DELlll ADMINISTRATION

.v.

CHANAN SHAH

February 12, 1969

[S. M, SIKRI, R. S. BACHAWAT AND K. S. HEGDE, JJ.j

Puniab Police Rules 1934, r. 16. 38-Sanction of District Magistrate for departmental inquirJ under said rule-inquiry vitiated when requirement~ of rule not followed.

The respondent was recruited as a constable in undivided Punjab in 1934 and m 1946 became an Assistant Sub-Inspector. In 1950 he was posted at Delhi. In 1955 he was confirmed in the above rank by the Senior Superintendent .of Police, Delhi. In 1957 there was an accsatio!l against him of having received illegal .gratcation in a ase he was mvetl gating, wheeupon alter a summary mquuy. the Supermtendent. of Pohc.e

(City) Delhi passed an order of censure agamst him. On a review of this order under r. 16.28 of the Punjab Police Rules, 1934 the Deputy Inspector General of Police passed an order cancelling the order of censure and further ordered that the respondent should be dealt with departmentally.

The conduct of the departmental mquiry was entrusted to the Supenntendent of Police Central District, New Delhi who asked the District Magistrate for the necessary sanction under r. 16.38 of the Punjab Police Rul<S,

1934. On receiving the sanction the J, nquiry Officer proceeded with the inquiry and found that the allegations against the respondent were substantially true. After a show caUSe notice he passed an order in 1958 dismissing the respondent from service.

An appeal against the order of dismissal was rejected by the Deputy Inspector General and the subsequent revision was dismissed by the Inspector-General.

The respondent tnere upon filed a writ petition in the Punjab High Court for quashing the

dismissal order. The petition was dismissed by the Single Judge but the Division Bench held that the dismissal order could not be sustained in view of .the fact that the inquiry was made in contravention of Ch. XVI r. 38 of the Punjab Police Rules. The Delhi Administration appealed to this Court.

HELD: The provisions of sub-rr. (I) and (2) of r. 38 are attracted in cases of complaint received by the Superintendent of Police, indicating the commission by a police officer of a criminal offence in connection with his official relations with the public.

In such a case the superintendent of police is required to bring the complaint to the notice of the District Magistrate who is to decide whether the investigation of the complaint should be made by a selected Magistrate having first class powers or should b.e lef~ to a polic~ officer. If the investigation discloses a prima faci<' case a Judicrnl prosecution should normally follow unless for reasons tG be recorded in writing the District Magistrate directs that the matter should be disposed of departmentally. [657 D-E] ·

In the present case the complaint received by the Superintendent of Police (City) Delhi indicated the commission by the appellant of a criminal olfonce m "?"!'ection with his official relations was the public.

The H complamt fell withm r, 38(1) and hould have been dealt with accordingly. Nevertheless there was no investigation of the kind prescribed by r, ~8(1). The District Magistrate did not direct any preliminary investigatJOn no! was. any prima fa_cie case against the respondent as a result of such an mvestigalton, established. The District Magistrate was not in- LIOSqp./69-7

formed that the Superintendent of Police held an inquiry and passed an order of censure and that his order was set aside by the Deputy Inspector- Geperal. The inquiry held by the Superintendent of Police was not authorised by the District Magistrate nor did it receive his approval. The District Magistrate gave his sanction without recording any reasons and without applying his mind to the requirement of r. 16.38. In the circumstances the departmental action taken against the respondent was invalid. [657 F; 658 C-Dl

State of Uttar Pradesh v. Babu Ram Upadhya, [1961] 2 S.C.R. 679, 711, 727-728 and Jagan Nath v. Sr. Supdt. of Police, Ferozepur, A.LR. 1962 Punjab 38, referred to.

CIVIL APPELLATE JURISDICTION : , Civil Appeal No. 277 of 1966.

Appeal by special leave from !be judgment and order dated C January 23, 1963 of !be Punjab High Court, Circuit Bench at Delhi in Letters Patent Appeal No. 68-D of 1961.

V. A. Seyid Muhammad, R. N. Sachthey and B. D. Sharma, for !be appellants.

"f1rank Anthony an<l Harbans Singh, for !be respondent.

D The Judgment of !be Court was delivered by Bachawat, J. The respondent was recruited as a constable in the police service in !be undivided. Punjab on April 3, 1934. By April 1946 he was promoted to the rank of Assistant Sub-Inspector.

