JUDGMENT
S.T. Desai, J.
1. The assessee company was incorporated in the former Baroda State and it was at all material times a non-resident company. It carries on business of manufacturing acids and dyeing yarn and inter alia purchases yarn, dyes it and then sells the same. The assessment years are 1941-42 and 1942-43 (calendar years 1940 and 1941). During the C. Y. 1940, relevant for the assessment year 1941-42, the assessee company effected sales of dyed yarn of the total value of Rs. 14,22,996. The dispute between the assessee company and the Revenue relates to Rs. 9,53,304 in respect of goods sold by the assessee to British Indian merchants. In the calendar year 1941, relevant for the assessment year 1942-43, the total sales of the assessee company came to Rs. 19,22,107 and of that, the dispute between the assessee and the Revenue is in respect of a sum of Rs. 6,04,588 relating to sales effected to merchants in British India. Statements were filed by the assessee when the original statement of the case was made and in those statements details of the categories of sales were given. But, it is not necessary to refer to those details and the figures which we have already mentioned will suffice. A note appended to both those statements was as under :
“N. B. No merchant ever paid any amount in cash to our employee or broker or any of our representative in British India. The whole amount is remitted by post to Petlad by the buyers.”
2. As to the disputed amounts, which according to the Revenue, represented moneys received by the assessee company in British India, the Income-tax Officer decided against the assessee. The matter was ultimately carried in appeal and the Appellate Tribunal had to determine whether the sale proceeds amounting to Rs. 9,53,304 and Rs. 6,04,588, which included proportionate profits, were received by the assessee company or on its behalf in British India. The Tribunal held that the moneys due on cheques and hundies were collected by banks in British India on behalf of the assessee company and not as holders in due course and decided the appeal in favour of the Revenue. The question submitted by the Tribunal to this court is as under :
“Whether the proportionate profits on the sale proceeds aggregating to Rs. 9,53,304 for the assessment year 1941-42 and Rs. 6,04,588 for the assessment year 1942-43 or any part thereof were received by or on behalf of the assessee company in British India ?”
3. The reference came up for hearing before Chagla C.J. and Tendolkar J. on 25th September, 1955. It is clear from the order of the Appellate Tribunal that neither the income-tax authorities nor the Appellate Tribunal had taken into consideration the point whether the payments had been made by the buyers by cheques in circumstances constituting the post office the agent of the assessee company for the purpose of receiving payment. When the reference reached hearing before the learned judges, the decision of the Supreme Court in Commissioner of Income-tax v. Ogale Glass Works Ltd. had been delivered and the position with regard to receipt of payment by cheques had been to an extent simplified. They had also before them another reference, in which the Baroda Spinning and Weaving Co. Ltd., Baroda, was the applicant and in their judgment for remand in that case, they stated the grounds for the order. In the case of the assessee company, it was, therefore, not necessary to set out those grounds and only a reference was made to the judgment of remand in the case of Baroda Spinning and Weaving Co. Ltd. which was delivered on the same day. In that judgment, the learned Chief Justice observed :
“The question with regard to the cheques amounting to these two sums… must be looked at from the point of view of the receipt of these cheques by the assessee, and the first question is whether these cheques were received in Baroda or in the taxable territories. If the cheques were received in Baroda, then the further question that will have to be considered is whether they were received by post or by hand. If they were received by post, there is still a further question to be considered and that is whether the assessee expressly or impliedly requested the merchants to send these cheques by post to Baroda; in other words, whether the assessee constituted the post office its agent for the sending of these cheques….
The Tribunal will consider all these matters in the light of the recent judgments, so that we will be in a position to decide whether these two amount were received in Baroda or in the taxable territories. It is only after we have received a supplementary statement of the case from the Tribunal that we will be in a position to decide the question raised on this reference. As neither party applied its mind to this aspect of the matter, it will only be fair that they should be allowed to adduce any further evidence as they may desire…”
4. The Tribunal was by that order also asked to arrive at and record its finding. On remand, affidavits were filed and a mass of oral evidence was recorded by the Income-tax Officer. Learned counsel for the assessee has drawn our attention to a part of that evidence, but it will not be necessary to examine that evidence in any detail in view of the finding recorded by the Tribunal for after all we are principally concerned with the finding recorded by the Tribunal and would accept the same unless there is any legal ground for not doing so.
