Azamjahi Mills Ltd. Hyderabad Vs. The
Commissioner of Income Tax, Hyderabad [1976] INSC 57 (17 March 1976)
KHANNA, HANS RAJ KHANNA, HANS RAJ GOSWAMI,
P.K.
CITATION: 1976 AIR 1172 1976 SCR (3) 645 1976
SCC (2) 258
ACT:
Income-tax-Assessee in Princely State-Payment
by Government of India by cheque posted in British India- Whether receipt by
assessee in British India liable to Indian Income Tax.
HEADNOTE:
The Government of India was placing bulk
purchase orders with the assessee-company, a textile mill, which had, during
the assessment years 1945-46, 1946-47 and 1947-48, its registered office in the
Hyderabad State outside British India. After the despatch of the goods, the
assessee was submitting its bill in the prescribed form which also contained
the receipt. The receipt had the words 'Please pay by cheque to self/Banker on
Bank/Treasury at.....' and the assessee used to enter the words 'Hyderabad
(Dn). in the blank space after 'at'. But on the back of the bulk purchase order
form, there were instructions that the payment was to be made by the Controller
of Supply Accounts, Bombay, and the Government of India had also issued general
instructions to all textile mills in the Princely States that all payments were
to be made 'by cheque on Government Treasury in Br. India, or alternatively on
a branch in Br. India, which transacts Government business of the Reserve Bank
of India. All payments were made on behalf of the Government of India by
cheques which were sent to the assessee by post.
Some of the cheques were drawn on banks in
Br. India and others on banks in the Hyderabad State.
HELD: The sale proceeds should be held to
have been received by the assessee from the Government of India in British
India and not in Hyderabad State, and hence were subject to Indian income-tax.
[647F-G] In the absence of a request by the creditor or an agreement between
the parties regarding the sending of money by cheque by post, the mere posting
of the cheque would not operate as delivery of the cheque to the creditor. Where,
however, a cheque is sent by post in pursuance of an agreement between the
parties or a request by the creditor that the money be sent by cheque by post,
the post office would be treated as the agent of the creditor for the purpose
of receiving such payment. Such an agreement or request need not be express and
may be implied from the facts and circumstances. [648A-C] The facts of the case
and the course of dealings show that it was the understanding between the
Government of India and the assessee that the payment would be made on account
of goods supplied by the assessee, by cheques. The cheques were in the very
nature of things to be sent from British India by post as that is the usual and
normal agency for transmission. As the cheques were sent to the assesseee on
behalf of the Government of India by post from British India in pursuance of an
understanding between the parties, the payment to the assessee shall be treated
to have been made in British India to the agent of the assessee. [647G- 648A]
Indo re Malwa United Mills Ltd. v. Commissioner of Income-tax, 59 ITR 738;
Commissioner of Income-tax, Bombay South, Bombay v. Ogale Glass Works Ltd. 25
ITR 529 and Shri Jagdish Mills Ltd. v. Commissioner of Income-tax, 37 ITR 114,
followed.
Commissioner of Income-tax, Bihar &
Orissa v. Patney & Co. 36 ITR 488, distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 980-982 of 1971.
Appeals by Special Leave from the Judgment
and Order dated the 9-2-70 of the Andhra Pradesh High Court in case Referred
No. 1 of 1967.
R. Vasudev Pillai and P. K. Pillai for the
Appellant.
R. M. Mehta and S. P. Nayar, for the
Respondent.
The Judgment of the Court was delivered by
KHANNA, J.-This judgment would disposed of three civil appeals Nos. 980 to 982
of 1971 which have been filed by special leave against the judgment of the
Andhra Pradesh High Court on a reference under section 66 of the Indian
Income-tax Act, 1922 (hereinafter referred to as the Act) answering besides two
other questions with which we are not concerned, the following question against
the assessee appellant and in favour of the revenue:
"Whether, on the facts and in the
circumstances of the case, the sale proceeds were received from Government of
India in British India?" The assessee company is a public limited company
registered in what was at the relevant time the Nizam's Dominion (hereinafter
referred to as Hyderabad State) outside British India. The matter relates to
assessment years 1945-46, 1946-47 and 1947-48 for which the relevant accounting
period ended on October 5, 1944, October 5, 1945 and October 5, 1946
respectively.
The assessee company had a textile mill at
Warangal in Hyderabad State. During the Second World War the company supplied
textile goods to the Department of Supplies.
Government of India under what was known as
"Panel System".
The Government used to place bulk purchase
orders with the company for the supply to goods according to specifications.
