SUPREME COURT HEFORTS [1953]

1953 c:liscretion of the courts below in re.(using to grant ,, d--L ' relief against forfeiture . ..L\ ani ea 011.'m, an Lodhi The result, therefore, is that this appeal fails and is v. dismissed with costs.

NaNnadabai

an; d Others.

Ma, y 7.

Appeal dismissed.

Agent for appellant: R. A. Govind.

Agent for respondents: Rajinder Narain.

NATIONAL SEWING THREAD CO. LTD. v.

JAMES CHADvVICK & BROS. LTD. (J. & P. COATS LTD., Assignee) REGISTHAR OF THADE MAHKS-Intervener. [MEHR CHAND MAHA.JAN, VIVIAN BosE and

JAGANNADHA DAS JJ.]

Trade Marks Act, 1940, ss. 8, 76-Application for registration of trade mark -Dismissal by Registrar -Appeal to High Co11rt-

Jttdgment of Single Jnd.ge--TVhether appealable to Division Bench- Lettcrs Patent (Bombay), cl. 15--Government of India Act, 1915, s. ZOS-Constit11tion of India, 1950, s. 226-Power of Registrar w reject application if nirirk is likely to deceive ot cause confusion- Decision in passina ofl action, whether conclitisivc.

Section 76(1) of the Trade Marks Act, 1940, provides that an appeal shall lie from any decision of the Registrar under the Act or the rules made thereunder, to the High Court having jurisdiction, but the Act did not make any provision with regard to the procedure to be followed by the High Court in the appeal or as to whether the order of bhe High Court was appealable: Held, that the High Court had to exercise its appellate jurisdiction under s. 76 of the Act in the same manner as it exercised its other appellate jurisdiction, and \vhen such jurisdiction was exercised by

a Single Judge, his judgment was appealable under cl. 15 of the

letters Patent.

National Televhone Co. v. Postmaster General ([l 913] A.C. 546), R. M.A. R. A. Adaikavva Chettiar v. Ra. Chandrasekham Thevor (74 I.A. 264), Secretary of State v. Chellikani Ram'" Rao (I.L.R. 39 Mad. 617) referred to.

The power conferred by s. 108 of the Government of India Act, 1915, on tbe High Courts, of making rules for the exercise of their jurisdiction by Single Judges or by Divisio~ Courts could be exercised not only in respect to such jurisdiction

as the High Court~ possessed when the Act of 1016 came into 1933 force but also in respect of jurisdictions conferred on the High -- Court by subsequent legislation, e.g., s. 76 of the Trade :\larks Act . .Vational Sewing

Coder the rules of construction enunciated in s. 8 of the Thread Go. Ltd.

Genernl Clauses Act and s. 38 of the Interpretation Act, which v. . are of general application, the reference to s. 108 of the Govern Jrunes Chadwick ment of India Act, 1915, in cl. 15 of the Letters Patent should, awl Bros. Ltd. after the enactment of the Constitution of 1950, be read as reference to the corresponding provisions of art. 225 of the Constitution.

The ambit of the power conferred on the High Courts by s. 108 of the Government of India Act, 1915, is not limited by s. 106(1) of the said Act or by cl. 16 of the Letters Patent of the Calcutta High Court.

Indian Electric Works v. RIJ!listrar of Trade Marks (A.LR. 194 7 Cal. 49) overruled.

Secretary of State v. Jlask & Co. (67 I.A. 222) and the Gttrdwara Case (63 I.A. 180) distinguished.

The respondents, a company registered in England, manufactured sewing thread with the device of an Eagle with outspread wings kno\vn as the "Eagle l\fark" as their trade mark, and since 1896 this thread was being sold in the Indian markets on an ex-

Lensi \'e scale.

The appellants, a company registered in India, began in 1940 to sell sewing thread with the device of a bird resembling an eagle with wings fully spread out with the words

"Eagle Brand" as their mark.

On the objection of the respondents the appellants subsequently changed the name to "Vulture Brand" without changing the mark in other respects. The respondents instituted an action against the appellants for passing off, but that was dismissed.

The appellants subsequently applied for registration of their trade mark but their application was dismissed by the Registrar on the ground that the appellants' mark so nearly resembled the respondents' mark as to be likely to deceive the public and cause confusion.

This order was reversed by a Single Judge of the High Court of Bombay but restored on appeal by a Division Bench: Held (i) that the judgment of the Division Bench upholding the order of the Registrar rejecting the application, on the ground that the mark was likely to deceive and cause confusion, was right;

(ii) that the considerations relevant in a passing off action are somewhat different from those which are relevant in an application for registration of a trade mark under the Trade Marks Act, and the earlier judgment of the High Court in the action for passing off \Vas not conclusive on the matter. ·

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 135 of 19.52.

Appeal from the Judgment and Order dated the 19th March, 1951, of the High Court of Judicature at

