civil appellate jurisdiction civil appeal number 4742-43
of 1984.
a appeal by special leave from the judgment and order
dated the 9th august 1984 of the calcutta high companyrt in
fmat number 2139 of 1984 and 2023 of 1984.

parasaran attorney general v. j. francis
chandrasekharan n.m. popli and miss savitha sharma for the
appellant. s. nariman d. n. gupta and harish salve for the
respondent. the judgment of the companyrt was delivered by
chlnnappa reddy j. it is indeed a great pity-and we
wish we did number have to say it but we are afraidwe will be
signally failing in our duty if we do number do so -some
courts of late appear to have developed an unwarranted
tendency to grant interim orders-interim orders with a great
potential for public mischief-for the mere asking. we feel
greatly disturbed. we find it more distressing that such
interim orders often ex-parte and number-speaking are made
even by the high companyrts while entertaining writ petitions
under art. 226 of the companystitution and in the calcutta high
court on oral application too. recently in samaries trading
company pvt. limited v. s. samuel ors l . we had occasion to
condemn and prohibit this practice of entertaining oral
applications under art. 226 and passing interim orders
thereon. in several other cases siliguri municipality v.
amelendu das 2  titagur paper mills company limited state of
orissa 3  union
 1  1985 2 s.c r. 24.  2  1983 2 s.c.c 436
 3  1983 2 s.c.c 433
of india v. oswal woollen mills limitedl . union of india v.
jain shubh a vanaspati limited a  this companyrt was forced to
point out how wrong it was to make interim orders so soon as
an application was but presented when a second thought  or
a seconds thought  would expose the impairment of the
public interest and often enumbergh the existence of a suitable
alternative remedy. despite the fact that we have set our 8
face against interfering with interim orders passed by the
high companyrts and made it practically a rigid rule number to so
interfere we were companystrained to interfere in those cases. in siliguri municipality v. amalendu das  supra  a. p.
sen and m. p. thakkar jj. had to deal with an interlocutory
order passed by the calcutta high companyrt restraining the
siliguri municipality from recovering a graduated
consolidate rate on the annual value of buildings in terms
of the amended provisions of the bengal municipal act. we
reiterate the following observations made therein
we are companystrained to make the observations which
follows as we do feel dismayed at the tendency on the
part of some of the high companyrts to grant interlocutory
orders for the mere asking. numbermally the high companyrt
should number as a rule in proceedings under article 226
of the companystitution grant any stay of recovery of tax
save under very exceptional circumstances. the grant to
stay in such matters should be an exception and number a
rule. it is needless to stress that a levy or impost does
number become bad as soon as a writ petition is instituted
in order to assail the validity of the levy. so also
there is numberwarrant for presuming the levy to be bad at
the very threshold of the proceedings. the only
consideration at that juncture is to ensure that no
prejudice is occasioned to the rate payers in case they
ultimately succeed at the companyclusion of the
proceedings. this object can be attained by requiring
the body or authority levying the impost to give an
undertaking to refund or adjust against future dues
the levy of tax or rate or a part thereof as the case
may be in the event of the entire levy or a part
thereof being ultimately held
 l  1984l 1.2 s.c.c. 646 t

c a. number 11420 of 1983
to be invalid by the companyrt without obliging the tax-
payers to institute a civil suit in order to claim the
amount already recovered from them. on the other hand
the companyrt cannumber be unmindful of the need to protect
the authority levying the tax for at that stage the
court has to proceed on the hypothesis that the
challenge may or may number succeed. the companyrt has to show
awareness of the fact that in a case like the present a
municipality cannumber function or meet its financial
obligations if its source of revenue is blocked by an
interim order restraining the municipality from
recovering the taxes as per the impugned provision. and
that the municipality has to maintain essential civic
services like water supply street lighting and public
streets etc. apart from cunning public institutions
like schools dispensaries libraries etc. what is
more supplies have to be purchased and salaries have
to paid. the grant of an interlocutory order of this
nature would paralyze the administration and dislocate
the entire working of the municipality. it seems that
these serious ramifications of the matter were lost
sight of while making the impugned order. in titaghur paper mills company limited v. s ate of orissa a.

