P L D 1976 S C 790 (PLP)

DORAB PATEL, J.

The respondent is the sole proprietor of a business known as Messrs Sanaullah Khan & Company, which has its office in Mingora in the former State of Swat. The only other asset of this business is a sales depot in Dargai in the Malakand Agency, and both the former State of Swat and the territories of the Malakand Agency were in the tribal areas within the meaning of Article 242 of the 1962 Constitution. This is important because the Income-tax Act, 1922 (hereinafter called the said Act) had not been extended to the tribal areas at the relevant time and the result was that the respondent was not a resident within the meaning of section 4-A of the said Act. In the events that happened, he entered into a contract with the Ordinance Factory at Wah for the supply of timber of the value of twenty-seven lacs of rupees. He carried out this contract in due course and it is not in dispute that he earned profits on it. The appellant is the Income-tax Officer, Mardan to whom the profits on this contract had to be declared on the footing that such profits were taxable under the said Act. Therefore, by a notice dated 13-10-1967, he called upon the respondent to furnish "certain explanations" about the profits made by it in its contract with the Wah Ordnance Factory. The respondent stated in reply to this notice that he was a resident of the tribal areas, that the contract had been for the supply of timber in the tribal areas, which had accordingly been supplied in the tribal areas, and that he had received payment in Mingora in the tribal areas, therefore, he disclaimed liability for tax under the said Act. The appellant was not satisfied with this explanation, and as he threatened to take further steps against the respondent, the respondent, filed a writ petition against the appellant in the Peshawar Seat of the West Pakistan High Court in which he sought the quashment of the appellant's notice. The appellant contested this writ petition, and submitted that it was not maintainable because the respondent had not exhausted its remedies under the said Act. The appellant further contended in his written statement that the dealings under the contract took place within the taxable territory and payments through delivery of cheques were also received in that territory". Therefore, the appellant's plea was that the respondent was liable to pay income-tax under the said Act on the profits earned by him on this contract because the profits had been earned in "the taxable territory". I would pause to explain here that the appellant meant by the expression "the taxable territory" that part of the country to which the said Act was applicable, and I will for convenience refer to the part of the country to which the said Act was applicable as the taxable territories. The learned Judges of the West Pakistan High Court held by their judgment dated 10-12-1969 that the writ petition filed by the respondent was maintainable. Next, as to the question of the respondent's liability under the said Act, the appellant appears to have relied on a judgment of the Indian Supreme Court in Commissioner of Income-tax, Bombay South v. Ogale Glass Works Ltd ((1954) 25 I T R 529). The learned Judges held that this judgment was distinguishable on the facts, and as the said Act was admittedly not applicable to the tribal areas, they allowed the respondent's writ petition. The appellant, therefore, filed a petition for leave and leave was granted to examine the validity of the view taken by the Indian Supreme Court in Commissioner of Income-tax v. Ogale Class Works Ltd. Before I examine the submissions advanced I have to observe that Wah is in the taxable territories, whilst Mingora is not, because it is in tribal areas, and the said Act did not extend at all relevant times to the tribal areas. It is also not in dispute that the respondent is not a resident of the taxable territories, and, further on the pleadings it is clear that the contract for the supply of timber was executed only in the tribal areas. Finally, as to the mode of payment to the respondent, whilst there is some controversy between learned counsel about it, it is clear from the record that the amounts due to the respondent under his bills had been credited to his account with the National Bank in Mingora at the instance of the Wah Ordnance Factory. Thus, except that it was signed in Wah, the contract had no connection whatsoever with the taxable territories. How then can the profits under this contract be taxed, whether on the footing that they had accrued in the taxable territories or on the footing that they must be deemed to have accrued in the taxable territo ries? Mr. Lone-'attempted to overcome this difficulty by relying on the respondent's letter dated 29-11-1965 to the "Wah Ordnance Factory. Accord ing to learned counsel, this letter amounted to a request by the respondent to the Wah Ordnance Factory for the payment of its bills by cheques, therefore, the further submission was that all payments had been received by the respondent from the Wah Ordnance Factory in Wah only. But this further submission was based solely on the view taken by the Indian Courts in a series of cases beginning with the judgment of the Indian Supreme Court in Commissioner of Income-tax v. Ogale Glass Works Ltd. Mr. Zahoorul Haq attempted to