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PETITIONER: INDORE MALWA UNITED MILLS

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, (CENTRAL) BOMBAY

DATE OF JUDGMENT: 19/11/1965

BENCH: BACHAWAT, R.S. BENCH: BACHAWAT, R.S. SARKAR, A.K. MUDHOLKAR, J.R.

CITATION:  1966 AIR 1466            1966 SCR  (2) 651  CITATOR INFO :  RF         1971 SC 206  (9)  R          1976 SC1172  (4,8)

ACT:      Income-tax  Act,  1922, s. 4(1)  (9)--Assessee  a  non- resident--Receiving  cheques  by  post  from  Government  of India--Post   office  whether  agent  of  assessee   or   of Government  of  India--Income  whether  taxable  in  British India.

HEADNOTE:      The  appellant-company  carried  on  the  business   of manufacturing  textile  goods at Indore and had  offices  at Indore and Bombay.  During its account years 1942 to 1947 it supplied  goods to the Indian Stores Department,  Government of  India.   The purchase orders were placed by  the  latter with  the  appellant at Indore which was then in  an  Indian State.    On  receipt  of  bills  from  the  appellant   the Government of India used to draw cheques on the Reserve Bank of  India,  Bombay, in favour of the appellant and  used  to send them by post to the appellant at Indore.  The appellant used to deposit the cheques with the Imperial Bank of  India Indore for the purpose of realisation from the Reserve  Bank of  India.  In connection with the assessment years  1943-44 to 1948-49 the question that arose in income-tax proceedings was whether the profits of the appellant--a non--resident-in respect  of the supplies were received by the  appellant  in British India and therefore taxable under s. 4(1)(a) of  the Indian  Income-tax Act, 1922.  The departmental  authorities held that the payment was received by the appellant at  Bom- bay  where  the  cheques were  encashed  but  the  Appellate Tribunal  took  the view that the payment  was  received  at Indore.   In reference the High Court held on the  basis  of this  Court’s  decision  in Commissioner  of  Income-tax  v. Kirloskar  Bros.   Ltd.  (1954)  25  I.T.R.  547  which  had meanwhile  been delivered that the cheques were received  by the  assessee through its agent, the post office in  British India  and  further held that the Revenue  authorities  were entitled  to raise the contention for the first time in  the High  Court.   With certificate the appellant came  to  this Court.

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     HELD : (i) Whereas in the present case the question of law  in issue between the parties and referred to  the  High Court  is the broad question whether or not the assessee  is liable  to  pay  tax on the ground that  the  sale  proceeds including  the  profits  of the sale were  received  by  the assessee  in British India, the Revenue authorities  may  be permitted to argue for the first time at the hearing of  the reference that on the facts found by the Tribunal, the  post office  was  the agent of the assessee for  the  purpose  of receiving the cheques representing the sale proceeds and the assessee  received the sale proceeds in British India  where the chequest were posted though this aspect of the  question was not argued before the Tribunal and though the only point there  argued was that the proceeds were received at  Bombay where the cheques were encashed. [655 H]      Commissioner  of Income-tax v. M/s.  Ogale Glass  Works Ltd. [1955] 1 S.C.R. 185, Zoraster & Co. v. Commissioner  of Income-tax, [1961] 1 S.C.R. 210 and Commissioner of  Income- tax,  Bombay v. Scindia Steam Navigation Co. Ltd., [1962]  1 S.C.R. 788, referred to.       The  New Jahangir Vakil Mills Ltd. v. Commissioner  of Income-tax [1960] 1 S.C.R. 249 and Keshav Mills Co. Ltd.  v. Commissioner   of   Income-tax,   [1965]   2   S.C.R.   908, distinguished. 652      (ii) If  by an agreement, express or  implied,  between the  creditor  and  the debtor or  by  request,  express  or implied,  by the creditor, the debtor is authorised  to  pay the debt by a cheque and to send the cheque to the  creditor by  port,  the post office is the agent of the  creditor  to receive the cheque and the creditor receives payment as soon as the cheque is posted to him. [656 G]       Commissioner of Income-tax v. M/s.  Ogale Glass  Works Ltd.,  [1955]  1  S.C.R.  185, Jagdish  Mills  Ltd.  v.  The Commissioner  of Income-tax, [1960] 1 S.C.R. 236, Norman  v. Ricketts,  (1886) 3 Times Law Reports 182 and Thairlwall  v. The Great Northern Railway, [1910] 2 K.B. 509, relied on.       (iii)  In  the  instant case cl. 9 of  the  terms  and conditions of the contract read with the prescribed form  of the bills and the instructions regarding payment showed that the parties had agreed that the assessee would submit to the Government of India, Department of Supply, New Delhi,  bills in  the prescribed form requesting payment of the  price  of the  supplies by cheques together with signed  receipts  and the  Government  of  India would pay the  price  by  crossed cheques  drawn in favour of the assessee.  Having regard  to the  fact  that the assessee, was at Indore and  the  Supply Department of the Government of India was at Now Delhi,  the parties  must have intended that the Government  would  send the cheques to the assessee by post from New Delhi, and this inference  was supported by the fact the cheques used to  be sent  to the assessee by post.  In the  circumstances  there was  an  implied  agreement between  the  parties  that  the Government  of  India would send the cheques by  post.   The Government  of India was entitled to ignore  the  subsequent request  of the. assessee for cheques on an Indore bank  and the  assessee received payment of the price as and when  the cheques on the Reserve Bank of India Bombay, were posted  in British India in accordance with the contract (657 D; 658 Al      Thairlwall v. The Great Northern Railway, [1910] 2 K.B. 509 and Commissioner of Income-tax v. Patney & Co. (1959) 36 I.T.R. 488, referred to.       On the above view the profits in respect of the  sales were taxable under s. 4(1) (a) of the Indian Income-tax Act, 1922.

