# AZAMJAHI MILLS LTD. HYDERABAD v. Tiffi COMMISSIONER OF INCOME TAX, HYDERABAD

- **Citation:** [1976] 3 S.C.R. 645
- **Court:** Supreme Court of India
- **Decided:** 1976-03-17
- **Case number:** Civil Appeal Nos. 980-982 of 1971
- **Bench:** H. R. Khanna, P. K. Goswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/azamjahi-mills-ltd-hyderabad-v-tiffi-commissioner-of-income-tax-hyderabad-6824
- **Pages:** 6

## Headnote

Income-tax-Assessee in Princely State-Payment by Government of India
by cheque posted in British India-Whether receipt by assessee in British India
liable to Indian Income Tax.
The Government of India was placing bulk purchase orders with the assessee-company, a textile mill, which had, during the assessment years 1945-46,
1946·47 and 1947-48, its registered office in the Hyderabad State outside British
India. After the despatch of the goods, the assessee was submitting its bill in
the prescribed form which also contained the receipt. The receipt had the
words 'Please pay by cheque to self/Banker on Bank/Treasury at ...... • and
the assessee used to enter the words 'Hyderabad (Dn), in the blank space after
'at'. But on the back of the bulk purchase order form. there were ins true·
tions that the payment was to be made by the Controller of Supply' Accounts,
Bombay, and the Government of India had also issued general instructions to
all textile mills in the Princely States that all payments were to be made 'by
cheque on Government Treasury in Br. India, or alternatively on a branch in
Br. India, which transacts Government business of the Reserve Bank of India.
All payments were made on behalf of the Government of India by cheques
which were sent to the assessee- by post. Some of the cheques were drawn
on banks in Br. India and others on banks in the Hyderabad State .
A
B
c
D
HELD : The sale proceeds should be held to have been received by the
assessee from the Government of India in British India and not in Hyderabad
E
'
State, and hence were subject to Indian income·tax. [647F-G]
In the absence of a request by the creditor or an agreement between the
parties regarding the sending of money by cheque by post, the mere posting
of the cheque would not operate as delivery of the cheque to the creditor.
Where, however, a cheque is sent by post in pursuance of an agreement between the parties or a request by the creditor that the money be sent by cheque
by post, the post office would be treated as the agent of the creditor for the
F
purpase of receiving such payment. Such an agreement or request need not
be express and may be implied from the facts and circumstances.
[648A-CI
The facts of the case and the course of dealings show that it was the understanding between the Government of India and the assessee that the payment
would be rllade on account of goods supplied by the assessee, by cheques.
The cheques were in the very nature of things to be sent from British India
by post as that is the usual and normal agency for transmis.sion.
As
the
G
cheques were sent to the assesseee on behalf of the Government of India by
post from British India in pursuance of an understanding between the parties,
the payment to the assessee shall be treated to have been made in British India
to the agent of the assessee. [647G-648A]
Indo re Malwa United Mills Ltd. v. Commissioner of Incon1e-tax, 59 ITR
738; Conunissioner of Income-tax, Bombay South, Bombay v. Ogale GlassWorks Ltd., 25 !TR 529 and Shri lagdish Mills Ltd. v. Commissioner of Income.
tax, 37 ITR 114, followed.
H
Commissioner of Income-tax, Bihar & Orissa v. Patney &: Co. 36 ITR 488,
distinguished.
646
SUPREME COURT REPORTS
(1976] 3 S.C.R.
A

## Text

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645
AZAMJAHI MILLS LTD. HYDERABAD
v.
Tiffi COMMISSIONER OF INCOME TAX, HYDERABAD
March 17, 1976
[H. R. KHANNA AND P. K. GOSWAMI, JJ.]
Income-tax-Assessee in Princely State-Payment by Government of India
by cheque posted in British India-Whether receipt by assessee in British India
liable to Indian Income Tax.
The Government of India was placing bulk purchase orders with the assessee-company, a textile mill, which had, during the assessment years 1945-46,
1946·47 and 1947-48, its registered office in the Hyderabad State outside British
India. After the despatch of the goods, the assessee was submitting its bill in
the prescribed form which also contained the receipt. The receipt had the
words 'Please pay by cheque to self/Banker on Bank/Treasury at ...... • and
the assessee used to enter the words 'Hyderabad (Dn), in the blank space after
'at'. But on the back of the bulk purchase order form. there were ins true·
tions that the payment was to be made by the Controller of Supply' Accounts,
Bombay, and the Government of India had also issued general instructions to
all textile mills in the Princely States that all payments were to be made 'by
cheque on Government Treasury in Br. India, or alternatively on a branch in
Br. India, which transacts Government business of the Reserve Bank of India.