The delivery of the goods used to be made by
the company FOR Warrangal. After the goods were despatched, the assessee
company submitted bill in form W.S.B. 116 giving details of the supply. The
prescribed form contained the following receipt:
"Received Payment One anna Please pay by
Cheque to Self stamp on ============== original Bankers copy only. on Bank
at...........
------------ Treasury Contractor's Signature
Contractor's signature " The assessee used to enter the words
"Hyderabad (Dn)" in the blank space after the word "at". On
the back of the bulk purchase order form, there were instructions that the
payment was to be made by the Controller of Supply Accounts Bombay. The
Government of India issued general instructions to all textile mills in the
Indian States that all payments were to be made "by cheque on Government
Treasury in British India, or alternatively on a branch in British India, which
647 transacts Government business of the Reserve Bank of India".
All payments were made on behalf of the
Government of India by cheques, which were sent to the assessee by post. Some
of these cheques were drawn on banks in British India and the others on banks
in Hyderabad State. All the cheques received from the Government, including
those drawn on banks in British India, were collected through the assessee's
bankers in Hyderabad State.
In making the assessment the Income-tax
Officer held that the sale proceeds in respect of cheques, which had been drawn
on banks in British India, were received by the assessee in British India and
as such the assessee was liable to tax under the Act. In respect of cheques
drawn on the banks in Hyderabad State, the Income-tax Officer held that no
income had accrued in British India and was, therefore, not subject to
assessment under the Act. The assessee took the matter in appeal to the
Assistant Commissioner claiming that no portion of the income had been received
in British India. The Appellate Assistant Commissioner held that the entire
sale proceeds had been received in British India and he, therefore, passed an
order enhancing the assessed amount. On further appeal by the assessee the
Income-tax Appellate Tribunal upheld the order of the Assistant Commissioner.
At the request of the assessee the question reproduced above along with two
other questions relating to the power of the Appellate Assistant Commissioner
to enhance the amount of assessable income as also the question of limitation
were referred to the High Court. The High Court answered the question
reproduced above as well as the other two questions with which we are not
concerned, in favour of the revenue and against the assessee. So far as the
question reproduced above is concerned, the High Court took the view that the
matter was concluded by the decision of this Court in the case of Indore Malwa
United Mills Ltd. v. Commissioner of Income- tax(1).
In appeal before us Mr. Vasudev Pillai on
behalf of the appellant has assailed the judgment of the High Court and has
contended that on the facts and circumstances of the case, the sale proceeds
should be held to have been received by the assessee from the Government of
India not in British India but in Hyderabad State. There is, in our opinion, no
force in this contention.
It would appear from the resume of facts
given above that all payments were made on behalf of the Government of India by
cheques and those cheques were sent by post from British India to the assessee.
The facts of the case and the course of dealings show that it was the
understanding between the Government of India and the assessee company that the
payment would be made on account of the goods supplied by the assessee by
cheques. The cheques were in the very nature of things to be sent from British
India by post as that is usual and normal agency for transmission of such
articles. As the cheques were sent to the assessee company on behalf of the
Government of India by post from British India in pursuance of an understanding
between the parties, the payment to the assessee shall be treated to have 648
been made in British India. The post office in such cases is taken to be an
agent of the assessee company. The position in law is that in the absence of a
request by the creditor or an agreement between the parties regarding the
sending of money by cheque by post, the mere posting of cheque would not
operate as delivery of the cheque to the creditor.
Where, however, a cheque is sent by post in
pursuance of an agreement between the parties or a request by the creditor that
the money is sent by cheque by post, the post office would be treated as the
agent of the creditor for the purpose of receiving such payment. The agreement
or request need not, however, be express; it may also be implied to be spelt
out from the facts and circumstances of the case.
The question of law arising in this case is
not res integra and is concluded by three decisions of this Court.