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JUDGMENT:        CIVIL  APPELLATE  JURISDICTION:  Civil  Appeals  Nos. 10061011 of 1963.        Appeal  from the judgment and order  dated  September 25,  1959 of the Bombay High Court in  Income-tax  Reference No. 36 of 1955.        G. S.  Pathak,  B.  Dutta,  R. J.  Kolah  and  J.  B. Dadachanji, for the appellant.        Niren  De, Addl.  Solicitor-General, Gopal Singh  and R. N. Sachthey, for the respondent.        The Judgment of the Court was delivered by        Bachawat,  J. These appeals arise out of  proceedings for  assessment  of  income-tax  of  the  appellant  Company (hereinafter referred to as the assessee) for the assessment years, 1943-44, 1944-45, 1945-46, 1946-47, 1947-48 and 1948- 49, the relevant 653 accounting years being the Calendar years, 1942, 1943, 1944, 1945, 1946 and 1947 respectively.      During the relevant accounting years, the assessee  was a nonresident.  It carried on the business of  manufacturing textile  goods at Indore then situated in an  Indian  State, and had offices at Indore and Bombay.  The assessee supplied goods to the Indian Stores Department, Government of  India, under purchase orders placed by the latter with the assessee at  Indore.  Duplicate copies of the purchase orders  signed on  behalf of the assessee at Indore used to be sent to  the Government of India in British India.  The goods used to  be inspected  at  Indore  by  an  inspecting  officer  of   the Government  and the inspection certificates were  issued  at Indore.  One of the conditions of the contract was that  the delivery  would  be  F.O.R., Indore, and  the  freight  from Indore would be borne by the Government of India.  The goods used to be despatched by railway from Indore station and the railway  receipts  used  to be made out in  the  name  of  a representative  of the Government.  There were two types  of purchase orders, namely, (1) purchasewar order and (2)  bulk purchase order.  Clause 9 of the bulk purchase order was  in these terms      "9.  Payment  :  Unless otherwise  agreed  between  the parties, payment for the delivery of the stores will be made on submission of bills in the prescribed form in  accordance with  the instructions given in the Acceptance of Tender  by cheque  on  a Government Treasury in British India or  on  a branch in British India of the Reserve Bank of India or  the Imperial Bank of India transacting Government business."        From the judgment of K. T. Desai, J. it appears  that in the High Court both parties agreed that the aforesaid cl. 0 was one of the terms on which all the goods were  supplied by  the assessee.  In paragraph 2 of the petition for  leave to appeal to this Court and, paragraph 3 of the  appellant’s statement  of  case  also,  the  assessee  stated  that  the contracts between the parties were subject to the  aforesaid cl.  9. The prescribed form of the bill (Form No. WSB.  116) which  the assessee was required to submit to the  Goverment of  India, Department of Supply, contained inter  alia,  the following receipt clause Received payment         one anna       Please pay by cheque                          receipt                          stamp on  to   Self  on  Bank                          original                          only           Bank       Treasury

