PETITIONER:
SHRI JAGDISH MILLS LTD.
Vs.
RESPONDENT:
THE COMMISSIONER OF INCOME-TAX, BOMBAY NORTH, KUTCH AND
DATE OF JUDGMENT:
12/05/1959
BENCH:
BHAGWATI, NATWARLAL H.
BENCH:
BHAGWATI, NATWARLAL H.
DAS, SUDHI RANJAN (CJ)
HIDAYATULLAH, M.
CITATION:
1959 AIR 1160 1960 SCR (1) 236
ACT:
Income-tax-Assessee company manufacturing and supplying
goods from outside British India-Stipulation for Payment by
cheque Cheques remitted by post from British India-Post
Office, if an agent of the assess--income if received in
taxable territoriesIndian Income-tax Act (XI Of 1922), s.
4(1)(a).
HEADNOTE:
The appellant company, carrying on business in manufacturing
and selling textiles at Baroda, received in the assessment
years 1942-43 and 1943-44 payments in cheques from the
Government of India for the supply of such goods on bills
submitted, as agreed upon in prescribed printed forms which
provided that the Government should pay the amount due to
the appellant by cheque. The appellant, however, did not
request or write to the Government indicating in what way
the payment by cheque was
237
to be made. The Government sent the cheques from Delhi by
post to the appellant at Baroda and it received and accepted
them in Baroda in full and unconditional satisfaction of its
claim and cashed them through its bank accounts in Bombay
and Ahmedabad. The question was whether the amounts of the
cheques were income, profits and gains received by the
appellant in the taxable territories -and were as such
liable to tax under S. 4(1)(a) of the Indian Income-tax Act.
The Income-tax Officer held that the amounts were received
in British India as the cheques were drawn on banks in
British India and the Appellate Assistant Commissioner on
appeal affirmed his order. The Income-tax Appellate
Tribunal on appeal held that even though the appellant did
not ask the Government to send the cheques by post, there
was an implied request to do so and following the decision
of this Court in Commissioner of Income-tax, Bombay South v.
Messrs. Ogale Glass Works Ltd. [1955] I S.C.R. 185, held
that the amounts of the cheques were received in the taxable
territories and as such the appellant was liable to tax
under s. 4(1)(a) of the Act. Hence these appeals by special
leave. The question for decision was whether in the facts
and circumstances of the case the stipulation that payments
should be made by cheques implied a request by the appellant
to the Government to send the cheques by post so as to
constitute the Post Office its agent for receiving such
payments.
Held, that regard being had to the general course of
business usage which was followed in this case, there could
be no doubt that the parties intended that the cheques
should be sent by post which was the normal agency for
transmission of such articles and, consequently, there was
an implied request by the appellant to the Government to
send the cheques by post so as to constitute the Post Office
its agent for the purpose of receiving those payments.
Commissioner of Income-tax, Bombay South v. Messrs. Ogale
Glass Works Ltd. [1955] I S.C.R. 185 and Norman v. Rickets,
(1886) 3 T.L.R. 182, applied.
Pennington v. Crossley and Sons (Limited), [1879] 13 T.L.R.
513, considered.
Thorappa v. Umedmalji (1923) 25 Bom. L.R. 604 and Exparte
Cote In -ye Deveza, (1873) L.R. 9 Ch. 27, distinguished.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 681 and 682
of 1957.
Appeals by special leave from the order dated August 2,
1954, of the Income-tax Appellate Tribunal of India, Bombay
Bench ‘A’ in Income-tax Appeals Nos. 3756 of 1948-49 and
2161 of 1950-51.
R. J. Kolah and I. N. Shroff, for the appellants.
H. N. Sanyal, Additional Solicitor-General of India,
K.N. Rajagopal Sastri and D. Gupta, for the respondent.
238
1959. May 12. The Judgment of the Court was delivered by
BHAGWATI J.-These two appeals with special leave under Art.
136 of the Constitution are directed against the order of
the Income-tax Appellate Tribunal of India, Bombay Bench ” A
” (hereinafter referred to as ” the Tribunal “) dated August
3, 1954, in Income-tax Appeals Nos. 3756 of 1948-49 and 2161
of 1950-51 whereby the Tribunal held that the amounts of
cheques of Rs.1,98,643 and Rs. 4,96,365 for the assessment
years 1943-44 and 1944-45 were received by the appellant
from the Government in the taxable territories and were as
such liable to tax under s. 4(1)(a) of the Indian Income Tax
Act (XI of 1922) (hereinafter referred to as “the Act”).
