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Petlad Turkey Red Dye Works Co. Ltd. Vs. Commissioner of Income-tax, Bombay North - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 21 of 1962
Judge
Reported in(1964)GLR139; [1965]55ITR532(Guj)
ActsIncome Tax Act, 1922 - Sections 4(1)
AppellantPetlad Turkey Red Dye Works Co. Ltd.
RespondentCommissioner of Income-tax, Bombay North
Appellant Advocate I.M. Nanavati, Adv.
Respondent Advocate J.M. Thakore, Advocate General
Cases ReferredPennington v. Crossley and Sons Ltd. In
Excerpt:
direct taxation - assessment - section 4 (1) of income tax act, 1922 - whether proportionate profits on sale proceeds aggregating rs. 953304 for assessment year 1941-42 and rs. 604588 for assessment year 1942-43 or any part thereof were received by or on behalf of assessee-company in british india - no evidence to suggest there was stipulation in contracts between assessee and british indian buyers that payment be made by cheques - no evidence of demand made by assessee requiring buyers to remit sale proceeds - mere posting of cheques and hundis from british india not sufficient to justify inference of implied request by assessee to buyers to send sale proceeds through post - held, proportionate profits on sale proceeds aggregating rs. 953304 for assessment year 1941-42 and rs. 604588 for.....bhagwati, j. 1. this reference arises out of proceedings for the assessment to income-tax assessee for the assessment year 1941-42 and 1942-43. the assessee is limited liability company incorporated in the former state of baroda, outside what was then british india. the assessee carried on business of purchasing yarn, dyeing it and selling the same at petlad which was also at the material time situate in the former state of baroda. the assessee was a non-resident company for the assessment years in question. during the calendar year 1940, which was the previous year for the assessment year 1941-42, the assessee effected sales of dyed yarn of the total value of rs. 14,22,996. the dispute between the assessee and the revenue related to rs. 9,56,304 in respect of goods sold by the assessee.....
Judgment:

Bhagwati, J.

1. This reference arises out of proceedings for the assessment to income-tax assessee for the assessment year 1941-42 and 1942-43. The assessee is limited liability company incorporated in the former State of Baroda, outside what was then British India. The assessee carried on business of purchasing yarn, dyeing it and selling the same at Petlad which was also at the material time situate in the former State of Baroda. The assessee was a non-resident company for the assessment years in question. During the calendar year 1940, which was the previous year for the assessment year 1941-42, the assessee effected sales of dyed yarn of the total value of Rs. 14,22,996. The dispute between the assessee and the revenue related to Rs. 9,56,304 in respect of goods sold by the assessee to British Indian buyers. In the calendar year 1941, which was the previous year for the assessment year 1942-43, the total sales of the assessee amounted to Rs. 19,22,107 and of that, the dispute between the assessee and the revenue is in respect of a sum of Rs. 6,04,588, relating to sales effected to buyers in British India. These amounts, which we shall hereafter refer as the disputed amounts, were remitted by British Indian buyers to the assessee by posting from British India cheques and hundis drawn on British Indian banks and shroffs and the cheques and hundis so posted were received by the assessee at Petlad and were sent by the assessee to British Indian banks for being creditors to the amounts of the assessee with those banks. The assessee being a non-resident company, its liability to British Indian income-tax depended upon its receipt of income within British India. In course of its assessment proceedings for the assessment years mentioned above, the assessee contended that its profits on the sales effected to British Indian buyers accrued and were received in Petlad where it received payment by the receipt of the cheques and hundis and that it was immaterial that the cheques and hundis were sent to British Indian Banks for being credited to the accounts of the assessee with those banks or that those banks collected the amounts due on the cheques and hundis from British Indian Banks and shroffs on whom they were drawn in British India. The Income-tax Officer took the view that the assessee received the profits embedded in the disputed amounts in British India inasmuch as the cheques and hundis were drawn on British Indian banks on behalf of the assessee and accordingly taxed the assessee in respect of such profits under section 4(1) (a) of the Income-tax Act. The assessee carried the matter in appeal before the Appellate Assistant Commissioner, who, accepting the contentions of the assessee, held that the proportionate profit embedded in the disputed amounts could not be said to have received by or on behalf of the assessee in British India so as to attract the applicability of section 4(1) (a). The department, being aggrieved by order of the Appellate Assistant Commissioner, took the matter in appeal before the Tribunal. Before the Tribunal two contentions were advanced on behalf of the assessee in support of the order of the Appellate Assistant Commissioner. The first contention was that the disputed amounts were received by the assessee in Petlad, since the cheques and hundis were received in Petlad and that the profits attributed to the sales represented by the disputed amounts could not, therefore, be said to have been received by or on behalf of the assessee in British India. The second contention was that, in any event, the British Indian banks to whom the cheques and hundis were sent by the assessee were holders in due course of the cheques and hundis and were not collecting agents of the assessee in respect of the cheques and hundis and that the amounts of the cheques and hundis could not, therefore, be said to have been received in British India by or on behalf of the assessee when they were cashed by the British Indian banks. Both these contentions were negatived by the Tribunal and the Tribunal by an order dated 11th March, 1949, held that the amounts due on the cheques and hundis were collected by the British Indian banks in British India on behalf of the assessee and not as holders in due course and that the disputed amounts which included proportionate profits were therefore received by or on behalf of the assessee in British India. The Tribunal accordingly decided the appeal in favour of the revenue. It may be pointed out that, at no stage in the proceedings, including the appeal before the Tribunal, was it contended on behalf of the revenue that payments of the disputed amounts were made by British Indian buyers in circumstances constituting the post office the agent of the assessee for the purpose of receiving payments and that the cheques and hundis by which such payments were made were, therefore, received by the assessee not at Petlad but in British India, where they were posted by British Indian buyers. The only ground urged was that the cheques and hundis, though received by the assessee at Petlad, were cashed in British India by British Indian banks on behalf of the assessee and that the disputed amounts were, therefore, received by or on behalf of the assessee in British India and this ground was accepted by the Tribunal.

