Skip to content


Commissioner of Income-tax Vs. Kalyanmal Mills Tent Factory - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 154 of 1976
Judge
Reported in[1981]132ITR115(MP)
ActsIndian Income Tax Act, 1922 - Sections 4(1)
AppellantCommissioner of Income-tax
RespondentKalyanmal Mills Tent Factory
Appellant AdvocateS.C. Bagdiya, Adv.
Respondent AdvocateSanat Mehta, Adv.
Cases ReferredShri Jagdish Mills Ltd. v. Commissioner of Income
Excerpt:
.....innocence. conviction of appellant is liable to be set aside. - ' 3. the tribunal also referred to the letter dated 23rd june, 1944, which was sent by the controller to the mills company presumably before the receipt of the aforesaid letter, reminding the mills company to reply to the controller's letter dated 5th june, 1944, and to name the place where the mills company would like to receive the payment. 8. now, before we appreciate the contentions advanced by learned counsel for the parties, it would be useful to refer to the well-settled principles applicable to the determination of the question as to where payment canbe said to have been received by a creditor when he receives payment by negotiable instrument sent through post......government, wherein the government was requested to make payment by cheque to the imperial bank of india, indore. the tribunal also referred to the letter dated 12th june, 1944, sent by the mills company to the controller of supply accounts, bombay, in reply to his letter dated 5th june, 1944. the letter sent by the mills company was as follows : 'in reply to your letter no. si/p2/k4/386 dated 5-6-44, we beg to state that : as previously intimated under our letter no. gc 239 dated 17-5-44, we maintain that payment of our bills must be made to us as before and we do not agree to receiving payment in british india. should government however insist upon our payments being made in british india, we shall accept under protest.' 3. the tribunal also referred to the letter dated 23rd june,.....
Judgment:

Sohani, J.

1. By these six references under Section 66(1) of the Indian I.T. Act, 1922 (hereinafter referred to as 'the Act'), which have been consolidated, the Income-tax Appellate Tribunal, Indore Bench, has referred the following questions of law to this court for its opinion :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that there was an express or implied agreement by Govt. to pay the assessee at Indore and that the Post Office became the agent of the Govt. of India

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sale proceeds in respect of the goods supplied to the Government by the assessee-firm could not be brought to tax as having been received in British India within the meaning of Section 4(1)(a) of the Indian Income-tax Act, 1922 ?'

2. The facts, which are material for these references, briefly are as follows : The assessee is an unregistered firm consisting of two partners, the Kalyanmal Mills Ltd. (hereinafter referred to as the 'Mills Company'), and one Shri Walia. The assessment years in question are from 1942-43 to 1947-48. At the material time, the assessee carried on business at Indore, which was a Native Indian State, outside what was then known as British India. The status of the assessee has been held to be that of anon-resident association of persons. It is not necessary to refer to thechequered history of the assessment proceedings because the only fact material for the purpose of these references is that the ITO and, on appeal, the AAC held that the sale proceeds in respect of tents supplied by the assessee to the Govt. of India were received by the assessee in British India as payments were made to the assessee by cheques posted in British India. When the matter came up for consideration before the Tribunal, on appeal, the Tribunal first proceeded to consider the question as to whether there was any agreement between the parties, express or implied, as regards the place of payment. The Tribunal noted that in spite of opportunity afforded to the department to gather all materials to substantiate its contention that the sale proceeds were received by the assessee in British India, the copy of the contract or tender was not brought on recordeven though the assessee was contending that its case was different from the case of Indore Malwa United Mitts Ltd, v. CIT : [1966]59ITR738(SC) , relied upon by the AAC, and which turned on the consideration of the terms of the purchase order produced in that case. The Tribunal then found, on the basis of the material on record, that the assessee had no branch in British India, that the goods were manufactured at Indore at the premises of the Mills Company, a partner of the assessee, that the orders were placed by the Government on the Mills Company at Indore, that delivery was to be f.o.r. and freight was to be borne by the Govt. of India and that inspection of the goods and the delivery of goods were at Indore. As regards the place of payment, in view of the fact that the terms could not be ascertained by reference to the contract or tender form as they were not on record, the Tribunal referred to a copy of the bill, which was presented by the assessee to the Government, wherein the Government was requested to make payment by cheque to the Imperial Bank of India, Indore. The Tribunal also referred to the letter dated 12th June, 1944, sent by the Mills Company to the Controller of Supply Accounts, Bombay, in reply to his letter dated 5th June, 1944. The letter sent by the Mills Company was as follows :

'In reply to your letter No. SI/P2/K4/386 dated 5-6-44, we beg to state that : As previously intimated under our letter No. GC 239 dated 17-5-44, we maintain that payment of our bills must be made to us as before and we do not agree to receiving payment in British India. Should Government however insist upon our payments being made in British India, we shall accept under protest.'

