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"The enormous volume of sales of produce by a vendor in one country to a purchaser in another has led to the creation of an equally great financial system intervening between vendor and purchaser, and designed to enable commercial transactions to be carried out with the greatest money convenience to both parties. The vendor, to help the finance of his business, desires to get his purchase price as soon as possible after he has des- patched the goods to his purchaser; with this object he draws a bill of exchange for the price, attaches to the draft the documents of carriage and insurance of the goods sold and sometimes an movie for the price, and discounts the bill-that is, sells the bill with documents (1) [1918] 2K. B. 623.
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attached to an exchange house. The vendor thus gets his money before the purchaser would, in ordinary course, pay; the exchange house duly presents the bill for acceptance, and has, until the bill is accepted, the security of a pledge of the documents attached and the goods they represent. The buyer on the other hand may not desire to pay the price till he has resold the goods. If the draft is drawn on him, the vendor or exchange house may not wish to part with the documents of title till the acceptance given by the purchaser is met at maturity. But if the purchaser can arrange that a bank of high standing shall accept the draft, the exchange house may be willing to part with the documents on receiving the acceptance of the bank. The exchange house will then have the promise of the bank to pay, which, if in the form of a bill of exchange, is negotiable, and can be discounted at once. The bank will have the documents of title as security for the liability on the acceptance, and the purchaser can make arrangements to sell and deliver the goods. Before acceptance the documents of title are the security, and an unaccepted bill without documents attached is not readily negotiable. After acceptance the credit of the bank is the security............"

The operation of the banker's commercial credit is generally and in an increasing manner resorted to by the exporters stipulating in contracts for the sale of goods the responsibility for the payment of price by a banker which is done by means of a documentary credit. It takes the form of a promise by the buyer's bank to accept or honour bills of exchange if drawn on him or his guarantee of payment if drawn on the buyer, the security for which resides in the pledge of the documents of title to the goods exported. Where the device of commercial credit is resorted to as indeed in all overseas transactions this has become a general practice-there is to be a prior contract for the sale of goods the payment of price for which is to be made by a banker. We are here not concerned for the purpose of this case, with the various intricacies and practical technicalities of different means which are adopted to meet different situations. But a simple example of the device may be indicated. The buyer requests his bank and arranges with it the issuance of credit for payment at the place of the seller's domicile specifying the documents against which it has to make payment. The buyer agrees also to indemnify the bankers in respect of such advances and of any claim arising out of the credit. The letter constitutes the memorandum of the buyer's instructions to the banker. On receipt of this application the banker issues the credit which is addressed to and sent to the seller or it may take the form of a request to an intermediary banker who is asked either merely to advice the seller or advise and to add his confirmation. The credit may be issued by cable which is later followed by writing. These letters may be given for the purpose of being shown to third parties who may act thereon. Letters of credit are either revocable or irrevocable and where it is the latter it may be confirmed or unconfirmed. If confirmed it means that words of confirmation of another banker is added to it by which that banker also commits himself irrevocably. The letter of credit notifies the seller that the issuing banker or his correspondent will (if they are drawn on him) accept or honour drafts drawn for the price of the goods, provided that the documents of title and other documents specified in the credit are simultaneously presented to the banker. On receipt of the credit the seller ships the goods and insures them, obtaining a bill of lading normally made out to his order but perhaps to that of the banker, and also a policy of marine insurance. He then draws a draft for the price of the goods and with the documents i.e. the bill of lading, policy- and invoice specified in the credit presents the draft for acceptance, payment and negotiation.. In this way the exporter gains the advantage of receiving payment for his goods without delay. The documents are then sent by the banker to the buyer's bank and on the bill of exchange being accepted by him by payment of the price the bill of lading and the invoice is delivered to him; see Halsbury, Vol. 2, p. 213 and Gutteridge and Megrah on The Law of Commercial Credits (1968 edition).

On the facts as found, C.I.T. v. Mysore Chromite Ltd. (supra) decided by this Court is clearly distinguishable, because in that case the assess= company which is the seller had shipped the goods under a bill of lading issued in its own name and that under the contract it was not obliged to part with the. bill of lading until the bill of exchange drawn by it on the buyer's bank where the irrevocable letter of credit was opened was honoured. It is not necessary to relate all the details of the contracts except to say that the contracts of sale of chromite by the Mysore Company to purchasers in Europe were entered into between the buyers and the assessee agents in London and the contracts of sale to persons in America were signed by the assessee's managing agents in Madras and by a company in America who bought for undisclosed principals. Under the contracts the price was F.O.B. Madras. Provision was made for weighment, sampling and assay of goods at destination. Before the goods were actually shipped, the buyers opened a confirmed iffevocable bankers credit with a blank in London. The fact that letters of credit had been opened was communicated by the assessee's bankers in London, Eastern Bank Ltd., to their branch in Madras who thereupon wrote to the assessee offering to negotiate the drafts drawn in terms of the contract provided the documents were in order and concluded the letter with a warning that the advance was given for the assessee's guidance without involving any responsibility on the part of the bank. On receipt of this intimation the assessee placed the contracted goods on board the steamer at Madras and obtained a bill of lading in its own name. The 1 54 Court held that upon the terms of the contract and the course of dealings between the parties the property in the goods passed in London where the bill of lading was handed over to the buyer's bank against the acceptance of the, relative bill of exchange. The sales therefore took place outside British India and ex hypothesis, the profits derived from such sales arose outside British India.An argument was advanced before the Court that under the provisions in the contract for weighment and assay which was ultimately to fix the price unless the buyer rightly rejected the goods as not being in terms of the contract, the passing of the property in the goods could not take place until the buyer accepted the goods and the price was fully ascertained after weighing and assay. Dealing with this contention S.R. Das, J. (as he then was) speaking for the Court said at p. 135 :