Full Judgment Text
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PETITIONER:
THE COMMISSIONER OF INCOME-TAX, BOMBAY SOUTH, BOMBAY
Vs.
RESPONDENT:
MESSRS OGALE GLASS WORKS LTD., OGALE WADI.
DATE OF JUDGMENT:
19/04/1954
BENCH:
DAS, SUDHI RANJAN
BENCH:
DAS, SUDHI RANJAN
BHAGWATI, NATWARLAL H.
JAGANNADHADAS, B.
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 SC1451 (5)
ACT:
Indian Income-tax Act (XI of 1922), section 4(1)(a)-Non-
resident company-Payment of sale-proceeds to the company
(assessee), by Government of India by means of cheques drawn
and posted in British India- Whether 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.
HEADNOTE:
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.
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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. [1902] A.C.
287 at p. 296), Commissioner of Income-tax v. Kameshwar
Singh, ([1933] 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,
([1951] 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., ([1951] 20
I.T.R. 39 at p. 47), Chainrup Sampatram v. C.I.T., West
Beagal ([1951] 20 I.T.R. 484 at pp. 493, 496), Allahabad
Bank Ltd., v. C.I.T. West Bengal), ([1952] 21 I.T.R. 169),
Mohanlal Biralal v. C.I. T., C.P. & Berar, ([1952] 22 I.T.R.
448)’ Hira Mills Ltd., Cawnpore v. Income-tax Officer,
Cawnpore, ([1946] 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. ([1952] 21 I.T.R. 526), Norman v.
Rickets, ((1886) 3 T.L.R. 182), Thairlwal v. The Great
Northern Railway Co., (L.R. [1910] 2 K.B. 509), Badische
Anilin Und Soda Fabrik v. Basle Chemical Works, (L.R. [1898]
A.C. 200), Comber v. Leyland, (L.R. [1898] A.C. 524),
Mitchell Henry v. Norwhich Union Life Insurance Society Ltd.
(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) referred to.
JUDGMENT:
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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 for
respondents.
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 to
1945-46.
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 Income-
tax 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 case:
" 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
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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.
dated- for 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 asses-
see’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 the case:
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"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 Tribunal’s findings:
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 Bombay.
(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 Income-
tax 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
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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 uncon-
ditional 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. [1902] A.C. 287 at P. 296.(6) (1843) 6 M. & G. 40.
(2) [1933] I I.T.R. I07.(7) (1846) 15 M. &W. 672.
(3) 60 I.A. 133;[1933] I.T.R. 113.(8) L.R. [1893] 2 Q.B.
286.
(4) [1951] 19 I.T.R. 83.(9) (1911) 21 M.L.J. 432.
(5) (1793) 1 ESP- 5.
193
assessee. Sri Kolah, on the other hand, relied on the
following facts in answer to the contentions of the learned
Solicitor-General:
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(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 Solicitor-
General 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
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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.)
150.
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 goods.
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 present-
ation 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., non-
payment 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 being met;
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
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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. [1938] 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 this stage.
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), Alla-
habad 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) [1951] 20 I.T.R. 39 at P. 47.
(2) [1951] 20 I.T.R- 484 at PP. 493, 496.
(3) [1952] 21 I.T.R. 169.
(4) [1952] 22 I.T.R. 448.
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(5) [1946], 14 I.T.R. 417.
(6) [1948] 16 I.T.R. 227 at P. 232.
(7) [1952] 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 presently shown.
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
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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 recorded:
" 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 was payment.
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 herself.
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
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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 recog-
nised 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. [1898] A.C. 200.
26
(2) L.R. [1898] 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 England.
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 post-
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office 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. [1918] 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 post-
office 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
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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 (d) thereto).
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 trans-
mission 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.
Appeal allowed.
206