# ORISSA v. M/S. PATNEY & CO

- **Citation:** [1959] Supp. 2 S.C.R. 868
- **Court:** Supreme Court of India
- **Decided:** 1959
- **Bench:** B. P. Sinha, J. L. Kapur, M. liIDAYATULLAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/orissa-v-m-s-patney-co-1688
- **Pages:** 7

## Headnote

Income-tax -
Assessment on non-resident-Agree1nent with
resident debtor for payment outside British India-Remittance by
cheques posted in British India--Place of payment-Non-resident's
liability to tax.
The respondents, Vl'ho were non-residents carrying on business
at Secunderabad within the territories of the Nizam of Hyderabad, were acting as agents of two firms in Bombay and Madurai,
in British India, for the supply of certain goods to the Nizam's
Government.
In respect of the Commission due to the respondents by the firms the agreement between the parties was that
the amounts were to be paid to the respondents in cash or by
cheques at Secunderabad. For these amounts cheques drawn.by
the firms on the Bombay and Madras branches, respectively, of
the Imperial Bank of India, were sent by post at Bombay and
Madurai to the respondents at Secunderabad, and when received,
they were credited in their books of account, the cheques being
sent to their banker there for collecting and crediting to their
account.
For the assessment year 1945-1946 the Income-tax
Officer, Berhampnr (in British India), assessed these sums as taxable income holding that the amount was received in British
•
'·
. .
(2) S.C.R.
SUPREME COURT REPOltTS
869
India and not at Secunderabad. The Appellate Tribunal found
'959
that all the cheques received at Secunderabad by the respondents
\Vere treated by them as payment. The respondents claimed Com1nissioner of
that in. view of the· agreement between the parties that the
Income-tax:
amount of commission should be paid at Secunderabad, \Vhen
Biho.r &- Orissa
the cheques were sent by post, the post office was the agent
v.
of the debtor and not of the respondents, that the amount M/s. Putney & Co.
must be treated as having been received when the post office
delivered the cheques to the respondents, and that, consequently,
the amount cannot be treated as having been received in British
India. The Income-tax authorities relied on the decision in
Commissioner of Income-tax v. Ogale Glass IVorks Ltd., [1955] r
S.C.R. 185 •.
Held, that in the case of payment by cheques sent by post
the determination of the place of payment would depend upon
the agreement between the parties or the course of conduct of·
the parties. If it is shown that the creilitor authorised the debtor
either expressly or impliedly to send a cheque by post the property in the cheque passes to the creditor as soon as if is posted.
But \Vhere, as in the present case, the agreement was that the
amount was to be paid at Secunderabad, outside British India,
when the cheques were received by the respondents there the
amount must be deemed to have been received at that place,
and, therefore, the amount was not liable to be taxed in British
India.
Commissioner of Income-tax v. Ogale Glass IVorks Ltd., [1955]
r S.C.R. 185, distinguished.
·
CIVIL APPELLATE JumsDICTION: Civil Appeal No.
326 of 1957.
Appe.al by special leave from the judgment and
order dated February 16, 1955, of the Orissa High
Court in S. J.C. No. 117 of 1951.
·
G. K. Daphtary, Solicitor-General of India, K. N.
Rajagopal Sastri, R. II. Dhebar and D. Gupta, for the
appellant~ ·
Rameshwar Nath, S. N. Andley and J.B. Dadachanji, for the respondent.
1959. JIIay 5. The· Judgment of tho Court was
delivered by
· KAPUR, J.-This appeal pursuant to special leave is
brought by the Commissioner of Income-tax against
· the judgment of th_e High Court of Orissa holding that
the amounts received by the assessees-respondcnts
were not received in what was British India. and
Kapzi, ].
--------=~~~--~-~-----·-··.
870
SUPREME COURT REPORTS
[1959] Supp.
therefore not liable to income-tax. The respondents
at all material times were non-residents carrying on
Commissioner of
Income-tax
business at Secunderabad which was then in the terriI959
Biha, & o,;;,a tories of the Nizam of Hyderabad. They acted as
v.
agents for the supply of gas plants manufactured by
M/s. Patncy & Co. Messrs. T. V. S. Iyengar & Sons, Madura, to the

## Text

868 SUPREME COURT REPORTS [1959] Supp.
x959
not been considered by the Appellate Tribunal and .
therefore it is a case which should be remitted to the
Saroj I<uniaY
Mazumdar
Income-tax Appellate Tribunal to determine the facts
v.
in accorda.nce with the observations made by this
The Commission" Court and in the light of those findings to determine
0! Income-tax, whether the transaction was an adventure in the
West Bengal,
nature of a trade or not.