2. The assessee thereafter applied to the Tribunal to state a case and refer to the High Court the question of law arising out of the order of the Tribunal. The application, it seems, was not heard for a period of about six years and ultimately when it came to be heard, the Tribunal made an order referring the following question of law for the opinion of the High Court of Bombay :

'Whether the proportionate profits on the sale proceeds aggregating Rs. 9,53,304 for the assessment year 1941-42 and Rs. 6,04,588 for the assessment year 1942-43 or any part thereof were received by or on behalf of the assessee-company in British India ?'

3. The reference came up for hearing before a Division Bench of the High Court of Bombay consisting of Chagla C.J. and Tendolkar J. on 25th September, 1955. By this time the decision of the Supreme Court in Commissioner of Income-tax v. Ogale Glass Works Ltd. was already given and having regard to that decision it was clear, and we shall discuss this aspect of the matter a little when we deal with the arguments of the parties, that, if the cheques and hundis were received by the assessee at Petlad, the payment of the disputed amounts must be regarded as having been received by the assessee in Petlad and in that event the profits embedded in the disputed amounts could not be said to have been received by or on behalf of the assessee in British India so as to attract the applicability of section 4(1) (a). This being the legal position as it emerged from the decision of the Supreme Court, the High Court felt that the question was not correctly approached by the revenue authorities and that the real question which should have been considered was to where the cheques and hundis were received by the assessee; received in Petlad or in British India The High Court, therefore, remanded the case to the Tribunal. The grounds on which the remand was directed were stated by the High Court is another order of remand passed by the High Court on the same day under identical circumstances in the case of Baroda Spinning and weaving Co. Ltd. and they were, therefore, not repeated in the present case but only a reference was made to the judgment of remand in the case of Baroda Spinning and Weaving Co. Ltd. In that judgment, the learned Chief Justice observed :

'The question with regard to the cheques amounting to these two sums, Rs. 3,61,997 and Rs. 38,92,201, must be looked at from the point of view of the receipt of these cheques by the assessee, and the first question is whether these cheques were received in Baroda or in the taxable territories. If the cheques were received in Baroda, then the further question that will have to be considered is whether they were received by post or hand. If they were received by post, there is still a further question to be considered and that is whether the assessee expressly or impliedly requested the merchants to send these cheques by post to Baroda; in other words, whether the assessee constituted the post office its agent for the sending of these cheques. If the cheques were sent by hand to Baroda, the Tribunal will also consider the machinery adopted by the merchants for sending these cheques by hand to Baroda, and the Tribunal will also give a finding whether the messenger who brought the cheques was the agent of the assessee or of the merchants, whether the cheques were sent by hand at the request of the assessee, and whether they are sent by a messenger of the merchants direct to Baroda or whether they were first sent to Ahmedabad and from Ahmedabad they were sent by some other agents to Baroda. The Tribunal will consider all these matters in the light of the recent judgment, so that we will be in a position to decide whether these two amounts were received in Baroda or in the taxable territories. It is only after we have received a supplementary statement of the case from the Tribunal that we will be in a position to decide the question raised on this reference. As neither party applied its mind to this aspect of the matter, it will only be fair that they should be allowed to adduce any further evidence as they may desire, and if the Tribunal so thinks, it may remand the matter to the Income-tax Officer to record further evidence and then arrive at its ending.'

