TMI Blog1964 (4) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale proceeds were received in the taxable territories. It is also not in dispute that the areas within the then Native States in existence in the assessment year not taxable territories. According to the assessee the sale proceeds of the sales falling under the three categories were not received in the taxable territories but were received by him at Ujjain, which, in the relevant assessment year, was a part of the Native State, while according to e department the sale proceeds were received in the taxable territories. The contention of the department has been upheld by the Tribunal. It would be convenient to refer to the facts of each category of sale separately. We are here concerned with the assessment years 1944-45, 1945-46 and 1946-47, the relevant previous years being calendar years 1943, 1944 and 1945 respectively. The assessee is a company incorporated and carrying on the business of spinning and waving cotton textiles in Ujjain, a part of the former Indian State in existence during the relevant assessment years. It is a non-resident company. Its products were sold in the State itself as well as in the then British India to private dealers and also to the Government of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest may be collected 7 days after presentation of the documents. The Imperial Bank of India, Ujjain, in whose favour the railway receipt was endorsed and in whose favour the hundis were drawn, forwarded the same to its branch at the place where the drawers of the hundis carried on business. The said branch presented the drafts or hundis to the drawees and recovered the amount in British India after delivering the railway receipts to the drawees duly endorsed by the said bank in favour of the drawees. The sample of one such hundi or draft has been made annexure C to the statement of the case, as some argument has been advanced on the language of this draft, which is in the following terms : THE HIRA MILLS LTD. Draft No. 886. Ujjain : 29-11-1943. On demand please pay to the Imperial Bank of India, Ujjain, or order the sum of rupees one thousand three hundred and ninety-four, annas three only, for value received. Railway Receipt No. 53129 and Bill No............. is enclosed herewith. ₹ 1,394-3-0. Manager. To M/s. Alimohammed Brothers, C/o. Haji Ahmedji Rahamanji, Shree Ramvirganj, Shreenagar. 4. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That data was not available and those facts have not been proved by the assessee. On the other hand, the assessee admitted before the Tribunal that no such over drawings can be specifically earmarked or shown as having been covered by any specified bill or bills. For these reasons the Tribunal rejected the contention of the assessee that the bank was the holder in due course of these drafts and hundis and had collected the respective amounts on its own account. As already stated, the Tribunal found that the bank was acting as only a collection agent and collected the amount from various dealers in British India for and on behalf of the assessee. The Tribunal, therefore, held that the amounts of the aforesaid proceeds were received by the assessee in British India. 5. Mr. Kolah, the learned counsel for the assessee, reiterated the argument that the bank at Ujjain in whose favour the hundis and drafts were drawn was a holder in due course. The drawing of the drafts or the handing over of the drafts by the assessee in favour of the bank was not conditional. The assessee has finally parted with the drafts or the handing over of the drafts by the assessee in favour of the bank was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aft which the assessee drew in favour of the Imperial Bank of India at Ujjain on dealers in British India. It is indeed true that the draft in terms directs the dealer to pay to the Imperial Bank of India, Ujjain certain sum for value received . Now, we have already referred to the modus operandi. It appears that the dealers were asked to make the payment to the bank on received by the dealers in the shape of railway receipts endorsed in their favour, which gave them title to the goods. Assuming that it means, as the counsel contends, that order was given to the dealers in British India to pay the amount to the bank because the assessee had received consideration from the bank, it would be an admission made by the assessee in his own favour, a piece of evidence to be judge and considered along with the other evidence. There exists on record other evidence, besides the language of the draft. Firstly, the draft was sent to the bank with a covering letter containing instructions given by the assessee to its bank, which is annexure A to the statement of the case, which has already been reproduced above, and the letter in express terms tells the bank to acknowledge the receipt of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... la State Bank at Bhatinda. In support of this contention the assessee field a certificate from the Patiala State Bank, which stated that all cheques received by the assessee from the Government and passed on to the bank were purchased in D.D. at their Bhatinda office and credits to the account of the assessee were given straightway without waiting for realisation. On these facts it was held that the property in cheques had passed in favour of the bank when the assessee endorsed them in favour of the bank at Bhatinda on the bank purchasing the cheques. The assessee must, therefore, be taken to have received the amount at Bhatinda and the subsequent receipt at Delhi by the bank were receipts by the bank and not by the assessee. It would be seen that in that case on discounting the cheques the bank gave immediate credit to the assessee at the time it purchased the cheques much before realisation of the amount on encashment of the cheques and that was the material circumstance on the basis of which it has been held that the payment was received by the assessee at Bhatinda and not at Delhi where the cheques were encashed. It would be seen that the only evidence before the Income Tax aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling under the first category, should be in favour of the department and against the assessee. 