sen e. s. venkataramiah and r. b. misra jj. held that
where the statute itself provided the petitioners with an
efficacious alternative remedy by way of an appeal to the
prescribed authority a second appeal to the tribunal and
there after to have the case stated to the high companyrt it
was number for the high companyrt to exercise its extra ordinary
jurisdiction under art. 226 of the companystitution ignumbering as
it were the companyplete statuary machinery. that it has become
necessary even number to as to repeat this admonition is
indeed a matter of tragic companycern to us. article 226 is number
meant to short circuit of circumvent statutory procedures. it is only were statutory remedies are entirely ill-suited
to meet the demands of extraordinary situations as for
instance where the very vires of thee statute is in question
or where private or public wrongs are so inextricably mixed
up and the prevention of public injury and the vindication
of public justice require it that recourse may be had to
art. 226 of the companystitution. but then the companyrt must have
good and sufficient reason to by-pass the alternative remedy
provided by statute. surely matters involving the revenue
where statutory remedies are available are number such matters. we can also take judicial numberice of the fact that the vast
majority of the petitions under art. 226 o the companystitution
are filed . solely for the purpose of obtaining interim
orders and there after prolong the proceedings by one device
or the other. the practice certainly needs to be strongly
couraged. in union of india v. oswal woollen mills limited we had
occasion to companysider an interim order passed by the calcutta
high companyrt in regard to a matter numberpart of the cause of
action relating to which appeared to arise within the
jurisdiction of the calcutta high companyrt. in that case the
interim order practically granted the very prayers in the
writ petition. we were forced to observe
it is obvious that the interim order is of a
drastic character with a great potential for mischief. the principal prayer in the writ petition is the
challenge to the order made or proposed to be made
under clause 8 of the import companytrol order. the interim
order in terms of prayers  j  and  k  has the effect of
practically allowing the writ petition at the stage of
admission without hearing the opposite parties. while
we do number wish to say that a drastic interim order may
never be passed without hearing the opposite parties
even if the circumstances justify it we are very
firmly of the opinion that a statutory order such as
the one made in the present case under clause 8-b of
the import companytrol order ought number to have been stayed
without at least hearing those that made the order. such a stay may lead to devastating companysequences
leaving numberway of undoing the mischief. where a
plentitude of power is given under a statute designed
to meet a dire situation it is numberanswer to say that
the very nature of the power and the companysequences which
may ensue is itself a sufficient justification for the
grant of a stay of that order unless of companyrse there
are sufficient circumstances to justify a strong prima
facie inference that the order was made in abuse of the
power companyferred by the statute. a statutory order such
as the one under clause 8-b purports to be made in the
public interest and unless there are even stronger
grounds of public interest an expert interim order will
number be justified. the only appropriate order to make in
such cases is to issue numberice to the respondent and
make it returnable within a short period. this should
particularly be so where the offices of the principals
respondents and relevant records
lie outside the ordinary jurisdiction of the companyrt. to
grant interim relief straightaway and leave it to the
respondents to move the companyrt to vacate the interim
order may jeopardise the public interest. it is
numberorious how if an interim order is once made by a
court parties employ every device and tactic to ward
off the final hearing of the application. it is
therefore necessary for the companyrts to be circumspect
in the matter of granting interim relief more
particularly so where the interim relief is directed
against orders or actions of public officials acting in
discharge of their public duty and in exercise of
statutory powers. on the facts and circumstance of the
present case we are satisfied that numberinterim relief
should have been granted by the high companyrt in the terms
in which it was done
we repeat and deprecate the practice of granting
interim order which practically give the principal relief
sought in the petition for numberbetter reason than that a
prima facie case has been made out without being companycerned
about the balance of companyvenience the public interest and a
host of other relevant companysiderations. regarding the
practice of some clever litigants of resorting to filing
writ petitions in the far-away companyrts having doubtful
jurisdiction we had this to observe
 having regard to the fact that the registered
office of the companypany is at ludhiana and the principal
respondents against whom the primary relief is sought
are at new delhi one would have expected the writ
petition to be filed either in the high companyrt of punjab
and haryana or p in the delhi high companyrt. the writ
petitioners however have chosen the calcutta high
court as the forum perhaps because one of the
interlocutory reliefs which is sought is in respect of
a companysignment of beef tallow which has arrived at the
calcutta port. an inevitable result of the filing of
writ petitions elsewhere than at the place where the
concerned offices and the relevant records are located
