1963 PLP 380 (PTD)

S. T. DESAI, J.‑This reference of 1949 has had a very chequered history and raises the vexed question relating to payment by cheque to an assessee carrying on business outside the then British India and we are asked by the Revenue, at whose instance this reference has been made, to hold that there were on the part of the seller‑mills, the assessee, request express or implied made to the buyers of the goods in British India to pay the amounts by cheques, drafts or hundis so as to constitute the post office the agent of the assessee‑mills to receive the amounts in British India. Unusually variegated has become the pattern of this reference as will be seen from the fact that we have before us three statements of case of which two are supplemental statements made in pursuance of directions of this Court on two occasions. Even now we have before us a notice of motion, which inter alia asks this Court to send for a further statement of the case. Principles applicable to this type of case before us are now well established and difficulty arises not so much in understanding and appreciating those principles as in the application of those principles to the facts of the case set out in the statements of the case, which, as we have already mentioned, are three. The material facts and the history of the reference require to be stated in some detail. The assessee is a non‑resident company, which was carrying on business at Baroda at the material time. The assessment year is 1942‑43 (calendar year 1941). The company manufactured textile goods and sold the goods ex‑mill. The contention of the company was that being a non‑resident company, it was not liable to pay any tax on its profit or income as none of the profits made by the company had been received in British India. Three sums representing a large number of sales effected by the Mills to merchants in British India, were the subject matter of disputes between the Revenue and the assessee‑Mills. The reference originally related to three items of Rs. 12,68,480, Rs. 4,40,878 and Rs. 6,71,735 and came up for decision before Chagla, C. J. and Tendolkar, J. on 14th September 1949. The question that was referred to the Court embraced all the three items and was as under; "Whether on the facts and in the circumstances of the case the sums of Rs. 12,68,480, Rs. 4,40,878 and Rs. 671,735 or any of them which represent receipts by the assessee company of its sale proceeds in British India, include any portion of its income in British India ?" As to the first two items, there was reframing of it into two questions and they were answered in favour of the Revenue and against the assessee, the conclusion of the Court being that the income of the assessee in respect of the goods forming the subject‑matter of those two items had been received by the assessee in British India and was, therefore, liable to tax under the Indian Income‑tax Act. As to the third question, their Lordships took the view that the facts set out in the statement of the case were not adequate and therefore they gave certain directions in that behalf. It is not necessary for us to refer to those directions because in view of what transpired later on, it was felt necessary to ask for a further statement of the case. It may be mentioned that the law on the subject as then understood by the High Courts was in certain material respects different from that ultimately laid down by their Lordships of the Supreme Court in a series of decisions, the first of them being what is generally described as the case of the 0gale Glass Works ((1954) 25 I T R 529). A statement of the case as directed by the Court was made by the Tribunal and the reference came up for hearing before the same learned Judges on 15th February 1955. The case of Ogale Glass Works one of which we have just made mention, had by that time been decided by the Supreme Court and we are informed that after hearing arguments for considerable time a further statement of the case was felt necessary as the tests, which had formerly found favour with the Courts, were not accepted by the Supreme Court in the case of Ogale Glass Works. In directing the Tribunal to make a further statement of the case, the learned Chief Justice observed; "The supplementary statement that we called for was necessary before the Supreme Court delivered its judgment which is reported in Commissioner of Income‑tax v. Ogale Glass Works Ltd. After this judgment the position with regard to receipt has been considerably simplified." The argument, which was advanced before the Court at that hearing, apparently turned on the contention of the Revenue that there were facts on the record of the case, which invited the operation of the principle laid down by the Supreme Court in the case of Ogale Glass Works and it was urged that those facts, which were undisputed and undisputable, went to establish that there was an express or implied request made by the seller‑mills to the fills buyers to pay the amount of the price of the goods by cheques, hundis or drafts by post and thereby the seller‑mills had con stituted the post office their agents and when the cheques, hundis or drafts were posted, there was a receipt by the seller‑mills at the place where the cheques, drafts or hundis were posted. It is convenient to mention here that there is now no dispute that the cheques, drafts or hundis were posted to the seller‑mills from places in the then