3. The Tribunal also referred to the letter dated 23rd June, 1944, which was sent by the Controller to the Mills Company presumably before the receipt of the aforesaid letter, reminding the Mills Company to reply to the Controller's letter dated 5th June, 1944, and to name the place where the Mills Company would like to receive the payment. In that letter, it was further stated as follows :

'In the meantime your bills kept pending in this office have been paid by cheque drawn on the Reserve Bank of India, Bombay, in favour of the Imperial Bank of India, Indore. If no reply is received from you regarding the place of payment your future bills against contracts placed on or after 2-12-43 will be paid by cheque drawn on the Reserve Bank of India, Bombay.'

4. The Tribunal then referred to the letter dated 14th February, 1945, from the Secretary to the Resident, Central India, to the Prime Minister of Holkar State, communicating the acceptance of the Government of India to omit the condition about payment in British India in future contractsexecuted by the supply department with the local mills. The Tribunal then noted the contention advanced on behalf of the department and observed as follows :

'The D.R. submitted that at least before 14-2-45 we should presume that the payments were made in British India and that the Resident's letter only made it clear that the condition of payment in British India would be omitted for the future. This was also the view expressed by the Appellate Assistant Commissioner. We were, therefore, inclined to examine whether the material on record would justify that inference as against the specific mention in the mills company's letter dated 12-6-1944, that the payment would have to be made 'as before' in Indore. It was with this object in view that we enquired from the department whether they had on record copy of any of the contract and terms of contract prior to 14-2-1945. Unfortunately, these documents are not on record.'

5. The Tribunal then considered - the question as to whether it should send the case back for finding further facts, and the Tribunal observed as follows :

'Considering the very old assessment years involved, we do not think it proper to send the case back for finding out further facts when the department had already a second opportunity to find the relevant facts. We would rest our decision with reference to the facts already on record only and as brought to our notice.'

6. Thus, in the light of the facts brought on record in the instant case the Tribunal upheld the contention advanced on behalf of the assessee that the assessee was all along insisting upon the facts that the place of payment would be at Indore 'as before' and that when the Government wished to bring about a change by insisting on the assessee to receive payment in British India, the assessee protested and the protest was accepted. The Tribunal then gave its findings as follows :

'In these circumstances, we must hold that there was an exercise or implied agreement by Government to pay the assessee at Indore and further that the Post Office became the agent of the Government of India. We are, therefore, of opinion that the decision of the Supreme Court in the case of Patney & Co., namely, : [1959]36ITR488(SC) , would govern the facts of the present case.'

7. Aggrieved by the order of the Tribunal, the department sought reference to this court, and it is at the instance of the department that the aforesaid questions of law have been referred to this court by the Tribunal.

8. Now, before we appreciate the contentions advanced by learned counsel for the parties, it would be useful to refer to the well-settled principles applicable to the determination of the question as to where payment canbe said to have been received by a creditor when he receives payment by negotiable instrument sent through post. The principles have been succinctly stated in Dhrangadhra Trading Co. (P.) Ltd. v. CIT : [1966]60ITR674(Guj) as follows (p. 681) :

'Now in order to determine the place where the negotiable instrument can be said to have been received by the creditor, the court must first inquire whether there is any agreement between the parties as regards the place of payment. If there is an agreement between the parties, it must determine the place of payment and in such a case there is no room for implication. Such was the case in Commissioner of Income-tax v. Patney & Co. : [1959]36ITR488(SC) . If there is no agreement between the parties in regard to the place of payment the court must see whether the negotiable instrument was posted by the debtor pursuant to a request made by the creditor. If it is shown that the creditor authorised the debtor to send the negotiable instrument by post, the post office would be the agent of the creditor for the purpose of receiving payment and the property in the negotiable instrument would pass to the creditor as soon as it is posted with the result that the payment would be received by the creditor at the place where the negotiable instrument is posted by the debtor. The request which would constitute the post office the agent of the creditor may be express or it may even be implied from the facts and circumstances of the case. In Commissioner of Income-tax v. Ogale Glass Works Lid. : [1954]25ITR529(SC) , the request was an express request whereas in the case of Shri Jagdish Mills Ltd. v. Commissioner of Income-tax : [1959]37ITR114(SC) , the request was implied from the facts and circumstances of that case.'

9. These were the principles which the Tribunal had to apply to the facts of the present case. The Tribunal was, therefore, required to first ascertain whether there was an agreement between the parties as regards the place of payment. After appreciating the material on record, the Tribunal found that there was an agreement between the parties that the place of payment would be at Indore. As the contract or the entire correspondence between the parties was not on record, the Tribunal held that the agreement was implied, if not express, which could be inferred from the letters brought on record. It is in this context that the Tribunal held that there was either an express or implied agreement between the parties regarding the place of payment. This is a finding of fact and we cannot go behind that finding unless it is shown that there is no evidence to support that finding or that the Tribunal had misdirected itself in law in arriving at that finding.