4. Pursuant to the order of remand made by the High Court, the case came back to the Tribunal and the Tribunal directed the Income-tax Officer to record additional evidence for the purpose of dealing with the question as to where the cheques and hundis were received by the assessee. The Income-tax Officer after recording voluminous evidence made his report to the Tribunal and on the strength of such evidence the Tribunal submitted a supplemental statement of case to the High Court. The supplemental statement of case set out the finding of the Tribunal that the evidence taken on record showed that there was an implied request by the assessee to British Indian buyers to remit the sale proceeds by cheques and hundis by post and that the post office was, therefore, constituted the agent of the assessee for the purpose of receiving payment of the disputed amounts and that the disputed amounts of receiving payment of the disputed amounts and that the disputed amounts were, therefore, received by the assessee in British India where the cheques and hundis were posted by British Indian buyers. When the matter came back before the High Court with the supplemental statement of case, an objection was sought to be raised on behalf of the assessee that the order of remand made by the High Court was improper, since the High Court had no power to call for a supplemental statement of case which would involve investigation of further facts after taking of fresh evidence. This contention was based on a decision which had in the meantime been given by the Supreme Court in New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax. The High Court, however, took the view that the order of remand already made could not be challenged before it. It was then contended on behalf of the assessee that there was an implied request by the assessee to British Indian buyers to remit the sale proceeds by sending cheques and hundis by post. That contention was also negatived by the High Court and, on the basis of the finding recorded by the Tribunal, the High Court answered the question against the assessee. The assessee thereupon carried the matter in appeal to the Supreme Court. The Supreme Court took the view that the High Court had no jurisdiction to direct the Tribunal to submit a supplemental statement of case after taking additional evidence and that the order of remand made by the High Court was, therefore, without jurisdiction. The Supreme Court, accordingly, allowed the appeal and remitted the matter to the High Court to give its decision on the question referred to it by the Tribunal as required under section 66(5). The Supreme Court expressed no opinion on the question whether the High Court should ask for a supplemental statement of case confined to the facts already on the record and observed that that was a matter which should be left to the High Court. The reference thereupon came back to this court and we are now called upon to answer the question referred to us by the Tribunal. Before we proceed to discuss the question we may state at the outset that no application was made to us on behalf of the Commissioner to ask the Tribunal to submit a supplemental statement of case confined to the facts already on the record and the reference was argued before us on the facts as appearing in the original statement of case.

