The Commissioner of Income-Tax, Bombay South vs. Messrs Ogale Glass Works Ltd., Ogale Wadi

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Civil Appeal No. 19 of 1953

Decision Date: 19 April 1954

Coram: Natwarlal H. Bhagwati, B. Jagannadhadas, DAS

The case involved an appeal brought by the Commissioner of Income-Tax for Bombay South against Messrs Ogale Glass Works Ltd., a company located at Ogale Wadi. The judgment was delivered on the nineteenth of April, nineteen-fifty-four by a bench of the Supreme Court of India comprising Justice Natwarlal H. Bhagwati, Justice B. Jagannadhadas and Justice Sudhi Ranjan Das. The citation of the decision appears as 1954 AIR 429 and it has been reported subsequently in a number of law reports, including the 1954 and 1957 Supreme Court reports, the 1959 and 1960 compilations, as well as later citations up to the 1990 reports. The statutory framework relevant to the dispute was Section 4(1)(a) of the Indian Income-Tax Act of 1922, which deals with the concept of a non-resident company and the determination of whether income, profits and gains are deemed to be received within British India. In addition, the Court considered Section 50 of the Indian Contract Act of 1872, particularly illustration (d), which addresses the situation where an addressee requests that a sender transmit a cheque by post, thereby making the post-office an agent of the addressee. The factual backdrop was that the assessee, a limited liability company incorporated and conducting business in an Indian State outside the jurisdiction of British India, was treated as a non-resident company for the purposes of the Income-Tax Act. Consequently, its liability to British Indian income-tax depended upon whether the income was received within British India. The company had supplied goods to the Government of India and, at its express request, asked that the payment for the bills of exchange be made by means of cheques drawn in Delhi and sent by post to the company in its home state. The Government of India complied with this request and issued cheques that were posted from Delhi. The Court held that, according to the ordinary course of business and general usage, the parties intended that the cheques be dispatched by post, and therefore the posting of those cheques at Delhi constituted a payment in Delhi to the post-office, which functioned as the agent of the assessee. As a result, the income, profits and gains arising from the sales to the Government of India were deemed to have been received in British India within the meaning of Section 4(1)(a). The Court further observed that when the addressee expressly requests the sender to use the post-office for transmission, the post-office becomes the agent of the addressee, and the addressee cannot subsequently deny this agency relationship. Conversely, in the absence of any such request—express or implied—the post-office would act as the agent of the sender upon delivery of the cheque to it.

When the postal service transmits a cheque, it acts as the agent of the sender, not the recipient. In addition to the agency rule, section 50 illustration (d) of the Indian Contract Act, 1872, states a well-known principle that a contractual duty is discharged when the promise is fulfilled in the manner prescribed or authorized by that promise. The Indian Post-Office Act, 1898 (Act VI of 1898) does not override illustration (d) to section 50 of the Indian Contract Act, nor does it contradict the aforementioned legal proposition. The Court referred to several authorities to support this view, including Gresham Life Assurance Society v Bishop (L.R. [1902] A.C. 287 at p. 296), Commissioner of Income-tax v Kameshwar Singh ([1933] 1 I.T.R. 107), Raghunandan Prasad v Commissioner of Income-tax (60 I.A. 133; [1933] 1 I.T.R. 113), Commissioner of Income-tax v Maheswari Saran Singh ([1951] 19 I.T.R. 83), Stedman v Gooch ((1793) 1 Esp. 5), Maillard v Duke of Argyle ((1843) 6 M. & G. 40), Kempt v Watt ((1846) 15 M. & W. 672), Be Rower and Haslam (L.R. (1893) 2 Q.B. 286), Palaniappa Chetty v Arunachalam Chetty (1911 21 M.L.J. 432), Robinson v Henry Reid ((1829) 9 B. & C. 449), Anderson Hillies ((1852) 21 L.J.C.P. (N.S.) 150), Kodarmal v Sagormal ((1907) 9 Bom. L.R. 901 at p. 911), Felix Hadley & Co. v Hadley (L.R. (1898) 2 Ch. D. 680), Rhokana Corporation v Inland Revenue Commissioners (L.R. (1938) A.C. 380 at p. 399), Commissioner of Excess Profits Tax, West Bengal v Jeewanlal Ltd. ([1951] 20 I.T.R. 39 at p. 47), Chainrup Sampatram v C.I.T., West Bengal ([1951] 20 I.T.R. 484 at pp. 493, 496), Allahabad Bank Ltd. v C.I.T., West Bengal ([1952] 21 I.T.R. 169), Mohanlal Biralal v C.I.T., C.P. & Berar ([1952] 22 I.T.R. 448), Hira Mills Ltd., Cawnpore v Income-tax Officer, Cawnpore ([1946] 14 I.T.R. 417), Madanlal Dharnidharka v Commissioner of Income-tax, Bombay City ([1948] 16 I.T.R. 227 at p. 232), Commissioner of Income-tax, Delhi v Punjab National Bank Ltd. ([1952] 21 I.T.R. 526), Norman v Rickets ((1886) 3 T.L.R. 182), Thairlwal v The Great Northern Railway Co. (L.R. [1910] 2 K.B. 509), Badische Anilin Und Soda Fabrik v Basle Chemical Works (L.R. [1898] A.C. 200), Comber v Leyland (L.R. [1898] A.C. 524), Mitchell Henry v Norwhich Union Life Insurance Society Ltd. (L.R. (1918) 2 K.B. 67), Thorappa v Umedmalji ((1923) 25 Bom. L.R. 604), Ex-parte Cote (L.R. (1873) 9 Ch. App. 27), and The Indian Cotton Company Ltd. v Hari Poonjoo (I.L.R. (1937) Bom. 763).

