1967-VIL-202-DEL-DT

Equivalent Citation: [1968] 68 ITR 770

DELHI HIGH COURT

Date: 21.02.1967

S ZORASTER AND COMPANY

Vs

COMMISSIONER OF INCOME-TAX, DELHI, AJMER, RAJASTHAN AND MADHYA BHARAT.

BENCH

Judge(s)  : K. S. HEGDE., M. M. ISMAIL.

JUDGMENT

This is a reference under section 66(1) of the Indian Income-tax Act, 1922 (to be hereinafter referred to as " the Act "). The question of law, referred for the opinion of this court, is :

" Whether, on the facts and circumstances of the case, the profits and gains in respect of the sales made to the Government of India, were received by the assessee in the taxable territories ? "

This reference was made on December 10, 1952, and it was numbered as Civil Reference Case No. 3 of 1953, in the High Court of Judicature for the State of Punjab at Simla. The said reference came up for hearing before a Bench consisting of G. D. Khosla and Harnam Singh JJ. on March 24, 1955. After hearing the counsel for the parties, their Lordships opined that it would be necessary to call for a supplementary statement under section 66(4) of the Act, as the Tribunal had not given any finding as to whether the cheques, with which we are concerned in this case, were sent to the assessee by post and whether the assessee had given any directions in that regard to the Government of India. They, accordingly, called for a supplementary statement. The assessee, aggrieved by the order of the High Court, calling for a supplementary statement, took up the matter in appeal to the Supreme Court in Zoraster & Co. v. Commissioner of Income-tax. The Supreme Court dismissed that appeal on August 17, 1960. Thereafter, the Appellate Tribunal submitted the supplementary statement called for, on March 18, 1961. On receipt of the supplementary statement, the case was numbered as Income-tax Reference No. 7 of 1961.

The facts material for the purpose of answering the question submitted to this court are these : The assessee is a firm consisting of three partners, namely, Sohanmal, Mehtabchand and Allahdin. Sohanmal and Mehtabchand are the two coparceners of a Hindu undivided family.

That Hindu undivided family has got its own business firm, and that firm is also known by name, S. Zoraster & Co. Both the assessee-firm as well as the business concern of the Hindu undivided family are situated in Jaipur. The assessee had certain business dealings with the Government of India. In respect of the same, the Government of India paid large sums of moneys to the assessee by means of cheques. The cheques in question were received at Jaipur. There is no evidence on the record to show as to how these cheques were sent by the Government of India to the assessee. Those cheques were drawn on the Reserve Bank of India at Bombay. On receipt of those cheques the assessee made them over to the Hindu undivided family firm, i.e., S. Zoraster & Co., which was financing its business. That firm sent those cheques to Bombay for collection and the moneys due under those cheques were ultimately realised at Bombay. At the hearing of the reference, as mentioned earlier, the High Court of Punjab thought that, for answering the question referred to it, it was necessary to find out the manner in which the cheques were sent by the Government of India to the assessee and further, whether the assessee had given any directions in that regard to the Government of India. When the matter went back to the Appellate Tribunal, it found that on the material before it, it was not possible to find out as to how the cheques in question were sent by the Government of India to the assessee.

Dealing with the question, whether the assessee had given any direction as to the mode in which the payments were to be made, the Appellate Tribunal referred to the form in which the bills were drawn. A copy of the form in which the bills were sent is marked as annexure " I " to the supplementary statement. That merely shows that the assessee wanted the payments should be made to it through cheques drawn on the Reserve Bank of India at Bombay. The bills were silent about the place where the payments were to be made or as to the fact as to how the cheques were to be sent.

The facts found by the Tribunal are these :

The goods sent by the assessee to the Government of India were despatched from Jaipur. The property in those goods passed to the Government at Jaipur. Along with those goods the assessee sent its bills. One of the columns in those bills read as follows :

--------------------------------------------------------------------------------------------------------------------------------------------------

" (In words) Rupees Total : ........................

(to be made out to the

nearest rupee)

--------------------------------------------------------------------------------------------------------------------------------------------------

One anna receipt Please pay by

stamp on original cheque to Self Bank Received

copy only --------- on ----------------- payment

Bank Treasury

at ...........................

