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The facts lie in a short compass. The respondents, a registered firm, were assessed for the assessment year 1950- 51, at the rate or rates applicable to income, profits and gains arising or accruing in Part A States. The course of their business was this: they sent out agents to various parts of India. They canvassed orders and sometimes took advance payments in full or in part and after deducting their expenses, remitted the balance to the respondents at Ratlam through Bank drafts etc. The goods ordered were sent to the customers either by V. P. P. or by rail. In the latter case the Railway Receipts in favour of self were sent through a Bank deliverable against payment of the Demand Draft drawn upon the buyers and sent with the Railway Receipts. This price when received by the Bank was sent by the Bank by means of Bank Draft to the respondents at Ratlam who sent them for being cashed and credited to their account at Bombay.

The Income-tax Officer held that the major quantity of goods was supplied to the customers in what was Part A & C States either by V. P. P. or by rail, the Railway Receipts being in favour of the respondents and payment was received as stated above.

The assessees' banker was the Bank of India Ltd., Bombay, and the sale proceeds were, according to the Income-tax Officer, mainly realised through this Bank. He held that the sales were effected in Part A & C States and the payments were also received there. He therefore made the assessment on an estimated profit of Rs. 1,60,340 on sales of Rs. 5,09,424 without allowing any rebate on account of concessional rates applicable to Part B States. On appeal the Appellate Asstt. Commissioner reduced the estimated profit by Rs. 20,000. The Income-tax Appellate Tribunal on further appeal reduced the total income from Part A & C States to Rs. 2,85,376. It found that the income received through the Post Office, i.e., by V.P.P. was Rs. 1,23,710 and that received in respect of goods sent by rail and realized by the Bank drafts was Rs. 2,85,376 making a total of Rs. 4,21,955. It also held that the advances received with orders were income, profits and gains received at Ratlam and not in Part A & C States and similarly the price of goods sent by V. P. P. was also money received at Ratlam. In regard to the price received by Bank drafts it held that they were received at Ratlam but were sent to the assessee's banker in Bombay for being cashed and therefore they must be taken to have been received in a Part A State. This amount was Rs. 2,85,376. The Tribunal after referring to the decision of the Bombay High Court in Kirloskar Bros. Ltd. v. The Commissioner of Income-tax(1) said :-

Both the assessees and the Commissioner applied for a reference -to the High Court under s. 66(1) of the Income- tax Act and following two questions were referred :-

Q.1 "Whether the receipt of sale proceeds at Ratlam (which included the assessee's profits) in respect of goods sent by the assessee to customers in Part A or C States by V. P. P. amounted to receipts of income, profits or gains at Ratlam in Part B States?"

Q. 2. " Whether the bank drafts payable in Part A or C States but received at Ratlam and encashed through the assessee's bankers at Bombay constituted receipts in Part A State ?"

The High Court answered both these questions in favour of the assessees but gave a certificate and the (1) [1952] 21 I.T.R. 82.

appeal is therefore brought by the Commissioner of Income- tax.

Apart from the sales which were deemed to have taken place in Ratlam itself the goods were, as stated above, supplied to the customers in one of the following two ways. The goods were either sent from Ratlam through the post office by V. P. P. or they were sent from there by rail and the Railway Receipts in favour of self were sent through a Bank with the direction that the goods were to be handed over against 'payment of the enclosed demand draft'.