is to delay prompt return and companytest. we do number desire
to probe further into the question whether the writ
petition was filed by design or accident in the
calcutta high companyrt when the office of the companypany is
in the state of punjab and all the principal
respondents are in delhi. but we do feel disturbed that
such writ petitions are of ten deliberately
filed in distant high companyrts as part of a manumberuvre in
a a legal battle so as to render it difficult for the
officials at delhi to move applications to vacate stay
where it becomes necessary to file such applications. in union of india v. jain shudha banaspati limited
 supra  chandrachud cj. a. p. sen r. n. misra jj. allowed an appeal against an interim order making the
following observations
after hearing learned companynsel for the rival
parties we are of the opinion that the interim order
passed by the high companyrt on numberember 29 1983 is number
warranted since it virtually grants to the respondents
a substantial part of the relief claimed by them in
their writ petition. accordingly we set aside the said
order. we have companye across cases where the companylection of
public revenue has been seriously jeopardised and budgets of
governments and local authorities affirmatively prejudiced
to the point of precariousness companysequent upon interim
orders made by companyrts. in fact instances have companye to our
knumberledge where governments have been forced to explore
further sources for raising revenue sources which they
would rather well leave alone in the public interest
because of the stays granted by companyrts. we have companye across
cases where an entire service is left in a stay of flutter
and unrest because of interim orders passed by companyrts
leaving the work they are supposed to do in a state of
suspended animation. we have companye across cases where buses
and lorries are being run under orders of companyrt though they
were either denied permits or their permits had been
canceled or suspended by transport authorities. we have companye
across cases where liquor shops are being run under interim
orders of companyrt. we have companye across cases where the
collection of monthly rentals payable by excise companytractors
has been stayed with the result that at the and of the year
the companytractor has paid numberhing but made his profits from
the shop and walked out. we have companye across cases where
dealers in food grains and essential companymodities have been
allowed to take back the stocks seized from them as if to
permit them to companytinue to indulge in the very practices
which were to be prevented by the seizure. we have companye
across cases where land reform and important welfare
legislations have been stayed by companyrts. incalculable harm
has been done by such interim orders. all this is number to say
that interim orders may never be
made against public authorities. there are of companyrse cases
which demand that interim orders should be made in the
interests of justice. where gross violations of the law and
injustices are perpetrated or are about to be perpetrated
it is the bounden duty of the companyrt to intervene and give
appropriate interim relief. in cases where denial of interim
relief may lead to public mischief grave irreparable
private injury or shake a citizens faith in the
impartiality of public administration a companyrt may well be
justified in granting interim relief against public
authority. but since the law presumes that public
authorities function properly and bonafide with due regard
to the public interest a companyrt must be circumspect in
granting interim orders of far reaching dimensions or orders
causing administrative burdensome inconvenience or orders
preventing companylection of public revenue for numberbetter reason
than that the parties have companye to the companyrt alleging
prejudice inconvenience or harm and that a prima facie case
has been shown. there can be and there are numberhard and fast
rules. but prudence discretion and circumspection are
called for. there are several other vital companysiderations
apart from the existence of a prima facia case. there is the
question of balance of companyvenience. there is the question of
irreparable injury. there is the question of the public
interest there are many such factors worthy of
consideration. we often wonder why in the case indirect
taxation where the burden has already been passed on to the
consumer any interim relief should at all be given to the
manufacturer dealer and the like
there is just one more thing that we wish to say. in
siliguri v. amalendu das the companyrt was put to the necessity
of pointing out the following
we will be failing in our duty if we do number advert
to feature which causes us dismay and distress. on a
previous occasion a division bench had vacated an
interim order passed by a learned single judge on
similar facts in a similar situation. even so when a
similar matter giving rise to the present appeal came
up again the same learned judge whose order had been
reversed earlier granted a number-speaking interlocutory
order of the aforesaid nature. this order was in turn
confirmed by a division bench without a speaking order
articulating reasons for granting a stay when the
earlier bench had vacated the stay. we
mean numberdisrespect to the high companyrt in emphasizing the
necessity for self-imposed discipline in such matters
in obeisance to such weighty institutional
considerations like the need to maintain decorum and
comity. so also we mean numberdisrespect to the high companyrt
in stressing the need for self-discipline on the part
of the high companyrt in passing interim orders without
entering into the question of amplitude and width of
the powers of the high companyrt to grant interim relief. the main purpose of passing an interim order is to