~~~
.
Kapur],
I959 •
May 5.
I would order accordmgly.
ORDER OF THE COURT
In view of the opinion of the majority, the appeal is
allowed with costs.
COMMISSIONER OF INCOME-TAX; BIHAR &
ORISSA
v.
M/S. PATNEY & CO.
(B. P. SINHA, J. L. KAPUR and
M. liIDAYATULLAH, JJ.)
Income-tax -
Assessment on non-resident-Agree1nent with
resident debtor for payment outside British India-Remittance by
cheques posted in British India--Place of payment-Non-resident's
liability to tax.
The respondents, Vl'ho were non-residents carrying on business
at Secunderabad within the territories of the Nizam of Hyderabad, were acting as agents of two firms in Bombay and Madurai,
in British India, for the supply of certain goods to the Nizam's
Government.
In respect of the Commission due to the respondents by the firms the agreement between the parties was that
the amounts were to be paid to the respondents in cash or by
cheques at Secunderabad. For these amounts cheques drawn.by
the firms on the Bombay and Madras branches, respectively, of
the Imperial Bank of India, were sent by post at Bombay and
Madurai to the respondents at Secunderabad, and when received,
they were credited in their books of account, the cheques being
sent to their banker there for collecting and crediting to their
account.
For the assessment year 1945-1946 the Income-tax
Officer, Berhampnr (in British India), assessed these sums as taxable income holding that the amount was received in British
•
'·
. .
(2) S.C.R.
SUPREME COURT REPOltTS
869
India and not at Secunderabad. The Appellate Tribunal found
'959
that all the cheques received at Secunderabad by the respondents
\Vere treated by them as payment. The respondents claimed Com1nissioner of
that in. view of the· agreement between the parties that the
Income-tax:
amount of commission should be paid at Secunderabad, \Vhen
Biho.r &- Orissa
the cheques were sent by post, the post office was the agent
v.
of the debtor and not of the respondents, that the amount M/s. Putney & Co.
must be treated as having been received when the post office
delivered the cheques to the respondents, and that, consequently,
the amount cannot be treated as having been received in British
India. The Income-tax authorities relied on the decision in
Commissioner of Income-tax v. Ogale Glass IVorks Ltd., [1955] r
S.C.R. 185 •.
Held, that in the case of payment by cheques sent by post
the determination of the place of payment would depend upon
the agreement between the parties or the course of conduct of·
the parties. If it is shown that the creilitor authorised the debtor
either expressly or impliedly to send a cheque by post the property in the cheque passes to the creditor as soon as if is posted.
But \Vhere, as in the present case, the agreement was that the
amount was to be paid at Secunderabad, outside British India,
when the cheques were received by the respondents there the
amount must be deemed to have been received at that place,
and, therefore, the amount was not liable to be taxed in British
India.
Commissioner of Income-tax v. Ogale Glass IVorks Ltd., [1955]
r S.C.R. 185, distinguished.
·
CIVIL APPELLATE JumsDICTION: Civil Appeal No.
326 of 1957.
Appe.al by special leave from the judgment and
order dated February 16, 1955, of the Orissa High
Court in S. J.C. No. 117 of 1951.
·
G. K. Daphtary, Solicitor-General of India, K. N.
Rajagopal Sastri, R. II. Dhebar and D. Gupta, for the
appellant~ ·
Rameshwar Nath, S. N. Andley and J.B. Dadachanji, for the respondent.
1959. JIIay 5. The· Judgment of tho Court was
delivered by
· KAPUR, J.-This appeal pursuant to special leave is
brought by the Commissioner of Income-tax against
· the judgment of th_e High Court of Orissa holding that
the amounts received by the assessees-respondcnts
were not received in what was British India. and
Kapzi, ].
--------=~~~--~-~-----·-··.
870
SUPREME COURT REPORTS
[1959] Supp.
therefore not liable to income-tax. The respondents
at all material times were non-residents carrying on
Commissioner of
Income-tax
business at Secunderabad which was then in the terriI959
Biha, & o,;;,a tories of the Nizam of Hyderabad. They acted as
v.
agents for the supply of gas plants manufactured by
M/s. Patncy & Co. Messrs. T. V. S. Iyengar & Sons, Madura, to the
Kapu1 ].
