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Oswal Woollen Mills Ltd. Vs. Commissioner of Income-tax, (Central) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 87 of 1974
Judge
Reported in(1979)12CTR(P& H)111; [1980]122ITR789(P& H)
ActsIncome Tax Act, 1922 - Sections 18A, 18A(1) and 18A(2); Income Tax Act, 1961 - Sections 256 and 273
AppellantOswal Woollen Mills Ltd.
RespondentCommissioner of Income-tax, (Central)
Appellant Advocate B.S. Gupta and; G.R. Dehyia, Advs.
Respondent Advocate D.N. Awasthy and; B.K. Gupta, Advs.
Cases ReferredDamadilal v. Parashram
Excerpt:
- sections 80 (2) & 89 & punjab motor vehicles rules, 1989, rules 85 & 80: [t.s. thakur, cj, jasbir singh & surya kant, jj] appeal against orders of state or regional transport authority imitation held, a stipulation regarding the period of limitation available for invoking the remedy shall have to be strictly construed. that is because any provision by way of limitation is in the nature of a restraint on the remedy provided under the act. so viewed two inferences are clear viz., (1) sections 80 and 89 of the act read with rule 85 of the rules make it obligatory for the authorities making the order to communicate it to the applicant concerned and (2) the period of limitation for any appeal against the order is reckonable from the date of such communication of the reasons would imply.....r.n. mittal, j.1. the income-tax tribunal, chandigarh, in pursuance of the direction of this court under section 256(2) of the income-tax act, 1961 (hereinafter to be referred to as the ' 1961 act '), dated april 4, 1974, referred the following question for the opinion of this court :' whether, on the facts and in the circumstances of the case, the tribunal was justified in holding that the payment of rs. 76,150by cheque on march 15, 1961, could not be considered as payment of advance income-tax '2. the assessee is a limited company. for the assessment year 1961-62, the accounting year of the company is the calendar year 1960. a notice under section 18a(1) of the indian income-tax act, 1922 (hereinafter to be referred to as the ' 1922 act '), was served on the assessee on july 18, 1960,.....
Judgment:

R.N. Mittal, J.

1. The Income-tax Tribunal, Chandigarh, in pursuance of the direction of this court under Section 256(2) of the Income-tax Act, 1961 (hereinafter to be referred to as the ' 1961 Act '), dated April 4, 1974, referred the following question for the opinion of this court :

' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the payment of Rs. 76,150by cheque on March 15, 1961, could not be considered as payment of advance income-tax '

2. The assessee is a limited company. For the assessment year 1961-62, the accounting year of the company is the calendar year 1960. A notice under Section 18A(1) of the Indian Income-tax Act, 1922 (hereinafter to be referred to as the ' 1922 Act '), was served on the assessee on July 18, 1960, requiring it to pay a sum of Rs. 91,150.20 as advance tax in three equal instalments on September 15, 1960, December 15, 1960, and March 15, 1961. The instalment due on September 15, 1960, was not paid by the assessee. On September 27, 1960, it, however, filed an estimate under Section 18A(2) estimating the tax payable at Rs. 15,000 and paid Rs. 5,000 on September 22, 1960, and Rs. 10,000 on December 26, 1960. Subsequently, on March 15, 1961, the assessee sent a cheque for Rs. 76,150 drawn on the Punjab National Bank Ltd., Ludhiana, along with a letter of even date. The ITO wrote a letter dated March 16, 1961, to the assessee asking it to submit a revised estimate of its total income. The assessee replied to this letter, vide letter dated March 20, 1961, that the payment was made on the basis of the demand notice under Section 18A(1) dated July 6, 1960. The cheque was endorsed by the ITO in favour of the State Bank of India, Ludhiana, on April 3, 1961, and was encashed on April 24, 1961.

3. The assessse filed a return of its income declaring an income of Rs. 9,48,160 and the assessment was completed on a total income of Rs. 11,37,651. In consequence of the assessment a demand notice dated March 30, 1966, was issued to the assessee. As the estimate filed by the assessee under Section 18A(2) was found to be untrue, penalty proceedings under Section 273(1)(a) of the 1961 Act were initiated at the time of completing the assessment. After giving an opportunity of being heard to the assessee, the ITO imposed a penalty of Rs. 7,615.