British India. Nor is it in dispute that the cheques, drafts or hundis were received by the seller‑mills by post at its mills at Petlad. After hearing the arguments advanced by counsel at that hearing their Lordships observed; "Now, in the letter written by the assessee, which is Annexure 'B' to the supplementary statement of the case, there is a clear and unequivocal statement that 'the arrangement with the merchants has been uniformly followed during the long course of conduct of business, that payments would be accepted (apart from cash) by cheques, hundis, drafts and these had to be sent by buyer to us at the Mills'. Therefore the case here stands on a higher footing than a request by a seller to the purchaser to send the amount by a cheque, hundi or draft. The assessee is relying on an agreement or an arrangement to that effect. Now, it is true that in this case the seller does not ask the buyer to send the amount by a cheque or hundi or draft by post ; but the Supreme Court points out that whether the request is to send a particular document by post or rot may be implied from the surrounding circumstances, and one of the most important circumstances, as again pointed out by the Supreme Court, is commercial practice. There could not be the slightest doubt in this case that when the mill company which is situated in Petlad requests merchants all over India to send the amounts by cheques, hundis or drafts, it impliedly is requesting these merchants to send the payment by cheques, hundis or drafts by post. Therefore, in our opinion, this case comes within the ratio of the Supreme Court decision and there is an implied request by the assessee company to the merchants to send the amount by post." It is clear from this part of the order that the Court was of the opinion that the case was covered by the ratio of the Supreme Court decision in the case of 0gale Glass Works Ltd. It was urged, however, before the learned Judges that there was no finding of fact by the Tribunal that the amount had, in fact, been sent either by draft, hundi or cheque by post. Learned counsel for the assessee company stated to the Court that it may well have been that a merchant might have sent the amount by draft, hundi or cheque by a messenger and the same might have been delivered to the mills‑company at Petlad itself. In view of that submission by counsel, the view was taken that before the liability of the assessee company could be determined, it was necessary to have the additional fact, whether the sums in question were sent by drafts, hundis or cheques by post, determined. In pursuance of that order, the Tribunal remanded the case to the Income‑tax Officer with a view to gathering the relevant facts. The principal officer of the assessee company had addressed a letter to the Income‑tax Officer and the Income‑tax officer stated as under; "The principal officer of the assessee company has stated in this letter that the records are not available at this distance of time and that the assessee agrees to presuming that the whole of the said sum of Rs. 6,71,735 came by post, by cheques, drafts, hundis or cash." The finding now recorded by the Tribunal is that on the facts "the sum of Rs. 6,71,735 was received by the assessee by cheques, drafts or hundis by post." It will be convenient to mention here that when the Tribunal heard the parties for the purpose of making an agreed statement of the case, the Departmental Representative had no suggestion to offer but Mr. Kolah, who appeared for the assessee, informed the Tribunal that he wanted to rely on a very recent decision of the Supreme Court reported as Commissioner of Income‑tax v. Patney & Co. ((1959) 36I T R 488 (S C)) The Tribunal did not allow Mr. Kolah to urge that point at that stage observing that its duty was confined to carrying out the direction given by the Court in the order asking for a further supplemental statement of the case. The Tribunal has also observed that learned counsel wanted to make out an entirely new case for the assessee at that stage. We have referred to this because, as we shall presently point out, one of the principal contentions urged before us by Mr. Palkhivala, learned counsel for the assessee, has been that the ratio decidendi of Patney case, covers the facts of this case and that it was competent to the assessee to raise that contention before the Tribunal and it is also open to him to press that contention before us at the hearing of this reference. In order to appreciate the arguments urged before us on either side, it is necessary that certain facts relied on by the assessee as well as the Revenue should be set out here. We shall confine our resume of the facts to those which have bearing only on this question of express or implied request by an assessee to make payment by cheque, draft or hundi by post. A letter dated 12th July 1950, written by the assessee to the Income‑tax Officer, has been annexed as Annexure "B" to the first supplementary statement of the case. That letter is at page 11 of that paper book and the relevant part of it is as under "The arrangement with the merchants has been uniformly followed during the long course of conduct of business, that payments would be accepted (apart from cash) by cheques, hundis, drafts and these had to be sent by buyer to us at the mills. This arrangement is not specifically recorded in any formal written agreement, but, as mentioned above, has been agreed