The judgment concerned Civil Appeal No 19 of 1953, an appeal from the judgment and order dated 17 September 1951 of the High Court of Judicature at Bombay (Chief Justice Chagla and Justice Tendolkar) in Income-tax Reference No 19 of 1949. The appellant was represented by counsel for the Attorney-General for India and the Solicitor-General for India, assisted by additional counsel, while the respondents were represented by counsel appearing for them. The appeal was decided on 19 April 1954, and the opinion was delivered by Justice Das. The case arose out of the assessment proceedings for income tax of the respondent, Messrs Ogale Glass Works Ltd., concerning the assessment years 1941-42 to 1945-46. The respondent was a limited-liability company incorporated and operating in Aundh, which at that time was a princely state outside British India and therefore a non-resident company for the purposes of the Indian Income-tax Act. The company manufactured lanterns and other glassware at its works in Aundh State and had secured contracts to supply such items to the Government of India. Payments for those contracts were made by cheques drawn on the Reserve Bank of India, Bombay, and the cheques were received by the company in Aundh and later cleared through its bank in Bombay. Because the company was non-resident, its liability to British-Indian income tax depended on whether the income was received within British India.

In this dispute the court examined the income-tax assessment made against the respondent, Messrs. Ogale Glass Works Ltd., which the judgment repeatedly calls “the assessee,” for the five assessment years spanning 1941-42 to 1945-46. The assessee was organized as a limited liability company that had been incorporated and was carrying on its business in the State of Aundh, a princely territory that at that time lay outside the political jurisdiction of British India. Consequently, under the provisions of the Indian Income-Tax Act, the company was classified as a non-resident entity. The business of the assessee consisted of manufacturing lanterns and other articles of glassware at its plant located within Aundh State. During the accounting periods in question the company obtained several contracts for the supply of lanterns and related glassware to the Government of India. The consideration for the goods supplied under those contracts was effected by means of cheques drawn on the Reserve Bank of India, Bombay. Those cheques were physically received by the assessee in Aundh and were subsequently presented for payment through the assessee’s bank account in Bombay, as explained in later portions of the judgment. Because the assessee was a non-resident, its liability to pay British-Indian income tax depended on whether its income was deemed to have been received within British India. In the proceedings concerning the assessment for the five years mentioned, the assessee argued that the profits arising from the sales were accrued and received in the State of Aundh, asserting that the receipt of the cheques constituted payment within Aundh and not within British India. The Income-Tax Officer, and subsequently on appeal the Appellate Assistant Commissioner, rejected that contention. They held that the assessee had, in fact, received income, profits or gains in British India because the cheques were drawn on a bank situated in Bombay and were cleared in Bombay; accordingly they taxed the assessee under section 4(1)(a) of the Indian Income-Tax Act. The assessee appealed this assessment to the Income-Tax Appellate Tribunal, which affirmed the assessment. Dissatisfied with the tribunal’s order, the assessee sought a reference of the matter to the High Court for determination of the precise legal question that had arisen from the tribunal’s decision. The tribunal concurred that a question of law existed and therefore referred the following issue to the High Court together with a statement of the case: whether, on the facts, the income, profits and gains arising from sales made to the Government of India were received in British India within the meaning of section 4(1)(a) of the Act. At the hearing of the reference, counsel for the assessee argued, among other points, that the cheques were received by the assessee as full satisfaction of the debt owed by the Government of India and that the Government’s debt was discharged when the assessee accepted the cheques in Aundh. The High Court concluded that, in order to resolve this submission, further factual findings were required from the tribunal. Accordingly, the High Court remanded the reference back to the tribunal, directing it to file a supplementary statement of the case in accordance with the instructions set out in the order dated 15 September 1949.

