1976 (3) TMI 2 - SC - Income Tax

Taxability of Sale Proceeds Received by Cheques in British India under Income-tax Act, 1922

The Supreme Court upheld the High Court's decision that the sale proceeds, received through cheques sent by the Government of India from British India, ... Whether, on the facts and in the circumstances of the case, the sale proceeds were received from the Government of India in British India - there was an implied agreement or understanding between the parties that the money would be sent to the assessee by cheques posted from British India. The High Court, in our opinion, rightly decided the question reproduced above against the assessee-appellant Issues:Interpretation of 'sale proceeds received in British India' for tax assessment purposes.Analysis:The judgment by the Supreme Court involved three civil appeals concerning the interpretation of the term 'sale proceeds were received from the Government of India in British India' under the Indian Income-tax Act, 1922. The assessee-company, registered in Hyderabad State, supplied goods to the Government of India during the Second World War. The dispute arose regarding whether the sale proceeds, received through cheques, were taxable in British India. The Income-tax Officer contended that proceeds from cheques drawn on banks in British India were received in British India, making them subject to tax. Conversely, cheques drawn on banks in Hyderabad State were deemed not taxable in British India. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld this view. The High Court, relying on precedent, ruled in favor of the revenue, concluding that the payment to the assessee was made in British India.The Supreme Court analyzed the facts and course of dealings between the parties. It was established that all payments to the assessee were made by cheques sent from British India by post, as per the understanding between the Government of India and the assessee. The court held that the post office, acting as an agent of the assessee, facilitated the receipt of payments. The judgment referred to precedents such as Ogale Glass Works Ltd. and Shri Jagdish Mills Ltd., where similar situations led to the conclusion that cheques sent by post constituted payment in the location where they were posted. The absence of an express request on the bill form did not negate the implied agreement between the parties for payment through cheques sent by post.Additionally, the court cited the case of Indore Malwa United Mills Ltd., where a non-resident company received payments through cheques sent by the Government of India from British India. The court emphasized that an implied agreement or understanding between the parties for payment by cheques sent by post established the location of receipt for tax purposes. The judgment distinguished the case of Commissioner of Income-tax v. Patner & Co., where explicit instructions for payment outside British India altered the tax liability location. Ultimately, the Supreme Court affirmed the High Court's decision, ruling that the sale proceeds were received in British India, leading to the dismissal of the appeals.