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NON-REPORTABLE                                              

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.   90       OF 2013 (ARISING OUT OF S.L.P. (C) NO.31546 OF 2008)

DIRECTOR OF INCOME TAX (EXEMPTION), NEW DELHI          .....APPELLANT.

        VERSUS

RAUNAQ EDUCATION FOUNDATION    ....RESPONDENT

J U D G M E N T

ANIL R. DAVE, J.

1) Delay condoned.   

2) Leave granted.

3) Being  aggrieved  by  an  order  passed  in  ITA  

No.150 of 2008 by the High Court of Delhi at New  

Delhi, the Revenue has filed this appeal.

4) The facts giving rise to the present appeal in a  

nutshell are as under:

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5) The  respondent-assessee  is  a  trust,  who  was  

treated as an AOP by the Assessing Officer for the  

assessment  year  2002-2003 by an order  dated  

24th May, 2005 and exemption under Sections 11  

& 12 of the Income Tax Act [hereinafter referred  

to as “the Act”] had not been continued.  Being  

aggrieved  by  the  said  order  of  the  Assessing  

Officer,  the  respondent-assessee  had  preferred  

an appeal before the Income Tax Commissioner.  

The  Income  Tax  Commissioner  was  pleased  to  

dismiss the appeal by an order dated 29th May,  

2005.   Being  aggrieved  by  the  said  order  of  

dismissal,  the respondent-assessee had filed an  

appeal before the Income Tax Appellate Tribunal,  

Delhi Bench “F” at New Delhi.  The said appeal,  

being ITA No.2657/DEL/2006, was allowed by an  

order dated 09th March, 2007.  Being aggrieved  

by  the  said  order,  the  Revenue  had  filed  ITA  

No.150 of 2008 before the High Court of Delhi at  

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New  Delhi  which  had  been  dismissed.   Being  

aggrieved by the dismissal of the said appeal by  

an  order  dated  04th March,  2008,  the  Revenue  

has filed the present appeal.   

6) The facts of the case pertain to the assessment  

year  2002-2003  of  the  respondent  assessee.  

During  the  relevant  accounting  year  i.e.  2001-

2002,  the  respondent-assessee  had,  by  way  of  

donation,  received  two  cheques  for  a  sum  of  

Rs.40 lac each from M/s Apollo Tyres Ltd.  One of  

the cheques was dated 22nd April, 2002 and yet it  

was  given  in  accounting  year  2001-2002  i.e.  

before  31st March,  2002.   The  said  cheque  for  

donation  was  received  by  the  respondent-

assessee  before  31st March,  2002  but  was  

honoured after 1st April,  2002 i.e. in accounting  

year 2002-2003.   

7) In  the  assessment  proceedings,  the  Assessing  

Officer  came  to  the  conclusion  that  with  an  

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intention to do undue favour to M/s Apollo Tyres  

Ltd., the cheque dated 22nd April, 2002, given by  

way of donation for a sum of Rs.40 lac had been  

accepted by the respondent-assessee and receipt  

for the said amount was also issued before 31st  

March,  2002  i.e.  in  the  accounting  year  2001-

2002.  According to the Assessing Officer, many  

of the trustees of the assessee trust were related  

to the directors of M/s Apollo Tyres Ltd. and so as  

to give undue advantage under the provisions of  

Section  80G  of  the  Act,  the  cheque  had  been  

accepted  before  31st March,  2002  although  the  

cheque  was  dated  22nd April,  2002.   Thus,  by  

accepting  a  post  dated  cheque  and  by  giving  

receipt  in  the  earlier  accounting  year,  the  

assessee  trust  had  done  undue  favour  and,  

therefore,  the  Assessing  Officer  observed  as  

under in para 8 of the Assessment Order :  

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“…This  has been primarily  done with the sole  objective  of  giving  advantage  to  the  donor  company M/s Apollo Tyre Ltd. in which the main  trustees  and their  relatives  were substantially  interested as per provisions of section 13 (3) of  the I.T. Act, 1961.  This is clearly in violation of  provisions of section 13(2) (d) (h) and as such  exemption u/s 11 and 12 cannot be allowed to  the assessee and the assessment will be made  in the status of AOP.  With these remarks the  income is computed as under…”

8) As stated hereinabove, the appeal which was filed  

against the assessment order had been dismissed  

and the second appeal  filed  before  the Income  

Tax  Appellate  Tribunal  by  the  respondent-

assessee had been allowed by an order dated 09th  

March, 2007.

