Judgment

DAS, J. :

This appeal arises out of proceedings for the assessment to income-tax of the respondent Messrs. Ogale Glass Works Ltd., (hereinafter referred to as "the assessee") for the five assessment years 1941-42 to 1945-46.

2. The assessee is a Limited Liability Company incorporated and carrying on business in Aundh which in those days was an India State outside British India. It was accordingly a non-resident Company for the purposes of the Indian Income Tax Act.

3. The assessee manufactures lanterns and other glasswares at its Works in Aundh State. In the relevant accounting years the assessee sucured some contracts for the supply of lanterns and other glasswares to the Government of India. The price of the goods supplied under the contracts were paid by cheques drawn on the Reserve Bank of India, Bombay. The cheques used to be received by the assessee in Aundh and cashed through its bank at Bombay as hereinafter stated.

4. The assessee being a non-resident Company its liability to British Indian Income-tax depended upon its receipt of income within British India. In the course of proceedings for the assessment of the assessee to income-tax for the five years mentioned above, the assessee contended that its profits on the sales accrued and were received in the Aundh State where it received payment by the receipt of the cheques. The Income Tax Officer and, on appeal, the Appellate Assistant Commissioner held that the assessee received income, profits or gains in British India inasmuch as the cheques were drawn on a Bank in Bombay and had been cashed in Bombay and accordingly taxed the assessee under Section 4 (1) (a) of the Indian Income Tax Act. On appeal by the assessee the Income Tax Appellate Tribunal upheld the assessment.

5. Being aggrieved by the order of the Tribunal the assessee applied for a reference of the case to the High Court for the determination of the question of law which arose out of the Tribunal s Order and the Tribunal agreeing that a question of law did arise out of its order referred the following question to the High Court along with a statement of the case.

"Whether on the facts of the case, income, profits and gains in respect of sales made to the Government of India was received in British India within the meaning of Section 4(1)(a) of the Act".

6. At the hearing of the reference by the High Court learned advocate for the assessee contended, inter alia , that the cheques were received by the assessee in full satisfaction of the debt due to it by the Government of India and that the debt of the Government of India had been discharged by the acceptance of the cheques by the assessee in Aundh. The High Court felt that in order to determine this contention it would be necessary for the Tribunal to find certain further facts and accordingly the High Court remanded the reference back to the Tribunal with a request to submit a Supplementary Statement of the case on the lines indicated in the order dated the 15th September, 1949. The Tribunal submitted a Supplementary Statement of the case on the 8th June, 1951.

7. In the Supplementary Statement of the case reference is made to clause 15 of the conditions of the contract governing supplies made by the asessee to the Government of India. The system of payment under that clause was that 90 per cent of the price of each consignment would be paid on proof of despatch of the stores from a Railway Station or port in India after inspection and the balance of 10 per cent would be paid on receipt of the consignment in good condition. That clause also provided:

"Unless otherwise agreed between the parties, payment for the delivery of the Stores will be made on submission of bill in the prescribed form in accordance with instructions given in the Acceptance of Tender by cheque 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 used to submit bill in prescribed for