At all material times the appellant was a public joint stock
company incorporated under the then Baroda State Companies
Act and having its registered office at Baroda. The
appellant was the owner of a textile mill and carried on
business in manufacturing and selling textiles at Baroda.
In the accounting years 1942 and 1943 tenders were invited
by the Government of India for some of the articles
manufactured by the appellant and the appellant submitted
its tenders to the Government of India which accepted the
tenders and placed orders for supply of goods manufactured
by the appellant. These orders were accepted by the
appellant at Baroda and the deliveries of the goods
manufactured by the appellant and- sold by it to the
Government of India were pursuant to the said orders to be
and were in fact effected F. 0. B. Baroda. In fact so far
as the manufacture and sale of the goods supplied to the
Government of India were concerned, as also the deliveries
thereof, everything took place at Baroda, outside the then
British India.
According to the conditions of the contracts governing the
supplies made by the appellant to the Government, the system
of payment was, that unless otherwise agreed upon between
the parties, payment for delivery of the goods would be made
on submission of the bills in the prescribed form in
accordance with
239
the instructions given in the acceptance of the tender by a
cheque on a Government Treasury or a Branch of the Reserve
Bank of India or the Imperial Bank of’ India transacting
Government business. The appellant after effecting
deliveries of the goods, submitted bills in the prescribed
printed form which contained the sentence that ” Government
should pay the amount due to the appellant by cheque ” but
the appellant did not request or write to the Government, in
what way the payment by cheque was to be made by Government
to the appellant. After submission of the bills the
appellant 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 said cheques were received at Baroda by the
appellant from the Government, along with a memo stating:-
” The undersigned has the honour to forward herewith cheque
No. dated in payment of the bills noted below.”
then followed a tabular statement setting out the number,
amount and date of the bills. On the top of the memo there
was a direction that ” it be immediately returned to the
Controller of Supplies Accounts, with the acknowledgment
form on the reverse duly signed and stamped.” The
acknowledgment form was expressed as follows:-
” The undersigned has the honour to acknowledge cheque No.
dated for Rs. in payment of the bills
noted in the first column on the reverse.”
The payments made by cheques were accepted by the appellant
unconditionally and in full satisfaction of its claim for
goods supplied to the Government. On receipt _of such
cheques, the appellant endorsed the same and sent them
either to Bombay or Ahmedabad in the Banking account of the
appellant at such places.
By his orders dated September 20, 1945, and March 16, 1943,
for the assessment years 1942-43 (account year being
calendar year 1941) and 1943-44 (account year being calendar
year 1942) the Income-tax Officer
240
held that the sums of Rs. 1,98,643 and Rs. 4,96,365 being
the amounts of the cheques received by the appellant for the
goods supplied to the Government of India amounted to
receipt of income, profits and gains in British India during
the said accounting years inasmuch as the said cheques were
drawn on banks in British India and were liable to tax.
On appeal to the Appellate Assistant Commissioner from the
said orders of the Income-tax Officer, the Appellate
Assistant Commissioner confirmed the orders of the Income-
tax Officer and dismissed the appeals.
From the said decision of the Appellate Assistant
Commissioner the Appellant appealed to the Income tax
Appellate Tribunal who, after two remand orders on various
points in the case which have no relevance to the question
involved in these appeals, finally by its order dated August
3, 1954, held that even though the appellant did not write
to the Government saying that the cheques be sent by post,
there was an implied request to the Government to send the
cheques by post, observing that where a person in Baroda
writes to another in Delhi to send the money due to him by a
cheque there is an implied request to send the cheque by
post. The appellant could not have intended that the
cheques would be sent otherwise than by post and it was not
the case of the appellant that the cheques received from the
Government were delivered by hand on behalf of the
Government to the Appellant at Baroda and following the
decision of this Court in Commissioner of Income-tax Bombay
South v. Messrs. Ogale Glass Works Ltd.(‘), the Tribunal
held that the amounts of the cheques referred to above were
received by the appellant in the taxable territories and as
such the appellant was liable to tax under s. 4(1)(a) of the
Act.
On December 20, 1954, the appellant applied for special
leave to appeal against the said order of the Tribunal under
Art. 136 of the Constitution which leave was granted by this
Court by its order dated April 15, 1955. By a further order
dated September 19, 1955, both the appeals were consolidated
for the purposes of printing of the record and for filing of
the
(1)[1955] 1 S.C.R. 185.
