INDORE MALWA UNITED MILLS vs. COMMISSIONER OF INCOME-TAX, (CENTRAL) BOMBAY

CIVIL APPEAL No. 1006/1963Supreme Court[1966] 2 S.C.R. 65119 November 1965Bench: 3 JudgesAuthor: A.K. SARKAR, J.R. MUDHOLKAR, R.S. BACHAWAT9 pages
AI SummaryDismissed

What were the facts?

The appellant, Indore Malwa United Mills, a non-resident company, supplied textile goods to the Indian Stores Department of the Government of India between 1942 and 1947. Purchase orders were placed at Indore, then in an Indian State. Upon receiving bills, the Government of India drew cheques on the Reserve Bank of India, Bombay, in favour of the appellant and sent them by post to Indore. The appellant deposited these cheques for realization. For assessment years 1943-44 to 1948-49, the issue was whether the profits from these supplies were received by the appellant in British India, making them taxable under Section 4(1)(a) of the Indian Income-tax Act, 1922. The departmental authorities initially argued payment was received in Bombay where cheques were encashed, while the Appellate Tribunal held payment was received at Indore. The High Court, referencing a Supreme Court decision, ruled that the post office acted as the assessee's agent in British India for receiving cheques, and the Revenue could raise this contention for the first time.

What did the Supreme Court hold?

The Supreme Court held that the Revenue authorities were permitted to raise the contention that the post office acted as the assessee's agent for receiving cheques in British India for the first time before the High Court. This was permissible because the broad question of whether the assessee was liable to tax on the ground of receiving sale proceeds in British India was referred to the High Court. The Court reasoned that if an agreement, express or implied, exists between the creditor and debtor, or at the creditor's request, for the debtor to pay by cheque and send it by post, the post office becomes the creditor's agent, and payment is considered received upon posting. In this case, clause 9 of the contract, the prescribed bill form, and the practice of sending cheques by post indicated an implied agreement that the Government would send cheques by post. Therefore, the assessee received payment as soon as the cheques were posted in British India. The Court found no evidence of an express agreement for payment to be made in Indore and was satisfied that the post office was the assessee's agent. Consequently, the profits were taxable under Section 4(1)(a) of the Indian Income-tax Act, 1922. The Court also found that the assessee was not prevented from adducing material evidence by the Revenue's omission to raise the point before the Tribunal. No issue was expressly left undecided.

What were the issues?

1. Whether the Revenue authorities were permitted to raise a new contention for the first time before the High Court, specifically that the post office acted as the assessee's agent for receiving cheques in British India, even though this point was not argued before the Appellate Tribunal and the primary argument there was about where cheques were encashed? (Question of mixed law and fact, concerning procedural fairness and the scope of arguments in income-tax references). Assessee's Contention: The assessee argued that the Revenue should not have been allowed to raise this new contention at the High Court stage, as it prevented them from leading additional evidence. This evidence would have shown that purchase orders were accepted under compulsion of the Defence of India Act and Rules, and that payment was received at Indore through the Imperial Bank of India. The assessee relied on the principle that sale proceeds were agreed to be paid in Indore, distinguishing cases where payment by post was agreed. Revenue's Contention: The Revenue argued that on the facts found by the Tribunal, the post office was the agent of the assessee for receiving cheques in British India, making the sale proceeds taxable in British India. They relied on the High Court's finding based on the Supreme Court's decision in Commissioner of Income-tax v. Kirloskar Bros. Ltd.

Which sections of the Income-tax Act were involved?

Section 4(1)(a)

AI-generated summary — verify with the full judgment below

• • • A B c D E F G INDORE MALWA UNITED MILLS v. COMMISSIONER OF INCOME·TA:X, (CENTRAL) BOMBAY November 19, 1965 [A. K. SARKAR, J. R. MUDHOLKAR AND R. S. BACHAWAT, JJ.] Income-tax Act, 1922, s. 4(1) (9)-Assessee a non-resident-Receiv- ing cheques by post from Government of India-Post office whether agent of assessee or of Government of India-Income whether taxable in British India.

The appellant-company carried on the business of manufacturing textile goods at Indore and had offices at Indore and Bombay.

During its account years 1942 to 1947 it supplied goods to the Indian Stores Department, Government of India. The purchase orders were placed by the latter with the appellant at Indore which was !hen in an Indian State. On receipt of bills from the appellant the Government of India used to draw cheques on the Reserve Bank of India, Bombay, in favour of the appellant and used to send them by post to the appellant at Indore. The appellant used to deposit the cheques with the Imperial Bank of India Indora for the purpose of realisation from the Reserve Bank of India.

In connection with the assessment years 1943-44 to 1948-49 the question that arose in '

The order continues below.

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