19 April 1954
Supreme Court


Case number: Appeal (civil) 19 of 1953






DATE OF JUDGMENT: 19/04/1954


CITATION:  1954 AIR  429  CITATOR INFO :  F          1954 SC 504  (2)  R          1957 SC 918  (35)  R          1959 SC1070  (3,4,5)  F          1959 SC1160  (7,10,11,15,19,20)  D          1959 SC1177  (14,36)  APL        1959 SC1394  (8)  D          1960 SC 266  (14)  RF         1961 SC 107  (7,9,15,16)  RF         1961 SC1633  (11,32)  R          1963 SC1484  (9)  R          1965 SC1636  (10,11,16)  R          1966 SC1466  (7,8,10)  F          1967 SC1118  (9,17)  R          1976 SC1172  (7,9)  D          1985 SC1156  (28,36)  F          1989 SC1553  (5)  R          1990 SC1451  (5)

ACT:     Indian Income-tax Act (XI of 1922), section 4(1)(a)-Non- resident  company-Payment  of sale-proceeds to  the  company (assessee), by Government of India by means of cheques drawn and  posted  in British India- Whether income,  profits  and gains  received by the assessee in British India within  the meaning of section 4(1)(a)Indian Contract let, 1872 (Act  IX of 1872), section 50, illustration (d)-Addressee  requesting sender to send cheque by post-Post-office acting as agent of addressee.

HEADNOTE:      The assessee, a limited liability company, incorporated and carrying on business in an Indian State (outside British India  was  a non-resident company for the purposes  of  the Indian  Income-tax  Act and there of ore  its  liability  to British  Indian  income-tax  depended upon  its  receipt  of income within British India.  On the express request of  the assessee  to  remit  the amount of the  bills  by  means  of cheques in respect of the goods supplied by the assesses  to the  Government of India the latter agreed to make  payments by  cheques  which were drawn in Delhi and received  by  the assessee in the Indian State.



Held,  that  according to the course of  business  usage  in general  the parties must have intended that cheques  should be  sent  by post and therefore the posting  of  cheques  in Delhi amounted to payment in Delhi to the post-office  which was constituted the agent of the assesses. Therefore  on  the facts of the case,  income,  profits  and gains  in respect of sales made to the Government  of  India was received in British India within the meaning of  section 4(1)(a) of the Act. Held  also, that as between the sender and the addressee  it is  the request of the addressee that makes the  post-office the  agent  of  the addressee and  after  such  request  the addressee  cannot be heard to say that the  post-office  was not  his  agent.   On the other hand if  there  is  no  such request  by  the  addressee, express  or  implied,  then  on delivery  of the letter or the cheque to the post-office  by the sender, the post-office acts as the agent of the sender. Apart from the principle of agency, section 50, illustration (d)  of the Indian Contract Act (TX of 1872) lays  down  the well-known  principle  that  a  contractual  obligation   is discharged  by the performance of the engagement or  promise in  the  manner  prescribed or sanctioned  by  the  promise. Indian  Post-Office  Act  1898 (Act VI of  1898),  does  not nullify  illustration  (d)  to  section  50  of  the  Indian Contract Act, or the above proposition of law. 24 186 Gresham  Life Assurance Society v. Bishop (L.R. [1902]  A.C. 287  at  p. 296), Commissioner of  Income-tax  v.  Kameshwar Singh,   ([1933]  1  I.T.R.  107),  Raghunandan  Prasad   v. Commissioner  of Income-tax, (60 I.A. 133: [19331  1  I.T.R. 113),  Commissioner of Income-tax v. Maheswari Saran  Singh, ([1951] 19 I.T.R. 83), Stedman v. Gooch, ((1793) 1 Esp.  5), Maillard  v. Duke of Argyle, ((1843) 6 M. & G. 40), Kempt v. watt.  (1846) 15 M. & W. 672), Be.  Rower and Haslam,  (L.R. (1893) 2 Q.B. 286), Palaniappa Chetty v. Arunachalam  Chetty (1911) 21 M.L.J. 432) Robinson v. Henry Reid, ((1829) 9 B. & C. 449), Anderson. Hillies, ((1852) 21 L.J.C.P. (N.S.) 150), Kodarmal v.    Sagormal,  ((1907)  9 Bom.  L.R.  901  at  p. 911), Felix Hadley & Co. v.   Hadley, (L.R. (1898) 2 Ch.  D. 680),  Rhokana Corporation v. Inland Revenue  Commissioners, (L.R.  (1938)  A.C. 380 at p. 399), Commissioner  of  Excess Profits  Tax,  West  Bengal v. Jeewanlal  Ltd.,  ([1951]  20 I.T.R.  39  at p. 47), Chainrup Sampatram  v.  C.I.T.,  West Beagal  ([1951]  20 I.T.R. 484 at pp. 493,  496),  Allahabad Bank  Ltd., v. C.I.T. West Bengal), ([1952] 21 I.T.R.  169), Mohanlal Biralal v. C.I. T., C.P. & Berar, ([1952] 22 I.T.R. 448)’  Hira  Mills  Ltd., Cawnpore  v.  Income-tax  Officer, Cawnpore,  ([1946] 14 I.T.R. 417), Madanlal Dharnidharka  v. Commissioner  of Income-tax, Bombay City, ([19481 16  I.T.R. 227 at p. 232), Commissioner of Income-tax, Delhi v.  Punjab National  Bank  Ltd.  ([1952]  21  I.T.R.  526),  Norman  v. Rickets,  ((1886)  3  T.L.R. 182), Thairlwal  v.  The  Great Northern  Railway  Co., (L.R. [1910] 2 K.B.  509),  Badische Anilin Und Soda Fabrik v. Basle Chemical Works, (L.R. [1898] A.C.  200),  Comber  v. Leyland,  (L.R.  [1898]  A.C.  524), Mitchell Henry v. Norwhich Union Life Insurance Society Ltd. (L.R.  (1918) 2 K.B. 67), Thorappa v. Umedmalji, ((1923)  25 Bom.  L.R. 604), (Ex-parte Cote L.R. (1873) 9 Ch.  App. 27), The  Indian  Cotton Company Ltd. v.  Hari  Poonjoo,  (I.L.R. (1937) Bom. 763) referred to.