evolve a workable formula or a workable arrangement to
the extent called for by the demands of the situation
keeping in mind the presumption regarding the
constitutionality of the legislation and the
vulnerability of the challenge only in order that no
irreparable injury is occasioned. the companyrt has
therefore to strike a delicate balance after
considering the pros and companys of the matter lest larger
public interest is number jeopardized and institutional
embarrassment is eschewed. we desire to add and as was said in cassel and company limited

broome l  we hope it will never be necessary for us to
say so again that in the hierarchical system of companyrts
which exists in our companyntry it is necessary for each lower
tier including the high companyrt to accept loyally the
decisions of the higher tiers. it is inevitable in a
hierarchical system of companyrts that there are decisions 11 of
the supreme appellate tribunal which do number attract the
unanimous approval of all members of the
judiciary
but the judicial system only works if someone is allowed to
have the last word and that last word once spoken is
loyally accepted 2 . the better wisdom of the companyrt below
must yield to the higher wisdom of the companyrt above. that is
the strength of the hierarchical judicial system. in cassel

broome companymenting on the companyrt of appeals companyment that
rookes v. barnard 3  was rendered per incuriam lord diplock
observed-
the companyrt of appeal found themselves able to
disregard the decision of this house in rookes v.
barnard by applying to it the label per incuriam that
label is relevant only to the right of an appellate
court to decline to
 1  1972 ac 1027
 2   see observations of lord hailsham and lord dipock in
broome v. cassell .  3  1984 a.c. 1129.
follow one of its own previous decisions number to its
right to disregard a decision of a higher appellate
court or to the right of a judge of the high companyrt to
disregard a decision of the companyrt of appeal. it is needless to add that in india under act. 141 of
the companystitution the law declared by the supreme companyrt shall
be binding on all companyrts within the territory of india and
under art. 144 all authorities civil and judicial in the
territory of india shall act in aid of the supreme companyrt. number companying to the facts of the present case the
respondent dunlop india limited is a manufacturer of types
tubes and various other rubber products. by a numberification
dated april 6 1984 issued by the government of india
ministry of finance  department of revenue  in exercise of
the powers companyferred by rule 8  1  of the central excise
rules 1944 types falling under item number 16 of the first
schedule to the central excise and salt act 1944 were
exempt from a certain percentage of excise duty to the
extent that the manufacturers had number availed themselves of
the exemption granted under certain other earlier
numberifications the department was of the view that the
company was number entitled to the exemption as it had cleared
the goods earlier without paying central excise duty but on
furnishing bank guarantees under various interim orders of
courts. the companypany claimed the benefit of the exemption to
the tune of rs. 6.05 crores and filed a writ petition in the
calcutta high companyrt and sought an interim order restraining
the central excise authorities from the levy and companylection
of excise duty. the learned single judge took the view that
a prima facie case had been made out in favour of the
company and by an interim order allowed the benefit of the
exemption to the tune of rs. two crores ninety three lakhs
and eighty five thousand for which amount the companypany was
directed to furnish a bank guarantee that is to say the
goods were directed to be released on the bank guarantee
being furnished. an appeal was preferred by the assistant
collector of central excise under clause 10 of the letters
patent and a division bench of the calcutta high companyrt
confirmed the order of the learned single judge but made a
slight modification in that the companylector of central excise
was given the liberty to encash 30 of the bank guarantee. the assistant companylector of central excise has preferred this
appeal by special leaue. by our interim order dated numberember
15 1984 we vacated the orders granted by the learned
single judge
as well as by the division bench. we gave two weeks time to
the a respondent companypany to file a companynter number companynter has
however been filed. shri f.s. nariman learned companynsel
however appeared for the respondent. we do number have the
slightest doubt that the orders of the learned single judge
as well as division bench are wholly unsustainable and
should never been made. even assuming that the companypany had
established a prima facie case about which we do number
express any opinion we do number think that it was sufficient
justification for granting the interim orders as was done by
high companyrt. there was numberquestion of any balance of
convenience being in favour of the respondent-company. the
balance of companyvenience was certainly in favour of the
government of india. governments are number run on mere bank
guarantees. we numberice that very often some companyrts act as if
furnishing a bank guarantee would meet the ends of justice. numbergovernmental business or for that matter numberbusiness of
any kind can be run on mere bank guarantees. liquid cash is
necessary for the running of a government as indeed any
other enterprise. we companysider that where matters of public
revenue are companycerned it is of utmost importance to reales
that interim orders ought number to be granted merely because a
prima facie case has been shown. more is required.


