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Issues Involved
1. Whether the sum of money received by the assessee in British India is liable to tax. 2. Whether the receipt of cheques by the assessee constituted an unconditional discharge of the Government's debt. 3. Whether the receipt of a cheque can be considered as receipt of income under the Income-tax Act. 4. Whether the posting of the cheque in Delhi constituted receipt by the assessee in British India. Issue-wise Detailed Analysis 1. Tax Liability of the Sum Received in British India The primary issue was whether the non-resident assessee company received a sum of money in British India, making it liable to tax. The assessee's liability depended on the receipt of income within British India. The Tribunal was tasked with determining if the cheques received by the assessee from the Government of India constituted full satisfaction of the debt and whether the debt was discharged upon acceptance of these cheques. 2. Unconditional Discharge of Debt by Receipt of Cheques The Tribunal found that the assessee had agreed to receive payment in India and had requested payment via cheques drawn on a bank in Bombay. The Tribunal's findings did not directly address whether the acceptance of the cheques resulted in an unconditional discharge of the debt. However, the facts indicated that the cheques were accepted unconditionally, as the assessee acknowledged the cheques without making the receipt conditional upon their encashment. The court concluded that the assessee accepted the cheques as an unconditional discharge of the Government's liability, primarily because the cheques were issued by the Government of India, which was unlikely to dishonour them. 3. Receipt of Cheque as Income under the Income-tax Act A significant point raised was whether the mere receipt of a cheque constitutes receipt of income. It was argued that income is received only when the cheque is cashed. The court examined whether a cheque could be considered "money's worth." It was determined that a cheque, being a negotiable instrument, is capable of being immediately realized into money and therefore qualifies as money's worth. The court emphasized that in commercial practice, a cheque is regarded as payment if accepted by the creditor. The court held that the assessee received payment on the date the cheque was received, not when it was cashed, aligning with commercial principles and legal precedents. 4. Posting of Cheque in Delhi and Receipt in British India Mr. Joshi raised a new contention that the receipt of the cheque in Delhi constituted receipt of income in British India. The court allowed this argument on the assumption that the cheques were posted in Delhi. However, it was held that unless the post office was an agent of the assessee, the mere posting of the cheque did not constitute receipt by the assessee in Delhi. The court found no evidence that the assessee requested the Government to send the cheque by post, thus rejecting the argument that the cheque was received in Delhi. The court concluded that the receipt of the cheque occurred in Aundh, outside British India. Conclusion The court answered the question in the negative, indicating that the sum received by the assessee was not liable to tax in British India. The Commissioner was ordered to pay the costs, including the costs of the remand. The reference was answered accordingly.
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