upon between the merchants and ourselves from the beginning of the business and adhered to in the course of conduct of business between us and the buyers (apart from the mercantile usage) over a long series of years. No formal record either in form of a stamped agreement or correspondence was necessary because the arrangement as mentioned in No. 1 was settled from the beginning of the business. This is proved by a long and uniform course of conduct of business, and the transactions during the year in question are all based on such uniform practice." Basically and principally it is this arrangement characterised as one emerging from an uniform practice, which is the pivotal point of the arguments before us on either side. Mr. Palkhivala has also relied on a statement made in an affidavit by the manager of the assessee mills on March 5, 1951, where he stated that it was in accordance with the same arrangement that the assessee company had to receive the cheques, hundis or drafts at Petlad and give credits to the merchants on the date of their receipt. A notice of motion has been taken out on behalf of the assessee company and by that notice of motion the assessee seeks, inter alia, an order from the Court that the facts and materials including the affidavits, which are referred to in the earlier supplemental statements of the case dated August 13, 1954, may be referred to by this Court as materials for the purpose of deciding this reference. Mr. Palkhivala informed us that he wanted to rely on certain affidavits, which were all of the same nature, and he has drawn our attention to the affidavit of Laxmishankar Harishankar Joshi which was made on May 17, 1950. After hearing learned counsel for the parties, we decided to take into consideration those affidavits, which, we are informed, are on the same lines. Paragraphs 2 and 4 of the affidavit of Laxmishankar Joshi are as under; "2. The terms and conditions on which our purchases were made were as per the usual and established practice of several mills in the Gujerat area. According to the practice acceptable to all buyers delivery was to be ex‑mill delivery and payment was to be made in Petlad in the usual manner, namely, by cash, cheque, draft or hundis as may be convenient to the sellers. 4. We had all these years made payments to the mills by sending them to Petlad, cheque, hundis or drafts and that was the accepted mode of payment between us as evident from the fact that every year in the course of dealings with them we had paid them accordingly." As we shall be presently pointing out, the arguments on the merits have principally turned before us on the arrangement men tioned in the letter of July 12, 1950, which we have already set out above, and the statements of Laxmishankar Joshi in the two paragraphs quoted above. Mr. G. N. Joshi, learned counsel for the Revenue urged before us at the very outset that little remains to be determined by us on this reference because the entire contention of the Revenue relating to an express or implied request by an assessee to make payment by cheques and thus constituting the post office its agent for the receipt of the moneys was decided by the Court in the judgment delivered by it on February 15, 1955, and that the further supplementary statement of the case was sent for on a very limited and narrow issue. The finding of fact on that narrow issue has been given by the Tribunal and is against the assessee. Therefore, so the argument has proceeded, we should answer the question straight off in favour of the Revenue. On the other hand, it has been argued by Mr. Palkhivala that the question so far as it relates to this third item of Ps. 6,71,735 has at no stage been answered by the Court and the expression of opinion by the Court while requiring a further supplementary statement of the case cannot be regarded as a decision of the Court and that opinion cannot be treated as one binding on us at the hearing of this reference. Now, it is true that a very clear opinion has been expressed by the learned Judges in that judgment of February 15, 1955. It is also true that in the judgment it is stated that the case of the Revenue stood on a higher footing than a request by a seller to the purchaser to send the amount by cheque, hundi or draft. It is also true that the learned Judges have observed in that judgment that there could not be the slightest doubt in this case that when the Mills‑company, which is situated at Petlad, requested merchants all over India to send the amounts by cheques, hundis or drafts, it impliedly was requesting the pur chasers to send the payment by cheques, hundis or drafts and that, therefore, the case fell within the purview of the ratio of the case of Ogale Glass Works decided by their Lordships of the Supreme Court. The opinion is certainly there. We are, how ever, of the view that the opinion cannot be regarded as binding on us and it is necessary for us, therefore, to examine the un disputed facts, which are the subject‑matter of the three statements of case before us and decide for ourselves the legal contention of the Revenue. It has been strenuously urged before us by Mr. G. N. Joshi that it is not open to us to embark on any such enquiry. It has also been said that we would be sitting in appeal over that judgment if we proceed to enquire into the merits of the contention. The contention, it has been said, has been disposed of for all practical purposes and