Full Judgment Text
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PETITIONER:
INDORE MALWA UNITED MILLS
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, (CENTRAL) BOMBAY
DATE OF JUDGMENT:
19/11/1965
BENCH:
BACHAWAT, R.S.
BENCH:
BACHAWAT, R.S.
SARKAR, A.K.
MUDHOLKAR, J.R.
CITATION:
1966 AIR 1466 1966 SCR (2) 651
CITATOR INFO :
RF 1971 SC 206 (9)
R 1976 SC1172 (4,8)
ACT:
Income-tax Act, 1922, s. 4(1) (9)--Assessee a non-
resident--Receiving cheques by post from Government of
India--Post office whether agent of assessee or of
Government of India--Income whether taxable in British
India.
HEADNOTE:
The appellant-company carried on the business of
manufacturing textile goods at Indore and had offices at
Indore and Bombay. During its account years 1942 to 1947 it
supplied goods to the Indian Stores Department, Government
of India. The purchase orders were placed by the latter
with the appellant at Indore which was then in an Indian
State. On receipt of bills from the appellant the
Government of India used to draw cheques on the Reserve Bank
of India, Bombay, in favour of the appellant and used to
send them by post to the appellant at Indore. The appellant
used to deposit the cheques with the Imperial Bank of India
Indore for the purpose of realisation from the Reserve Bank
of India. In connection with the assessment years 1943-44
to 1948-49 the question that arose in income-tax proceedings
was whether the profits of the appellant--a non--resident-in
respect of the supplies were received by the appellant in
British India and therefore taxable under s. 4(1)(a) of the
Indian Income-tax Act, 1922. The departmental authorities
held that the payment was received by the appellant at Bom-
bay where the cheques were encashed but the Appellate
Tribunal took the view that the payment was received at
Indore. In reference the High Court held on the basis of
this Court’s decision in Commissioner of Income-tax v.
Kirloskar Bros. Ltd. (1954) 25 I.T.R. 547 which had
meanwhile been delivered that the cheques were received by
the assessee through its agent, the post office in British
India and further held that the Revenue authorities were
entitled to raise the contention for the first time in the
High Court. With certificate the appellant came to this
Court.
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HELD : (i) Whereas in the present case the question of
law in issue between the parties and referred to the High
Court is the broad question whether or not the assessee is
liable to pay tax on the ground that the sale proceeds
including the profits of the sale were received by the
assessee in British India, the Revenue authorities may be
permitted to argue for the first time at the hearing of the
reference that on the facts found by the Tribunal, the post
office was the agent of the assessee for the purpose of
receiving the cheques representing the sale proceeds and the
assessee received the sale proceeds in British India where
the chequest were posted though this aspect of the question
was not argued before the Tribunal and though the only point
there argued was that the proceeds were received at Bombay
where the cheques were encashed. [655 H]
Commissioner of Income-tax v. M/s. Ogale Glass Works
Ltd. [1955] 1 S.C.R. 185, Zoraster & Co. v. Commissioner of
Income-tax, [1961] 1 S.C.R. 210 and Commissioner of Income-
tax, Bombay v. Scindia Steam Navigation Co. Ltd., [1962] 1
S.C.R. 788, referred to.
The New Jahangir Vakil Mills Ltd. v. Commissioner of
Income-tax [1960] 1 S.C.R. 249 and Keshav Mills Co. Ltd. v.
Commissioner of Income-tax, [1965] 2 S.C.R. 908,
distinguished.
652
(ii) If by an agreement, express or implied, between
the creditor and the debtor or by request, express or
implied, by the creditor, the debtor is authorised to pay
the debt by a cheque and to send the cheque to the creditor
by port, the post office is the agent of the creditor to
receive the cheque and the creditor receives payment as soon
as the cheque is posted to him. [656 G]
Commissioner of Income-tax v. M/s. Ogale Glass Works
Ltd., [1955] 1 S.C.R. 185, Jagdish Mills Ltd. v. The
Commissioner of Income-tax, [1960] 1 S.C.R. 236, Norman v.
Ricketts, (1886) 3 Times Law Reports 182 and Thairlwall v.
