Case Note & Summary
The Supreme Court addressed the question whether cheque payments received by post from the Government of India by a textile manufacturer located in Baroda, outside the then British India, constituted income received in the taxable territories for the purpose of Section 4(1)(a) of the Indian Income-tax Act, 1922. The appellant, Shri Jagdish Mills Ltd., was a public joint stock company incorporated under the Baroda State Companies Act with its registered office at Baroda. It owned a textile mill and manufactured and sold textiles at Baroda. During the accounting years 1942 and 1943, the appellant submitted tenders to the Government of India for supply of goods; after acceptance, goods were delivered F.O.B. Baroda, outside British India. The contracts provided that payment would be made by cheque on submission of bills in prescribed form. After delivering goods, the appellant submitted bills containing the sentence that the Government should pay the amount due by cheque, but it did not expressly request the Government to send the cheques by post. The Government sent the cheques from Delhi by post to Baroda. The appellant received and accepted the cheques at Baroda unconditionally and in full satisfaction of its claims, then endorsed and sent them to its bank accounts in Bombay or Ahmedabad. The Income-tax Officer for assessment years 1942-43 and 1943-44 held that the cheque amounts of Rs. 1,98,643 and Rs. 4,96,365 were income received in British India because the cheques were drawn on banks in British India. The Appellate Assistant Commissioner affirmed. The Income-tax Appellate Tribunal, after two remand orders on other issues, held that even though the appellant did not write to the Government to send cheques by post, there was an implied request to do so because a person in Baroda writing to another in Delhi to send money by cheque implies such a request. Relying on Commissioner of Income-tax, Bombay South v. Messrs. Ogale Glass Works Ltd., the Tribunal held the amounts were received in taxable territories and liable to tax. The appellant obtained special leave to appeal under Article 136 of the Constitution. The Supreme Court examined whether an implied request to send cheques by post could be inferred from the stipulation for payment by cheque. The Court noted that the general course of business usage followed in this case indicated that the parties intended the cheques to be sent by post, which is the normal agency for transmission of such articles. Consequently, there was an implied request by the appellant to the Government to send the cheques by post, making the Post Office the appellant's agent for receiving those payments. The Court applied Ogale Glass Works Ltd. and Norman v. Rickets, considered Pennington v. Crossley and Sons, and distinguished Thorappa v. Umedmalji and Exparte Cote, In re Deveza. The Court held that the amounts of the cheques were received by the appellant in the taxable territories and were liable to tax under Section 4(1)(a) of the Indian Income-tax Act, 1922. The appeals were dismissed.
Headnote
A) Income Tax - Receipt of Income - Cheque Sent by Post - Implied Request Constitutes Post Office as Agent - Indian Income-tax Act, 1922, Section 4(1)(a) - The assessee, a textile manufacturer in Baroda, supplied goods to the Government of India and received payments by cheques sent through post from Delhi; the contract stipulated payment by cheque but the assessee did not expressly request sending by post. The Court held that in the general course of business usage, the parties intended cheques to be sent by post, which is the normal agency for transmission, creating an implied request by the assessee, thereby making the post office its agent for receiving payments; therefore the amounts were received in the taxable territories and liable to tax under Section 4(1)(a). (Paras 1-5)
Issue of Consideration
Whether the stipulation that payments should be made by cheques implied a request by the appellant to the Government to send the cheques by post so as to constitute the Post Office its agent for receiving such payments, and whether the amounts of the cheques were received in the taxable territories under Section 4(1)(a) of the Indian Income-tax Act, 1922.
Final Decision
The Supreme Court dismissed the appeals and held that there was an implied request by the appellant to the Government to send the cheques by post, constituting the Post Office its agent for receiving payments. Consequently, the amounts of the cheques were received in the taxable territories and were liable to tax under Section 4(1)(a) of the Indian Income-tax Act, 1922.
Law Points
- Legal points not extracted
- Income received in taxable territories under Section 4(1)(a) of Indian Income-tax Act
- 1922 when cheque sent by post
- implied request arises from contract stipulating payment by cheque and normal business usage
- post office acts as agent of payee
- acceptance of cheque in full satisfaction constitutes receipt
- receipt occurs at place of posting
- not place of encashment
