avoidance of Double Taxation and that only 10% of the total profits should be assessed in Pakistan. The Income‑tax Officer appealed to the Tribunal. The Tribunal remanded the matter on the 23rd March 1954 for further investigation and again by their order dated the 29th of November 1956 agreed with the finding of the Appellate Assistant Commissioner and held that the mere shipment of cotton at Karachi cannot be treated as completing the trans action there and that the material part of the operation to effectuate the sale was not carried out at Karachi, and dis missed the appeal. The Commissioner of Income‑tax, South Zone then moved the income‑tax Appellate Tribunal to refer the following questions to the High Court for opinion under section 66 (1) of the Income‑tax Act :‑
(1) Whether the contract (signed at Bombay) is a sale or agreement to sell under section 4 of Sale of Goods Act
(2) Whether in view of the facts of this case sale of the goods was effected at Karachi The learned Income‑tax Appellate Tribunal.
for the reasons given in their order of reference dated the 15th of June 1957, have referred only the following question for the opinion of the High Court :‑.
" Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the sales of cotton shipped at Karachi were completed at Bombay so that the operation of item 7 (a) of Article IV of the Inter‑Dominion Agreement for Avoidance of Double Taxation was attracted
Before proceeding to deal with the matter on merits, it will be observed that there are two types of contracts on the basis of which goods were exported to foreign countries viz. to America, Far‑East and to European countries. It is admitted before us by the learned counsel for the parties that goods exported to the Far‑East and American countries contain the terms and conditions as given in model contracts. Exh. G annexed to the reference made to this Court. The relevant terms of this contract are that the payment of the goods supplied is to be made in cash by T. T. on arrival of the steamer at Hongkong and Shanghai. Buyers guarantee due acceptance of the draft on first presentation and payment at maturity and draft to be accompanied by bill of lading, Insurance Policy and copy of Invoice. The Invoice of these goods was sent on account and risk of the purchasers. Freight was paid in Shanghai. The contracts to European countries particularly to the Cotton Control (Board of Trade), Liverpool contained, among others, condition that the delivery was to be made at buyers option at Karachi. The buyer's representative in India was to be approached to ascertain when shipping space will be available and delivery required. The cotton was to be consigned to the Cotton Control (Board of Trade), Liverpool. The most important term of this contract is condition No. 7. This is reproduced below
Property and Risk.
The property in cotton shall pass to the Buyer when it is put on board or when payment is made against ware house receipt as aforesaid and thereafter the cotton shall be at Buyer's risk ".
The invoice attached shows that the goods were shipped on the account and risk of Messrs. Board of Trade, Cotton Control, Liverpool. It will thus be seen that the matter in dispute relates to two types of contracts : firstly those, in which there is no express condition to show when the property in cotton will pass to the buyer ; and secondly, those to European countries, which contain an express term that the property in cotton shall pass to the buyer when the goods are put on board or when payment is made against warehouse receipt and thereafter the cotton shall be at buyer's risk.