5. The Tribunal had directed the Income-tax Officer to give the parties an opportunity of producing fresh material on the points involved and in the light of the observations made by this court in the order of remand. The Income-tax Officer called upon the assessee to produce necessary material in order to enable him to submit a remand report and the assessee was in particular asked to produce all the books of account for the assessment year 1940-41, bank pass books, files of correspondence with merchants, banks and shroffs but the assessee company did not produce any documentary evidence whatever. The Income-tax Officer had also to consider the case of the assessee company for the assessment years 1943-44 and 1944-45 and deal with similar questions in those assessment years. In the report that he submitted in the instant case, he largely relied on the report relating to those latter years. Before the Tribunal, both the assessee and the Revenue made submissions by referring to the report for the assessment years 1943-44 and 1944-45. In the supplemental statement of the case, the Tribunal has more than once commented upon the non-production of the account books, correspondence files, etc., by the assessee company. It has been urged before us by Mr. Palkhivala that it was after more than fifteen years that the assessee company was asked to produce its books of account and other relevant papers and the Tribunal was wholly in error in taking notice of the fact that the assessee company had not produced its books of account and other documents. We do not think the explanation suggested by learned counsel can be regarded as satisfactory. The fact remains that the assessee company did not produce before the Income-tax Officer its books of account. It may be that it was not in a position to produce correspondence and other documents after a period of over fifteen years, but it is difficult to see how the Tribunal was in error in commenting on the fact that the assessee company had not produced its books of account for the relevant years.
6. The Tribunal has found in the supplemental statement of the case that the amounts of sale proceeds aggregating to Rs. 9,53,304 and Rs. 6,04,588 were received by the assessee company by post at Petlad. There is no dispute and it has not been disputed that the amounts which were received by post at Petlad were sent by the buyers of the goods by cheques, hundies or drafts. Therefore, this much is certainly common ground that the buyers of the goods manufactured by the assessee company who were in British India and had to pay for the same sent by post cheques, hundies and drafts to the assessee company at Petlad. The short question, therefore, that had to be considered by the Tribunal and has to be considered by us is whether there was any implied request by the assessee company to the merchants to make payments by sending those cheques, etc., by post to Petlad so as to constitute the post office the agent of the assessee company in the matter of those cheques. In the statement of the case, the Tribunal was summarised the evidence which was brought on record after the remand. We shall be adverting only to that part of the evidence, which is material for the proper appreciation of the arguments urged before us by learned counsel on either side. The assessee company produced affidavits from several of its constituents in regard to the practice that obtained in their dealings with the assessee company. Those deponents were cross-examined by the department and re-examined by the assessee. The assessee company also relied on a letter dated 24th June, 1955, addressed by the secretary of the assessee company to the Income-tax Officer. The relevant portion of that letter is as under :
“1. Our sales were on terms of payment at Petlad. When goods were ready we used to send our invoice (a copy of which has already been filed) and a covering letter. Forms of the invoice and covering letter are attached (with English translation). These show that there was no demand to send payment by post or otherwise but the same contained request to credit the amount to us.
2. The buyers were bound to pay at Petlad. They were free to pay by cheques or draft or hundi or cash in the manner they liked. There was no stipulation or demand to send the payment by post. We debited the buyers when we sent the invoices and as has been stated so often we credited the buyers on the date that we received the cheque, hundi or draft as our books show without waiting for realisation.”
Copies of bills and covering letters sent by the assessee company to its constituents were mostly in the same form and a specimen of the same may be set out here :
“……… bales of your order are despatched……. Railway receipts……… invoices of the same for Rs. ……… bundles ……… lbs……… are sent with this letter, which please credit to our account and reply. Please immediately acknowledge receipt of the Railway Receipt.”