distinguish the view taken by the Indian Courts on the ground that no payments had been received by the respondent directly from the Wah Ordnance Factory. But whether the payments from the Wah Ordnance Factory were credited directly by that Factory to the respondent's bank account in Mingora or whether the payments were made through bankers in Mingora, who thereafter remitted the proceeds of the Wah Ordnance Factory's cheques to the respondent is a question of fact, and Mr. Lone challenged as false the contention that the respondents had not received payment directly from the Wah Ordnance Factory. I would accept this objection,, because on the pleadings in the case, the respondent cannot be permitted to advance the plea that it bad not received payments in Mingora directly from the Wah Ordnance Factory. Mr. Zahoorul Haq then submitted that the Indian case-law was distinguishable because the respondent's request in its letter of 29-11-1965 was only for payment in Mingora and not for payment by cheques. This submission too is not correct, because the respondent's letter of 29-11-1965 was written in pursuance of the supply order signed by him four days earlier, and according to the terms of this supply order, payments were to be made to the respondent by the Wah Ordnance Factory only by crossed cheques. As the respondent's letter of 29-11-1965 has to be read with this condition, I agree with Mr. Lone that this letter amounted to a request by the respondent for payment by cheques in Mingora. However, this would not help the appellant's case, because the request was for payment by cheques in Mingora and not for payment by cheques in Wah. Accordingly, we invited Mr. Lone to explain to us how a request for payment by cheques outside the taxable territories could be construed as a request for payment by cheques within the taxable territories. Mr. Lone's reply was that by his request for payment by cheques in Mingora, the respon dent had directed the Wah Ordnance Factory to send its cheques by post, and therefore the post office at Wah was the respondent's agent for receiving cheques from the Wah Ordnance Factory on the respondent's behalf. And because the post office was the respondent's agent, the further submission was that all payments bad been received by the respondent in Wah when the post office at Wah bad received in its custody the cheques posted to the respondent. These submissions are based on two assumptions. The first is that a request for payment by cheque amounts to a request for posting the cheque, and Mr. Zahoorul Haq submitted that the Wah Ordnance Factory could have sent the cheques to Mingora by messenger. The second assump tion, on which Mr. Lone's arguments are based, is that the post office became the respondent's agent because of the respondent's request to post the cheques to him. The consequences of accepting this assumption are far reaching and would mean that the risk of the loss of a cheque in transit would fall upon a creditor merely because he was good enough to oblige the debtor by allowing him to send cheques by post. Further, in the instant case, the consequences of accepting this assump tion would be startling, if not absurd. I observed earlier that the respondent bad signed a supply order according to which he was entitled to payment by cheques "on receipt and acceptance of the stores". As the timber was supplied outside the taxable territories and as it is the debtor's duty to pay the creditor, this would mean that the Wah Ordnance Factory had to make payments by cheques to the respondent at Mingora because that was where the respondent was resident. But it is not Mr. Lone's case that the post office at Wah would have become the respondent's agent if the Wall Ordnance Factory had, on its own, posted cheques from Wah to the respon dent in Mingora. Turning now to the respondent's letter, it only requested the Wah Ordnance Factory "to please make payment of our bills on Nation al Bank of Pakistan, Mingora . . ." The supply order did not impose an obligation on the Wah Ordnance Factory to pay "on National Bank of Pakistan", but nothing turns on this distinction nor did Mr. Lone rely on it. But according to Mr. Lone, it was the request for payment at Mingora which had made the Yah post office the respondent's agent. As the respon dent was entitled under the supply order to payment by cheque in Mingora, how could a request in this respect alter the rights and liabilities of the parties? In reply, Mr. Lone referred us not to the provisions of the said Act or of the Post Office Act but to the judgments of the Indian Supreme Court beginning with the leading case of the Commissioner of Income-tax v. Ogale Glass Works Ltd. I would, therefore examine this case in some detail. The respondent in this case was a company incorporated in the then native State of Aundh in India and had obtained contracts for the supply of goods to the Indian Government. It was entitled under these contracts to payment against its bills by cheques drawn in British India and at its request payments were made to it by cheques drawn on the Reserve Bank of India, Bombay. Then on receiving these cheques the respondent used to endorse then in favour of a local bank in Aundh which in turn endorsed them to a bank in Bombay where they were cashed. As the respondent was not resident in British India, its