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PETITIONER: COMMISSIONER OF INCOME TAX, BIHAR &ORISSA

       Vs.

RESPONDENT: M/S.  PATNEY & CO.

DATE OF JUDGMENT: 05/05/1959

BENCH: KAPUR, J.L. BENCH: KAPUR, J.L. SINHA, BHUVNESHWAR P. HIDAYATULLAH, M.

CITATION:  1959 AIR 1070            1959 SCR  Supl. (2) 868  CITATOR INFO :  R          1960 SC 266  (14)  RF         1966 SC1466  (10)  R          1976 SC1172  (9)

ACT: Income-tax  -  Assessment  on  non-resident-Agreement   with resident debtor for payment outside British India-Remittance by  cheques Posted in British India--Place  of  payment-Non- resident’s liability to tax.

HEADNOTE: The respondents, who were non-residents carrying on business at  Secunderabad  within  the territories of  the  Nizam  of Hyderabad, were acting as agents of two firms in Bombay  and Madurai,  in British India, for the supply of certain  goods to the Nizam’s Government.  In respect of the Commission due to  the respondents by the firms the agreement  between  the parties  was  that  the  amounts were  to  be  paid  to  the respondents  in  cash or by cheques  at  Secunderabad.   For these  amounts cheques drawn by the firms on the Bombay  and Madras  branches,  respectively,  of the  Imperial  Bank  of India,  were  sent  by post at Bombay  and  Madurai  to  the respondents  at Secunderabad, and when received,  they  were credited  in their books of account, the cheques being  sent to their banker there for collecting and crediting to  their account.   For the assessment year 1945-1946 the  Income-tax Officer,  Berhampur (in British India), assessed these  sums as  taxable income holding that the amount was  received  in British 869 India and not at Secunderabad.  The Appellate Tribunal found that  all  the  cheques  received  at  Secunderabad  by  the respondents   were   treated  by  them  as   payment.    The respondents  claimed that in view of the  agreement  between the parties that the amount of commission should be paid  at Secunderabad,  when the cheques were sent by post, the  post office  was  the  agent  of  the  debtor  and  not  of   the respondents, that the amount must be treated as having  been received  when the post office delivered the cheques to  the respondents,  and that, consequently, the amount  cannot  be treated  as  having  been received in  British  India.   The

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Income-tax   authorities   relied   on   the   decision   in Commissioner of Income-tax v. Ogale Glass Works Ltd., [1955] I S.C.R. 185. Held,  that in the case of payment by cheques sent  by  post the determination of the place of payment would depend  upon the  agreement between the parties or the course of  conduct of the parties.  If it is shown that the creditor authorised the debtor either expressly or impliedly to send a cheque by post  the property in the cheque passes to the  creditor  as soon  as it is posted.  But where, as in the  present  case, the  agreement  was  that  the amount  was  to  be  paid  at Secunderabad,  outside British India, when the cheques  were received by the respondents there the amount must be  deemed to  have  been received at that place, and,  therefore,  the amount was not liable to be taxed in British India. Commissioner of Tncome-tax v. Ogale Glass Works Ltd., [1955] 1 S.C.R. 185, distinguished.

