The Commissioner of Income-Tax, Bombay
South, Bombay Vs. Messrs Ogale Glass Works Ltd., Ogale Wadi  INSC 47 (19
DAS, SUDHI RANJAN BHAGWATI, NATWARLAL H.
CITATION: 1954 AIR 429
CITATOR INFO :
F 1954 SC 504 (2) R 1957 SC 918 (35) R 1959
SC1070 (3,4,5) F 1959 SC1160 (7,10,11,15,19,20) D 1959 SC1177 (14,36) APL 1959
SC1394 (8) D 1960 SC 266 (14) RF 1961 SC 107 (7,9,15,16) RF 1961 SC1633 (11,32)
R 1963 SC1484 (9) R 1965 SC1636 (10,11,16) R 1966 SC1466 (7,8,10) F 1967 SC1118
(9,17) R 1976 SC1172 (7,9) D 1985 SC1156 (28,36) F 1989 SC1553 (5) R 1990
Indian Income-tax Act (XI of 1922), section
4(1)(a)-Nonresident company-Payment of sale-proceeds to the company (assessee),
by Government of India by means of cheques drawn and posted in British IndiaWhether
income, profits and gains received by the assessee in British India within the
meaning of section 4(1)(a)Indian Contract let, 1872 (Act IX of 1872), section
50, illustration (d)-Addressee requesting sender to send cheque by
post-Post-office acting as agent of addressee.
The assessee, a limited liability company,
incorporated and carrying on business in an Indian State (outside British India
was a non-resident company for the purposes of the Indian Income-tax Act and
there of ore its liability to British Indian income-tax depended upon its
receipt of income within British India. On the express request of the assessee
to remit the amount of the bills by means of cheques in respect of the goods
supplied by the assesses to the Government of India the latter agreed to make
payments by cheques which were drawn in Delhi and received by the assessee in
the Indian State.
Held, that according to the course of
business usage in general the parties must have intended that cheques should be
sent by post and therefore the posting of cheques in Delhi amounted to payment
in Delhi to the post-office which was constituted the agent of the assesses.
Therefore on the facts of the case, income,
profits and gains in respect of sales made to the Government of India was
received in British India within the meaning of section 4(1)(a) of the Act.
Held also, that as between the sender and the
addressee it is the request of the addressee that makes the post-office the
agent of the addressee and after such request the addressee cannot be heard to
say that the post-office was not his agent. On the other hand if there is no
such request by the addressee, express or implied, then on delivery of the letter
or the cheque to the post-office by the sender, the post-office acts as the
agent of the sender.
Apart from the principle of agency, section
50, illustration (d) of the Indian Contract Act (TX of 1872) lays down the
well-known principle that a contractual obligation is discharged by the
performance of the engagement or promise in the manner prescribed or sanctioned
by the promise.
Indian Post-Office Act 1898 (Act VI of 1898),
does not nullify illustration (d) to section 50 of the Indian Contract Act, or
the above proposition of law.
24 186 Gresham Life Assurance Society v.
Bishop (L.R.  A.C. 287 at p. 296), Commissioner of Income-tax v.
Kameshwar Singh, ( 1 I.T.R. 107), Raghunandan Prasad v.
Commissioner of Income-tax, (60 I.A. 133: [19331
1 I.T.R. 113), Commissioner of Income-tax v. Maheswari Saran Singh, ( 19
I.T.R. 83), Stedman v. Gooch, ((1793) 1 Esp. 5), Maillard v. Duke of Argyle,
((1843) 6 M. & G. 40), Kempt v. watt. (1846) 15 M. & W. 672), Be. Rower
and Haslam, (L.R. (1893) 2 Q.B. 286), Palaniappa Chetty v. Arunachalam Chetty
(1911) 21 M.L.J. 432) Robinson v. Henry Reid, ((1829) 9 B. & C. 449),
Anderson. Hillies, ((1852) 21 L.J.C.P. (N.S.) 150), Kodarmal v. Sagormal,
((1907) 9 Bom. L.R. 901 at p. 911), Felix Hadley & Co. v. Hadley, (L.R.
(1898) 2 Ch. D. 680), Rhokana Corporation v. Inland Revenue Commissioners,
(L.R. (1938) A.C. 380 at p. 399), Commissioner of Excess Profits Tax, West
Bengal v. Jeewanlal Ltd., ( 20 I.T.R. 39 at p. 47), Chainrup Sampatram v.
C.I.T., West Beagal ( 20 I.T.R. 484 at pp. 493, 496), Allahabad Bank
Ltd., v. C.I.T. West Bengal), ( 21 I.T.R. 169), Mohanlal Biralal v. C.I.
T., C.P. & Berar, ( 22 I.T.R.
448)' Hira Mills Ltd., Cawnpore v. Income-tax
Officer, Cawnpore, ( 14 I.T.R. 417), Madanlal Dharnidharka v.