l030 siJ:PREME coun:r REPORTS [1953j

19;3 Bombay in Appeal No. 95 of 1950 aiising from the . - . Order dated the 28th August, 1950, of the said High

~~~' 0 ':;/0

8'"/::i;9 Court exercising its Ordinary Original Civil J urisdicre v. o. tion in Civil Miscellaneous No. 2 of 1950.

James Oluuiwick Bishan Narain (Sri Narain Andley with him) for and Bros. Ltd. the appellants.

11:!. G. Setalvad, Attorney-General for Indi.a, and G. K. Daphtary, Solicitor.General for India (J. B.

Dadachanji, with them) for the respondents.

Registrar of 'l'rade JYJarlcs in person.

1953. May 7.

The Judgment of the Court was delivered by

MAHAJAN J.-This is an appeal on a certificate under section lO!J( c ), Civil Procedure Code, from the judgment of the High Court of Judicature at Bombay reversing the judgment of Mr. Justice S. C. Shah in Civil Miscellaneous No. 2 of 1950 and restoring the order of the Registrar of 'l'ra.de Marks refusing to register the appellants' trade mark.

'l'he two questions that were canvassed before us and that fall for our determination are (1) whether the judgment of Mr. Justice Shah was subjeut to appeal under clause 15 of the Lettern Patent of the Bombay High Court and (2) whether Mr. Justice Shah was right in interfering w[th the discretion exercised by tho Registrar in refusing registration of the appellants' mark. 'l'he relevant facts shortly stnted are these. 'l'he appellants are a limited liability compnny incorporated under the Indian Companies Act, 1913, having their registered office at Chidambaram, South Arcot District, in the Province of Mndras and carrying on the business of manufacturing cotton sewing thread. 'l'he respondents are also a limited liability company registered under tlw English Companies Act. They have their registered office at Eagley Mills, Bolton, (England) where they manufacture sewing thread.

One of the trade marks used by them on such thread consists of the device of an Eagle with

outspread wings known as "Eagle Mark".

This mark 1953 was first advertised in the Calcutta Exchange Gazette N . -;-s . of 5th , June, 1896.

Since then sewing thread bearing T~;:::; 00. ''J:i~g this mark is being regularly imported into and sold in v. the Indian markets on an extensive scale.

Jamea Chadwick Ronncl about the year 1940 the appellants started and Bros. Ltd, selling cotton sewing thread under a mark consisting Mahajan J. of the device of a bird with wings folly spread out perched on a cylinder of cotton sewing thread, with the words " Eagle Brand " and the name of the appellant company printed on the mark.

The respondents objected to the mark, upon which the appellants substituted the words "Vulture Br1tnd" in the place of the words " Eagle Brand". Thereafter in the year 1942 the appellants applied to the Registrar of Trade Marks, Bombay, for registration of their amended mark as a trade mark, in class 23, in respect of cotton sewing thread claiming that the mark had been in use by them since the year 1939.

Though on the objection of the respondents the appellants had named the Eagle in their mark a "Vulture" in every other respect the mark remained unchanged.

The respondents to redress their grievance started a passing off action in the Dist.rid, Court of South Arcot against the appellants. That action failed on the ground that the evidence offered on their behalf was meagre and they failed in proving that there was any probability of purchasers exercising ordinary caution being deceived in buying the defendants' goods under the impression that they were the plaintiff's goods. The result was that the grievance of the respondents remained unredressed.

As above stated, in 1942, the appellants made an application to the Registrar of Trade Marks at Bombay for the registration of their mark "Vulture

Brand" under the Trade Marks Act, 1940.

The respondents gave notice of their opposition to that application under section 15(2), Rule 30, of the Trade Marks Act, 1940.

By his order dated 2nd September, 1949, the Registrar of Trade Marks allowed the respondents' opposition and rejected the application

1953 made by the appellants. He came to the conclusion

National-Sewing that the appellants' mark so nearly resembled he

Thread 0 0 • LUI. mark of the respondents as to be likely to deceive

v. or cause confusion.

He further held that to James Chadwick describe the mark of the appellants as " Vulture

and Bros. Ltd. Brand " when the device was that of an eagle

Mahajan J. was misleading and liable to cause confusion. The appellants preferred an appeal against the order of the Registrar to the High Court of Bombay as permitted by the provisions of section 76 of the Trade Marks Act. Mr. Justice Shah allowed the appeal, set aside the order of the Registrar and directed the Registrar to register the mark of the appellants as a trade mark.

From the judgment of Mr. Justice Shah an appeal was preferred by the respondents under clause 15 of the Letters Patent of the Bombay High Court. The appeal was allowed and the order of the Registrar was restored with costs throughout. Hence this appeal.

In our judgment both the questions canvassed in this appeal admit of an easy answer in sp:te of a number of hurdles and difficulties suggested during the arguments. It is not disputed that the decision of Mr. Justice Shah does constitute a judgment within the meaning of clause 15 of the Letters Patent. That being so his judgment was subject to a.ppeal under that clause, the material part of which relevant to this enquiry is :-

"And We do further ordain that an appeal shall lie to the said High Court of Judicature at Bombay from the judgment of one Judge of the said High Court or one Judge of any Division Court, pursuant to section 108 of the Government of India Act."

It was said thaithe provisions of this clause could not be attracted to an appeal preferred to the High Court under section 7() of the Trade Marks Act and further that the clause would have no application in a case, where the judgment could not be said to have been delivered pursuant to section 108 of the Government of India Act, 1915.

Both these objections in our opinion are not well-founded.

Section 76 ( 1) provides;

"Save as otherwise expressly provided in the Act 1953 an appeal shal!'lie, within the period prescribed by the N • 1 .

C t 1 G t f d . . f th R . atrnna Sewing en ra ovenmen , rom any ec1s10n o e eg1s- Thread 00. Ltd. trar under this Act or the rules made thereunder to v. the High Court having the jurisdiction." Jame• Chadwick The Trade Marks Act does not provide or lay down and Bros. Ltd. any procedure for the future conduct or career of that Mahajan J, appeal in the High Court, indeed section 77 of the Act provides that the High Court can if it likes make rules in the matter. Obviously after the appeal had reached the High Court it has to be determined according to the rules of practice and procedure of that Court and in accordance with the provisions of the charter under which that Court is constituted and which confers on it power in respect to the method and manner of exercising that jurisdiction. The rule is well settled that when a statute directs that an appeal shall lie to a Court already established, then that appeal must be regulated by the practice and procedure of that Court. This rule was very succinctly stated by Viscount Haldane L.C. in National Telephone Go., Ltd. v. Postmaster-General (1), in these terms :-

"When a question is stated to be referred to an established Court without more, it, in my opinion, imports that the ordinary incidents of the procedure of that Court are to attach, and also t.hat any general right of appeal from its decision likewise attaches."

The same view was expressed by their Lordships of the Privy Council in R.M.A.R.A. Adaikappa Chettiar

v. Ra. Chandrasekhara Thevar ('), wherein it was said:-

"Vi'here a legal right is in dispute and the ordinary Courts of the country are seized of such dispute the Courts are governed by the ordinary rules of procedure applicable thereto and an appeal lies if authorised by such rules, notwithstanding that the legal right claimed arises under a special statute which does not, in terms confer a right of appeal."

(1) (1913] A.C. 546.

(z) (1947) 74 I, A. 264,

J.J4

1953 Again in Secretary of State for India. v. Chellikani

N t . -,-s . Rama Rao ('), when dealing with the case under the

n iona ewing Madr F A h . J d h' J d Tlmad co. Ltd. as orest ct t elf , or s tps o iserve as

v. follows:- James Chadwick "It was contended on behalf of the appellant that all further proceedings in Courts in India or by way of appeal were incompetent, these being excluded by the terms of the statute just quoted. In their Lordships'

and Bros. Ltd.

1\.fahajan .J.

opinion this objection is not well-founded. Their view is that when proceedings of this character reach the District Court, that Court is appealed to as one of the ordinary Courts of the country, with regard to whose procedure, orders, and decrees the ordinary rules of the Civil Procedure Code apply."

Though the facts of the cases laying down the above rule were not exactly similar to the facts of the present case, the principle enunciated therein is one of general application and has an apposite application to the facts and circumstances of the present case. Section 76 of the Trade Marks Act confers a right of appeal to the High Court and says nothing more about it. That being so, the High Court being seized as such of the appellate jurisdiction conferred by section 76 it has to exercise that jurisdiction in the same manner as it exercises its other appellate jurisdiction and when such jurisdiction is exercised by a single Judge, his iudgment becomes subject to appeal under clause 15 of the Letters Patent there being nothing to the contrary in the Trade Marks Act.

The objection that Mr. Justice Shah's judgment having been delivered on an appeal under section 76 of the Trade Marks Act could not be said to have been delivered pursuant to section 108 of the Government of India Act is also without force and seems to have been based on a very narrow and limited construction of that section and on an erroneous view of its true intent and purpose. Section 108 of the Government of India Act, 1915, provides :-

" Each High Court may by it~ own rules provide as it thinks fit for the exercise, by one or more fudges, or by division courts constituted by two or more Judges

\1) (1916) l.L.R. 39 Mad. 617.

of the High Court, of the original and appellate juris- 1953 diction vested in the Court."

, . , National Sewing 'Ihe scct10n is an enablmg enactment and confers Thread oa. Ltd. power on the High Courts of making rules for the v. exercise of their jurisdiction by single Judges or byJames Chadwick division courts. The power conferred by the secand Bros. Ltd. tion is not circumscribed in any manner whatever Maha.fan J. and the nature of the power is such that it had to be conferred by the use of words of the widest amplitude. There could be no particular purpose or object while conferring the power in limiting it qua the jurisdiction already possessed by the High Court, when in the other provisions of the Government of India Act it was contemplated that the existing jurisdiction was subject to the legislative power of the Governor-General and the jurisdiction conferred on the High Court was liable to be enlarged, modified and curtailed by the Legislature from time to time.

It is thus difficult to accept the argument that the power vested in the High Court under subsection ( 1) of section 108 was a limited one, and could only be exercised in respect to such jurisdiction as the High Court possessed on the date when the Act of 1915 came into force.

The words of the sub-section "vested in the court" cannot be read as meaning "now vested in the court". It is a well-known rule of construction that when a power is conferred by a statute that power may be exercised from time to time when occasion arises unless a contrary intention appears. This rule has been given statutory recognition in section 32 of the Interpretation Act.

The purpose of the reference to section 108 in clause 15 of the Letters Patent was to incorporate that power in the charter of the Court itself, and not to make it moribund at that stage and make it rigid and inflexible. We are therefore of the opinion that section 108 of the Government of India Act, 1915, conferred power on the High Court which tlmt Court could exercise from time to time with reference to its jurisdiction whether existing at the coming into force of the Government of India Act, 1915, or whether conferred on it by any subsequent legislation.

l036

SUPREME COURT REPORTS [1953]

1953 It was argued that simultaneously with the repeal