   CIVIL  APPELLATE, JUrISDICTION : Civil Appeal No. 19  of 1953.     Appeal from the Judgment and Order dated the 17th day of September,  1951, of the High Court of Judicature at  Bombay (Chagla  C.J. and Tendolkar J.) in Income-tax Reference  No. 19 of 1949. - M.   C. Setalvad, Attorney-General for India and C.    K. Daphtary, Solicitor-General for India (Porus A.   Mehta, with them) for the appellant. B.   J.  Kolah,  Y.  D.  Pandit  and  Rajinder  Narain   for respondents. 1954.  April 19.  The Judgment of the Court was delivered by DAS  J.-This  appeal  arises  out  of  proceedings  for  the assessment to income-tax of the respondent 187 Messrs.  Ogale Glass Works Ltd., (hereinafter referred to as "the  assessee")  for the five assessment years  1941-42  to 1945-46. The assessee is a limited liability company incorporated and carrying  on  business in Aundh which in those days  was  an Indian  State outside British India.  It was  accordingly  a non-resident company for the purposes of the Indian  Income- tax Act. The  assessee manufactures lanterns and other  glassware  at its works in Aundh State.  In the relevant accounting  years the  assessee  secured  some contracts  for  the  supply  of lanterns  and  other glassware to the Government  of  India. The  price  of the goods supplied under the  contracts  were paid by cheques drawn on the Reserve Bank of India,  Bombay. The cheques used to be received by the assessee in Aundh and cashed through its bank at Bombay as hereinafter stated. The  assessee being a non-resident company its liability  to British  Indian  income-tax  depended upon  its  receipt  of income  within British India.  In the course of  proceedings for  the  assessment of the assessee to income-tax  for  the five years mentioned above, the assessee contended that  its profits on the sales accrued and were received in the  Aundh State  where  it  received payment by  the  receipt  of  the cheques.   The  Income-tax  Officer  and,  on  appeal,   the Appellate  Assistant  Commissioner held  that  the  assessee received income, profits or gains in British India  inasmuch as  the cheques were drawn on a bank in Bombay and had  been cashed  in Bombay and accordingly taxed the  assessee  under section 4(1)(a) of the Indian Income-tax Act.  On appeal  by the  assessee the Income-tax Appellate Tribunal  upheld  the assessment. Being  aggrieved by the order of ’the Tribunal the  assessee applied  for a reference of the case to the High  Court  for the determination of the question of law which arose out  of the  Tribunal’s  order  and the  Tribunal  agreeing  that  a question  of  law did arise out of its  order  referred  the following question to the High Court along with a  statement of the case: "    whether on the facts of the case,  income,  profits and gains in respect of sales made to the Government 188 of India was received in British India within the meaning of section 4(1)(a) of the Act." At  the hearing of the reference by the High  Court  learned advocate  for the assessee contended, inter alia,  that  the cheques  were received by the assessee in full  satisfaction of  the debt due to it by the Government of India  and  that the  debt of the Government of India had been discharged  by the acceptance of the cheques by the assessee in Aundh.  The High  Court felt that in order to determine this  contention