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Contractor’s                                  at......................... signature                        Contractor’s signature." 654 Instructions  Nos. 13 and 14 with regard to payment were  as follows :      "13.   If  payment is desired to be made  to  the  Con- tractor’s Bankers or other parties, the endorsement must  be completed on the Bill Form (W.S.B. Form No. 116) and  signed separately  and the word ’Self’ scored out; in  addition,  a power  of attorney will be necessary in such  cases,  except when  payment is desired to a Bank mentioned in  the  second schedule to the Reserve Bank Act.                     14.  Payment  in all cases will be  made               to  the  Contractors by the  Accounts  Officer               named in the Acceptance of Tender by means  of               crossed cheques, unless a specific request  is               made to the contrary for the issue of an  open               cheque on the bill."               The  assessee  used to make out bills  in  the               prescribed  form.  The receipt clause  in  the               completed  bill  used to be in  the  following               terms  :  "Please pay by cheque to self  on  a               bank at Indore."        The  receipt clause in the bill used to be signed  in advance on behalf of the assessee on a one anna stamp.   The bills with the signed receipts of the assessee then used  to be  sent to the Controller of Supplies, New Delhi after  the latter  was  debited with the amounts of the  bills  in  the books  of  the  assessee.   On receipt  of  the  bills,  the Government of India used to draw cheques on the Reserve Bank of India, Bombay in favour of the assessee and used to  send them  by post to the assessee at Indore.  On receipt of  the cheques, the assessee used to credit the Controller of  Sup- plies in its books with the amount of the cheques, and  then used  to  deposit  the cheques in  their  account  with  the Imperial Bank of India, Indore, and thereupon, the Bank used to  credit  the assessee in the aforesaid account  with  the amount of the cheques.        The question is whether on these facts the profits of the  assessee,  a non-resident, in respect of  the  supplies were  received  by  the  assessee  in  British  India   and, therefore,  taxable under s. 4(1) (a) of the Indian  Income- tax  Act,  1922.  Before the Appellate Tribunal and  at  all stages of the assessment proceedings, the contention of  the revenue  authorities wag that the profits were  received  at Bombay  where  the. cheques on the Reserve  Bank  of  India, Bombay  were encashed.  By its order dated March  13,  1953, the  Appellate Tribunal negatived this contention, and  held that  the  amounts  of the cheques were received  by  it  at Indore.   On the application of the Commissioner of  Income- tax, Central 655 Bombay  under s. 66(1) of the Indian Income-tax  Act,  1922, the  Tribunal by its order dated March 4, 1955 referred  the following question of law to the Bombay High Court:                   "Whether the assessee Company is liable to               pay  tax  in the taxable  territories  on  the               ground that the sale proceeds, which  included               the  profit element therein, were received  in               the taxable territories ?" In  its order dated March 4, 1955, the Tribunal referred  to the decision of this Court in Commissioner of Income-tax  v. Kirloskar  Bros.   Ltd.(1) decided on April  19,  1954,  and stated  that  on the facts of the case, a  contention  might