The Tribunal recorded that a supplementary statement of the case had been filed on 8 June 1951. That supplementary statement referred to clause fifteen of the conditions governing the contract under which the assessee supplied goods to the Government of India. Under that clause the payment arrangement provided that ninety per cent of the price of each consignment would be payable when the assessee proved that the stores had been dispatched from a railway station or a port in India after inspection, and the remaining ten per cent would be payable when the consignment was received in good condition. The clause further stipulated that, unless the parties agreed otherwise, payment for delivery of the stores would be made on submission of bills in the prescribed form, in accordance with the instructions set out in the Acceptance of Tender, by cheque drawn on a Government Treasury in India or on a branch of the Reserve Bank of India or the Imperial Bank of India transacting Government business. The assessee habitually submitted bills in the prescribed form, and on each bill it wrote the request: “Kindly remit the amount by a cheque in our favour on any bank in Bombay.” After the bills were submitted, the Government would forward cheques drawn on the Bombay branch of the Reserve Bank of India together with a memorandum that read, in part, “The undersigned has the honour to forward herewith cheque No. … dated … the bills noted below.” The memorandum was followed by a tabular schedule setting out the number, date and amount of each cheque. At the top of the memorandum there was an instruction that the document should be “immediately returned to the Controller of Supply Accounts with the acknowledgement form on the reverse duly signed and stamped when necessary.” The acknowledgement form was worded: “The undersigned has the honour to acknowledge cheque No. … dated … for Rs. … in payment of the bills noted in the first column on the reverse.” Upon receipt of the cheques, the assessee endorsed them in favour of Aundh Bank Ltd., Ogale Wadi Branch, which in turn endorsed the cheques in favour of the Bombay Provincial Co-operative Bank Ltd., Bombay. The latter bank cleared the cheques through the Bombay Clearing House. The supplementary statement further recorded that Aundh Bank Ltd. credited the assessee’s account on the same day the cheques were received, after deducting the collection charges, and that the assessee subsequently credited the Supply Department’s account and made corresponding debits to the bank’s account and to the bank-charges account. The counsel for the assessee argued before the Tribunal that the cheques had been discounted by Aundh Bank Ltd., thereby implying that the assessee had actually obtained cash payment in Aundh. The Tribunal rejected this argument, holding that the bank had merely allowed the assessee to draw money against the security of the cheques and had not discounted them.

The Court observed that the assessee’s bankers permitted it to obtain funds on the security of the cheques but did not discount the cheques. The Court’s attention was drawn to a passage in paragraph eight of the supplementary statement, which stated that merely issuing a cheque did not constitute a payment by the Government; payment occurred only when the Government’s account held by the bank was debited. Paragraph nine of the supplementary statement set out the Tribunal’s factual findings, which the Court reproduced in eight separate points. First, under the agreement with the Government of India the assessee had undertaken to receive payment by a cheque drawn on a bank in India. Second, the assessee specifically requested that the Government make payment of the sale proceeds by a cheque drawn on a bank in Bombay. Third, when the assessee received the cheque, it did not receive the sale proceeds outright; the proceeds were received subject to the cheque’s encashment. Fourth, the assessee’s bankers allowed the assessee to draw money against the security of the cheque on the very day the cheque was sent for collection to the bank. Fifth, the bankers realised the payment of the cheque from the Reserve Bank of India, Bombay, acting as agents of the assessee, and charged the usual commission for collecting an out-station cheque. Sixth, the sale proceeds were received in Bombay. Seventh, the cheque was encashed on behalf of the assessee in Bombay. Eighth, the profits on the sales made to the Government of India were received by the assessee in cash in Bombay.

The supplementary statement concluded with a note that both the assessee and the Revenue agreed that the factual matrix presented was correct. The leading argument presented before the Court, which had also been raised before the High Court, was that the assessee obtained the payment for the goods at the moment it received the cheques at the Aundh branch, thereby treating the cheques as full and final satisfaction of its claim against the Government. From that premise, the counsel for the assessee submitted that because the cheques were physically received at Aundh, the place of receipt of payment was therefore Aundh, and consequently the non-resident assessee did not accrue any income, profit or gain within British India within the meaning of section 4(1)(a) of the Indian Income-Tax Act, and that the reference should accordingly be answered in the negative. The Revenue, on the other hand, advanced a two-fold contention. Firstly, it contended that the issue of whether the assessee had unconditionally accepted the cheques in full satisfaction of its contractual claims was already settled by the Tribunal’s factual findings, and therefore required no further inquiry. The Court observed that this submission possessed some merit, because the language of paragraph eight of the supplementary statement together with sub-paragraphs three, six and eight of paragraph nine appeared to indicate that, in the Tribunal’s view, no payment was effected merely by the issue of the cheques.

