JUDGMENT

Ramaswami, J.

1. In these cases the assessee is an incorporated company, namely, Debijhora Tea Co. Ltd., with its head office located in Jalpaiguri. The business of the assessee is manufacture and export of tea. The assessee owns a tea garden in the district of Purnea. The assessee processed tea leaves into commercial tea in the tea garden and sent the processed tea to its head office at Jalpaiguri.

It is alleged on behalf of the assessee that the tea is sold at Calcutta at periodical auctions. For the period of assessment from 1-10-1948, to 31-3-1949, the Sales-tax authorities determined the gross turnover of the assessee to be Rs. 3,10,000/- and the taxable turnover to be Rs. 2,95,680/-.

The amount of sales tax assessed was Rs. 9,240/-. For the assessment period from 1-4-1949, to 25-1-1950, the sales-tax authorities determined the gross turnover to be Rs. 4,90,145/- and odd and the taxable turnover to be Rs. 4,68,853/-. The amount of tax assessed for this period was Rs. 10.865/2/-. The petitioner applied to the Board of Revenue against the orders of assessment.

It was contended on petitioner's behalf that the Imposition of sales tax was illegal as no portion or the tea was sold within the territorial limits of Bihar. It was also argued that the second proviso to Section 2(g), Bihar Sales Tax Act, was ultra vires. Both these contentions were rejected by the Board of Revenue and the imposition of sales tax upon the petitioner for the two assessment periods was held to be legally valid.

2. Before proceeding to consider the questions. Submitted in the statement of the case, it is necessary to set out the necessary statutory provisions. Previous to the amendment made by Bihar Act 6 of 1949, Section 2(g), Bihar Sales Tax Act, read as follows :

" 'Sale' means, with all its grammatical variations and cognate expressions, any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of contract but does not include a mortgage, hypothecation, charge or pledge."

* * * * *

"Provided further that notwithstanding anything to the contrary in the Indian sale of Goods Act, 1930 (3 of 1930), the sale of any goods which are actually in Bihar at the time when, in respect thereof, the contract of sale as defined in Section 4 of that Act is made, shall, wherever the said contract of sale is made, be deemed for the purposes of this Act to have been made in Bihar."

Section 2(g) was amended by Bihar Act 6 of 1949 and after the amendment it reads as follows :

" 'Sale' means, with all its grammatical variations and cognate expressions, any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of contract but does not include a mortgage, hypothecation, charge or pledge :

* * *

Provided further that notwithstanding anything to the contrary in the Indian Sale of Goods Act, 1930 (3 of 1930), the sale of any goods-

(i) which are actually in Bihar at the time when, in respect thereof, the contract of sale as defined in Section 4 of that Act is made, or

(ii) which are produced or manufactured in Bihar, by the producer or manufacturer thereof, shall, wherever the delivery or contract of sale is made, be deemed for the purposes of this Act to have taken place in Bihar."

The section has been further amended in 1951 by Bihar Act 7 of 1951, but we are not concerned in these cases with this amendment.

3. In MJC 82 of 1953 the Board of Revenue has submitted the following Questions of law for the opinion of the High Court.

"(1) Whether the assessee Debijhora Tea Co. Ltd., of Jalpaiguri has been validly assessed to sales tax on the sale of tea to the extent of Rs. 9,300 including a penalty of Rs. 60/-?

(2) Whether the newly incorporated Section 2(g), Bihar Sales Tax Act, by the amending Act (Bihar Act 6 of 1949) is constitutionally valid?"

4. In MJC 81 of 1953, the questions stated by the Board of Revenue are practically the same except that there is a difference in the figure of sales tax assessed. All these questions really involve the same point of law though put in a different form. The sole question at issue, therefore is whether the newly incorporated Section 2(g), Bihar Sales Tax Act, as amended by Act 6 of 1949 is constitutionally valid.

5. It was submitted by Mr. J. C. Sinha on behalf of the assessee that the newly incorporated Section 2(g) authorised the imposition of Sales Tax on "forward contracts" and such taxation was not legally valid. In support of his proposition Counsel referred to the decision of the Supreme Court in -- ''Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash', AIR 1954 SC 459 (A).

It was contended on behalf of the assessee that under the new proviso to Section 2(g) the agreement of sale was the taxable event and not the sale itself, and that the State legislature had no constitutional authority to impose such a tax under item 48 of List II of the Seventh Schedule read with Section 100(3), Government of India Act. I think that this argument is fallacious.