JUDGMENT: CIVIL APPELLATE‘ JURISDICTION: Civil Appeal No. 326 of 1957. Appeal  by special leave from the judgment and  order  dated February 16, 1955, of the Orissa High Court in N. J. C.  No. 117 of 1951. C.   K.   Daphtary,  Solicitor-General  of  India,   K.   N. Rajagopal  Sastri,  R.  H.  Dhebar and  D.  Gupta,  for  the appellants. Rameshwar  Nath, S. N. Andley and J. B. Dadachanji, for  the respondent. 1959.  May 5. The Judgment of the Court was delivered by KAPUR,  J.-This appeal pursuant to special leave is  brought by  the Commissioner of lncome-tax against the  judgment  of the  High Court of Orissa holding that the amounts  received by  the assessees-respondents were not received in what  was British India and 870 therefore not liable to income-tax.  The respondents at  all material  times were non-residents carrying on  business  at Secunderabad which was then in the territories of the  Nizam of  Hyderabad.  They acted as agents for the supply  of  gas plants  manufactured  by  Messrs. T. V. S. Iyengar  &  Sons, Madura, to the Nizam’s Government, and also as agents of the Lucas  Indian  Services, Bombay branch, for  the  supply  of certain goods to that Government.  The year of assessment is 1945-46.   There  does not appear to have been  any  written agreement between the two manufacturers and the  respondents but the goods were to be supplied on a commission basis.  In pursuance  of this agreement the respondents  received  from M/s.   T.V.S. lyengar & Sons, Madura, cheques drawn  on  the Imperial  Bank of India, Madras, amounting to Rs. 35,202  in respect  of  all goods supplied from -Madura and  also  from Lucas Indian Services, Bombay, by cheques drawn on  Imperial Bank  of  India, Bombay branch, amounting to  Rs.  5,302  in respect  of goods supplied by them, thus making a  total  of Rs.  40,504.   These  cheques were sent  by  post  and  when received by the respondents at Secunderabad were credited in the  account  books  of the respondents and  sent  to  their banker  G. Raghunathmal for collecting and crediting to  the account  of  the  respondents.  As  against  these  sums  so deposited  the  respondents at once drew  cheques  and  thus operated  on  these  amounts deposited.  In  regard  to  the commission  received from the Bombay firm it was  paid  into the  account on December 22, 1944, but was given credit  for only  on January 2, 1945.  The Income-tax  Officer  assessed

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these sums as taxable income holding that the entire  amount of  Rs.  40,504  was received in British India  and  not  at Secunderabad.  An appeal was taken by the respondents to the Appellate  Assistant  Commissioner  who  upheld  the   order holding that income must be held to have accrued, arisen  or received   in  British  India.   Against  this   order   the respondents  took  an  appeal to  the  Income-tax  Appellate Tribunal  and it was held that the amounts were received  by the  respondents from Madura and Bombay firms as  commission but 871 they   were  received  at  Secunderabad.   The  appeal   was therefore allowed.  The finding Of the Appellate Tribunal in their own words was:- " The contention of the Appellants is that the cheques being negotiable instruments and the creditor having accepted them and passed through their books, II the receipt must be taken to  be  receipts  in  Hyderabad.  We  agree  with  the  view submitted  by  the  appellants.   In  Bhashyam’s  Negotiable Instruments  Act,  8th  Edition, Revised, page  556,  it  is stated that it will be open to a creditor to accept a cheque in  absolute payment of money due to him, in which  case  it will be equivalent to cash payment.  That being the position it  cannot be said that the income was received  in  British India ". At  the  instance of the Commissioner a reference  under  s. 66(1)  of the Act was made to the High Court of  Orissa  for their opinion on the following question :- " Whether in the circumstances of the case, the sums of  Rs. 35,202  and Rs. 5,302 received as commission from T.  V.  S. lyengar  &  Sons  Ltd.,  and  Lucas  Indian  Services  Ltd., respectively  were  income  that  accrued,  arose  or   were received in British India ". The  High  Court  found  that  the  statement  of  case  was imperfect and that the real question was different.  It said :- " The real question in all such cases is not merely  whether the cheques were drawn on a bank in British India, and  sent for  collection to that bank.  The question is whether  when the  cheques were received by the assessee having his  place of  business  outside British India, those cheques  were  in fact  received  as  absolute and final payments  by  way  of unconditional  discharge  or whether they were  received  as mere  conditional  payments on realisation.  The  fact  that cheques  were drawn on a bank in British India or that  they were  sent for collection through a Secunderabad  banker  of the assessee though relevant, are not conclusive ". It therefore remitted the case to the Appellate Tribunal for submission of supplementary statement of case. It appears that at that stage the controversy was 872 confined  to  the question whether the cheques  having  been sent  to  Secunderabad and having been realised  in  British India would amount to a final discharge or an  unconditional one.  The Tribunal in its supplementary statement found that the  course of conduct followed by the parties  showed  that the  cheques were received from the Bombay and Madura  firms in full satisfaction of the commission ascertained from time to time and due on such date.  It said: "  The facts that such entries were made in  the  assessee’s books, that the cheques were put into the bank  immediately, that the bank at once gave credit to the assessee for  these sums after charging discount thereon and immediately allowed the assessee to operate on those sums are significant ". Therefore  the finding of fact by the Tribunal although  not