By merely issuing the cheques, the Government did not actually convey the sale proceeds to the assessee; when the assessee obtained the cheques, the proceeds were not yet realised; the proceeds would be realised only after the cheques were encashed; the bank in Bombay acted as the assessee’s agent in collecting the cheques; consequently the cash representing the sale proceeds was said to have been received in Bombay. Nevertheless, the wording of the supplementary statement of the case permits the interpretation that the statements above are not Tribunal findings of fact but rather inferences drawn from the facts that the Tribunal had established. The High Court expressed the view that the Tribunal had not expressly found that the assessee had accepted the cheques as full and final discharge of its claim for the price of the goods supplied. Instead, after reviewing the facts found by the Tribunal, the High Court concluded that the appropriate inference was that an arrangement existed between the assessee and the Government such that the acceptance of the cheques amounted to an unconditional discharge of the debt. Accordingly, the matters required examination of the Tribunal’s factual findings that bear on this issue. The assessee argued that, based on the Tribunal’s findings, it should be held that the cheques were received as an absolute and unconditional discharge of its claims for the price of the goods sold and delivered to the Government, and not merely as a conditional receipt subject to later realisation. It cannot be denied that a sum of money may be received in more than one manner; it may be received by the transfer of coins or currency notes, or by a negotiable instrument that represents cash and is treated as cash by merchants, as noted by Lord Lindley in Gresham Life Assurance Society v. Bishop. The same principle has been cited in Commissioner of Income-tax v. Kameshwar Singh, Raghunandan Prasad v. Commissioner of Income-tax and Commissioner of Income-tax v. Maheswari Saran Singh. The learned Solicitor-General did not dispute this principle, but contended that, absent an express or implied agreement to the contrary, a payment by a negotiable instrument is presumed to be conditional. He cited Benjamin on Sale, eighth edition, page 787, to support the view that the intention to accept a bill as absolute payment for goods must be clearly demonstrated and cannot be inferred from ambiguous expressions such as the bill being taken “in payment” for the goods (Stedman v. Gooch), “in discharge” (Kemp v. Watt), “in settlement” of the price (Re Rower and Haslam), or similar language. He further referred to additional English authorities supporting this position.

In this matter, the Solicitor-General referred to English cases cited in Benjamin on Sale and also relied on the decision of Palaniappa Chetty v. Arunachalam Chetty (9). In that Madras High Court decision, the court held that merely executing a formal receipt for the sum covered by a bill of exchange or hundi does not defeat the general presumption that delivering such a bill or hundi for a debt functions only as a conditional discharge of that debt. The Solicitor-General argued that, based on the facts before the Court, there is no source from which an agreement could be implied that the cheques were given and received absolutely, thereby fully discharging the Government’s original contractual liability for the price of the goods supplied. He cited several authorities, including L.R. [1902] A.C. 287 at p. 296, (1843) 6 M. & G. 40, [1933] I.I.T.R. 107, (1846) 15 M. & W. 672, 60 I.A. 133; [1933] I.T.R. 113, L.R. [1893] 2 Q.B. 286, [1951] 19 I.T.R. 83, (1911) 21 M.L.J. 432, and (1793) 1 ESP-5. The assessee responded by setting out several factual averments to counter the Solicitor-General’s contentions. First, the contract itself contained a clause (clause 15) that provided for payment by cheque. Second, in the bills submitted by the assessee, there was an express request that payment be made by cheque. Third, the Government sent cheques in settlement of the bills. Fourth, upon receipt of those cheques, the assessee returned a duly signed and stamped acknowledgement form as a formal receipt. Fifth, the drawer of the cheques was the Government of India and the drawee was the Reserve Bank of India, whose solvency the assessee could not reasonably doubt. The assessee argued that the combined effect of these circumstances clearly demonstrated that the cheques were received unconditionally as full payment. The Solicitor-General countered that the assessee’s request for payment by cheques did not add any new term, because the undertaking to pay by cheque was already contained in the contract. He explained that the purpose of the request was merely to have the cheques drawn on a bank in Bombay, and that insisting on a stamped receipt before payment was consistent with ordinary Government department practice. Consequently, the Solicitor-General maintained that the only matters present were a contractual term providing for payment by cheque and the identities of the drawer and drawee. He asserted that those two factors alone were insufficient to prove that the cheques were accepted as an unconditional discharge of the debt. He further contended that, absent an explicit agreement, a creditor may accept a bill or cheque conditionally only when the creditor elects to take the instrument as a matter of choice or preference instead of cash, thereby retaining the power to obtain cash payment.