Commissioner of Income-tax, Bombay City,
([19481 16 I.T.R. 227 at p. 232), Commissioner of Income-tax, Delhi v. Punjab
National Bank Ltd. ( 21 I.T.R. 526), Norman v.
Rickets, ((1886) 3 T.L.R. 182), Thairlwal v.
The Great Northern Railway Co., (L.R.  2 K.B. 509), Badische Anilin Und
Soda Fabrik v. Basle Chemical Works, (L.R.  A.C. 200), Comber v. Leyland,
(L.R.  A.C. 524), Mitchell Henry v. Norwhich Union Life Insurance Society
(L.R. (1918) 2 K.B. 67), Thorappa v.
Umedmalji, ((1923) 25 Bom. L.R. 604), (Ex-parte Cote L.R. (1873) 9 Ch. App.
27), The Indian Cotton Company Ltd. v. Hari Poonjoo, (I.L.R. (1937) Bom. 763)
CIVIL APPELLATE, JUrISDICTION : Civil Appeal
No. 19 of 1953.
Appeal from the Judgment and Order dated the
17th day of September, 1951, of the High Court of Judicature at Bombay (Chagla
C.J. and Tendolkar J.) in Income-tax Reference No. 19 of 1949. M. C. Setalvad,
Attorney-General for India and C. K. Daphtary, Solicitor-General for India
(Porus A. Mehta, with them) for the appellant.
B. J. Kolah, Y. D. Pandit and Rajinder Narain
1954. April 19. The Judgment of the Court was
delivered by DAS J.-This appeal arises out of proceedings for the assessment to
income-tax of the respondent 187 Messrs. Ogale Glass Works Ltd., (hereinafter
referred to as "the assessee") for the five assessment years 1941-42
The assessee is a limited liability company
incorporated and carrying on business in Aundh which in those days was an
Indian State outside British India. It was accordingly a non-resident company
for the purposes of the Indian Incometax Act.
The assessee manufactures lanterns and other
glassware at its works in Aundh State. In the relevant accounting years the
assessee secured some contracts for the supply of lanterns and other glassware
to the Government of India.
The price of the goods supplied under the
contracts were paid by cheques drawn on the Reserve Bank of India, Bombay.
The cheques used to be received by the
assessee in Aundh and cashed through its bank at Bombay as hereinafter stated.
The assessee being a non-resident company its
liability to British Indian income-tax depended upon its receipt of income
within British India. In the course of proceedings for the assessment of the
assessee to income-tax for the five years mentioned above, the assessee
contended that its profits on the sales accrued and were received in the Aundh
State where it received payment by the receipt of the cheques. The Income-tax
Officer and, on appeal, the Appellate Assistant Commissioner held that the
assessee received income, profits or gains in British India inasmuch as the
cheques were drawn on a bank in Bombay and had been cashed in Bombay and accordingly
taxed the assessee under section 4(1)(a) of the Indian Income-tax Act. On
appeal by the assessee the Income-tax Appellate Tribunal upheld the assessment.
Being aggrieved by the order of 'the Tribunal
the assessee applied for a reference of the case to the High Court for the
determination of the question of law which arose out of the Tribunal's order
and the Tribunal agreeing that a question of law did arise out of its order
referred the following question to the High Court along with a statement of the
" whether on the facts of the case,
income, profits and gains in respect of sales made to the Government 188 of
India was received in British India within the meaning of section 4(1)(a) of
the Act." At the hearing of the reference by the High Court learned
advocate for the assessee contended, inter alia, that the cheques were received
by the assessee in full satisfaction of the debt due to it by the Government of
India and that the debt of the Government of India had been discharged by the acceptance
of the cheques by the assessee in Aundh. The High Court felt that in order to
determine this contention it would be necessary for the Tribunal to find
certain further facts and accordingly the High Court remanded the reference
back to the Tribunal with a request to submit a supplementary statement of the
case on the lines indicated in the order dated the 15th September, 1949. The
Tribunal submitted a supplementary statement of the case on the 8th June, 1951.
In the supplementary statement of the case
reference is made to clause 15 of the conditions of the contract governing
supplies made by the assessee to the Government of India.
The system of payment under that clause was
that 90% of the price of each consignment would be paid on proof of dispatch of
the stores from a Railway Station or port in India after inspection and the
balance of 10% would be paid on receipt of the consignment in good condition.
