1980 (2) TMI 11 - HC - Income Tax

Summary

Issues Involved:

1. Whether there was an express or implied agreement by the Government to pay the assessee at Indore and whether the Post Office became the agent of the Government of India.
2. Whether the sale proceeds in respect of the goods supplied to the Government by the assessee-firm could be brought to tax as having been received in British India within the meaning of section 4(1)(a) of the Indian Income-tax Act, 1922.

Issue-wise Detailed Analysis:

1. Agreement and Agency of Post Office:

The Tribunal examined whether there was any agreement, express or implied, between the parties regarding the place of payment. The Tribunal found that despite opportunities, the department did not produce the contract or tender documents. The Tribunal noted that the assessee had no branch in British India, the goods were manufactured and inspected at Indore, and the Government placed orders and took delivery at Indore. The Tribunal referred to a bill where the Government was requested to make payment by cheque to the Imperial Bank of India, Indore, and a letter from the Mills Company insisting on payment at Indore, protesting against payment in British India. The Tribunal concluded that the assessee insisted on payment at Indore and that the Government accepted this protest. Thus, the Tribunal held that there was an express or implied agreement by the Government to pay the assessee at Indore and that the Post Office became the agent of the Government of India. This finding was based on the facts and correspondence on record.

2. Taxability of Sale Proceeds:

The Tribunal had to determine where the payment was received when made by a negotiable instrument sent through post. The principles stated in Dhrangadhra Trading Co. (P.) Ltd. v. CIT were applied, where the court must first ascertain if there was an agreement regarding the place of payment. If such an agreement exists, it determines the place of payment. The Tribunal found that there was an agreement between the parties that the place of payment would be at Indore, inferred from the letters on record. The Tribunal's finding was that the assessee insisted on Indore as the place of payment, and this was accepted by the Government. The Tribunal concluded that the sale proceeds could not be taxed as received in British India.

The High Court upheld the Tribunal's findings, stating they were based on relevant material and not on any misdirection in law. The decisions in CIT v. Ogale Glass Works Ltd., Shri Jagdish Mills Ltd. v. CIT, Indore Malwa United Mills Ltd. v. CIT, and Azamjahi Mills Ltd. v. CIT were distinguished on facts, as in those cases, there was an express or implied request by the assessee to make payments by cheques posted from British India. The High Court noted that if there is an agreement regarding the place of payment, it must determine the place of payment, and there is no room for implication. The High Court concluded that the Tribunal did not misdirect itself in law and was justified in holding that the sale proceeds could not be taxed as received in British India.

Conclusion:

The High Court answered both questions in the affirmative and against the department, confirming that the Tribunal was justified in its findings. The parties were ordered to bear their own costs of the reference.