10. Learned counsel for the assessee contended that if the department wanted to assail the finding of the Tribunal, then it should have expresslysought reference on the question about the validity of the findings of fact. It is true, as observed by the Supreme Court in India Cements Ltd, v. CIT : [1966]60ITR52(SC) , that in a reference, the High Court must accept the findings of fact arrived at by the Appellate Tribunal, and it is for the person who has applied for a reference to challenge those findings by expressly raising the question about the validity of the findings of fact. But, even assuming for the sake of argument that the question was broad enough, as urged on behalf of the department, to cover the question of the validity of the findings of fact arrived at by the Tribunal, it cannot be held, in our opinion, that the finding about the place of payment recorded by the Tribunal is based on no evidence or that it is arrived at by the Tribunal by misdirecting itself in law.

11. Learned counsel for the department contended that the finding regarding the place of payment was given by the Tribunal only on the basis of endorsement on the bill presented by the assessee requesting the Government to pay by cheque to the Imperial Bank of India, Indore, and the finding was, therefore, based on a fact which was not relevant for determining the place of payment. It is true that the request by the assessee to the Government to make payment by cheque to the Imperial Bank of India, Indore, would not by itself be determinative of the question as regards the agreement as to the place of payment. That request merely indicated the mode of payment desired by the assessee, and an inference that the attention of the parties was focussed on the question of the place of payment could not be drawn from that fact. But, in the instant case, it cannot be held that the finding given by the Tribunal regarding the place of payment is based only on the basis of the bill presented by the assessee to the Government requesting that payment be made by cheque to the Imperial Bank of India, Indore. We have referred to the letters on record, which are referred to by the Tribunal in its order. These letters unmistakably indicated that the attention of the parties was focussed on the question about the place of payment. In the light of all this material on record, the Tribunal came to the conclusion that the assessee insisted on Indore being the place of payment, that when the Government wished to bring about a change, the assessee protested, and that the protest was accepted. On the basis of these facts, which were all relevant, the Tribunal held that there was an implied, if not an express, agreement between the parties as regards the place of payment. In our opinion, therefore, the validity of the finding arrived at by the Tribunal as regards the agreement about the place of payment cannot be held to be unjustified on the ground that there was no evidence to support that finding or that it was arrived at on a consideration of material which was not relevant.

12. Learned counsel for the department then contended that in arriving at the finding regarding the agreement about the place of payment, the Tribunal misdirected itself in law. It was urged that as the assessee had requested the Government to make payment by cheque, the place where the cheque was posted would, according to law, be the place where the assessee would be deemed to have received the income. Learned counsel referred to the decisions of the Supreme Court in CIT v. Ogale Glass Works Ltd. : [1954]25ITR529(SC) , Shri Jagdish Mitts Ltd. v. CIT : [1959]37ITR114(SC) , Indore Malwa United Mitts Ltd. v. CIT : [1966]59ITR738(SC) and Azamjahi Mills Ltd. v. CIT [1916] 103 ITR 449. On behalf of the assessee, it was contended that as the assessce had expressly required the Government to make payment at Indore, outside British India, the present case was covered by the decision of the Supreme Court in CIT v. Patney & Co. : [1959]36ITR488(SC) .

13. Now, the decisions in CIT v. Ogale Glass Works Ltd. : [1954]25ITR529(SC) , Shri Jagdish Mitts Ltd. v. CIT : [1959]37ITR114(SC) , Indore Malwa United Mills Ltd. v. CIT : [1966]59ITR738(SC) and Azamjahi Mills Ltd. v. CIT : [1976]103ITR449(SC) are distinguishable on facts. From the mode of payment adopted by the parties and the surrounding circumstances, it was held that there was an express or implied request by the assessee to make the payments by cheques, posted from British India and, in these circumstances, the assessee was held to have received the income in British India. These decisions cannot be construed to mean, as urged on behalf of the department, that whenever payment was made by cheque, then the place of posting of the cheque would be, according to law, the place of payment, irrespective of any agreement to the contrary between the parties. As observed in Dhrangadhra Trading Co. (P.) Ltd v. CIT : [1966]60ITR674(Guj) , if there is an agreement between the parties regarding the place where payment would be made, that agreement must determine the place of payment and, in such a case, there is no room for implication. Only in a case where there is no agreement between the parties regarding the place of payment, the court has to see whether the cheque was posted by the debtor pursuant to a request, express or implied, made by the creditor, and if there was such an express or implied request, then the post office would be the agent of the creditor for the purpose of receiving the payment. But if, as observed by the Supreme Court in CIT v. Patney & Co. : [1959]36ITR488(SC) , it was found that the assessee had expressly required the amount to be paid at a particular place, the rule in Ogale Glass Works' case : [1954]25ITR529(SC) would not be applicable. In view of this decision of the Supreme Court, the Tribunal cannot be said to have misdirected itself in law in holding that there wasan agreement by the Government to pay the assessee at Indore and hence the post office became the agent of the Govt. of India. In this view of the matter, the Tribunal was, in our opinion, justified in holding that the sale proceeds in respect of the goods supplied to the Government by the assessee could not be brought to tax as having been received in British India.

14. For all these reasons, our answers to the questions referred to us are in the affirmative and against the department. In the circumstances of the case, parties shall bear their own costs of this reference.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //