Cheque payments outside taxable territories: High Court ruling

The High Court concluded that payments by cheque were equivalent to cash payments and were received at Jaipur, outside the taxable territories. The revenue failed to prove that the cheques were sent by post or that the post office acted as the assessee's agent. Therefore, profits and gains from sales to the Government of India were deemed received outside taxable territories. The assessee was awarded costs for the reference.

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Issues Involved:
1. Whether the profits and gains in respect of the sales made to the Government of India were received by the assessee in the taxable territories.

Detailed Analysis:

1. Receipt of Payments by Cheques:
The primary issue is whether the receipt of cheques by the assessee amounted to the receipt of money due, or if the actual payments should be considered to have been made when the cheques were realized. The Tribunal found that the payments were received at Bombay where the cheques were cashed. However, the Supreme Court in Commissioner of Income-tax v. Ogale Glass Works Ltd. held that the receipt of cheques is as good as receiving cash, and the place where the cheques were cashed is irrelevant. This principle was applied to the current case.

2. Manner of Sending Cheques:
The High Court initially called for a supplementary statement to determine how the cheques were sent by the Government of India to the assessee and whether the assessee had given any directions in that regard. The Tribunal found no evidence on how the cheques were sent. The form in which the bills were drawn indicated that the assessee wanted payments through cheques drawn on the Reserve Bank of India at Bombay, but it was silent on the place of payment or the method of sending the cheques.

3. Location of Receipt:
The goods were dispatched from Jaipur, and the property in those goods passed to the Government at Jaipur. The cheques were received by the assessee at Jaipur and drawn on the Reserve Bank of India at Bombay. The assessee then handed over these cheques to the Hindu undivided family firm, which collected the money in Bombay. The High Court concluded that the payments were made at Jaipur, not within the taxable territories, as Jaipur was outside the taxable territory at the relevant time.

4. Revenue's Contention:
The revenue argued that the payments were received at Bombay where the cheques were cashed or at Delhi where the cheques were posted, suggesting that the post office acted as the agent of the assessee. However, no evidence supported that the cheques were sent by post with the assessee's consent.

5. Legal Precedents:
The case referenced several legal precedents:
- Commissioner of Income-tax v. Ogale Glass Works Ltd.: Established that receipt of cheques is equivalent to cash payment.
- Commissioner of Income-tax v. Patney & Co.: Determined that payment by cheque sent by post depends on the agreement between the parties or their conduct.
- Shri Jagdish Mills Ltd. v. Commissioner of Income-tax: Concluded that implied consent to send cheques by post can be inferred from consistent conduct.

6. Conclusion:
The High Court concluded that the payments by cheque were equivalent to cash payments and were received at Jaipur. The revenue failed to prove that the cheques were sent by post or that the post office acted as the agent of the assessee. Therefore, the profits and gains from the sales made to the Government of India were received outside the taxable territories.

7. Costs:
The assessee was entitled to its costs of the reference, with an advocate's fee of Rs. 250.

Final Judgment:
On the facts and circumstances of the case, the profits and gains in respect of the sales made to the Government of India must be deemed to have been received by the assessee outside the taxable territories.

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