241
petitions of appeal and the statements of case therein.
These appeals have now come up for hearing and final
disposal before us.
On the facts narrated above it is clear that the mode of
payment agreed upon between the appellant and the Government
of India, as specified in Cl. 21 in the printed form of
tender, was that the payments for the delivery of the goods
were to be by cheques 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 appellant used
to submit the bills in the prescribed printed form which
mentioned that the Government should pay the amounts due to
the appellant by cheque. In payment of these bills the
appellant used to receive at Baroda cheques’ drawn by the
Government as aforesaid along with a memo of acknowledgment
which stated that the cheques mentioned therein were
forwarded in payment of the bills noted in the tabular
statement setting out the amount, number and date of the
bills. The acknowledgmet it form on the reverse was
thereafter duly signed and -stamped by the appellant
acknowledging the receipt of the cheques in payment of the
said bills and was despatched by the appellant to the
Government. These payments by cheques were accepted by the
appellant unconditionally and in full satisfaction of its
claims for the goods supplied to the Government.
The case of the Revenue in the first instance was that even
though these cheques were received by the appellant in
Baroda they were sent by the appellant after duly endorsing
the same either to Bombay or Ahmedabad in the banking
accounts of the appellant at such places and these cheques
were cashed and the proceeds thereof were received by the
appellant in either Bombay or Ahmedabad and accordingly the
income, profits and gains were received by the appellant
within the taxable territories. This contention was really
of no avail to the Revenue because on the particular facts
of the present case it was common ground that the payments
made by cheques were accepted by the appellant
unconditionally and in full satisfaction of its claims for
goods supplied to the
31
242
Government and therefore if the cheques be held to have been
received by the appellant in Baroda the income, profits and
gains were also received in Baroda which was outside the
taxable territories. Even if the receipts of the cheques at
Baroda be treated as a conditional payment of the
appellant’s claims for the goods supplied to the Government,
the position was no better, for the simple reason that the
cheques not having been dishonoured but having been duly
cashed the payments related back to the dates of the
receipts of the cheques and in law the dates of payments
were the dates of the delivery of the cheques which was
certainly in Baroda-out side the taxable territories. In
either event, it could not be urged by the Revenue that the
income, profits and gains were received by the appellant at
any place other than Baroda (Vide the Commissioner of
Income-tax, Bombay South v. Messrs. Ogale Glass Works Ltd.
(1), ibid at 196). The position which was, however, taken
up by the Revenue subsequently was that the cheques were
posted by the Government in Delhi at the implied request of
the appellant and therefore the payments must be held to
have been received by the appellant at Delhi, the Post
Office being thus constituted the agent of the appellant for
the purposes of receiving the same. Learned Counsel for the
appellant contested this position by urging that the only
thing mentioned by the appellant was that the payment for
the goods supplied by the appellant to the Government was to
be by cheques and there was no request either express or
implied emanating from the appellant for the despatch of
these cheques by post with the result that if the Government
chose to send these cheques by post from Delhi it was not in
pursuance of any request express or implied made by the
appellant in that behalf but it was so done by the
Cxovernment on its own initiative thus constituting the Post
Office the agent of ‘the Government and there was no receipt
of the monies by the appellant until the cheques reached
their destination at Baroda. The case of the Commissioner
of Income-tax, Bombay South v. Messrs. Ogale Glass Works
Ltd. (1), which was relied upon by Revenue was sought
(1)[1955] 1 S.C.R. 18_~.
243
to be distinguished on the ground that in that case the
assessee had written on the bill form the words ” Kindly.
remit the amount by a cheque in our favour on any bank in
Bombay ” which was an express request conveyed to the
Government by the assessee to send the cheque by post thus
constituting the Post Office the agent of the assessee. No
such words having been used by the appellant in this case
the only consequence of the provision contained in the bill
form that the payment be made by cheque was that the
Government was authorised or entitled to make the payment by
cheque; but how to reach those cheques to the appellant was
left to the sweet will and discretion of the Government and
if the Government chose to send those cheques by post there
was no request, express or implied, emanating from the
appellant to send the cheques by post so as to constitute
the Post Office the agent of the appellant for the purposes
of receiving the same.
It is true that in the Commissioner of Income-tax, Bombay
South v. Messrs. Ogale Glass Works Ltd. (1), the words ”
kindly remit the amount by a cheque in our favour on any
bank in Bombay ” were specifically used by the assessee and
these words were construed to be an express request by the
assessee to the Government to send the cheques by post.