it  would  be  necessary for the Tribunal  to  find  certain further  facts and accordingly the High Court  remanded  the reference  back to the Tribunal with a request to  submit  a supplementary  statement of the case on the lines  indicated in  the order dated the 15th September, 1949.  The  Tribunal submitted  a supplementary statement of the case on the  8th June, 1951. In the supplementary statement of the case reference is made to  clause  15 of the conditions of the  contract  governing supplies  made by the assessee to the Government  of  India. The system of payment under that clause was that 90% of  the price of each consignment would be paid on proof of dispatch of the stores from a Railway Station or port in India  after inspection  and the balance of 10% would be paid on  receipt of the consignment in good condition.  That clause also provided "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 instructions given in the Acceptance of Tender by cheque on a  Government Treasury  in  India or on a branch of the  Reserve  Bank  of India  or the Imperial Bank of India transacting  Government business." The assessee used to submit bills in prescribed form and  on the form used to write: Kindly  remit  the amount by a cheque in our favour  on  any bank  in  Bombay."      After the submission of the bills the assessee used  to receive  from  the Government cheques drawn  on  the  Bombay branch  of  the  Reserve Bank of India  along  with  a  memo stating.- 189 The undersigned has the honour to forward here. with  cheque No. dated the bills noted below ":- Then  followed a tabular statement setting out  the  number, date  and  amount of, the cheques.  On the top of  the  memo there was a direction that it- "  be  immediately  returned to the  Controller  of,  Supply Accounts  with the acknowledgement form on the reverse  duly signed and stamped when necessary." The acknowledgement form was thus expressed: "  The undersigned has the honour to acknowledge cheque  No. dated-  for Rs. in payment of the bills noted in  the  first column in the reverse." After  receipt of ’the cheques the assessee used to  indorse it in favour of Aundh Bank Ltd., Ogale Wadi Branch which  in its  turn  used  to endorse them in  favour  of  the  Bombay Provincial  Co-operative Bank Ltd., Bombay.  The last  named bank  cleared  the cheques through the Clearing ’  House  in Bombay.   The  supplementary statement Of the  case  further records that the Aundh Bank Ltd., used to credit the  asses- see’s account on the very day the cheques were received from the  assessee  with  the  amount  of  the  cheque  less  the collection charges and that the assessee used to credit  the account  of  the Supply Department  and  make  corresponding debits  to the bank’s account and the bank charges  account. A case was sought to be made by the learned advocate for the assessee  before  the Tribunal that the cheques used  to  be discounted  by  the  Aundh Bank  Ltd.,  presumably  implying thereby  that the assessee actually got payment in  cash  in Aundh.  %This case was repelled by the Tribunal  which  held that the bank only allowed the assessee to draw money on the security  of  the cheques but did not  discount  them.   Our attention  has  been  drawn  to  the  following  passage  in paragraph 8 of the supplementary statement of the case:



"By  merely issuing a cheque to the assessee no  payment  as such was made by the Government.  The payment was only  made when  the Government’s account in the books of the bank  was debited." 190 Paragraph 9 of the supplementary statement of the case  thus summarises the Tribunal’s findings: 9.   On the above facts our findings are: (1)  Under  the agreement with the Government of  India  the assessee  had  undertaken to receive the payment  by  cheque drawn on a bank in India. (2)  The  assessee  company made a specific request  to  the Government  to make payment of the sale proceeds  by  cheque drawn on a bank in Bombay. (3)  When  the  assessee  received the cheque,  it  did  not receive  the  sale proceeds; it received the  sale  proceeds subject to the encashment of the cheque. (4)  The  assessee’s  bankers allowed the assesses  to  draw money against the security of the cheque on the very day the cheque was sent for collection to the bank. (5)  The  assessee’s  bankers realised the  payment  of  the cheque from the Reserve Bank of India, Bombay,, as agents of the  assessee.  For rendering this service the bank  charged the  usual commission charged for collecting  an  outstation cheque. (6)  The sale proceeds were received in Bombay. (7)  The cheque was encashed on behalf of the assessee at Bombay. (8)  The  profits  on the sales made to  the  Government  of India were received by the assesssee in cash in Bombay." The  supplementary statement of the case concludes with  the remark  that both parties agreed to the correctness  of  the facts. The  main  argument advanced before us, as before  the  High Court,  by the learned advocate for the asses? see  is  that the  assessee received payment for the goods supplied by  it when  it received the cheques at Aundh.  In other words  the assessee  accepted the cheques in full satisfaction  and  in discharge  of  its claim against the  Government  under  the contracts.   The conclusion pressed upon us is that  as  the cheques  were  received at Aundh the  payment  was  received there and consequently the assessee which is a  non-resident company  did  not receive any income, profits  or  gains  in British India 191 within -the meaning of section 4(1)(a) of the Indian Income- tax Act and the referred question should be answered in  the negative. The  contention put forward by the Revenue is  twofold.   In the  first place it is urged that the question  whether  the assessee  accepted the cheques unconditionally and  in  full satisfaction of its claims under the contracts is  concluded by the Tribunal’s findings of facts.  This contention is not wholly  without force.  The passage from paragraph 8 of  the supplementary statement of the case and sub-paragraphs 3,  6 and 8 of paragraph 9 do tend to suggest that in the view  of the  Tribunal  no  ’payment was made by  the  Government  by merely issuing the cheques, that when the assessee  received the  cheques it did not receive the sale proceeds,  that  it received the sale proceeds subject to the encashment of  the cheques,  that the bank collected the cheques in  Bombay  as the  agent of the assessee and that the sale proceeds  were, therefore,  received in cash in Bombay.  But in view of  the language  used  in the supplementary statement of  the  case there is ample scope for the view that the portion% referred