4. The assessee filed an appeal against the order of the ITO to the AAC which was dismissed by him. It, therefore, went up before the Income-tax Appellate Tribunal in second appeal.

5. The plea of the assessee before the Tribunal was that by sending a cheque for Rs. 76/150 to the ITO on March 15, 1961, the tax demanded as per notice under Section 18A(1) amounting to Rs. 91,150 was paid and, therefore, no penalty was leviable. The contention of the assessee was rejected by the Tribunal, observing that at best the amount of Rs. 76,150 could be realised only on March 16, 1961, and the date being after the statutory date, viz., March 15, 1961, fixed for payment of advance tax, the said amount could not be treated as payment of advance tax within the meaning of Section 273(1). It further held that the estimate of advance-tax filed by the assessee was untrue and the assessee knew and had reason to believe it to be untrue. It also came to the conclusion that the penalty under Section 273(1)(a) was exigible. Consequently, the levy of the impugned penalty was confirmed and the appeal of the assessee was dismissed.

6. The assessee then moved an application under Section 256(1), requiring the Tribunal to refer the following three questions for the opinion of this court :

' (i) Whether, on the facts and in the circumstances of the case, the income-tax authorities were justified in imposing penalty on the assessee under Section 273(1)(a) of the Income-tax Act, 1961 ?

(ii) Whether, on the facts and in the circumstances of the case, the income-tax authorities were justisfied in computing the penalty leviable under Section 273(1)(a) of the Income-tax Act, 1961, with reference to advance tax payment of Rs. 15,000 only ?

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that payment of Rs. 76,150 by cheque on March 15, 1961, could not be considered as payment of advance income-tax '

7. But the prayer of the assessee was declined. Thereafter it moved this court under Section 256(2) and prayed that the Tribunal be directed to state the case and refer the aforesaid questions to this court. This court, vide order dated April 4, 1974, partly accepted the prayer and directed the Tribunal to refer question No. 3 only out of the above-mentioned questions for the opinion of this court. This is how the matter is before us.

8. It is contended by Mr. Gupta that the assessee paid the advance tax amounting to Rs. 76,150 as demanded by the ITO, on March 15, 1961, by a cheque drawn on the Punjab National Bank, Ludhiana, which was encashed when presented to the bank. He urges that payment by a cheque is deemed to be made on the date when the cheque is handed over and not on the date when it is encashed. According to the counsel, the Tribunal was not justified in holding that the payment of advance tax by cheque for Rs. 76,150 on March 15, 1961, could not be considered as payment towards it on the ground that the cheque would be deemed to have been encashed not earlier than March 16, 1961.

9. On the other hand, Mr. Awasthy has strenuously argued that the question is of wide amplitude. He contends that the payment made by an assessee towards advance tax without a proper return is not payment under Section 18A of the 1922 Act. According to him, no return was filed by the assessee in the present case when he made payment by cheque on March 15, 1961, and, consequently, it could not be considered as a payment towards the advance tax. He also contends that the question is comprehensive enough to take into consideration the aforesaid facts for answering it as the facts are amply proved on the record. In support of his contention, he places reliance on CIT v. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) and Seth Balkishan Das v. CIT . He has also controverted the contention of Mr. Gupta and urged that the payment by cheque to an ITO would be deemed to be a payment on the date when it is encashed.

10. Mr. Gupta in reply to Mr. Awasthy's argument has submitted that the question referred to this court is limited only to the matter whether the payment made by cheque will be deemed to be a payment on the date when the cheque was handed over or when it was encashed. According to him, the contention raised by Mr. Awasthy could not be taken into consideration for answering the question referred to this court.