In Commissioner of Income-tax, Bombay South,
Bombay v. Ogale Glass Works Ltd. the assessee, a non-resident company carrying
on business of manufacturing certain articles in the State of Aundh, secured
some contract for the supply of goods to the Government of India. The contract
provided that "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 submitted the bill in the prescribed form and wrote on it as follows:
"Kindly remit the amount by a cheque in our favour on any bank in
Bombay." The assessee received cheques drawn on the Bombay branch of the
Reserve Bank of India. The assessee realised the amount of the cheques through
the Aundh Bank. It was held that the posting of cheques in Delhi in law
amounted to payment in Delhi. It was further observed that the circumstances of
the case revealed an implied agreement under which cheques were accepted
unconditionally as payment. Even if the cheques, according to this Court, were
taken conditionally the cheques having been not dishonoured, the payment
related back to the dates of the receipt of the cheques and in law the dates of
payment were the dates of the delivery of the cheques. Income, profits and
gains in respect of the sales made to the Government of India were accordingly
held to have been received by the assessee in British India. Dealing with the
question of the understanding between the parties in that case, this Court
observed:
"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." The above
case been sought to be distinguished by Mr. Pillai on the ground that in that
case the assessee had written on the bill form the 649 words: "kindly
remit the amount by cheque in our favour on any bank in Bombay." It is
said that the bill submitted by the appellant contained no such writing. A
similar argument was advanced on behalf of the assessee company in the case of Shri
Jagdish Mills Ltd. v. Commissioner of Income-tax(1) and it was held that the
absence of such an express request would not make material difference if the
course of dealings between the parties showed an implied request by the
assessee company to send the cheques by post. In Jagdish Mills' case the
assessee company was incorporated in Baroda State outside British India. The
company accepted orders for the supply of goods F.O.R. Baroda to the Government
of India. The manufacture and delivery of goods took place at Baroda. The
company after effecting delivery of the goods submitted bills in the prescribed
form which contained the sentence that "Government should pay the amount
due to the company by cheque." There was, however, nothing in the bills to
show in what way the payment by cheque was to be made.
The company thereafter received at Baroda, in
payment of its bills, cheques through post from the Government drawn on a
Government Treasury or on a branch of the Reserve Bank of India or the Imperial
Bank of India transacting Government business. The company endorsed the cheques
and sent them either to Bombay or Ahmedabad in its banking account at such
places. It was held that according to the course of business usage in general
which was followed in the case, the parties must have intended that the cheques
should be sent by post which was the usual and normal agency for transmission
of such articles. An implied request by the company to send the cheques by post
from Delhi was accordingly inferred. The post office was held to have become
the agent of the assessee for the purpose of receiving those payments. This
Court consequently came to the conclusion that the amounts of cheques were
received by the assessee in British India and as such were liable to be taxed
under section 4(1) (a) of the Act.
The facts of the case of Indore Malwa United
Mills Ltd. v. Commissioner of Income-tax (supra) were similar to those of the
present case. In that case the assessee, a non- resident, carried on the
business of manufacturing textile goods at Indore, outside British India. The
assessee supplied textile goods to the Stores Department of the Government of
India under orders placed by the latter with the assessee at Indore. The
delivery of the goods was F.O.R.
Indore. The bills contained the following
instruction for payment: "Please pay by cheque to self on a bank at
Indore." The Government of India drew cheques in favour of the assessee
for the amounts of the bills on the Reserve Bank of India, Bombay and sent them
by post to the assessee at Indore. The assessee deposited the cheques in its
account with the Imperial Bank of India, Indore and on clearance, the amounts
were credited to that account. Question which arose for decision was whether
the assessee company was liable to pay tax in the taxable territories on the
ground that the sale proceeds, which included the profit element therein, were
received in the taxable territories. It was held that if by an agreement,
express or implied, between the creditor and the debtor or 650 by request,
express or implied, by the creditor, the debtor is authorised to pay the debt
by a cheque, and to send the cheque to the creditor by post, the post office
becomes the agent of the creditor to receive the cheque and the creditor
receives payment as soon as the cheque is posted to him. It was also held that
there was an implied agreement between the parties that the Government of India
would send the cheque by post to the assessee. The sale proceeds which included
the profit element therein were, in the opinion of this Court, received in
British India where the cheques were posted, and the profits in respect of the
sales were taxable under section 4(1) (a) of the Act.
Mr. Pillai has referred to the case of
Commissioner of Income-tax, Bihar & Orissa v. Patney & Co. This case
cannot be of much help because in that case the assessee had expressly required
the commission to be paid at Secunderabad outside British India. It was because
of this circumstance that this Court found that the rule laid down in Ogale
Glass Works' case (supra) did not apply and the money was not received by the
assessee in British India.
So far as the present case is concerned it
has already been pointed out above, that the circumstances of the case and the
course of dealings between the parties show that there was an implied agreement
or understanding between the parties that the money would be sent to the
assessee by cheques posted from British India. The High Court, in our opinion,
rightly decided the question reproduced above against the assessee appellant
and in favour of the revenue.
The appeals consequently fail and are
dismissed but in the circumstances without costs.
V.P.S. Appeals dismissed.
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