The Commissioner of Income Tax vs P.M. Rathod and Co.

Samvatsar, J.—This is a reference by the Income Tax Tribunal at Delhi u/s 66(1), Income Tax Act. The facts which have given rise to the reference may be stated as follows:

The Assessee, Messrs. P.M. Pathod & Co., manufacture perfumes and hair oils at Ratlam and sell them to the customers all over India including Part A and Part C Stales.

In the assessment year 1950-51, i.e., accounting year 1949, the total sales effected by the Assessee amounted to Rs. 7,64,000/-, out of which goods of the value of Rs. 4,21,965/- were sold to the customers in Part A and Part C Slates, these goods were sold either on orders received horn the customers directly at Ratlam or on orders booked by the Assessee''s traveling agents.

Part of the sale proceeds were received by way of earnest or as advance payments with the orders, either in cash or by means of bank drafts. The remaining balance was received through post office, at Ratlam when the goods were dispatched by value payable parcels or through bank drafts when the goods were dispatched by the railways or otherwise. The details of the receipts are set out in the order of reference and are as follows:

I. On orders received from the customers directly:

Advances with orders in cash or bank drafts payable at Ratlam 8,458/- Through Ratlam post office in respect of goods dispatched by V.P.Ps. 1,09,686/- Bank drafts received by the Assesses at Ratlam but payable in Part A and C States 1,69,926/- ___________

2,88,070/- ___________

II. On orders booked by Traveling Agents outside Ratlam:

Advances with orders received by Traveling Agents 4,411/- Through Ratlam post office in respect of goods dispatched by V.P. Ps. 14,024/- Bank drafts received by the Assessed at Ratlam but payable in Part A and C States 1,15,450/- _____________ 1,33,885/- ______________ 4,21,955/-

The Income Tax Officer and the Appellate Assistant Commissioner held that the Assessee had received a sum of Rs. 4,21,955/- in Part A and Part C States and taxed the Assessee at the higher rates prevailing in those States. The Assessee appealed to tile Tribunal and it held that the sum of Rs. 1,36,579/-, which was received at Ratlam in cash or through post office, constituted payment received in Madhya Bharat and the balance of Rs. 2,85,376/-alone represented receipts in Part A States. The order of the Assistant Appellate Commissioner was accordingly modified by the tribunal.

Both the Commissioner and the Assessee were, not satisfied with the decision of the Tribunal and approached it for making a reference to the High Court u/s 66 of the Indian Income Tax Act. The tribunal agreed with the parties that questions of law arose from out of its appellate, order and referred the following two questions for the opinion of this Court:

(1) Whether receipts of sale-proceeds at Ratlam (which included the Assessee''s profits) in respect of goods sent by the Assessee to customers in Part A, or Part C States by Value Payable Parcel, amounted to receipt of income, profits or gains at Ratlam in Part B State?

(2) Whether bank drafts payable in Part A or Part C States, but received at Ratlam and encased through the Assessee''s bankers at Bombay, constitute receipts in Part A States?

The first question arises out of an application, by the Commissioner, whereas the second question is raised at the request of the Assessee.

Both the Part A and Part B States are now, included in taxable territories, but at the material time Part B States were governed by certain concessional rates. The Assessee therefore contended that the sums received at Ratlam through bank drafts or through post office for the V.P.Ps. were receiver in Part B States whereas the Income Tax Department claimed that these sums constituted payments received in Part A State and were assessable at the higher rates which applied to Part A and Part C States

On the first point, the contention raised on behalf of the Department is that tire sum of Rs. 1,23,710/- which was received at the post office at Ratlam for goods dispatched by V.P.P. should be treated as having been received in Part A and Part C States at the time when the goods were delivered to the addressee. Mr. Rajagopal Sastri, learned Counsel for the Commissioner advanced a two-fold argument to support this contention. Firstly, he urged that the V.P.P. System was introduced essentially for the convenience of the traders who wish to recover through the agency of the post office, the value of the articles supplied. The post office, where goods are sent by V.P.P. should be deemed to be the agent of the dispatcher and the receipt by the postal authorities of the value of the parcels from the addressee, should be treated as having been received as agents of the seller.

