KIRLOSKAR BROS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) WE directed the Tribunal in this reference to submit a supplementary statement of the case, and that statement has now been furnished to us. The question that arises for determination is as to whether a certain sum of money was received by the assessee in British India so as to make it liable to tax.

(2.) THE assessee is a non-resident company, and it is not disputed that its liability to pay tax depends upon receipt of income within British India. THE receipt took the form of cheques being sent by Government to Aundh where the assessee carried on business, these cheques being on a bank in Bombay; and we asked the Tribunal to find as to whether the cheques were received by the assesses in full satisfaction of the debt of the Government of India to them, and whether the Government debt was discharged by the acceptance of these cheques by the assessee. We also asked them to find whether the cheques received by the assessee were sent to their bank for collection and the bank acted as agents for collection and the amounts were collected in British India. Now it is sufficient to dispose of this reference on the first finding.

(3.) I shall presently turn to the authorities, but it seems to me that once it is accepted that what is liable to tax as income is not necessarily receipt of cash but receipt of anything which can be looked upon as money's worth then it is difficult to understand why a cheque is not as much money's worth as any goods or chattels received in lieu of money. The test of an article being money's worth must be that the article is capable immediately of being realised into money. And that particular quality is possessed by all negotiable instruments. The mere fact that an instrument is negotiable means that, by means of transfer, by means of negotiation, or by means of endorsement, the person who holds the negotiable instrument can get money for it. In this case also, the assessee company, instead of sending the cheque received by it from the Government to its bankers to be cashed, could have negotiated it in Aundh itself and got the money for the cheque. Therefore, on principle, and apart from authorities, there seems to be no reason why a cheque should stand on a different footing from any other article of which it could be said that it is money's worth. It is also well settled in commercial practice, as I shall presently point out, that a cheque is looked upon as a payment if a creditor accepts a cheque in place of the country's currency: if he accepts the cheque, then he is paid, although the payment may not be an unconditional discharge. But the only condition is that, if the cheque is not cashed, then the liability of the debtor will continue; but if the cheque is cashed, then the payment is not as of the date when the cheque is cashed but it is of the date when the cheque was given to the creditor. Therefore, if we were to apply the principles of commercial practice, the assessee company was paid and it received the payment on the date when it received the cheque from the Government of India and not on the date when the cheque was cashed by the bank. That again seems to me should be so, because it stands on a very clear principle; it cannot be left to the assessee to determine when he has received payment by his mere act of sending the cheque to the bank to be cashed at any time that he likes. An assessee may get a cheque on a particular date and he may not choose to cash it for a week or a fortnight or a month; but it cannot be said that the payment takes place on the date when the assesses chooses to have the cheque cashed. The payment has already taken place, and the payment continues to be of that date. If the cheque is cashed in the ordinary course, nothing further has got to be done; but if the cheque is dishonoured, then the liability of the debtor revives and he is liable to make the payment.