That clause also provided "Unless otherwise agreed between the parties,
payment for the delivery of the stores will be made on submission of bills in
the prescribed form in accordance with instructions given in the Acceptance of
Tender by cheque on a Government Treasury in India or on a branch of the
Reserve Bank of India or the Imperial Bank of India transacting Government
business." The assessee used to submit bills in prescribed form and on the
form used to write:
Kindly remit the amount by a cheque in our
favour on any bank in Bombay." After the submission of the bills the
assessee used to receive from the Government cheques drawn on the Bombay branch
of the Reserve Bank of India along with a memo stating.189 The undersigned has
the honour to forward here. with cheque No. dated the bills noted below ":Then
followed a tabular statement setting out the number, date and amount of, the
cheques. On the top of the memo there was a direction that it" be
immediately returned to the Controller of, Supply Accounts with the
acknowledgement form on the reverse duly signed and stamped when
necessary." The acknowledgement form was thus expressed:
" The undersigned has the honour to
acknowledge cheque No.
datedfor Rs. in payment of the bills noted in
the first column in the reverse." After receipt of 'the cheques the
assessee used to indorse it in favour of Aundh Bank Ltd., Ogale Wadi Branch
which in its turn used to endorse them in favour of the Bombay Provincial
Co-operative Bank Ltd., Bombay. The last named bank cleared the cheques through
the Clearing ' House in Bombay. The supplementary statement Of the case further
records that the Aundh Bank Ltd., used to credit the assessee's account on the
very day the cheques were received from the assessee with the amount of the
cheque less the collection charges and that the assessee used to credit the
account of the Supply Department and make corresponding debits to the bank's
account and the bank charges account.
A case was sought to be made by the learned
advocate for the assessee before the Tribunal that the cheques used to be
discounted by the Aundh Bank Ltd., presumably implying thereby that the
assessee actually got payment in cash in Aundh. %This case was repelled by the
Tribunal which held that the bank only allowed the assessee to draw money on
the security of the cheques but did not discount them. Our attention has been
drawn to the following passage in paragraph 8 of the supplementary statement of
"By merely issuing a cheque to the
assessee no payment as such was made by the Government. The payment was only
made when the Government's account in the books of the bank was debited."
190 Paragraph 9 of the supplementary statement of the case thus summarises the
9. On the above facts our findings are:
(1) Under the agreement with the Government
of India the assessee had undertaken to receive the payment by cheque drawn on
a bank in India.
(2) The assessee company made a specific
request to the Government to make payment of the sale proceeds by cheque drawn
on a bank in Bombay.
(3) When the assessee received the cheque, it
did not receive the sale proceeds; it received the sale proceeds subject to the
encashment of the cheque.
(4) The assessee's bankers allowed the
assesses to draw money against the security of the cheque on the very day the
cheque was sent for collection to the bank.
(5) The assessee's bankers realised the
payment of the cheque from the Reserve Bank of India, Bombay,, as agents of the
assessee. For rendering this service the bank charged the usual commission
charged for collecting an outstation cheque.
(6) The sale proceeds were received in
(7) The cheque was encashed on behalf of the
assessee at Bombay.
(8) The profits on the sales made to the
Government of India were received by the assesssee in cash in Bombay." The
supplementary statement of the case concludes with the remark that both parties
agreed to the correctness of the facts.
The main argument advanced before us, as
before the High Court, by the learned advocate for the asses? see is that the
assessee received payment for the goods supplied by it when it received the
cheques at Aundh. In other words the assessee accepted the cheques in full
satisfaction and in discharge of its claim against the Government under the
contracts. The conclusion pressed upon us is that as the cheques were received
at Aundh the payment was received there and consequently the assessee which is
a non-resident company did not receive any income, profits or gains in British
India 191 within -the meaning of section 4(1)(a) of the Indian Incometax Act
and the referred question should be answered in the negative.
The contention put forward by the Revenue is
twofold. In the first place it is urged that the question whether the assessee
accepted the cheques unconditionally and in full satisfaction of its claims under
the contracts is concluded by the Tribunal's findings of facts. This contention
is not wholly without force. The passage from paragraph 8 of the supplementary
statement of the case and sub-paragraphs 3, 6 and 8 of paragraph 9 do tend to
suggest that in the view of the Tribunal no 'payment was made by the Government
by merely issuing the cheques, that when the assessee received the cheques it
did not receive the sale proceeds, that it received the sale proceeds subject
to the encashment of the cheques, that the bank collected the cheques in Bombay
as the agent of the assessee and that the sale proceeds were, therefore,
received in cash in Bombay. But in view of the language used in the
supplementary statement of the case there is ample scope for the view that the
portion% referred to above do not amount to findings of fact by the Tribunal
but, on the contrary, are only inferences drawn by it from facts found by it.
Indeed the High Court was of the opinion that the Tribunal had not in terms
come to a finding of fact that the assessee accepted the cheques in complete
discharge of its claim for the price of goods supplied by it but on a
consideration of the facts actually found by the Tribunal the High Court came
to the conclusion that the necessary inference to be drawn from those facts was
that there was an arrangement between the assessee and the Government from
which it could be said that the acceptance by the assessee of the cheques from
the Government resulted in an unconditional discharge of the debt. In the
circumstances we have to examine the facts found by the Tribunal which have a
bearing on this point.
The assessee contends that on the facts found
by the Tribunal it must be held that it received the cheques in full and
unconditional discharge of its claims for the price of goods sold and delivered
by it to, the 192 Government and not conditionally subject to realisation.