In 1950, he was posted at Delhi.

On August 26, 1955 he was confirmed in this rank by !be Senior Superintendent of Police, Delhi.

In !be beginning of 1957 an accusation was made against him that while investigating a case registered by him against one Mohammad Jamil under First Information Report No. 1322 dated November 25, 1956 he had taken one Rame Shah to the Lahori Gate police post without formally arresting him and received from him by way of illegal gratification Rs. 100 which was paid on his behalf by one Roshan Lal.

On coming to know of Ibis complaint Sri A. C. Chaturvedi, Superintendent of Police

(City), Delbi, made some kind of a summary inquiry into the matter and on February 28, 1957 passed !be following order :-

"Reference complaint received from S.P.'s Office Vide No. 1212/GB, dated the 12th of January 1957, Integrity of S.I. Chanan Shah No. 112/D was found to be doubtful in connection wilb case F.I.R. 1322 dated 25-11-1956 under section 20/11/78 of

P.S.

Kotwali against one Mohd.

Jamil a Pakistani National. He is hereby censured.'' On a review of this order under rule 16.28 of !be Punjab Police Rules, 1934, Sri N. S.

Saxena, the

DEIJfi ADMN. v. CHANAN SHAH (Bachawat, I.)

6U

Deputy Inspector General of Police passed the following order on June 12, 1957 :-

"I have gone through the inquiries made by the city police as well as !>y the Crime Branch and feel that the :S.I. should have been dealt with departmentally for his misconduct and by which course the S.I. could have a chance to prove his innocence. I therefore order under P.R. 16.28 that the censure awarded to officiating Chanan Shah be cancelled and he should be dealt with departmentally.

The departmental file will be prepared by Sri B. L. Gulati, I.P.S., Superintendent of Police (Traffic) . The relevant papers may be sent to him."

The conduct of the departmental inquiry was entrusted to Sri D. C. Sharma, Superintendent of Police, Central District, Delhi.

On August 20, 1957 Sri Sharma wrote the following D.O. letter No. 2165-e to Sri C. B. Dube, District Magistrate, Delhi :-

" 1. On 25-11-56, S.I. Chanan Shah No.

112/D while posted as I/ c PP. Lahori Gate recovered a revolver with 6 rounds from the possession of one Mohd.

Jamil alias Mohan Lal of Lahore while the latter was staying at Regal Hotel.

A case FIR No. 1322, dated 25-11-56 u/s. 20-11-78 Arms Act was accordingly registered at P .S. Kotwali. The investigation of this case was carried out by S.I. Chanan Shah. '

2. During the course of investigation, the S.I. raided the house of one Rame Shah owner of shop No. 1387 Lajpat Rai Market.

Although nothing incriminating was found, yet he took Rame Shah to the P.P. where it is alleged, he (Rame Shah) was threatened with arrest and later on let off at midnight after he had paid a sum of Rs. 100/- through one Roshan Lal by way of illegal gratification.

3: In th~ course of inquiry it is felt that there is no sufficient evidence to prosecute the S.I. in a court of law under the Prevention of Corruption Act though he can be successfully dealt with departmentally.

4. In v!ew of the above it is proposed that he ma be deal~ with d7partm_entally instead of filing judici~ proceedmgs agamst hun.

Necessary approval under P.P. Rule 16.38 may kindly be accorded."

A copy ?f the letter was , Produced in this Court. On Au ust 2 l

~ 957 Sn C. B .. Dube, District Magistrate, Delhi sent theg follo : mg letter to Sn D. C. Sharma:- ' w

"Please refer to your D.O. letter No. 2165-C, dated A the 20th August, l % 7.

Sanction is hereby accorded to the taking of departmental action against S.l. Cilanan Shah as required under Punjab Police Rule 16.38."

On November 15, 1957 Sri Sharma drew up a formal charge sheet On the basis . of the charge-sheet he he1d an inquiry and found that the allegations agamst the respondent were sut>stantially true. On March 18, 19j8 Sri Sharma served a notice on th.e respondent to show cause wny he should not be dismissed.

After considering his reply and hearing hlm personally Sri Sharma passed an order on Apnl 12, J9j8 cusmissmg hlm irom service.