we should confine the hearing of this reference to the very limited and narrow point in respect of which a finding has now been given by the Tribunal. In our view, however, as we have already mentioned, it is necessary that we should enquire into the matter before we can answer the ques tion in so far as it relates to the item which remains the subject -matter of the reference. A rather unusual, though interesting, contention is urged for our acceptance by Mr. Palkhivala, when he asks us to ignore the order made by this Court on February 15, 1955, at the time of the hearing of the reference for the second time. It is urged that the only question of law, which this Court could consider, was that which could be said to arise out of the order of the Tribunal when it decided the matter in the first instance. It is said that at that time no facts relating to any payment by cheque and no arrange ment subsequently spoken of by the assessee were before the Tribunal. In support of this contention reliance is placed on the decision of the Supreme Court in New Jehangir Vakil Mills Ltd. v. Commissioner of Income‑tax (1959) 37 I T R 11), where it was held that even though the terms of section 66 (4) are wide enough to comprise "such additions thereto or alterations therein as the Court may direct in that behalf", the scope of such directions has to be read in the context of and in conjunction with the provisions of section 66 (1) and (2), and under the guise of a direction under section 66 (4) the High Court cannot refer the case to the Tribu ral to find new facts or embark upon a new line of enquiry which would enable either the assessee or the Commissioner to make out a case which had never been made during the course of the proceedings before the income‑tax authorities or the Tribunal till the stage of making the reference. It is true that the scope of direc tions, which can be given by the Court is to be gathered from the language of section 66 (1) or section 66 (2) as the case may be. It is also true that section 66 (4) does not enable the High Court to raise a new question of law, which does not arise out of the Tribunal's order and it is not within the competence of the High Court in the exercise of its advisory jurisdiction to direct the Tribunal to investigate new or further facts necessary to determine any new question, which had not been referred to it under section 66 (1) or 66 (2) and direct the Tribunal to submit a supplemental statement of the case. The effect of the decision in New Jehangir Vakil Mills Ltd. v. Commissioner of Income‑tax, has been considered in a decision of this Court in Commissioner of Income tax v. Indore Malwa United Mills Ltd. ((1960) 39 I T R 438). There was a differ ence of opinion and the matter was ultimately referred to a third learned Judge. We should have found it necessary to refer to that case, but we have refrained from doing so because in our opinion it is not open to us to consider whether the order directing the further supplemental statements made by Chief Justice Chagla and Mr. Justice Tendolkar was or was not justified. We are bound to proceed on the footing that the order was rightly made. To accede to the suggestion of Mr. Palkhivala would be tanta mount to sitting in appeal over that order and we would not think of doing anything of the kind. Therefore, the present contention of Mr. Palkhivala must be negatived. The second line of argument of Mr. Palkhivala before us has been that we must take the finding of fact set out in the second supplementary statement as also other facts on record, which are not in dispute, and answer the question in so far as it relates to the item of Rs. 6,71,735. We have already set out in extenso the arrangement as pleaded by the assessee mills and the statements from the affidavit of Laxmishankar Joshi, which constitute the data for the present contention. The whole argument of Mr. Palkhivala has depended upon an instance that the arrange ment was that the payments should be made at the mills in Petlad and the greatest stress has been laid on the words "at the mills" in the sentence "The arrangement with the merchants has been uniformly followed during the long course of conduct of business, that payments would be accepted (apart from cash) by cheques, hundis, drafts and these had to be sent by buyer to us at the mills." It is urged that the company has in terms agreed by this arrangement to receive the cheques only at the Mills and at no other place. Then it is said that the company has not stated any where as part of this arrangement as to how the cheques, hundis or drafts were to be sent. Then it is said that the arrangement refers only to cheques, hundis and drafts and not to cash. This last argument evidently overlooks the words "apart from cash" set out in brackets. We agree that we must give due consideration to the words "at the mills" which feature in this arrangement, but the words have to be read in their proper context and there collocation and so read, it seems to us that we would not be justified in reading in this arrangement or infer from it any agreement to the effect that the payments were to be made at the mills. We have read and re‑read the arrangement as set out in the letter of July 12, 1950, and which is Annexure "B" to the first supplemental statement of the case and the preferable view seems to us to be that the company had agreed to payments being made by the buyers of goods