That a, sum of money may be received in more
ways than one cannot be doubted. It may be received by the transfer of coins or
currency notes or a negotiable instrument which represents and produces cash
and is treated as such by businessmen. (See per Lord Lindley in Gresham Life
Assurance Society v. Bishop (2)). Reference in this connection may also be made
to the decisions in Commissioner of Income-tax v. Kameshwar Singh (2),
Raghunandan prasad v. Commissioner of Income-tax (3) and Commissioner of
Income-tax v. Maheswari Saran Singh (4). Learned Solicitor-General does not
dispute this proposition but he argues that, in the absence of any agreement,
express or implied, to the contrary, a payment by a negotiable instrument is
always understood to be conditional. He refers us to Benjamin on Sale, 8th
Edition, page 787, in support of the proposition that the, intention to take a
bill in absolute payment for goods sold must be clearly shown, and not deduced
from ambiguous expressions, such as that the bill was taken "in
payment" for the goods Stedman v. Gooch (5), and Maillard v. Duke of
Argyle (6) or "in discharge" Kemp v. Watt (7), or "in
settlement" of the price Re Rower and Haslam (8). In addition to the above
English cases referred to in Benjamin on Sale the learned Solicitor-General
also relies on the case of Palaniappa Chetty v. Arunachalam Chetty (9) where it
was held by the Madras High Court that the execution of a formal receipt for
the amount covered by the bill of exchange or hundi was not sufficient to rebut
the general presumption that the delivery of a bill of exchange or a hundi for
a debt operated only as a conditional discharge of the debt' He insists that on
the facts of this case there is nothing from which an agreement may be implied
that the cheques were given and received unconditionally in full discharge of
the original contractual liability of the Government for the price of the goods
supplied by the (1) L.R.  A.C. 287 at P. 296.(6) (1843) 6 M. & G. 40.
(2)  I I.T.R. I07.(7) (1846) 15 M.
(3) 60 I.A. 133; I.T.R. 113.(8) L.R.
 2 Q.B.
(4)  19 I.T.R. 83.(9) (1911) 21 M.L.J. 432.
(5) (1793) 1 ESP5.
193 assessee. Sri Kolah, on the other hand,
relied on the following facts in answer to the contentions of the learned
(i) that there was an arrangement by the
contract itself, for payment by cheque (clause 15), (ii) that in the bills
submitted by him the assessee expressly asked for payment by cheque, (iii) that
the Government sent cheques in payment of the bills, (iv) that on receipt of
the cheques the assessee returned the acknowledgement form duly signed and
stamped as a formal receipt, (v) that the drawer of the cheques was the
Government of India and the drawee was the Reserve Bank of India for whose
solvency there could be no apprehension at all in the mind of the assessee.
Sri Kolah contends that the cumulative effect
of these facts is clearly enough to establish that the cheques ;were received
unconditionally as payment. Learned SolicitorGeneral points out that the
assessee's request to pay the amount of the bills by cheques carries the matter
no further, for the undertaking to pay by cheque was already there. The -point
of the request was that the cheques should be issued on some bank in Bombay.
The insistence on a stamped receipt in advance of payment was, says the
Solicitor-General, in keeping with the usual practice of Government
departments. Therefore,we have in this case,according to the learned
Solicitor-General, nothing more than a term in the contract for payment by
cheques and the status of the drawer and drawee of the cheques. These two circumstances,
so submits the Solicitor-General are not sufficient to establish the fact of
the acceptance of the cheques as unconditional discharge. He contends that, in
the absence of an express agreement, it is only when the creditor elects to
take a bill or cheque having it in his power to obtain payment in cash, that is
to say, takes a bill or cheque by choice or preference instead of cash that an
agreement may be implied that he took it as an unconditional and absolute
payment 25 194 of the debt: Robinson v. Henry Reid (1) and Anderson v.
Hillies (2). Such cases must be rare, for the
creditor is not ordinarily likely to give up the advantage of having a double
remedy namely one on the bill or cheque and the other, on dishonour of the bill
or cheque, on the original cause of action. He points out that in this case
there is no finding of any special agreement in this behalf and, therefore,
submits the learned Solicitor-General, the assessee must be taken to have
received the cheques conditionally, i.e., subject to realisation. The learned
Solicitor-General concludes that, in the circumstances, no payment was received
by the mere receipt of the cheques and that payment was received only when the
cheques were cashed in Bombay and that such receipts in Bombay became
immediately assessable to British Indian tax under section 4(1)(a). The High
Court repelled this line of argument and held that the assessee received
payment on the dates the cheques were delivered to it. We find ourselves
substantially in agreement with this conclusion. It is to be remembered that
there are four modes in which a contract may be discharged, namely (1) by
agreement, (2) by performance, (3) by being excused by law from performing it
and (4) by breach. In this case clause 15 of the contract provides how the
payment of the price is to be made. In short the contract itself, by that
clause, prescribes the manner and the time for performance by the Government of
its part of the contract and as the Government made the payments in the
prescribed manner, i.e., by cheques, it fulfilled its engagement and such
payment would under section 50 of the Indian Contract Act, operate as a
discharge of the contract.
