Commissioner of Income-Tax, Bombay vs Dharamdas Hargovindas

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 240 of 1955

Decision Date: 3 February 1961

Coram: K.N. Wanchoo, P.B. Gajendragadkar, A.K. Sarkar

In this matter the Supreme Court of India rendered a judgment on 3 February 1961 concerning an appeal filed by the Commissioner of Income‑Tax for Bombay against Dharamdas Hargovindas. The bench was composed of Justice K.N. Wanchoo, Justice P.B. Gajendragadkar and Justice A.K. Sarkar. The case is reported in 1961 AIR 921 and 1961 SCR (3) 731. The dispute arose under section 4(1)(b)(iii) of the Income‑Tax Act, 1922, which deals with income already received outside the taxable territory and later brought into or received in the taxable territory, and the question of whether such income must be the first receipt in the taxable territory to attract tax liability. The respondent, who was a resident of British India, had held a deposit with a firm in Bhavnagar, a territory outside British India at that time. On 7 April 1947 he transferred a portion of this deposit to a firm in Bombay. The Commissioner assessed tax on the transferred amount pursuant to the cited provision. The respondent contended that the provision required the receipt in the taxable territory to be the first receipt of that income, and therefore the assessment was improper. The Court held that the respondent was liable to tax on the amount. Justice Gajendragadkar and Justice Wanchoo explained that when a resident of the taxable territories has already received income outside those territories, and thereafter brings that income into the taxable territory, the income becomes chargeable to tax even though it is not the first receipt within the territory for the purposes of clause (b)(iii). They distinguished this from clause (a) of the same section, where the first receipt rule applies. The Court referred to the authority in Keshav Mills Ltd. v. Commissioner of Income‑Tax [1953] S.C.R. 950 in support of this reasoning.

Justice A.K. Sarkar, however, observed that the term “received” in clause (b)(iii) could be interpreted to mean that income can be received only once, and consequently the income could not be said to have been “received” again in the taxable territory. Nevertheless, he concluded that the income was “brought into” Bombay, and the form in which the income was originally received in Bhavnagar or the manner of its subsequent transfer to Bombay was irrelevant for tax purposes. The Court applied the principles laid down in Keshav Mills Ltd. v. Commissioner of Income‑Tax, as well as precedents from Board of Revenue v. Ripon Press (1923) I.L.R. 46 Mad. 706, Sundar Das v. Collector of Gujrat (1922) I.L.R. 3 Lah. 349, Gresham Life Assurance Society Ltd. v. Bishop [1902] A.C. 287 and Tennant v. Smith [1892] A.C. 150. The judgment was delivered in the civil appellate jurisdiction for Civil Appeal No. 240 of 1955, which was an appeal by special leave from a September 3, 1953 judgment and order of the Bombay High Court in Income‑Tax Reference No. 15 of 1953. Counsel for the appellant included Hardayal Hardy and D. Gupta, while counsel for the respondent comprised G S. Pathak, S. P. Mehta, S. N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra. The judgment of Justices Gajendragadkar and Wanchoo was read out by Justice Wanchoo, concluding the Court’s analysis of the tax liability arising from the transfer of income from a foreign deposit into the taxable territory.