11. We have heard the learned counsel for the parties at a considerable length and given due consideration to their arguments. First thing that arises for determination is as to whether the question referred to is wide enough to include as to whether payment by cheque without an estimate is deemed payment towards advance tax or not. In order to determine the matter it will be necessary to refer to the decision of the Tribunal and of this court in the application under Section 256(2) of the 1961 Act (Income-tax Case No. 11 of 1972, decided on April 4, 1974), whereby direction was issued to the Tribunal to refer the question of law to this court. The Tribunal while deciding the case gave a firm finding that when the cheque was sent by the assessee to the ITO on March 15, 1961, it did not file any estimate. It also held that the estimate filed by the assessee;on September 27, 1960, is an untrue estimate which the assessee knew or had reason to believe to be untrue, that the assessee did not file any other estimate and that its letter dated March 20, 1961, could not be equated with an estimate of advance tax payable. The relevant observations of the Tribunal are as follows :

' We have heard both the parties and have perused the record ; penalty under Section 273(1)(a) becomes leviable when the Income-tax Officer, in the course of proceedings in connection with the regular assessment, is satisfied that any assessee has furnished under Section 212 an estimate of advance tax payable by him which he knew or had reason to believe to be untrue. We have, therefore, to consider in this case whether the estimate of advance tax filed by the assessee was untrue and whether the assessee knew or had reason to believe that the estimate filed was untrue. It is common ground that the assessee filed only one estimate on September 27, 1960, wherein the total tax payable was calculated at Rs. 15,000. This is the only estimate which is a legal estimate and requires to be considered in this case. The assessee's own conduct shows that the estimate filed on September 27, 1960, was untrue because on 15th March, 1961, it was realised that the estimate filed was not correct and, therefore, a cheque for Rs. 76,150 was sent to the Income-tax Officer. Even when the cheque was sent to the Income-tax Officer on March 15, 1961, the assessee did not file any estimate. When the Income-tax Officer called upon the assessee to file a regular estimate the assessee filed a reply on 20th March, 1961, that the payment was being made on the basis of the demand raised by the Income-tax Officer. The letter dated 20th March, 1961, cannot be considered to be an estimate for purposes of advance tax because the assessee neither filed an estimate in the prescribed form nor was any letter filed before the due date, viz., March 15, 1961, when the last instalment of advance tax was due to be paid. A reference may be made to the Madras High Court judgment in the case of A. K. Bashu Sahib v. First Income-tax Officer : [1967]66ITR20(Mad) wherein the assessee sent through his auditor on August 30, 1962, an estimate of income and probable tax for 1962-63, not in the prescribed form, which was, however, sent on the next day, namely, September 1, 1962, and was received by the officer on September 5, 1962, the intervening days being holidays. On the question whether the assessee-petitioner could avail of this estimate for payment of the first instalment of advance tax, the High Court held, ' that as Sections 210 to 212 and 218 of the Income-tax Act, 1961, read together, make it manifest that, in order that an assessee may pay a particular instalment of advance tax in accordance with his estimate, the same must be sent in the prescribed form before the date on which that instalment became due, the assessee was not entitled to make the payment as per his estimate as he had not sent the same in the prescribed form before that instalment became due.' The income of the assessee as per its own return came to Rs. 9,48,160 and considering this figure, the income for the first about 9 months could not be so little as was estimated by the assessee for purposes of advance tax. On the assessee's own reasoning the first three months of the accounting year would fall in the business season itself and the income for that period itself would be roughly 1/4th of the total income, i.e., Rs. 2,37,000 approximately. On the facts of this case we do not have the slightest hesitation in coming to the conclusion that the estimate filed by the assessee on September 27, 1960, is an untrue estimate which the assessee knew or had reason to believe to be untrue. The assessee did not file any other estimate and its letter dated March 20, 1961, cannot be equated with an estimate of advance tax payable.' (Important lines underlined * by us).

