AZAMJAHI MILLS LTD. HYDERABAD vs. THE COMMISSIONER OF INCOME TAX, HYDERABAD

CIVIL APPEAL No. 980/1971Supreme Court[1976] 3 S.C.R. 64517 March 1976Bench: 2 JudgesAuthor: HANS RAJ KHANNA, P.K. GOSWAMI6 pages
AI SummaryDismissed

What were the facts?

The assessee, Azamjahi Mills Ltd., had its registered office in Hyderabad State, outside British India, during assessment years 1945-46, 1946-47, and 1947-48. The company supplied textile goods to the Government of India under bulk purchase orders. After dispatching goods, the assessee submitted bills containing a receipt clause. While the assessee specified 'Hyderabad (Dn)' for payment location, instructions on the purchase order and general government directives mandated payments by cheque on British India banks or branches transacting Reserve Bank of India business. Payments were made by cheques posted from British India. Some cheques were drawn on British India banks, others on Hyderabad State banks. All cheques, including those from British India banks, were collected through the assessee's bankers in Hyderabad State. The Income-tax Officer initially taxed proceeds from British India cheques, but the Appellate Assistant Commissioner and Tribunal held the entire sale proceeds were received in British India, enhancing the assessment.

What did the Supreme Court hold?

The Tribunal held that the sale proceeds should be considered as received by the assessee in British India, thus making them liable to Indian income-tax. The reasoning was based on the principle that if a cheque is sent by post in pursuance of an agreement or a request by the creditor, the post office acts as the creditor's agent for receiving payment. Such an agreement or request can be implied from the facts and circumstances. The Tribunal found that the facts and the course of dealings indicated an understanding between the Government of India and the assessee that payments would be made by cheques sent by post from British India. This implied request meant the post office became the assessee's agent, and payment was deemed received in British India when the cheque was posted. The Tribunal distinguished the case of Commissioner of Income-tax, Bihar & Orissa v. Patney & Co. where an express requirement for payment outside British India was present. The Tribunal followed the precedents of Indore Malwa United Mills Ltd. v. Commissioner of Income-tax, Commissioner of Income-tax, Bombay South, Bombay v. Ogale Glass Works Ltd., and Shri Jagdish Mills Ltd. v. Commissioner of Income-tax. The appeals were dismissed.

What were the issues?

1. Whether, on the facts and in the circumstances, the sale proceeds were received from the Government of India in British India, making them liable to Indian income-tax, as per Section 4(1)(a) of the Indian Income-tax Act, 1922? Assessee's contention: The sale proceeds were received in Hyderabad State, not British India, and therefore not taxable in British India. The assessee relied on the fact that cheques were drawn on Hyderabad State banks and all cheques were collected in Hyderabad State. Revenue's contention: The sale proceeds were received in British India because cheques were posted from British India in pursuance of an implied agreement or understanding between the parties, making the post office the agent of the assessee for receipt of payment. The revenue relied on the general instructions for payment and the course of dealings.

Which sections of the Income-tax Act were involved?

Section 4(1)(a),Section 66

AI-generated summary — verify with the full judgment below

I ' t .. y 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 asses- see-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 chequ

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