In my opinion Section 2(g) on a proper interpretation authorises the sales tax authorities to impose tax only on a completed transaction of sale and not upon a forward contract of sale. Section 2(g) introduces the legal fiction that though the sale takes place outside the territorial limits of Bihar, the situs of the sale is deemed to be within the State's territorial limits if the goods sold had been, produced or manufactured within the State.

Apart from this legal fiction, the provisions of Section 2(g) authorise imposition of tax only on a completed transaction of sale and not upon executory contract of sale. The decision of the Supreme Court in AIR 1954 SC 459 (A) has, therefore, no bearing on the question at issue in the present case. The point for decision in the Supreme Court case was whether the power to impose a tax on the sale of goods under Entry 48 included a power to impose a tax on forward contracts.

The statutory provisions which were challenged in that case were Section 2(h), U. P. Sales Tax Act, Explanation III to that section and also Section 3B of the same Act. Section 2(h) was to the following effect.

" 'Sale' means, within its grammatical variations and cognate expressions, any transfer of property in goods for cash or deferred payment or other valuable consideration and includes forward contracts....."

Explanation III to Section 2(h), stated :

"Where goods under a forward contract are not actually delivered, the sale in respect of such contract shall be deemed to have been completed on the date originally agreed upon for delivery."

Section 3B further enacted that

"notwithstanding anything contained in Section 3, the turnover of any dealer in respect of transactions of forward contracts, in which goods are not actually delivered, shall be taxed at a rate not exceeding rupees two per unit as may be prescribed."

It was held by the Supreme Court that those provisions of the U. P. Sales Tax Act were ultra vires of the provincial legislature and Entry 48 of the Seventh Schedule could not be construed to mean that the provincial legislature was empowered to impose a tax on a mere contract of sale.

The Supreme Court observed that Entry 48 authorised the imposition of a tax only when there was an executed contract of sale, that is, a sale involving transfer of the property in the goods to the purchaser and that there was no power conferred on the provincial legislature to impose a tax where there was only an executory contract of sale. In the present case, the material facts are wholly different. Section 2(g), Bihar Sales Tax Act, does not authorise imposition of sales tax on executory contract of sale.

The authority given by the statute is authority to impose a tax on the transaction only after the title has passed and the sale is completed. The decision of the Supreme Court in AIR 1954 SC 459 (A) has therefore no relevance to the issue presented for determination in the present case.

6. Counsel for the assessee next submitted the argument that the contract of sale and the passing of title took place outside the State of Bihar and the delivery of goods to the purchaser was also made outside the State of Bihar. The argument of learned Counsel was that Section 2(g) after its amendment was not constitutionally valid to the extent that the legislature empowered the State Government to impose a tax on transactions of sale which were concluded outside the frontiers of the province.

It was contended that the passing of title was the most important element in the transaction of sale and that the Provincial Legislature had no constitutional power to impose a tax on a transaction of sale wherein title had passed outside the limits of the province. Counsel maintained that the taxable event of the sale transaction was the passing of title and the State Legislature had, therefore, no authority to impose a tax if the taxable event was extra-territorial.

It was pointed out that the Provincial Legislature had authority to impose a sales tax under item 48 of List II of the Seventh Schedule read with Section 100(3), Government of India Act. But it was argued that as a matter of construction the authority conferred upon the Provincial Legislature should be restricted to transactions of sale concluded within the provincial limits.

In my opinion the submission of learned counsel appearing on behalf of the assessee is not correct. The power of the Provincial Legislature to make a law imposing sales tax is granted by Section 100(3), Government of India Act, read with item 48 of List II of the Seventh Schedule. The Legislature of the province has under these provisions the exclusive power to make laws" "for a province or any part thereof" with respect to "taxes on the sale of goods and on advertisements."

But the expression "for a province or any part thereof" in Section 100(3), Government of India Act, cannot be interpreted to mean that the sale of goods must take place within the territory of the province. All that the section means is that the law which a province is empowered to make must be for the purpose of that province. A transaction of sale is a composite transaction and consists of many legal ingredients, like agreement of sale, passing of title and delivery of goods.