9) The  Tribunal,  after  hearing  the  concerned  

advocates, came to the conclusion that there was  

no violation of the provisions of Sections 13 (2)

(b) & 13(2)(h) of the Act and the assessee trust  

had  not  acted  in  improper  and  illegal  manner.  

The Tribunal noted the fact that the amount of  

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donation  i.e.  Rs.40  lac  received  by  way  of  a  

cheque  dated  22nd April,  2002  was  treated  as  

donation  receivable  and  accordingly  accounting  

treatment  was given to  the said  amount.   The  

said amount was not included in the accounting  

year  2001-2002  as  donation  but  was  shown  

separately  in  the  balance  sheet  as  amount  

receivable  by  way of  donation.   Moreover,  M/s  

Apollo Tyres Ltd. had also not availed benefit of  

the said  amount  under  Section  80G of  the Act  

during  the  accounting  year  2001-2002 but  had  

availed  the benefit  only  in  the  accounting year  

2002-2003, the period during which the cheque  

had been honoured and the amount of donation  

was  paid  to  the  assessee  trust.   For  the  

aforestated  reason,  the  appeal  filed  by  the  

assessee was allowed.

10) Being aggrieved by the aforesaid order passed in  

the  appeal,  the  Revenue  had  filed  Income Tax  

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Appeal No.150 of 2008 in the High Court of Delhi.  

The  said  appeal  has  been  dismissed  and,  

therefore, the present appeal  has been filed by  

the Revenue.

11) The learned counsel  appearing for  the Revenue  

submitted that the High Court committed an error  

by dismissing the appeal.  According to him there  

was breach of Section 13(2)(b) and 13(2)(h) and  

he further submitted that though the cheque was  

dated  22nd April,  2002  it  was  given  by  way  of  

donation in the earlier accounting year for which  

the assessee trust had issued a receipt and as the  

trustees  of  the  assessee  trust  and  directors  of  

M/s  Apollo  Tyres  Ltd.  were  closely  related,  an  

effort  was  made  by  the  assessee  trust  to  do  

undue favour to M/s Apollo Tyres Ltd.

12) On the other hand, the learned counsel appearing  

for  the assessee  submitted  that  no illegality  or  

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irregularity of whatsoever type was committed by  

the assessee  trust  and he had relied  upon the  

reasons  recorded  by  the  Income Tax  Appellate  

Tribunal so to substantiate his case.  He further  

submitted that the post dated cheque for Rs.40  

lac was given before 31st March, 2002 i.e. during  

the accounting year 2001-2002 and the cheque  

was  duly  honoured  in  April,  2002 when it  was  

presented  before  the  collecting  bank.   As  the  

cheque had been honoured and the amount was  

paid to the assessee trust, the date of payment of  

cheque should be treated as the date on which  

the  cheque  was  given.   Had  the  cheque  been  

dishonoured,  things  would  have  been  different  

but as the cheque had been duly honoured, as  

laid  down  by  this  court  in  the  case  of  The  

Commissioner  of  Income-Tax,  Bombay  

South,  Bombay vs.   Messrs.  Ogale  Glass  

Works Ltd., Ogale Wadi (1955 (1), SCR page  

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185),  it  will  have  to  be  presumed  that  the  

amount  was  paid  on  the  date  on  which  the  

cheque  was  given  to  the  respondent  assessee  

and, therefore, it cannot be said that any undue  

favour was done by the respondent-assessee to  

M/s Apollo Tyres Ltd.

