TMI Blog1951 (9) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of these cheques by the assessee. We also asked them to find whether the cheques received by the assessee were sent to their bank for collection and the bank acted as agents for collection and the amounts were collected in British India. Now, it is sufficient to dispose of this reference on the first finding. With respect of the Tribunal, they have not really applied their mind to the question that was submitted to them for a further and supplementary statement of the case. As pointed out by us in Keshav Mills Co. Ltd. v. Commissioner of Income-tax [1950] 18 I.T.R. 407, at 419., ordinarily the payment of a debt by a cheque never results in the discharge of the debt; but there may be an arrangement between a creditor and a debtor that the receipt of a cheque or a hundi by a creditor may result in an unconditional discharge of the debt, and in the event of the cheque or the hundi not being honoured the creditor would have no right to sue on the original cause of action but only on the cheque or the hundi. Therefore, what we wanted the Tribunal to find was whether, in this particular case, there was an arrangement between the creditor and the debtor from which it could be said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was likely to be dishonoured. It may be that, if the assessee company was dealing with a private party, it would have made it a condition of accepting the cheque that it was subject to encashment. But when the assessee was dealing with the Government of India, it looked upon the liability of the Government as discharged as soon as it received the cheque from the Government, and that is why we find the receipt in the form which I have indicated. Now, Mr. Joshi has raised a new point which was not really urged when we decided the Keshav Mills Co.'s case [1950] 18 I.T.R. 407, and the point raised by Mr. Joshi is that, whatever the contractual obligations of the parties may be, we are only concerned with the receipt of income within the meaning of the Income-tax Act. Mr. Joshi says that it may be that, when the assessee company received the cheque, the liability of the debtor--the Government--was discharged. But notwithstanding the discharge of the liability, the question still remains whether, on the receipt of the cheque, it could be said that the assessee company had received income which was liable to tax. And Mr. Joshi's contention is that mere receipt of a cheque can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editor. Therefore, if we were to apply the principles of commercial practice, the assessee company was paid and it received the payment on the date when it received the cheque from the Government of India and not on the date when the cheque was cashed by the bank. That again seems to me should be so, because it stands on a very clear principle: it cannot be left to the assessee to determine when he has received payment by his mere act of sending the cheque to the bank to be cashed at any time that he likes. An assessee may get a cheque on a particular date and he may not choose to cash it for a week or a fortnight or a month; but it cannot be said that the payment takes place on the date when the assessee chooses to have the cheque cashed. The payment has already taken place, and the payment continue to be of that date. If the cheque is cashed in the ordinary course, nothing further has got to be done; but if the cheque is dishonoured, then the liability of the debtor revives and he is liable to make the payment. Now, let us see whether there is anything in the authorities relied upon by Mr. Joshi which is contrary to what I am suggesting is the correct approach to this question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to pay what was then due at a future date. It is in this context that the Privy Council said that a debtor's own promissory note is not equivalent to cash. Now, when we have a cheque given by a debtor on a bank, which is accepted by the creditor in lieu of cash, it is impossible to say that these observations apply to a document of that character. But we have a more direct observation of no less a judicial authority than Lord Lindley in Gresham Life Assurance Society v. Bishop [1902] A.C. 287. In that case, the real question that arose was whether an entry in an account was equivalent to a receipt of income, and the House of Lords held that a mere taking into account of an item of interest did not constitute a receipt of that income in the United Kingdom. It is in relation to these facts that Lord Lindley, at page 296, observes:- First, let us consider what is meant by the receipt of a sum of money. My Lords, I agree with the Court of Appeal that a sum of money may be received in more ways than one, e.g., by the transfer of a coin or a negotiable instrument or other document which represents and produces coin, and is treated as such by business men. Even a settlement in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax v. Maharajadhiraja Kameshwar Singh of Darbhanga [1933] 1 I.T.R. 94 ; 60 I.A. 146 and they have distinguished it by pointing out that, in the case of a debtor's promissory note, it is a mere substitution of a promise to pay at a later date for the obligation to make a payment presently due, and also by relying on a dictum of Lord Justice Mackinnon in Westminster Bank Ltd. v. Osler [1933] 1 I.T.R. 65, that there can never be payment of his debt by a debtor by giving his own promise to pay at a future date. With regard to how a cheque operates as payment, Benjamin, on Sale of Personal Property at page 789 of the Eighth Edition, points out:- ...a man who prefers a cheque on a banker to payment in money is not considered as electing to take a security instead of cash, for a cheque is accepted as a particular form of cash payment, and if dishonoured, the seller may resort to his original claim on the ground that there has been a defeasance of the condition on which it was taken. And Byles on Bills of Exchange at page 23 of the 20th Edition enunciates the position in law that a cheque, unless dishonoured, is payment . And we have the position in law laid dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have allowed Mr. Joshi to argue this matter on the assumption that the cheques were posted by the Government in Delhi. Now, assuming that it is so, it is difficult to understand how the posting of the cheque in Delhi by the Government would constitute a receipt by the assessee company of this cheque in Delhi. Unless the post office was an agent of the assessee company to receive the cheque, the mere posting of the cheque would not, in law, amount to the cheque being received by the assessee company when the cheque was posted. All that the assessee company asked the Government to do was to remit the amount by cheque. It did not indicate how the cheque should be sent; it did not suggest that the cheque should be sent by post. It is only in those cases where the receiver nominates the post office as his agent that the posting of a letter constitutes the receipt of the letter by the receiver at the time and at the place where the letter is posted. If the post office is not nominated an agent by the receiver, then by posting the letter the sender constitutes the post office as his agent, and when the letter is delivered to the receiver it is delivered by the agent of the sender and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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