5. The case of the revenue before the Tribunal was that, though the cheques and hundis were received by the assessee in Petlad, the amounts of the cheques and hundis were collected by the British Indian banks on behalf of the assessee from the British Indian banks and shroffs on whom the cheques and hundis were drawn and that the disputed amounts representing the amounts of the cheques and hundis were, therefore, received by or on behalf of the assessee in British India. This was the only contention pressed before the Tribunal on behalf of the revenue and it was accepted by the Tribunal. That was at a time when the Supreme Court had not given its decision in Ogale Glass Works case. The Supreme Court thereafter decided in Ogale Glass Works case that, where a cheque is received by a creditor from a debtor, there may be an express or implied agreement between them that the cheque shall be accepted by the creditor in unconditional discharge of the liability of the debtor, in which event the cheque would operate as payment as soon as it is received by the creditor; but even where the cheque is received as conditional payment of the debt, if the cheque is not dishonoured but is cashed, the payment relates back to the date of the receipt of the cheque and in law the date of payment is the date of delivery of the cheque so that in this latter case also, the cheque would operate as payment on the date when it is received by the creditor. The facts in Ogale Glass Works case were that the assessee had supplied certain goods had been made by the Government of India and payment for the goods had been made by the Government of India by means of cheques posted from British India to the assessee at Aundh which was an Indian State where the assessee had its registered office and carried on business. The cheques were endorsed by the assessee in favour of the Aundh Bank, Ogalewadi branch, which in turn endorsed them in favour of a Bombay bank and it was the Bombay bank which declared the cheques through the clearing house in Bombay. The argument urged on behalf of the revenue was that the cheques were no doubt received by the assessee in Aundh but they were received conditionally, that is, subject to realisation and no payment could, therefore, be said to have been received by the mere receipt of cheques; payment was received only when the cheques were cashed and since that happened in Bombay, the receipt of payment by the assessee was in British India. The Supreme Court negatived this argument and found on the facts that the cheques were received by the assessee from the Government of India in complete discharge of the claim for the price of the goods and that payment was, therefore, received by the assessee on the receipt of cheques. The Supreme Court also said that, even if the facts were not sufficient to raise an implication that the cheques were accepted as unconditional payment and the cheques were taken by the assessee conditionally, the position was not different, for 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 payment were the dates of delivery of the cheques. The Supreme Court in taking this view observed that when it is said that a payment by a negotiable instrument is a conditional payment, what is meant is that such payment is subject to a condition subsequent, namely, that the negotiable instrument shall be met at the proper date; if the negotiable instrument is honoured on presentation, the payment takes effect from the date of delivery of the negotiable instrument; if, on the other hand, the negotiable instrument is dishonoured on presentation, the creditor may consider it as a waste paper and resort to his original demand. The Supreme Court thus held that, in either view of the matter, whether the cheques were received by the assessee unconditionally or conditionally, the result was the same, namely, that payment was received by the assessee on the receipt of the cheques. Having regard to this decision of the Supreme Court, the learned Advocate-General appearing on behalf of the revenue did not seek to support the decision of the Tribunal on the ground on which it was put by the Tribunal, in so far as it related to payment by cheques. He, however, tried to make a distinction between payment by cheques and payment by hundi and contended that the ratio of this decision of the Supreme Court did not apply to payment by hundi and that when payment was made to the assessee by hundis it could not be said that the assessee received payments as soon as the hundis were delivered to the assessee. According to him, the assessee could be said to have received payment is only when the hundis were duly met and honoured on presentation by British Indian shroffs on whom they were drawn and the disputed amounts, to the extent to which they represented the amounts of the hundis, were, therefore, manifestly received by the assessee in British India. The distinction sought to be made by the learned Advocate General is, in our opinion, not well founded and cannot be sustained on any principle of law. On first principles it is difficult to see any basis for this distinction between payment by cheque and payment by hundi. Both cheques and hundis are negotiable instruments and the principle which applies in relation to payment by cheque must equally apply in relation to payment by hundi. Whether the negotiable instrument is a cheque or a hundi, it represents money's worth and the date of receipt of the money which it represents is the date of its receipt. It may be accepted conditionally, i.e., subject to the condition subsequent that it shall be duly met and honoured on presentation, in which event, as soon as it met and honoured, the payment related back to the date of its receipt. We cannot, therefore, assent to the proposition that there is any distinction in principle between the legal effect flowing from payment by cheque and the legal effect flowing from payment by hundi. We may also point out that in enunciating the principle on which it rested its decision in Ogale Glass Works case the Supreme Court did not take any distinction between payment by cheque and payment by hundi. The principle it laid down was a principle applicable to payment by negotiable instrument and that principle must apply equally to payment by hundi as to payment by cheque. We may in this connection refer to the following observations of S. R. Das C. J., while delivering the judgment of the Supreme Court in that case, which clearly show that the principle applicable exclusively to payment by cheque by reason of some peculiar characteristics of cheques not shared by other negotiable instruments but was a principle applicable to payment by every kind of negotiable instrument including hundi :

'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). 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.'

6. In Byles on Bills, 20th edition, page 23, the position is summarised pithily as follows :

'A cheque, unless dishonoured, is payment.'

7. To the same effect are the passages to be found in Hart on Banking 4th edition, vol. I, page 342. In Felix Hadley and Co. v. Hadley, 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 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'.'

8. These observations leave no doubt that the principle laid down by the Supreme Court is a general one applicable to all negotiable instruments whether cheques or hundis and it is this, namely, that when a payment is received by a negotiable instrument, the negotiable instrument may be received as unconditional payment or as conditional payment but in either case it operates as payment to the creditor when it is received by the creditor, the only condition in the latter case being that it should be paid and honoured on presentation. This principles applies as much to payment by hundi as to payment by cheque and the contention of the learned Advocate-General based on the supposed distinction between payment by cheque and payment by hundi cannot, therefore, be accepted. It must, therefore, be held that the payments received by the assessee whether the cheques or by hundi were received at the time when the cheques and hundis were delivered to the assessee and not when they were encashed and this, quite irrespective of the fact whether they were taken by the assessee as unconditional payment or as conditional payment.