The judgment noted that an implied agreement that a cheque constituted an unconditional and absolute discharge of a debt was illustrated in Robinson v. Henry Reid (1) and Anderson v. Hillies (2), and that such instances were expected to be uncommon because a creditor ordinarily preferred to retain the dual remedy of pursuing the bill or cheque and, alternatively, the original cause of action should the instrument be dishonoured. It was further observed that in the present matter no specific agreement establishing such an unconditional acceptance of the cheques had been identified, and consequently, the learned Solicitor-General submitted that the assessee must be deemed to have received the cheques only conditionally, that is, subject to their realisation. The learned Solicitor-General therefore concluded that mere receipt of the cheques did not amount to payment; payment, in his view, occurred only when the cheques were actually cashed in Bombay, at which point the receipts in Bombay became immediately assessable to British Indian tax under section 4(1)(a). The High Court rejected that line of reasoning and held that the assessee had received payment on the dates the cheques were delivered to it, a conclusion with which the judgment was substantially in agreement. It was reminded that a contract may be discharged in four recognised modes: by agreement of the parties, by performance of the contractual obligations, by legal excusal from performance, or by breach of contract. In the present case clause 15 of the contract expressly prescribed the manner and timing for the Government’s payment of the price, and the Government complied with that prescription by issuing cheques, thereby fulfilling its contractual engagement; such performance, under section 50 of the Indian Contract Act, operated as a discharge of the contract. The judgment also pointed out that the assessee had sent its formal stamped receipts only after the cheques had been received and not together with the bills it had submitted, meaning that the receipts could not be characterised as having been sent in advance of payment. Additionally, the status of the drawer and drawee of the cheques was identified as a material consideration, and there was no indication that any of the cheques had been dishonoured upon presentation. Consequently, the cumulative facts relied upon by the learned Solicitor-General, as enumerated and discussed above, led the judgment to conclude that the cheques were received in full discharge of the claim for the price of the goods. The learned Solicitor-General, however, argued, relying on the decision in Kodarmal v. Sagormal (1), that a creditor’s request for the issuance of a cheque did not alter the general rule that payment by a negotiable instrument remained conditional upon its being honoured when presented within a reasonable time. Even if the judgment were to accept that contention regarding the factual circumstances,

The Court held that even assuming the facts set out earlier were insufficient to create a legal implication that the cheques had been accepted as full payment, the position of the assessee would not be improved. The Court explained that when it is said that payment by a negotiable instrument is conditional, the condition is a subsequent one: if the instrument is dishonoured upon presentation, the creditor may treat it as worthless and may pursue his original claim. This principle was stated in Stedman v. Gooch (2). The Court further cited the text Benjamin on Sale, eighth edition, page 788, which observes that payment becomes effective upon delivery of the bill but is defeated if the condition of payment at maturity fails to occur. In Byles on Bills, twentieth edition, page 23, the rule is summed up succinctly: a cheque, unless it is dishonoured, constitutes payment. Similar language appears in Hart on Banking, fourth edition, volume I, page 342. The Court also referred to the decision in Felix Hadley & Co. v. Hadley (3), where Byrne J. explained that the situation amounted to a conditional payment of the debt, the condition being that the cheque or bill must be duly met at the proper date. He further noted that the implication of an agreement that the instrument operates as payment unless defeated by dishonour arises from the act of giving and receiving the cheques and bills. Lord Maugham’s observations in Bhokana Corporation v. Inland Revenue Commissioners (1) were likewise considered relevant. Lord Maugham stated that, apart from the explicit terms of section 33, subsection 1, the common-law rules concerning the effect of sending a cheque in satisfaction of a debt lead to the conclusion that payment is subject to the subsequent condition that the cheque be met on presentation, and that, if the cheque is duly met, the date of payment is the date the cheque was posted.

Applying these principles to the present case, the Court noted that none of the cheques in dispute had been dishonoured when presented. Consequently, the condition subsequent – non-payment due to dishonour – had not occurred, and the payment could not be said to have been defeated. Therefore, it could not be argued that the assessee failed to receive payment by virtue of the receipt of the cheques. The Court concluded that, in one view, there existed an implied agreement that the cheques were accepted unconditionally as payment; and even if the cheques were taken only conditionally, the absence of any dishonour meant that the payment was effective. Accordingly, the payment was deemed to have taken place on the dates the cheques were delivered, and the assessment that the assessee had not received payment could not stand.