But it is not necessary for the purpose of legislative jurisdiction that all or any of the legal ingredients "of sale should take place within the province. It is sufficient if there is some territorial nexus or connection between the taxing authority and the transaction sought to be taxed. In my opinion, the fact that the goods are produced or manufactured in Bihar constitutes a sufficient territorial nexus or connection which confers jurisdiction upon the provincial legislature to impose the tax.

This opinion is supported by the decision of the Judicial Committee in the case of -- 'Wallace Brothers and Co. Ltd. v. Commissioner of Income-tax, Bombay', AIR 1948 PC 118 (B). In that case, the income-tax authorities of India imposed a tax upon a company incorporated in England having its registered office there but carrying on business in India. The income-tax authorities imposed a tax on the company not merely with respect to the income received in India but also with respect to the income received in England.

It was held by the Judicial Committee that the major portion of the income of the company was derived from British India and there was hence territorial connection sufficient to justify the company being treated as at home in British India and being properly subject to the jurisdiction of the Indian legislature.

It was pointed out by the Judicial Committee that the competency of the Indian Legislature to impose the tax did not depend on the possession by the Indian Legislature of any extra-territorial powers but on the existence of sufficient territorial nexus between the taxing State and what it seeks to tax. At page 15 Lord Uthwatt states :

"There is no rule of law that the territorial limits of a subordinate legislature define the possible scope of its legislative enactments or mark the field open to its vision. The ambit of the powers possessed by a subordinate legislature depends on the proper construction of the statute conferring those powers.

No doubt the enabling statute has to be read against the background that only a denned territory has been committed to the charge of the legislature. Concern by a subordinate legislature with affairs or persons outside its own territory may therefore suggest a query whether the legislature is in truth minding its own business. It does not compel the conclusion that it is not."

That was a case dealing with the imposition of income-tax. But the principle of the case was applied by the Supreme Court to a provincial statute imposing sales tax in -- 'State of Bombay v. United Motors (India) Ltd.', AIR 1953 SC '252 (C). It was held by the Supreme Court in that case that Article 283 (1)(a) of the Constitution read with the explanation thereto and construed in the light of Article 301 and Article 304 prohibited the taxation of sales or purchases involving inter-State elements by all States except the State in which the goods were delivered for the purpose of consumption therein.

It was expressly decided by the Supreme Court that the latter State had authority to tax such sales or purchases not by virtue of the Explanation to Article 286(1), but by virtue of Article 243 (3) read with Entry 54 of List II of the Constitution. In a recent decision in -- 'Bengal Immunity Co. Ltd. v. State of Bihar', (S) AIR 1955 SC 661 (D) a Pull Bench of the Supreme Court held by majority that the previous decision in AIR 1953 SC 252 (C) should be reversed so far as the interpretation of Article 286(1) (a) and Article 286(2) of the Constitution was concerned.

It was held by majority of the learned Judges that Article 286(2) prohibited the imposition of any tax on sales and purchases of goods even though the goods had actually been delivered as a direct result of such sale or purchase for the purpose of consumption in the Taxing State. But the majority of the learned Judges expressed no opinion as to the correctness of the earlier decision of the Supreme Court in AIR 1953 SC 252 (C) on the application of the doctrine of nexus.

The authority of the previous decision of the Supreme Court in AIR 1953 SC 252 (C) on this point has, therefore, not been affected or in any way shaken by the subsequent decision of the Supreme Court in 'Bengal Immunity case (D)'. The doctrine of nexus has also been applied by the Supreme Court in another sales tax case, --'Poppatlal Shah v. State of Madras', AIR 1953 SC 274 (E).

That was the decision of a unanimous Court of five Judges, namely, Patanjali Sastri C. J., Mukherjea, Vivian Bose, Ghulam Hasan and Bhagwati JJ. In that case, the appellant company received orders in its Madras office from Calcutta merchants for supply of certain articles. These articles were purchased in the local markets and they were despatched to Calcutta by rail or steamer. Railway receipts arid bills of lading were taken in the name of the appellant company and so also were the insurance policies and they were sent to the company's bankers in Calcutta who delivered the same to the consignees on payment of prices and other charges.

It was argued before the Supreme Court that in these circumstances the sale transactions were not liable to be taxed under the General Sales Tax Act of Madras. The argument on behalf of the appellant was that sales tax imposed would be extra-territorial in its operation and, therefore, ultra vires of the provincial legislature. It was contended on behalf of the appellant that the provincial legislature was constitutionally incompetent to enact a legislation of this character which according to the interpretation put upon it by the High Court was capable of operating on sale transactions concluded outside the province of Madras.