An appeal filed by hlm against the order was rejected by the Deputy Inspector General on February 14, 1959, and a revision peution filed by hlm was rejected by the Inspector General on June 5, 1959.

On August 18, 1959 the respondent filed a writ petition in the Punjab rligh Court for quashmg the dismissal order. One of the grounds ta.Ken by him was that the departmental inquiry was made in contravention of Chapter 16 rule 38 of the Punjab Police Rules, 1934. Gosain, J. dismissed the petition. The respondent filed a Letters Patent appeal against this order. A Divisional Bench of the High Court allowed the appeal and set aside the order dismissing the respondent from service.

The Divisional Bench held that the dismissal order could not be sustained in view of the fact that the inquiry was made in contravention of Chapter XVI rule 38. The present appeal has been filed by the Delhi Administration after obtaining special leave.

Chapter XVI of the Punjab Police Rules deals with punishments. Rule 1 P.rescribes the punishments and provides that "no police officer shall be departmentally punished otherwise than as provided in these rules." Rule 23 provides for prompt record of complaints against a police ofjicer made by a member of the general public and the transmission of the record to the Superintendent of Police or other gazetted officer under whose immediate control the officer who has recorded the complaint is serving. If such officer is of opinion that the allegations in the record constitute a prima facie case for inquiry, a departmental inquiry as in rule 24 must be held. Rule 38 specially deals with certain types of complaint against a police officer.

Sub-Rules (1) and

(2) of Rule 38 are as follows :-

" ( 1) Immediate information shall be given to the District Magistrate of any complaint received by the Superintendent of Police, which indicates the commission by a police officer of a criminal offence in connec-

DELIU ADMN. v. CHANAN SHAH (Bachawat, I.) 657

lion with his official relations with the public. The District Magistrate, will decide whether the inestigation of the complaint shall be conducted by a police officer, or made over to a selected magistrate having 1st class powers.

 ( 2) When investigation of such a complaint establishes a prima facie case, a judicial prosecution shall normally follow; the matter shall be disposed of departmentally only if the District Magistrate so orders for reasons to be recorded. When it is decided to proceed departmentally the procedure prescribed in rule 16.24 shall be followed. An officer found guilty on a charge of the nature referred to in this rule shall ordinarily be dismissed."

The provisions of sub-rules (1) and (2) of r. 38 are attracted in cases of complaint received by the Superintendent of Police, indicating the commission by a police officer of a criminal offence in connection with his official relations with the public. In such a case, the Superintendent of Police is required .

to bring the complaint to the notice of the District Magistrate who is to decide whether the investigation of the complaint should be made by a selected magistrate having first class powers or should be left to a police officer. If the mvestigation discloses a prima facie case, a judicial prosecution should normally follow unless for reasons to be recorded in writing the District Magistrate directs that the matter should be disposed of departmentally.

In the present case, the complaint received by the Superintendent of Police (City) Delhi indicated the commission by the respondent of a criminal offence in connection with his official relations with the public. The complaint fell within r. 38(1) and should have been dealt with accordingly. Nevertheless there w:is !10 invtigation .of the knd prescribed by rule 38 (1). The D1strtct Magistrate did not direct any preliminary investigatio~ nor was anr pri"!a acie case against the respondent as a resu11 of such an mvestigation established.

In State '!f pttar Pradesh v. Babu Ram Upadhya(') th1 Court by ma1onty held that the provisions of paragraph 486 ruli I of the U.P. P~Iice Re_gulations w_ere mandatory and that i depa:tmetal action gai?st the pohce officer in disregard thereo was mvalid. The mmonty held that the paragraph was director and as there was sustantial compli_ance with its provisions th

departmental proceedmgs were not mvalid. In I agan Nath v ff Sr. Supdt. of. o/ice, Ferozepur(') the Punjab High Court belt

that the provJSJons of rule 16.38 (1) and (2) were mandator

{I) [1961) 2 S.C.R. 679, 711, 727-728,

(2) A.I.R, 1962 Punjab 38,.

and that a departmental inquiry held without following its provisions was illegal.

It is not necessary to decide in this case whether the provisions of Rule 16.38 of the Punjab Police Rules are mandatory or directory. E, ven assuming that the rule is directory we find that there has been no substantial compliance with its provisions. The B complaint fell within rule 16.38, and it was for the District Magistrate to decide who should investigate the case. No investigation of any kind was made under his directions.