Secondly, the learned Counsel urged that the sum of Rs. 1,23,710/- received by the Assessee for goods dispatched by V.P.P. should be deemed to have accrued in Part A and Part C States when the parcels were delivered to the addressee. This argument was based on the assumption that until, the parcels were actually delivered, the property in the goods remained with the seller.

In support of the first contention Mr. Sastri referred to Rule No. 133 framed by the Governor-General-in-Council in exercise of the powers conferred by Section 35, Post Offices Act. Rule No. 133 is as follows:

The V.P. system is designed to meet the requirements of persons who wish to pay for articles sent to them at the time of the receipt of the article or of the bill or railway receipt relating to them and also to meet the requirements of the traders and others who wish to recover, through the agency of the post office, tire value of articles supplied by them.

(sic) reading of this rule shows that the V.P. (sic) was introduced to serve the convenience of (sic) party and from the rule itself it cannot be said (sic) the post office is an agent of one party or the (sic) when the goods are sent by V.P.P.

Test the determine whether in a given (sic) the post office is an agent of the buyer or seller, laid down by the Supreme Court in Commr. of Income Tax v. Ogale Glass Works Ltd. AIR 1954 SC 29 (A). That was a case where the Assessee, a manufacturer of glassware in Aundh Stale, had supplied some good to the Government of India during the war period and had received the price of these goods by cheques posted from Delhi. The payment was made by cheques by the Government on the Assessee''s own request that remittance should be made by cheques. The Assessee actually received these cheques in Aundh State and cashed them through its bankers at Bombay.

On these acts the Assesses contended that the post office was the agent of the sender and the payment must be deemed to have been received in Aundh State where the cheques were in fact received by the sellers. The plea of the Assessee found favour with the High Court of Bombay. In appeal filed by the Commissioner, the Supreme Court reversed the decision and held that

There can be no doubt that as between the sender and tire addressee it is the request of the addressee that the cheques lie sent by post that makes the post office the agent of (he addressee. After such a request, the addressee cannot be heard to say that the post office was not his agent and therefore the loss of the cheque in transit must fail on the sender on the specious plea that the sender having the very limited right to reclaim die cheque under the Post Offices Act, 1898, the post office was his agent, when in fact there was no such reclamation. Of course if there be no such request, express or implied, then the delivery of the letter or the cheque to the post office is delivery to the agent of the sender himself.

The other case directly in point is the decision of the House of Lords in The Badische Anilin Und Soda Fabrik v. The Basle Chemical Works, Bindschedler (1898) AC 200 (B) which has been referred with approval by the Supreme Court in The Commissioner of Income Tax, Bombay South, Bombay Vs. Ogale Glass Works Ltd., Ogale Wadi, . In that case a trader in England ordered goods from a foreign manufacturer '' in Switzerland to be sent by post to England. The manufacturer addressed the goods to the trader in England and delivered them to the Swiss Post Office by whom they were forwarded to England. The goods were manufactured according to an invention protected by English Patent.

In an action brought against the infringement of the Patent for injunction and consequential relief, the Swiss manufacturer (sic) that he had done no act in the United Kingdom and had not made, used, exercised or voided the invention within die United Kingdom. The trial Court granted the injunction but the decree was reversed by the Court of Appeal. The Plaintiff appealed to the House of Lords. The decision of the Court of Appeal was maintained. Lord Halsbury. L. C. observed that

it appear that the seller said in pursuance of the order from the buyer to a particular carrier named - I 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. In this particular case therefore, there is a named carrier who, by the direction of the buyer, receives the goods on behalf of the buyer.

It is not necessary that the carrier should have been named. If, according to the ordinary course of delivery, the carrier would be the person who would receive it, that would be just as good, for the purpose of the argument, as if the carrier had been actually named but we have not to consider that question here, because the carrier is named. 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 orders of the buyer to a named carrier, from that moment the goods vest in the buyer.

This decision lays down that the Post Office is in the position of a carrier in respect of parcels delivered for transmission and will be deemed to be the agent of die party at whose instance or on whose order the parcels were delivered. In commercial dealings it is not necessary to name the carrier, if according to the ordinary course, the carrier would be the person to receive the goods. No difficulty, however, arises when the carrier is named, for goods are then deemed to have been received by him as the agent of the party naming him.