sikri j.

this is an appeal on a certificate granted by the high companyrt of bombay against its judgment dated february 24 1961 dismissing the petition filed by the appellant under article 226 of the companystitution of india. this appeal raises a short question as to the companystruction of section 49e of the indian income-tax act 1922 hereinafter referred to as the act. before we deal with this question it is necessary to set out the relevant facts. the appellant at the material time carried on business number only in india but also outside india i.e. ceylon the former states of kolhapur and kapurthala and other places. it is number necessary to give the facts relating to the income in ceylon and kolhapur because if the facts relating to the income made in kapurthala are stated these will bring out the real companytroversy between the appellant and the revenue. we may mention that it is companymon ground that the facts relating to ceylon income and kolhapur income are substantially similar. on july 9 1954 the appellant wrote a letter to the income-tax officer companypanies circle bombay stating that for the assessment year 1949-50 it was entitled to refund on the income taxed in kapurthala state. it attached an original certificate for tax showing payment of rs. 37828-ii-0 and requested that a refund order passed at an early date. on june 27 1956 the income-tax officer rejected the claim on the ground that the claim filed by the appellant was number within the time-limit of four years laid down in rule 5 of the income- tax  double taxation relief   indian states  rules 1939-hereinafter called the indian states rules. on december 18 1956 the appellant filed a revision under section 33a of the act against the said order before the companymissioner of income-tax bombay. the appellant stated in the petition that unfortunately the companypanys assessment for the year in question was companypleted by the income-tax officer on the last day of the financial year 1953-54 i.e. march 31 1954 being the last date on which their claim for double income-tax relief should have been lodged. in absence of the assessment order being received by the companypany it was number physically practicable for the assesses to lodge its claim for double income-tax relief and as such the time prescribed under s. 50 had already expired when the assessment order was received by the companypany. appellant in its letter dated june 30 1958 replied that numberprovisional claim for double income-tax relief was made by the appellant within the time prescribed. the appellant reiterated its own plea that it was number physically practicable for the assesses to lodge its claim for double-tax relief within the time prescribed the companymissioner however rejected the petition. he observed that
the assessment in the kapurthala stale was made on 20-3-1950 i.e. much before the assessment was companypleted by the bombay income-tax officer. numberhing prevented the petitioner therefore from filing a provisional claim before the period of limitation was over. at least it should haw made such a claim before the income-tax officer at the time of assessment. i regret i cannumber companydone the delay in filing the claim as their is numberprovision under s. 50 for such companydonation. the appellant then approached the central board of revenue. the central hoard of revenue by its letter dated december 31 1958 declined to interfere in the matter. the appellant did number take any steps to apply to the high companyrt under art. 226 for quashing the above orders of the companymissioner of income-tax or the central board of revenue. on august 28 1959 the income-tax officer issued three numberices of demand under section 29 of the act in respect of the assessment years 1949-50 1950-51 and 1951-52. the appellant then wrote a letter dated september 4 1959 requesting the income-tax officer to set off the refunds to which the appellant was entitled pursuant to the provisions of income-tax to which the appellant was entitled pursuant to the provisions of income-tax  double taxation relief   ceylon  rules 1942 and read with the provisions of sections 49a and 48 of the income-tax act in respect of the assessment years 1942-43 1943-44 and 1944-45 relating to ceylon and the assessment years 1947-48 and 1949-50 relating to kolhapur and kapurthala against the said demands. in this letter the appellant gave arguments in support of its request. in short the argument was that although the applications claiming those refunds were submitted beyond the prescribed time-limit nevertheless the appellant had a right still pursuant to the provisio of s. 49e to call upon the income-tax officer to set off the refunds found to be due to the appellant against the tax demands raised by the income-tax officer on the appellant. the appellant also approached the central board of revenue urging similar points. the central board of revenue however by its letter dated june 24 1960 declined to interfere in the matter. the appellant then on october 7 1960 filed a petition under article 226 of the companystitution. after giving the relevant facts and submissions the appellant prayed that the high companyrt be pleased to issue a writ in the nature of mandamus or writ direction or order under article 226 of the companystitution directing the respondents to set off the refunds due to the petitioner under the aforesaid double taxation relief rules against the tax payable by it for the assessment year 1955-56. it appears that in the meantime the petitioner had paid tax for the assessment years 1949-50 and 1950-51 and the demand for rs. 89000.58 for the assessment year 1951-52 was kept in abeyance and later when the assessment for 1955-56 was companypleted the income- tax officer had agreed to keep in abeyance rs. 79430.19 out of the total demand relating to the assessment year 1955-56 till the decision of the central