In the circumstances of this case the Court observed that there could be an implied agreement under which the cheques were accepted unconditionally as payment, and, even on an alternative view, if the cheques were taken conditionally, the cheques were not dishonoured but were actually cashed; consequently the payment related back to the dates of receipt of the cheques, and, in law, the dates of payment were to be treated as the dates of delivery of the cheques. On the footing that the assessee received payment as soon as the cheques were delivered to it, the Court noted that a further question remained as to the precise time and place at which the assessee actually received such payment. The assessee answered this question plainly, stating that it received the payment in Aundh, the place where the cheques were physically delivered. The learned Solicitor-General, however, disputed that formulation and contended that the cheques were delivered to the assessee at the moment they were posted. The assessee responded with a two-fold rejoinder. First, it asserted that the issue raised by the Solicitor-General was an entirely new question of law that had never been presented before the Tribunal, had not been considered by the Tribunal, and therefore could not be said to arise out of the Tribunal’s order; consequently, the Court possessed no jurisdiction, even when exercising its advisory jurisdiction under section 66 of the Indian Income-Tax Act, to permit such a fresh question of law to be introduced at this stage. In support of its position, counsel for the assessee relied upon the authorities of Commissioner, Excess Profits Tax, West Bengal v. Jeewanlal Ltd.; Chainup Sampatram v. C.I.T., West Bengal; Allahabad Bank Ltd. v. C.I.T., West Bengal; Mohanlal Hiralal v. C.I.T., C.P. & Berar; and Hira Mills Ltd., Cawnpore v. Income-Tax Officer, Cawnpore. Conversely, the learned Solicitor-General referred the Court to the decisions in Madanlal Dharnidharka v. Commissioner of Income-Tax, Bombay City and Commissioner of Income-Tax, Delhi v. Punjab National Bank Ltd. The Court indicated that, on this occasion, it was not necessary to express any opinion on the broader question concerning the scope, meaning and import of the phrase “any question of law arising out of” the Tribunal’s order, a phrase on which judicial opinion varies widely. It further observed that this was not a situation where the Tribunal, having refused to refer a question of law, had an application made to the High Court to exercise its jurisdiction under sub-section (2) of section 66; rather, the Tribunal, exercising its powers under sub-section (1) of that provision, had already referred a question of law to the High Court. No party at any time contested the cited authorities, namely (1) L.R. [1938] A.C. 380 at p. 399; (2) [1951] 20 I.T.R. 39 at p. 47; (3) [1951] 20 I.T.R. 484 at pp. 493, 496; (4) [1952] 21 I.T.R. 169; (5) [1952] 22 I.T.R. 448; (6) [1946] 14 I.T.R. 417; (7) [1948] 16 I.T.R. 227 at p. 232; and (8) [1952] 21 I.T.R. 526, and this remains the case at present.

It was not put to the Court that the question of law referred to the High Court failed to arise from the Tribunal’s order or that the referral was improper. Since the question of law indeed arose from the Tribunal’s decision, the Tribunal had correctly exercised its authority under sub-section (1) to refer the question to the High Court, which was then obliged to consider and answer it pursuant to its jurisdiction under sub-section (5). The Revenue, in support of its request that the question be answered affirmatively, first argued that the cheques had been accepted only on a conditional basis; consequently, no payment occurred until the cheques were actually encashed, and because the encashment took place in Bombay, the receipt of payment should be deemed to have occurred in Bombay. The High Court rejected this line of reasoning. Having been turned down, the Revenue advanced a second argument based on the facts that the cheques, at the assessee’s request, were posted from Delhi, and that the mere posting in those circumstances should be treated as payment made in Delhi. No new question of law was introduced; the core issue remained whether, on the facts of this case, the income, profits and gains from sales to the Government of India were received in British India within the meaning of section 4(1)(a) of the Act. The Revenue’s contention was that because the cheques were posted at Delhi at the assessee’s request, the payment was received in British India. While some suggested that the wording of the question was sufficiently broad to encompass this argument, they also argued that the question should be narrowly construed to include only those facts upon which the Tribunal based its decision, thereby excluding other material on the record and even facts mentioned in the Tribunal’s order and statements of the case. The Court found no justification for such a limitation, observing that the question expressly required determination “on the facts of this case.” To accept the assessee’s position would unduly narrow the scope of the question by altering its language. Since the High Court had allowed this argument to be raised, the Court declined to exclude it. Counsel for the Revenue, identified as Sri Kolah, further asserted that the necessary facts for this branch of the argument were absent from the Tribunal’s order and the statements of the case, and therefore the argument should not be entertained.

In this case, the Court observed that the contention that the argument ought not to be entertained would have carried considerable weight only if the facts required to support the Revenue’s new argument were absent from the record; however, the Court found that the necessary facts were indeed present, as will be shown. The High Court had held that, had the assessee asked the Government to forward the cheques by post, the post-office would have become the Government’s agent and the dispatch of the cheques from Delhi would have constituted delivery to the assessee in Delhi. Yet the High Court also observed that the Tribunal had never found, as a matter of fact, that the assessee ever made such a request, and therefore it could not be said that the cheques were delivered to the assessee in Delhi. The Court now says that, for reasons that will be explained, this portion of the High Court’s decision lacks factual support and its conclusion cannot be sustained in law. Turning to the Tribunal’s order, the Court quoted the following passages: “All payments for the goods supplied were made by cheques drawn by the Government department at Delhi on the Reserve Bank of India, Bombay Branch. The cheques were received by the assessee Company in its office in Aundh State.” The factual finding recorded in the first statement of the case also includes the words: “These cheques were received by the assessee Company at its office in Aundh State by post.” In paragraph three of the Supplementary Statement of the case the Tribunal recorded: “3. The assessee company used to submit the bills and on the form of the bill it used to write ‘Kindly remit the amount by a cheque in our favour on any bank in Bombay.’ The question for our consideration is as to what, on the legal principles laid down in judicial decisions, these findings of fact amount to.” The Court then referred to the authority in Norman v. Rickets(1), where a creditor who was a milliner in Bond Street wrote to a customer in Suffolk requesting that the customer send a cheque within a week. The customer complied by posting the cheque, which was stolen in transit and later honoured by the bank in favour of the thief. The Court noted that there was no explicit request to send the cheque by post, but the court in that case held that the act of posting the cheque amounted to payment. On appeal, the Court of Appeal upheld the trial court’s view and observed: “An express request to send through the post was not necessary. If what the plaintiffs said amounted to a request to send the cheque by the post, then there was payment. To answer that question the existing circumstances must be looked at. A milliner in …”