7. In the covering letter it is stated at the end “please credit this to our account”. Mr. G. N. Joshi, learned counsel for the Revenue, has inter alia placed considerable reliance on this request by the assessee company to its constituents and urged that it was in taxable territories that the constituents of the assessee company made entries in their books, the effect of which was to render themselves debtors of the assessee company in the taxable territories and it was from the taxable territories that the moneys were subsequently withdrawn by the assessee company. Though a factor to be taken into consideration, we do not think this request deserves the importance sought to be attached to it on behalf of the Revenue.
8. It may be mentioned that, although in the letter of the 24th June, 1955, the secretary of the assessee company spoke of terms of payment in a manner which would suggest that there was an express agreement between the creditors and the debtors that the sales were on terms of payment at Petlad, that, however, has not been the case of the assessee company before the Tribunal; nor has it been the case of the assessee company before us. The agreement indicated in that letter, it is said, has to be gathered from the practice of the parties. It may also be mentioned that there is no evidence, oral or written, of any express agreement in that behalf brought on the record of this case. Therefore, the entire case has rested on the few documents on the record and the affidavits secured by the assessee company from its constituents and the oral evidence of the deponents of those affidavits.
9. Before we turn to the arguments urged before us on this point of implied request by the assessee company so as to constitute the post office its agent for the purpose of receiving payment and those affidavits and examine the material on record to the extent that it is necessary for us to do so, we shall examine an argument in limine which has been pressed before us by Mr. Palkhivala. It is contended that the only question of law, which this court could consider, was that which could be said to arise out of the order of the Tribunal when it decided the matter in appeal in the first instance. It is said that at that time no facts relating to any payment by cheques and no arrangement subsequently spoken of were before the Tribunal and this court had no jurisdiction to give the directions which it gave when it made the order of remand. We are asked to ignore that order made by this court on 23rd September, 1955, and deal with the reference and answer the question referred to us on material which was on record when the reference first came up for hearing before this court. An identical argument was urged before us by Mr. Palkhivala in Commissioner of Income-tax v. Keshav Mills Co. Ltd. The only difference is that the same argument has been urged before us this time with greater elaboration. To accede to the argument of Mr. Palkhivala would be tantamount to sitting in appeal over that order of remand and for reasons given by us in our judgment in that reference, we are of the opinion that the present contention of the assessee company must be negatived.
10. The next contention of Mr. Palkhivala is that the Tribunal was in error in its finding and the only conclusion which it should have reached on the evidence before it was that there was an agreement that the buyers should make payments at Petlad and, therefore, following Patney’s case [1959] 36 I. T. R. 488 decided their Lordships of the Supreme Court, we must hold that the sale proceeds were received by the assessee company in Petlad and not in British India. Now Patney’s case was a case of an express agreement and we do not see how that case lends any support to the present contention of the assessee company. Then, we have a clear finding recorded by the Tribunal after the matter was remanded by this court. We have taken into consideration all the evidence to which our attention has been drawn by Mr. Palkhivala and Mr. Joshi and we see no reason for acceding to the argument of Mr. Palkhivala that the Tribunal should have held that there was an agreement by and between the buyers and the assessee company to make payments at Petlad. Of course, if any such agreement express or implied had been found by the Tribunal, we would have given effect to the same.
11. It is next urged by Mr. Palkhivala that in any view of the case, it must be held that there is no evidence on the record on which the Tribunal could have held that there was an implied request by the assessee company to the buyers of goods from it to make payment by cheques sent by post from British India to the assessee company at Petlad so as to constitute the post office the agent of the assessee company for the purpose of receiving the payment in British India. We have already set out the material part of the letter addressed by the secretary of the mills company to the Income-tax Officer, on which considerable reliance has been placed by Mr. Palkhivala. We have also referred to some other documentary evidence. The Tribunal has examined all that evidence including the affidavits and the oral evidence of the deponents relied on by the assessee company and recorded its finding as under :
“Therefore, in the circumstances of the case and on the evidence and in the absence of correspondence we must necessarily infer an implied request by the assessee to remit by post, the parties having adopted the normal accepted commercial practice for making the payment in such type of cases.”