to  above do not amount to findings of fact by the  Tribunal but,  on the contrary, are only inferences drawn by it  from facts found by it.  Indeed the High Court was of the opinion that the Tribunal had not in terms come to a finding of fact that the assessee accepted the cheques in complete discharge of its claim for the price of goods supplied by it but on  a consideration  of the facts actually found by  the  Tribunal the  High  Court came to the conclusion that  the  necessary inference to be drawn from those facts was that there was an arrangement  between  the assessee and the  Government  from which  it could be said that the acceptance by the  assessee of  the  cheques from the Government resulted in  an  uncon- ditional  discharge  of the debt.  In the  circumstances  we have to examine the facts found by the Tribunal which have a bearing on this point. The  assessee  contends  that  on the  facts  found  by  the Tribunal  it  must be held that it received the  cheques  in full and unconditional discharge of its claims for the price of goods sold and delivered by it to, the 192 Government  and  not conditionally subject  to  realisation. That  a, sum of money may be received in more ways than  one cannot  be doubted.  It may be received by the  transfer  of coins  or  currency notes or a negotiable  instrument  which represents  and  produces  cash and is treated  as  such  by businessmen. (See per Lord Lindley in Gresham Life Assurance Society  v. Bishop (2)).  Reference in this  connection  may also be made to the decisions in Commissioner of  Income-tax v.  Kameshwar Singh (2), Raghunandan prasad v.  Commissioner of   Income-tax  (3)  and  Commissioner  of  Income-tax   v. Maheswari  Saran Singh (4).  Learned Solicitor-General  does not  dispute  this proposition but he argues  that,  in  the absence  of  any  agreement,  express  or  implied,  to  the contrary,  a  payment by a negotiable instrument  is  always understood  to be conditional.  He refers us to Benjamin  on Sale,  8th Edition, page 787, in support of the  proposition that  the, intention to take a bill in absolute payment  for goods  sold  must  be clearly shown, and  not  deduced  from ambiguous  expressions, such as that the bill was taken  "in payment" for the goods Stedman v. Gooch (5), and Maillard v. Duke  of Argyle (6) or "in discharge" Kemp v. Watt  (7),  or "in  settlement" of the price Re Rower and Haslam  (8).   In addition to the above English cases referred to in  Benjamin on  Sale  the learned Solicitor-General also relies  on  the case of Palaniappa Chetty v. Arunachalam Chetty (9) where it was  held by the Madras High Court that the execution  of  a formal  receipt  for  the  amount covered  by  the  bill  of exchange  or hundi was not sufficient to rebut  the  general presumption  that  the delivery of a bill of exchange  or  a hundi for a debt operated only as a conditional discharge of the debt’ He insists that on the facts of this case there is nothing  from  which an agreement may be  implied  that  the cheques  were  given and received  unconditionally  in  full discharge  of  the  original contractual  liability  of  the Government for the price of the goods supplied by the (1) L.R. [1902] A.C. 287 at P. 296.(6) (1843) 6 M. & G. 40. (2) [1933] I I.T.R. I07.(7) (1846) 15 M. &W. 672. (3)  60 I.A. 133;[1933]  I.T.R. 113.(8) L.R. [1893]  2  Q.B. 286. (4) [1951] 19 I.T.R. 83.(9) (1911) 21 M.L.J. 432. (5) (1793) 1 ESP- 5. 193 assessee.   Sri  Kolah,  on the other hand,  relied  on  the following facts in answer to the contentions of the  learned Solicitor-General:



(i)  that  there was an arrangement by the contract  itself, for payment by cheque (clause 15), (ii) that  in  the  bills  submitted  by  him  the  assessee expressly asked for payment by cheque, (iii)     that the Government sent cheques in payment of the bills, (iv) that  on receipt of the cheques the  assessee  returned the acknowledgement form duly signed and stamped as a formal receipt, (v)  that  the drawer of the cheques was the  Government  of India and the drawee was the Reserve Bank of India for whose solvency  there could be no apprehension at all in the  mind of the assessee. Sri Kolah contends that the cumulative effect of these facts is  clearly  enough  to establish  that  the  cheques  ;were received  unconditionally  as payment.   Learned  Solicitor- General  points out that the assessee’s request to  pay  the amount  of  the  bills  by cheques  carries  the  matter  no further,  for the undertaking to pay by cheque  was  already there.   The  -point  of the request was  that  the  cheques should be issued on some bank in Bombay.  The insistence  on a  stamped  receipt  in advance of  payment  was,  says  the Solicitor-General,  in  keeping with the usual  practice  of Government   departments.    Therefore,we   have   in   this case,according  to  the learned  Solicitor-General,  nothing more than a term in the contract for payment by cheques  and the  status of the drawer and drawee of the cheques.   These two circumstances, so submits the Solicitor-General are  not sufficient  to establish the fact of the acceptance  of  the cheques  as unconditional discharge.  He contends  that,  in the  absence  of an express agreement, it is only  when  the creditor  elects to take a bill or cheque having it  in  his power  to  obtain payment in cash, that is to say,  takes  a bill or cheque by choice or preference instead of cash  that an  agreement  may  be  implied  that  he  took  it  as   an unconditional and absolute payment 25 194 of  the  debt: Robinson v. Henry Reid (1)  and  Anderson  v. Hillies  (2).  Such cases must be rare, for the creditor  is not  ordinarily likely to give up the advantage of having  a double  remedy  namely  one on the bill or  cheque  and  the other,  on dishonour of the bill or cheque, on the  original cause  of action.  He points out that in this case there  is no  finding  of any special agreement in  this  behalf  and, therefore,   submits  the  learned  Solicitor-General,   the assessee  must  be  taken  to  have  received  the   cheques conditionally,  i.e., subject to realisation.   The  learned Solicitor-General  concludes that, in the circumstances,  no payment was received by the mere receipt of the cheques  and that payment was received only when the cheques were  cashed in   Bombay  and  that  such  receipts  in   Bombay   became immediately  assessable to British Indian tax under  section 4(1)(a).  The High Court repelled this line of argument  and held  that  the assessee received payment on the  dates  the cheques   were   delivered  to  it.    We   find   ourselves substantially  in agreement with this conclusion.  It is  to be remembered that there are four modes in which a  contract may   be  discharged,  namely  (1)  by  agreement,  (2)   by performance, (3) by being excused by law from performing  it and  (4) by breach.  In this case clause 15 of the  contract provides  how  the payment of the price is to be  made.   In short  the contract itself, by that clause,  prescribes  the manner and the time for performance by the Government of its part of the contract and as the Government made the payments