~. . -l 8 . of section 108 of the Government of India Act, 1915, "' ationa ewing d f th t f "t . . . t' 223 Thread co. Ltd. an o e enactmen o I s prov1s10ns m sec 10n v. of the Government of India Act of 1935 and later on James Chadwick in article 225 of the Constitution of India, there had and Bros. Ltd.

Mahajan J.

not been any corresponding amendment of clause 15 of the Letters Patent and the reference to section 108 in clause 15 of the Letters Patent could not therefore be taken as relating to these provisions, and, that being so, the High Court had no power to make rules in 1940 when the 'I'rade Marks Act was enacted under the repealed section and the decision of Mr. Justice Shah therefore could not be said to have been given pursuant to section 108. This objection also in our opinion is not well-founded as it overlooks the fact that the power that was conferred on the High Court by section 108 still subsists, and it has not been affected in any manner whatever either by the Government of India Act, 1935, or by the new Constitution.

On the other hand it has been kept alive and reaffirmed with great vigour by these statutes.

The High Courts till enjoy the same unfettered power as they enjoyed under section 108 of the Government of India Act, 1915, of making rnles and providing whether an appeal has tu be heard by one Judge or more Judges or by Division Courts consisting of two or more Judges of the High Court. It is immaterial by what label or nomenclature that power is described in the different statutes or in the Letters Patent. The power is there and continues to be there and can be exercised in the same manner as it could be exercised when it was originally conferred. As a matter of history the power was not conferred for the first time by section 108 of the Government of India Act,

1915. It had already been conferred by section 13 of the Indian High Courts Act of 1861. We are further of the opinion that the High Court was right in the view that reference in clause 15 to section 108 should be read as a reference to the corresponding provisions of the 1935 Act and the Constitution. The canon of construction of statutes enunciated in section 38 of the

Interpretation Act and reiterated with some modifica- 1963 tions in section 8 of the General Clauses Act is one of general application where statutes or Acts have to be N;, ion~ 0

8"ng construed and there is no reasonable ground for holdrea v.

0 • td. ing that that rule of construction should not be applied James Chadwick in construing the charters of the different High Courts. and Bros. Ltd.

These charters were granted under statutory powers and are subject to the legislative power of the Indian Mahajan J.

LPgislature. Assuming however, but not conceding, that strictly speaking the provisions of the Interpretation Act and the General Clauses Act do not for any reason apply, we see no justification for holding that the principles of construction enunciated in those provisions have no application for construing these charters. For the reasons given above we hold that the High Court was perfectly justified in overruling the preliminary objection and in holding that an appeal was competent from the judgment of Mr. Justice Shah under clause 15 of the Letters

Patent.

Reliance was placed by the appellants in tho High Court and before us on the decision of the High Court of Judicature of Calcutta in Indian Electric Works v.

Registra.r of Trade 2ll arks( 1) wherein a contrary view was expressed.

After a full consideration of the very elaborate and exhaustive judgment delivered in that case by both the learned Judges of the Bench that heard the appeal and with great respect we think that that case was wrongly decided and the decision is based on too narrow ancl restricted a construction of section 108 of tho Government of India Act, 1915, and that in that decision full effect has not been given to the true intent and purpose of clause 44 of the Letters Patent.

Both tho learned Judges there took the view that the authority given by. section 108(1) of the 1915 statute to make rules for the exorcise by one or more Judges of the Court's appellate jurisdiction was limited to the jurisdiction then vested in the Court by section

(1) A.LR. 1947 Cal. 49

SUPREME COURT REPORTS [l953J

1953 106 (1) of the Act and by clause 16 of the Letters

N . - 1- 8 . Patent. It was held that such rules thus could not ationa ewing 1 . . 1 t' f' d b A l f TMead co. Ltd: re ate to Jlmsc lC 10n con erre y an ct passec a ter v. the commencement of the 1915 statute nor to an ap- Jaines Chadwick peal heard by the Court pursuant to such an Act, since and Bros. Ltd. the jurisdiction to hear such appeal having been conferred by the particular Act could not be said to have Mahaja1~ J. been conferred upon, or vested in, the Court by section 106(1) and by clause lG of the Letters Patent. This argument suffers from a two-fold defect.

In the first place it does not take into consideration the other provisions of the Government of India Act, 1915, particularly the provision contained in sections 65 and 72.

By section 65(1) of the Government of India Act, 1915, the Governor-General in Legislative Council was given power to make laws for all persons, for all courts, and for all places and things, within British India.

By section 72 he was also given power for promulgating ordinances in cases of emergency. By the Charter Act of 1915 therefore the High Court possessed all the jurisdiction that it had at the commencement of the Act and could also exercise all such jurisdiction that would be conferred upon it from time to time by the Legislative power conferred by that Act. Reference to the provisions of section !) of the Indian High Courts Act of 1861 which section 106 (1) of the Government of Inditi Act, 1915, replaced makes this proposition quite clear.

In express terms section 9 made the jurisdiction of tlie High Courts subject to the legislative powers of the Governor-General in Legislative Council. Section lOG only conferred on the High Court " jurisdiction and power to make rules for regulating the practice of the court, as were vested in them by Letters Patent, and subject to the provisions of any such Letters Patent, all such jurisdiction, powers and authority as were vested in those comts at the commencement of the Act. " The words "subject to the legislative powers of the Governor-General" used in section 9 of the Charter Act of 1861 were omitted from the section, because of the wide power conferred on the Governor-General by section 65 of the Government of India Act, 1915. The

jurisdiction couferred on the High Courts from the very 1993 inception was all the time liable to and subject to N t. -l-" 'ng . , , , , a iona oewi alterat10n by appropnate leg1slat10n. It 1s therefore Thread co. Ltd. not right to say that section 108 (1) of the Governv. ment of India Act, 1915, empowered the High Courts to James Chadwick make rules only concerning the jurisdiction that those and Rroa. Ltd. courts exercised when that Act was passed ; on the Mahajan J. other hand power was also conferred on them to make rules in respect of all jurisdiction then enjoyed or with which they may be vested hereafter.

Clause 16 of the Letters Patent on which reliance was placed by the learned Judges of the Calcutta Court is in these terms :-

" The High Court shall be a Court of appeal from the civil Courts of Bengal and from all other Courts subject to its superintendence and shall exercise appellate jurisdiction in such cases as are subject to appeal to the said High Court by virtue of any laws or regulations now in force."

This clause is also subject to the legislative power of the appropriate Legislature as provided in clause 44 of the Letters Patent. This clause is in these terms:

"The provisions of the Letters Patent are subject to the legislative powers of the Governor-General in Legislative Council."

That being so the last words of the clause "now in force " on which emphasis was placed in the Calcutta judgment lose all their importance, and do not materially affect the point. The true intent and purpose of clause 44 of the Letters Patent was to supplement the provisions of clause 16 and other clauses of the Letters Patent. By force of this clause appellate jurisdiction conferred by fresh legislation on the High Courts stands included within the appellate jurisdiction of the court conferred by the Letters Patent. A reference to clause 1.5 of the Letters Patent of 1861, which clause 16 replaced, fully supports this view. This clause included a provision to the following effect :-

" or shall become subject to appeal to the said High Court by virtue of such laws and regulations

1953 relating to Civil Procedure as shall be hereafter made

N . 1 8 by the Governor in Council," J.: attona ewing Thread c •. Ltd. in addition to the words" laws or regulations now in

v. force".

The words above cited were omitted from

J:':i'8,~~-"1~:k clause 16 of the late~ charter, nd only th? worrls "laws

or regulations now m force were rctamcd, because Mahajan J. these words were incorporated in the Letters Patent and were made of general application as governing all the provisions thereof by a separate clause.

The Judges who gave the Calcutta decision on the other hand inferred from this change that the appellate jurisdiction of the High Court as specified in clause 16 was confined only to the jurisdiction to hear appeals from the the civil Courts mentioned in that clause and appeals under Acts passed and regulations in force up to the year 1865. In our opinion the learned Judges were in error in thinking that the appellate jurisdiction possessed by the High Court under the Letters Patent of 1865 was narrower than the jurisdiction it possessed under clause 15 of the Letters Patent of 1861. Whatever jurisdiction had been conferred on the High Court bv clause 15 of the Letters Patent of 1861 was incorporated in the Letters Patent of 1865 (as amended) and in the same measure and to the same extent by the provisions of clauses 16 and 44 of that charter.

vVe are further of the opinion that the Calcutta decision is also erroneous when it expresses the view that the range and ambit of the power conferred on the High Court by section 108 of the Government of India Act of 1915 was limited by the provision of section 106 (1) of the Act or by the provisions of clause 16 of the Letters Patent. There is no justification for placing such a construction on the plain and unambiguous words of that section. Section 108 is an enactment by itself and is unrestricted in its scope, and covers a much wider field than is covered by section 106 of the Government of India Act. The only association it has with section 106 is that in sequence it follows that section. It confers a power on the High Court to make rules in respect not only of the jurisdiction that it

enjoyed in 1915 but it also conferred power on it to 1953 make rules in respect of jurisdiction which may here- N . - . f b " d . b ational Sewing a ter e con1erre on it y the enactments enacted by Thread 00. Ltd: the Governor-General in Legislative Council. v.

On the line of thought adopted in the Calcutta deci-James Chadwick sion the learned Judges were forced to the conclusion and Bros. Ltd. which seems somewhat strange that the jurisdiction Maha.janJ. conferred by the Letters Patent on the Calcutta High Court is much more limited and restricted than has been conferred on some of the new High Courts in India by their Letters Patent. Illustratively, Clause 11 of the Letters Patent of Patna High Court issued in 1916 provides as follows:-

"And We do further ordain that the High Court of Judicature at Patna shall be a Court of Appeal from the Civil Courts of the Province of Bihar and Orissa and from all other Courts subject to its superintendence, and shall exercise appellate jurisdiction in such cases as were, immediately before the date of the publication of these presents, subject to appeal to the High Court of Judicature at Fort \Villiam in Bengal by virtue of any law then in force, or as may after that date be declared subject to appeal to the High Court of Judicutiire at Patna by any law made by competent legislative authority for India ".

The Letters Patent of the Lahore High Court, the High Court of Rangoon and the Letters Patent of th@ Nagpur High Court also contain identical clauses. It is clear from these clauses that in respect of cases subject to appeal to these High Courts the civil appellate jurisdiction is flexible and elastic. Mr. Justice Das in the Calcutta decision under discussion took the view that omission of the words underlined in clause 11 from clause 16 of the Letters Patent of the Calcutta High Court made the civil appellate jurisdiction of that court under clause 16 as rigidly fixed, and that it could be exercised only over courts and only in respect of cases mentioned therein.