On 24 April 1958 the Court directed that the case be returned to the Tribunal for the purpose of preparing a further statement of case on certain specific questions. The Tribunal subsequently drafted the required statement of case and forwarded it to this Court, thereby rendering the matter ready for a final decision. The present proceeding is an appeal filed by the Commissioner of Income‑Tax, Bombay, challenging the judgment rendered by the High Court at Bombay. That judgment had been delivered on a reference made under section 60(2) of the Income‑Tax Act and had answered the reference in the negative. The precise question that had been referred was whether, on the facts as established by the Tribunal, any remittance by the petitioner to Bombay could be said to fall within the meaning of, and therefore be assessable under, section 4(1)(b)(iii) of the Income‑Tax Act. The assessment year that is the subject of this dispute is 1948‑49, with the accounting year corresponding to the year 2003 in the Sambat calendar. The factual background may now be set out. At the material point in time, Bhavnagar was a sovereign princely state and consequently lay outside the jurisdiction of British India. In that state there existed a manufacturing establishment which will be referred to, for brevity, as Bhavnagar Mills. The assessee and his brother, Gordhandas, each maintained large deposits with Bhavnagar Mills. These deposits represented profits that had earlier been earned by the two brothers in Bhavnagar, and the sums were held in equal shares by the assessee and his brother. An account maintained by Bhavnagar Mills recorded that on 7 April 1947 a payment of Rs 50,000 was made to Harkisondas Ratilal and an identical sum of Rs 50,000 was paid to Dilipkumar Trikamlal. In Bombay there was another manufacturing concern, which will be called Bombay Mills. The accounting records of Bombay Mills showed that on 3 April 1947 it had received Rs 50,000 from each of Harkisondas Ratilal and Dilipkumar Trikamlal. Both Harkisondas Ratilal and Dilipkumar Trikamlal acted as benamidars for the assessee and his brother, and the entries indicated that the monies had been withdrawn by the assessee and his brother from Bhavnagar Mills and subsequently advanced to Bombay Mills. The assessee and his brother exercised complete control over both Bhavnagar Mills and Bombay Mills.

Having considered these facts, the Tribunal concluded that a remittance of the assessee’s profits had indeed taken place from Bhavnagar to Bombay, specifically a sum of Rs 50,000 representing half of the total amounts, attributable to the assessee’s share, and that such remittance was taxable under section 4(1)(b)(iii). In response to this finding, the assessee raised the issue that is presently before the Court. The High Court held that, under the provision in question, income becomes taxable only when it is brought into, or received in, the taxable territory by the assessee personally, and not when it is brought in or received on the assessee’s behalf. The High Court observed that the facts established by the Tribunal merely demonstrated that the assessee had directed his debtor, Bhavnagar Mills, to pay an amount to a third party, namely Bombay Mills, rather than to the assessee himself. According to

The High Court had held that “The result was that only one debtor was substituted for another. This did not amount to a receipt of the money by the assessee himself in Bombay or to a bringing of it into Bombay by him.” In that view, the High Court answered the reference in the negative. When the appeal was subsequently heard, the counsel for the appellant argued that even accepting the High Court’s reasoning that merely a substitution of debtors had occurred, the money nevertheless had been received by the assessee in Bombay. The counsel asserted that the respondent could not become a creditor of the Bombay Mills unless he had advanced the funds to that company. He further explained that, assuming the cheque drawn by the Bhavnagar Mills in favour of the Bombay Mills did not constitute a receipt by the respondent, the moment the Bombay Mills credited the amount to the respondent there was, in fact, a receipt of money by the assessee and an advance made by him to the Bombay Mills to create the debt. In response, the counsel for the assessee contended that there was no evidence showing that any agreement for the assessee’s advance to the Bombay Mills had been concluded outside Bhavnagar. He added that the record did not disclose how the money or the cheque traveled from Bhavnagar to Bombay, and it was possible that the parties had agreed at Bhavnagar that the money would be deposited with the Bombay Mills in the name of the assessee, or that the cheque or money might have been delivered to the Bombay Mills or its agent at Bhavnagar. The counsel argued that if this were the case – and the evidence could not deny it – then any notional receipt of money by the assessee and any subsequent advance to the Bombay Mills would have occurred in Bhavnagar, and once the funds reached Bombay they would be the Bombay Mills’ own money. Accordingly, the counsel for the assessee maintained that the amounts could not be taxed under the provision in question. Concluding the discussion of the parties’ submissions, the Court observed that the respondent’s counsel’s contention required resolution before a final disposal of the appeal could be made, and therefore it deemed it appropriate to remit the matter to the Tribunal for a further statement of case and any necessary evidence on how the cheque was transferred from Bhavnagar to Bombay and what agreement had been made between the parties.