It should also be remembered that the
assessee sent his formal stamped receipts only after the receipt of the cheques
and not along with the bills submitted by it.
Therefore, the receipts cannot be regarded as
having been sent in advance. The status of the drawer and the drawee of the
cheques is also a material consideration. Finally there is no suggestion that
any of the cheques was dishonoured on presentation. We, therefore, agree with
Sri Kolah that (1) (1829) 9 B. & C. 449. (2) (1852) 21 L.J.C.P. (N. S.)
195 the several facts relied on by him and
alluded to above, taken cumulatively, must lead us to the conclusion that the
cheques were received in complete discharge of the claim for the price of the
Learned Solicitor-General, however, contends,
on the' authority of the decision in Kodarmal v. Sagormal (1), that the request
by the creditor to send a cheque does not imply any variation of the rule that
payment by a negotiable instrument is conditional on its being honoured on
presentation within due time. Even if we accept his contention that the facts
referred to above are not sufficient to raise the implication that the cheques
were accepted as payment and even if the sending of the cheques in terms of
clause 15 or at the special request of the assessee did not operate as an
unconditional discharge of the Government's liability even then the assessee's
position will be no better. When it is said that a payment by negotiable
instrument is a conditional payment what is meant is that such payment is
subject to a condition subsequent that if the negotiable instrument is
dishonoured on presentation the creditor may consider it as waste paper and
resort to his original demand: Stedman v. Gooch (2). It is said in Benjamin on
Sale, 8th Edition, page 788:The payment takes effect from the delivery of the
bill, but is defeated by the happening of the condition, i.e., nonpayment at
maturity." In Byles on Bills, 20th Edition, page 23, the position is
summarised pithily as follows:' A cheque, unless dishonoured, is payment."
To the same effect are the passages to be found in Hart on Banking, 4th
Edition, Volume I, page 342. In Felix Hadley & Co. v. Hadley (3), Byrne J.
expressed the same idea in the following passage in his judgment at page 682:
" In this case I think what took place
amounted to a conditional payment of the debt; the condition (1) (1907) 9 Bom.
L.R. 903 at p. 911. (3) L. R. (I 898) 2 Ch. D. 680.
(2) (1793) 1 ESP. 5.
196 being that the cheque or bill should be
duly met or honoured at the proper date. If that be the true view, then I think
the position is exactly as if an agreement had been expressly made that the
bill or cheque should operate as payment unless defeated by dishonour or by not
and I think that that agreement is implied
from giving and taking the cheques and bills in question." The following
observations of Lord Maugham in Bhokana Corporation v. Inland Revenue,
Commissioners (1) are also apposite:
" Apart from the express terms of
section 33, sub-section 1, a similar conclusion might be founded on the well
known common law rules as to the effect of the sending of a cheque in payment
of a debt, and in the fact that though the payment is subject to the condition
subsequent that the cheque must be met on presentation, the date of payment, if
the cheque is duly met, is the date when the cheque was posted." In the
case before us none of the cheques has been dishonoured on presentation and
payment cannot, therefore, be said to have been defeated by the happening of
the condition subsequent, namely dishonour by non-payment and that being so
there can be no question, therefore, that the assessee did not receive payment
by the receipt of the cheques. The position, therefore, is that in one view of
the matter there was, in the circumstances of this case, an implied agreement
under which the cheques were accepted unconditionally as payment and on another
view, even if the cheques were taken conditionally, the cheques not having been
dishonoured but having been cashed, the payment related 2back to the dates of
the receipt of the cheques and in law the dates of payments were the dates of
the delivery of the cheques On the footing, then, that the assessee received
payment as soon as the cheques were delivered to it the question still remains
as to when and where the assessee received such payment. The (1) L. R.  A.C
380 at p. 399.
197 answer is obvious, says the assessee,
namely that it received Payment in Aundh where the cheques were delivered to
it. The learned Solicitor-General, however, contests that argument. According
to. him the cheques were delivered to the assessee as soon as they were posted.
The rejoinder of the assessee is two-fold. In the first place it is said that
this is an entirely new ,question of law which was never raised or argued
before the Tribunal and was not dealt with by it and, therefore, cannot be said
to arise out of the Tribunal's Order and consequently the Court has no
jurisdiction, while exercising its advisory jurisdiction under section 66 of
the Indian Income-tax Act, to permit such anew question of law to be raised at
Learned Counsel for the assessee relies on
the cases Of Commissioner Excess Profits Tax, West Bengal v. Jeewanlal Ltd.
Chainrup Sampatram v. C. I. T., West Bengal (2), Allahabad Bank Ltd. v. C..I.
