1963 (9) TMI 70 - HC - Income Tax

Assessee's Payment Receipt Timing Ruling: Delivery vs. Encashment

Petlad Turkey Red Dye Works Co. Ltd. Versus Commissioner of Income-tax

The High Court determined that payments received by the assessee, whether by cheques or hundis, were considered received upon delivery and not upon ... - Issues Involved:1. Whether the proportionate profits on the sale proceeds were received by or on behalf of the assessee-company in British India.2. Determination of the place of receipt of cheques and hundis.3. The role of the post office as an agent for the debtor or creditor.4. The applicability of the Supreme Court's decision in Ogale Glass Works case.5. The distinction between payment by cheque and payment by hundi.Detailed Analysis:1. Whether the proportionate profits on the sale proceeds were received by or on behalf of the assessee-company in British India:The primary issue was whether the profits from the sale proceeds aggregating Rs. 9,53,304 for the assessment year 1941-42 and Rs. 6,04,588 for the assessment year 1942-43 were received by the assessee in British India. The Tribunal initially held that the amounts due on the cheques and hundis were collected by British Indian banks on behalf of the assessee and thus received in British India. However, the High Court later remanded the case to the Tribunal to determine where the cheques and hundis were actually received by the assessee.2. Determination of the place of receipt of cheques and hundis:The High Court emphasized that the real question was whether the cheques and hundis were received by the assessee in Petlad or British India. The Tribunal, after remand, found that there was an implied request by the assessee to British Indian buyers to remit the sale proceeds by cheques and hundis by post, thus constituting the post office as the agent of the assessee. This implied that the disputed amounts were received by the assessee in British India where the cheques and hundis were posted.3. The role of the post office as an agent for the debtor or creditor:The High Court referred to the Supreme Court's decisions in Ogale Glass Works Ltd., Patney and Co., and Shri Jagdish Mills Ltd. to determine the role of the post office. If the post office acted as the agent of the assessee, the cheques and hundis were received in British India. If it acted as the agent of the British Indian buyers, the cheques and hundis were received in Petlad. The Tribunal's supplemental statement indicated that the post office was the assessee's agent, leading to the conclusion that the amounts were received in British India.4. The applicability of the Supreme Court's decision in Ogale Glass Works case:The Supreme Court in Ogale Glass Works case held that if cheques are received as conditional payment and are not dishonoured, the payment relates back to the date of receipt of the cheques. This principle was applied to determine that the cheques and hundis received by the assessee constituted payment received at the time of their receipt, irrespective of their subsequent encashment.5. The distinction between payment by cheque and payment by hundi:The Advocate-General argued that the principle in Ogale Glass Works case did not apply to hundis. However, the High Court rejected this distinction, stating that both cheques and hundis are negotiable instruments and the same principle applies to both. Payment is deemed received when the negotiable instrument is delivered, whether it is a cheque or a hundi.Conclusion:The High Court concluded that the payments received by the assessee, whether by cheques or hundis, were received at the time of their delivery to the assessee and not when they were encashed. The contention that there was an implied request by the assessee to British Indian buyers to remit the sale proceeds by cheques and hundis through post was not supported by sufficient evidence. Therefore, the question referred to the High Court was answered in the negative, and the Commissioner was directed to pay the costs of the reference to the assessee.