This argument was rejected by the Supreme Court which expressed the view that the provincial legislature could impose a sales tax on transactions concluded outside the province, provided there was sufficient and real territorial nexus between such transactions and the taxing province. At page 276 Mukherjea J. who pronounced the judgment for the unanimous Court states :

"The first contention appears to us to be unsustainable. Section 100(3), Government of India Act, 1935, upon which Mr. Somayya relied and which corresponds to article 246(3) of the Constitution runs as follows :

'Subject to the two preceding sub-sections, the Provincial Legislature has and the Federal Legislature has not power to make laws for a province or any part thereof with respect to any of the matters enumerated in List II in the Second Schedule.'

The entry in the Provincial List that is relevant for our purpose is Entry No. 48 and that speaks of 'taxes on the sale of goods and on advertisements'. The entry does not suggest that a legislation imposing tax on sale of goods can be made only in respect of sales taking place within the boundaries of the province; and all that Section 100(3) provides is that a law could be passed by a Provincial Legislature for purposes of the province itself.

It admits of no dispute that a Provincial Legislature could not pass a taxation statute which would be binding on any other part of India out-side the limits of the province, but it would be quite competent to enact a legislation imposing taxes on transactions concluded outside the province, provided that there was sufficient and a real territorial nexus between such transactions and the taxing province.

This principle, which is based upon the decision of the Judicial Committee in AIR 1948 PC 118 (B) has been held by this Court to be applicable to sale tax legislation, in its recent decision in the Bombay Sales Tax Act case -- ('Civil Appeal No. 204 of 1952 (Pat) (F)) and its propriety is beyond question.

As a matter of fact, the legislative practice in regard to sale tax laws adopted by the Provincial Legislatures prior to the coming into force of the Constitution has been to authorise imposition of taxes on sales and purchases which were related in some manner with the taxing province by reason of some of the ingredients of the transaction having taken place within the province or by rea-son of the production or location of goods within it at the time when the transaction took place.

If in the Madras Sales Tax Act the basis adopted for taxation is the location of the place of business or of the goods sold, within the province of Madras, undoubtedly it would be a valid piece of legislation to which no objection on constitutional grounds could be taken."

Counsel for the assessee then submitted that even if the doctrine of nexus applied to sales tax the mere fact that the goods were produced within the province did not constitute a sufficient territorial nexus. Counsel submitted that there must be real and relevant nexus, otherwise the provincial legislature would not have jurisdiction to impose sales tax.

Counsel pointed out that in the present cases the goods were first produced and processed in the tea garden and thereafter the contract of sale was effected and the sale of goods took place at Calcutta, I am unable, however, to accept the argument of learned Counsel that there was no sufficient territorial nexus in these cases.

In my opinion, the manufacture or production of goods by the assessee within the province of Bihar constitutes a real territorial nexus and the provincial legislature is clothed with jurisdiction to impose a tax upon the assessee by reason of the manufacture or production of the goods within the province.

It was contended by counsel on behalf of the assessee that production of goods was not an element in the transaction of sale and there was hence no real nexus. It was pointed out that there were many elements in a transaction of sale, like agreement of sale, passing of title and delivery of goods.

It was argued that unless any one of these elements was located within the territorial limits of Bihar, the legislature would have no jurisdiction to impose the tax. I am unable to accept this argument as correct.

It is not necessary for the purpose of legislative jurisdiction to investigate as to whether any of the elements of a transaction of sale is located within the territorial limits of the State. The real question is whether there is a real and pertinent connection between the subject matter of law and the territorial limits of the State.

The connection must be between the transaction of sale and the territorial limits of the Taxing State and not that any component of the transaction of sale should take place within the State's territorial limits. If the question is examined from this point of view, it is clear that there is a real and pertinent connection between the production of tea in Bihar and the subsequent sale of the tea in Calcutta.

For it is obvious that both goods to sell and purchasers to buy are essential in order that there may be a completed transaction of sale and realisation of sale proceeds. In other words, there can be no sale of goods without goods to sell, and even, though the tea was produced in the tea garden before the contract of sale was entered into, it is manifest that there is real and pertinent nexus.