T. West Bengal (3), Mohanlal Hiralal v. C. I. T., C. P. & Berar (4), and
Hira Mills Ltd., Cawnpore v. Income-tax Officer, Cawnpore(5), while the learned
Solicitor-General refers us to the decisions in Madanlal Dharnidharka v.
Commissioner of Income-tax, Bombay City(6), and Commissioner of Income-tax,
Delhi v. Punjab National Bank Ltd. (7). In the view we have taken it is not
necessary for us, on this occasion, to express any opinion on the larger
question as to the scope, meaning and import of the words "any question of
law arising out of" the Tribunal's order on the interpretation of which
there exists a wide divergence of judicial opinion. It should be noted that
this is not a base where the Tribunal having refused to refer a question of law
an application was made to the High Court to, exercise its jurisdiction under
sub-section (2) of section 66. Here the Tribunal in exercise of its powers
under sub-section (1) of that section did refer a question of law to the High
Court. Nobody at any time contended (1)  20 I.T.R. 39 at P. 47.
(2)  20 I.T.R484 at PP. 493, 496.
(3)  21 I.T.R. 169.
(4)  22 I.T.R. 448.
(5) , 14 I.T.R. 417.
(6)  16 I.T.R. 227 at P. 232.
(7)  21 I.T.R. 526.
198 and even now it is not suggested before
us that the question of law referred to the High Court did not arise out of the
Tribunal's order or had not been properly referred to the High Court. A
question of law arising out of its order having thus been properly referred by
the Tribunal under sub-section (1) the High Court had to deal with and answer
it in exercise of its jurisdiction under sub-section (5).
In support of its contention that the
question should be answered in the affirmative the Revenue advanced the
argument, based on certain facts, that the cheques had been accepted only.
conditionally and, therefore, there was no payment until the cheques had been
cashed and the cheques having been cashed in Bombay the payment must be
regarded as having been received in Bombay. That argument did not find favour
with the High Court and that being the position the Revenue sought to raise
before the High Court, as it does before us, an alternative argument, also
based on facts, that the cheques having, at the request of the assessee, been
posted at Delhi, the mere posting of the cheques in such circumstances operated
as payment in Delhi. Here no new question of law is sought to be raised. The
question of law still is, whether on the facts of this case, income, profits
and gains in respect of sales made to the Government of India was received in
British India within the meaning of section 4(1)(a) of the Act. The argument is
that as the cheques were posted at Delhi at the request of the assessee payment
was received by it in British India. It is said that although the language in
which the question has been framed is wide enough to include this branch of the
argument, the question should, nevertheless, be read as circumscribed by the
facts on which the Tribunal's decision was made and should not be regarded as
at large. This suggestion means that the question must be read as limited only
to those facts on which alone reliance was placed in support of the argument
actually advanced before the Tribunal and on which then Tribunal's decision was
founded, leaving out all other facts appearing on the record and even referred
to in the Tribunal's order and the statements of the case. There is no warrant
for such suggestion.
199 The language of the question clearly
indicates that the question of law has to be determined " on the facts of
this case." To accede to the contention of the assessee, will Involve the
undue cutting down of the scope of the question by altering its language.
Seeing that the High Court permitted this argument to be advanced before them
we are not prepared to shut it out.
Sri Kolah then contends that the requisite
facts, on which this branch of the argument may be based, are not to be found
in the order of the Tribunal and the statements of the case and, therefore,
this argument should not be entertained. There would have been considerable force
in this contention if the facts necessary to support the new argument advanced
by the Revenue were not on the record.
But such is not the cases here as will be
The High Court conceded that if t he assessee
had requested the Government to send the cheques by post then it would have
made the post-office its agent and in that event the posting of the cheques by
the Government at Delhi would have been delivery of the cheques to the assessee
in Delhi. The High Court, however, held that there was no finding by the
Tribunal that it point of fact the assessee had ever requested the Government
to send the cheques by post and that that being the position it could not be
said that the cheques had been delivered to the assessee in Delhi. In our opinion,
for reasons to be presently stated, this part of the decision of the High Court
cannot be supported on facts and its conclusion cannot be sustained in law.
Turning to the order of the Tribunal we find
the following passages:
" All payments for the goods supplied
were made by cheques drawn by the Government department at Delhi on the Reserve
Bank of India, Bombay Branch. The cheques were received by the assessee Company
in its office in Aundh State." The finding of fact recorded in the first statement
of the case also comprises the following (inter alia):
" These cheques were received by the
assessee Company at its office in Aundh State by post," 200 The finding of
fact in paragraph 3 of the Supplementary Statement of the case is thus
" 3. The assessee company used to submit
the bills and on the form of the bill it used to write "Kindly remit the
amount by a cheque in our favour on any bank in Bombay.
The question for our consideration is as to
what, on the legal principles laid down in judicial decisions, these findings
of fact amount to.