Nizam's Government, and also as agents of the Lucas
Indian Services, Ilombay branch, for the supply of
certain goods to that Government. The year of assessment is 1945-46. There does not appear to have been
any written agreement between the two manufacturers
and the respondents but the goods were to be supplied
on a commission basis. In pursuance of this agreement the respondents received from M/s. T.V.S. Iyengar & Sons, Madura, cheques drawn on the Imperial
Bank of India, Madras, amounting to Rs. 35,202 in
respect of all goods supplied from Madura and also
from Lucas Indian Services, Bombay, by cheques
drawn on Imperial Ilank of India, Bombay branch,
amounting to Rs. 5,302 in respect of goods supplied
by them, thus making a total of Rs. 40,504.
These
cheques were sent by post and when received by the
respondents at Secunderabad were credited in the
account books of the respondents and sent to their
banker G. Raghunathmal for collecting and crediting
to the account of the respondents.
As against the·se
sums so deposited the respondents at once drew cheques and thus operated on these amounts deposited.
In regard to the commission received from the Ilombay firm it was paid into the account· on December
22, 1944, but was given credit for only on January 2,
1945. The Income-tax Officer assessed these sums as
taxable income holding that the entire amount of
Rs. 40,504 was received in British India and not at
Secunderabad. An appeal was taken by the respondents to the. Appellate Assistant Commissioner who
upheld the order holding that income must be held to
. have accrued, arisen or received in Ilritish India.
Against this order the respondents took an appeal to
the Income-tax Appellate Tribunal and it was held
that the amounts were received by the respondents
from Madura and Bombay firms as commission but
(2) S.C.R.
SUPREME COURT REPORTS
871
z959
they were received at Secunderabad. The appeal was
therefore allowed. The finding of the Appellate TriCommissioner of
bunal in their own words was:-
I ncome-ta:r~
" The contention of the Appellants is that the Bihar & Orissa
cheques being negotiable instruments and the creditor
v.
having accepted them and passed through their books, Mfs. Patney & Co.
the receipt must be taken to be receipts in Hyderabad.
We agree with the view submitted by the appellants.
In Bhashyam's Negotiable Instruments Act, 8th Edition, Revised, page 556, it is stated that it will be
open to a creditor to accept a cheque in absolute payment of money due to him, in which case it will be
equivalent to cash payment. That being the position
it cannot be said that the income was received in British India ".
At the instance of the Commissioner a reference under
s. 66(1) of the Act was made to the High Court of
Orissa for their opinion on the following question :-
" Whether in the circumstances of the case, the
sums of Rs. 35,202 and Rs. 5,302 received as commission from T. V. S. Iyengar & Sons Ltd., and Lucas
Indian Services Ltd., respectively were income that
accrued, arose or were received in British India ".
The High Court found that the statement of case was
imperfect and that the real question was different. It
said:-
" The real question in all such cases is not merely whether the cheques were drawn on a bank in British India, and sent for collection to that bank. The
question is whether when the. cheques were received
by the assessee having bis place of business outside
British India, those cheques were in fact received as
absolute and final payments by way of unconditional
discharge or whether they were received as mere conditional payments on realisation. The fact that cheques were drawn on a ball'k in British India or that
they were sent for collection through a Secunderabad
banker of the assessee though relevant, are not conclusive".
It therefore remitted the case to the Appellate Tribunal for submission of supplementary statement of case.
It appears that at that stage the controversy was
Kapur }.
872
SUPREME COURT REPORTS [1959] Supp.
'959
confined to the question whether the cheques having
Commissioner of been sent to Secunderabad and having been realised
Income-tax,
in British India would amount to a final discharge or
Bihar & Orissa an unconditional one.
The Tribunal in its suppleM
v.
c mentary statement found that the ·course of conduct
1'· Patncy'"'
0
• followed by the parties showed that the cheques were
Kapur 1.
received from the Bombay and Madura firms in full
satisfaction of the commission ascertained from time
to time and due on such date. It said:
" Tb e facts that such entries were made in the
assessee's books, that the cheques were put into the
bank immediately, that the bank at once gave credit
to the assessee for these sums after charging discount
thereon and immediately allowed the assessee to operate on those sums are significant ". ·
Therefore t,he finding of fact by the Tribunal although
not specific was that the receipt of the cheque by the
respondents operated as full discharge of the debt due
on account of commission from these two firms.