The various authorities which were discussed, viz.,
Thairlwall v. The Great Northern Railway Co.(‘); Badische
Anilin Und Soda Fabrik v. The Basle Chemical Works Bind
Schedler (3) ; Comber v. Layland (‘)and MitchellHenry v.
Norwich Union Life Insurance Society (5), were also cases
where the expressions used were construed as words of
express request constituting the Post Office the agent of
the party receiving the money or the goods and went to
support the case made by the Revenue that the post office
was constituted the agent of the assessee for the purposes
of receiving the cheques when they were posted by the
Government in Delhi. Where, however, no such express words
were used and the matter rested merely in the stipulation
that the payment would be made by cheques, would the mere
(1) [1955] 1 S-C.R. 185. (3) [1898] A.C, 200.
(2) [1910] 2 K.B. 509. (4) [1898] A.C 524.
(5)(19I8] 2 K.B. 67.
244
posting of the cheques in Delhi be enough to constitute the
Post Office the agent of the appellant so that the ‘income,
profits and gains may be said to have been received by the
appellant within the taxable territories ?
If there was nothing more, the position in law is that the
Post Office would not become the agent of the addressee and
the mere posting of the cheque would not operate as delivery
of the cheque to the addressee so as to pass the title in
the cheque to the addressee. (Vide Thorappa v. Umedmalji (1)
and the case of Exparte Cote In re Daveza (2).
Where, however, on the facts and circumstances of the case
an implied request by the creditor to send the cheque by
post can be spelt out, the Post Office would be constituted
the agent of the addressee for the purposes of receiving
such payment. The authority in support of this proposition
is to be found in Norman v. Ricketts(3). In that case
Madame Phillippe, one of the plaintiffs, carried on business
as a milliner in Bondstreet, and one of her customers was
the defendant, Mrs. Ricketts. Between March 1884, and
March, 1885, goods were supplied by Madame Phillippe to Mrs.
Ricketts to the amount of pound 142. Mrs. Ricketts lived in
Suffolk, and at the end of March, 1885, Madame Phillippe
wrote to her in Suffolk saying, ” the favour of a cheque
within a week will oblige “. Mrs. Ricketts accordingly, on
April 6, sent Madame Phillippe a cheque for the amount by
post. The cheque was an open cheque payable to the order of
Madame Phillippe. The cheque was stolen in the transit, and
Madame Phillippe never received it, but it was paid by Mrs.
Ricketts’ bankers to the thief. Madame Phillippe then
commenced this action to recover the amount, and Mr. Baron
Huddleston who tried the case without a jury, held [(1885) 2
T.L.R. (607)] that the sending of the cheque was payment and
gave judgment for the defendant. The plaintiffs appealed
and the appeal was dismissed by the Court of Appeal
consisting of Lord Esher, M. R., Lindley and Lopes, L. JJ.
The Master of the Rolls said that if a debtor had to pay his
creditor
(1) (1923) 25 Bom. L.R. 604. (2) (1873) L.R. 9 Ch. 27.
(3) (1886) 3 T.L.R. 182.
245
money, as a general rule the debtor must come and pay his
creditor. But if the creditor asked him to pay in a
particular way, the debtor might do so. If asked to pay
through the post, the putting the letter in the post with
the money was a sufficient. The only question here was
whether the plaintiffs asked the defendant in effect to send
the money through the post. 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. ]bid
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 herself. The only reasonable and proper
meaning to be attached to it, whatever Madame Phillippe
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
to the appellant. The Lords Justices concurred with this
judgment.
Resting itself upon the observations in this case this Court
observed in Commissioner of Income-tax, Bombay South v.
Messrs. Ogale Glass Works Ltd. (1) at p. 295:
” 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.”
Learned Counsel for the appellant particularly drew our
attention to the case of Pennington v. Crossley and sons
(Limited)(‘) a decision of the Court of Appeal consisting of
Lord Esher, M.R., A.L. Smith and Rigby, L. JJ., where Norman
v. Ricketts (3) was distinguished. In that case the
plaintiff sold on December 10,
(1) [1955] 1 S.C.R. 185. (2) [1897]13T.L.R. 5i3.
(3)(1886) 3 T.L.R. 182.