9. The question which, therefore, arises for consideration is whether the cheques and hundis where received by the assessee in Petlad of in British India. Now it is common ground that the cheques an hundis were posted by British Indian buyers in British India to the assessee at Petlad. The question, therefore, resolves itself into a narrow one, namely, whether the post office acted as an agent of the assessee or of British Indian buyers. If the post office acted as agent of the assessee, it is clear that as soon as the cheques and hundis were posted by British Indian buyers in British India, the title to the cheques and hundis passed to the assessee and the assessee received the cheques and hundis in British India. If, on the other hand, the post office agent of British Indian buyers, there was no receipt of the cheques and hundis by the assessee until the cheques and hundis reached their destination in Petlad. The law on the point as to when the post office can be said to be the agent of the debtor or the creditor is now well settled by the depositions of the Supreme Court in Commissioner of Income-tax v. Ogale Glass Works Ltd., Commissioner of Income-tax v. Patney and Co. and Shri Jagdish Mills Ltd. v. Commissioner of Income-tax and may be briefly stated as follows. In order to determine the place where payment can be said to have been received by a creditor from a debtor when such payment is made by cheque or hundi sent by post, the court must first inquire whether there is any agreement between the parties. If there is an agreement between 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 and Co. If there is no agreement between the parties in regard to the place of payment, the court must see whether the cheque or hundi was posted by the debtor pursuant to a request made by a creditor. If it is shown that the creditor authorised the debtor to send the cheque or hundi by post, the office would be the agent of the creditor for the purpose of receiving payment and the property in the cheque or hundi would pass to the creditor as soon as it is posted with the result that payment would be received by the creditor at the place where the cheque or hundi is posted by the debtor. Now, 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 Ogale Glass Works case the request was an express request whereas in the case of Shri Jagdish Mills the request was implied from the fact and circumstances of that case. The question must, therefore, always be, firstly, whether there is any agreement between the parties in regard to the place of payment and, secondly, if there is no such agreement, whether the cheque or hundi was sent by the debtor through post pursuant to any request express or implied made by the creditor. Now in the present case there was obviously no agreement between the parties in regard to the place of payment. There was also no express request by the assessee to British Indian buyers to remit the sale proceeds by sending cheques and hundis through post. The only argument advanced by the learned Advocate-General on behalf of the revenue was that from the facts and circumstances of the case there should be implied a request by the assessee to British Indian buyers to send the sale proceeds by means of cheques and hundis through post. The learned Advocate-General relied on two notes appearing at the foot of the statements submitted by the assessee. Both the notes were in the following terms and reads as follows :

'No merchant ever paid any amount in cash to our employee or broker or any of our representative in British India. The whole amount is remitted by post to Petlad by the buyers.'

10. Relying on these notes the learned Advocate-General contended that these notes clearly showed that the entire sale proceeds were remitted to the assessee at Petlad by British Indian buyers by cheques and hundis sent through post and, from this course of conduct between the parties, a reasonable interference should be drawn that there was a request by the assessee to British Indian buyers to remit the sale proceeds by means of cheques and hundis through post. The implication of such request, argued the learned Advocate-General, was irresistible

11. for it could not have been an accident that only one mode of payment should have been resorted to by all British Indian buyers, namely, remitting the sale proceeds by means of cheques and hundis through post. The learned Advocate-General also sought to support the implication of such request by reference to the large volume of sales in relation to which payments had been made by means of cheques and hundis sent through post. Mr. I. M. Nanavati, learned advocate appearing on behalf of the assessee, however, contested this position by urging that merely because a part of the sale proceeds, however large in volume they may be, were in fact by British Indian buyers to the assessee by means of cheques and hundis sent through post, no implication could be made that payment was made by British Indian buyers to the assessee by sending post pursuant to any request made by the assessee. There was no provision in the contracts between the assessee and British Indian buyers that payment should be made by cheques and hundis nor was there any demand made by the assessee on British Indian buyers requiring British Indian buyers to remit payment by cheques and hundis and if, argued Mr. I. M. Nanavati, British Indian buyers chose to remit payment by sending cheques and hundis by post, it could not be said that there was any request emanating from the assessee to despatch the cheques and hundis by post. We think there is great force in the contention of Mr. I. M. Nanavati and for the reasons which we shall immediately proceed to state, we cannot assent to the agreement of the learned Advocate-General that from the facts and circumstances of the case any inference could be drawn that there was an implied request by the assessee to British Indian buyers to remit the sale proceeds by despatching cheques and hundis by post.