In the earlier case, the Court observed that a letter sent from London to a lady in Suffolk asking for a cheque was reasonably understood by the lady to imply that she should dispatch the cheque by post. The Court explained that the lady could not have been expected to send a messenger with the cheque or to travel to London herself; the only sensible interpretation of the request, irrespective of any intention the writer might have had, was that the cheque was to be mailed. Accordingly, the Court held that the lady reasonably believed she was being invited to send her cheque through the postal system, and she complied with that invitation. By doing so, her act of posting the cheque was deemed to constitute a payment.

In the case of Thairwal v. The Great Northern Railway Co., the directors, in a report, recommended both the declaration of dividends at specified rates and the dispatch of dividend warrants by post. Although the shareholders, at the half-yearly general meeting, approved a resolution to declare dividends at altered rates, they said nothing about the method of sending the dividends. When dividend warrants were posted to a shareholder and subsequently lost, Bray J. held that the circumstances indicated a request by the shareholder to the company to satisfy the amount due by means of a warrant sent through the postal service.

The decision in Badische Anilin Und Soda Fabrik v. Basle Chemical Works concerned a Swiss seller who, upon the buyer’s instruction, sent patented goods to England by post. The issue was which party, having caused the goods to arrive in England, would be liable for patent infringement. The Court concluded that the postal service acted as the agent of the English purchaser; therefore, the seller could not be sued. The judgment noted that the seller dispatched the goods in compliance with the buyer’s order to a specifically named carrier—the post-office—and quoted Lord Halsbury, who remarked that it is unnecessary for the carrier to be named, provided that the ordinary course of delivery identifies the carrier, but that point was unnecessary here because the carrier was expressly named. Finally, the Court cited Comber v. Leyland, a decision that is pertinent because it clarifies the meaning and legal effect of the term “remit,” which the assessee employed when it asked the Government Department to remit the amount by cheque.

In the present matter the assessee had asked the Government Department to “remit” the sum by way of a cheque. The authorities cited in support of the argument included two decisions reported in the Law Reports, namely L.R. [1898] A.C. 200 and L.R. [1898] A.C. 524. In those cases there was no explicit mention of the post-office. Lord Herschell, speaking at page 530 of the first case, explained that the word “remit” was to be understood narrowly: it required that bank post-bills, once obtained in favour of the plaintiffs, be dispatched in the ordinary commercial manner, that is, by ordinary mail. He further observed that as soon as such dispatch had taken place the defendant’s obligation and liability were discharged. According to his reasoning, it could not be sustained that the defendant remained bound until the bank post-bills actually arrived in the hands of the plaintiffs in England. A further illustration was drawn from Mitchell Henry v. Norwich Union Life Insurance Society Ltd. (1). In that case the defendants issued a written notice to the plaintiff stating that the sum of £48-5-8d, which was soon to become due, should be paid at the defendants’ office, and they invited the plaintiff, “when remitting,” to return the notice. No specific instruction was given to transmit the amount by post. Bailhache J., however, held that the use of the term “remitting” implied that the defendants authorised the plaintiff to discharge the debt by sending the money through the postal system in the ordinary way that money was normally remitted by post, even though it was unusual to forward such a large sum in Treasury notes by that method. Apart from the practical impropriety of sending a large amount in Treasury notes by post, this decision supported the view that a creditor’s request to “remit” an amount, without additional clarification, amounted to a request that the payment be sent by post. That judgment was subsequently affirmed by the Court of Appeal. Conversely, the Court noted that where the creditor does not expressly or implicitly request posting of the payment, the mere act of posting a hundi that is duly endorsed in favour of the addressee does not constitute delivery of the hundi to the addressee, nor does it transfer title in the hundi, because in such circumstances the post-office does not become the addressee’s agent. This principle was illustrated by the decision in Thorappa v. Umedmalji (2). A similar point arose in ex parte Cote (3), where again there was no request by the addressee to send the bills by post. The various judicial decisions on the effect of “remit” and the posting of negotiable instruments are summarised in Benjamin on Sale, eighth edition, pages 769-777, and in Chalmers’ Bills of Exchange, twelfth edition, pages 51-52. Sri Kolah emphasized a fundamental distinction between the postal regulations applicable in England and those governing India, and he further elaborated on this difference in his analysis.