The Court noted that the Tribunal was directed to obtain a further statement of case describing how the cheque had been transferred from Bhavnagar to Bombay and what agreement had been concluded between the parties so that the amount of the cheque was credited in the names of Harkison Rat ilal and Dilipkumar Trikamlal in the accounts of the Bombay Mills. The Tribunal was given four months to submit its report and, because of that order, the Court refrained from expressing any opinion on the matters argued before it. In compliance with the order, the Tribunal filed a detailed statement of case. In that statement the Tribunal found that the Bhavnagar Mills maintained an account with the Bank of India Limited at one of its Bombay branches and that a cheque book for that account was in the possession of the assessee, who possessed authority to operate the book on behalf of the Bhavnagar Mills. Acting for the Bhavnagar Mills, the assessee drew a cheque on the Bhavnagar Mills’ Bank of India account on 3 April 1947, in favour of himself, and the drawing was made in Bombay. The assessee then handed the cheque to the Bombay Mills, also in Bombay, for credit in the Bombay Mills’ account under the benami names Harkison Rat ilal and Dilipkumar Trikamlal, which were in fact the assessee and his brother. On the same day the Bombay Mills presented the cheque to another Bombay branch of the Bank of India where it held a separate account, and the cheque was deposited in that account. The actual banking entries in the ledgers of the two branches were recorded on 5 April 1947. The Bombay Mills also entered the receipt of the funds in its own books, crediting Harkison Rat ilal and Dilipkumar Trikamlal. Subsequently, the assessee instructed the Bhavnagar Mills to debit the joint account of himself and his brother for the sum of one lakh rupees, stating that the amount had been paid to Harkison Rat ilal and Dilipkumar Trikamlal; this debit entry was made on 7 April 1947. The Tribunal’s findings showed that no transaction or accounting entry was made at Bhavnagar itself. It also concluded that because the Bombay Mills required money and the assessee possessed funds with the Bhavnagar Mills, the assessee used those funds to make an advance to the Bombay Mills.

The Court observed that, as indicated in its earlier order, none of the issues raised in the appeal had been finally decided at that stage. Consequently, the remaining question for determination was whether, based on the facts found, the income could be said to have been brought into or received in Bombay by the assessee. The Court then reproduced the relevant portion of the statute, which provides that the total income of any previous year of any person includes all income, profits and gains from whatever source derived which, in the case of a resident, are received or are deemed to be received, or which are brought into or received in the taxable territories by that person. The Court signalled that the issue concerned clause (b) of the provision and that understanding the meaning of “brought into or received in the taxable territories by him” required consideration of the overall scheme of the sub‑section, which deals with the definition of total income.

In the provision under review, the statute specified that the total income of any previous year of any person included all income, profits and gains from whatever source derived which – (a) were received or were deemed to be received in the taxable territories in such year by or on behalf of such person; or (b) if such person was resident in the taxable territories during such year – (i) accrued or arose or were deemed to accrue or arise to him in the taxable territories during such year; or (ii) accrued or arose to him outside the taxable territories during such year; or (iii) having accrued or arisen to him outside the taxable territories before the beginning of such year and after the first day of April 1933, were brought into or received in the taxable territories by him during such year; or (c) if such person was not resident in the taxable territories during such year, accrued or arose or were deemed to accrue or arise to him in the taxable territories during such year. The Court indicated that the present dispute concerned clause (b). To interpret the expression “brought into or received in the taxable territories by him,” the Court said that the entire scheme of the sub‑section had to be examined. The sub‑section dealt with the total income of any previous year that was chargeable to tax under section 3 of the Act and was divided into three distinct parts. The first part, clause (a), provided that all income, profits and gains that were received or deemed to be received in the taxable territories in such year by or on behalf of the person would be included in the taxable income. Under clause (a), the residence of the person was irrelevant; the decisive factor was whether the income was received in the taxable territories during the previous year. Consequently, the Court explained that receipt in the previous year was the essential element, while the person’s residence was immaterial. The Court further noted that jurisprudence held that receipt must be the first receipt in the taxable territories. If income had been received elsewhere in the same year and was subsequently brought into the taxable territories, it could not be treated as income received in the taxable territories for that year. This principle was illustrated by the decision in Keshav Mills Ltd. v. Commissioner of Income‑tax, where the Court reasoned that clause (a) dealt with the receipt of income in the taxable territories in the year it accrued or arose, and that liability arose only on the first receipt within those territories. Accordingly, if income that accrued or arose in the previous year had already been received outside the taxable territories, it could not be regarded as received again when it was later brought into the taxable territories. The Court then turned to the second part of the provision, namely clause (b), which addressed the situation of a resident person, but the present discussion was confined to the interpretation of the “brought into or received” language within the overall framework of the section.