246
1896 the goods in question to the defendants and on the same
date an invoice was sent to the defendants under which the
defendants were entitled to discount if the payment was made
within 14 days. Upon December 24 the defendants posted a
cross cheque made payable to the plaintiff or his order; and
with the cheque was sent a form of receipt for signature by
the plaintiff. The envelope containing the cheque was
properly addressed to the plaintiff, but was not registered.
There was no express request to send the cheque by post.
The cheque was never received by the plaintiff but was
cashed by a stranger on the strength of a forged endorsement
of the plaintiff’s name thereupon. On an action to recover
the price of the goods sold and delivered the defendants
contended that the posting of the cheque amounting in law to
payment, and gave evidence that for about 20 years before
this transaction payments for goods in question; as between
the plaintiff and the defendants were always made by cheque
sent by post in the form of receipt given above. The
learned Judge held that the course of business showed that
the parties had agreed that the payment should be made by
cheque, and that the posting of the cheque amounted to
payment, and accordingly gave judgment for the defendants.
The Court of Appeal reversed this decision. The Master of
the Rolls in his judgment distinguished the case of Norman
v. Ricketts (1), stating that in that case there was what
amounted to a request to send a cheque by post and the Court
held that the posting of the cheque was payment. There was
no such request here. The course of business between the
plaintiff and the defendants was not taken to mean that
there was a request to the defendants to send the cheque by
post and that the plaintiffs would run the risk of the
cheques miscarrying in the transit. The defendants sent to
the plaintiff cheques by post on the various sales, together
with a form of receipt to be signed by him independently of
any arrangement. There was nothing in the circumstances to
warrant the conclusion that putting the cheque in the post
was to’ be taken as the delivery of the cheque to the
plaintiff, the only facts
(1) (1886) 3 T.L.R. 182.
247
being that the defendants always sent cheques by post and
that when the plaintiff received them he sent back the
receipt duly signed.
This case does not militate against the ratio of the
decision in Norman -v. Ricketts (1), but really confirms
the same. If on the facts and circumstances of that case
the Court of Appeal had been able to find any request,
express or implied, to send the cheques by post the decision
would certainly have been confirmed but in so far as there
was nothing in the circumstances of the case from which such
an inference could be raised the Court of Appeal observed:-
It would be most monstrous to infer from those circumstances
a request to send a cheque by post and that the plaintiff
would consider that he had received it as soon as it was
posted.”
The other Lord Justices delivered judgment to the same
effect and the appeal was allowed.
The above ratio is really determinative of the question
before us. The stipulation in the contract between the
appellant and the Government was that the payment would be
made by cheques. The Government of India was located in
Delhi and the cheques would be necessarily drawn by it from
Delhi. Could it be imagined that in the normal course of
affairs the cheques thus drawn in Delhi would be sent by a
messenger to Baroda so that they may be delivered to the
appellant in Baroda? Or that the officer concerned would
come to Baroda himself and hand the same over to the
appellant in Baroda ? The only reasonable and proper way of
dealing with the situation was that the payment would be
made by cheques which the Government would send to the
appellant at Baroda by post. According to the course of
business usage in general which appears to have been
followed in this case, 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. If that
were so, there was imported by necessary implication an
implied request by the appellant to send the cheques by post
from Delhi thus constituting the Post Office its agent for
the purposes of receiving those payments.
(1) (1886) 3 T.L.R 182.
248
Learned Counsel for the appellant further drew our attention
to certain provisions of the Post Office Act, 1898 and the
postal regulations framed thereunder and tried to argue that
the Post Office was really the agent of the Government and
the Government could recall the cheques at any time before
they actually reached the appellant at Baroda. All these
provisions were discussed by this Court in the Commissioner
of Income-tax, Bombay South v. Messrs. Ogale Glass Works
Ltd. (1), and it was held that these provisions did not help
the assessee. The position as it obtains was thus
summarised at p. 204:-
” 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 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.”
In our opinion the principle which has been enunciated by us
in the Commissioner of Income-tax, Bombay South v. Messrs.
Ogale Glass Works Ltd. (1), is applicable to the facts of
the present case, even though the words ” to remit the
amount by cheque ” have not been specifically used herein.
Non-user of those words does not make any difference to the
position and it is not possible to distinguish the present
case from that case merely on this ground.
We are, therefore, of opinion, that the Income-tax Appellate
Tribunal was right in the conclusion to which it came and
these appeals must accordingly be dismissed with costs, one
set between the two appeals.
Appeals dismissed.
(1)[1955] 11 S.C.R. 185.
249