The Great Northern Railway, [1910] 2 K.B. 509, relied on.
(iii) In the instant case cl. 9 of the terms and
conditions of the contract read with the prescribed form of
the bills and the instructions regarding payment showed that
the parties had agreed that the assessee would submit to the
Government of India, Department of Supply, New Delhi, bills
in the prescribed form requesting payment of the price of
the supplies by cheques together with signed receipts and
the Government of India would pay the price by crossed
cheques drawn in favour of the assessee. Having regard to
the fact that the assessee, was at Indore and the Supply
Department of the Government of India was at Now Delhi, the
parties must have intended that the Government would send
the cheques to the assessee by post from New Delhi, and this
inference was supported by the fact the cheques used to be
sent to the assessee by post. In the circumstances there
was an implied agreement between the parties that the
Government of India would send the cheques by post. The
Government of India was entitled to ignore the subsequent
request of the. assessee for cheques on an Indore bank and
the assessee received payment of the price as and when the
cheques on the Reserve Bank of India Bombay, were posted in
British India in accordance with the contract (657 D; 658 Al
Thairlwall v. The Great Northern Railway, [1910] 2 K.B.
509 and Commissioner of Income-tax v. Patney & Co. (1959) 36
I.T.R. 488, referred to.
On the above view the profits in respect of the sales
were taxable under s. 4(1) (a) of the Indian Income-tax Act,
1922.
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JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos.
10061011 of 1963.
Appeal from the judgment and order dated September
25, 1959 of the Bombay High Court in Income-tax Reference
No. 36 of 1955.
G. S. Pathak, B. Dutta, R. J. Kolah and J. B.
Dadachanji, for the appellant.
Niren De, Addl. Solicitor-General, Gopal Singh and
R. N. Sachthey, for the respondent.
The Judgment of the Court was delivered by
Bachawat, J. These appeals arise out of proceedings
for assessment of income-tax of the appellant Company
(hereinafter referred to as the assessee) for the assessment
years, 1943-44, 1944-45, 1945-46, 1946-47, 1947-48 and 1948-
49, the relevant
653
accounting years being the Calendar years, 1942, 1943, 1944,
1945, 1946 and 1947 respectively.
During the relevant accounting years, the assessee was
a nonresident. It carried on the business of manufacturing
textile goods at Indore then situated in an Indian State,
and had offices at Indore and Bombay. The assessee supplied
goods to the Indian Stores Department, Government of India,
under purchase orders placed by the latter with the assessee
at Indore. Duplicate copies of the purchase orders signed
on behalf of the assessee at Indore used to be sent to the
Government of India in British India. The goods used to be
inspected at Indore by an inspecting officer of the
Government and the inspection certificates were issued at
Indore. One of the conditions of the contract was that the
delivery would be F.O.R., Indore, and the freight from
Indore would be borne by the Government of India. The goods
used to be despatched by railway from Indore station and the
railway receipts used to be made out in the name of a
representative of the Government. There were two types of
purchase orders, namely, (1) purchasewar order and (2) bulk
purchase order. Clause 9 of the bulk purchase order was in
these terms
"9. Payment : 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 the instructions given in the Acceptance of Tender by
cheque on a Government Treasury in British India or on a
branch in British India of the Reserve Bank of India or the
Imperial Bank of India transacting Government business."
From the judgment of K. T. Desai, J. it appears that
in the High Court both parties agreed that the aforesaid cl.
0 was one of the terms on which all the goods were supplied
by the assessee. In paragraph 2 of the petition for leave
to appeal to this Court and, paragraph 3 of the appellant’s
statement of case also, the assessee stated that the
contracts between the parties were subject to the aforesaid
cl. 9. The prescribed form of the bill (Form No. WSB. 116)
which the assessee was required to submit to the Goverment
of India, Department of Supply, contained inter alia, the
following receipt clause
Received payment one anna Please pay by cheque
receipt
stamp on to Self on Bank
original
only Bank Treasury
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Contractor’s
at.........................
signature Contractor’s signature."