Without obtajning his directions, the Superintendent of Police held an inquiry and passed an order of censure. The order was set aside by the Deputy Inspector-General. Thereafter by D.O. letter No. 2165-C, the Superintendent of Police, asked for the sanction C of the District Magistrate to proceed departmentally. Even at this stage, the District Magistrate was not informed that the Superintendent of Police held an inquiry and passed an order of censure and that his order was set aside by the Deputy Inspector-General.

The inquiry held by the Superintendent of Police was not authorised by the District Magistrate nor did it receive his approval.

D The District Magistrate gave his sanction without recording any reasons and without applying his mind to the requirement of r. 16.38. In the! circumstances, we are constrained to hold that the departmental action taken against the respondent is invalid.

In the result, the appeal is dismissed with costs.

G.C ..

Appeal dismissed.

CHANAN SHAH

February 12, 1969

SIKRI

R. S. BACHAWAT

K. S. HEGDE, JJ

Puniab Police Rules 1934

Delhi

Punjab Police Rules, 1934

New Delhi

Delhi Administration

[1961] 2 S.C.R. 679

V. A. Seyid Muhammad

R. N. Sachthey

B. D. Sharma

Harbans Singh

Bachawat

Punjab

April 3, 1934

August 26, 1955

Mohammad Jamil

Rame Shah

Roshan Lal

A. C. Chaturvedi

Delbi

February 28, 1957

section 20

Mohd.

Jamil

Punjab Police Rules, 1934

N. S.

Saxena

Chanan Shah

B. L. Gulati

D. C. Sharma

Central District

August 20, 1957

Sharma

C. B. Dube

S.I. Chanan Shah

Mohd.

Jamil alias Mohan Lal

Lahore

s. 20

Arms Act

P .S. Kotwali

S.I. Chanan Shah

Prevention of Corruption Act

D. C. Sharma:-

November 15, 1957

March 18, 19j8

February 14, 1959

5, 1959

August 18, 1959

Punjab rligh Court

Punjab Police Rules, 1934

Gosain

Chapter XVI of the Punjab Police Rules

[1961) 2 S.C.R. 679


P. M. MOHAMMAD MEERAKHAN

COMMISSIONER OF INCOME-TAX, ERNAKULAM

February 12, 1969

(J.C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.)

Income-tax Act (II of 1922)-Sing/e Transaction to purchase estate-- No means to buy-Purchasers found-Plots sold and one retainedwhether transaction constituted trade-Value of plot retained added for estimate profit., whether correct.

The assessee entered into an agreement to purchase a land for Rs. 6 lakbs. He paid Rs. 11,000/- as advance and it was agreed that the sale deed was to be executed by a specified date either in favour of the

assessee or his nominees. The assessee did not have resources to buy land even worth a lakb nor could cultivate the land himself. He divided the land into 23 plots and found purchasers for 22 of these plots. These 22 plots were conveyed to the respective purchasers and the 23rd plot was conveyed to the assessee.

The Income-tax authorities brought to tax the sum representing the assessee's profit (after including the estimated value of the plot retained by him). The assessee contended that ( !) the transaction did not constitute a venture in the nature of trade; and (ii) even if it did, the profits from the adventure were not be properly ascertained as the adventure would terminate after the plots retained by the assessec was also sold and therefore the profits in the adventure e<mld be detennin- ed only at the time of the completion of the sale of the plot. Repelling these contentions, this Court,

HELD: (i) The question whether a transaction is an adventure in the nature of trade must be decided on a consideration of all the relevant factors and circumstances which are proved in the particular case. The answer to the question does not depend upon the application of any abstract rule or prmciple or fonnula but must depend upon the total impression and effect of alJ the relevant facts and circumstances established in the particular case. [662 A]

Having regard to the total effect of al1 tho circumstances in the present case the transactions of the assessee constituted an adventure in the nature of trade and were in the course of the profit making scheme and were taxable.