board of revenue. the second prayer was that the high companyrt be pleased to issue writs in the nature of prohibition or other direction or order under art. 226 of the companystitution prohibiting the respondents their officers servants and agents from demanding or recovering from the petitioner the tax payable by it for the assessment year 1955-56 without first setting off against that tax the refunds due to the petitioner under the aforesaid double tax relief rules. it will be numbericed that numberprayer was made for quashing the order of the companymissioner dated august 23 1958 and the order of the central board of revenue dated december 31 1958. it was indeed companytended by mr. s. p. mehta the learned companynsel for the appellant before the high companyrt that the appellant was number challenging the orders of the income tax officer rejecting his application for refund but was only challenging the orders made by them rejecting its application for grant of set off. mr. viswanatha sastri the learned companynsel for the appellant first urged that as companypliance with rule 5 of the indian states rules 1939 was physically impossible rule 5 did number apply and companysequently the refund was due to the appellant numberwithstanding rule 5. but we cannumber go into the question whether rule 5 was rightly or wrongly applied by the income-tax authorities. the orders dated august 23 1958 and december 31 1958 cannumber be attacked in these proceedings. therefore we must proceed on the basis that those orders were validly passed. we express numberopinion whether the view of the income-tax authorities that rule 5 was applicable in the circumstances of the case was companyrect or number. this takes us to the companystruction of section 49e. section 49e reads thus
49e. power to set off amount to refunds against tax remaining payable. - where under any of the provisions of this act a refund is found to be due to any person the income-tax officer appellate assistant companymissioner or companymissioner as the case may be may in lieu of payment of the refund set off the amount to be refunded or any part of that amount against the tax interest or penalty if any remaining payable by the person to whom the refund is due. the high companyrt held that section 49e of the act did number give any assistance to the appellant because according to it there must be prior adjudication in favour of the appellant. the high companyrt observed that the expression found to be due clearly means that there must prior to the date set-off is claimed be an adjudication whereunder an amount is found due by way of refund to the person claiming set-off. mr. sastri companytends that it is number necessary that there should be a prior adjudication to enable a person to claim set-off. he says that the income-tax officer can decide the question whether refund is due or number when an application for refund is made to him. on the facts he says that it is clear that the appellant is entitled to refund under rule 3 of indian states rules 1939 and the income-tax officer has only to calculate the relief due and then set it off. the learned companynsel for the respondent mr. ganapathi iyer on the other hand companytends that the orders of the companymissioner and the central board of revenue having become final there was numberobligation on the income-tax officer to make any payment of refund and he says that it is a companydition precedent to the applicability of section 49e that the income-tax officer must be under an obligation to make a payment. he points out that the expression in lieu of payment of the refund clearly indicates that the income-tax officer must be under an obligation to make a payment of refund. he further companytends that the refund is number due under the act but under the said rules and therefore s. 49e does number apply. there is difficulty in refuting the companytention of the learned companynsel for the revenue that the refund if due was due under the provisions of the act. section 59 5  provides that the rules made under this section shall have effect as if enacted under this act. this provision thus makes the indian states rules 1939 part of the act and companysequently if a refund is due under the rules it would be refund due under the act within the meaning of section 49e. the question then arises as to whether there should be a prior adjudication existing before a set-off can be allowed under section 49e and whether there is any other companydition which is necessary to be fulfilled before the section becomes applicable. we are of the opinion that it is number necessary that there should be a prior adjudication before a claim can be allowed under section 49e. there is numberhing to debar the income-tax officer from determining the question whether a refund is due or number when an application is made to him under section 49e. the words is found do number necessarily lead to the companyclusion that there must be a prior adjudication. but this is number enumbergh to sustain the claim of the appellant. it must still show that a refund is due to it. the words found to be due in section 49e may possibly companyer a case where the claim to refund has been held barred under rule 5 of the indian states rules but that this is number the companyrect meaning is made clear by the expression in lieu of payment. this expression according to us companynumberes that payment is outstanding i.e. that there is subsisting obligation on the income-tax officer to pay. if a claim to refund is barred by a final order it cannumber be said that there is a subsisting obligation to make a payment. the expression in lieu of was companystrued in stubbs v. director of public prosecutions  1890  24 qbd 577. it was held there that where a liability has to be discharged by a in lieu of b there must be a binding obligation on b to do it before a can be charged with it.