liability for British Indian income-tax depen ded on the receipt by it of income within the British India. And as it was not resident in British India it disclaimed liability for tax on the ground that the profits on its sales under its contracts with the Indian Government had accrued and had been received in Aundh outside British India because it had received payment of its bills through the receipt of the Government cheque in Aundh, The Income-tax Officer, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal held that the respondent had received its profits in British India "because the cheques by which it had been paid, had been drawn on a Bank in Bombay and had been cashed in Bombay". The respondent challenged these orders in the Bombay High Court in a reference under section 66 of the Income-tax Act, the question referred being whether the profits on its sales had been received by it in British India. The Bombay High Court further held that the respon dent had received its payments on the dates on which the cheques had been received by it and as the cheques had been received in Aundh the Bombay High Court held that the respondent bad neither received the cheques nor earned any profits in British India. The Department filed an appeal in the Indian Supreme Court against this judgment and its contentions were that income had accrued to the respondent within British India because the cheques by which the respondent bad been paid, had been drawn on a bank in Bombay at the respondent s request and also because these cheques bad been cashed in Bombay. The Indian Supreme Court rejected these conten tions and allowed the appeal on a totally different ground. In allowing the appeal, S. R. Das, J. observed at page 546; "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 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 received by the assessee by post. Apart from the implication of an agreement arising from such business usage, the assessee expressly requested the Government to 'remit' the amounts of the bills by cheques. This, on the authorities cited above, clearly amounted in effect to an express request by the assessee to send the cheques by post. The Government did not act according to such request and posted the cheques in Delhi. 1t can scarcely be suggested with any semblance of reasonable possibility that cheques drawn in Delhi and actually received by post in Aundh would in the normal course of business be posted in some place outside British India. This posting in Delhi, in law, amounted to payment in Delhi." Mr. Zahoorul Haq submitted that this judgment was distinguishable because the cheques issued to the respondent for its bills had been drawn on a bank in British India and had been cashed in British India. No doubt, the case is distinguishable on the facts and the Department had relied on those very facts which distinguish the case cited from the instant case. But as the Court expressly rejected the contentions of the Department and instead held that the respondent was liable for tax, because a cheque posted by a .debtor in British India to a creditor not resident in British India amounted by itself to payment to the creditor in British India, the judgment lends very great support to the appellant's case, and as in taking the view which it did, the Indian Supreme Court relied only on English judgments reported in Norman v. Rickets ((1886) 3 T L R 182), Thairlwall v. The Great Northern Railway Company ((1910) 2 K B 509) and The Badische Anilin Und Soda Fabrik v. The Basle Chemical Works Bindsehedler ((1898) A C 200) it is necessary to examine these judgments. In Horman v. Richets ((1835) 2 T L R 607) the facts were that the defendant, who lived in the country, had purchased goods from a London dress-maker, and as she failed to pay for her purchase, the dress-maker sent her a reminder to pay her bill within a week. The defendant sent a crossed cheque by post, which was lost in transit and cashed by the defendant's bankers upon a forged endorsement. Therefore, the dress-maker having died, the trustees of her estate brought an action against the defendant which was dismissed. In dismissing the suit Huddleston, J. observed that "ordinarily speaking the post office must be considered the agent of the sender; but here there was the additional fact that an antecedent request had been made by the plaintiff to the defendant that she might be favoured by a cheque within the week. What did that mean? If it was an invitation to send a cheque by post, then the defendant had done all that was required of her, and was not liable". The learned Judge also held that the plaintiff's letter was a request to send the cheque by post, and he further observed that the post office in consequence "became therefore not the exclusive agent of the sender but the common agent of both parties". Now I agree with the view that when parties lived for apart a request for payment by cheque may amount to a request to post the cheque, but why should the risk of the loss of the cheque in transit fall upon the creditor? Here the observation of the Court that the post office was "the common agent of both parties" is relevant. But if the post office is the common agent of both parties why should the risk of the loss of the cheque in transit fall upon the creditor alone? Presumably the view of the learned Judge was based on postal regulations in England at the relevant time, but the judgment does not state what those regulations were. Be that as it may, the plaintiffs challeng ed the dismissal of their action but their appeal was dismissed by the Court of appeal. The judgment was pronounced by Esher, M. R. and is to be found in the 3rd Vol. of the Times Law Reports, page