In view of this authoritative pronouncements it is not possible to uphold the contention that the payment received for V. P. parcels at the destination of the addressee was received by the post office as an agent of the seller, unless it was established that this mode of dispatching goods was adopted on the request of the seller. Here there is nodding to show that the request for sending goods by V.P.P. had emanated from the Assessee.

It appears from the record of this case that the goods are supplied to the buyers in pursuance of orders placed by them either directly or through the Assessee''s traveling agents. The goods were delivered to die post office at Ratlam according to die specific directions of the buyers. Under the circumstances it must be held that the post office was acting as the buyer''s agent in collecting the value of the parcels.

In this view it is unnecessary to discuss the authorities cited by Mr. Sastri, the learned Counsels for the Income Tax Department. The learned Counsel relied upon these authorities to show that the post office occupied in law the position of the agent of the seller. Most of those are criminal cases and have no bearing on the facts of this case. Reference may however be made to a decision of the Madras High Court in Mothi Bungaya Chetty v. The Secretary of State ILR 28 Mad 213(C).

In that case a suit was filed against the Secretary of State for India by a person who had sent some silver jewellery by V.P. Parcel but had not received Lack either the parcel or its value. In defence reliance was placed on the proviso to Section 34, Indian Post Office Act which provides that the Government shall not incur any liability in respect of the sum specified for recovery unless & until that sum has been received from the addressee. It was held that the effect of the proviso is that the post office does not guarantee the collection of money, but it does not absolve from the common law liability to pay damages of delivering the parcel without collecting the money.

It is not at all clear from the facts of this case whether the parcel was dispatched by V.P.P. fit the instances of the buyer or by the seller of his own accord. The Maura decision under the Circumstances can have no hearing on the point involved in this reference.

The next contention raise. Mr. Sastri is that the sum of Rs. 1,23,710/- which represented the price of the goods sent lo the buyers in Part A or Part C states should be deemed to have accrued in those States when the parcels were delivered. ''The learned Counsel contended that until the (sic) was delivered the property in goods remained with the seller. It was urged that the sale could not be completed until the property in goods was transferred. It was argued that SO long as the goods were in them it was open to the Assessee, as the sender of the goods, to take them back and to dispose them of in any other manner.

Whether the title to the goods remained with the seller until the parcel was delivered to the addressee is a question which would depend open the facts and circumstances of each ease. In the absence of anything else, the property in the goods is transferred when the goods are appropriate inwards the particular contract and delivered to the post office pursuant to the order received from the buyer for being transmitted to him. The mere fact that the goods remained with the carrier until delivery or even against payment, cannot be sufficient to hold that the seller had a right to dispose them of in any other manner he liked.

In the present case there is nothing on record to indicate that the right of disposal was retained by the seller and that the ownership in the goods was not transferred when they were delivered to the post office for being carried over to the addressee.

Then there is another hurdle in the way of the Department. The department did not press its claim for taxing the Assessee on sales amounting to its. 1,23,710/- on the basis that the profits end gains had accrued in Part A or part G States. This is clear from the appellate judgment of the tribunal. In paragraph 4 of its judgment the tribunal be while dealing with the argument of the Assessee with reference to paragraph 6 of the Part B States Taxation Concessions Order, 1950 observed "that the concession engaged therein relates to income, profits and gains which accrued or arose in Part B States, and went on to state that the inclusion of item under review was not on the basis of accrual but on the basis of receipt.

The question, which is the place where the income accrued or must be deemed to have accrued is thus: a question which, was not raised before the ''tribunal'' and does not arise out of its appellate order the Requisite facts on which this contention is based are also not to be found in the order of the tribunal, nor are they to be found in the record before us. It is not possible therefore to entertain the contention of Mr. Rajgopal Sastri the place of delivery of the V. P. Parcel to the addressee is the place where the title to the properly Prasad and become accrued to the Assessee.

The answer to the first question (sic) there-fore be in the affirmative, i.e., against the Department and in favour of the Assessee.

The second question raised is, whether the bank drafts received at Ratlam and cashed through the Assessees bankers at Bombay, constitute receipts in Part A States. ''This question was raised at the request of the Assessee and does not present much difficulty in view of the Supreme Court''s decision in The Commissioner of Income Tax, Bombay South, Bombay Vs. Ogale Glass Works Ltd., Ogale Wadi, , with which I shall deal here-'' after.

