THE issues before the Bench are - Whether when the assessee-Trust receives donation vide post-dated cheque encashable in the next accounting year but issues receipt for the same and also the fact that the donor claims such donation only in the accounting year in which cheque was honoured, it can still be said that assessee violated the provisions of Sec 13(2)(b) or 13(2)(h); Whether payments made by a negotiable instrument take effect from the date of its delivery; Whether such a payment is a conditional payment and Whether the fact that the trustees and the Directors of the donee company are related parties, is irrelevant in such a case. And the ruling goes against the Revenue.
Facts of the case
Assessee is a trust, which was treated as an AOP by the AO, during assessment, for the AY 2002-2003 and exemption u/s 11 & 12 had not been continued. Being aggrieved by the said order of the AO, the assessee had preferred an appeal
before the CIT. As the appeal filed before the CIT was rejected, assessee had filed further appeal before the Tribunal. After consideration of facts, the Tribunal had allowed the assessee's contention. Thus the Revenue had filed an appeal before HC which was dismissed.
During the relevant accounting year, the 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 assessee before 31st March, 2002 but was honoured after 1st April, 2002. In the assessment proceedings, the AO held that with an 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 assessee and receipt for the said amount was also issued before 31st March, 2002. According to the AO, 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, 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. The Tribunal held that there was no violation of the provisions of Sections 13 (2)(b) & 13(2)(h) and the assessee trust had not acted in improper and illegal manner. It was noted that the amount of 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 u/s 80G 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. Thus, the appeal filed by the assessee was allowed.
Before HC, the Revenue's counsel submitted that the HC committed an error by dismissing the appeal. According to him there was breach of Section 13(2)(b) and 13(2)(h) and it was 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. On the other hand, the assessee's counsel submitted that no illegality or irregularity of whatsoever type was committed by the assessee trust and he had relied upon the reasons recorded by the 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 CIT, Bombay South, Bombay vs. Messrs. Ogale Glass Works Ltd., 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 assessee to M/s Apollo Tyres Ltd.
Having heard the matter, the Supreme Court held that;
++ 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 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 u/s 80G as the said amount was paid in April, 2002, when the cheque was honoured;
++ in the case of M/s Ogale Glass Works Ltd. HC had observed that 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. Gooch (1793) 1 Esp.5. It is said in Benjamin on Sale, that 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 Felix Hadley & Co. v. Hadley (L.R. (1898) 2 Ch.D.680), the justice observed that 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 observations of Lord Maugham in Rhokana Corporation v. Inland Reveue Commissioners (L.R. [1938] AC 380 at p.399) are also apposite. It was observed that apart from the express terms of section 33, sub-section 1, a similar conclusion might be 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. Looking into the aforestated undisputed facts, and the view expressed by this court in the case of M/s Ogale Glass Works Ltd., we are of the view that no irregularity had been committed by the assessee trust and there was no violation of the provisions of Sections 13(2)(b) or 13(2)(h). 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. 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 HC and, therefore, the appeal is dismissed with no order as to costs.
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