182. The report of` this judgment is very brief and reads; "The Master of the Rolls said that if a debtor had to. pay his creditor money, as a general rule the debtor must come and pay his creditor. But if the creditor asked him to pay in a particular way, the debtor might do so. If asked to pay through the post, the putting the letter in the post with the money was sufficient. The only question here was whether the plaintiffs asked the defendant in effect to send the money through the post. An express request to send through the post was not necessary. If what the plaintiffs said amounted to a request to send the cheque by post, then there was payment. To answer that question the existing circumstances must be looked at. A milliner in London wrote to a lady in Suffolk asking for a cheque. Did that letter reasonably lead the lady to suppose and did she suppose that she might send the cheque by post? She could not suppose that she was to send a messenger with it or come up to London herself. The only reasonable and proper meaning to be attached to it, whatever Madame Phillippe might have intended, was that she was to send the cheque by post. She, therefore, reasonably believed that she was invited to send her cheque by post, and she did what she was asked to do. Consequently what she did amounted to payment." As the appeal was dismissed on the ground that a cheque posted to a creditor amounts to payment to him, this judgment supports Mr. Lone's submissions to the hilt but with respect I regret my inability to agree with the view of Esher, M. R. In the first place even on the assumption that a request for payment by cheque amounts to a request by the creditor to send the cheque by post, whatever be the banking practices a hundred year ago, if a creditor requests the debtor to post a cheque the debtor can comply with that request by A posting a cheque which is marked as not negotiable and account payee, or he can post a crossed cheque. As the latter method is obviously a hazardous method I demur to the view that a request to post a cheque must be read to mean a request to post a crossed cheque. Secondly, even if a request for payment by cheque means a request to send the cheque by post this is not the same thing as a request to post the cheque at the risk of the debtor. However, in taking a contrary view, Esher, M. R. observed that the defendant "could not suppose that she was to send a messenger with (the cheque) or" come up to London herself." Now, even if the defendant was not expected to come up to London to deliver the cheque, this does not mean that the dress-maker bad accepted the risks of the loss of the cheque in transit, the more so, as there was no consideration to support any such alteration of the contract in the defendant's favour. In the absence of a. contract to the contrary, the defendant, being the debtor, was under an obligation to pay the dress-maker in London at her cost and risk, and as, neither the judgment of the trial Court of appeal refer to any agreement to the contrary, it is clear that until the dress-maker had sent her reminder for payment, the defendant was under an obligation to pay for her purchases in. London. And if, for example, the defendant had posted a cheque for her bill, without a request by the dress-maker, the defendant would have had to bear the loss of the cheque in transit. The dress-maker could have waived, her rights and agreed to accept the risk of the loss of the cheque in transit. As she did not, even if her reminder for the payment due to her be construed. as a request to send a cheque by post, it could not be construed as a promise or offer by her to bear the risk of the loss of the cheque in transit except on the assumption that the post office was her agent either in view of the postal regulations in England or on account of some other statutory provision in that respect. Mr. Lone then submitted that Norman v. Rickets had been followed in Thairlwall v. The Great Northern Railway Company and in Kleinwort Sons Co. v. Comptoir National D'escompte De Paris ((1894) 2 Q B 157). That is correct, but unfortunately neither of these judgments give any reasons for the view that the loss of a cheque in transit has to be borne by the creditor to whom it is posted. I now turn to another judgment of Esher, M. R. in Pennington v. Crossley & Son ((1897) 77 T L R 43). The facts in this case were that the defendant had been making purchases from the plaintiff for many years and had always paid his bills by cheques which were sent by post, As one of these cheques was lost in transit, the plaintiff brought an action for the amount due on his bill. The defendant's plea was that the action should be dismissed in view of the rule laid down in Norman v, Rickets that a cheque posted to the creditor amounted by itself to payment to the creditor. The action was however allowed and Esher, M. R. observed in the Court of Appeal : "This is an action for goods sold and delivered, in which the defendants