This view is borne out by the decision of the Federal Court in -- 'A. H. Wadia v. Commr. of Income-tax, Bombay', AIR 1949 FC 18 (G). The question in that case related to the liability of the Gwalior Durbar to be assessed to income-tax in respect of interest received at Gwalior. The Gwalior Durbar which carried on money lending business in British India through an agent advanced to a company incorporated in British India with, headquarters in Bombay a loan 6f Rs. 50 lakhs 011 the security of the first mortgage debentures.

The loan was advanced at Gwalior, the interest was payable at Gwalior and the debentures were also deposited there. The company brought the borrowed money into British India and utilised it for the purpose of its business in British India. The Durbar received at Gwalior the interest on the loan. under Section 42, Government Trading Taxation Act (Act 3 of 1926) all income, profits or gains shall -be deemed to be income accruing or arising within British India if the income arises directly or indirectly in the following cases .... (4) when arising from any money lent at interest and brought into British India.

The interest on the loan of 50 lacs was assessed by the Commissioner of Income-tax under this statutory provision. It was held by the majority of the Judges of the Federal Court that the interest on the loan was properly assessable to income-tax under Section 42(4) and further that the statutory provision as enacted under Section 42(4) was not ultra vires of the Indian Legislature on the ground that it was extra-territorial in operation.

A similar principle has been laid down by the Australian High Court in two cases, -- 'Colonial Gas Association Ltd. v. Federal Commissioner of Taxation', (1934) 51 Com-W LR 172 (H) and --'Broken Hill South Ltd. v. Commissioner of Taxation', (1937) 56 Com-W LR 337 (I).

It was held by the Australian High Court in these two cases that the interest paid to a nonresident foreigner on debentures raised in a foreign country could be validly taxed by the Australian authority on the ground the money borrowed had been used by the borrowing company for carrying on business in Australia or had been secured by the mortgage of any property in Australia. In (1937) 56 Com-W LR 337 (1) at p. 375 Dixon J. has clearly stated the position :

"The important Question remains whether the attempt to include in the income liable to tax interest on money secured by the mortgage of any property in New South Wales exceeds the territorial limitations upon the legislative power. The power to make laws for the peace, order and good government of a state does not enable the State Parliament to impose by reference to some act, matter or thing occurring outside the State a liability upon a person unconnected with the State whether by domicil, residence or otherwise.

But it is within the competence of the State Legislature to make any fact, circumstance, occurrence or thing in or connected with the territory the occasion of the imposition upon any person concerned therein of a liability to taxation or of any other liability.

It is also within the competence of the legislature to base the imposition of liability on no more than the relation may consist in presence within the territory, residence, domicil, carrying on business there, or even remoter connection. If a connection exists, it is for the legislature to decide how far it should go in the exercise of its powers.

As in other matters of jurisdiction or authority courts must be exact in distinguishing between ascertaining that the circumstances over Which the power extends exist and examining the mode in which the power has been exercised. No doubt there must be some relevance to the circumstances in the exercise of the power. But it is of no importance upon the question of validity that the liability imposed is, or may be altogether disproportionate to the territorial connection or that it includes many cases that cannot have been foreseen.

In the present case no relation between the territory and the person, as distinguished from the transaction to which he is a party, is made the occasion of the tax. The thing in respect of which the tax-payer is made liable is the interest on money borrowed or otherwise owing. The imposition of the liability is based upon the fact that a security exists under the law of New South Wales over property in New South Wales for the repayment of the money.

In my opinion this connection is sufficient. The interest grows out of the debt. If the creditor chooses to avail himself of rights in property conferred by the law of New South Wales in respect of land or chattels under the authority of the legislature, the law of New South Wales can impose upon him any liability which is relevant to the purpose of his doing so; and the purpose of his doing so is to secure repayment of the moneys."

Applying the principle laid down by these authorities, I am clearly of opinion that in the present cases there is a Teal and pertinent nexus or connection between the production of tea and its subsequent sale at Calcutta and the Bihar Legislature had jurisdiction to enact a law taxing such a sale.

7. For the reasons expressed, I hold that all the questions referred to the High Court must be answered in favour of the State of Bihar and against the assessee. The State of Bihar is entitled to the costs of this reference. Hearing fee : Rs. 250/-.

Imam, J.

8. I agree.