1954 (4) TMI 3 - SC - Income Tax

Postal delivery of cheques counts as payment when recipient accepts; payment relates back to cheque delivery date.

Commissioner Of Income-Tax, Bombay South, Bombay Versus Ogale Glass Works Limited

SC held that payment by cheques drawn in Delhi and posted to the non-resident manufacturer's location constituted receipt in British India. Cheques were ... Liability to British Indian income-tax - manufactures lanterns and other glasswares at its Works in Aundh State - non-resident company - Whether the income, profits and gains in respect of sales made to the Government of India was received in British India within the meaning of Section 4(1)(a) of the Act? - asessee contended that the he received payment for the goods supplied by it when it received the cheques at Aundh - Held that:- In the case before us none of the cheques has been dishonoured on presentation and payment cannot, therefore, be said to have been defeated by the happening of the condition subsequent, namely, dishonour by non-payment and that being so there can be no question, therefore, that the assessee did not receive payment by the receipt of the cheques. The position, therefore, is that in one view of the matter there was, in the circumstances of this case, an implied agreement under which the cheques were accepted unconditionally as payment and on another view, even if the cheques were taken conditionally, the cheques not having been dishonoured but having been cashed, the payment related back to the dates of the receipt of the cheques and in law the dates of payments were the dates of the delivery of the cheques. The engagement of the Government was to make payment by cheques. The cheques were drawn in Delhi and received by the assessee in Aundh by post. According to the course of business usage in general to which, as part of the surrounding circumstances, attention has to be paid, under the authorities cited above, the parties must have intended that the cheques should be sent by post which is the usual and normal agency for transmission of such articles and according to the Tribunal's findings they were in fact received by the assessee by post. Apart from the implication of an agreement arising from such business usage the assessee expressly requested the Government to 'remit' the amounts of the bills by cheques. This, on the authorities cited above, clearly amounted in effect to an express request by the assessee to send the cheques by post. The Government did act according to such request and posted the cheques in Delhi. It can scarcely be suggested with any semblance of reasonable plausibility that cheques drawn in Delhi and actually received by post in Aundh would in the normal course of business be posted in some place outside British India. This Posting in Delhi, in law, amounted to payment in Delhi. In this view of the matter the referred question should, with respect, have been answered by the High Court in the affirmative. We, therefore, allow the appeal and answer the question accordingly. Appeal allowed. Issues Involved:1. Whether the income, profits, and gains in respect of sales made to the Government of India were received in British India within the meaning of Section 4(1)(a) of the Indian Income-tax Act.2. Whether the cheques received by the assessee in Aundh constituted full and unconditional discharge of the debt.3. Whether the posting of the cheques by the Government in Delhi amounted to payment in Delhi.Issue-wise Detailed Analysis:1. Whether the income, profits, and gains in respect of sales made to the Government of India were received in British India within the meaning of Section 4(1)(a) of the Indian Income-tax Act:The assessee, a non-resident company, contended that its profits on sales accrued and were received in Aundh State where it received payment by the receipt of the cheques. The Income-tax Officer, Appellate Assistant Commissioner, and the Income-tax Appellate Tribunal held that the assessee received income, profits, or gains in British India since the cheques were drawn on a bank in Bombay and cashed there. The High Court remanded the case to the Tribunal for further fact-finding, which confirmed that the sale proceeds were received in Bombay. The Supreme Court had to determine if the income was received in British India under Section 4(1)(a) of the Act.2. Whether the cheques received by the assessee in Aundh constituted full and unconditional discharge of the debt:The Tribunal found that the payment system under the contract involved the Government of India issuing cheques drawn on the Reserve Bank of India, Bombay. The Tribunal's findings included that the cheques were received in Aundh, endorsed to Aundh Bank Ltd., and then cashed in Bombay. The Tribunal concluded that the sale proceeds were received in Bombay. The High Court, however, inferred that the cheques were accepted unconditionally in full discharge of the debt. The Supreme Court agreed with the High Court, noting that the cheques were received in complete discharge of the claim for the price of the goods, considering the cumulative facts such as the arrangement for payment by cheque, the request for payment by cheque, and the status of the drawer and drawee.3. Whether the posting of the cheques by the Government in Delhi amounted to payment in Delhi:The Supreme Court examined whether the posting of the cheques by the Government at Delhi, at the request of the assessee, constituted payment in Delhi. The Tribunal's findings indicated that the cheques were received by the assessee in Aundh by post. The Supreme Court referred to legal principles and judicial decisions, concluding that the posting of the cheques in Delhi, requested by the assessee, amounted to payment in Delhi. The Court noted that the post office became the agent of the assessee upon such request, and the delivery of the cheques to the post office in Delhi was equivalent to delivery to the assessee. Therefore, the payment was received in British India.Conclusion:The Supreme Court allowed the appeal, answering the referred question in the affirmative. The Court held that the income, profits, and gains in respect of sales made to the Government of India were received in British India within the meaning of Section 4(1)(a) of the Indian Income-tax Act, as the posting of the cheques in Delhi amounted to payment in Delhi. Each party was ordered to bear its own costs before the Supreme Court and the High Court.