have pleaded payment. The defendants posted a letter to the plaintiff containing a cheque for the amount due. The plaintiff never received the cheque or any money in payment of the debt due to him, but, nevertheless, it is contended by the defendants that he has been paid. The cheque was delivered in a letter to the post office. The post office cannot be said in any sense to be an agent of the plaintiff." I would agree with these observations, but the question is whether they can be reconciled with the earlier observations of the Master of the Rolls in Norman's case. Esher, M. R. distinguished his earlier judgment on the ground that the creditor in that case had asked for payment by cheque. This distinction is based on the assumption that a creditor agrees to bear the loss of a cheque in transit merely because of his reminder for a payment due to him. As I explained I cannot agree with this assumption. In my humble opinion, this assumption would defeat the intentions of a creditor in sending a reminder for a payment due to him unless of course there be some statutory provision to the contrary. I make this qualification because in Norman's case Huddleston, J. had observed in the trial Court that the post office bad become "the common agent of the parties on account of the creditor's reminder for payment". Unfortunately, as I observed earlier. Huddleston, J. did not explain why the plaintiff alone bad to bear the loss of the cheque by the post office when the post office was "the common agent" of both the plaintiff and the defendant. However, the observations must have bad reference to English postal regulations, because the post office was only the statutory agent or carrier for the cheque posted by the defendant, therefore, the loss of the cheque had to be borne by the party who was the principal of the post office. So, if the post office was the agent of the sender of the cheque, namely the debtor, the loss of the cheque had to be borne by the debtor, and if the post office was the agent of the addressee of the communication, the loss could not but fall on the creditor. 1, therefore, venture to think that the decision in Norman v. Rickets turned on English postal regulations which were perhaps too familiar to require to be stated in the judgment. I am fortified in my opinion by an older decision of the Court of Chancery Appeal in Ex parte Cote. In re: Deveze ((1874)9CA27). The question in this appeal was whether property in bills of exchange, which had been posted in Lyons (France) bad passed to the indorsee the moment they had been posted in Lyons. According to Mellish, L. J. the property in the bills would have passed to the indorsee if postal regulations in France had been the same as in England. As they were not, he held that the property in the bills had not passed to the indorsee and his observations in this respect throw light on the true ratio of what Mr. Lone described as the rule in Norman's case. These observations read;

"The question therefore arises, of which party the past office is the agent. In this country, where the sender of a letter cannot get it returned after it has been posted, if the indorsee of a bill authorises the indorser to send the bill through the post office, the bill as soon as it is posted becomes the property of the indorsee. But according to the regulations of the French post office a person who posts a letter may get it back on complying with certain forms at any time before the letter has left the town where it is posted. I am inclined to think that the effect of that rule is that the post office is the agent of the sender of the letter until it leaves the town, and that the endorsement of the bills contained in it is not complete till the letter is despatched from the town." As the sender of a letter in England cannot recall the letter posted by him, the English post office would appear to be the agent of the addressee of the letter. Accordingly; when a creditor in England requests the debtor to post a cheque to him, as the creditor makes the request with the knowledge that he will have to bear the loss of the cheque by the post office, the receipt of the cheque by the post office may be treated as payment to the creditor. On the other hand, in a country in which the post office is the agent of the sender of the letter, by parity of reasoning, the loss of a cheque by the post office must fall on the debtor because the post office is his agent. This means that the English cases on which the Indian Supreme Court relied in Commissioner of Income-tax v. Ogale Glass Works would have no relevance in a country in which the post office is the agent of the sender of a letter and not of the addressee. Unfortunately, the judgment of the Indian Supreme Court does not refer to Indian postal regulations, but it would appear that the respondent's plea was that the Indian postal regulations at the relevant time were different from those construed in the English cases. However, the Indian Supreme Court expressly rejected this plea and held that as in England the Indian post office was the agent of the addressee of a letter, therefore this judgment and all the Indian judgments in which it was followed would be relevant only if our post office is the agent of use addressee of a letter and not of its sender. I now turn to the provisions of the Post Office Act, 1898, and section 18, which is relevant reads ; "18.-(1) The (Central Government) may, by rule provide for the redelivery to the sender, (or delivery to another addressee at the request of the sender) without reference to the consent of the addressee and subject to such conditions (if any) as may be deemed fit of any postal article in course of transmission by post. (2) Save as provided by any rules that may be made under subsection (1), the sender shall not be entitled to recall a postal article in course of transmission by post (or to ask for its delivery to another addressee)." As the rights of the sender of a letter have been expressly made subject to the rules framed by the Central Government, it is necessary to examine these rules. Rule 18 of these Rules is relevant and reads;