654
Instructions Nos. 13 and 14 with regard to payment were as
follows :
"13. If payment is desired to be made to the Con-
tractor’s Bankers or other parties, the endorsement must be
completed on the Bill Form (W.S.B. Form No. 116) and signed
separately and the word ’Self’ scored out; in addition, a
power of attorney will be necessary in such cases, except
when payment is desired to a Bank mentioned in the second
schedule to the Reserve Bank Act.
14. Payment in all cases will be made
to the Contractors by the Accounts Officer
named in the Acceptance of Tender by means of
crossed cheques, unless a specific request is
made to the contrary for the issue of an open
cheque on the bill."
The assessee used to make out bills in the
prescribed form. The receipt clause in the
completed bill used to be in the following
terms : "Please pay by cheque to self on a
bank at Indore."
The receipt clause in the bill used to be signed in
advance on behalf of the assessee on a one anna stamp. The
bills with the signed receipts of the assessee then used to
be sent to the Controller of Supplies, New Delhi after the
latter was debited with the amounts of the bills in the
books of the assessee. On receipt of the bills, the
Government of India used to draw cheques on the Reserve Bank
of India, Bombay in favour of the assessee and used to send
them by post to the assessee at Indore. On receipt of the
cheques, the assessee used to credit the Controller of Sup-
plies in its books with the amount of the cheques, and then
used to deposit the cheques in their account with the
Imperial Bank of India, Indore, and thereupon, the Bank used
to credit the assessee in the aforesaid account with the
amount of the cheques.
The question is whether on these facts the profits of
the assessee, a non-resident, in respect of the supplies
were received by the assessee in British India and,
therefore, taxable under s. 4(1) (a) of the Indian Income-
tax Act, 1922. Before the Appellate Tribunal and at all
stages of the assessment proceedings, the contention of the
revenue authorities wag that the profits were received at
Bombay where the. cheques on the Reserve Bank of India,
Bombay were encashed. By its order dated March 13, 1953,
the Appellate Tribunal negatived this contention, and held
that the amounts of the cheques were received by it at
Indore. On the application of the Commissioner of Income-
tax, Central
655
Bombay under s. 66(1) of the Indian Income-tax Act, 1922,
the Tribunal by its order dated March 4, 1955 referred the
following question of law to the Bombay High Court:
"Whether the assessee Company is liable to
pay tax in the taxable territories on the
ground that the sale proceeds, which included
the profit element therein, were received in
the taxable territories ?"
In its order dated March 4, 1955, the Tribunal referred to
the decision of this Court in Commissioner of Income-tax v.
Kirloskar Bros. Ltd.(1) decided on April 19, 1954, and
stated that on the facts of the case, a contention might
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arise that the assessee had requested the Government to send
the cheque by post and the post office as the agent of the
assessee, had received the cheques in British India, but the
Tribunal pointed out that this contention had not been
raised before it.
The reference under S. 66(1) was heard by a Division
Bench of the Bombay High Court consisting of J. C. Shah and
S. T. Desai, JJ. J. C. Shah, J. answered the question
referred to the High Court in the affirmative, whereas S. T.
Desai, J. answered it in the negative. The matter then went
before the third Judge, K. T. Desai, J. who agreed with J.
C. Shah, J. and answered the question in the affirmative.
The majority of the Judges held that the cheques were
received by the assessee through its agent, the post office
in British India and the Revenue authorities were entitled
to urge this contention for the first time in the High
Court. The assessee now appeals to this Court on a
certificate granted by the Bombay High Court.
In the appeals before us, the following two questions
arise (1) Was the post office the agent of the assessee to
receive the cheques representing the sale proceeds on its
behalf, and did the assessee consequently receive the sale
proceeds through its agent in British India; and (2) whether
the Revenue authorities could raise this contention for the
first time at the hearing of the reference before the High
Court, though this contention was not raised by it before
the Tribunal or at any stage of the assessment proceedings ?
Where, as in this case, the question of law in issue
between the parties and referred to the High Court is the
board question whether or not the assessee is liable to pay
tax on the ground that the sale proceeds including the
profits of the sale were received
(1) (1954) 25 I.T.R. 547.