in the prescribed manner, i.e., by cheques, it fulfilled its engagement  and such payment would under section 50  of  the Indian Contract Act, operate as a discharge of the contract. It  should  also be remembered that the  assessee  sent  his formal  stamped  receipts  only after  the  receipt  of  the cheques  and  not  along with the  bills  submitted  by  it. Therefore,  the receipts cannot be regarded as  having  been sent in advance.  The status of the drawer and the drawee of the cheques is also a material consideration.  Finally there is no suggestion that any of the cheques was dishonoured  on presentation.  We, therefore, agree with Sri Kolah that (1) (1829) 9 B. & C.  449.   (2) (1852) 21 L.J.C.P. (N.  S.) 150. 195 the  several  facts relied on by him and alluded  to  above, taken cumulatively, must lead us to the conclusion that  the cheques were received in complete discharge of the claim for the price of the goods. Learned   Solicitor-General,  however,  contends,  on   the’ authority of the decision in Kodarmal v. Sagormal (1),  that the request by the creditor to send a cheque does not  imply any  variation  of  the rule that payment  by  a  negotiable instrument   is  conditional  on  its  being   honoured   on presentation  within  due  time.   Even  if  we  accept  his contention  that  the  facts  referred  to  above  are   not sufficient  to raise the implication that the  cheques  were accepted  as payment and even if the sending of the  cheques in  terms  of  clause 15 or at the special  request  of  the assessee  did not operate as an unconditional  discharge  of the Government’s liability even then the assessee’s position will  be  no  better.  When it is said  that  a  payment  by negotiable instrument is a conditional payment what is meant is  that such payment is subject to a  condition  subsequent that if the negotiable instrument is dishonoured on present- ation the creditor may consider it as waste paper and resort to his original demand: Stedman v. Gooch (2). It is said  in Benjamin on Sale, 8th Edition, page 788:- The payment takes effect from the delivery of the bill,  but is  defeated by the happening of the condition,  i.e.,  non- payment at maturity." In  Byles on Bills, 20th Edition, page 23, the  position  is summarised pithily as follows:’ A cheque, unless dishonoured, is payment." To  the same effect are the passages to be found in Hart  on Banking, 4th Edition, Volume I, page 342.  In Felix Hadley & Co.  v. Hadley (3), Byrne J. expressed the same idea in  the following passage in his judgment at page 682: "  In  this  case  I think what took  place  amounted  to  a conditional payment of the debt; the condition (1) (1907) 9 Bom.  L.R. 903 at p. 911.  (3) L. R. (I 898)  2 Ch.  D. 680. (2) (1793) 1 ESP. 5. 196 being that the cheque or bill should be duly met or honoured at the proper date.  If that be the true view, then I  think the  position  is  exactly  as  if  an  agreement  had  been expressly  made  that the bill or cheque should  operate  as payment  unless defeated by dishonour or by not  being  met; and  I think that that agreement is implied from giving  and taking the cheques and bills in question." The  following  observations  of  Lord  Maugham  in  Bhokana Corporation  v. Inland Revenue, Commissioners (1)  are  also apposite: " Apart from the express terms of section 33, sub-section 1, a  similar  conclusion might be founded on  the  well  known



common law rules as to the effect of the sending of a cheque in  payment  of  a debt, and in the  fact  that  though  the payment  is  subject to the condition  subsequent  that  the cheque must be met on presentation, the date of payment,  if the  cheque  is duly met, is the date when  the  cheque  was posted." In  the  case  before  us  none  of  the  cheques  has  been dishonoured  on presentation and payment cannot,  therefore, be  said  to  have been defeated by  the  happening  of  the condition  subsequent, namely dishonour by  non-payment  and that being so there can be no question, therefore, that  the assessee  did  not  receive payment by the  receipt  of  the cheques.   The position, therefore, is that in one  view  of the matter there was, in the circumstances of this case,  an implied  agreement  under which the  cheques  were  accepted unconditionally as payment and on another view, even if  the cheques  were  taken conditionally, the cheques  not  having been dishonoured but having been cashed, the payment related 2back to the dates of the receipt of the cheques and in  law the dates of payments were the dates of the delivery of  the cheques On the footing, then, that the assessee received payment  as soon as the cheques were delivered to it the question  still remains  as  to when and where the  assessee  received  such payment.  The (1)  L. R. [1938] A.C 380 at p. 399. 197 answer  is  obvious,  says  the  assessee,  namely  that  it received  Payment in Aundh where the cheques were  delivered to  it.   The learned Solicitor-General,  however,  contests that argument.  According to. him the cheques were delivered to the assessee as soon as they were posted.  The  rejoinder of the assessee is two-fold.  In the first place it is  said that  this  is an entirely new ,question of  law  which  was never raised or argued before the Tribunal and was not dealt with  by it and, therefore, cannot be said to arise  out  of the  Tribunal’s  Order  and consequently the  Court  has  no jurisdiction,  while  exercising its  advisory  jurisdiction under  section  66 of the Indian Income-tax Act,  to  permit such  anew  question  of law to be  raised  at  this  stage. Learned  Counsel  for the assessee relies on  the  cases  Of Commissioner   Excess Profits Tax, West Bengal v.  Jeewanlal Ltd.  Chainrup Sampatram v. C. I. T., West Bengal (2), Alla- habad  Bank  Ltd.  v. C..I. T.  West  Bengal  (3),  Mohanlal Hiralal v. C. I. T., C. P. & Berar (4), and Hira Mills Ltd., Cawnpore  v.  Income-tax  Officer,  Cawnpore(5),  while  the learned  Solicitor-General  refers us to  the  decisions  in Madanlal Dharnidharka v. Commissioner of Income-tax,  Bombay City(6),  and  Commissioner of Income-tax, Delhi  v.  Punjab National Bank Ltd. (7).  In the view we have taken it is not necessary  for us, on this occasion, to express any  opinion on  the larger question as to the scope, meaning and  import of  the  words  "any question of law  arising  out  of"  the Tribunal’s order on the interpretation of which there exists a  wide divergence of judicial opinion.  It should be  noted that this is not a base where the Tribunal having refused to refer a question of law an application was made to the  High Court to, exercise its jurisdiction under sub-section (2) of section  66.   Here the Tribunal in exercise of  its  powers under  sub-section (1) of that section did refer a  question of law to the High Court.  Nobody at any time contended (1)  [1951] 20 I.T.R. 39 at P. 47. (2)  [1951] 20 I.T.R- 484 at PP. 493, 496. (3)  [1952] 21 I.T.R. 169. (4)  [1952] 22 I.T.R. 448.