13) Upon hearing the learned counsel for the parties,  

we  find  certain  undisputed  facts.   It  is  not  in  

dispute that though the assessee trust had issued  

receipt  when it  received the cheque dated 22nd  

April, 2002 for Rs.40 lac in March, 2002, it was  

clearly  stated  in  its  record  that  the  amount  of  

donation  was  receivable  in  future  and  

accordingly, the said amount was also shown as  

donation receivable in the balance sheet prepared  

by the assessee trust as on 31st March, 2002.  It  

is also not in dispute that M/s Apollo Tyres Ltd.  

did not avail any advantage of the said donation  

during  the  accounting  year  2001-2002.   Upon  

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perusal  of  the  Assessment  Order  of  M/s  Apollo  

Tyres Ltd. for the assessment year 2002-2003, it  

is  clearly  revealed  that  the  cheque  dated  22nd  

April, 2002 was not taken into account for giving  

benefit under Section 80G of the Act as the said  

amount was paid in April, 2002, when the cheque  

was honoured.   The assessment  order  showing  

the above fact is a part of the record, which we  

have carefully perused.   

14) The  submission  made  on  behalf  of  the  

respondent-assessee is supported by this court in  

the case of M/s Ogale Glass Works Ltd. (supra).  

Relying  upon  other  authorities,  this  court  

observed as under in the aforesaid case :

“…When it is said that a payment by negotiable  instrument  is  a  conditional  payment  what  is  meant  is  that  such  payment  is  subject  to  a  condition  subsequent  that  if  the  negotiable  instrument is dishonoured on presentation the  creditor  may  consider  it  as  waste  paper  and  resort  to  his  original  demand  :  Stedman  v.  

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Gooch (1793) 1 Esp.5.  It is said in Benjamin on  Sale, 8th Edition, page 788 :-

“The payment takes effect from the delivery  of the bill, but is defeated by the happening of  the condition, i.e., non-payment at maturity.”

In Byles on Bills, 20th Edition, page 23, the  position is summarised pithily as follows :

“A cheque, unless dishonoured, is payment.”

To the same effect are the passages to be  found in Hart on Banking, 4th Edition, Volume I,  page 342.  In Felix Hadley & Co. v. Hadley (L.R.   (1898)  2  Ch.D.680,  Byrne  J.  expressed  the  same  idea  in  the  following  passage  in  his  judgment at page 682 :

“In  this  case  I  think  what  took  place  amounted to a conditional payment of the debt;  the  condition  being  that  the  cheque  or  bill  should be duly met or honoured at the proper  date.  If that be the true view, then I think the  position is exactly as if an agreement had been  expressly made that the bill  or cheque should  operate  as  payment  unless  defeated  by  dishonour or by not being met; and I think that  that  agreement  is  implied  from  giving  and  taking the cheques and bills in question.”

The following observations of Lord Maugham  in  Rhokana  Corporation  v.  Inland  Reveue  Commissioners (L.R. [1938] AC 380 at p.399)   are also apposite:

“Apart from the express terms of section 33,   sub-section  1,  a  similar  conclusion  might  be   

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founded on the well known common law rules   as to the effect of the sending of a cheque in   payment of a debt, and in the fact that though   the  payment  is  subject  to  the  condition  subsequent  that  the cheque must  be  met  on  presentation,  the  date  of  payment,  if  the   cheque  is  duly  met,  is  the  date  when  the   cheque was posted.”

In the case before us none of the cheques   has  been  dishonoured  on  presentation  and  payment  cannot,  therefore,  be  said  to  have  been  defeated  by  the  happening  of  the  condition  subsequent,  namely  dishonour  by   non-payment and that being so there can be no   question, therefore, that the assessee did not   receive payment by the receipt of the cheques.   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  of  the receipt  of  the cheques and in  law the   dates  of  payments  were  the  dates  of  the  delivery of the cheques.”

15) Looking  into  the  aforestated  undisputed  facts,  

and the view expressed by this court in the case  

of M/s Ogale Glass Works Ltd. (supra), we are of  

the view that no irregularity had been committed  

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by the assessee trust and there was no violation  

of the provisions of Sections 13(2)(b) or 13(2)(h)  

of the Act.  The fact that most of the trustees of  

the assessee trust and the directors of M/s Apollo  

Tyres Ltd. are related is absolutely irrelevant.  

16) Upon careful perusal of the order passed by the  

Tribunal, we do not find any error therein.  We  

are,  therefore,  in  agreement  with  the  view  

expressed  by  the  Tribunal  as  well  as  the  High  

Court and, therefore, the appeal is dismissed with  

no order as to costs.

..............................J.                               (R.M. LODHA)

                                      ..............................J.

                             (ANIL R. DAVE)

New Delhi January 07, 2013                

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