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TMI Blog1965 (11) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... h India. If they were received in British India, the profit embedded in them would be taxable under section 4(1)(a) as profit received in British India, but it would not be so taxable if they were received outside British India. This position obtained because the assessee was a non-resident during the relevant assessment years and its liability to British Indian tax depended on its receipt of income within British India under section 4(1)(a). The assessee, which is a limited liability company, owned a textile mill and carried on the business of manufacture and sale of cotton textile goods in Wankaner, which was at the material time an Indian State outside what was then known as British India. Prior to May, 1944, the assessee used to sell its cloth freely to various merchants within British India as also outside British India in the open market but from May, 1944, the distribution and sale of cloth was brought under control by the Government. Thereafter, the textile mills could sell the cloth manufactured by them only to quota-holders and the quota of each quota-holder was fixed with reference to a particular textile mill on the basis of the average purchases of cloth made by him fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to him for that month in accordance with his quota. The letter to each quota-holder was in the same terms and we shall, therefore, take as a typical letter, the letter dated 14th May, 1944, addressed by the assessee to one Mayabhai Manilal. The letter is in Gujarati and an English translation of it has been annexed by the Tribunal as annexure " K " to the statement of the case. But it was common ground between the parties that the translation as given in this annexure was not a correct translation. The assessee, therefore, produced before us a true copy of the letter in Gujarati and by consent of parties it was accepted by us as forming part of the statement of the case. Now the parties could not agree upon a correct translation of the letter and particularly the translation of clause (2) of the terms of normal procedure set out in the letter on which depended primarily the decision of the entire controversy in the present reference which formed the subject-matter of considerable debate between the parties. Since there was conflict between the parties in regard to the correct translation and the translation depended on the true interpretation to be put on the words used in the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o trade in cloth. So let us know your licence number and particulars in the letter along with cheque. If the particulars of the licence are not received in writing from you, your right to take goods according to your quota will be cancelled, which please note." This was the type of the letter addressed by the assessee to each quota-holder and the terms and conditions set out in the letter were accepted by each quota-holder and constituted the terms of the contract between the parties and it was in pursuance of these terms and conditions that the British Indian buyers posted cheques for the price of the goods to the assessee at Wankaner and the sales of the goods were effected by the assessee to the British Indian buyers. The Income-tax Officer took the view that on a proper construction of the terms and conditions set out in the letter, the post office was the agent of the assessee and the sale proceeds were, therefore, received by the assessee in British India where the cheques were posted. On appeal by the assessee, the Appellate Assistant Commissioner disagreed with the view of the Income-tax Officer and held that clause (2) of the normal procedure set out in the letter consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the agent of the British Indian buyers and not of the assessee, despite the provision that the cheques may be sent by the British Indian buyers by post. The assessee, having lost before the Tribunal, applied for a reference and, on the application the Tribunal referred, inter alia, the following question for the opinion of this court : " Whether, on the facts and in the circumstances of the case, the profits embedded in the sale proceeds remitted by the merchants in the then British India by way of cheques were received by the assessee in the taxable territories under section 4(1)(a) of the Indian Income-tax Act, 1922 ?" Now the principles applicable to cases of the type before us are well established and difficulty arises not so much in understanding and appreciating those principles as in the application of those principles to the facts of the case before the court. The first question which arises in cases of this kind is as to when payment can be said to have been received by the assessee when it is made by the buyer by cheque : is it received when the cheque is delivered to the assessee or is it received when the cheque is cashed ? There was at one time considerable con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court thus held that, in either view of the matter, whether the cheques were received by the assessee unconditionally or conditionally, the result was the same, namely, that payment was received by the assessee on the receipt of the cheques. This decision of the Supreme Court was also cited before us in Petlad Turkey Red Dye Works Co. Ltd. v. Commissioner of Income-tax, and in that case we summarised the ratio of the decision of the Supreme Court in the following words : " . . . . where a cheque is received by a creditor from a debtor, there may be an express or implied agreement