14. Turning to the sale proceeds falling under the second and third categories, the sale proceeds represent the sales made by the assessee to the Government of India. It would be convenient to deal first with the sale proceeds in respect of the sales made in the assessment year 1944-45, amounting to ₹ 4,81,588, ₹ 7,98,493 in the assessment year 1945-46 and ₹ 5,02,323 in the assessment year 1946-47, falling under the third category separately. 15. We have already said that these sale proceeds relate to sales effected by the assessee to the Government of India in the aforesaid three assessment years. The statement of the case does not give the details as regards formation of the contract. The sales were to the Department of Supply, Government of India. At the stage of the arguments, it was admitted both by the counsel for the assessee as well as for the revenue that the term in the agreement relating to payment was identical as was in the case of Commissioner of Income Tax v. Indore-Malwa United Mills Ltd. That term has been reproduced in the aforesaid case at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee made by the assessee in the instructions given by it at the foot of the bill. The post office thus was the agent of the assessee and, therefore, the sale proceeds received the profits included therein were taxable. The Tribunal held that the case fell within the rule laid down by their Lordships of the Supreme Court in Commissioner of Income Tax v. Ogale Glass Works Ltd. It, therefore, overruled the contention raised by the assessee. As already stated, we would deal first with the sale proceeds falling under category No. 3, viz., the sale proceeds paid by the Supply Department of the Government of India by cheques, which were posted at Delhi by the Supply Department of the Government of India and received by the assessee at Ujjain. 19. Mr. Kolah contends that the Tribunal was in error in holding that the rule in Commissioner of Income Tax v. Ogale Glass Works Ltd. governed the decision of this question. According to Mr. Kolah, the rule laid down in Ogale Glass Works case has no application to the facts of the present case. On the other hand, the rule that could govern the decision of this issue is the one laid down by their Lordships in Commissioner of Income Tax v. Patn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment of India issued cheques to the assessee and the assessee received the cheques at Aundh. The cheques were drawn on the Bombay branch of the Reserve Bank of India. The assessee endorsed the cheques in favour of the Ogalewadi Branch of the Aundh Bank, which in its turn endorsed them in favour of a Bombay bank. The Bombay bank cleared the cheques through the Clearing House in Bombay. The Aundh Bank credited the assessee's account on the very day the cheques were received from the assessee with the amount of the cheques less the collection charges and the assessee credited the account of the supply Department and made corresponding debits to the bank's account and the bank charges account. The assessee also sent a formal stamped receipt to the Government of India. The department contended that the assessee received income, profits or gains within British India within the meaning of section 4(1)(a) on the ground that the encashment of cheques in Bombay amounted to receipt of income in British India. An alternative contention was raised before the High Court and the Supreme Court held that the request made by the assessee to the Government to remit the amounts of the bil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount due to the company by cheque . The mills further did not give any instructions to the Government in what way the payments by cheque was to be made. The cheques issued by the Government of India in payment of the bills and the sent them either to Bombay or Ahmedabad in its banking account. Question arose whether the receipt of the sale proceeds was outside the taxable territories. The instructions in Ogale Glass Works were : remit the amount by cheques and the instructions in Jagdish Mills were : Government should pay the amount due to the company by cheques. It would also be noticed that in Ogale Glass Works their Lordships have held that the request to send the cheque by post. Here the word used was not remit . Contention was raised that the ratio of the decision in Ogale Glass Works was not application to the facts of this case and there was in the case of Jagdish Mills no request made by the mills to send the cheques by post. This contention was repelled by their Lordships and it was held that according to the course of business usage in general, which was followed in this case, the parties must have intended that the cheques should be sent by post which was the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment and held that the principle of Ogale Glass Works Ltd. and Jagdish Mills Limited was decisive of the issue, which had arisen before him. The assessee-mills had made a request to the Government of India to pay the amount of the bills by cheque to self at Indore. The normal agency for transmission of the cheques is the post office. The cheques would be regarded as duly handed over at Delhi - the headquarters of the Government of India - and the post office at Delhi became the agents of the assessee to receive the cheques. Mr. Justice S. T. Desai, however, took the view that the request made by the assessee to pay by cheque to self on the bank at Indore indicated an unmistakable intention of the assessee to receive payment by cheques at Indore and itr was impossible to read by implication a request to send the cheque by post so as to constitute the post office an agent of the assessee for receiving payment. In this view of the matter he held that the post office was not an agent of the assessee-mills for receiving cheques. The case was then placed before Mr. Justice K. T. Desai, as he then was. He agreed with the view taken by Mr. Justice Shah. He held that the principles enunc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay by cheque to the Imperial Bank at Indore . 