12. The Tribunal has held that there was an implied request by the assessee company to the merchants to send the cheques, etc., by post. It has pointed out that the deponents who were cross-examined by the Income-tax Officer when they gave their evidence deposed substantially to what they had stated in their affidavits. It would appear from the evidence taken into consideration by the Tribunal that there was material before it on which it could arrive at its finding of fact on the present point.
13. In addition to the evidence of which we have already made mention, Mr. Palkhivala has relied on certain paragraphs in the affidavit made by the deponents. As we have already mentioned, the affidavits are in the same form and these paragraphs find place in all the affidavits. Both Mr. Palkhivala and Mr. Joshi have relied before us on the contents of two paragraphs from these affidavits but from their own point of view. They are as under :….
“2. The terms and conditions on which our purchases were made were as per usual and established practice of several concerns in Gujarat areas. According to the practice accepted by all buyers, delivery was to be ex-mill delivery and the payment was to be in Petlad in the usual manner namely by cash, cheque, draft or hundies as may be convenient to the buyers. The method and manner of payment was left to us. There was no condition that the payment should be made by cheques nor was there any request from the mills that the same should be sent by post…….
4. We had all these years made payments to the said limited company by sending them to Petlad cheques, hundies or drafts and that is the accepted mode of payment between us as evidence from the fact that every year in course of dealings with them we have paid them accordingly.”
14. It is true that in paragraph 2 of the affidavit, the deponent stated that according to the practice, delivery was to be ex-mill and payment was to be made in Petlad in the usual manner, viz., by cash, cheque, draft or hundies as may be convenient to the buyers. He also stated that there was no condition that the payment should be made by cheques, nor was there any request from the mills that the same should be sent by post. The latter statements only mean that there was no express stipulation between the parties about payments being made by cheques or about any request from the mills that the cheques should be sent by post. We have already pointed out that the argument on either side has rested on an implied agreement which can or cannot be spelt out from the material on record. Now, what is stated by the deponent in paragraph 2 is not to be read in isolation and in a manner divorced from context. We must read paragraph 2 along with paragraph 4 in so far as they contain statements of fact and in paragraph 4, we find a statement which appears to us to go a long way in destroying the case of the assessee company and supporting the case of the Revenue. In terms express and explicit the deponents have stated that the established practice was that payment for the price of the goods received by the buyers was to be made to the assessee company by sending to it at Petlad cheques, hundies or drafts. Had the statement rested there, there would have been scope for argument that the statement of the deponent could not be regarded as any evidence of a practice which would go to establish an implied request by the assessee company of the nature under consideration. But the words “we had all these years made payments to the said limited company by sending them to Petlad cheques, hundies or drafts” in the context of an established practice are followed by the words “and that is the accepted mode of payment between us”. It is not possible for us to minimise the effect and importance of these words while considering the present contention of Mr. Palkhivala. The deponent is speaking of a mode of payment which was acceptable to and accepted by both the parties and that mode of payment was that the buyers should make payment by sending cheques, hundies or drafts from places in British India to the assessee company at Petlad. Of course, the cheques, hundies or drafts had to be sent to the assessee company at the place where it was carrying on business. Therefore, sending them to Petlad does not really touch the matter one way or other. What is of the crux of the matter is that the mode of payment acceptable to and accepted by the assessee company was that payment should be made by sending the cheques, hundies or drafts by post from British India. Since that was the accepted mode of payment, it is difficult to see how it can be said that there was no evidence before the Tribunal for holding that there was an implied request by the assessee company to the buyers of the goods to make payment by posting cheques in a manner as would constitute the post office the agent of the assessee company for the purpose of receiving payment. The present contention of Mr. Palkhivala must, therefore, be negatived.
15. Our answer to the question will be in the affirmative.
16. Assessee to pay the costs. There will be no order on the notice of motion. No order for costs of the notice of motion.
17. Question answered in the affirmative.