All payments were made on behalf of the Government of India by cheques
which were sent to the assessee- by post. Some of the cheques were drawn
on banks in Br. India and others on banks in the Hyderabad State .
A
B
c
D
HELD : The sale proceeds should be held to have been received by the
assessee from the Government of India in British India and not in Hyderabad
E
'
State, and hence were subject to Indian income·tax. [647F-G]
In the absence of a request by the creditor or an agreement between the
parties regarding the sending of money by cheque by post, the mere posting
of the cheque would not operate as delivery of the cheque to the creditor.
Where, however, a cheque is sent by post in pursuance of an agreement between the parties or a request by the creditor that the money be sent by cheque
by post, the post office would be treated as the agent of the creditor for the
F
purpase of receiving such payment. Such an agreement or request need not
be express and may be implied from the facts and circumstances.
[648A-CI
The facts of the case and the course of dealings show that it was the understanding between the Government of India and the assessee that the payment
would be rllade on account of goods supplied by the assessee, by cheques.
The cheques were in the very nature of things to be sent from British India
by post as that is the usual and normal agency for transmis.sion.
As
the
G
cheques were sent to the assesseee on behalf of the Government of India by
post from British India in pursuance of an understanding between the parties,
the payment to the assessee shall be treated to have been made in British India
to the agent of the assessee. [647G-648A]
Indo re Malwa United Mills Ltd. v. Commissioner of Incon1e-tax, 59 ITR
738; Conunissioner of Income-tax, Bombay South, Bombay v. Ogale GlassWorks Ltd., 25 !TR 529 and Shri lagdish Mills Ltd. v. Commissioner of Income.
tax, 37 ITR 114, followed.
H
Commissioner of Income-tax, Bihar & Orissa v. Patney &: Co. 36 ITR 488,
distinguished.
646
SUPREME COURT REPORTS
(1976] 3 S.C.R.
A
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.
980-982
of 1971.
Appeals by Special Leave from the Judgment and Order elated the
~
9-2-70 of the Andhra Pradesh High Court in case Referred No. 1 of
~
B
1967.
R. Vasudev Pillai and P. K. Pillai for the Appellant.
R. M. Mehta and S. P. Nayar, for the Respondent.
The Judgment of the Court was delivered by
KHANNA, J.-This judgment would disposed of three civil appeals
Nos. 980 to 982 of 1971 which have been filed by special leave against
c
the judgment of the Andhra Pradesh High Court on a reference under
section 66 of the Indian Income-tax Act, 1922 (hereinafter referred
to as the Act) answering besides two other questions with which we
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are not concerned, the following question against the assessee appellant -+
and in favour of the revenue :
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"Whether, on the facts and in the circumstances of the
case, the sale proceeds were received from Government of
India in British India?"
The assessee company is a public limited company registered in
what was at the relevant time the Nizam's Dominion (hereinafter
referred to as Hyderabad State) outside British India. The matter
relates to assessment years 1945-46, 1946-47 and 1947-48 for which
the relevant accounting period ended on October 5, 1944, October 5,
1945 and October 5, 1946 1'espectively.
·
The assessee company had a textile mill at Warangal in Hyderabad State.
During the Second World War the
company supplied
textile goods to the Department of Supplies,
Government of India
under what was known as "Panel System". The Government used to
place bulk purchase orders with the company for the supply of goods
according to specifications. The delivery of the goods used to be made
by the company FOR Warrangal. After the goods were despatched,
the assessee company submitted bill in form W.S·.B. 116 giving details
of the supply. The prescribed form contained the following receipt :
"Received Payment
Contractor's Signature
One anna
stamp on
original
copy only.
Please pay by ChC'que to Sdf
on Bank
Bankers
at ..
_,Treasury
Contractor's signature
The assessee used to enter the words "Hyderabad (Dn)" in the blank
space after the word "at". On the back of the bulk purchase order
form, there were instructions that the payment was to ~ made by the
Controller of Supply Accounts Bombay. The Government of India
issued general instructions to all textile mills in the Indian States that
all payments were to be made "by cheque on Government Treasury ·in
British India, or alternatively on a branch in British India, which •
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AZAMJAHI MILLS LTD. v. C.I.T. (Khanna, !.)
64 7
transacts Government business of the Reserve Bank of India". All
payments were made on beh~lf of the Government of Ind.ia by cheques,
which were sent to the assessee by post. Some of these cheques were
drawn on banks in British India and the others on banks in Hyderabad
State.
