1. Supply of goods to government — payment by cheques sent by post — dispute over place of receipt of income under Section 4(1)(a), Indian Income Tax Act. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 )
Back
Next 
1953 Supreme(SC) 60
SUPREME COURT OF INDIA
12th May, 1959.
S.R. DAS, C.J.I. N.H. BHAGWATI AND M. HIDAYATULLAH, JJ.
Shri Jagadish Mills Ltd, by its successor Shri Ambica Mills Ltd. Appellants
Versus
The commissioner of Income-tax, Bombay North, Kutch and Saurashtra, Ahmedabad, Respondent.
Civil Appeals Nos. 681 and 682 of 1957.
Advocate Appeared
M/s. R. J. Kolah and I. N. Shroff, Advocates, for Appellants; Mr. H. N. Sanyal, Addl. Solicitor General of India, (M/s. K. N. Rajgopal Sastri and D. Gupta, Advocates, with him), for Respondent.
Advocates:
D.GUTPA, H.N.SANYAL, I.M.SHROFF, K.N.R.SASTRI, R.J.KOLAG
D.GUTPA, H.N.SANYAL, I.M.SHROFF, K.N.R.SASTRI, R.J.KOLAG
If a creditor requests payment by cheque and circumstances imply that the cheque should be sent by post, the Post Office acts as the creditor's agent, and the payment is deemed received at the place of posting.
Headnote:(A) Income Tax Act, 1922 - Section 4(1)(a) - Receipt of income - Payment by cheque sent by post - Where there is an express or implied request by the creditor to send the cheque by post, the Post Office is constituted as the agent of the addressee, and the payment is deemed to be received at the place of posting. (Paras 10, 13, 14, 18)
(B) Agency - Post Office - If a debtor sends a cheque by post at the request, express or implied, of the creditor, the Post Office acts as the agent of the creditor. In the absence of such a request, the Post Office remains the agent of the sender. (Paras 13, 19)
Facts of the case:
A company located outside taxable territories supplied goods to the government. The contract stipulated payment by cheque. The company submitted bills requesting payment by cheque. The government sent the cheques by post from a location within taxable territories to the company's location. The revenue contended that the income was received within taxable territories as the post office acted as the agent of the company.
Findings of Court:
The court found that given the geographical distance between the sender and the receiver, the only reasonable method of delivering cheques was by post. This constituted an implied request by the company to use the postal service.
Issues: Whether the stipulation that payment be made by cheque, without an express request to send it by post, constitutes an implied request to use the post office, thereby making the post office the agent of the addressee and the income "received" at the place of posting.
Ratio Decidendi: Where the circumstances make it evident that the parties intended the payment to be sent by post, there is an implied request to do so. Such an implied request makes the Post Office the agent of the addressee, and the payment is considered received at the point of posting. (Paras 14, 18)
Result: Appeals dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether posting cheques without express request constitutes receipt of income in taxable territories by making the post office the agent of the assessee. (Para 10 )
3. Analysis of express and implied requests to send cheques by post and the resulting agency of the post office based on business usage and circumstances. (Para 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 )
4. An implied request to send payment by post, inferred from circumstances and business usage, constitutes the post office as the agent of the addressee. (Para 18 )
5. Appeals dismissed and the order of the Income-tax Appellate Tribunal upheld. (Para 21 )
6. When does the post office become the agent of the addressee for receiving payments?
The post office becomes the agent of the addressee when there is an express or implied request from the creditor to send the payment by post. (Para 12 , 13 , 14 , 18 )
7. How is an implied request to send a cheque by post determined by the court?
It is determined by examining the existing circumstances and general course of business usage to see if the parties must have intended the post to be the agency for transmission. (Para 14 , 15 , 18 )
8. Does a consistent course of business in sending cheques by post automatically imply a request to use the post office as an agent?
No; a course of business alone, without a request (express or implied) that the addressee would run the risk of transit, does not necessarily constitute the post office as the agent. (Para 16 , 17 )
9. Does the sender's right to reclaim a cheque under the Post Office Act, 1898, affect the agency of the post office for the addressee?
No; if the addressee requested the cheque be sent by post, the post office is their agent, regardless of the sender's limited right to reclaim the cheque under the Act. (Para 19 )
Judgement
BHAGWATI, J. : These two appeals with special leave under Art. 136 of the Constitution are directed against the order of the Income-tax Appellate Tribunal of India, Bombay Bench "A" (hereinafter referred to as "the Tribunal") dated August 3, 1954, in Income-tax Appeals Nos. 3756 of 1948-49 and 2161 of 1950-51 whereby the Tribunal held that the amounts of cheques of Rs. 1,98,643 and Rs. 4,96,365 for the assessment years 1943-44 and 1944-45 were received by the appellant from the Government in the taxable territories & were as such liable to tax under S. 4(1)(a) of the Indian Income Tax Act (XI of 1922) (hereinafter referred to as "the Act").
2. At all material times the appellant was a public joint stock company incorporated under the then Baroda State Companies Act and having its registered office at Baroda. The appellant was the owner of a textile mill and carried on business in manufacturing and selling textiles at Baroda.
3. In the accounting years 1942 and 1943 tenders were invited by the Government of India for some of the articles manufactured by the appellant and the appellant submitted its tenders to the Government of India which accepted the tenders and placed orders for supply of goods manufactured by the appellant. These orders were accepted by the appellant at Baroda and the deliveries of the goods manufactured by the appellant and sold by it to the Government of India were pursuant to the said orders to be and were in fact effected F. O. B. Baroda. In fact so far as the manufacture and sale of the goods supplied to the Government of India were concerned, as also the deliveries thereof, everything took place at Baroda, outside the then British India.
4. According to the conditions of the contracts governing the supplies made by the appellant to the Government, the system of payment was, that unless otherwise agreed upon between the parties, payment for delivery of the goods would be made on submission of the bills in the prescribed form in accordance with the instructions given in the acceptance of the tender by a cheque on a Government Treasury or a Branch of the Reserve Bank of India or the Imperial Bank of India transacting Government business. The appellant after effecting deliveries of the goods, submitted bills in the prescribed printed form which contained the sentence that "Government should pay the amount due to the appellant by cheque" but the appellant did not request or write to the Government, in what way the payment by cheque was to be made by Government to the appellant. After submission of the bills the appellant received at Baroda, in payment of its bills cheques through post from the Government drawn on a Government Treasury or on a branch of the Reserve Bank of India or the Imperial Bank of India transacting Government business. The said cheques were received at Baroda by the appellant from the Government, along with a memo stating:
"The undersigned has the honour to forward herewith cheque No. dated in payment of the bills noted below."
then followed a tabular statement setting out the number amount and date of the bills. On the top of the memo there was a direction that "it be immediately returned to the Controller of Supplies Accounts, with the acknowledgment form on the reverse duly signed and stamped." The acknowledgment form was expressed as follows:
"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."
The payments made by cheques were accepted by the appellant unconditionally and in full satisfaction of its claim for goods supplied to the Government. On receipt of such cheques, the appellant endorsed the same and sent them either to Bombay or Ahmedabad in the Banking account of the appellant at such places.
5. 5. By his orders dated September 20, 1945, and March 16, 1943, for the assessment years 1942-43 (account year being calendar year 1941) and 1943-44 (account year being calendar year 1942) the Incom