(5)  [1946], 14 I.T.R. 417. (6)  [1948] 16 I.T.R. 227 at P. 232. (7)  [1952] 21 I.T.R. 526. 198 and even now it is not suggested before us that the question of  law referred to the High Court did not arise out of  the Tribunal’s  order or had not been properly referred  to  the High  Court.   A question of law arising out  of  its  order having  thus  been properly referred by the  Tribunal  under sub-section  (1) the High Court had to deal with and  answer it  in exercise of its jurisdiction under  sub-section  (5). In  support  of its contention that the question  should  be answered  in  the  affirmative  the  Revenue  advanced   the argument, based on certain facts, that the cheques had  been accepted  only. conditionally and, therefore, there  was  no payment  until the cheques had been cashed and  the  cheques having been cashed in Bombay the payment must be regarded as having been received in Bombay.  That argument did not  find favour  with the High Court and that being the position  the Revenue  sought to raise before the High Court, as  it  does before  us,  an alternative argument, also based  on  facts, that  the  cheques having, at the request of  the  assessee, been  posted  at Delhi, the mere posting of the  cheques  in such  circumstances operated as payment in Delhi.   Here  no new question of law is sought to be raised.  The question of law  still  is, whether on the facts of this  case,  income, profits and gains in respect of sales made to the Government of India was received in British India within the meaning of section  4(1)(a)  of the Act.  The argument is that  as  the cheques were posted at Delhi at the request of the  assessee payment  was  received by it in British India.  It  is  said that  although the language in which the question  has  been framed  is  wide  enough  to  include  this  branch  of  the argument,  the  question should, nevertheless,  be  read  as circumscribed by the facts on which the Tribunal’s  decision was  made  and  should not be regarded as  at  large.   This suggestion  means that the question must be read as  limited only  to those facts on which alone reliance was  placed  in support  of  the  argument  actually  advanced  before   the Tribunal and on which then Tribunal’s decision was  founded, leaving out all other facts appearing on the record and even referred  to in the Tribunal’s order and the  statements  of the case.  There is no warrant for such suggestion.                             199 The  language  of the question clearly  indicates  that  the question of law has to be determined " on the facts of  this case."  To  accede to the contention of the  assessee,  will Involve the undue cutting down of the scope of the  question by  altering  its  language.  Seeing  that  the  High  Court permitted  this argument to be advanced before them  we  are not prepared to shut it out. Sri  Kolah then contends that the requisite facts, on  which this  branch  of the argument may be based, are  not  to  be found in the order of the Tribunal and the statements of the case   and,   therefore,  this  argument   should   not   be entertained.   There would have been considerable  force  in this  contention if the facts necessary to support  the  new argument  advanced  by the Revenue were not on  the  record. But  such is not the cases here as will be presently  shown. The High Court conceded that if t he assessee had  requested the  Government  to send the cheques by post then  it  would have  made the post-office its agent and in that  event  the posting of the cheques by the Government at Delhi would have been delivery of the cheques to the assessee in Delhi.   The High  Court, however, held that there was no finding by  the