All the cheques received from
the
Government, including
those drawn on banks in British India, were collected through the
assessee's bankers in Hyderabad State.
In making the assessment the Income-tax Officer held that the
sale proceeds in respect of cheques, which bad been drawn on banks
in British India, were received by the assessee in British India and as
· such the assessee was liable to tax under the Act.
In respect of
cheques drawn on the banks in Hyderabad State, the Income-tax
Officer held that no income had accrued in British India and was,
therefore, not subject to assessment under the Act. The assessee took
the matter in appeal to the Assistant Commissioner claiming that no
portion of the income had been received in British India. The Appell..
late Assistant Commissioner held that the entire sale proceeds had been
I
received in British India and he, therefore, passed an order enhancing
the assessed amount. On further appeal by the assessee the Income-tax
Appellate Tribunal upheld the order of the Assistant Commissioner. At
the request of the assessce the question reproduced above along with
two other questions relating to the power of the Appellate Assistant
Commissioner to enhance the amount of assessable income as nlso the
question of limitation were referred to the High Court. The High
Court answered the question reproduced above as well as the other
two questions with which we are not concerned, in favour
of the
revenue and against the assessee.
So far as the question reproduced
above is concerned, the High Court took the view that the matter was
concluded by the decision of this Court in the case of Indore Malwa
United Mills Ltd. v. Commissioner of Income-tax(').
In appeal before us Mr. Vasudev Pillai on behalf of the appellant
has •assailed the judgment of the High Court and has contended that
on the facts and circumstances of the case, the sale proceeds should be
held to have been received by the assessee from the Government of
India not in British India but in Hyderabad State. There is, in our
opinion, no force in this contention.
It would appear from the resume of facts given above tliat all
payments were made on behalf of the Government of India by cheques
and those cheques were sent by post from British India to the assessee.
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The facts of the case and the course of dealings show that it was the
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understanding betwee~n the Government of India and
the
assessee
company that the payment would be made on account of the goods
supplied by the assessee by cheques. The cheques were in the very
nature of things to be sent from British India by post as that is usual
and. normal agency for transmission of such articles. As the cheques
were sent to the assessee company on behalf of the Government of
India by post from British India in pursuance of an understanding betH
ween the parties, the payment to the assessee shall be treated to' have
(!) 59 LT.R.738.
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SUPRBME COURT REPORTS
,. [1976] 3 S.C.R.
been made in British India. The post office in such cases is taken to
be an· agent of the assessee company. The position in law is that in
the: absence of a request by the creditor or an agreement between the
parties ·regarding the sending of money by cheque by post, the mere
posting. of cheque would not operate as delivery of the cheque to the
creditor. Where, however, a cheque is sent by post iii pursuance of
an agreement between the parties or a request by the creditor that the
money be sent by cheque by post, the post office would be treated as
the agent of the creditor for the purpose of receiving such payment.
The agreement or request need not, however, be express; it may also be
implied to be spelt -out from the facts and circumstances of ihe case.
The question of law arising in this case is not res integra and is concluded by three decisions of this Court. In Commissioner of lncometax, Bom/Jay South, Bom/Jay v. Ogale Glass Works Ltd.(') the assessee, a non-resident company carrying on business of manufacturing
certain· articles in t]\e State of Aundh, secμred some contract for the
supply of goods to the Government of India. The contract provided
that "unless otherwise agreed between the parties payment for the
delivery of the stores will be made on submission of bills in the prescribed form in accordance with· instructions given in the acceptance of
tender by cheque ou a Government Trea5ury in India or on a branch
of the Reserve Bank of India or the Imperial Bank of lndia transacting
Government business." The assessee submitted the bill in the prescribed form and wrote on it as follows : "Kindly remit the amount by
a cheque in our favour on any bank in Bombay." The assessee received cheques drawn on the Bombay branch of the Reserve Bank of India.
The assessee realised the amount of the cheques through the Aundh
Bank. It was held that the posting of cheques in Delhi in law amounted
to payment in Delhi. It was further observed that the circumstances of the case revealed an ill!plied agreement under which cheques
were accepted unconditionally as payment. Even if the cheques,
according to this Court, were taken conditionally the cheques having
been not dishonoured, the payment related back to the dates of the
receipt of the cheques and in law the dates of payment were the dates
of the delivery of the cheques. Income, profifa and gains in respect of
the sales made to (he Government of Inilia were accordingly held to
have been received by the assessee in British India. Dealing with
the question of the understanding between the parties in that case, this
Court observed :
"According to the course of business usage in general to
which, as part of the surrounding circumstances, attention
has to be paid, under the authorities cited above, the parties
must have intended that the cheques should be sent by post
which is the usual and normal agency for transmission of
such articles and according to the Tribunal's findings they
were in fact r~ceived by the assessee by post."