In Norman v. Rickets(1), the creditor
carrying on business as milliner in Bond Street wrote to one of the customers
who resided in Suffolk saying the favour of a cheque within a week will
oblige." The customer upon such request sent a cheque for the amount by
post. The cheque was stolen in the transit and was paid by the Bank to the
thief. It will be noted that there was no express request to send the cheque by
the post, but nevertheless it was held that the sending of the cheque by post
On appeal the Court of Appeal upheld the
trial Court and observed:
" An express request to send through the
post was not necessary. If what the plaintiffs said amounted to a request to
send the cheque by the post, then there was payment. To answer that question
the existing circumstances must be looked at. A milliner in London wrote to a
lady in Suffolk asking for a cheque. Did that letter reasonably lead the lady
to suppose, and did she suppose that she might send the cheque by post? She
could not suppose that she was to send a messenger with it or come up to London
The only reasonable and proper meaning to be
attached to it, whatever Madame phillipe might have intended was that she was
to send the cheque by post. She, therefore, reasonably believed that she was
invited to send her cheque by post, and she did what she was asked to do.
Consequently what she did amounted to payment." In Thairlwal v. The Great
Northern Railway Co.,(2) the directors by their report recommended (a) the
declaration of dividend at certain rates, and (b) the (1) (1886) 3 T.L.R. 182.
(2) L.R. (1910) 2 K.B, 509.
despatch of dividend warrants by post. At the
half yearly general meeting the shareholders passed a resolution that dividends
be declared at certain altered rates but said nothing about sending the same by
post. Dividend warrants were sent to a stock-holder by post but it was lost in
the post. Bray J., held that in the circumstances there was a request by the
stock-holder to the company to pay the amount due to him by means of a warrant
sent by post. The case of Badische Anilin Und Soda Fabrik v. Basle Chemical
Works(1), was concerned with a Swiss seller who was asked to send the goods by
post to England which he did. The goods were, manufactured according to an
invention protected by an English Patent. The question was as to who brought
the goods to England so as to be liable to an action for infringement. It was
held that the post-office was the agent of the English buyer and, therefore,
the Swiss seller could not be sued. After stating that the seller had sent the
goods in pursuance of the order from the buyer to a particular named carrier
namely the post-office which, is after all only a carrier of parcels like any other
carrier Lord Halsbury at p. 204 said:
It is not necessary that the carrier should
have been named.
If, according to the ordinary course of
delivery, the carrier would be the person who would receive it, that would be
just as good, for the purpose of the argument, as if the carrier had been
actually named; but we have not to consider that question here, because the
carrier is named. Then, for what reason am I to depart from the well-known and
recognised principle of law that, under these circumstances, when goods are
delivered by the order of the buyer to a named' carrier, from that moment the
goods vest in the buyer ?" The decision in Comber v. Leyland(2), is very
important for our purpose in that it explains the meaning and implication of
the word " remit " which is the word used by the assessee when it
requested the Government Department to " remit " the amount by
cheque. There (1) L.R.  A.C. 200.
26 (2) L.R.  A.C. 524.
202 was in that case no express reference to
the post-office at all. Said Lord Herschell, at p. 530:
"I cannot doubt that the word
"remit " there means this and nothing beyond this-that the bank post
bills, when obtained in favour of the plaintiffs, should be sent in the
ordinary course and the ordinary manner in which such documents are sent by
commercial men, namely, by mail, and that as soon as that had been done all
obligation and all liability of the defendant ceased. I think it is impossible
on these words to maintain that there was an obligation and a liability incumbent
upon him until those bank post bills had reached the hands of the plaintiffs in
In Mitchell Henry v. Norwich Union Life
Insurance Society Ltd.(1), the defendants sent a written notice. to the
plaintiff stating that the sum of pound 48-5-8d which would shortly become due
should be paid at their office and asking the plaintiff " when remitting
" to return the notice.
There was no express request to send the
amount by post.
Bailhache J. held that by the use of the
word" remitting" the defendants had impliedly authorised the
plaintiff to pay them by sending the money through the post in the ordinary way
in which money was remitted by post, but that it was not usual to send so large
a sum in Treasury notes by post.
Apart from the impropriety of sending a large
amount in Treasury notes by post, this case does support the view that the
request by the creditor " to remit " the amount due, without more, is
tantamount to a request to send the amount by post. This decision was upheld by
the Court of Appeal.
On the other hand if there be no express or
implied request by the creditor to send the amount by post the mere posting of
a hundi duly endorsed in favour of the addressee does not operate as delivery
of the hundi to the addressee so as to pass the title in the hundi to the
addressee, for the postoffice in such circumstances does not become the agent
of the addressee. The case of Thorappa v. Umedmalji (2) is an instance on this
point. In the case of ex parte Cote (3) also there was no request by the
addressee to (1) L.R.  2 K.B. 67.
(2) (1923) 25 Bom. L.R. 604.
(3) L.R. (I873) 9 Ch. App. 27.