12. After giving the above finding the Tribunal considered the argument advanced by the learned counsel for the assessee regarding payment by cheque. The aforesaid fact shows that the question, as to whether a payment of advance tax without a return was good payment or not, was before the Tribunal. When the matter was argued by the counsel for the assessee before this court, in an application under Section 256(2) of the 1961 Act, he raised two arguments. First, that if the department accepted the cheque on March 15, 1961, then the encashment of cheque would relate back to that date, and, second, that the advance tax could be paid by the petitioner before the close of the financial year on March 31, 1961. After taking into consideration the arguments of the learned counsel and the order of the Tribunal, the above-said question was referred to this court. In our view, the question referred to is comprehensive enough to include the argument of Mr. Awasthy. The question specifically poses the query as to whether the payment of Rs. 76,150 by cheque on March 15, 1961, could be considered as payment of advance income-tax. The words ' payment of advance income-tax ' are important, which shows that it is to be decided as to whether payment of Rs. 76,150 could be considered towards payment of advance tax. If the argument of Mr. Gupta is accepted then the question would have been, whether the Tribunal was justified in holding that the payment of Rs. 76,150 by cheque on March 15, 1961, could not be considered as payment made on that date. It is well established that when a question is raised before the Tribunal and is dealt with by it, it is one arising out of its order. It is also well established that if a point of law is covered by the question referred to by the Tribunal and no additional facts are necessary to support that point, it can be raised for the first time before the court, notwithstanding that it was not considered by the Tribunal. The matter has been dealt with by the Supreme Court in Scindia Steam Navigation Co.'s case : [1961]42ITR589(SC) . In that case, on the application of the company, the Appellate Tribunal had referred a question to the High Court to the effect as to whether the sum of Rs. 9,26,532 was properly included in the assessee-company's total income computed for the assessment year 1946-47. The company for the first time raised the contention that the fourth proviso to Section 10(2)(vii) did not apply to the assessment as it was not in force on April 1, 1946, and the liability of the company had to be determined as on April 1, 1946, when the Finance Act, 1946, came into force. A preliminary objection was raised on behalf of the Commissioner that this question did not arise out of the order of the Tribunal within the meaning of Section 66, as it was neither raised before the Tribunal and dealt with by it nor referred to the court. The High Court overruled the objection on the ground that the form in which the question was framed was sufficiently wide to take in the new contention and the company was entitled to raise it even if that aspect of the question had not been argued before the Tribunal. It held that the proviso was not retrospective in its operation and was not in force on April 1, 1946, and, therefore, the sum of Rs. 9,26,532 was not liable to be included in the taxable income of the company for the assessment year 1946-47. On appeal to the Supreme Court, it held that the High Court had the jurisdiction to entertain the company's contention raised for the first time before it that the fourth proviso to Section 10(2)(vii) did not apply to the assessment as the contention was within the scope of the question as framed by the Appellate Tribunal and was really implicit therein. Relying upon the aforesaid judgment, a Full Bench of this court took the same view in Seth Balkishan Das's case . Briefly, the facts of that case are that 8 years' period fixed for a notice under Section 34(1) of the 1922 Act expired on March 31, 1956. Notice under the section was sent by registered post duly addressed to the assessee on March 28, 1956, and it was received by him on April 2, 1956. It was also sent through the process server but as the assessee refused to accept service of notice personally, service of notice by affixture was ordered. A copy of the notice was not, however, affixed in any of the conspicuous places in the court house or at the income-tax office. A question was referred to the High Court to the effect as to whether on the facts and circumstances of the case the service of the notice under Section 34 on the assessee was invalid in law as the copy of the notice was not affixed in any conspicuous place of the court house or in any conspicouus place of the income-tax office. A contention was raised by the learned counsel for the revenue that the service of the notice on the facts and circumstances of the case in any event was valid independently of the provisions of Order 5, Rule 20 of the CPC. The Bench held that the question referred merely relates to the validity of the service of notice under Section 34 and is not confined to the consideration of Order V, Rule 20, Code of Civil Procedure alone. In the statement of the case forwarded to this court by the Appellate Tribunal, the fact of a notice having been sent to the assessee by registered post on March 28, 1956, and received by the assessee on April 2, 1956, was clearly stated. The Tribunal proceeded to consider the provisions of Order V, Rule 20, but merely for this reason it cannot be said that the validity of the notice served by registered post did not arise as a question of law from the order of the Tribunal and the facts admitted or proved. It, therefore, concluded that the question related to the validity of the notice under Section 34 of the 1922 Act and each aspect of the question of the validity of the notice cannot be a distinct question of law for the purpose of Section 66(1) so as to require it to be separately formulated and stated for answer by this court. The above-said observations are fully applicable to the case in hand. In the present case, the argument sought to be raised by Mr. Awasthy is not only covered by the question but was also raised before the Tribunal. We are, therefore, of the opinion that the learned counsel for the revenue can raise the question as to whether the payment of the amount of Rs. 76,150 without the revised estimate can be considered to be a payment towards advance tax under Section 18A of the 1922 Act.