in British India by sending cheques to the mills by post. It is now a well‑settled rule that it is not necessary in such cases that it should be expressly mentioned that the cheques should be sent by post. According to the course of business usage in general, to which as part of the surrounding circumstances, attention has to be paid by the Court, the parties, it must be held, must have intended that the cheques should be sent by post which is the usual and normal agency for transmission of such instruments and according to the Tribunal's findings now before us, they were in fact received by the assessee‑mills by post. The above stated rule is in accordance with the view expressed by their Lordships of the Supreme Court in the case of Ogale Glass Works Ltd. The statements from the affidavit of Laxmishankar Joshi, on which Mr. Palkhivala sought to place considerable reliance, do not carry the matter any further. If anything, what is stated in paragraph 4 of that affidavit goes to lend some support to the case for the Revenue. The deponent has there referred to the established practice of several mills and stated that the dealings between his firm and the assessee mills were in accordance with the same practice. No doubt it is true that in paragraph 2 he has stated that payment was to be made in Petlad in the usual manner, namely, by cash, cheque, draft or hundi as may be convenient to the sellers, but that cannot be read as anything more than his own view or opinion of the matter. His statement of fact is to be gathered from paragraph 4 of his affidavit and there he has stated in unequivocal terms that during all these years his firm had "made payments to the mills by sending them to Petlad, cheques, hundis or drafts and that was the accepted mode of payment between us". Of course, as we have already mentioned, we should give necessary weight to the words "at the mills" in the arrangement set out in the letter of July 12, 1950, but even after doing so and reading the arrangement as a whole and along with the other material to which our attention has been drawn, we find it difficult to accede to the argument of Mr. Palkhivala that here is a case of an express agreement, or if not express agreement, an implied agreement bet ween the parties to make payments at the mills in Petlad. It would require a good deal of wrestling with the language used by the assessee mills itself in that letter and to spell out any implied agreement would necessitate reading much more in the arrange ment than it seems permissible to us. We are, therefore, not prepared to read the arrangement in the manner urged before us by Mr. Palkhivala. The arrangement rests on a course of conduct of the parties and the uniform course of conduct of the parties admittedly was that the buyers in British India were to make payments by sending cheques, hundis or drafts by post to the mills, which were situated at Petlad. The cheques, hundis and drafts, if they were to be sent by post, had to be addressed to the assessee mills at Petlad. Our attention was drawn by Mr. Palkhivala to similar words in one or two other cases, but on a question of construction of an arrangement, it is never safe to rely on the language employed in another case and compare it with the language employed by the parties in the case before the Court. It would be most unsafe to seek guidance from another case simply because there is some similarity in the language used in the agreement and one which was the subject‑matter of determination in the other case. Confining our consideration to the arrangement before us and examining it in the light of the permissible surrounding circumstances, the conclusion to which we have reached is that there is in this case an arrangement authoris ing the buyers to make payments by cheques to be posted in places in British India addressed to the mills company at Petlad. The case before us is covered by the ratio of the decision of the Ogale Glass Works Ltd. decided by their Lordships of the Supreme Court. There is in the instant case an implied request by the asseesee company to the merchants in British India to send the amount by post and, in our opinion, the post office became the agent of the assessee mills for the purposes of receiving payments by cheques. We have not so far examined two of the decisions to which our attention was drawn by Mr. Palkhivala. Patney's case was a case where there was an express agreement to make payment at Secunderabad in cash or by cheque. That case does not lend any support to the argument urged before us on behalf of the assessee mills. Nor is there anything in the observations of their Lordships of the Supreme Court m the case of Shri Jagdish Mills Ltd. v. Com missioner of Income‑tax ((1959) 37 I T R 114, 121‑122) which advances that argument. It is not necessary to set out those observations as in our opinion they do not lend any support to the case of the assessee‑mills. Our answer to the question is that on the facts and in the circumstances of the case, the sum of Rs. 6,71,735 represents receipts by the assessee company of its sale proceeds in British India and includes a portion of its income in British India. The assessee‑mills to pay the Commissioner's cost of this reference. In substance we have allowed the notice of motion taken out by the assessee and, therefore, the Commissioner will pay the assessee's costs of the notice of motion. Reference answered accordingly.