between them that the cheque shall be accepted by the creditor in unconditional discharge of the liability of the debtor, in which event the cheque would operate as payment as soon as it is received by the creditor ; but even where the cheque is received as conditional payment of the debt, if the cheque is not dishonoured but is cashed, the payment relates back to the date of the receipt of the cheque and in law the date of payment is the date of the delivery of the cheque so that in this latter case also, the cheque would operate as payment on the date when it is received by the creditor. It will, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e post office was the agent of the British Indian buyers, there was no receipt of the cheques by the assessee until the cheques reached their destination in Wankaner. The law on the point as to when the post office can be said to be the agent of the debtor or the creditor is now well-settled by the decisions of the Supreme Court in Ogale Glass Works case, Commissioner of Income-tax v. Patner Co., and Shri Jagdish Mills case, and was stated by us in Petlad Turkey Red Dye Works Company's case, in the following terms : " In order to determine the place where payment can be said to have been received by a creditor from a debtor when such payment is made by cheque or hundi sent by post, the court must first inquire whether there is any agreement between the parties. If there is agreement between the parties, it must determine the place of payment and in such a case there is no room for implication. Such was the case in Commissioner of Income-tax v. Patney Co. If there is no agreement between the parties in regard to the place of payment, the court must see whether the cheque or hundi was posted by the debtor pursuant to a request made by the creditor. If it is shown that the credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n buyers to send the cheques by post and made it clear that the post office would not be the agent of the assessee but would be the agent of the British Indian buyers. The learned Advocate-General on behalf of the revenue disputed the validity of this contention urged on bebalf of the assessee and contended that, on a proper construction of clause (2) of the terms of normal procedure set out in the letter, there was no agreement between the parties that the sale proceeds, when paid by cheque, should be paid to the assessee in Wankaner. All that the first part of clause (2), according to him, meant was that if payment was made by cheque, the cheque should be sent to the assessee at Wankaner, and if payment was made in cash, the cash should be paid to the assessee in Wankaner. He submitted that, having regard to the specific direction contained in the opening part of the letter and the second part of clause (2) that if the British Indian buyers wanted to make payment by cheques they should send the cheques to the assessee, the only proper way in which the first part of clause (2) could be read was that the cheques which were required to be sent by the British Indian buyers by virtue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration. Now, admittedly, this verb in reference to cash consideration means " is to be paid " and therefore according to the plain dictates of grammar and language it should have the same meaning also with regard to the cheque for the price of the goods. The verb " bharvano chhe " according to its ordinary natural connotation, means " is to be paid " and, though it may be more appropriate in regard to payment of cash consideration, it cannot be said to be inappropriate so far as payment of the cheque for the price of the goods is concerned. It is not at all uncommon to use the verb " bharvano chhe " in reference to a cheque when it is intended to be conveyed that the cheque is to be paid to a particular person. The contention of the learned Advocate-General seeks to give two different meanings to the verb " bharvano chhe ", one meaning, namely, " is to be paid " in reference to cash consideration, and another, namely, " is to be sent " in reference to the cheque for the price of the goods. The verb " bharvano chhe " in its plain ordinary sense cannot mean " is to be sent. " The appropriate verb in the Gujarati language to connote " is to be sent " would be " mokalavano chhe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his is emphasized by the second part of clause (2). There is, therefore, clearly a request or authorization by the assessee to the British Indian buyers to pay the price of the goods by sending the cheque for the price to the assessee and, according to the course of business usage in general, to which as part of the surrounding circumstances attention must be paid by the court, as also the language of clause 6, the parties, it must be held, must have intended that the cheque would be sent by post which is the usual and normal agency for transmission of such instruments. Now if there were no specific agreement between the parties as set out in the first part of clause (2), the conclusion would have been irresistible that by this request of the assessee to the British Indian buyers, the post office was constituted the agent of the assessee and the case would have fallen directly within the ratio of the decisions of the Supreme Court in Ogale Glass Works case and Shri Jagdish Mills case. But the assessee made it clear while requesting the British Indian buyers to send the price of the goods by cheque, which cheque would ordinarily be sent by post, that, though the cheque may be sent b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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