656
by the assessee in British India, the Revenue authorities
may be permitted to argue for the first time at the hearing
of the reference that on the facts found by the Tribunal,
the post office was the agent of the assessee for the
purpose of receiving the cheques representing the sale
proceeds and the assessee received the sale proceeds in
British India where the cheques were posted, though this
aspect of the question was not argued before the Tribunal
and though the only point there argued was that the sale
proceeds were received at Bombay where the cheques were
encashed. See The Commissioner of Income-tax v. Messrs.
Ogale Glass Works Ltd(1) Zoraster & Co. v. Commissioner of
Income-tax(2). See also Commissioner of Income-tax, Bombay
v. Scindia Steam Navigation Co. Ltd.(3). The decision in The
New Jehangir Vakil Mills Ltd. v. The Commissioner of Income-
tax(4 ) relied on by the assessee is distinguishable.
There, the question of law referred to the High Court was
"Whether the receipt of the cheques at Bhavnagar amounted to
receipt of sale proceeds in Bhavnagar ?", and this question
was not broad enough to cover the enquiry whether there were
postings of the cheques at the request of the assessee and
receipts of the cheques by the assessee through the post
office in British India. The precise point decided by this
Court in the New Jehangir Vakil Mills’(4) case was that the
High Court has no jurisdiction under s. 66(4) to direct the
Tribunal to collect evidence not already on the record and
to make it a part of a supplementary statement of case, and
this decision was followed and affirmed recently in Keshav
Mills Co. Ltd. v. Commissioner of Income-tax("). But, in
the instant case, the High Court did not call for any
supplementary statement of case. Nor is the question of law
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referred in this case a narrow one as in the New Jehangir
Vakil Mills’ case(4) so as to exclude consideration of the
contention that the assessee received the sale proceeds
through its agent, the post office in British India. We
are, therefore, satisfied that the Revenue authorities can
raise this contention for the first time in the High Court.’
The next question is whether the post office was the
agent of the assessee to receive the cheques representing
the sale proceeds and whether the assessee received the sale
proceeds in British India where the cheques were posted.
Now, if by an agreement, express or implied, between the
creditor and the debtor or by a request, express or implied,
by the creditor, the debtor is authorised to pay the debt by
a cheque and to send the cheque to the creditor
(1) [1955] 1 S.C.R. 185.
(3) [1962] 1 S. C.R. 788,814.
(5) [1965] 2 S.C.R. 908.
(2) [1961] 1 S . C.R. 210.
(4) [1960] 1 S.C.R. 249.
657
by post, the post office is the agent of the creditor to
receive the cheque and the creditor receives payment as soon
as the cheque is posted to him. See The Commissioner of
Income-tax v. Messrs. Ogale Glass Works Ltd.(1), Jagdish
Mills Ltd. v. The Commissioner of Income-tax(2 ) approving
Norman v. Ricketts(1), Thairlwall v. The Great Northern
Railway(3). In Messrs. Ogale Glass Works’ case(1), there
was an express request by the assessee at Aundh to its
debtor in Delhi to remit the amount of the bills by cheques.
In Jagdish Mills case (2), there was a stipulation between
the assessee and its debtor that the debtor in Delhi should
pay the assessee in Baroda the amount due to the assessee by
cheques, and this Court held that there was by necessary
implication a request by the assessee to the debtor to send
the cheques by post from Delhi, thus constituting the post
office its agent for the purpose of receiving the payments.
In the instant case, cl. 9 of the terms and conditions of
the contract read with the prescribed form of the bills and
the instructions regarding payment show that the parties had
agreed that the assessee would submit to the Government of
India, Department of Supply,- New Delhi, bills in the
prescribed form requesting payment of the price of the
supplies by cheques together with signed receipts and the
Government of India would pay the price by crossed cheques
drawn in favour of the assessee. Having regard to the fact
that the assessee was at Indore and the Supply Department of
the Government of India was at New Delhi, the parties must
have intended that the Government would send the cheques to
the assessee by post from New Delhi, and this inference is
supported by the fact that the cheques used to be sent to
the assessee by post. In the circumstances, there was an
implied agreement between the parties that the Government of
India would send. the cheques to the assessee by post.