When the attention of the learned Judge was drawn to the provisions of clause 44 of the Letters Patent he

1963 was constrained to say that inflexibility had to a

N 1• -;:s . great extent been modified by preserving the powers

; h~= 0/~;; a of Indian Legislative authority in section 9 of the v.

High Courts Act, by the amended clause 44 of the

James Oha:lwick Letters Patent and by section 223 of the 1935 Act.

and Bro ... Ltd. The learned Judge however felt that there was still a difference of a vital character between the Letters MahajanJ. Patent of the Calcutta High Court and of the newly constituted High Courts inasmuch as cases subsequently declared by any Indian enactment to be subject to appeal to the Calcutta High Court could not strict. ly speaking come within its appellate jurisdiction under clause 16 although the High Court exercised appellate jurisdiction over these.

VvT e have not been able to appreciate this distinction and it seems to us it is based on some misapprehension as to the true intendment of clause 44 of the Letters Patent. The purpose and intent of clause 44 of the Letters Patent was to declare that in addition to the jurisdiction eonferred by clause 16 it would also exercise the appellate jurisdiction which from time to time would be conferred on it. by subsequent enactments. It is inconceivable that larger appellate jurisdiction and greater powers in the matter of making rules would have been conferred upon the newly constituted High Courts than upon the High Court of Calcutta. The words "pursuant to section 108 of the Government of India Act 1915" occurring in clause 15 of the Letters Patent do not in any way restrict the scope of the right of appeal conferred by that clause to appeals that come to the High Court under its appellate jurisdiction under clause 16 of the Letters Patent only.

On the other hand we think that these rules have application to all appellate jurisdiction exercised by that court whether existing or conferred upon it by subsequent legislation.

The learned Judges in the Calcutta case negatived the applicability of the principle enunciated in 1913 Appeal Cases 546 and applied by the Privy Council in several cases to the matter before them, on the following reasoning set out by Mr. Justice Das : -

S.C.R.

SUPREME COURT REPQR, TS 1043

"The incidents and powers attached to the Registrar 1963 as a tribunal fall far short of those which were attached ,. . -l " . h 'b 1 . h G d (1) d 1 . h ""t"'na uewing to t e tn una !Il t e ur wara case an to w uc Thread co. Ltd.

Sir George Rankin particularly and pointedly referred. v.

Having regard to the plain language of clm18e 16, and Jumea Ohmlwick in the absence therein of like words which appear and Bros. Ltd. in the concluding portions of the corresponding Mahaja-n J. clauses of the Letters Patent of the other High Courts, to which I have already referred and which make their appellate jurisdiction flexible and elastic it is impossible to hold that section 76 of the Trade Marks Act has merely extended the appellate jurisdiction of this Court under clause lG by the addition of a new subject-matter of appeal so as to attract the general principle enunciated in 1913 Appeal Cases 546 ......... The truth is that the Trade Marks Act has created new rights, e.g., a right to get a trade mark registered and has given certain new advantages consequent upon such registration. It has created new Tribunals for its own purposes and it has conferred lt new appellate jurisdiction on this Court. It has authorised this Court to make rules regulating the conduct and procedure of the proceedings under the Act before it. This Court has framed separate set of rules accordingly. This very fact makes it impossible to attract the ordinary rules of procedure regarding appeals in this Court and indicates that an appeal under section 76 of the Act involves the exercise of a new appellate jurisdiction regulated by new rules".

This reasoning in our opinion is faulty on a number of grounds.

The first error lies in the assumption that the Gmdwara Act did not create new rights and did not create new appellate jurisdiction in the High Court which it did not possess before. The Uurdwara Act created peculiar rights in religious bodies and negatived the civil rights of large bodies of JVIahants .and other persons. Such rights were unknown before in civil law. The High Court as an established court of record was constituted a court of appeal from the decisions of the Gurdwara Tribunal. The principle enunciated in 1913 Appeal Cases 546 was applied by

(I) 63 I.A. 180.

1953 Sir George Rankin to appeals heard by the High Court . . -- . under its newly created appellate juristliction, and we l'iatwnal Sewing k "th t · t Th ad 0 Ltd spea w1 great respec , m our opm10n, very correc - re v. 0 · ly. We have not been able to appreciate the special

James Chadwick peculiarities of the rights created by the Trade Marks and Bros. Ltd. Act which place the appellate jurisdiction conferred on the High Court by section 76 on a ddferent level Mahajan J. from the jurisdiction created by the special provisions of the Gurdwara Act.· The rights created by the Trade Marks Act are civil rights for the protection of persons carrying on trade under marks which have acquired reputation.

The statute creates the Registrar a tribunal for safeguarding these rights and for giving effoct to the rights created by the Act, and the High Court as such without more hPs been given appellate juriodiction over the decisions of this tribunal. It is not easy to understand on wha.t grounds it can be said that the High Court while exercising this appellate jurisdiction has to exercise it in a manner different from its other appellate jurisdiction. It seems to us that this is merely an addition of a new subject matter of appeal to the appellate jurisdiction already exercised by the High Court.

The second error lies in the assumption that the appellate jurisdiction exercised by the High Court of Calcutta is much more limited than that possessed by the other High Courts. The matter has been discussed at length in an earlier part of this judgment.

We have also not been able to appreciate the emphasis laid to negative the applicability of clause 15 of the Letters Patent by reference to the provisions of section 77 of the Act.

The provisions of that section are merely enabling provisions and, as already pointed out, it is open to the High Court to make use of them or not as it likes.

There is nothing in the provisions of that section which debars the High Court from hearing appeals under section 76 of ths Trade Marks Act according to the rules under which all other appeals are heard, or from framing rules for the exercise of that jurisdiction under section 108 of the Government of India Act, 1915, for hearing those

appeals by single judges or by division benches. 1953 Even if section 77 had not been enacted it could not --- b 'd th h H h C t Id h h National Sewing e . sat at t e 1g our wou t en ave no Threa.d Oo. Ltd. power to make rules for the hearmg of appeals under v. section 76. There are a number of legislative enactments Jamea Chadwick which have conferred appellate jurisdiction on the and Bros. Ltd.

High Court without more and the High Court exercises appellate jurisdiction conferred by these enactments Mahajan J. by framing its own rules under the powers it already possesses under its different charters and under the various statutes which have conferred power on it.

It was suggested that the reasoning of the High Court is supported by the rule laid down in Secretary of State v. Jt!ask and Co.(1). In our opinion that rule has neither any relevancy in this case nor is it in any manner in conflict with the rule laid down in 1913 Appeal Uases 546 or in the later Privy Council decisions above referred to. There, by section 188 of the Sea Customs Act the jurisdiction of the civil courts was excluded, and an order made by the Collector on an appeal from an order of the Assistant Collector was made final.

A suit was filed to challenge the order of the Collector on the ground that the fimility declared by section 188 was no bar to such a suit in a civil court. That contention was negatived on the ground that when a liability not existing in common law is created by a stajj!tte which at the same time gives a special and particular remedy for enforcing it, with respect to that class it has always been held that the party must adopt the form of remedy given by the statute. The Trade Marks Act has not created any special forum for the hearing of an appeal as had been ereated by the Sea Customs Act. On the other hand, the Trade Marks Act has conferred appellate I jurisdiction on an established court of law. :Further, the Sea Customs Act had made the order of the Collector passed on an appeal final.

There is no such provision in the Trade Marks Act.

It has only declared that an appeal shall lie to the High Court from tho order of the Registrar and has said nothing more about it. Clearly, thereforn, to this case the rule

(I) 67 I.A. 222

SUPREME COU11T REPORTS [1953)

ws.J enunciated in 1913 Appeal Cases 546 had application,

N . -l 8 . and the rule stated in irl ask' s case (1) had no bearing at-tona etJJing . .

Thread Go. Ltd. on this pomt. v.

As regards the merits of the case we are in entire James Chadwick agreement with the decision of the High Court and and BrM. Ltd. with the reasons given in that decision. The relevant

Mahajan J. part of section 8 of the Trade Marks Act is in these terms :

"No trade mark nor part of a trade mark shall be registered which consists of, or contains, any scandalous design, or any matter the use of which would by reason of its being likely to deceive or to cause confusion or otherwise, be clisentitled to protection in a court of justice".

Under this section an application made to register a trade mark which is likely to deceive or to cause confusion has to be refused notwithstanding the fact that the mark might have no identity or close resemblance with any other trade mark. The Registrar has to come to a conclusion on this point independently of making any comparison of the mark with any other registered trade mark.. What the Registrar has to see is whether looking at the circumstances of the case a particular trade mark. is likely to deceive or to cause confusion.

The principles of law appWi:able to such cases are well-settled. 'l'he burden of proving that the trade mark which a person seeks to register is not likely to deceive or to cause confusion is upon the applicant. It is for him to satisfy the Registrar that his trade mark does not fall within the prohibition of section 8 and therefore it should be registered. Moreover, in deciding whether a particular trade mark is likely to deceive or cause confusion that duty is not discharged by arriving at the result by merely comparing it with the trade mark which is already registered and whose proprietor is offering opposition to the registration of the mark..

The real question to decide in such cases is to see as to how a purchaser, who must be looked upon as an average man of ordinary intelligence, would _react to a

(1) 67 I.A. 222.

particular trade mark, what association he would form

I953 by looking at the trade mark, and in what respect heN . -1 8 .

Id . . ati.ona ewin~ wou connect the trade mark with the goods whwh Thread 00. Ltd. he would be purchasing. v.

So far as the present case is concerned the goods sold Jamea Chadwick under the respondents' trade mark are well-known and and Bros. Ltd. are commonly asked for as "Eagley" or "Eagle", and Ma;;;,;;; n J. the particular feature of the trade mark of the respondents by which the goods are identified and which is associated in the mind of the purchaser is the representation of an E<igle appearing in the trade mark. If the trade mark conveys the i\].ea of an Eagle and if an unwary purchaser is likely to accept the goods of the appellants as answering the requisition for Eagle goods, then undoubtedly the appellants' trade mark is one which would be likely to deceive or cause confusion. It is clear to us that the bird in the appellants' trade mark is likely to be mistaken by an average man of ordinary intelligence as an Eagle and if he asked for Eagle goods and he got goods bearing this trade mark of the appellants it is not likely that he would reject them by saying that this cannot ho an Eagle. Two years prior to the application for registration, the respondents described this particular bird an Eagle and called their brand Eagle Brand, The same bird was later on described by them a vulture and the explanation offered was that they so described owing to an honest arid bona .fide mistake.

