COMMISSIONER OF INCOME-TAX, BIHAR & ORISSA vs. M/S. PATNEY & CO.

CIVIL APPEAL No. 326/1957Supreme Court1959 INSC 5905 May 1959Bench: 3 JudgesAuthor: BHUVNESHWAR PRASAD SINHA, J.L. KAPUR, M. HIDAYATULLAH SUPREME COURT REPORTS7 pages
AI SummaryDismissed

What were the facts?

The assessee, M/s. Patney & Co., a non-resident business operating from Secunderabad (Nizam's territories), acted as agents for two Bombay and Madurai firms for supplying goods to the Nizam's Government. The commission due was to be paid in cash or by cheque at Secunderabad. Cheques drawn by the Bombay and Madras branches of the Imperial Bank of India were posted from Bombay and Madurai to the assessee at Secunderabad. Upon receipt, these cheques were credited to the assessee's account and used. For assessment year 1945-46, the Income-tax Officer, Berhampore, assessed these commission amounts as taxable income, asserting they were received in British India. The Appellate Assistant Commissioner upheld this. The Income-tax Appellate Tribunal, however, found the amounts were received at Secunderabad and allowed the assessee's appeal. The Commissioner appealed to the High Court of Orissa, which remitted the case for a supplementary statement of case. Ultimately, the High Court held the income was not received in British India, leading to the Commissioner's appeal to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the appeal by the Commissioner of Income-tax should be dismissed. The Court affirmed that in cases of payment by cheques sent by post, the determination of the place of payment hinges on the agreement between the parties or their course of conduct. Crucially, the Court found that the assessee had expressly agreed that the commission was to be paid at Secunderabad. In such a scenario, where there was an express stipulation for payment at a location outside British India, the principle established in Commissioner of Income-tax v. Ogale Glass Works Ltd. (which dealt with implied authority to send cheques by post) was inapplicable. The Court reasoned that the post office would not be considered the agent of the creditor when there was an express agreement for payment at the creditor's location. Therefore, the cheques were deemed to have been received at Secunderabad, and the income was not liable to be taxed in British India. The High Court's judgment was upheld.

What were the issues?

1. 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, turning on the interpretation of Section 66(1) of the Income-tax Act and the principles of determining the place of receipt of payment by cheque. Assessee's contentions: The agreement stipulated payment at Secunderabad. When cheques were posted, the post office acted as the debtor's agent, not the creditor's. Therefore, the amount was received when delivered at Secunderabad, outside British India. The Tribunal's finding that cheques were accepted as absolute payment supported this. Revenue's contentions: The revenue relied on the decision in Commissioner of Income-tax v. Ogale Glass Works Ltd., [1955] 1 S.C.R. 185, arguing that posting cheques constituted payment in British India, as the post office was the agent of the recipient. The High Court's initial finding that the statement of case was imperfect and the subsequent decision against the revenue were challenged.

Which sections of the Income-tax Act were involved?

Section 66(1)

AI-generated summary — verify with the full judgment below

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 Hydera- bad, were acting as agents of two firms in Bombay and Madurai, in British India, for the supply of certain goods to the N

The order continues below.

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