29. Mr. Kolah argued that there is a difference between the terms of the request made in the Indore Malwa Mill's case and the terms of the request made by the assessee in the present is to pay by cheque to the Imperial Bank. The receiver of the cheque in the Indore Malwa Mill's case was the assessee himself, but the receiver of the cheque in the instant case is the bank and the bank is at Indore. The payment, therefore, is made and received by the assessee at Indore, the Government sending the cheques as per instructions of the assessee. 30. With respect, we are unable to hold that there is any material difference in the terms of the request made in the Indore Malwa Mill's case as well as in this case. It is true, the drawee mentioned in the Indore Malwa Mill's case was the assessee himself and the drawee mentioned in the instant case was the Imperial Bank, but that only makes the Imperial Bank at Indore a nominee of the assessee to receive payment on behalf of it. In our opinion it has not the effect of constituting any agreement as to the place of payment of the bills. We have already said that the words at Indo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts of the cheques were sent to their bankers for collection and crediting in their account. The assessee-company contended that the amounts were received in Secunderabad outside the taxable territories and therefore, the profits earned by him were not taxable. The respondents assessee in support of their contention that the moneys were received in Secunderabad outside British India, filed an affidavit stating that it was verbally agreed that the commission would be paid at Secunderabad in cash or by cheque, as the case may be. The assessee-company's contention has been upheld and the Commissioner of Income Tax had taken an appeal to the Supreme Court. Their Lordships held that as the assessee company had expressly required the commission to be paid at Secunderabad outside. British India, the rule in Ogale Glass Works did not apply to the case and the moneys were not received by the assessee in British India. 33. It is clear that in view of the express agreement pleaded by the assessee-company and supported by an affidavit that there was an agreement to pay the commission at Secunderabad, there was no room to spell out a request on the part of the assessee-company to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India by drafts. The drafts were posted at Delhi and were received by the assessee at Ujjain. The drafts were drawn on the Imperial Bank at Indore. The contention of the assessee is that the mere fact that the drafts were posted at Delhi would not constitute the post office as an agent of the assessee. There is no request made by the assessee either express or implied to make payment by drafts. 38. Mr. Joshi, on the other hand, contends that even though the request made by the assessee in express terms does not say that payments be made by drafts, it does in express terms say that payments be made by cheque. There is no difference between the payment by cheque and payment by drafts. Both are negotiable instruments. Therefore, the request to make payment by cheques includes request to make payment by drafts. In support of his contention he referred us to certain observations in Halsbury's Laws of England, volume II, to which we would presently advert. Ordinarily, when a cheque or a draft or a letter is posted by the sender, the post office acts as an agent of the sender and not as a agent of the addressee. To this general rule there is an exception and that exception is whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounting to conversion is liable to the true owner for the face value unless he can bring himself within the Bills of Exchange Act (1882) Amendment Act, 1932, and, if drawn on the same bank, the bank as a whole is protected if it has paid them on a forged endorsement if payable to order on demand, whether the draft be inland or foreign. A demand draft drawn by one bank on another is a cheque, and may be crossed and dealt with as such. Paragraph 375 : Drafts drawn by one bank on another are merely cheques, and may in all respects be dealt with as such. 40. Now, the first difficulty in the way of Mr. Joshi is that there is no foundation laid by the department by leading evidence that the drafts which the Government of India sent was a draft drawn by a bank on its own branch or by a branch office on its head office or drawn by a branch of a bank on another branch of the same bank. In the absence of any finding to that effect, we fail to see how the observations on which reliance is placed would have any relevance for the purpose of decision of the issue before us. Apart from it, all that can be gathered from these passages is that such drafts can, for certain purposes, b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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