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arise that the assessee had requested the Government to send the  cheque by post and the post office as the agent of  the assessee, had received the cheques in British India, but the Tribunal  pointed  out  that this contention  had  not  been raised before it.      The  reference under S. 66(1) was heard by  a  Division Bench of the Bombay High Court consisting of J. C. Shah  and S.  T.  Desai,  JJ.  J. C. Shah, J.  answered  the  question referred to the High Court in the affirmative, whereas S. T. Desai, J. answered it in the negative.  The matter then went before  the third Judge, K. T. Desai, J. who agreed with  J. C.  Shah, J. and answered the question in  the  affirmative. The  majority  of  the Judges held  that  the  cheques  were received by the assessee through its agent, the post  office in  British India and the Revenue authorities were  entitled to  urge  this  contention for the first time  in  the  High Court.   The  assessee  now  appeals  to  this  Court  on  a certificate granted by the Bombay High Court.       In the appeals before us, the following two  questions arise  (1) Was the post office the agent of the assessee  to receive  the cheques representing the sale proceeds  on  its behalf,  and did the assessee consequently receive the  sale proceeds through its agent in British India; and (2) whether the Revenue authorities could raise this contention for  the first  time at the hearing of the reference before the  High Court,  though this contention was not raised by  it  before the Tribunal or at any stage of the assessment proceedings ?       Where,  as in this case, the question of law in  issue between  the parties and referred to the High Court  is  the board question whether or not the assessee is liable to  pay tax  on  the  ground that the sale  proceeds  including  the profits of the sale were received (1) (1954) 25 I.T.R. 547. 656 by  the assessee in British India, the  Revenue  authorities may be permitted to argue for the first time at the  hearing of  the reference that on the facts found by  the  Tribunal, the  post  office  was the agent of  the  assessee  for  the purpose  of  receiving  the cheques  representing  the  sale proceeds  and  the assessee received the  sale  proceeds  in British  India  where the cheques were posted,  though  this aspect  of the question was not argued before  the  Tribunal and  though  the only point there argued was that  the  sale proceeds  were  received at Bombay where  the  cheques  were encashed.   See  The Commissioner of Income-tax  v.  Messrs. Ogale  Glass Works Ltd(1) Zoraster & Co. v. Commissioner  of Income-tax(2).  See also Commissioner of Income-tax,  Bombay v. Scindia Steam Navigation Co. Ltd.(3). The decision in The New Jehangir Vakil Mills Ltd. v. The Commissioner of Income- tax(4  )  relied  on by  the  assessee  is  distinguishable. There,  the question of law referred to the High  Court  was "Whether the receipt of the cheques at Bhavnagar amounted to receipt of sale proceeds in Bhavnagar ?", and this  question was not broad enough to cover the enquiry whether there were postings  of the cheques at the request of the assessee  and receipts  of  the cheques by the assessee through  the  post office in British India.  The precise point decided by  this Court in the New Jehangir Vakil Mills’(4) case was that  the High Court has no jurisdiction under s. 66(4) to direct  the Tribunal  to collect evidence not already on the record  and to make it a part of a supplementary statement of case,  and this  decision was followed and affirmed recently in  Keshav Mills  Co. Ltd. v. Commissioner of Income-tax(").   But,  in the  instant  case,  the High Court did  not  call  for  any supplementary statement of case.  Nor is the question of law

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referred  in this case a narrow one as in the  New  Jehangir Vakil  Mills’ case(4) so as to exclude consideration of  the contention  that  the assessee received  the  sale  proceeds through  its  agent, the post office in British  India.   We are,  therefore, satisfied that the Revenue authorities  can raise this contention for the first time in the High Court.’      The  next question is whether the post office  was  the agent  of the assessee to receive the  cheques  representing the sale proceeds and whether the assessee received the sale proceeds  in  British India where the cheques  were  posted. Now,  if  by an agreement, express or implied,  between  the creditor and the debtor or by a request, express or implied, by the creditor, the debtor is authorised to pay the debt by a cheque and to send the cheque to the creditor (1) [1955] 1 S.C.R. 185. (3) [1962] 1 S. C.R. 788,814. (5) [1965] 2 S.C.R. 908. (2) [1961] 1 S . C.R. 210. (4) [1960] 1 S.C.R. 249. 657 by  post,  the post office is the agent of the  creditor  to receive the cheque and the creditor receives payment as soon as  the  cheque is posted to him.  See The  Commissioner  of Income-tax  v.  Messrs. Ogale Glass Works  Ltd.(1),  Jagdish Mills  Ltd. v. The Commissioner of Income-tax(2 )  approving Norman  v.  Ricketts(1), Thairlwall v.  The  Great  Northern Railway(3).   In Messrs.  Ogale Glass Works’ case(1),  there was  an  express  request by the assessee at  Aundh  to  its debtor in Delhi to remit the amount of the bills by cheques. In  Jagdish Mills case (2), there was a stipulation  between the assessee and its debtor that the debtor in Delhi  should pay the assessee in Baroda the amount due to the assessee by cheques,  and  this Court held that there was  by  necessary implication a request by the assessee to the debtor to  send the  cheques by post from Delhi, thus constituting the  post office its agent for the purpose of receiving the  payments. In  the instant case, cl. 9 of the terms and  conditions  of the contract read with the prescribed form of the bills  and the instructions regarding payment show that the parties had agreed  that the assessee would submit to the Government  of India,  Department  of  Supply,- New  Delhi,  bills  in  the prescribed  form  requesting  payment of the  price  of  the supplies  by cheques together with signed receipts  and  the Government  of India would pay the price by crossed  cheques drawn in favour of the assessee.  Having regard to the  fact that the assessee was at Indore and the Supply Department of the  Government of India was at New Delhi, the parties  must have intended that the Government would send the cheques  to the  assessee by post from New Delhi, and this inference  is supported  by the fact that the cheques used to be  sent  to the  assessee by post.  In the circumstances, there  was  an implied agreement between the parties that the Government of India would send. the cheques to the assessee by post.     Mr.  Pathak argued that the assessee had  requested  the Government  to pay money by cheques on a bank at Indore  and as that request was not complied with and the Government  of India  sent  instead cheques on the Reserve Bank  of  India, Bombay,  there was no effective request by the  assessee  to the   Government   to  send  the  cheque   by   post.    But independently of any subsequent request by the assessee, the contract  between the parties authorised the  Government  of India to pay the price by cheques drawn on the Reserve  Bank of  India, Bombay and imported a request by the assessee  to the Government of India to send the cheques by post. (1)  [1955] 1 S.C.R. 185.