The contention raised by the Department before the tribunal appears to be that the sum of Rs. 2,85,376/- should be assumed to have been received " by the Assessee at Bombay for the simple reason that the drafts for this amount though received at Ratlam were cashed at Bombay.

Mr. Sastri, learned Counsel for the Department contended that there was no sufficient data to answer this question. He submitted that to deal with the point properly, it was necessary to know at whose instance the payment for goods was made by drafts and at what stage these drafts were given. The learned Counsel suggested that we should therefore refer the case back to the tribunal for further statement of facts. There is no doubt that the High Court has powers u/s 66 Sub-section (iv), Income Tax Act, to require the tribunal to make a supplementary statement.

But it can be done only if the point raised arises, out of the order of the tribunal in appeal u/s 33, Income Tax Act.

It is not open to the High Court to allow the parties to raise contentions which do not legitimately arise out of the tribunal''s order. The request of the Department for referring the case back to the tribunal does not therefore deserve to be considered.

The tribunal has found that the drafts were received by the Assessee at Ratlam but were cashed through the bank at Bombay. On this tribunal held that the money was received by the Assessee in Part A State. The tribunal seems to be of the view that the receipt of drafts was not equivalent to receipt of cash and did not Constitute an unconditional discharge to the payee. This view of the tribunal can no longer be supported.

It is conceded on behalf of the Department that a draft like a cheque or Hundi or bill of exchange, is a negotiable instrument, and has money''s worth. Even though it is collected at Bombay, being a negotiable instrument, it could have been negotiable & cash obtained by the Assessee at Ratlam if he had cared to do so. In Kirloskar Bros. Ltd. Vs. Commissioner of Income Tax, Bombay, , the High Court of Bombay had to Consider a similar argument.

In that case the Government of India had purchased some goods manufactured by the Assessee Company in Aundh State. The price was paid by the Government of India by cheques drawn on the Reserve Bank of India which were dispatched from Delhi as desired by the seller. The cheques water received in Aundh but were cashed through the asseesee''s bank in Bombay. It was contended for the Commissioner that the receipt of cheques did not constitute receipt of the sale proceeds because it was not an unconditional payment and the liability of the payee was not discharged until the cheques were cashed.

It was further contended that payment was received only when cheques were cashed and must therefore be deemed to have been received in Bombay, The High Court repelled this line of argument and, held that that Assessee received payment on the dates the cheques were delivered to it. This view of the High Court of Bombay was upheld by the Supreme Court in The Commissioner of Income Tax, Bombay South, Bombay Vs. Ogale Glass Works Ltd., Ogale Wadi, , Das J. with whom other learned Judges agreed, observed:

The position, therefore, is that in one view of the matter there was, in the circumstances of this case, an implied agreement under which the cheques were accepted unconditionally as payment and on another view, even if the cheques were taken conditionally, the cheques not having been dishonoured but having been cashed, the payment related back to the dates to the receipt of the cheques and in law the dates of payments were the dates of the delivery of the cheques.

In Income Tax Commer. v. Ogale Glass Works Ltd. (A) the Supreme Court thus pointed out that a cheque was as good as payment in cash and constituted receipt of income at the place and time when It was received by or on behalf of the Assesses. In view of this decision it is no longer open to doubt that the place where the payment is received is in law the place: where the drafts were received by the Assessee. Unlike Ogale Glass Works case (A) it is not even suggested here that, the drafts were sent at the request of the Assessee, nor is there any material before us to hold like, that.

It is in evidence that the banks on which the draft were sent and through whom the railway recipts were delivered, were nominated by the buyers. They could not under the circumstances be deemed to be the agents of the seller merely because in compliance with the instructions of the buyers railway receipts or documents of title to the goods were delivered through these banks.

For the reasons stated above, the answer to the second question must be in the negative, i.e. against the Department and in favour of the Assessee.

As the reference is answered in favour of the Assessee, he will have the costs of this reference from, the.: Commissioner. Advocates ices shall be taxed at Rs. 100/-.

Shinde, C.J.

I agree.