Tribunal  that  it  point  of fact  the  assessee  had  ever requested  the  Government to send the cheques by  post  and that  that being the position it could not be said that  the cheques had been delivered to the assessee in Delhi.  In our opinion,  for reasons to be presently stated, this  part  of the decision of the High Court cannot be supported on  facts and its conclusion cannot be sustained in law. Turning  to the order of the Tribunal we find the  following passages: "  All payments for the goods supplied were made by  cheques drawn  by the Government department at Delhi on the  Reserve Bank of India, Bombay Branch.  The cheques were received  by the assessee Company in its office in Aundh State." The  finding of fact recorded in the first statement of  the case also comprises the following (inter alia): " These cheques were received by the assessee Company at its office in Aundh State by post," 200 The  finding  of fact in paragraph 3  of  the  Supplementary Statement of the case is thus recorded: "  3. The assessee company used to submit the bills  and  on the  form  of the bill it used to write  "Kindly  remit  the amount by a cheque in our favour on any bank in Bombay. The  question  for our consideration is as to what,  on  the legal  principles  laid down in  judicial  decisions,  these findings of fact amount to. In  Norman v. Rickets(1), the creditor carrying on  business as milliner in Bond Street wrote to one of the customers who resided in Suffolk saying the favour of  a cheque within a week will oblige." The  customer  upon such  request  sent a cheque for the amount  by  post.   The cheque was stolen in the transit and was paid by the Bank to the  thief.   It  will be noted that there  was  no  express request to send the cheque by the post, but nevertheless  it was held that the sending of the cheque by post was payment. On  appeal  the Court of Appeal upheld the trial  Court  and observed: "  An  express  request to send through  the  post  was  not necessary.   If  what  the plaintiffs  said  amounted  to  a request  to  send  the cheque by the post,  then  there  was payment.  To answer that question the existing circumstances must be looked at.  A milliner in London wrote to a lady  in Suffolk  asking  for a cheque.  Did that  letter  reasonably lead the lady to suppose, and did she suppose that she might send the cheque by post?  She could not suppose that she was to  send a messenger with it or come up to  London  herself. The only reasonable and proper meaning to be attached to it, whatever  Madame phillipe might have intended was  that  she was to send the cheque by post.  She, therefore,  reasonably believed  that she was invited to send her cheque  by  post, and she did what she was asked to do.  Consequently what she did amounted to payment." In  Thairlwal  v.  The Great Northern  Railway  Co.,(2)  the directors by their report recommended (a) the declaration of dividend at certain rates, and (b) the (1) (1886) 3 T.L.R. 182. (2) L.R. (1910) 2 K.B, 509. despatch  of dividend warrants by post. At the  half  yearly general  meeting the shareholders passed a  resolution  that dividends  be  declared at certain altered  rates  but  said nothing  about sending the same by post.  Dividend  warrants were  sent to a stock-holder by post but it was lost in  the post.   Bray J., held that in the circumstances there was  a request by the stock-holder to the company to pay the amount due to him by means of a warrant sent by post.  The case  of



Badische Anilin Und Soda Fabrik v. Basle Chemical  Works(1), was concerned with a Swiss seller who was asked to send  the goods  by  post to England which he did.   The  goods  were, manufactured  according  to  an invention  protected  by  an English  Patent.   The question was as to  who  brought  the goods  to  England  so  as to be liable  to  an  action  for infringement.   It  was held that the  post-office  was  the agent of the English buyer and, therefore, the Swiss  seller could  not be sued.  After stating that the seller had  sent the  goods  in pursuance of the order from the  buyer  to  a particular  named carrier namely the post-office  which,  is after  all only a carrier of parcels like any other  carrier Lord Halsbury at p. 204 said: It is not necessary that the carrier should have been named. If,  according  to  the ordinary  course  of  delivery,  the carrier would be the person who would receive it, that would be just as good, for the purpose of the argument, as if  the carrier had been actually named; but we have not to consider that question here, because the carrier is named.  Then, for what  reason am I to depart from the well-known  and  recog- nised principle of law that, under these circumstances, when goods  are delivered by the order of the buyer to  a  named’ carrier, from that moment the goods vest in the buyer ?" The decision in Comber v. Leyland(2), is very important  for our purpose in that it explains the meaning and  implication of the word " remit " which is the word used by the assessee when it requested the Government Department to " remit " the amount by cheque.  There (1)  L.R. [1898] A.C. 200. 26 (2) L.R. [1898] A.C. 524. 202 was in that case no express reference to the post-office  at all.  Said Lord Herschell, at p. 530: "I cannot doubt that the word "remit " there means this  and nothing beyond this-that the bank post bills, when  obtained in favour of the plaintiffs, should be sent in the  ordinary course  and the ordinary manner in which such documents  are sent by commercial men, namely, by mail, and that as soon as that  had been done all obligation and all liability of  the defendant  ceased.  I think it is impossible on these  words to  maintain  that there was an obligation and  a  liability incumbent  upon him until those bank post bills had  reached the hands of the plaintiffs in England. In  Mitchell Henry v. Norwich Union Life  Insurance  Society Ltd.(1),  the  defendants  sent a  written  notice.  to  the plaintiff stating that the sum of pound 48-5-8d which  would shortly become due should be paid at their office and asking the  plaintiff  "  when remitting " to  return  the  notice. There  was  no express request to send the amount  by  post. Bailhache  J. held that by the use of the  word"  remitting" the defendants had impliedly authorised the plaintiff to pay them  by sending the money through the post in the  ordinary way in which money was remitted by post, but that it was not usual  to  send so large a sum in Treasury  notes  by  post. Apart  from  the impropriety of sending a  large  amount  in Treasury notes by post, this case does support the view that the  request  by the creditor " to remit " the  amount  due, without more, is tantamount to a request to send the  amount by  post.  This decision was upheld by the Court of  Appeal. On the other hand if there be no express or implied  request by the creditor to send the amount by post the mere  posting of a hundi duly endorsed in favour of the addressee does not operate  as delivery of the hundi to the addressee so as  to pass the title in the hundi to the addressee, for the  post-