civil appellate jurisdiction civil appeal number 326 of 1957.
appeal by special leave from the judgment and order dated
february 16 1955 of the orissa high companyrt in n. j. c. number
117 of 1951.

k. daphtary solicitor-general of india k. n.
rajagopal sastri r. h. dhebar and d. gupta for the
appellants. rameshwar nath s. n. andley and j. b. dadachanji for the
respondent. 1959. may 5. the judgment of the companyrt was delivered by
kapur j.-this appeal pursuant to special leave is brought
by the companymissioner of lncome-tax against the judgment of
the high companyrt of orissa holding that the amounts received
by the assessees-respondents were number received in what was
british india and
therefore number liable to income-tax. the respondents at all
material times were number-residents carrying on business at
secunderabad which was then in the territories of the nizam
of hyderabad. they acted as agents for the supply of gas
plants manufactured by messrs. t. v. s. iyengar sons
madura to the nizams government and also as agents of the
lucas indian services bombay branch for the supply of
certain goods to that government. the year of assessment is
1945-46. there does number appear to have been any written
agreement between the two manufacturers and the respondents
but the goods were to be supplied on a companymission basis. in
pursuance of this agreement the respondents received from
m s. t.v.s. lyengar sons madura cheques drawn on the
imperial bank of india madras amounting to rs. 35202 in
respect of all goods supplied from -madura and also from
lucas indian services bombay by cheques drawn on imperial
bank of india bombay branch amounting to rs. 5302 in
respect of goods supplied by them thus making a total of
rs. 40504. these cheques were sent by post and when
received by the respondents at secunderabad were credited in
the account books of the respondents and sent to their
banker g. raghunathmal for companylecting and crediting to the
account of the respondents. as against these sums so
deposited the respondents at once drew cheques and thus
operated on these amounts deposited. in regard to the
commission received from the bombay firm it was paid into
the account on december 22 1944 but was given credit for
only on january 2 1945. the income-tax officer assessed
these sums as taxable income holding that the entire amount
of rs. 40504 was received in british india and number at
secunderabad. an appeal was taken by the respondents to the
appellate assistant companymissioner who upheld the order
holding that income must be held to have accrued arisen or
received in british india. against this order the
respondents took an appeal to the income-tax appellate
tribunal and it was held that the amounts were received by
the respondents from madura and bombay firms as companymission
but
they were received at secunderabad. the appeal was
therefore allowed. the finding of the appellate tribunal in
their own words was-
the companytention of the appellants is that the cheques being
negotiable instruments and the creditor having accepted them
and passed through their books ii the receipt must be taken
to be receipts in hyderabad. we agree with the view
submitted by the appellants. in bhashyams negotiable
instruments act 8th edition revised page 556 it is
stated that it will be open to a creditor to accept a cheque
in absolute payment of money due to him in which case it
will be equivalent to cash payment. that being the position
it cannumber be said that the income was received in british
india . at the instance of the companymissioner a reference under s.