We have heard the learned counsel for the parties. Mr. Abdul Aziz, the learned counsel for the Commissioner of Income tax has urged that the view of the learned Income‑tax Appellate Tribunal that the sale transaction was completed at Bombay and not at Karachi in respect of both types of contracts is not sound. The finding of facts, however, given in this case about the goods exported to Far‑Eastern and American countries shows that the contracts were mostly C. I. F. contracts. The price was to be paid at Bombay against shipping documents after the contract of sale was made at Bombay. The head office sent instructions to the branch at Karachi to ship the goods and pass the bill of lading and other documents to the head office at Bombay. Thereafter the head office prepared the invoices and forwarded these with the bills of lading and other documents to its bankers for obtaining payment against letter of credit opened by the foreign buyers. The assessee's bank, after crediting the amount to its account, forwarded the documents to Far‑East or Europe etc. On the price being realised, the foreign buyers or their agents were duly informed that the documents had been transmitted. Except in the case of sales made to the Board of Trade, Liverpool the bills of lading in all cases were taken to the order of the seller. These were endorsed and, given to the bankers of the seller for collection of the price of goods. It was further found that the transactions were of unascertained goods and that till delivery of the bill of lading the pro perty in the goods did not pass to the buyer. In the absence of a contract to the contrary, as to the time when the property will pass to the buyers, there is not the slightest doubt in our minds that the property, in respect of contract entered into with Far‑Eastern and American countries did not pass to the buyer on the shipment of the goods. The Bills of lading in all these cases were made to the order of the seller. They were endorsed in the name of the purchasers but were to remain with the bankers till the payment of the price of the goods was received out of the amount deposited with the buyers' bankers in respect of the Letters of Credit opened by them. The endorsements on the Bills of Lading, the prepa ration of the invoices and the realization of the money took place at Bombay. The learned counsel for the applicant has not been able to point out to any provision of the Indian Sale of Goods Act to show that on these facts the property in the goods in dispute passed at Karachi on the shipment of the goods. He, however, contended that under section 23 of the Sale of Goods Act where there is a contract for the sale of unascertained or future goods by the description and goods of that description in a deliverable state are unconditionally appropriated to the contract, the property in the goods immedi ately passes to the buyer. There can be no quarrel with this proposition of law. What is to be seen in such cases is whether the goods were unconditionally appropriated to the contract. The facts of this case, however, show a different intention. As already observed, the Bills of Lading were taken in the name of the seller. They remained with the seller till payment was made to them by the buyers. This clearly shows that the sellers reserved the right of the disposal of the goods with them till the payment was received. There is thus no force in the contention raised by the learned counsel for the applicant that the view expressed by the Tribunal in respect of Far‑Eastern and American contracts is not in accordance with law. In our opinion the view of the learned Income‑tax Appellate Tribunal in respect of these contracts is perfectly correct and cannot be challenged on the provisions of the Sale of Goods Act.
Coming to the contracts in respect of goods exported to European countries, particularly to the Cotton Control (Board of Trade), Liverpool, it will be observed that the parties viz. : the purchasers and the sellers have mutually agreed by an express term that the property in cotton shall pass to the buyer when it is put on board or when payment is made against warehouse receipt as aforesaid and thereafter the cotton shall be at buyer's risk. The Bill of Lading was also taken in the name of buyers. Shipping space was also to be provided by the buyers. The invoices were also on the account and risk of the buyers. Insurance was also to be done by the buyers. The question, therefore, arises whether the property in respect of these goods passed to the buyers when they were put on board the ship.
The learned counsel for the respondent has contended that the person who holds the Bill of Lading will determine the fact whether the property in the goods has passed or not. He has relied on sections 18, 23 and 25 of the Sale of Goods Act. These provisions of the Sale of Goods Act embody the principle that the question whether the property in the goods has passed or not shall be determined by the intention of the parties. The following principles emerge from these provisions
(1) In the case of a contract for the sale of unascertained goods, an appropriation of the goods of the contract namely by delivery of the goods to a common carrier or, unless the shipment is restricted, a shipment on board a ship for a purchaser, is an appropriation sufficient to pass the property.
(2) If the seller has taken the bill of lading to his own order and on his own behalf, it shows an intention that he has reserved to himself the power of disposing of the property and therefore there is no unconditional appropriation and the property of the goods does not pass on shipment to the purchaser.
(3) If the seller retains the bill of lading in order to secure contract price and he forwards the bill of lading with a bill of exchange attached, with specific directions that the bill of lading is not to be delivered to the purchaser till acceptance or payment of the bill of exchange, the appropriation is not unconditional and the property in the goods does not pass to the buyer.
(4) If the seller discounts a draft upon the buyer with a bank and authorises the bank to hand over the bill of lading to the order of the seller to the buyer and endorsed in blank by him upon his acceptance of the draft, the intention to be inferred, according to general mercantile understanding, is that the seller intends to hand over the ownership when the draft is accepted, but intends also to remain its owner until this is done.
