BACHAWAT, J.: -
(1.)THE following Judgment of the court was delivered by:
(2.)THESE appeals arise out of proceedings for assessment of income-tax of the appellant Company (hereinafter referred to as the assessee) for the assessment years, 1943-44, 1944-45, 1945-46, 1946-47, 1947-48 and 1948- 49, the relevant accounting years being the Calendar years, 1942, 1943, 1944, 1945, 1946 and 1947 respectively.
During the relevant accounting years, the assessee was a nonresident. It carried on the business of manufacturing textile goods at Indore then situated in an Indian State, andhad offices at Indore and Bombay. The assessee supplied goods to the Indian Stores Department, government of India, under purchase orders placed by the latter with the assessee at Indore. Duplicate copies of the purchase orders signed on behalf of the assessee at Indore used to be sent to the government of India in British India. The goods used to be inspected at Indore by an inspecting officer of the government and the inspection certificates were issued at Indore. One of the conditions of the contract was that the delivery would be F.O.R., Indore, and the freight from Indore would be borne by the government of India. The goods used to be despatched by railway from Indore station and the railway receipts used to be made out in the name of a representative of the government. There were two types of purchase orders, namely, (1) purchasewar order and (2) bulk purchase order. Clause 9 of the bulk purchase order was in these terms '9. Payment : Unless otherwise agreed between the parties, payment for the delivery of the stores will be made on submission of bills in the prescribed form in accordance with the instructions given in the Acceptance of Tender by cheque on a government Treasury in British India or on a branch in British India of the Reserve Bank of India or the Imperial Bank of India transacting government business.' From the judgment of K. T. Desai, J. it appears that in the High court both parties agreed that the aforesaid cl. 0 was one of the terms on which all the goods were supplied by the assessee. In paragraph 2 of the petition for leave to appeal to this court and, paragraph 3 of the appellant's statement of case also, the assessee stated that the contracts between the parties were subject to the aforesaid cl. 9. The prescribed form of the bill (Form No. WSB. 116) which the assessee was required to submit to the Goverment of India, Department of Supply, contained inter alia, the following receipt clause
Instructions Nos. 13 and 14 with regard to payment were as follows : '13. If payment is desired to be made to the Con- tractor's Bankers or other parties, the endorsement must be completed on the Bill Form (W.S.B. Form No. 116) and signed separately and the word 'Self' scored out; in addition, a power of attorney will be necessary in such cases, except when payment is desired to a Bank mentioned in the second schedule to the Reserve Bank Act. 14. Payment in all cases will be made to the Contractors by the Accounts Officer named in the Acceptance of Tender by means of crossed cheques, unless a specific request is made to the contrary for the issue of an open cheque on the bill.' The assessee used to make out bills in the prescribed form. The receipt clause in the completed bill used to be in the following terms : 'Please pay by cheque to self on a bank at Indore.
The receipt clause in the bill used to be signed in advance on behalf of the assessee on a one anna stamp. The bills with the signed receipts of the assessee then used to be sent to the Controller of Supplies, New Delhi after the latter was debited with the amounts of the bills in the books of the assessee. On receipt of the bills, the government of India used to draw cheques on the Reserve Bank of India, Bombay in favour of the assessee and used to send them by post to the assessee at Indore. On receipt of the cheques, the assessee used to credit the Controller of Sup- plies in its books with the amount of the cheques, and then used to deposit the cheques in their account with the Imperial Bank of India, Indore, and thereupon, the Bank used to credit the assessee in the aforesaid account with the amount of the cheques.
(3.)THE question is whether on these facts the profits of the assessee, a non-resident, in respect of the supplies were received by the assessee in British India and, therefore, taxable under s. 4(1) (a) of the Indian Income- tax Act, 1922. Before the Appellate tribunal and at all stages of the assessment proceedings, the contention of the revenue authorities wag that the profits were received at Bombay where the. cheques on the Reserve Bank of India, Bombay were encashed. By its order dated 13/03/1953, the Appellate tribunal negatived this contention, and held that the amounts of the cheques were received by it at Indore. On the application of the Commissioner of Income- tax, central Bombay under s. 66(1) of the Indian Income-tax Act, 1922, the tribunal by its order dated 4/03/1955 referred the following question of law to the Bombay High court: 'Whether the assessee Company is liable to pay tax in the taxable territories on the ground that the sale proceeds, which included the profit element therein, were received in the taxable territories ?' In its order dated 4/03/1955, the tribunal referred to the decision of this court in Commissioner of Income-tax v. Kirloskar Bros. Ltd.(1) decided on 19/04/1954, and stated that on the facts of the case, a contention might arise that the assessee had requested the government to send the cheque by post and the post office as the agent of the assessee, had received the cheques in British India, but the tribunal pointed out that this contention had not been raised before it.
The reference under S. 66(1) was heard by a division bench of the Bombay High court consisting of J.C.SHAH and S. T. Desai, JJ. J.C.SHAH, J. answered the question referred to the High court in the affirmative, whereas S. T. Desai, J. answered it in the negative. The matter then went before the third Judge, K. T. Desai, J. who agreed with J. C. Shah, J. and answered the question in the affirmative. The majority of the Judges held that the cheques were received by the assessee through its agent, the post office in British India and the Revenue authorities were entitled to urge this contention for the first time in the High court. The assessee now appeals to this court on a certificate granted by the Bombay High court.