"Postal articles, whilst in the course of transmission by post, may be recalled by the sender or delivered to another addressee at the request of the sender, without reference to or the consent of the first addressee, subject to the following conditions . . . . ." The conditions which follow prescribe that an application under this rule must be in writing and "shall be received only from the sender of the postal article or from some person duly authorised in this behalf by the sender in writing". The conditions further prescribe the fee to be paid on such applications, the officers who can allow such applications, and the manner in which the instructions of the sender are to be carried out if the postal article has left the town where it was posted, and even when it has left the country. Thus the rules do not impose any restriction on the sender's right to recall a letter vis-a-vis the addressee, and it was also not Mr. Lone's case that there are any provisions to the contrary in'the Negotiable Instruments Act, 1881, such as are to be found in the Sale of Goods Act, 1932. Therefore, the post office is not the agent of the addressee of a letter delivered to it, and the Indian and English cases on which Mr. Lone relied are not relevant. On the other hand, the case of the respondent before us is supported by the judgment of the Court of Chancery Appeal in Ex parte Cote. In re Deveze, the more so, as the rights of the sender of a letter under rule 18 are wider ;than under the postal regulations construed in that case. Mr. Lone, who has argued this appeal with very great industry, then referred us to another judgment of the Indian Supreme Court in Jagadish Mills Ltd. v. Commissioner of Income-tax. Bombay North, Kutch and Saurashtra, Ahmedabad (A I R 1959 S C 1160). There, Bhagwati, J. who pronounced the judgment of the Court, followed the earlier view of the Court in Commissioner of Income-tax v. Ogale Glass Works Ltd. and distinguished the case of Ex parte Cote. In re Deveze. But this would follow from the earlier view of the Indian Supreme Court that the Indian post office was the agent not of the sender of a letter, but of its addressee. This view would imply that the Post Office Rules framed by the Indian Government do not contain any provision similar to rule 18 of our post office Rules. In these circums tances, the Indian judgments relied upon by Mr. Lone are also not relevant because they relate to a different law. Finally, Mr. Lone attempted to persuade us to follow the Indian view on the basis of the judgment of the House of Lords in The Badische Anilln Und Soda Fabrik v. The Baslo Chemical Works, Bindschedler ((1898) A C 200) There, on the instructions of an English buyer, the respondent had posted some goods to England from Switzerland, and the question before the House was whether, whilst the parcel was in transit England, the post office was the agent of the English buyer or of the respondent. In repelling the contention of the appellant that the English post office was the agent of the respon dent, Lord Halsbury L. C. observed at page 203 ; "What character did the bringer fill : was he the agent of the seller to bring ; or, was he the agent of the buyer to bring the article to him? The facts have all been stated, and it appears that the seller sent in pursuance of an order from the buyer to a particular carrier named say a particular carrier named, because the post office is but a carrier after all ; whatever municipal regulations may be made about the carriage of letters, the post office is simply a carrier of parcels like any other carrier . . . . . . . . . . Then, for what reason, am I to depart from the well-known and recognised principle of law that, under these circumstances, when goods are delivered by the order of the buyer to a named carrier, from that moment the goods vest in the buyer ?" These observation relate to the sale of goods, and the principle laid down was a principle evolved by the common law Courts, which is now to be found in the English Sale of Goods Act, 1893 and in Chapter V of our Sale of Goods Act, 1932. As the Legislature has not thought it fit to extend this principle to the liability of the post office as a carrier, the judgment cited, and other judgments on the rights of sellers and buyers under the Sale of Goods Act are not relevant to the examination of the legal consequences of posting a cheque, and this question has to be decided only by reference to then Post Office Act and the rules framed thereunder, and rule 18, which is the only relevant rule, is fatal to