But there is an intermediate case in which the seller intends so to appropriate the goods on ships as to part property, yet deals with the bill of lading in such a manner as to prevent the buyer obtaining possession of the goods without paying or accepting a bill of exchange in payment of the price. In such a case the property will pass subject to the lien of the seller for the price of the goods. But all these rules are applied on the facts of each case and these pre sumptions can always be rebutted by the terms of the contract itself or by the surrounding circumstances namely the conduct of the parties. In Sweeting v. Turner (1871 LA Vo1.7Q B 310) accord ing to the condition of sale in an auction each lot was taken to be delivered at the fall of the hammer, after which time it remained at the exclusive risk of the purchaser. Blackburn, J. held that the property in such circumstances vests in the purchaser. The learned Judge at page 313 of the report observed
When once we see the principle to be applied to the facts the case appears plain enough. It is thoroughly established (as the cases cited show and there is no case I know the contrary) that by the English law, where a bargain and sale is completed with respect to goods and everything to be, 'done on the part of the vendor before the property should pass has been performed, then the property vests in the purchaser, although the vendor still retains his lien, the price of the goods not having been paid; and any accident happening to the things subsequently, unless it is caused by default of the vendor any calamity be falling then after the sale is completed must be borne by the purchaser, and, by parity of reasoning, any benefit to them in his benefit, and not that of the vendor. Here the auctioneer had directions and authority to sell these goods, and did sell them under conditions of sale that each lot shall be paid for immediately after the sale and previously to its removal (shewing clearly that the vendor's lien was to be retained) each and all lots shall be taken to be delivered at the fall of the hammer, after which time they shall remain and be at the exclusive risk of the pur chaser. Words could hardly be more plain to shew that the bargain acid sale transferring the property, and, as a legal consequence, also transferring the risk, was to be complete the moment the bargain was struck ".
In that case the auctioneer, on the threat of the goods being distrained against the claim of the landlord, paid the rent out of the price of the goods recovered from the purchaser and paid the balance of the amount to the seller. It was contended that the property in the goods having passed to the purchaser, the auctioneer had no right to pay the rent of the price recovered. This contention was upheld and their Lordships observed :‑
"When once we understand that the loss would have fallen on the buyers of the goods had they been distrained, it is evident that it would have been a loss not sustained by the auctioneer or his employer, the plaintiff; consequently the promise of the auctioneer, although one that it was natural for him to give, was really made in order to save damage, which would not have befallen his client, but another person ; therefore I think he had no authority, either express or implied, from the plaintiff, to make such a promise, and that the plaintiff is entitled to recover."
To the similar effect is the observation of their Lordships of the Privy Council in a case reported in The Parchim (1918 A C 157). Their Lordships' observation at page 161 shows the nature of the principle embodied in the Sale of Goods Act, 1893 :‑
"It embodies the principle that the question whether a contract for the sale of goods does or does not pass the general property in the goods contracted to be sold must in all cases be determined by the intention of the parties to the contract. The Act codifies the rules by which that intention is to be ascertained, but the inference based on the rules may always be displaced by the terms of the contract itself or the surrounding circumstances, including the conduct of the parties."
Their Lordships further observed
According to the authorities, it is beyond doubt that the fact that the cargo was at the buyer's risk from the moment it was placed on board points to the property having been intended to pass at that time. The general principle subse quently embodied in the Sale of Goods Act, 1893, S 20 was as early as 1873 laid down. by Blackburn, J. in Martineau v. Kitching (1872 L R 7 Q B 436, 453 & 454), where he says
As a general rule, res perit domino, the old civil law maxim, is a maxim of our law ; and when you can shew that the property passed the risk of the loss, prima facie, is in the person in whom the property is. If, on the other hand, you go beyond that, and show that the risk attached to the one person or the other, it is a very strong argument for shewing that the property was meant to be in him. But the two are not inseparable: It may be that the property shall be in the one and the risk in the other. It is true that in that same case and in others there are dicta of Judges that an express clause stating at whose risk the subject matter is to be at any particular time is to be construed as indicating that at that time the property is in some one else, otherwise the clause would be unnecessary ; but that is an application of the maxim expressio unins, and the point does not arise in the present case. There is here no express clause dealing with the risk, it is on the whole tenor of the contract that it appears that the goods are at the buyers' risk after shipment, as they then become bound to pay the price at the end of an agreed period of credit. This fact is strong argument, as Blackburn, J. says, to show that it was meant that the property should then pass. Further, there is here a contract for the sale of the whole cargo of a named ship on a particular voyage. The cargo was not on board, so that when the contract was made it was contract for the future sale of a sufficient but then unascertained part of the bulk then at the disposal of the seller and ready for shipment.