13. Before dealing with the contention raised by Mr. Gupta, it will be proper to deal in the first instance with the contention of Mr. Awasthy that even if the amount of Rs. 76,150 is assumed to be paid on March 15, 1961, it cannot be considered as payment of advance income-tax, because the assessee failed to furnish the estimate. There is no dispute about the facts as already stated above. Section 18A of the 1922 Act relates to advance payment of tax. The relevant sub-sections are reproduced below :

' 18A. Advance payment of tax.--(1)(a)....the Income-tax Officer may, on or after the 1st day of April in any financial year, by order in writing, require an assessee to pay quarterly to the credit of the Central Government on the 15th day of June, 15th day of September, 15th day of December and 15th day of March in that year, respectively, an amount equal to one-quarter of the income-tax and super-tax payable on so much of such income as is included in his total income of the latest previous year in respect of which he has been assessed, if that total income exceeded the maximum amount not chargeable to tax in his case by two thousand five hundred rupees. Such income-tax and super-tax shall be calculated at the rates in force for the financial year in which he is required to pay the tax, and shall bear to the total amount of income-tax and super-tax so calculated on the said total income the same proportion as the amount of such inclusions bears to his total income or, in cases where under the provisions of Sub-section (1) of Section 17 both income-tax and super-tax or super-tax are chargeable with reference to the total world income, shall bear to the total amount of income-tax and super-tax which would have been payable on his total world income of the said previous year had it been his total income the same proportion as the amount of such inclusions bears to his total world income....

(b) If the notice of demand issued under Section 29 in pursuance of the order under Clause (a) of this sub-section is served after any of the dates on which the instalments specified therein are payable, the tax shall be payable in equal instalments on each of such of those dates as fall after the date of the service of the notice of demand, or in one sum on the 15th day of March if the notice is served after the 15th day of December.

(2) If any assessee who is required to pay tax by an order under Subsection (1) estimates at any time before the last instalment is due that the part of his income to which that sub-section applies for the period which would be the previous year for an assessment for the year next following is less than the income on which he is required to pay tax and accordingly wishes to pay an amount less than the amount which he is so required to pay, he may send to the Income-tax officer an estimate of the tax payable by him calculated in the manner laid down in Sub-section (1) on that part of his income for such period, and shall pay such amount as accords with his estimate in equal instalments on such of the dates specified in subsection (1)(a) as have not expired or in one sum if only the last of such dates has not expired :

Provided that the assessee may send a revised estimate of the tax payable by him before any one of the dates specified in Sub-section (1)(a) and adjust any excess or deficiency in respect of any instalment already paid in a subsequent instalment or in subsequent instalments.'

14. From a plain reading of the section it is evident that the ITO can direct an assessee to pay the advance tax in quarterly instalments, to be calculated on the basis of the income of the latest previous year regarding which assessment has been made, and if the assessee wishes to pay an amount less than the amount required to be paid on the ground that his estimated income for that period would be less, he can send to the ITO an estimate of the tax payable by him calculated on that part of his income for such period and pay the amount accordingly. It is also evident that the assessee has to send a revised estimate of the tax payable by him before any of the said dates, i.e., June 15, September 15, December 15 and March 15 and adjust any excess or deficiency in respect of any instalment already paid in a subsequent instalment or in subsequent instalments. It, therefore, follows that if an assessee wants to pay a lesser amount than that demanded by the ITO, the submission of an estimate of tax is a pre-requisite for deposit of the advance tax and if he deposits the amount without estimate, it cannot be considered to be payment towards advance tax.

15. In this view, I get support from A. K. Bashu Sahib v. First ITO : [1967]66ITR20(Mad) and Malama Brother and Co. v. CIT : [1973]91ITR371(Guj) . In Bashu Sahib'scase : [1967]66ITR20(Mad) , the assessee had sent through his auditor on August 30, 1962, an estimate of income and probable tax for 1962-63 not in the prescribed form, which was, however, sent on the next day, namely, September 1, 1962, and was received by the officer on September 5, 1962, the intervening days being holidays. On the question, whether the assessee could avail of this estimate for payment of the first instalment of advance tax, the High Court of Madras held that as Sections 210 to 212 and 218 of the 1961 Act read together, make it manifest that, in order that an assessee may pay a particular instalment of advance tax in accordance with his estimate, the same must be sent in the prescribed form before the date on which that instalment became due, and that the assessee was not entitled to make the payment as per his estimate as he had not sent the same in the prescribed form before that intalment became due. It may be noticed that, according to Section 211, the advance tax is payable in instalments on 1st day of June, 1st day of September, 1st day of December, and 1st day of March in the financial year. The Gujarat High Court in Malavia Brothers' case : [1973]91ITR371(Guj) , observed that if an assessee failed to comply with the order under Section 210 without filing an estimate under Section 212 he would be treated as in default under Section 218 and would be liable to penalty under Section 221(1) of the 1961 Act. It will be relevant to state that Section 18A(1) of the 1922 Act is equivalent to Section 210(3) of the 1961 Act and Section 18A(2) to Section 212 (1) and (2).