Clause (b) addresses the situation of a person who is resident in the taxable territories for the year under consideration. The Court explained that, for such a resident, every amount of income that accrues, arises, or is deemed to accrue or arise within the taxable territories during that year is subject to income‑tax. In addition, any income that accrues or arises to the resident outside the taxable territories during the same year is likewise chargeable to income‑tax. The provision that directly concerns the present dispute then states that all income which has accrued or arisen to a resident without the taxable territories before the beginning of the year, provided that the accrual occurred after 1 April 1933, and which is brought into or received in the taxable territories by that person during the year, shall be chargeable to income‑tax. This clause creates a special rule for income that did not arise in the immediately preceding year but in earlier years after the specified date of 1 April 1933. The Court emphasized that this special rule for a resident must be distinguished from the rule in element (a). In element (a) the Court has held that the word “receipt” refers to the first receipt of the income, and that rule applies regardless of the person’s residence, covering income of the previous year that is received in the taxable territories in the same year. Clause (b)(iii), however, deals with income that accrued before the previous year and is subsequently brought into or received in the taxable territories during the year by a resident. Consequently, the reasoning applied in the Keshav Mills case, where the Court said that “receipt” in element (a) meant the first receipt, does not control the special provision of clause (b)(iii). Counsel for the respondent, Mr Pathak, argued that the language of clause (b)(iii) is identical to that of clause (a)—specifically the phrase “are received”—and therefore should be interpreted to require a first receipt as well. The Court observed that these words are not technical terms of art and must be given meaning in light of the context in which they appear. While in the context of clause (a) the phrase can only denote a first receipt, that inference does not automatically follow for clause (b)(iii). The Court then examined the purpose of clause (b)(iii). It noted that element (a), clauses (b)(i) and (b)(ii), and clause (c) all concern income that arose in the immediate preceding year, whereas clause (b)(iii) targets a distinct class of cases in which a resident of the taxable territories had income accruing or arising outside those territories, did not bring that income into the territories when it arose, and only does so many years later. In such circumstances, it is reasonable to interpret the provision as covering income that was previously accrued outside the territories and later brought in, without restricting the applicability to only the first receipt.