We have no hesitation in holding that the appellants' camouflaging an Eagle into a vulture by calling it such is likely to cause confusion.

Whatever else may be said about the bird in the appellants' trade mark, it certainly does not represent a vulture or look like a vulture of any form or shape. \Vhat has been named by the plaintiffs as a vulture is really an eagle seated in a different posture.

That being so, the High Court was perfectly right in the view that Mr. Justice Shah was in error in interfering with tho discretion possessed and exercised by the Registrar, and that the appellants had failed to discharge the onus that rested heavily on them to prove that the trade mark which they wantecl the Registrar

1953 to register was not likely to deceive or cause confu-

Nationalewinf sion. • Thread oo. Ltd.

The learned counsel for the appellants contended v. that the question whether his clients' trade mark was James Chadwick likely to deceive or cause confusion had been concluded and 8' 0"· Ltd. by the earlier judgment of the Madras High Court in

Mahajan J. the passing off action and already referred to in an early part of the judgment. It is quite clear that the onus in a passing off action rests on the plaintiff to prove whether there is likelihood of the defendant's goods being passed off as the goods of the plaintiff.

It was not denied that the general get up of the a pp el !ants' trade mark is different from the general get up of the respondents' trade mark. That being so, it was held by the Madras High Court in the passing off action that on the meagre material placed on record by the plaintiffs they had failed to prove that the defendants' goods could be passed off as the goods of the plaintiffs. The considerations relevant in a passing off action are somewhat different than they are on an application made for registration of a mark under the Trade l\farks Act and that being so the decision of the Madras High Court referred to above could not be considered as relevant on the questions that the Registrar had to decide under the provisions of the Act.

For the reasons given above we are of the opinion that this appeal must fail and we accordingly dismiss it with costs.

Appeal dism.issed.

Agent for the appellants : R. A. Govind.

Agent for the respondents : Rajinder Narain.

SUPREME COURT HEFORTS [1953]

1953

R. A. Govind

Rajinder Narain

NATIONAL SEWING THREAD CO. LTD

JAMES CHADvVICK & BROS. LTD

VIVIAN BosE

JAGANNADHA DAS JJ.

Trade Marks Act, 1940

ss. 8, 76

cl. 15

Government of India Act, 1915

s. 226

Section 76(1)

Trade Marks Act, 1940

s. 76

cl. 15

s. 108

Government of India Act, 1915

s. 76

Code

s. 8

Genernl Clauses Act

s. 38

s. 108

cl. 15

art. 225

s. 108

Government of India Act, 1915

s. 106(1)

cl. 16

Calcutta High Court

India

High Court of Bombay

Trade Marks Act

James Oluuiwick Bishan Narain

Narain Andley

G. Setalvad

G. K. Daphtary

J. B.

Dadachanji

MAHAJAN

Civil Procedure Code

High Court of Judicature at Bombay

S. C. Shah

Shah

clause 15

Bombay High Court

Indian Companies Act, 1913

Arcot District

Mndras

English Companies Act

Mahajan

Registrar of Trade Marks, Bombay

Registrar of Trade Marks at Bombay

Trade Marks Act, 1940

section 15(2)

Trade Marks Act, 1940

2nd September, 1949

James Chadwick

section 76

Trade Marks Act

clause 15

clause 15

section 108

section 7()

Trade Marks Act

section 108

Government of India Act, 1915

Section 76

Chadwick The Trade Marks Act

section 77

Viscount Haldane L.C.

Rama Rao

Section 76

Trade Marks Act

section 76

clause 15

Trade Marks Act

section 76

Trade Marks Act

section 108

Section 108

Government of India Act, 1915

secand Bros. Ltd.

Maha.fan

section 108

section 32

section 108

clause 15

section 108

Government of India Act, 1915

section 108

Government of India Act, 1915

sec 10

article 225

Constitution of India

clause 15

section 108

clause 15

section 108

section 108

Government of India Act, 1935

section 108

Government of India Act, 1915

section 108

Government of India Act

section 13

clause 15

section 108

section 38

section 8

General Clauses Act

General Clauses Act

clause 15

High Court of Judicature of Calcutta

section 108

Government of India Act, 1915

clause 44

section 108(1)

clause 16

section 106(1)

sections 65 and 72

section 65(1)

Government of India Act, 1915

section 72

section 106

Government of Inditi Act, 1915

section 9

section 9

section 65

Government of India Act, 1915

section 108

India Act, 1915

Clause 16

Calcutta Court

Bengal

clause 44

Calcutta

clause 44

clause 16

clause 1

clause 16

clause 16

clause 16

clause 15

clause 15

section 108

section 106

clause 16

Section 108

section 106

section 106

Thread 00. Ltd

Clause 11

Patna High Court

High Court of Judicature at Patna

High Court of Judicutiire at Patna

Lahore High Court

High Court of Rangoon

Nagpur High Court

Das

clause 11

clause 16

clause 16

clause 44

section 9

High Courts Act

clause 44

section 223

clause 16

clause 44

clause 44

clause 16

High Court of Calcutta

section 108

Government of India Act 1915

clause 15

clause 16

George Rankin

Jumea Ohmlwick

section 76

Trade Marks Act

Trade Marks Act

section 76

Gurdwara Tribunal

section 76

Trade Marks Act

clause 15

section 77

section 76

Trade Marks Act

section 108

Government of India Act, 1915

section 77

Threa.d Oo. Ltd.

section 76

Jamea Chadwick

section 188

Customs Act

section 188

Trade Marks Act

Customs Act

Trade Marks Act

Customs Act

section 8

Trade Marks Act

section 8

Madras High Court


S.C.R.

SUPREME COURT REPORTS

THAKUR RAGHUBIR SINGH

COURT OF WARDS, AJMER,

AND ANOTHER.

[MEHR CHAND MAHA.JAN, MDKHERJEA, GHULAM

HASAN, BHAGWATI and JAGANNADHADAsJJ.]

Oonstitzdion of India, 1950, a1'ls. 19(1) (J), 19(5), 31-A-Ajmer Revenue and Land Records Act (XLII of I950) s. 112-Ajmer Gm>ernment Wards Regulation (I of 1888), ss. 6, 7-Law declaring landlords who habitually infringe the rights of a tenant to be disqualified prop1'ieto1's and empoweri1zg Court of Wa,.ds to assume management of their lands - Validity-Infringement of fundamental right-Reasonableness-Scope of article 31-A-" Modifioation of rights," meaning of.

Section 112 of the Ajmer Tenancy and Land Records Act (XLII of 1950) provided that "if a landlord l1abitually infringes the rights of a tenant under this Act, he shall, notwithstanding anything in section 7 of the ~-'\jmer Governu1ent Wards Regulation, 1888 (I of 1888) be deemed to be a 'landlord who is disqualified to manage bis own property' 'vithin the meaning 0£ section 6 of the said Regulation and his property shall be liable to be taken under the superintendence of the Court of W .rds." Section 6 of Regulation I of 1888 provided that the Court of Wards may, with the previous sanction of the Chief Corr1missioner, assume the superin~ tendence of the property of any landholder who is disqualified to manage his property. The petitioner, whose estate was taken over by the Court of Wards under the above-mentioned provisions of law, applied for relief under art. 32 of the Constitution for restoration of his estate and other appropriate reliefs: Held, (i) that the result of the combined operation of s. 112 of Act XLII of 1950 and the provisions of ss. 6 and 7 of Regulation I of 1888 was that the Court of Wards could in its own discretion and on its subjective determination assume the superinten. dance of the property of a landlord who habitually infringed the rights of his tenants, and the exercise of .the discretion of the Court of Wards cannot be questioned in a civil court: s. 112 of Act XLII of 1950 read with the provisions of Regulation I of 1888 therefore infringed the fundamental rights of the petitioner guaranteed by art. 19 (1) of the Constitution and was to that extent void;

(ii) the provisions of s. 112 cannot be regarded as a "reasonable" restriction imposed in the interests of the general public on the exercise of the right conferred by art. 19 (1) (f), because they completely negatived the right by making its enjoyment depend on the mere discretion of the executive;

May 15.

(iii) that s. 112 was not validated by art. 31-A of the Consti- Thalmr tntiou as it was not "a law providing for the acquisition by the Raghubir Singh State of any estate or of any rights therein or for the extinction v or modification of any such rights" within the meaning of art.

The ourl of 31-A.

The word "modification" in the context of art. 31-A only Wrtrds, AjJner, 1neans a modfication of the proprietary right of a citi.zen like

and Another an extingnishn1ent of thttt right anCT cannot include within its ambit a mere suspension of the right of inanagernent of the estate for a time, definite or indefinite.

Mahajan .l.

ORIGINAL JURISDICTION: Petition No. 29 of l!l53.

Petition under article 32 of the Constitution of India praying that the Court of \Vards, Ajmer, be ordered to forbear from carrying on the superintendence of the istimrari estate and other properties of the petitioner and for restoration of possession and management of the said estate and properties.

J. B. Dadachan, ii and H. C. Sogain for the appellant.

M. C. Setalvad, Attorney-General for India, (Bhava Datta Sharma, with him) for the respondents.

1953.

May 15. The , Judgment of the Court was delivered by

MAHAJAN J.-This is a petition under article 32 of the Constitution seeking relief against alleged infringement of certain fundamental rights of the petitioner and arises in these circumstances.

The petitioner owns an "istimrari estate" in the State of Ajmer under an istimraii sanad granted to his ancestor in the year 1875. He enjoys therein a life interest with an obligation to perform certain duties as prescribed by the Ajmer Land and Revenue Regulation (II of 1877).

The Deputy Commissioner of Ajmer, who is the Court of Wards constituted under the Ajmer Government \Yards Regulation (I of 1888), took over possession and assumed superintendence of the said estate on the 18th September, 1952, purporting to act under sections 6 and 7 of the Regulation read with section 112 of the Ajmer Tenancy and Land Records Act, 1950 (XLII of 1950), and hence this petition for a writ of mandamus or one in the nature thereof, or for the issue

of a direction to the Court of Wards for restoration of 19s3 possession of tlle estate and for an order directing it tu Tl k forbear from carrying on the superintendence of the Rayhu~:;; ingh estate. v.

The order made by the Court of Wards on the 7'he Oourt of 18th September, 1952, is impuaned as being void and Ward.<, Ajmer, '-' and Another of no effect whatever, because it is alleged that the statutory provisions under which it is purported to Mahajan J. have been made contravene the provisions of Part III of the Constitution and take away and abridge the petitioner's rights guaranteed by article 19 (1) (f) of the Constitution.

Section 112 of Act XLII of 1950 is one of a group of 7 sections in Chapter X of the Act which deals with the subject of" Compensation and Penalties''. The section prescribes penalties for habitual infringement of rights of tenants and reads thus:-

"If a landlord habitually infringes the rights of a tenant under this Act, he shall, notwithstanding anything in section 7 of the Ajmer Government Wards Regulation, 1888 (I of 1888), be deemed to be a" landlord who is disqualified to manage his own property" within the meaning of section 6 of the said Regula ti on

ttnd his property shall be liable to be taken under the superintendence of the Court of Wards ".

The preceding section 110 is in these terms:-

" If a landholder or his agent collects from a tenant any lag or neg, he shall be deemed to have committed an offence of extortion within the meaning of the Indian Penal Code (Act XLV of 1860) ".

Just as section 110 declares an illegal exaction by a landlord to be an offence under the Indian Penal Code, in like manner, section 112 declares a landlord who habitually infringes the rights of a tenant "a person disqualified to manage his own property" within the meaning of section 6 of Regulation I of 1888, the consequence being that his property becomes liable to be taken over by the Court of Wards. The section is an ingenious and novel device to punish landlords who habitually infringe the rights of tenants. It authorizes

1953 the use for punitive purposes of the machinery of Regulation I of 1888 enacted to make better. provision for 2'ha.kur. the superintendence of Government Wards in Ajmer- Raghubir Singh

B "' f h d 1 · t• 112 f v.

Merwara. y iorce o t e ec arat10n m sec 10n o