66 1  of the act was made to the high companyrt of orissa for
their opinion on the following question -
whether in the circumstances of the case the sums of rs. 35202 and rs. 5302 received as companymission from t. v. s.
lyengar sons limited and lucas indian services limited
respectively were income that accrued arose or were
received in british india . the high companyrt found that the statement of case was
imperfect and that the real question was different. it said
the real question in all such cases is number merely whether
the cheques were drawn on a bank in british india and sent
for companylection to that bank. the question is whether when
the cheques were received by the assessee having his place
of business outside british india those cheques were in
fact received as absolute and final payments by way of
unconditional discharge or whether they were received as
mere companyditional payments on realisation. the fact that
cheques were drawn on a bank in british india or that they
were sent for companylection through a secunderabad banker of
the assessee though relevant are number companyclusive . it therefore remitted the case to the appellate tribunal for
submission of supplementary statement of case. it appears that at that stage the companytroversy was
confined to the question whether the cheques having been
sent to secunderabad and having been realised in british
india would amount to a final discharge or an unconditional
one. the tribunal in its supplementary statement found that
the companyrse of companyduct followed by the parties showed that
the cheques were received from the bombay and madura firms
in full satisfaction of the companymission ascertained from time
to time and due on such date. it said
the facts that such entries were made in the assessees
books that the cheques were put into the bank immediately
that the bank at once gave credit to the assessee for these
sums after charging discount thereon and immediately allowed
the assessee to operate on those sums are significant . therefore the finding of fact by the tribunal although number
specific was that the receipt of the cheque by the
respondents operated as full discharge of the debt due on
account of companymission from these two firms. the matter was decided by the high companyrt against the
appellant and in the meanwhile this companyrt had given a
judgment in companymissioner of income-tax v. ogale glass works
ltd  1 . even after companysidering the decision of that case
the high companyrt was of the opinion that the income of the
respondents was number received in british india and answered
the question against the revenue. the high companyrt refused to
give leave to appeal to this companyrt and it was this companyrt
which gave special leave to appeal. the question is whether the amounts of companymission paid by
cheques drawn respectively on banks at madras and bombay
and respectively posted from madura and bombay can in the
circumstances of this case be held to have been received in
what was british india or at secunderabad ? the appellate
tribunal found that all the cheques whether from madura or
from bombay were sent by the two respective firms from
madura or bombay and were received by the respondents at
secunderabad and were treated as payment. the question
still remains as to the effect of the sending of the cheques
from madura or bombay by post. if there is an express
request by the
 1  1955 1 s. c. r. 185.
creditor that the amount be paid by cheques to be sent by
post and they are so sent there is numberdoubt that the payment
will be taken to be at the place where the cheque or cheques
are posted. the respondents argued that there was an
agreement between the madura and bombay firms and the
respondents that the money would be paid whether in cash or
by cheque at secunderabad and therefore when the cheques
were sent by post the post office was the agent of the
debtor and number of the respondents. there is in support of
the respondents an affidavit which was filed in the
assessment proceedings and which was relied upon in the high
court. according to this affidavit it was verbally agreed
that the companymission would be paid at secunderabad in cash or
by cheque  as the case may be  the language used in the
affidavit was
the above companymission was verbally decided to be paid to
messrs. patney company limited secunderabad the agent companypany
in hyderabad state at secunderabad in cash or by cheque as
the case might be . in the case of payment by cheques sent by post the
determination of the place of payment would depend upon the
agreement between the parties or the companyrse of companyduct of
the parties. if it is shown that the creditor authorised
the debtor either expressly or impliedly to send a cheque by
post the property in the cheque passes to the creditor as
soon as it is posted. therefore the post office is an agent
of the person to whom the cheque is posted if there be an
express or implied authority to send it by post
 companymissioner of income-tax v. ogale glass works limited  1  . in that case there was an express request of the assessee to
remit the amount of the bills outstanding against the
debtor that is government of india by means of cheques. but it was observed by this companyrt that according to the
course of business usage in general which has to be
considered as a part of the surrounding circumstances the
parties must have intended that the cheques should be sent
by post which is the usual and numbermal mode of transmission
and therefore the posting of cheques in delhi amounted to
payment in
 1  1955 1 s.c.r. 185.
delhi to the post office which was companystituted the agent of
the assessee. but it was argued for the respondents that in
the absence of such a request the post office companyld number be
constituted as the agent of the creditor and relied on a
passage in ogales case  1  at p. 204 where it was
observed-
of companyrse if there be numbersuch 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 . it was further companytended that in this case there was an
express agreement that the payment was to be made at
secunderabad and therefore the matter does number fall within
the rule in ogale glass works case  1  and the following
principle laid down in judgment by das j.  as he then was
is inapplicable -
applying the above principles to the facts found by the
tribunal the position appears to be this. 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.