The matter was decided by the High Court against
the appellant and in the meanwhile this Court had
given a judgment in Commissioner of Income-tax v.
Ogale Glass Works Ltd (1). Even after considering the
decision of that case the High Court was of the opinion that the income of the respondents was not
received in British India and answered the question
against the Revenue. The High Court refused to give
leave to appeal to this Court and it was this Court
which gave special leave to appeal.
The question is whethoc the amounts of commission
paid by cheques, drawn respectively on banks at
Madras and Bombay and respectively posted from
Madura and Bombay, can in the circumstances of this
case be held to have been received in what was
British India or at Secunderabad ? The Appellate
Tribunal found that all the cheques whether from
Madura or from Bombay were sent by the two respective firms from Madura or Bombay and were received
by the respondents at Secunderabad and were treated
as payment. The question still remains as to the
effect of the sending of the cheques from Madura or
Bombay by post. If there is an express request by the
(1) [1955] I S.C.R. 185.
(2) S.C.R.
SUPREME COUI~T REPORTS
873
creditor that the amount be paid by cheques to be sent
'959
by post and they are so sent there is no doubt that Commissioner of
the payment will be taken to be at the place where
Income-tax,
the cheque or cheques are posted.
The respondents Bihar &- Orissa
argued that there was an agreement between the
v.
Madura and Bombay firms and the respondents that M/s. Patney"" Co.
the money would be paid whether in cash or by
Kapur J.
cheque 'at Secunderabad' and therefore when the
cheques were sent by post the post office was the agent
of the debtor and not of the respondents. There is in
support of the respondents an affidavit which was
filed in the assessment proceedings and which was
relied upon in the High Court. According to this
affidavit it was verbally agreed that the commission
would be paid at Secunderabad in cash or by cheque (as
the case may be), the language used in the affidavit was:
"The above commission was verbally decided to
be paid to Messrs. Patney & Co. Ltd., Secunderabad
the Agent Company in Hyderabad State at Secunderabad in cash or by cheque as the case might be ".
In the case of payment by cheques sent by post the
determination of the place of payment would depend
upon the agreement between the parties or the course
of conduct of the parties. If it is shown that the
creditor authorised the debtor either expressly or impliedly to send a cheque by post the property in the
cheque passes to the creditor as soon as it is posted.
Therefore the post office is an agent of the person to
whom the cheque is posted if there be an express or
implied authority to send it by post (Commissioner
of Income-tax v. Ogale Glass Works Ltd. (1)). In that
case there was an express request of the assessee to
remit the amount of the- bills outstanding against the
debtor, that is, Government of India by means of
cheques. But it was observed by this Court that according to the course of business usage in general
which has to be considered as a part of the surrounding circumstances the parties must have intended that
the cheques should be sent by post which is the usual
and normal mode of transmission and therefore the
posting of cheques in Delhi amounted to payment in
(1) (1955] I S.C.R. 185.
uo
874
SUPREME COURT REPORTS [Hl59] Supp.
I959
Delhi to the post office which was constituted the
Commissioner of agent of the assessee. But it was argued for the
Income·t•~·
respondents that in the absence of such a request the
Bihar & Orissa post office could not be constituted as the agent of the
M/s. Pat:~Y & co. creditor and relied on a passage in Ogale's case (1) at
p. 204 where it was observed:-
J(apur ] .
" Of course if there be no such request, express
or implied, then the delivery of the letter or t,he
cheque to the post office is delivery to the agent of
the sender himself ".
It was further contended that in this case there was
an express agreement that the payment was to be
made at Secunderabad and therefore the matter does
not fall within the rule in Ogale Glass W arks case (1)
and the following principle laid down in judgment by
Das, J. (as he then was), is inapplicable:-
"Applying the above principles to the facts found
by the Tribunal the position appears to be this. The
engagement of the Government was to make payment
by cheques. The cheques were drawn in Delhi and
received by the assessee in Aundh by post. According to the course of business usage 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 finding they were in fact received by the
assessee by post."
·
In our opinion this contention is well-founded.
Whatever may be the position when there is an express or implied request for the cheque for the amount
being sent by post or when it can be inferred from
the course of conduct of the parties, the appellant in
this case expressly required the amount of the commission to be paid at Secunderabad and the rule of
Ogale Work's case (1) would be inapplicable.
The High Court judgment in our view was correct
and we would therefore dismiss this appeal with costs ..
Appeal dismissed.
(1) (1955] I S.C,R. 185.