16. Adverting to the facts of the present case, the assessee was served with a notice on July 18, 1960, requiring it to pay an amount of Rs. 91,150.20 as advance tax in three instalments on September 15, I960, December 15, 1960, and March 15, 1961. The assessee did not pay the instalment of September 15, 1960, but deposited the amount of Rs. 5,000 only on September 22, 1960. Thereafter, it submitted an estimate of the income on September 27, 1960, wherein he showed his liability to pay advance tax to the extent of Rs. 15,000. It deposited an amount of Rs. 10,000 in accordance with the estimate on December 26, 1960. On March 15, 1961, it sent a cheque of Rs. 76,150, drawn on the Punjab National Bank, Ludhiana, to the ITO along with a letter of even date. The ITO wrote a letter dated March 16, 1961 (annex. ' A '), to the petitioner-assessee pointing out that the cheque should have been sent along with an estimate of the income. He, therefore, requested the petitioner to send a revised estimate of the total income. In reply to the said letter, the petitioner wrote on March 20, 1961, that the payment had been made on the basis of the demand notice under Section 18A dated July 6, 1960. Thus, it is evident that in spite of the letter of the ITO, the petitioner did not send any revised estimate which was necessary to be sent under Section 18A of the 1922 Act. The provisions of the section have already been reproduced above. The Tribunal after considering the matter came to the conclusion that the letter dated March 20, 1961, cannot be equated with the estimate of advance tax payable. In these circumstances, the amount of Rs. 76,150 cannot be held to be a payment towards advance tax.

17. The argument of Mr. Gupta, in view of the above conclusions, is of academic interest only. However, it will be proper to deal with it. According to the contention of Mr. Gupta, payment by a cheque dated March 15, 1961, shall be deemed to be payment made to the department on that date as the cheque was subsequently encashed. On the other hand, Mr. Awasthy contends that it is not so. He submits that the payment to the department shall be when the cheque was encashed and it cannot relate back to the date when the cheque was presented to the ITO. He further contends that the Act or the Rules do not provide payment by an assessee through a cheque and, therefore, payment by cheque cannot be considered to be good payment unless the cheque was encashed.

18. We have given thoughtful consideration to the respective arguments of the learned counsel. We find force in the contention of Mr, Gupta. It is a settled proposition of law that if payment by any cheque is accepted and the cheque on presentation is encashed, the payment relates back to the date when the cheque had been received. The cheque, however, is a waste paper if it is not honoured by the bank. In the aforesaid view, we are supported by the following observations of the Supreme Court in CIT v. Ogale Glass Works Ltd. : [1954]25ITR529(SC) :

' 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 presentation the creditor may consider it as waste paper and resort to his original demand (Stedman v. Gooch [1793] 1 Esp. 5). It is said in Benjamin on Sale, 8th Edn., p. 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 Bytes on Bills, 20th Edn., p. 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 Edn., Vol. 1, p. 342. In Felix Hadley & Co. v. Hadley [1898] 2 Ch 680, 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 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 Rhokana Corporation v. Inland Revenue Commissioners [1938] AC 380 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 nonpayment 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 back 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. '