Mr. Pathak argued that the assessee had requested the
Government to pay money by cheques on a bank at Indore and
as that request was not complied with and the Government of
India sent instead cheques on the Reserve Bank of India,
Bombay, there was no effective request by the assessee to
the Government to send the cheque by post. But
independently of any subsequent request by the assessee, the
contract between the parties authorised the Government of
India to pay the price by cheques drawn on the Reserve Bank
of India, Bombay and imported a request by the assessee to
the Government of India to send the cheques by post.
(1) [1955] 1 S.C.R. 185.
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(2) [1960] 1 S.C.R. 236.
(3) (1886) 3 Times Law Reports. 182.
(4) [1910] 2 K.B. 509.
658
The Government of India was entitled to ignore the
subsequent request of the assessee for cheques on an Indore
bank and the assessee received payments of the price as and
when the cheques on the Reserve Bank of India, Bombay were
posted in British India in accordance with the contract. In
Thairlwall v. Great Northern Railway(1) Lord Coleridge, J.
observed :
"The real question is whether the posting of the warrant
was payment of the amount of the dividend. To establish
that it was, the defendants must prove a request by the
plaintiff or an agreement between the plaintiff and the
defendants that payment should be made by means of a warrant
posted to the plaintiff. If such a request or agreement is
proved, then payment is established by posting even although
the instrument is lost in the post : Norman v. Ricketts(2)."
Mr. Pathak contended that the assesseee and the
Government of India had agreed that the sale proceeds would
be paid to the assessee in Indore outside British India, and
therefore the rule in Messrs. Ogale Glass Works’ case(3)
did not apply, having regard to the decision in Commissioner
of Income-tax v. Patney & Co.(4). We are not inclined to
accept this contention. There is nothing on the record to
show that there was any express agreement between the
parties that the sale proceeds would be paid to the assessee
at Indore. We are satisfied that the post office was the
agent of the assessee for the purpose of receiving the
cheques representing the sale proceeds and the assessee
received the sale proceeds in British India where the
cheques were posted, and consequently, the profits in
respect of the sales were taxable under S. 4 (1) (a). The
High Court, therefore, rightly answered the question in the
affirmative.
Mr. Pathak and following him Mr. Kolah submitted that
the assessee would have led additional evidence to disprove
the contention that the post office acted as its agent, had
that contention been raised before the Tribunal, and the
Revenue authorities should not, therefore, have been allowed
by the High Court to raise the new contention. On being
asked what additional evidence would have been led by the
assessee, counsel said that the assessee would have led
evidence to show (a) that the purchase orders were accepted
by the assessee under compulsion of the
(1) [1910] 2 K.B. 509. (2) (1886) 3 Times Law Reports 182.
(3) [1955] 1 S.CR. 185. (4) (1959) 36 I.T.R. 488.
659
Defence of India Act and Rules and consequently there was no
voluntary request by the assessee for payment by cheques,
and (b) the Imperial Bank of India, Indore, as the statutory
agent of the Reserve Bank of India, Bombay, paid the amount
of the cheques to the assessee at Indore. But counsel was
unable to show any provision of the Defence of India Act or
Rules under which the assessee was obliged to accept the
purchase orders, and we need not, therefore, enquire into
the correctness of counsel’s assumption that acceptance of
the purchase orders under compulsion of law would have
negatived the contention that the post office acted as the
agent of. the assessee. And if the assessee received
payment by cheques posted in British India, the fact that
subsequently the Imperial Bank of India, Indore as the
statutory agent of the Reserve Bank of India, Bombay paid
the amount of the cheques at Indore would not take the case
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of the assessee out of the purview of S. 4 (1) (a). We are,
therefore, satisfied that the assessee was not prevented
from adducing any material evidence by reason of the
omission of the Revenue authorities to argue the new point
before the Tribunal. We do not, therefore, think it
necessary to express any opinion on the question whether the
Court should refuse to allow the Revenue authorities to
raise a new contention where by reason of their omission to
raise the contention before the Tribunal, the assessee had
been prevented from adducing material evidence on the point.
In the result, the appeals are dismissed with costs, one
set.
Appeals dismissed.
660