12. Examining first the two notes appearing at the foot of the two statements submitted by the assessee, we find that out of the two statements, the first statement related to the assessment year 1941-42 and it was submitted for the first time at the hearing of the appeal before the Tribunal. Since this statement was filed at too late a stage of the proceedings, the Tribunal did not admit it on record and it does not, therefore, form part of the record of the proceedings. But if this be so, it is difficult to see how the learned Advocate-General can rely upon the note appearing at the foot of this statement even as an admission on the part of the assessee. The note forms part of this statement as much as any other matters contained in it and if it cannot be looked at for the purpose of the other matters, equally it cannot be looked at for the purpose of the note. No reliance can, therefore, be placed by the learned Advocate-General on the note appearing at the foot of this statement. The second statement related to the assessment year 1942-43 and was filed before the Income-tax Officer. This statement gave a detailed analysis showing how various amounts are received by the assessee from British Indian buyers in respect of sales effected to them during calendar year 1941 and then contained at the foot the note which we have already reproduced. The learned Advocate-General relied on this note for the purpose of showing that according to the assessee itself the entire sale proceeds were remitted by British Indian buyers by post to the assessee at Petlad. Now it is no doubt true that the note said that the whole amount was remitted by post to Petlad by British Indian buyers but the note must be read along with the rest of the statement and, if that is done, it is clear that according to the assessee out of the sale proceeds of Rs. 14,55,883-0-3 a sum of Rs. 3,07,741-15-6 was received by the assessee in Calcutta and it was only the balance which was remitted to the assessee at Petlad by post by British Indian buyers. It is, therefore, apparent that the entire sale proceeds in respect of sales effected to British Indian buyers were not remitted to the assessee by means of cheques and hundis sent through post. A part of the sale proceeds were received by the assessee in Calcutta and some sale proceeds were also received in cash in Petlad. It is no doubt true that a large part of the sale proceeds were received by the assessee by means of cheques and hundis sent by British Indian buyers through post, but from this circumstances alone it cannot be inferred that there was any implied request by the assessee to British Indian buyers to remit the sale proceeds by sending cheques and hundis through post. Something more would be necessary before the court can be called upon to draw such inference. It is quite possible that British Indian buyers who remitted sale proceeds by despatching cheques and hundis by post did so on their own initiative and not pursuant to any request made by the assessee. It is significant to note in this connection that there is no evidence to show that there was any provision in the agreement between the assessee and British Indian buyers that payment should be made by cheques or hundis or that any demand was made by the assessee on British Indian buyers at any time requiring British Indian buyers to remit the sale proceeds by cheques or hundis. The only circumstance on the record is that a large part of the sale proceeds were in fact remitted by British Indian buyers to the assessee by despatching cheques and hundis through post and this, as we already said, cannot justify any implication of the request by the assessee to British Indian buyers to remit the sale proceeds by despatching cheques and hundis by post. The present case is very much akin to Pennington v. Crossley and Sons Ltd. In that case the plaintiff sold on 10th December, 1895, certain goods to the defendants and on the same date an invoice was sent to the defendants under which then defendants were entitled to discount if the payment was made within fourteen days. On 24th December, 1895, the defendants posted a crossed cheque made payable to the plaintiff or his order and with the cheque was sent a form of receipt for signature by the plaintiff. The envelope containing the cheque was properly addressed to the plaintiff, but was not registered. There was no express request to send the cheque by post. The cheque was never received by the plaintiff but was cashed by a stranger on the strength of a forged endorsement of the plaintiff's signature. On an action to recover the price of the goods sold and delivered, the defendants contended that the posting of the cheque amounted in law to payment, and gave evidence for about 20 years before this transaction payments for goods, as between the plaintiff and the defendants, were always made by cheques sent by post together with the form of receipt mentioned above. The learned trail judge held that the course of business showed that the parties had agreed that payment should be made by cheque, and that the posting of the cheque amounted to payment, and accordingly gave judgment for the defendants. On the matter being carried in appeal, the Court of Appeal consisting of Lord Esher M. R., A. L. Smith and Rigby L. JJ. reversed this decision. The Master of the Rolls in his judgment observed that there was no request by the plaintiff to the defendants to send the cheque by post and that the posting of the cheque did not, therefore, amount to payment. The course of business between the plaintiff and the defendants was not taken to mean that there was a request by the plaintiff to the defendants to send cheque by post so that the plaintiff would run the risk of the cheque miscarrying in transit. The defendants sent to the plaintiff cheques by post on various sales together with the form of receipt to be signed by the plaintiff, independently of any arrangement and merely from the circumstances that the defendants always sent cheques by post and when the plaintiff received the cheques he accepted them and sent back the receipts duly signed, the Court of Appeal refused to raise the implication that there was any request by the plaintiff to the defendants to send the cheque by post. The Master of the Rolls observed :