19. The observations of the Supreme Court in another case Damadilal v. Parashram : AIR1976SC2229 , may also be read with advantage. In that case, the defendants had tendered arrears of rent by a cheque within the prescribed time. A question arose whether that was a lawful tender. The High Court took the view that in the highly developed society, payment by cheque has become a more convenient mode of discharging one's obligation. If a cheque is an instrument which represents and produces cash and is treated as such by businessmen, there is no reason why the archaic principle of the common law should be followed in deciding the question as to whether the handing over of the cheque is not a sufficient tender of the arrears of rent if the cheque is drawn for that amount. It is no doubt true that the issuance of the cheque does not operate as a discharge of the obligation unless it is encashed, and it is treated as a conditional payment, yet this is a sufficient tender of the arrears if the cheque is not dishonoured. In the present day society an implied agreement should be inferred that if the payment is made by a cheque, that mode of payment would be accepted. Gupta J., speaking for the Bench, endorsed the aforesaid view in the following terms (p. 2236 of AIR) :

' It is well established that a cheque sent in payment of a debt on the request of the creditor, unless dishonoured, operates as valid discharge of the debt and, if the cheque was sent by post and was met on presentation, the date of payment is the date when the cheque was posted. The question, however, still remains whether, in the absence of an agreement between the parties, the tender of rent by cheque amounts to a valid discharge of the obligation. Earlier, we have extracted a passage from the High Court's judgment on this aspect of the case. We agree with the view taken by the High Court on the point. Rent is payable in the same manner as any other debt and the debtor has to pay his creditor in cash or other legal tender, but there can be no dispute that the mode of payment can be altered by agreement. In the contemporary society it is reasonable to suppose such agreement as implied unless the circumstances of a case indicate otherwise. In the circumstances of this case, the High Court, in our opinion, rightly held that the cheque sent to the plaintiffs amounted to valid tender of rent.'

20. A similar proposition was also debated before the Bombay High Court in Kirloskar Bros. Ltd. v. CIT : [1952]21ITR82(Bom) . The question that arose in that case was whether on the receipt of the cheque, it could be said that the assessee-company had received income which was liable to tax. The contention of the counsel for the assessee was that the mere receipt of a cheque could never be receipt of income and that income was only received when a cheque was cashed. It was observed by the Bench as follows (p. 91) :

' It is also well settled in commercial practice, that a cheque is looked upon as a payment if a creditor accepts a cheque in place of the country's currency : if he accepts the cheque then he is paid, although the payment may not be an unconditional discharge. '

21. It is further observed that the only condition is that, if the cheque is not cashed, then the liability of the debtor will continue, but if the cheque is cashed, then the payment is not as of the date when the cheque is cashed but it is of the date when the cheque was given to the creditor.

22. Mr. Awasthy has argued that the aforesaid cases are distinguishable as they related to commercial transactions and were not with regard to the payment of income-tax to the department. According to him, the observations in the above cases will not be applicable in case payments were made by cheques to the department. He has made a reference to Shri Jagdish Mills Ltd. v. CIT : [1959]37ITR114(SC) and Azamjahi Mills Ltd. v. CIT : [1976]103ITR449(SC) .

23. No doubt the above cases referred to by the counsel for the assessee related to commercial transactions. Both the cases referred to by Mr. Awasthy also related to commercial transactions. In those cases the question involved was as to whether payment by cheques sent by post by the Government of India to the assessee working in a princely State were payments made in British India or in the State where the companies were working. The point involved in Ogale Glass Works Ltd.'s case : [1954]25ITR529(SC) was also a similar one. In both the cases cited by Mr. Awasthy reference was made to Ogale Glass Works Ltd., but the Supreme Court did not differ from the observations made in that case. The principle laid down by their Lordships of the Supreme Court in Ogale Glass Works Ltd.'s case : [1954]25ITR529(SC) and other cases referred to by the counsel for the assessee is of general applicability. There is no provision in the Act or the rules which forbids the I.T. department from accepting cheques. It is for this reason that the department accepts payments by cheques. Mr. Awasthy has not been able to cite any precedent wherein it was held that the principle as laid down in Ogale Glass Works Ltd.'s case : [1954]25ITR529(SC) will not be applicable if the payment is made by a cheque to the department. After taking into consideration all the aforesaid circumstances, we are of the view that the law governing the general transactions in this regard will govern the department also. We are, therefore, unable to accept the contention of Mr. Awasthy.

24. For the reasons recorded above, we answer the question in the affirmative, i.e., in favour of the department. No order as to costs.

J.V. Gupta, J.

25. I agree.


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