The court of the Act, landlords who habitually infringe the rights Ward•, Ajmer, of the tenants fall within the category of persons inand Another capable of managing their own property and come within the ambit of section 6 of the Regulation, which MahajanJ: is in these terms :-

"The Court of Wards may, with the previous sanction of the Chief Commissioner, assume the superintendence of the property of any landholder who is rusqualified to manage his own property ".

The result therefore of the combined operation of section 112 of Act XLII of 1950 and of the provisions of Regulation I of 1888, is that the Court of Wards can in its own discretion and on its subjective determination, assume the superintendence of the property of a landlord who habitually infringes the rights of his tenants.

The condition precedent to such assumption of superintendence is the previous sanction of the Chief Commissioner, the giving of which is also a matter entirely resting on his discretion. Section 27 of Regulation I of 1888 provides that "the exercise of any discretion conferred on the Court of vVards or the Chief Commissioner by this Regulation shall not be called in question in any civil court ". It was conceded by the learned Attorney-General appearing for the State of Ajmer, that there was nothing in the contents of either Act XLII of 1950 or Itegulation I of 1888 which provided a machinery for determining the question whether a certain landlord was a .person who was habitually infringing the rights of his tenants. Under Regulation I of 1888, the assumption by the Court of Wards of the superintendence of the property of a disqualified proprietor depends merely on the subjective determination of the Deputy Commissioner or the Commissioner or of the Chief Commissioner, and the exercise of this discretion cannot be questioned in any manner in a civil court. Act XLII of 1950 says nothing whatsoever on this subject.

The contention that the provisions of section 112 of 1953 Act XLII of 1950 read with the provisions of Hegulation I of 1888 infringe the fundamental right of the R ;'hbakur . 't' d b . 1

f) f ay, m ir Singh pet1 10ner guarantee y art1c e 19 ( l) ( o the Conv. stitution, is, in our opinion, well-founded and does not The court of require any elaborate discussion. The petitioner's right Ward•, Ajmer, to hold the istimrari estate and his power of disposal and Anather over it stand abridged by the act of the Court ofWards authorized by these provisions. His right to manage the Mahajan J. estate and enjoy possession thereof stands suspended indefinitely and until the time that the Court ofWards chooses to withdraw its superintendence of the property of the petitioner. During this period, he can only receive such sums of money for his expenses as the Court of Wards decides in its discretion to allow. Thus, the provisions of section 112 of Act XLII of HJ50 clearly abridge the fundamental right of the petitioner under article 19 (1) (f) and are to that extent void.

The learned Attorney-General canvassed for the validity of the provisions of section 112 on three grounds. He contended that the determination of the question whether a certain landholder was a person who habitually infringed the rights of his tenants did not depend on the opinion of the Court of Wards, but was a matter that could be agitated and canvassed in a civil court. It was said that there were no words in the section from which it could be inferred that the determination of this fact depended on the subjective determination of the Court of Wards. It was emphasized that the section had not used the familiar language "in its opinion" or words like that, which are usually employed to indicate whether a matter depends on the subjective determination of an authority or whether it can be agitated in a civil court. This contention, in our opinion, is not well-founded. As already pointed out, Act XLII of 1950 has prescribed no machinery for the determination of the question whether a landlord is guilty of habitually infringing the rights of his tenants, and rightly so, because section 112 of the Act is mere! y of a dcclara tory charatl er and

. . . 1054 SUPREME COURT REPOl~TS [1953]

1953 declares such a landlord as being under a disability

Thakur and suffering from an infirmity. This declaration be- Raghubir Sinyh comes operative and effective only when the Court of

Wards in its discretion decides to assume superintend- Th• Oaurt af ence of the property of such a proprietor. In other Wards, Ajmer, words, when the Deputy Commissioner or the Comand Another missioner or the Chief Commissioner is of the opinion

Mahajan J. that such a proprietor should be deprived of possession of his property, this determination then operates to the prejudice of the landlord, but he cannot challenge the exercise of the discretion by these officers in view of the provisions of section 27 of Regulation I of 1888.

The result then is that by the subjective determination of the Court ofWards, both the questions whether a particular person habitually infringes the rights of his tenants and whether his property should be taken over by the Court of Wards, stand settled and the landlord cannot have recourse to a civil court on these questions. The learned Attorney-General was not able to draw our attention to any provision in the Comt of Wards Act or in Act XLII of 1950 which enabled the landlord, held to be a habitual infringer of the rights of his tenants, to have recourse to a civil court to test the conectness of the determination made by the Court of\Vards. The provisions of Regulation I of 1888 clearly indicate the contrary.

Next, it was argued that the provisions of section 112 amount to reasonable restrictions on the exercise of the right confened by article 19 ( 1) ( f) of the Constitution on a citizen, and these restrictions are in the interests of the general public. In our judgment, this argument also is not sound. As indicated above, the provisions of section 112 of Act XLII of 1950 are penal in nature and are intended by way of punishment of a landlord who habitually infringes the rights of his tenants. He is punished by being placed at the mercy of the Court of Wards and by being made subject to the stringent provisions of Regulation I of 1888. An enactment which prescribes a punishment or penalty for bad behaviour or for misconduct of a landlord cannot possibly be regarded as restriction on a fundamental

right. Indeeq, a punishment is not a restriction. This 1953 was frankly conceded by the learned Attorney-General.

Th k It is still more difficult to regard such a provision as a Raghub:,."; ingh reasonable restriction on the fundamental right. v. 'Vhen a law deprives a person of possession of his pro- The Court of perty for an indefinite period of time merely on the Wards, Ajme•, subjective determination of an executive officer, such and Another a law can, on no construction of the word "reasonable" MahajanJ. be described as corning within that expression, because it completely negatives the fundamental right by making its enjoyment depend on the mere pleasure and discretion of the executive, the citizen affected having no right to have recourse for establishing the contrary in a civil court. Section 112 of Act XLII of 1950 cannot therefore be held valid as coming within the scope of article 19 (5) of the Constitution.

' Lastly, it was contended by the learned Attorney.

General that section 112 was valid by reason of the curative provisions of article 31-A of the Constitution.

That article validates laws which would otherwise contravene the fundamental right in article 31(2) of the Constitution, but its operation is restricted to laws providing for acquisition of estates etc.

It runs as follows:-

" Notwithstanding anything in the foregoing provisions of this Part, no law providing for the acquisition by the State of any estate or of any rights therein or for the extinguishment or modification of any such rights shall be deemed to be void on the ground that it is inconsistent with or takes away or abridges any of the rights conferred by any provisions of this Part ...... "

Section 112 of Act XLII of 1950, intended to regulate the rights of landlords and tenants, is obviously not a law providing for "the acquisition by the State" of the estates of the landlords, or of any rights in those estates. It is also not a law providing for the extinguishrnent or modification of any such rights. The learned Attorney-General laid emphasis on the word "modification" used in article 31-A.

That word in

1953 the context of the article only means a.modification of

Thakur the proprietary right of a citizen like an extinguish- Raghubfr Sin[lh ment of that right and cannot include within its ambit

v. a mere suspension of the right of management of estate The Oourt of for a time, definite or indefinite. Historically speak- IVards, Apn,,·, ing, article 31-A which has relation to article 31(2) of and A11oth~1 the Constitution, has no relevancy whatsoever to the

Mahajan J. law enacted in section 112 of the Act XLII of 1950.

]for the reasons given above, we are of the opinion that the law enacted in section 112 of Act XLII of 1950 is not saved either by clause (5) of article 19 or by article 31-A of the Constitution. It manifestly infringes the fundamental right of the petitioner guaranteed by article 19 (1) (f) of the Constitution. That being so, the petitioner is entitled to a direction that possession of his estnte be restored to him. We accordingly direct the Court of vVards, Ajmer-l\forwara, constituted under the Ajmer Government Wa, ds Regulation, I of 1888, to forbear from carrying on superintendence of the petitioner's istimrari estate and the other properties taken possession of, and to restore their possession to the petitioner. The petitioner will have the costs of this petition.

Petition allowed.

Agent for the petitioner : J. N. Shroff.

Agent for the respondents: G. H. Rajadhyaksha.

THAKUR RAGHUBIR SINGH

COURT OF WARDS, AJMER,

AND ANOTHER

HASAN

BHAGWATI

Ajmer Revenue and Land Records Act

s. 112

ss. 6, 7

article 31

Section 112

Ajmer Tenancy and Land Records Act

section 7

Wards Regulation, 1888

section 6

Section 6

art. 32

s. 112

ss. 6 and 7

s. 112

art. 19

s. 112

art. 19

s. 112

art. 31

Raghubir Singh

art. 31

Mahajan

article 32

Constitution of India

J. B. Dadachan

H. C. Sogain

M. C. Setalvad

Bhava Datta Sharma

MAHAJAN

article 32

Ajmer

18th September, 1952

sections 6 and 7

section 112

Mahajan

article 19

Section 112

Chapter X of the Act

section 7

Ajmer Government Wards Regulation, 1888

section 6

section 110

Indian Penal Code

section 110

Indian Penal Code

section 112

section 6

Merwara

sec 10

section 6

MahajanJ

section 112

Section 27

State of Ajmer

section 112

section 112

article 19

section 112

section 112

section 27

section 112

article 19

section 112

Section 112

article 19

section 112

article 31

article 31(2)

Section 112

article 31

article 31

article 31(2)

section 112

section 112

article 19

article 31

article 19

J. N. Shroff

G. H. Rajadhyaksha


s.c.R.

SUPREME COURT REPORTS

K. M. S. LAKSHMANIER AND SONS

COMMISSIONER OF INCOME TAX AND

EXCESS PROFITS TAX, MADRAS.

[PATANJALI SASTRI C.J., MuKHEl~JEA, CHANDRA-

SEKHARA AIYAR, VIVIAN BosE and GmcLAM

HASAN J.J.]

Excess Profits Tax Act (XV of 1940)-Riiles under Schedule II, R, 2-A-Computation of average ca.pital ·-Secnrity deposit received fronb ci1istoniers-Whether ''borrowed capital"-" Depo$it" and "Loan" -Essentials of.

The assessees, who were the sole selling agents of a yarn manufacturing company a, nd 'vbo distributed yarn to several constituents under forward contracts, kept two accounts for each constituent, vi.~., a "contract deposit account" and a "current yarn account", crediting the mone)'S 'vhich they recejved in advance from the constituents in the former account and trans ferring them to the current yarn account in adjustment of the price of the bales supplie<i tben ancl tbere, that is to say, when deliveries were made uncler the contract.

On the 5th May, 1944, they decided to keep the advance amounts under a new heading "Contracts Adv.nee Fixed Deposit Account" and to return the advance amounts in full after the completion of each contract and payment of the full value of the bales supplied.