The Court observed that if income or other earnings arose to a person who was resident in the taxable territories but the earnings actually occurred many years before the relevant previous year, such earnings must have been received by that person outside the taxable territories. The respondent argued that clause (b)(iii) only mentions income having accrued or arisen without reference to any receipt outside the taxable territories, and that it was possible for such income, although it had arisen long ago, to remain unreceived even outside the taxable territories. While the Court recognised that this theoretical possibility could not be entirely excluded, it held that the language of element (b)(iii) inherently assumes that once income has accrued or arisen outside the taxable territories it has already been received there. The Court further noted that element (b)(iii) applies to all income that accrued or arose after 1 April 1933, which is more than twenty‑seven years before the present case. Accordingly, it would be unreasonable to interpret the words “having accrued or arisen” as having no reference to receipt outside the taxable territories. The Court therefore concluded that clause (b)(iii) provides that if any income or earnings had arisen or accrued outside the taxable territories and had been received there at any time before the previous year, and if that same income is subsequently brought into or received in the taxable territories during the previous year, such income will be chargeable to tax under section 3. In light of the special provision contained in element (b)(iii), the Court reasoned that the provision contemplates the bringing into, or receipt in, the taxable territories during the previous year of income that had previously accrued or arisen outside those territories, and that such income may also have been received outside the territories earlier. Any other construction would render the phrase “received in the taxable territories” in clause (b)(iii) essentially meaningless, because it would be unlikely that income which had accrued or arisen outside the taxable territories before the previous year would not also have been received outside the taxable territories. Hence, a reasonable interpretation of element (b)(iii) is that a resident of the taxable territories who had already received income outside the taxable territories before the previous year, and who subsequently brings that income into, or receives it in, the taxable territories, becomes liable to income tax under section 3. Consequently, for the purposes of clause (b)(iii) the receipt in the taxable territories need not be the first receipt of that income. The Court indicated that it would later examine the effect of this interpretation on the facts of the present case. The Court then turned to clause (c), which deals with a person who is resident outside the taxable territories and to whom income has accrued, arisen, or is deemed to have accrued or arisen in the taxable territories during the previous year.

In the discussion of the statutory provisions, the Court explained that clause (a) applied to any person, whether resident in the taxable territories or not, and subjected to income tax the income that accrued or arose to that person during the previous year whenever such income was received or was deemed to have been received by the person in the taxable territories within the same year. Clause (b) concerned a person who was resident in the taxable territories; it expanded the definition of total income for that resident and therefore covered a broader range of taxable amounts. Clause (c) dealt with a person who was not resident in the taxable territories and limited the tax liability to only that portion of the person’s income which accrued, arose, or was deemed to have accrued or arisen in the taxable territories during the previous year, in addition to the liability already created by clause (a). The Court then turned to the factual matrix of the present case to determine whether the respondent had received the sum of Rs. 50,000 in the taxable territories during the previous year. The factual record showed that the Rs. 50,000 represented income that had accrued to the respondent outside the taxable territories and that this amount had originally been received by the respondent at that foreign location and deposited in an account of the Bhavnagar Mills. The record further showed that the respondent later drew the same amount by issuing a cheque on the Bank of India Limited, Bombay, an account in which the Bhavnagar Mills held funds and over which the respondent possessed authority to draw. Upon drawing the cheque, the respondent transferred the money to the Bombay Mills; the cheque was subsequently presented for payment by the Bombay Mills and the proceeds were credited to the respondent’s benamidars account in the Bombay Mills. Consequently, the Court observed that there was a clear receipt of the income in the previous year in the taxable territories, even though the income had originally accrued to the respondent outside the taxable territories prior to the previous year. Under section 3 of the Act, this receipt made the respondent chargeable to tax on the Rs. 50,000. The High Court had held that tax liability arose only when the income was brought into or received in the taxable territories by the assessee himself, not when it was brought or received on his behalf. The Court focused on the wording of clause (b)(iii), which required that the income be “brought into or received in the taxable territories by him during such year.” Having concluded that the respondent himself had effected the receipt in the taxable territories, the Court found it unnecessary to examine whether the phrase “brought into the taxable territories by him” mandated personal physical conveyance, as the High Court had suggested. The Court therefore affirmed that the transaction constituted a receipt by the respondent in the taxable territories.

The Court observed that the matter before the High Court involved a receipt of income and that there was no doubt that the income was received by the respondent. Although the money reached the respondent through an indirect channel, the Court held that this method of receipt nevertheless constituted a receipt by the respondent himself. To support this view, the Court referred to the decision in Bipin Lal Kuthiala v. Commissioner of Income‑tax, Punjab (A.I.R. 1956 S.C. 634), where it had been held that an assessee was deemed to have received money even though the assessee had instructed a debtor located outside the taxable territories to make payment to a creditor inside British India. The earlier judgment clarified that the essential question was the fact of receipt in the taxable territory, not the manner in which the receipt was effected. Applying that principle, the Court concluded that the indirect method employed in the present case did not defeat the conclusion that the respondent had received the income in the taxable territory. Consequently, the Court was of the opinion that the respondent was liable to pay income tax on the sum of Rs 50,000 under section 4(1)(b)(iii) of the Income‑Tax Act. The question framed for determination therefore required an affirmative answer. In accordance with this conclusion, the Court allowed the appeal, set aside the order of the High Court, and ordered that the appellant be awarded the costs of this appeal together with the costs incurred in the lower court.