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specific  was  that  the  receipt  of  the  cheque  by   the respondents  operated as full discharge of the debt  due  on account of commission from these two firms. The  matter  was  decided  by the  High  Court  against  the appellant  and  in  the meanwhile this  Court  had  given  a judgment in Commissioner of Income-tax v. Ogale Glass  Works Ltd  (1).  Even after considering the decision of that  case the  High  Court was of the opinion that the income  of  the respondents  was not received in British India and  answered the question against the Revenue.  The High Court refused to give  leave  to appeal to this Court and it was  this  Court which gave special leave to appeal. The  question is whether the amounts, of commission paid  by cheques,  drawn respectively on banks at Madras  and  Bombay and  respectively posted from Madura and Bombay, can in  the circumstances of this case be held to have been received  in what  was British India or at Secunderabad ?  The  Appellate Tribunal  found that all the cheques whether from Madura  or from  Bombay  were  sent by the two  respective  firms  from Madura  or  Bombay and were received by the  respondents  at Secunderabad  and  were treated as  payment.   The  question still remains as to the effect of the sending of the cheques from  Madura  or  Bombay by post.  If there  is  an  express request by the (1) [1955] 1 S. C. R. 185. 873 creditor  that the amount be paid by cheques to be  sent  by post and they are so sent there is no doubt that the payment will be taken to be at the place where the cheque or cheques are  posted.   The  respondents argued  that  there  was  an agreement  between  the  Madura and  Bombay  firms  and  the respondents that the money would be paid whether in cash  or by  cheque ’at Secunderabad’ and therefore when the  cheques were  sent  by  post the post office was the  agent  of  the debtor  and not of the respondents.  There is in support  of the  respondents  an  affidavit  which  was  filed  in   the assessment proceedings and which was relied upon in the High Court.   According to this affidavit it was verbally  agreed that the commission would be paid at Secunderabad in cash or by  cheque  (as the case may be), the language used  in  the affidavit was: "  The above commission was verbally decided to be  paid  to Messrs.   Patney & Co. Ltd., Secunderabad the Agent  Company in  Hyderabad State at Secunderabad in cash or by cheque  as the case might be ". In  the  case  of  payment  by  cheques  sent  by  post  the determination of the place of payment would depend upon  the agreement  between the parties or the course of  conduct  of the  parties.  If it is shown that the  creditor  authorised the debtor either expressly or impliedly to send a cheque by post  the property in the cheque passes to the  creditor  as soon as it is posted.  Therefore the post office is an agent of  the person to whom the cheque is posted if there  be  an express   or   implied  authority  to  send   it   by   post (Commissioner of Income-tax v. Ogale Glass Works Ltd.  (1)). In that case there was an express request of the assessee to remit  the  amount  of the  bills  outstanding  against  the debtor,  that is, Government of India by means  of  cheques. But  it  was observed by this Court that  according  to  the course  of  business  usage  in  general  which  has  to  be considered  as a part of the surrounding  circumstances  the parties  must have intended that the cheques should be  sent by  post which is the usual and normal mode of  transmission and  therefore the posting of cheques in Delhi  amounted  to payment in

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(1)  [1955] 1 S.C.R. 185. 110 874 Delhi to the post office which was constituted the agent  of the assessee.  But it was argued for the respondents that in the  absence of such a request the post office could not  be constituted  as  the agent of the creditor and relied  on  a passage in Ogale’s case (1) at p.  204    where    it    was observed:- " Of course if there be no such request, express or implied, then  the delivery of the letter or the cheque to  the  post office is delivery to the agent of the sender himself ". It  was  further contended that in this case  there  was  an express  agreement  that  the  payment was  to  be  made  at Secunderabad  and therefore the matter does not fall  within the  rule  in Ogale Glass Works case (1) and  the  following principle laid down in judgment by Das, J. (as he then was), is inapplicable :- "  Applying the above principles to the facts found  by  the Tribunal the position appears to be this.  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 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 finding they  were in fact received by the assessee by post." In  our opinion this contention is  well-founded.   Whatever may  be  the position when there is an  express  or  implied request for the cheque for the amount being sent by post  or when  it can be inferred from the course of conduct  of  the parties,  the appellant in this case expressly required  the amount of the commission to be paid at Secunderabad and  the rule of Ogale Work’s case (1) would be inapplicable. The High Court judgment in our view was correct and we would therefore dismiss this appeal with costs. Appeal dismissed. (1)  [1955] 1 S.C.R. 185. 875