Contractor's Contractor's

signature. name in full. "

--------------------------------------------------------------------------------------------------------------------------------------------------

After the receipt of the goods, the Government of India made payments to the assessee by means of cheques. Those cheques were received by the assessee at Jaipur. Those cheques were drawn on the Reserve Bank of India at Bombay. S. Zoraster & Co. collected the moneys due under those cheques at Bombay. It is not established how those cheques were sent to the assessee by the Government of India. Now, on the basis of these facts we have to see whether the payments in question were received within the taxable territory. Admittedly, at the relevant point of time, Jaipur was outside the taxable territory.

On behalf of the assessee, it was urged that the payments in question were received at Jaipur and, therefore, section 4(1)(a) of the Act does not apply to the facts of the case. As against this, the contention of the revenue is that the payments in question were received either at Bombay, where the Reserve Bank paid the moneys due under those cheques, or that they were received at Delhi where the cheques were posted. According to the revenue, the post office must be considered as the agent of the assessee.

We shall first take up the question as to what is the effect of the Government making payments to the assessee by means of cheques. Did the receipt of the cheques by the assessee amount to receipt of the moneys due or whether the actual payments should be considered to have been made when the moneys due under those cheques were realised. It is not the case of the revenue that any of the cheques issued by the Government was dishonoured.

The Appellate Tribunal has taken the view that the assessee must be held to have received the payments in question at Bombay where the cheques were cashed.

A question similar to the one set out above came for consideration before the Supreme Court in Commissioner of Income-tax v. Ogale Glass Works Ltd. In that case an assessee, resident at Aundh, then a native State, supplied certain goods to the Government of India. The assessee had asked the Government to pay their price by means of cheques drawn on the Reserve Bank at Bombay. The assessee-company was resident at Aundh, which was outside the taxable territory. The assessee sent the cheques in question to Bombay for collection. They were cashed at Bombay. The first question that fell for decision by the Supreme Court was whether the payments in question should be deemed to have been made at Aundh or at Bombay. The revenue's contention in that case, as in this case, was that the moneys due under the cheques were received at Bombay and not at Aundh. The Supreme Court repelled that contention. It opined that on the facts of the case, it must be held that the receipts of cheques were as good as receiving cash and the fact, the cheques in question were cashed at Bombay, is not at all relevant. Dealing with that aspect, this is what S. R. Das J. (as he then was) observed :

" 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 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). Reference in this connection may also be made to the decisions in Commissioner of Income-tax v. Kameshwar Singh ; Raghunandan Prasad v. Commissioner of Income-tax ; and Commissioner of Income-tax v. Maheshwari Saran Singh. 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 and Maillard v. Duke of Argyle) or 'in discharge' (Kemp v. Watt) or in 'settlement' of the price (In re Romer and Haslam). 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) 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 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 acknowledgment 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.

Shri 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 of the debt. (Robinson v. Henry Reid and Anderson v. Hillies). 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, prescribed 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 its 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 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. "

The above observations, substantially, apply to the facts of the present case. It is true that in Ogale Glass Works case the assessee sent the receipts after the receipt of cheques, but in the present case the receipts were incorporated in the bills themselves. In our judgment, that circumstance does not affect the ratio of the decision in Ogale Glass Works case referred to earlier.

Shri D. K. Kapur, learned counsel for the revenue, urged that the observations made by the Supreme Court in Zoraster & Co. v. Commissioner of Income-tax, referred to earlier, should be considered as indicating that the payments with which we are concerned in this case were made within the taxable territories. We are unable to accept that contention. In that case, all that the Supreme Court had to consider was, whether the High Court was justified in calling for a supplementary statement on the facts of the case. It negatived the contention of the assessee that the High Court erred in law in calling for the supplementary statement in question. For pronouncing on the question before it, it had to go into the facts of the present case as well as on the law bearing on the subject. We do not think that in that case the Supreme Court, in any manner, differed from the views expressed in Ogale Glass Works' case.