" In that case the bills of lading were to be delivered to the buyer after the acceptance of the bill of exchange and the payment of the price. In spite of that, their Lordships came to the conclusion that it was the intention of the parties to the contract that the property in the cargo should pass to the buyer upon shipment, but that the buyer was not intended to have possession of the cargo, or of the bills of lading which represented the cargo, until actual payment at due dates of the purchase price. With the exception of the form of the bills of lading everything points to this conclusion. The contract is for the sale of the whole cargo of a named ship. On shipment, or at any rate, on notification of shipment, the cargo is at the risk of the buyer, who has to pay for it whether it arrives or not. The cargo is to be insured for buyer's account and benefit and insured at its arrived value, including profit, which the buyer alone could make. The buyer takes over the charter party and names the Court of discharge. The only matter which seems to point to an intention not to pass the property on shipment is the form in which the bills of lading were taken. But this form was determined by the seller's agent without knowledge of the contract, and though it may have been determined on general instructions from his principal, without particular instructions given in view of the particular contract. The way in which the seller subsequently deals with the bills of lading points rather to a desire to support his lien than to a ‑desire to retain the property or any jus disponedi incident to the property. As soon as the bills of lading arrive in Europe he places them at the buyer's disposal, subject only to payment of the purchase price at due date. As soon as this is done he loses the possibility of withdrawing them from the contract, even if otherwise he could have done so. Under these circumstances the form of the bills of lading is, in their Lordships' opinion, quite insufficient to displace the strong inference of an intention to pass the property on shipment arising from the terms of the contract and the other facts "
It will thus be seen that the view of the learned Income‑tax Appellate Tribunal that the bill of lading is the symbol or A the title and whoever possesses the title deed holds the goods, cannot hold ground. It is the intention of the parties gathered from the terms of the contract and from their subsequent conduct that really determines whether the property of the goods passer on shipment or otherwise.
After careful consideration of the facts of the present case in respect of the goods exported to Europe, there is not the slightest doubt in our minds that the parties under the terms of the contract agreed that the property in the goods shall pass on the shipment of the goods. The subsequent conduct or the terms in the contract that the payment of the price will be made on presentation of the bill of lading in our opinion does c not displace the specific term of the contract that the property in the goods will pass on shipment to the buyers. We, therefore, consider that the learned Income‑tax Appellate Tribunal were not justified in relying, so far as European contracts are concerned, on the Indian Supreme Court case reported in Commissioner of Income‑tax, Madras v. Mysore Chromite Ltd. (27 I T R 128) The observa tions of the learned Judges of the Supreme Court of India in that decision cannot cover the case of European contracts. They are to be treated on different basis and we will therefore hold that the view of the Income‑tax Appellate Tribunal was not correct.
For the reasons given above, we will answer the questions referred to us in the following manner.
That on the facts and circumstances of this case the Tribunal's decision in respect of cotton shipped at Karachi to Far‑Eastern and American countries is perfectly correct. Their decision about the sales of cotton shipped at Karachi to European countries is not correct and therefore the respondents in respect of those contracts should have been fully assessed in Pakistan.
In the circumstances of the present case we will order the parties to bear their own costs.
A. H. Reference answered.
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