'It would be most monstrous to infer from these circumstances a request to send a cheque by post and that the plaintiff would consider that he had received it as soon as it was posted.'

13. The other Lord Justices also delivered judgment to the same effect and the appeal was allowed. This decision has been approved by the Supreme Court in the case of Shri Jagdish Mills and is, in our opinion, determinative of the present case. As a matter of fact the facts in Pennington's case were much stronger than the facts in the present case, for, in Pennington's case, there was a course of business between the plaintiff and the defendants extending for over twenty years whereas in the present case there is no evidence at all to show any course of business between the assessee and any particular British Indian buyers. There is nothing to show how many British Indian buyers remitted the sale proceeds by means of cheques and hundis through post and on how many occasions they sent such cheques and hundis by post so that it cannot be said that there was any course of business between the assessee and any particular British Indian buyers for remitting sale proceeds by means of cheques and hundis through post, though, as held in Pennington's case, even if there was any such course of business, it could not have been sufficient to raise an implication that there was a request by the assessee to those British Indian buyers to remit the sale proceeds by sending cheques and hundis by post. We are, therefore, of the opinion that, on the facts and circumstance of the present case, it is not possible to imply any request from the assessee to British Indian buyers to remit the sale proceeds by cheques and hundis sent through post.

14. The learned Advocate-General relied on the decision of the decision of the Supreme Court in the case of Shri Jagdish Mills and contended before us that just as the Supreme Court held in that case that there was an implied request by the assessee to the Government of India to pay the amount due by sending cheques through post, so also in the present case we should hold that there was an implied request by the assessee to British Indian buyers to remit the sale proceeds by sending cheques and hundis through post. But we do not think the reliance placed by the learned Advocate-General on the case of Shri Jagdish Mills is well-founded. The facts of the case of Shri Jagdish Mills were very much different from the facts of the present case. In the case of Shri Jagdish Mills there was a stipulation in the contract that payment should be made by cheques, and, in the bills forwarded by the assessee to the Government of India in that case, there was a sentence that 'Government should pay the amount due to the company by cheque'. Since the assessee was in Baroda and the Government of India was situate in Delhi and the contract contained the stipulation that payments should be made by cheques and the contract contained the stipulation that payments should be made by cheques and the assessee also by the bills stated that the Government should pay the amount due to the company by cheques, an inference was drawn that, according to the course of business usage in general, the parties must have intended that the cheques should be sent by post, which is usual and normal agency for transmission of such articles. There is no evidence in the present case even as much as to suggest that there was any stipulation in the contracts between the assessee and British Indian buyers that payment should be made by cheques. As a matter of fact we find from the statement relating to the assessment year 1942-43 that some of the sale proceeds were actually paid to the assessee in cash in Petlad and certain other sale proceeds were paid to the assessee in Calcutta. There is not even evidence of any demand made by the assessee requiring British Indian buyers to remit sale proceeds. The mere posting of cheques and hundis from British India is, in our opinion, not sufficient to justify the inference that there was an implied request by the assessee to British Indian buyers to send the sale proceeds by means of cheques and hundis through post and that the cheques and hundis representing the disputed amounts were sent to by British Indian buyers to the assessee pursuant to any such request of the assessee. We may add that in taking this view we are considerably fortified by the decision of High Court of Bombay in Commissioner of Income-tax v. New Jehangir Vakil Mills Ltd.

15. Our answer to the question referred to us will, therefore, be in the negative. The Commissioner will pay the costs of the reference to the assessee.

16. Question answered in the negative.


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