the appeal. ' No other argument was advanced in support of the contention that the respondent had received payment in Wah through his agent, the local post office, and in the circumstances discussed. I would hold that although cheques had been posted to the respondent at his request in Wah, this did not amount to a payment to the respondent in Wah because the post office was not his agent. The only question for which leave was granted is thus decided against the appellant, but as the contract with the Wah Ordnance Factory was admittedly made in Wah, Mr. Lone sought our permission to advance a further submission. This was that as the contract had been executed in Watt the profits arising out of that contract must be deemed to have accrued in Wah within the meaning of section 4(1)(c) of the said Act, because the execution of the contract in Wah amounted to a business connection in Wah within the meaning of subsection (1) of section 42 of the said Act. As the question thus raised is a purely question of law, we permitted the learned counsel to advance his submissions and I would now consider teem. Section 42(1) in so far as it is relevant reads ;

"All income, profits or gains accruing or arising, whether directly or indirectly through or from any business connection (in Pakistan) or through or from any property in Pakistan or through or from any asset or source of income in Pakistan or through or from any money lent at interest and brought into Pakistan in cash or in kind, on through or from the sale, exchange or transfer of a capital asset in Pakistan shall be deemed to be income accruing or arising within Pakistan and where the person entitled to the income, profits or gains is not resident in Pakistan shall be chargeable to income-tax either in his name or in the name of his agent, and in the latter case, such agent shall be deemed to be, for all purposes of this Act, the assesses in respect of such income-tax . . . . . : ' It was not Mr. Lone's case that the profits earned from the contract had been earned from any asset or source of income in Wah, but he submitted that the profits earned from this contract must be deemed to have been accrued from a business connection in Wah, because the contract had been signed in Wah. The question is the meaning of the expression 'business connection' and in my opinion, it connotes some element of continuity. As observed by Kanga and Palkhivala in The Law and Practice of Inome tax (Fourth Edition) at page 737 : "An isolated transaction or stray transactions would not normally amount to a business connection". There fore, there would have been force in Mr. Lone's submission if, for example, the respondent had, a branch office or an agent in Wah. But that was not Mr. Lone's case. He, however, stressed the fact that the performance of the contract had taken about one year. But whether the performance took one month or one year would not alter the fact that the contract was a -solitary transaction. I also find that a similar question was examined by the Judicial Committee in Commissioner of Income-tax, Bombay v. Currimbhoy Ebrahim & Sons Ltd. ((1935) I T R 395). The respondent in that case had obtained a loan from His Exalted Highness, the Nizam of Hyderabad. The advance was received in Bombay and was secured by mortgages of several properties in Bombay. The loan was for a period of five years, and as interest was paid to the Nizam in Hyderabad, the Department sought to tax the respondent as the Nizam's agent. The question for determination before the Judicial Committee was whether the interest earned by the Nizam had accrued from or through a business connection in Bombay. That was the plea of the Department, and as, in the instant Case, it relied on the fact that although the loan was a single transaction it was for a long period, but, unlike the instant case, this plea was supported by the further fact that the Nizam was entitled to appoint a representative at the respondent's expense in order to ensure that the mortgaged properties were maintained in proper repair. The Judicial Committee rejected the plea of the Department, and Sir George Rankin, observed at page 400; "Upon the question whether the interest arose to the Nizam through or ; from any business connection in British India, their Lordships observe that so far as appear from the facts found in the Letter of Reference, the loan made by the Nizam to the respondent-Company on August 16, 1929, was an isolated transaction between the parties. It is not shown that the Nizam has at any time had an interest direct or indirect in the respondent-Company. There is no evidence of a course of dealing between the parties such as might fairly be described as a business connection previously subsisting between them." I would apply these observations to the instant case and the fact that the contract was signed in the taxable territories and performed over a period of one year, is not sufficient to spell out a business connection within the meaning of section

42. Therefore, the appellant has failed to show that the profits of the contract have accrued or must be deemed to have accrued to the respondent through or from any business connection in Wah. In the result, the appeal is without merit and is dismissed with costs. MUHAMMAD YAQUB ALI, C. J.-I agree. MUHAMMAD AHRAM, J.-I agree. S.Q Appeal dismissed.