On the 5th December, 1944, they changed the name of this account into "Security Deposit" account, and on the 14th February, 1945, the assessees decided to rnodify the arrangement further and demand a certain sum from each customer towards Security Deposit and keep the same with the assessees so long as the business connection with the customer under the forward contracts continued. Interest was also allowed on the amount of the deposit. The question being whether the advance amounts received by the assessees as deposit were "borro\ved money,'' within the meaning of Rule 2-A of the Rules in the Second Schedule to the Excess Profits Tax Act, 1940, and should not be deducted in computing the average capital used for the purposes of the business: Held, (i) that the advance amounts received before the 5th }!fay, 1944, were only advance payments of tbe price, to be adjusted on delivery, and could in no sense he regarded as borrowed money;

(ii) the amounts received after the 5th )fay, 1944, up to 14th February, 1945, were also, having regard to the terms of 137

January 23.

1953 the arrangement then in force, more in the nature of tradirig - receipts than of security deposits as they were reaJly advance K. ~~· S. Lalcsh. payments in regard to each contr.ct, and tho transaction provided ma11ter and Sons in substance and effect for the adjustment of the mutual obligav, lions on the completion of each contract; .The Con1imis-

(iii) the method of dealing adopted after the 14th Februsioner of nc01ne . , d E ary, 1945, had all the essential elements of a transact10n of !attn, Ta."C an xcesA . d . t . d f h t d t "b d "

P 1. T ancl the epos1 s receive a ter t a a e were orrowe money '';, t; ax, for the purposes of Rule 2-A, as the amount of deposit had no a ras. relation to the price of the goods to be delivered under each contract, the price of the goods supplied was to he paid by the cnsto- Patanjali 1ner in full, the assessees were allowed to use the money for their $astri O.J. own business pa)-'ing interest to the customers, and the amounts were returnable only at the end of the business connection.

The terms "loan" and

11deposit" are not mutually exclusive, and the fact that a deposit is made with the object of inducing tho person with whom the deposit is made to have dealing with the depositor and for the specillc purpose of being held as security for the duo performance by the depositor of bis pMt of the contract, would not prevent a deposit from being really in the nature of a loan.

Nawab Major Sir Mohamed Akbar Khan v. Attar Singh (L. R. 63 I.A. 279) relied on. Inland Revenue Commissioners v. Port of London Anthority (L.R. [1923] A.O. 507) and Inland Revenue Commissioners v. Rowntree ([1948] l All E.R.

482) distinguished.

Davies , •. The Shell Go. of China (32 Tax Oas. 133) applied.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 71 of 1952.

Appeal from the Judgment dated 9th January, 1950, of the High Court of Judicature at Madras (Satya. narayana Rao and Viswanatha Sastri JJ.) in Case Referred No. 67 of 1947.

G. S. Pathak (G. R. Jaga, disan, with him) for the appellants.

111. C. Setalvad, Attorney-General for India (G. N.

Joshi, with him) for the respondent.

1953. January 23. The Judgment of the Court was delivered by

PATANJALI SASTRI C., J.-This appeal arises out of a reference made by the Income-tax Appellate Tribunal, Madras Bench, under section 21 of the Excess Profits Tax Act, 1940 (hereinafter referred to as the Act).

The appellants are merchants carrying on business in 1953 yarn in Madura and are the sole selling agents for yarn r

-L .,, manufactured by the Madura Mills Co., Ltd., distribnt-!~!;. 8 n/~; n~ ing yarn to several constituents under forward conv. tracts in respect of which they obtained advances of The .Oom>ni•· moneys from their constituents. During the chargesioner of Income able accounting period (13th May, 1944, to 12th April, Tax and E~"'"

Profit"1 Tax,

1945) the appellants received from their customern sums amounting to Rs. 7,69,569 and they claimed before the Excess Profits Tax Officer that the said sum should be treated as "borrowed monev" within the meaning of Rule 2-A of the Rules in the Second Schedule to the Act and, on that footing, no excess profits tax was payable by them for the chargeable accounting period. The Excess Profits Tax Officer rejected the claim and assessed them to excess profits tax of Rs. 25,404, holding that, having regard to the terms of the agreement under which the amounts were received, they could not in law be reganled as "borrowed money" within the meaning of that Rule. Appeals to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal having failed, the appellants applied to the Tribunal for reference of the question of law arising in the case to the High Court at Madras for its determination, and the Tribunal accordingly referred the following question:

"Whether in the circumstances of this case, the moneys deposited by customers with the assessee firm as security deposits were "borrowed money" within the meaning of Rule 2-A of the Serond Schedule to the Excess Profits Tax Act, 1940, either throughout the chargeable accounting period ended 12th April, 1945, or during any part of that chargea hie accounting period ? "

The reference was lieard by a Division Bench of the Court (Satyanarayana Rao and Viswanatha Sastri JJ.) and the learned judges by their judgment dated 9th June, 1950, decided the question against the appellants but granted them leave to appeal to this Court.

As is well known, during the period of the war, profits arising from a trade or business were much higher

Madra, s.

Patanjali 80.stri 0 .. 1.

1953 than the pre-war standard of profits and the State -- wanted to catch a portion of such profits which it K. M. s.ndLask•hdeemed to be in excess of the normal or "standard" manier a ons . v. profits. The Act accordmgly charges a tax on the

The Oominis- "excess profits" earned under war conditions and

•ioner of Inconie makes provision, inter alia, for cases where, as here, Tax aid Exe"• there is an increase of capital used for purposes of

Profit., Tax, the business in the chargeable accounting period.

In Madras. such cases the standard profits are to the increased by

.PatanjaU an amount calculated by applying the "statutory Sastri O.J. percentage" (varying from 8 to 12 per cent. in different classes of cases) to the increase in capital. Thus, with the increase in the capital employed in the chargeable accounting period, there would be an increase in the standard profits and a decrease in the excess profit~.

Where the increase in the capital is brought about with borrowed money, it is but fair that such money, which plays its part in earning the larger profits, of which the Sta.te claims a substantial share, should not be deducted in computing the average capital used for the purposes of the business.

Rule 2-A of the Rules in the Second Schedule to the Act accordingly provides that in computing the average capital during the chargeable accounting period and the relative standard period "no deduction shall be made in respect of borrowed money". In the present case, the appellants having admittedly received no security deposits during the standard period, the increase in the average capital employed in the chargeable accounting period would be much greater than what it has been computed to be, if the security deposits received, which were all used for the appellants' business, were treated as borrowed money and part of the average capital of their business for the chargeable accounting period, and that, as stated above, would result in a considerable reduction of the excess profits as now assessed.

V\That then is the true legal character of these security deposits?

The sums in question were received by the appelants under three different arrangements with their

S.C.R.

SUPREME COUR1' REPORTS 1061

customers evidenced by the circulars issued to them. 1953 The . first o.f the.se circulars issued on 5th May, 1944, K. M.ZLak•h was m the followmg terms : manier and SoM "You are quite aware of the fact that we are and v. . will be, so long as the existiilg contracts of bales are .The

0~"1 "'"'" . h . sioner OJ nconie closed, transferrmg t e Contract Advance Deposit Ta." and Excess amounts to the credit of current yarn account for tho Profits Tax, bales supplied to you then and there.

Madras.

Now, what we have decided in this connection is not Patanjali to do so as stated above, but to keep such advance Sa•tri o.J. amounts under the new heading "Contracts Advance Fixed Deposit Account" and return in cash or by bank's cheque or by insured post the advance amount of the bales booked and supplied in full under certain contract number only after completion of that contract with the bank's commission etc. expenses that may be incurred therein on your account.

The value of the bales delivered or to be delivered for each and every time should be paid in full and this system is applicable to our future booking of contracts only."

This was followed by another issued on 5th December, 1944, which runs thus :

"This is to inform you that we have changed the heading of your " Contracts Advance :Fixed Deposit" account into " Security Deposit" account. As such, we have transferred the amount which is to your credit in the former to the credit of your latter account. This is with effect from 1st November, 1944. Kindly note."

The arrangement was further modified by the last circular dated 14th February, 1945, which was in these terms:

"Instead of calling for amounts from you towards 'Security Deposit ' due to hales for which we are entering into forward contracts with you and returning the same to you from the said deposit then and there, as we are doing now, and in order to make it feasible, we have decided to demand from you a certain sum towards Security Deposit and keep the

1062 SUPREME COUR'r REPORTS [1953]

1953 same with us so long as our business connection under -- forward contracts will continue with yo11.

K. M. B. Laksh manier and 8ons In your case, we have fixed a sum of Rs ......... for v. the said deposit, which amount we have to keep with .The Commis us on your approval. Against the said amount, a sum •ioner of Income f R t d l't 'th th d ,,, o s ............... s an. s creu w1 . us now m e Tax an ,; xcess . d . l'h c } b l f R d Profits Ta; i; said epos1t. ere1ore, t ie a ance o s............ ue Madras. ' by you /to you, is to be remitted/will be returned.

Kindly let us have your reply immediately in this I'atanjali connection. 8astr1: Ci.J.

Please note that interest of 3 per cent. per annum will be allowed as usual to the said deposit amounts until further notice."

It will be seen that before the 5th May, 1944, which covers the first seven weeks of the chargeable accounting period, the appellants had two accounts for each constituent, namely, a " contract deposit account " and a " current yarn account ", crediting the moneys received from the customers in the former account and transferring them to the yarn account in adjustment of the price of the bales supplied "then and there", that is, as and when deliveries were made under a contract either in instalments or in full. It is clear that the amounts received from the customers under this arrangement were merely advance payments of the price which were to be adjusted against the value of the bales supplied from time to time under the forward contracts and they can in no sense be regarded as borrowed money. This indeed was not disputed by :Mr. Pathak. lt was also conceded by him that the circular of 5th December, 1944, which merely changed the heading of the account in which the moneys received were credited, did not alter the legal position as it then stood. Accordingly, the question arises only with reference t, o the amounts received between 5th May, 1944, aml 14th February, 1945, which covers the major part of the chargeable accounting period and those received thereafter till the end of that period.

It will be convenient to deal first with the amounts received during the last part of that period, for, if we

accept the view of the learned judges below that those 1953 amounts were "not. borrow.ed money, then a fortiori K. M. s. Lak•hmust amounts received durmg the second part be held manier and sons not to be borrowed money. v.

The circular of the 14th February, 1945, marks a .The On 1 imis- . sioner oJ ncome clear departure from the mode of dealmg followed by Tax and Exce" the parties before the 5th May, 1944. The amount Profits Tax, deposited by a customer was no longer to have any Madras. relation to the price fixed for the goods to be delivered under a forward contract-either in instalments or Patanjali S h b 'd] Sastri O.J. otherwise. uc price was to e pa1 JY the customer in full against delivery in respect of each contract without any adjustment out of the deposit, which was to be held by the appellants as security for the due performance of his contracts by the customer so long as his dealings with the appellants by way of forward con tracts continued, the appellants paying interest at 3 per cent. in the meanwhile, and having, as appears from the course of dealings between the parties, the use of the money for their own business. It was only at the end of the "business connection" with the appellants that an adjustment was to be made towards any possible liability arising out of the customer's default.