Sri Kolah insists that the English decisions establishing the effect of sending cheques by post should not be rigidly followed in India. He points out that in England the sender of a cheque has no right to reclaim it after posting, and therefore the post office instantly becomes the irrevocable agent of the addressee. According to Sri Kolah, the Indian Post Office Act of 1898 does not adopt that rule, because under Indian law the sender retains a right to reclaim the letter until it is delivered to addressee. The Court observes, however, that this sender’s right is not absolute, since the authorities retain discretion to decide whether a posted letter should be returned to the sender. Such a narrow and qualified right cannot be said to create a position so different from English law as to render the English decisions wholly inapplicable. Moreover, the English decisions have already been adopted by Indian courts, for instance in Thorappa v. Umedmalji and in Indian Cotton Company Ltd. v. Hari Poonjoo. Nevertheless, it is unnecessary to pursue this line further because the principles underlying those English decisions are clearly consonant with the provisions of Indian law. Undoubtedly, when the addressee requests that a cheque be sent by post, that request makes the post office the addressee’s agent, and the addressee cannot thereafter deny that agency. Consequently, the loss of the cheque in transit cannot be placed on the sender on the specious ground that the post office remained his agent under the 1898 Act, because no reclamation was effected. If there is no express or implied request from the addressee, delivery of the letter or cheque to the post office constitutes delivery to the sender’s own agent. Apart from this agency principle, another principle makes posting at the request of the addressee a delivery to him, namely that by posting. Thus, the legal effect of posting a cheque in India depends principally on whether the addressee has asked for the postal conveyance, not merely on the act of posting itself. Accordingly, the Court can treat a posted cheque as the addressee’s property once the request is established, and any loss thereafter falls upon the postal service.

According to the principle stated in section 50 of the Indian Contract Act, when a debtor discharges his obligation by delivering a cheque in accordance with the creditor’s request, the contract is deemed performed. The Court examined the observation made by Sri Kolah that at the time the Indian Contract Act of 1872 was enacted, the Indian Post-Office Act of 1866 was still operative. He explained the relevant provisions of that earlier statute and emphasized that those provisions differed markedly from those contained in the current legislation. Sri Kolah further argued that illustration (d) to section 50 of the Indian Contract Act became inappropriate, obsolete and incorrect after the enactment of the Post-Office Act of 1898. The Court, however, did not accept that there is any fundamental distinction between the two statutes with respect to the issue under consideration. It was held that the 1898 Act does not extend the sender’s right to recover a postal article to a degree that would nullify illustration (d) or disturb the well-established principle that a contractual duty is satisfied by the performance of the promise in the manner prescribed or approved by the promisee. Applying these principles to the facts found by the Tribunal, the Court concluded the following. The Government’s liability was to make payments by way of cheques. Those cheques were drawn in Delhi and were delivered to the assessee in Aundh through the post. Considering the normal course of business practice, which must be taken into account along with the surrounding circumstances discussed in the cited authorities, the parties must have intended that the cheques be sent by post, which is the usual and ordinary agency for transmitting such instruments, and the Tribunal indeed found that the cheques were received by the assessee via post. In addition to the implication of an agreement arising from that customary business usage, the assessee explicitly requested the Government to “remit” the amounts of the bills by cheque. Under the authorities previously cited, such a request amounted to a clear and express demand that the Government send the cheques by post. The Government complied with this request and posted the cheques from Delhi. It could not be reasonably suggested that cheques drawn in Delhi and actually received by post in Aundh would, in normal business practice, be posted from a location outside British India. Consequently, the posting of the cheques in Delhi, in legal terms, constituted payment in Delhi. In this view, the question referred to the High Court should have been answered affirmatively. Therefore, the Court allowed the appeal and answered the question accordingly. Since the appellant’s principal argument failed but a new argument succeeded, the Court decided that no order on costs should be made, except that each party should bear its own costs before both this Court and the High Court.

The Court ordered that each party shall bear and pay its own costs incurred in the proceedings before this Court and shall likewise be responsible for the costs it incurred in the earlier proceedings before the High Court. In directing the parties to meet their respective expenses, the Court made clear that no cost liability was to be imposed on either side by the other. The Court further recorded that the appeal was allowed, thereby granting the relief sought by the appellant. By allowing the appeal, the Court affirmed that the appellant’s case succeeded on the grounds presented, while maintaining that each side remains solely liable for its own legal expenditures in both the present and the prior stages of litigation. Consequently, the order on costs applied uniformly to both parties, with no award of costs against the opposing party in either forum. The decision thus concluded the matter by both permitting the appeal and confirming the allocation of costs as self-borne by each litigant.