AZAMJAHI MILLS LTD. HYDERABAD versus THE COMMISSIONER OF INCOME TAX, HYDERABAD

Citation: [1976] 3 S.C.R. 645 · Decided: 17-03-1976 · Supreme Court of India · Bench: HANS RAJ KHANNA · Disposal: Dismissed

Judgment (excerpt)

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AZAMJAHI MILLS LTD. HYDERABAD 
v. 
Tiffi COMMISSIONER OF INCOME TAX, HYDERABAD 
March 17, 1976 
[H. R. KHANNA AND P. K. GOSWAMI, JJ.] 
Income-tax-Assessee in Princely State-Payment by Government of India 
by cheque posted in British India-Whether receipt by assessee in British India 
liable to Indian Income Tax. 
The Government of India was placing bulk purchase orders with the asses-
see-company, a textile mill, which had, during the assessment years 1945-46, 
1946·47 and 1947-48, its registered office in the Hyderabad State outside British 
India. After the despatch of the goods, the assessee was submitting its bill in 
the prescribed form which also contained the receipt. The receipt had the 
words 'Please pay by cheque to self/Banker on Bank/Treasury at ...... • and 
the assessee used to enter the words 'Hyderabad (Dn), in the blank space after 
'at'. But on the back of the bulk purchase order form. there were ins true· 
tions that the payment was to be made by the Controller of Supply' Accounts, 
Bombay, and the Government of India had also issued general instructions to 
all textile mills in the Princely States that all payments were to be made 'by 
cheque on Government Treasury in Br. India, or alternatively on a branch in 
Br. India, which transacts Government business of the Reserve Bank of India. 
All payments were made on behalf of the Government of India by cheques 
which were sent to the assessee- by post. Some of the cheques were drawn 
on banks in Br. India and others on banks in the Hyderabad State . 
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HELD : The sale proceeds should be held to have been received by the 
assessee from the Government of India in British India and not in Hyderabad 
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State, and hence were subject to Indian income·tax. [647F-G] 
In the absence of a request by the creditor or an agreement between the 
parties regarding the sending of money by cheque by post, the mere posting 
of the cheque would not operate as delivery of the cheque to the creditor. 
Where, however, a cheque is sent by post in pursuance of an agreement bet-
ween the parties or a request by the creditor that the money be sent by cheque 
by post, the post office would be treated as the agent of the creditor for the 
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purpase of receiving such payment. Such an agreement or request need not 
be express and may be implied from the facts and circumstances. 
[648A-CI 
The facts of the case and the course of dealings show that it was the under-
standing between the Government of India and the assessee that the payment 
would be rllade on account of goods supplied by the assessee, by cheques. 
The cheques were in the very nature of things to be sent from British India 
by post as that is the usual and normal agency for transmis.sion. 
As 
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cheques were sent to the assesseee on behalf of the Government of India by 
post from British India in pursuance of an understanding between the parties, 
the payment to the assessee shall be treated to have been made in British India 
to the agent of the assessee. [647G-648A] 
Indo re Malwa United Mills Ltd. v. Commissioner of Incon1e-tax, 59 ITR 
738; Conunissioner of Income-tax, Bombay South, Bombay v. Ogale Glass-
Works Ltd., 25 !TR 529 and Shri lagdish Mills Ltd. v. Commissioner of Income. 
tax, 37 ITR 114, followed. 
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Commissioner of Income-tax, Bihar & Orissa v. Patney &: Co. 36 ITR 488, 
distinguished. 
646 
SUPREME COURT REPORTS 
(1976] 3 S.C.R. 
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CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 
980-982 
of 1971. 
Appeals by Special Leave from the Judgment and Order elated the 
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9-2-70 of the Andhra Pradesh High Court in case Referred No. 1 of 
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1967. 
R. Vasudev Pillai and P. K. Pillai for the Appellant. 
R. M. Mehta and S. P. Nayar, for the Respondent. 
The Judgment of the Court was delivered by 
KHANNA, J.-This judgment would disposed of three civil appeals 
Nos. 980 to 982 of 1971 which have been filed by special leave against 
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the judgment of the Andhra Pradesh High Court on a reference under 
section 66 of the Indian Income-tax Act, 1922 (hereinafter referred 
to as the Act) answering besides two other questions with which we 
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are not concerned, the following question against the assessee appellant -+ 
and in favour of the revenue : 
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"Whether, on the facts and in the circumstances of the 
case, the sale proceeds were received from Government of 
India in British India?" 
The assessee company is a public limited company registered in 
wha

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