Apart from such a contingency arising, the appellants undertook to repay an equivalent amount at the termination of the dealings.

The transaction had thus all the essential elements of a contract of loan, and we accordingly hold that the deposits received under the final arrangement constitute borrowed money for the purpose of Rule 2-A.

The learned Attorney-General laid great stress on the fact that the amounts were deposited with the object of inducing the appellants to have dealings with the customers and for the specific purpose of being held as security for the due performance by the customers of their forward contracts, and that the appellants themselves fixed the amount. to be deposited in each case.

These features, according to him, distinguished these transactions from a real borrowing or a real lending which the expression "borrowed money" in Rule 2-A must be taken to connote. vVe are unble to see how

1953 the object which the customers had in view in making

K. M. s. Lakshthe deposits can affect the essential cliaracter of the manier and Son• transaction. If A pays money to B who agrees to v. return not the identical eurrency in specie but an

_The Oommisequivalent sum subsequently, no bailment arises but mnrr of Income simply a loan owing by B to A.

The fact that it is Tax and Excess

ll. d d " k d"CC A ' Profits Tax, ca e a " epos1t can ma e no l!1erence. s pomted Madras. out by the Judicial Committee of the Privy Council in Nawab JVfajor Sir J11ohammad Akbar Khan v. Attar Patanfali Singh (1), the two terms are not mutually exclusive.

Sastri O.J. "A deposit of money is not confined to a bai!ment of specific currency to be returned in specie.

As in the case of a deposit with a hanker, it does not necessarily involve the creation of a trust hut may involve only the creation of the relation of debtor and creditor, a loan under conditions". The fact that one of the conditions is that it is to be adjusted against a claim arising out of a possible default of the depositor cannot alter the character of the transaction. :N" or can the fact that the purpose for which the deposit is made is to provide a security for the due performance of a collateral contract invest the deposit with a different character. It remains a loan of which t-he repayment in full is conditioned by the due fulfilment of the obligations under the collateral contract.

The Attorney-General placed strong reliance, as did the learned judges in the High Court, on the English decisions in Inland Revenue Commissioners v. Port of London Authority (2) and Inland Revenue Commissioners

v. Rowntree & Co. Ltd. (3). In the first case it was held that the stock issued by the Port of London Authority as consideration for the acquisition of the property of certain dock companies of London, which carried interest and was redeemable after twenty years, could not be regarded as representing " borrowed money " under Rule 2 of Part III of Schedule IV of the Finance (No. 2) Act, 1915, as that expression referred to "a real borro"'ing and a real lending ". The transaction was held to be a purchase of assets for consideration in the shape of the stock i:; sned, though it was attended

(1) (1936) LR. 63 I.A. 279.

(2) L.R. [1923) A.C. 507.

with incidents in some respects similar to those which 1953 would have en°sued if there had been a borrowing. It K. M.Oahh

may well be conceded that the term " borrowedmanier and Sons money" must be construed in its natural and ordinary v. meaning and implies a real borrowing and a real lend- .The Oommia- .

B t th h ld" th " h th" f th aioncr of Income mg. u e o mg at t ere was no mg o e Taz and Excess kind " in the issue of stock as consideration for the P"ofits Ta.v, purchase of certain assets, where "no money passed Madras. directly or indirectly between the parties to the transaction " is not of much assistance in determining the Patanjali issue whether the security deposits now in question Saatri o.J. involved a real borrowing and a real lending. For the reasons already indicated, we are satisfied that they do answer to that description and constitute borrowed money within the meaning of Rule 2-A.

The other case cited is still less helpful. Under certain arrangements for financial facilities, A drew 'fiills on B who accepted them and then, as an agent of A, discounted them with C and paid over the proceeds to A, who agreed to put him in funds before the maturity of the bills for paying them off. The Court of Appeal held that the money thus raised was not "borrowed money" within the meaning of paragraph 2 (1) of Part II of the Seventh Schedule to the Finance (No. 2) Act, 1939, which provided that "any

borrowed money shall be deducted" (for the purpose of Excess Profits Duty). After referring to the Port of London case (supra) as authority for the view that the words " borrowed money " require the existence of a borrower and a lender and that there must be a real borrowing in the legal sense of the word, the learned judges proceeded to inquire who oould be the lender, if any, in the circumstances of the case and found there was none-not B, for an acceptor of a bill need not have any money in his hands at all to lend, not C who was only acquiring certain rights in the bill under the law merchant but was not lending money.

They accordingly found it" impossible to discover that there was such a relationship" (of lender and borrower) either between A and B or between A and C.

In the

1953 present case, the relationship of lender. and borrower -- in all its essential features is plainly recognisable bet- K. M. 8 C, okahth d 't d th !!' t d ti t d . mauier ond Son.• ween e epos1 ors an , e appe an S, an Ia ectv. sion does not affect the matter one way or the other.

The Gommis On the other hand, a more recent decision sirmer of Inconn f h E ]' h (' f A ] ' D ' Th Ta" awl 1'xcess 0 t e ng IS .. ourt 0 ppea Ill a vies V, e Profits Tm:, Shell Company of China (1), which Mr. Pathak Madras. brought to our notice, is more in . point. A British Company, which sold petroleum products in Patanjnfi China through Chinese agents, required the latter to 80' 1ri o.J. deposit with the company a sum of money in Chinese dollars to be held as security against possible default by the agent in payment for the products consigned to them and to be repaid when the agency came to an end. These deposits were, during the war, transferred to the United Kingdom for reasons of safety and were there held in sterling. Subsequently, when the Chine134il dollar depreciated in relation to sterling, the amounts required to repay the deposits in Chinese dollars were much less than the sums held by the company as sterling equivalents of the deposits, and the question arose whether such deposits were trading receipts or receipts of a capital nature. In holding that they were capital receipts and the profit was therefore a capital gain, Jenkins L.J., who delivered the leading judgment, observed :

"If the agent's deposit had in truth been a payment in advance to be applied by the company in discharging the sums from time to time due from the agent in respect of petroleum products transferred to the agent and sold by him, the case might well be difficult and might well fall within the ratio decidendi of Landes Bros. v. Simpson(') and Imperial Tobacco Co. v.

Kelley.(') But that is not the character of the deposits here in question. The intention manifested by the terms of the agreement is that the deposit should be retained by the company, carrying interest for the benefit of the depositor throughout the terms of the agency. It is to be available during the

(1) (1951) 32 Tax Cas. 133.

(~) (1934) 19 Tax Cas. 62,

(3) (1943) 25 Tax Cao. 292,

• •

deriod of the. agency for making good the agent's

J9S3

pfaltsin te event of ny efault by him; hut.other- K. M.-~~Laksh wise 1t remams, as I see 1t, snnply as a loan owmg by 11ianie' a11J Sona the company to the agent and repayable on the termi. v. nation of the agency; and I do not see how the fact The Oommis that the purpose for which it is given is to provide <c sioncr of l:wonie security against any possih!ll default by the agent can Tax "'."1 Ecesa . t 't 'th tl .h t f t d' . " Profits 1 ax, mves 1 -w1 ie c arac er o a ra mg receipt.

Madraa, The Attorney.General relied also upon certain deci sions holding that security deposits received from Patmijali 1 . d . h fid . h Saatri O, J, emp oyees were 1mpresse wit a umary c aracter so that the depositors were entitled to preferential payments from the assignee in bankruptcy of the depositee. He admitted, however, that there were decisions holding the other way, and we do not think it necessary to discuss that class of cases, as the manner in which such sums have to he dealt with under the Insolvency Acts has no direct bearing on the question now under consideration.

Turning now to the deposits received by the appellants from 5th May, 1944, to 14th February, 1945, we are of opinion that, having regard to the terms of the arrangement then in force, they partake more of the nature of trading receipts than of security deposits. It will be seen that the amounts received were treated as advance payments in relation to each "contract number" and though the agreement provided for the payment of the price in full by the customer and for the deposit being returned to him on the completion of delivery under the contract, the transaction is one providing in substance and effect for the adjustment of the mutual obligations on the completion of the contract. We hold accordingly that the sums received during this period cannot be regarded as borrowed money for the purposes of Rule 2.A.

Lastly, Mr. Pathak suggested that the case having proceeded both before the Excess Profits Tax authorities and the High Court on the footing that if the sums received from the customers during any part of the chargeable accounting period were held to be borrowed,

w.; J money, they must be included in the computation of

K M.~Laksh the aveage pr?fits for h~ wole of the chargeable manier and Sons accountmg period, no d1stmct1on should now be made v. between one part of the period and another for this

_The Gommispurpose. We cannot accept th1_1t view. It is true to "oner of Income say that no such distinction was in fact made at any Tax and Excess r b th t b 't h Id th t Profits Tax, stage so iar, ut a is ecause 1 was e a none Madras. of the sums received under any of the arrangements was borrowed money within the meaning of Rule 2-A.

Patanjali But, if it be held that the amounts received under one 8astri 0 .. 1. or more, but not all, of the agreements are borrowed moneys, then, obviously, the computation of average capital in accordance with Rule 2-A must take into account the different character of the sums received nuder each of the agreements which was in force during a part only of the chargeable accounting period.

The form of the question referred to the court clearly recognises this and admits of a distinction being made, if necessary, between parts of the chargeable accounting period.

In the result we set aside the order of the court below and answer the question referred in the affirmative with reference to the last part of the chargeable accounting . period, namely, 14th February, 1945, to 12th April, 1945, and in the negative with reference to the rest of that period. We make to order as to costs.

Order set aside.

Agent for the appellants : N aunit Lal.

Agent for the respondent: G. H. Rajadhya.ksha.

K. M. S. LAKSHMANIER AND SONS

PATANJALI SASTRI C.J.

SEKHARA AIYAR

VIVIAN BosE

HASAN J.J.

Excess Profits Tax Act

Schedule II

5th May, 1944

5th December, 1944

14th February, 1945

5th }!fay, 1944

January 23.

L. R. 63 I.A. 279

High Court of Judicature at Madras

Satya. narayana Rao

Viswanatha Sastri

G. S. Pathak

G. R. Jaga

C. Setalvad

G. N.

Joshi

section 21

Excess Profits Tax Act, 1940

Madura

The appellants are merchants carrying on business in 1953 yarn in Madura and are the sole selling agents for yarn r
L .,,

Madura Mills Co., Ltd.

Second Schedule

High Court at Madras

12th April, 1945

Satyanarayana Rao

9th June, 1950

Madras

Second Schedule

K. M.ZLak•h

1st November, 1944

K. M. B. Laksh manier

Pathak

Sastri

Port of London Authority

Schedule IV

(1936) LR. 63 I.A. 279

Saatri

Seventh Schedule

Gommis

Shell Company of China

Pathak Madras

Patanjnfi China

United Kingdom

Jenkins

Madraa

Patmijali

N aunit Lal

G. H. Rajadhya.ksha.