KHANNA - (1.) THIS judgment would dispose of three civil Appeals Nos. 980 to 982 of 1971 which have been filed by special leave against the judgment of the Andhra Pradesh High Court on a reference under Section 66 of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act) answering, besides two other questions with which we are not concerned, the following question against the assessee appellant and in favour of the revenue: "Whether, on the facts and in the circumstances of the case, the sale proceeds were received from Government of India in British India?"
(2.) THE assessee company is a public limited company registered in what was at the relevant time the Nizam's Dominion (hereinafter referred to as Hyderabad State) outside British India. THE matter relates to assessment years 1945-46, 1946-47 and 1947-48 for which the relevant accounting period ended on 5/10/1944, October 5, 1945 and 5/10/1946 respectively. The assessee company had a textile mill at Warangal in Hyderabad State. During the Second World War the company supplied textile goods to the Department of Supplies. Government of India under what was known as "Panel System". The Government used to place bulk purchase orders with the company for the supply of goods according to specifications. The delivery of the goods used to be made by the company F.O.R. Warangal. After the goods were despatched, the assessee company submitted bill in form W.S.B. 116 giving details of the supply. The prescribed form contained the following receipt: JUDGEMENT_258_2_1976Image1.jpg The assessee used to enter the words "Hyderabad (Dn)" in the blank space after the word "at". On the back of the bulk purchase order form, there were instructions that the payment was to be made by the Controller of Supply Accounts Bombay. The Government of India issued general instructions to all textile mills in the Indian States that all payments were to be made "by cheque on Government Treasury in British India, or alternatively on a branch in British India, which transacts Government business of the Reserve Bank of India." All payments were made on behalf of the Government of India by cheques, which were sent to the assessee by post. Some of these cheques were drawn on banks in British India and the others on banks in Hyderabad State. All the cheques received from the Government, including those drawn on banks in British India, were collected through the assessee's bankers in Hyderabad State. In making the assessment the Income-tax Officer held that the sale proceeds in respect of cheques, which had been drawn on banks in British India, were received by the assessee in British India and as such the assessee was liable to tax under the Act. In respect of cheques drawn on the banks in Hyderabad State, the Income-tax Officer held that no income had accrued in British India and was, therefore, not subject to assessment under the Act. The assessee took the matter in appeal to the Assistant Commissioner claiming that no portion of the income had been received in British India. The Appellate Assistant Commissioner held that the entire sale proceeds had been received in British India and he, therefore, passed an order enhancing the assessed amount. On further appeal by the assessee the Income-tax Appellate Tribunal upheld the order of the Assistant Commissioner. At the request of the assessee the question reproduced above along with two other questions relating to the power of the Appellate Assistant Commissioner to enhance the amount of assessable income as also the question of limitation were referred to the High Court. The High Court answered the question reproduced above as well as the other two questions with which we are not concerned, in favour of the revenue and against the assessee. So far as question reproduced above is concerned, the High Court took the view that the matter was concluded by the decision of this Court in the case of Indore Malwa United Mills Ltd. v. Commr. of Income-tax, 59 ITR 738 .
(3.) IN appeal before us Mr. Vasudev Pillai on behalf of the appellant has assailed the judgment of the High Court and has contended that on the facts and circumstances of the case the sale proceeds should be held to have been received by the assessee from the Government of INdia not in British INdia but in Hyderabad State. There is, in our opinion, no force in this contention. It would appear from the resume of facts given above that all payments were made on behalf of the Government of India by cheques and those cheques were sent by post from British India to the assessee. The facts of the case and the course of dealings show that it was the understanding between the Government of India and the assessee company that the payment would be made on account of the goods supplied by the assessee by cheques. The cheques were in the very nature of things to be sent from British India by post as that is usual and normal agency for transmission of such articles. As the cheques were sent to the assessee company on behalf of the Government of India by post from British India in pursuance of an understanding between the parties, the payment to the assessee shall be treated to have been made in British India. The post office in such cases is taken to be an agent of the assessee company. The position in law is that in the absence of a request by the creditor or an agreement between the parties regarding the sending of money by cheque by post, the mere posting of cheque would not operate as delivery of the cheque to the creditor. Where, however, a cheque is sent by post in pursuance of an agreement between the parties or a request by the creditor that the money be sent by cheque by post, the post office would be treated as the agent of the creditor for the purpose of receiving such payment. The agreement or request need not, however, be express; it may also be implied to be spelt out from the facts and circumstances of the case.;