Shri Kapur next placed reliance on a decision of the Supreme Court in Commissioner of Income-tax v. Patney & Co. We fail to see what assistance the revenue can get from the said decision. Therein, it was found as a fact that the assessee had required its customers to make all payments at Secunderabad, which was outside the taxable territories. On the basis of that fact, the court came to the conclusion that no income, profit or gain was received within the taxable territories. In the course of the judgment in that case, the Supreme Court observed :

" In the case of payment by cheque 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. If there is an express request by the creditor that the amount be paid by cheque to be sent by post and it is so sent, the payment will be taken to be at the place where the cheque is posted. "

About that proposition of law, there is no controversy before us.

The last decision on which Shri Kapur placed reliance in support of the contention that the amounts in question were received within the taxable territories, is the decision of the Supreme Court in Shri Jagdish Mills Ltd. v. Commissioner of Income-tax. After examining the facts of that case, the court came to the conclusion that though the assessee was residing outside the taxable territories, the amounts due to him were sent through cheques posted within the taxable territory. On the facts of that case, its further conclusion was that the assessee had impliedly consented to the sending of the cheques through post. This conclusion the court reached because of the fact that the Government of India was consistently sending cheques from Delhi to the assessees. The assessee received them at Baroda and cashed them without objection. From that course of conduct which continued for a considerable time, the court drew the inference that the assessee had impliedly authorised the Government of India to send the cheques in question through post.

If there was a finding by the Tribunal that the Government of India was invariably sending the cheques, referred to earlier, from Delhi to Jaipur through post and that the assessee was receiving those cheques without demur, then we would have found no difficulty in upholding the contention of Shri Kapur that the cheques in question were sent to the assessee through post with its implied consent and, that being so, the post office should be considered as the agent of the assessee. But, as mentioned earlier, in the instant case, there is no evidence to show that those cheques were sent by post. Hence, the question of assessee's consent, implied or otherwise, does not arise for consideration. For these reasons, we do not think that the rule laid down by the Supreme Court in Shri Jagdish Mills' case has any bearing on the point under consideration.

It may be, or we may go further and say, it is likely that the Government of India was sending cheques to the assessee through post. But the fact remains that there is no such finding by the Tribunal. The revenue has failed to place any material before the Tribunal to prove that the cheques in question were being sent by the Government through post. The burden of proving that the assessee received any income, gain or profit, within the taxable territories is on the revenue. It cannot ask the court to presume facts and circumstances in its favour. The factum of the cheques having been sent through post must be proved.

The contention of Shri Gopal Singh, learned counsel for the assessee, that the circumstance that the cheques were cashed at Bombay is irrelevant, is well founded. The realisation of the cheques at Bombay does not alter the fact that the payments were made at Jaipur. That conclusion receives support from the decisions in Keshav Mills Ltd. v. Commissioner of Income-tax, Turner Morrison & Co. Ltd. v. Commissioner of Income-tax and Zoraster & Co. v. Commissioner of Income-tax, already referred to.

As seen earlier, the assessee's place of business is at Jaipur. It had asked the Government of India to pay the moneys due to it by cheques. The law is, that the debtor must find out his creditor and pay his dues. From that, it follows that the Government of India had to pay moneys due from it to the assessee at Jaipur. For these reasons, we have come to the conclusion that payments by cheque are equivalent to cash payments. The cumulative effect of our findings is that the assessee received those payments at Jaipur. If that be so, those payments cannot be taken into consideration in determining the income, gains or profits of the assessee in the taxable territories.

Shri Gopal Singh next contended that, on a proper appreciation of the material before us, it would be seen that the assessee had given specific directions to the Government of India to pay amounts due from it at Jaipur. In the bills to which a reference has already been made, all that is stated is that the money should be paid to the assessee by means of cheques. It is not mentioned therein as to where the payments should be made. That being so, this case does not fall within the rule laid down by the Supreme Court in Commissioner of Income-tax v. Patney & Co.

For the reasons mentioned above, our answer to the question referred to us is that :

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.

The assessee is entitled to its costs of this reference. Advocate's fee Rs. 250.

 

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.