203 send the bills by post. The result of the
various judicial decisions are summarised in Benjamin on Sale, 8th Edition, pp.
769-77 1, and in Chalmer's Bills of Exchange, 12th Edition, pp. 51-52.
A good deal of stress is laid by Sri Kolah on
what he says is the basic difference between the postal regulations in England
and those in India and he insists that the English decisions laying down the
effect of sending cheques by post should not be rigidly 'followed here. He
points out that in England the sender of the cheques has no right to reclaim
the same after it is posted, and that, accordingly, immediately upon the
posting of the cheques the post office becomes irrevocably the agent of the
addressee and that, therefore, the delivery of the cheque to the post-office
is, in English law, delivery to the addressee. But that, Sri Kolah maintains,
is not the position under the Indian Post Office Act, 1898. We have been taken
through the different sections of that Act and the rules made thereunder and
Sri Kolah contends that under the Indian law the sender has the right to
reclaim the letter until it is actually delivered to the addressee and,
therefore, until that time the postoffice remains the agent of the sender and
consequently the posting of a cheque cannot in India be regarded as delivery of
the cheque to the addressee. We may, however, point out that this right of the
sender, on which so much stress and importance are laid by the learned
advocate, is by no means an absolute right, for it is left entirely to the
authorities to decide whether a letter once posted should be returned to the
sender. This very narrow and qualified right can hardly be regarded as bringing
about a position so different from that prevailing in England as to make the
English decisions wholly inapplicable. It may also be mentioned that in spite
of such contention the English decisions have been adopted by the Courts in
India, e.g., Thorappa v. Umedmalji (supra) and the Indian Cotton Company Ltd.
v. Hari Poonjoo (1). It is, however, not necessary to pursue this line of
reasoning any further for the principles underlying the English decisions are
clearly consonant with the provisions of (1) I.L,R. 1937 Bom. 763.
204 the Indian law. There can be no doubt
that as between the sender and the addressee it is the request of the
'addressee that the cheque be sent by post that makes the post-office the agent
of the, addressee. After 'such request the addressee cannot be heard to say
that the post-office was not his agent and, therefore, the loss of the cheque
in transit must fall on the sender on the specious plea that the sender having
the very limited right to reclaim the cheque 'Under the Post-Office Act, 1898,
the post-office was his agent, when in fact there was no such reclamation. Of
course if there be no such request, express or implied, then the delivery of
the letter or the cheque to the. post-office is delivery to the agent of the sender
himself. Apart from this principle of agency there is another principle which
makes the delivery of the cheque to the post-office at the request of the
addressee a delivery to him and that is that by posting the cheque in pursuance
of the request of the creditor the debtor performs his obligation in the manner
prescribed and sanctioned by the creditor and thereby discharges the contract
by such performance (see section 50 of the Indian Contract Act and illustration
Sri Kolah points out that when the Indian
Contract Act, 1872, was passed, the Indian Post-Office Act, 1866, was in force.
He has taken us through the relevant provisions of that old Act and he points
out that those provisions were quite different from those of the present Act.
According to him illustration (d) to section 50 of the Indian Contract Act
must, after the passing of the Act of 1898, be taken to have become
inappropriate, obsolete and incorrect. We do not think, that there is any basic
difference between the two Acts in respect of the matter under discussion. It.
does not appear to us that the Act of 1898
enlarges the right of the sender to reclaim the postal article to sub an extent
as to nullify illustration (d) or otherwise to affect the well known general
principle that a contractual obligation is discharged by the performance of the
engagement or promise in the manner prescribed or, sanctioned by the promisee.
205 Applying the above principles to the
facts found by the Tribunal the position appears to be this. The engagement of
the Government was to make payment by cheques. The cheques were drawn in Delhi
and received by the assessee in Aundh by post. According to the course of
business usage in general to which, as part of the surrounding circumstances,
attention has to be paid under the authorities cited above, the parties must
have intended that the cheques should be sent by post which is the usual and
normal agency for transmission of such articles and according to the Tribunal's
findings they -were in fact received by the assessee by post. Apart from the
implication of an agreement arising from such business usage the assessee
expressly. requested the Government to "remit " the amounts of the
bills by cheques. This, on the authorities cited above, clearly amounted in
effect to an express request by the assessee to send the cheques by post. The
Government did act according to such request and posted the cheques in Delhi.
It can scarcely be suggested with-any semblance of reasonable plausibility that
cheques drawn in Delhi and actually received by post in Aundh would in the
normal course of business be posted in some place outside British India.
This posting in Delhi, in law, amounted to
payment in Delhi.
In this view of the matter the referred
question should, with respect, have been answered by the High Court in the
affirmative. We, therefore, allow the appeal and answer the question
accordingly. In view of the fact that the appellant has failed in the main
argument but has succeeded on a new one we think no order should be made as to
costs except that each party should bear and pay his or its own costs before us
as well as before the High Court.