The above case been sought to be distinguished by Mr. Pillai on the
ground that in that case the asses~ee had written on the bill form the
(!) 25I.T.R. 529.
•
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AZAMJAHI MILLS LTD. v. C.I.T. (Khanna, I.)
64 9
words : "kindly remit the amount by cheque in our favour on any
bank in Bombay." It is said that the bill submitted by the appellant
contamed no such writing.
A similar argument was advanced
on
behalf of the assessee company in the case of Shri Jagdish Mills Ltd.
v. Commissioner of Income-tax(') and it was held that the absence
of such an express request would not make material difference if the
course of dealings between the parties showed ~n implied request by the
· assessee company to send the cheques by post. In Jagdish Mills' case
tho assessee company was incorporated in Baroda State outside British
India. The company accepted orders for the supply of goods F.O.R.
Baroda to the Government of India.
The manufacture and deli very
of goods took place at Baroda. The company after effecting delivery
of the goods submitted bills in the prescribed form which contained
the sentence that "Government should pay the ~mount due to the
company by cheque." There was, however, nothing in the bills
to
show in what way the payment by cheque was to be made. The company thereafter 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 company endorsed the
cheques and sent them either to Bombay or Ahmedabad in its banking account at such places. It was held that according to the course of
business usage in general which. was followed in the case,. the parties
must have intended that the cheques should be sent by post which was
the usual and normal agency for transmission of suoh articles.
An
implied request by the company to send the cheques by post from Delhi
was accordingly inferred.
The post office was held to have become
the agent of the assessee for the purpose of receiving those payments.
ThL> Court consequently came to the conc\u;ion that the amounts of
cheques were received by the assessee in British India and as such
were liable to be taxed under section 4(1) (a) of the Act.
The facts of the case of Indore Malwa United Mills Ltd. v. Commissioner of l ncome-tax (supra) were similar to those oE the present
case. In that case the assessee, a non-resident, carried on the business
of manufacturing textile goods at Indore, outside British India.
The
assessee supplied textile goods to the Stores Department of the Government of India under orders placed by the latter with the assessee at
Indore. The delivery of the goods was F.O.R. Indore. The bills contained the following instruction for payment : "Please pay by cheque
to self on a bank at Indore." The Government of India drew cheques
in favour of the assessee for the amounts of the bills on the Reserve
Bank of India, Bombay and sent them by post to the assessee at Indore.
The assessee deposited the cheques in its account with the Imperial
Bank of India, Indore and on clearance. the amounts were credited to
that account.
Question which arose for decision was whether the
assessee company was liable to pay tax in the taxable territories on the
ground that the sale proceeds, which included the profit element therein,
were received in the taxable territories. It was held that if by an
agreement. express or implied, between the creditor and the debtor or
(l) 37I.T.R. ll4 .
9--608 SCI/76
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650
SUPREME COURT REPORTS
[1976] 3 S.C.R.
by request, express or implied, by the creditor, the debtor is authorised to pay tbe debt by a cheque, and to send the cheque to the creditor
by post, the post office becomes the agent of the creditor to receive the
cheque and the creditor receives payment as soon as the cheque · is
posted to him. It was also held that there was an implied agreement
between the parties that the Government of India wouid send the
cheque by post to the assessee. The sale proceeds which included the
profit clement therein were, in the opinion of this Court, received in .
British India where the cheques were posted, and the profits in respect
of the sales were taxable under section 4(1 )(a) of the Act.
Mr. -Pillai has referred to the case of Commissioner of Income-tax,
Bihar & Orissa v. Patney & Co.(1) This case cannot be of much help
because in that case the assessee had expressly reqmre:l the commission to be paid at Secunderabad outside British India. It was because
of this circumstance that this Court found that the rule laid down in
Ogale Glass Works' case (supra) did not apply and the money was
not received by the assessee in British India.
So far as the present case is concerned it has already been pointed
out above, that the circumstances of the case and the course of dealings between the parties show that there was an implied agreement or
understanding between the parties that the money would be sent to,
the assessee by cheques posted from British India. The High Court,
in our opinion, rightly decided the question reproduced abnve aQainst
the assessee appellant and in favour of the revenue. The appeals consequently fail and are dismissed but in the circumstances without costs.
V.P.S.
AppeaL' dismissed.
(!) 36 I.T.R. 488.
. "
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