The factual backdrop of the appeal was straightforward. The assessee, who was the respondent in the appeal, was a resident of Bombay. He possessed certain income originating in Bhavnagar, a location that lay outside the taxable territories. This income had been kept on deposit with a concern situated in Bhavnagar. That concern maintained a bank account in Bombay, and the assessee, apparently as an officer of the Bhavnagar concern, was authorized to operate the Bombay account. Acting in Bombay, the assessee drew a cheque on the Bhavnagar concern’s Bombay account; the cheque subsequently passed into the account of another concern in Bombay and was credited there. The Bombay concern then entered into its books the amount of the cheque as a credit in the names of two individuals, Harkison Ratilal and Dilipkumar Trikamlal. A few days later the Bhavnagar concern debited the assessee’s deposit account for the amount of the cheque, recording the payment of that sum to the same two individuals, who were merely benamidars—i.e., holders of the money on behalf of the assessee. These transactions demonstrated that the assessee had withdrawn the money from the Bhavnagar concern, which represented his accumulated income, and had advanced it to the concern in Bombay. The Tribunal found as a matter of fact that the assessee had utilized his Bhavnagar income in Bombay to make the advance. All of these dealings occurred in April 1947. For clarity, the Court noted that the account in the Bhavnagar concern was actually held in the joint names of the assessee and his brother, and the advance to the Bombay concern was likewise in their joint names. Accordingly, the assessee’s share of the cheque amounted to half of the total sum.

In the present dispute the focus is limited to the assessee’s one‑half share of the cheque amount. The fact pattern established that this half represented the assessee’s portion of the accumulated income, and that amount was added to his total income for the purpose of income‑tax assessment for the fiscal year 1948‑49. The inclusion was made pursuant to section 4(1)(b)(iii) of the Income‑Tax Act, 1922. For reference, the relevant portion of the statute reads as follows: “Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which—(a) are received or are deemed to be received in the taxable territories in such year by or on behalf of such person, or (b) if such person is resident in the taxable territories during such year—(iii) having accrued or arisen to him without the taxable territories before the beginning of such year and after the first day of April, 1933, are brought into or received in the taxable territories by him during such year.” The sole issue that required adjudication was whether the assessee could be said to have “brought into” or “received” the income in Bombay within the meaning of sub‑clause (iii) of section 4(1)(b). No other ground of objection to the assessment was raised by the respondent.

The respondent first argued that he could not be deemed to have “received” the income in Bombay because, according to the facts found, the income had already been “received” in Bhavnagar, and therefore could not be “received” again in Bombay or elsewhere. The Court found this contention to be well founded. It cited the earlier decision in Keshav Mills Ltd. v. Commissioner of Income‑Tax, Bombay, [1953] S.C.R. 959, 962, wherein it was held that “once an amount is received as income, any remittance or transmission of the amount to another place does not result in receipt, within the meaning of this clause, at the other place.” Although the observation in Keshav Mills concerned sub‑clause (a) of section 4(1), the Court saw no reason to attribute a different meaning to the word “received” in sub‑clause (iii) of section 4(1)(b). On the contrary, the presence of the phrase “brought into” in sub‑clause (iii) supported the view that “received” should be interpreted as a first receipt. The Court further emphasized that the decision in Keshav Mills did not rest on any special contextual nuance that would limit the meaning of “received” to the first receipt after accrual; rather, it was based on the fundamental principle that income can be “received” only once and any subsequent transfer of the same amount cannot constitute a new receipt. The Court therefore concluded that the earlier statement regarding the Act, as it…

In the decision of Board of Revenue v. Ripon Press (1) it was observed that “you cannot receive the same sum of money qua income twice over, once outside British India and once inside it.” That observation reflects the intrinsic character of income receipt: unless the surrounding circumstances demand a different interpretation, income may be received only one time. In the present matter it is evident that the assessee had already received the income while in Bhavnagar. Consequently, the Court concluded that the assessee could not be subjected to tax on a second “receipt” of the same income merely because it appeared to have been obtained again in Bombay.

