TMI Blog1954 (4) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... ereinafter 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 glasswares at its Works in Aundh State. In the relevant accounting years the assessee secured some contracts for the supply of lanterns and other glasswares 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 rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 : "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, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 assessee 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 assessee 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 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 two-fold. In the first place it is urged that the question whether the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kameshway Singh, Raghunandan Prasad v. Commissioner of Income-tax, and Commissioner of Income-tax v. Maheswari Saran Singh. 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, p. 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, and Maillard v. Duke of Argyle) or "in discharge" (Kemp v. Watt) or "in settlement" of the price (Re Rower and Haslam). 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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 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 Rhokana Corporation v. Inland Revenue Commissioners, are also apposite :-- "Apart from the express terms of Section 33, sub-section (1), a similar conclusion might be founded on the well known 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi v. Punjab National Bank Ltd. 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 case 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 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 affirmati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable 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 case here as will be presently shown. The High Court conceded that if the 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 Tribunal that in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Badische Anilin Und Soda Fabrik v. Basle Chemical Works 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 page 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 ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undi 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 office in such circumstances does not become the agent of the addressee. The case of Thorappa v. Umedmalji is an instance on this point. In the case of Ex parte Cote also there was no request by the addressee to send the bills by post. The result of the various judicial decisions are summarised in Benjamin on Sale, 8th Edition, pages 769-771, and in Chalmer's Bills of Exchange, 12th Edition, pages 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 such 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. Applying the above principles to the facts found by the Tribunal the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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