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(2)  [1960] 1 S.C.R. 236. (3)  (1886) 3 Times Law Reports. 182. (4)  [1910] 2 K.B. 509. 658 The   Government  of  India  was  entitled  to  ignore   the subsequent request of the assessee for cheques on an  Indore bank and the assessee received payments of the price as  and when  the cheques on the Reserve Bank of India, Bombay  were posted in British India in accordance with the contract.  In Thairlwall  v. Great Northern Railway(1) Lord Coleridge,  J. observed :     "The real question is whether the posting of the warrant was  payment  of the amount of the dividend.   To  establish that  it  was, the defendants must prove a  request  by  the plaintiff  or  an agreement between the  plaintiff  and  the defendants that payment should be made by means of a warrant posted to the plaintiff.  If such a request or agreement  is proved, then payment is established by posting even although the instrument is lost in the post : Norman v. Ricketts(2)."      Mr.  Pathak  contended  that  the  assesseee  and   the Government of India had agreed that the sale proceeds  would be paid to the assessee in Indore outside British India, and therefore  the rule in Messrs.  Ogale Glass  Works’  case(3) did not apply, having regard to the decision in Commissioner of  Income-tax  v. Patney & Co.(4). We are not  inclined  to accept  this contention.  There is nothing on the record  to show  that  there  was any  express  agreement  between  the parties that the sale proceeds would be paid to the assessee at  Indore.  We are satisfied that the post office  was  the agent  of  the  assessee for the purpose  of  receiving  the cheques  representing  the sale proceeds  and  the  assessee received  the  sale  proceeds in  British  India  where  the cheques  were  posted,  and  consequently,  the  profits  in respect  of the sales were taxable under S. 4 (1) (a).   The High Court, therefore, rightly answered the question in  the affirmative.       Mr. Pathak and following him Mr. Kolah submitted  that the assessee would have led additional evidence to  disprove the contention that the post office acted as its agent,  had that  contention  been raised before the Tribunal,  and  the Revenue authorities should not, therefore, have been allowed by  the  High Court to raise the new contention.   On  being asked  what additional evidence would have been led  by  the assessee,  counsel  said that the assessee  would  have  led evidence to show (a) that the purchase orders were  accepted by the assessee under compulsion of the (1) [1910] 2 K.B. 509.  (2) (1886) 3 Times Law Reports 182. (3) [1955] 1 S.CR. 185. (4) (1959) 36 I.T.R. 488. 659 Defence of India Act and Rules and consequently there was no voluntary  request by the assessee for payment  by  cheques, and (b) the Imperial Bank of India, Indore, as the statutory agent of the Reserve Bank of India, Bombay, paid the  amount of  the cheques to the assessee at Indore.  But counsel  was unable to show any provision of the Defence of India Act  or Rules  under  which the assessee was obliged to  accept  the purchase  orders, and we need not, therefore,  enquire  into the  correctness of counsel’s assumption that acceptance  of the  purchase  orders  under compulsion of  law  would  have negatived  the contention that the post office acted as  the agent  of.  the  assessee.  And  if  the  assessee  received payment  by cheques posted in British India, the  fact  that subsequently  the  Imperial  Bank of India,  Indore  as  the statutory  agent of the Reserve Bank of India,  Bombay  paid the amount of the cheques at Indore would not take the  case

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of the assessee out of the purview of S. 4 (1) (a).  We are, therefore,  satisfied  that the assessee was  not  prevented from  adducing  any  material  evidence  by  reason  of  the omission  of the Revenue authorities to argue the new  point before  the  Tribunal.   We  do  not,  therefore,  think  it necessary to express any opinion on the question whether the Court  should  refuse to allow the  Revenue  authorities  to raise a new contention where by reason of their omission  to raise  the contention before the Tribunal, the assessee  had been prevented from adducing material evidence on the point.     In the result, the appeals are dismissed with costs, one set.                            Appeals dismissed. 660