However, if the assessee did not actually “receive” the income anew in Bombay, the appropriate description is that he “brought into” Bombay that income. The fact that the assessee obtained an amount in Bombay, which he had earlier received in Bhavnagar, is explained by his advancing that amount to a business concern situated in Bombay. He could not have made such an advance without first possessing the money; therefore the acquisition of the money in Bombay was not a fresh receipt but the result of bringing the already‑received income into the city. After the original receipt in Bhavnagar, the income remained continuously under the assessee’s control, a point reinforced by the earlier authority in Sundar Das v. Collector of Gujrat (2). Because the income was always in his possession, a second receipt could not occur.

The Court further observed that an assessee may alter the form, or “shape,” of the income after receipt. Section 4(1)(b)(iii) does not impose a requirement that the income retain its original shape in order to be “brought into” the taxable territory, and the parties had not contended otherwise. If sub‑clause (iii) had demanded that the income remain unchanged, the provision would defeat itself. Whatever form the income assumed, the assessee retained it as income and could therefore bring it into the taxable area in that form. In this case the assessee initially placed the income with a party in Bhavnagar, converting it into a debt owed to him—a right to receive a sum of money. When that debt was discharged in Bombay, the right was necessarily brought into Bombay, and thus the income was brought into the city.

The Court illustrated the principle with hypothetical examples. If the assessee had received the income as coins and stored them in a safe in Bhavnagar, his act of transporting the coins to Bombay would unmistakably constitute bringing the income into Bombay. Likewise, if he had deposited the income in a bank in Bhavnagar, obtained a draft payable in Bombay, and then cashed that draft in Bombay, the process would equally demonstrate that the income had been brought into Bombay. These illustrations underscore that the form in which income is held—whether physical money, a negotiable instrument, or a contractual right—does not alter the requirement that it be brought into the taxable jurisdiction when it is subsequently used there.

In the factual scenario described, the assessee obtained a bank draft that was payable in Bombay, physically transferred that draft from Bhavnagar to Bombay and subsequently realised its value by cashing it in Bombay. The Court observed that this course of conduct left little doubt that the income had, by means of the draft, been brought into Bombay. The Court then noted that, although income‑tax law usually treats income as money, the concept of income is not limited to cash; any item that represents or produces money and is treated as such by business persons is likewise regarded as income. The Court cited the observations of Lord Lindley in Gresham Life Assurance Society Ltd. v. Bishop (1) and of Lord Halsbury L.C. in Tennant v. Smith (2) to support this principle. Applying this reasoning, the Court held that if the conveyance of a bank draft qualifies as bringing income into the taxable territory, there can be no logical basis for treating the conveyance of a right to receive money differently, once that right has been exercised and converted into monetary value. Such a right, though based on a verbal promise by the debtor, is considered by businessmen to represent money. The assessee in Bombay exercised that right, obtained monetary value, and accepted a cheque issued by the Bhavnagar concern in Bombay, giving it a provisional discharge for the debt owed to him. He then employed the cheque to acquire a new asset, namely a promise by the Bombay concern to pay money, as reflected in the cited authorities (1) [1902] A.C. 287. 296 and (2) [1892] A.C. 150, 156. Consequently, the Court concluded that the respondent assessee was liable under section 4(1)(a) and section 4(1)(b)(iii) to be taxed on the amount represented by the cheque, because that amount constituted income that had been brought into the taxable territories. Accordingly, the Court allowed the appeal, answered the referred question in the affirmative, and granted the relief sought.