Place of receipt for cheque payments depends on delivery, not later encashment, absent proof of contrary agreement or authority.

Receipt of payment by cheque is treated as occurring at the place where the cheque is delivered, if it is accepted in discharge of the debt and there is no proof that postal transmission or later encashment elsewhere was authorised or agreed. On these facts, cheques issued by the Government of India and delivered at Jaipur discharged the liability there, so subsequent realisation at Bombay did not change the place of receipt. The revenue failed to prove receipt within the taxable territories, and the profits and gains from the sales were therefore treated as received outside those territories and not taxable on that basis.

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Issues: Whether the profits and gains from sales to the Government of India were received by the assessee in the taxable territories when payment was made by cheques received at Jaipur and later realised at Bombay.

Analysis: The decisive question was the place of receipt of payment. The payments were made by cheques drawn on the Reserve Bank of India at Bombay and received by the assessee at Jaipur. There was no finding that the cheques were sent by post at the assessee's request or with its implied authority, and the revenue did not prove that fact. The court treated payment by cheque, on the facts of the contract and the conduct of the parties, as equivalent to cash and held that the Government had discharged its liability when the cheques were delivered at Jaipur. The subsequent realisation of the cheques at Bombay did not shift the place of receipt. The burden remained on the revenue to prove receipt within the taxable territories, and that burden was not discharged.

Conclusion: The profits and gains in respect of the sales to the Government of India were not received in the taxable territories and were received by the assessee outside those territories.

Final Conclusion: The reference was answered in favour of the assessee, and the amounts in question were held not to be taxable as receipts within the taxable territories.

Ratio Decidendi: Where payment by cheque is made and received in discharge of the debt at the creditor's place, and there is no proof of authority or agreement to treat postal transmission or later encashment elsewhere as the place of receipt, the receipt occurs where the cheque is delivered, not where it is subsequently realised.

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