office  in such circumstances does not become the  agent  of the addressee.  The case of Thorappa v. Umedmalji (2) is  an instance  on this point.  In the case of ex parte  Cote  (3) also there was no request by the addressee to (1)  L.R. [1918] 2 K.B. 67. (2)  (1923) 25 Bom.  L.R. 604. (3) L.R. (I873) 9 Ch.  App. 27. 203 send the bills by post.  The result of the various  judicial decisions  are summarised in Benjamin on Sale, 8th  Edition, pp.  769-77  1,  and in Chalmer’s Bills  of  Exchange,  12th Edition, pp. 51-52. A  good deal of stress is laid by Sri Kolah on what he  says is  the basic difference between the postal  regulations  in England  and those in India and he insists that the  English decisions laying down the effect of sending cheques by  post should not be rigidly ’followed here.  He points out that in England  the sender of the cheques has no right  to  reclaim the  same  after  it  is  posted,  and  that,   accordingly, immediately upon the posting of the cheques the post  office becomes  irrevocably  the agent of the addressee  and  that, therefore, the delivery of the cheque to the post-office is, in  English law, delivery to the addressee.  But  that,  Sri Kolah  maintains, is not the position under the Indian  Post Office Act, 1898.  We have been taken through the  different sections  of that Act and the rules made thereunder and  Sri Kolah contends that under the Indian law the sender has  the right  to reclaim the letter until it is actually  delivered to  the addressee and, therefore, until that time the  post- office remains the agent of the sender and consequently  the posting of a cheque cannot in India be regarded as  delivery of the cheque to the addressee.  We may, however, point  out that  this right of the sender, on which so much stress  and importance are laid by the learned advocate, is by no  means an   absolute  right,  for  it  is  left  entirely  to   the authorities to decide whether a letter once posted should be returned  to  the sender.  This very  narrow  and  qualified right can hardly be regarded as bringing about a position so different  from  that prevailing in England as to  make  the English  decisions  wholly  inapplicable.  It  may  also  be mentioned  that  in  spite of such  contention  the  English decisions  have been adopted by the Courts in  India,  e.g., Thorappa v. Umedmalji (supra) and the Indian Cotton  Company Ltd. v. Hari Poonjoo (1).  It is, however, not necessary  to pursue this line of reasoning any further for the principles underlying the English decisions are clearly consonant  with the provisions of (1)  I.L,R. 1937 Bom. 763. 204 the  Indian law.  There can be no doubt that as between  the sender and the addressee it is the request of the ’addressee that  the cheque be sent by post that makes the  post-office the  agent  of  the, addressee.   After  ’such  request  the addressee  cannot be heard to say that the  post-office  was not  his  agent and, therefore, the loss of  the  cheque  in transit  must fall on the sender on the specious  plea  that the  sender  having the very limited right  to  reclaim  the cheque ’Under the Post-Office Act, 1898, the post-office was his  agent, when in fact there was no such reclamation.   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.  Apart  from this  principle of agency there is another  principle  which makes  the delivery of the cheque to the post-office at  the request of the addressee a delivery to him and that is  that



by  posting  the cheque in pursuance of the request  of  the creditor  the debtor performs his obligation in  the  manner prescribed  and  sanctioned  by  the  creditor  and  thereby discharges the contract by such performance (see section  50 of the Indian Contract Act and illustration (d) thereto).    Sri  Kolah points out that when the Indian Contract  Act, 1872,  was passed, the Indian Post-Office Act, 1866, was  in force.   He has taken us through the relevant provisions  of that  old Act and he points out that those  provisions  were quite different from those of the present Act.  According to him  illustration (d) to section 50 of the  Indian  Contract Act must, after the passing of the Act of 1898, be taken  to have  become inappropriate, obsolete and incorrect.   We  do not  think, that there is any basic difference  between  the two  Acts  in respect of the matter under  discussion.   It. does  not  appear to us that the Act of  1898  enlarges  the right of the sender to reclaim the postal article to sub  an extent as to nullify illustration (d) or otherwise to affect the   well  known  general  principle  that  a   contractual obligation   is  discharged  by  the  performance   of   the engagement   or  promise  in  the  manner   prescribed   or, sanctioned by the promisee. 205 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 in  general 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 trans- mission  of  such articles and according to  the  Tribunal’s findings  they  -were in fact received by  the  assessee  by post.   Apart from the implication of an  agreement  arising from  such business usage the assessee expressly.  requested the  Government  to  "remit " the amounts of  the  bills  by cheques.   This,  on the authorities  cited  above,  clearly amounted in effect to an express request by the assessee  to send the   cheques by post.  The Government did act according to  such  request and posted the cheques in Delhi.   It  can scarcely  be  suggested  with-any  semblance  of  reasonable plausibility  that  cheques  drawn  in  Delhi  and  actually received  by  post in Aundh would in the  normal  course  of business  be  posted in some place  outside  British  India. This posting in Delhi, in law, amounted to payment in Delhi. In  this  view of the matter the referred  question  should, with  respect, have been answered by the High Court  in  the affirmative.  We, therefore, allow the appeal and answer the question  accordingly.   In  view  of  the  fact  that   the appellant has failed in the main argument but has  succeeded on  a new one we think no order should be made as  to  costs except  that each party should bear and pay his or  its  own costs before us as well as before the High Court. Appeal allowed. 206