California Copper Syndicate v. Harris, [1904] S S.T.C. 159, 165-6, Martin v. Lowry, 11 Tax Cases 297, Rutledge v. Commissionerr of Inland Revenue, 14 Tax Cases 490, Commissioner of Inland Revenue v. Fraser,

24 Tax Cases 498, Leeming v. Jones, IS Tax Cases 333, Saro; Kumar Mazumdar v. Commr"ssr"oner of Income.tax, 37 l.T.R. 242, Venkataswami Naidu cl Co. v. Commissioner of Income-tax, 35 I.T.R. 594 and Raja 1.

Rameshwar Rao v. Commissioner of Income-tax, Hyderabad, 42 I.T.R. 179, referred to.

(ii) The profit of the assessee was correctly estimated by treating the land retained by him as stock-in-trade and valuing it according to the nonnal accountancy practice.

Under the Income-tax Act for the purpose of assessment each year is a self-contained unit and in the case of a trading adventure the profits have to be computed in the manner provided by the statute. It is true that the Income-tax Act makes no express provision with regard lo the value of stock. It charges for payment of tax the

income, protits and gains which have to be computed in the manner provided by the Income-tax Act. In the case elf a trading adventure the profits have to be calculated and adjusted in the light of the provisions of the Income-tax Act permittiqg allowance pl-escribed thereby. For that purpose it was the duty of the Inel)me-tax Officer to find out whai profits the business has made according to the true accountancy practice. As a normal rule, the profit should be ascertained by valuing the stock-in-trade at the beginning and at the end of .the accounting year. (666 E-H; 668 DJ

Whimsier & Co. v. Commissioner of Inland Revenue 12 Tax Cases 813, Commissioners of Inland Revenue v. Cock, Russell & Co. Ltd., 29 Tax Cases 387 and Comnzissioner of Jncometcx, MadTas v. A. Krishna swami Mudaliar & Ors., 53 L.T.R. 122, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1230 of 1967.

Appeal by special leave from the judgment and order, dated October 10, 1966 of the Kerala High Court in Income-tax Referred Case No. 18 of 1965.

S. T. Desai, Bhuvnesh Kumari, J.B. Dadachanji and 0. C.

Mathur, for the appellant.

Sukumar Mitra, R. N. Sachthey and B. D. Sharma, for the respondent. ·

The Judgment of the Court was delivered by

Ramaswami, J. In this case the appellant (hereinafter called the assessee) was assessed for the assessment year 1956-57 on a total income of Rs. 8,400.

The Income Tax Officer later on came to know that the assessee's income from the sale of estates had escaped assessment.

The Income Tax Officer took action under section 34(1 )(a} of the Income Tax Act, 1922 (hereinafter called the Act) for the assessment year 1956-57 on 13th August, 1959.

Under an agreement dated 18th May, f955 a company called Mundakayam Valley Rubber Co. Ltd. sold and delivered an estate called Kuttikal Estate to one Mr. A. V. George.

The area of ihe estate was 477 acres and 71 cents. Mr. A. V. George had entered into the ajO'eernent in his own name and on behalf of another company called the Kailas Rubber Co. Ltd. It was agreed that the vendor would execute the necessary conveyance in favour of Mr. A. V. ('.eorge or his nominees. On 15th August. 1955. the assessee entered into an agreement with Mr. A. V. George whereby the assessee agreed to purchase 477.71 acrea forming part of Kuttikal Estate for Rs. 6 !akhs. An advance of Rs. 11,000 was paid by the assessee.

The balance of Rs. 5,89,000 was to be paid bv the assessee on or before 25th September; 1955. -It was al!l'eed that Mr. A. V. Geore hould execute a sale-deed himself or cause it to be executed by Kallas Rubber Co. Ltd. on

MEERAKHAN v. C.I.T. (Ramaswa,, ii, J.) 661

whose behalf he was acting in favour of the assessee or his nominees. The assessee subsequently divided the area of 4 77. 71 acres into 23 plots and found purchasers for 22 of these plots. The total extent of 22 plots for which he found purchasers was 373.58 acres and the total price paid by the 22 purchasers was Rs. 5,18,500.

A sale deed was executed by the Mundakayam Valley Rubber Co. Ltd. on 31st March, 1956.

It covered all the 23 plots. The 22 plots for which the assessee found purchasers were conveyed to the respective purchasers and the 23rd plot was conveyed to the assesee himself.

Mr. A. V. George and th"; Kailas Rubber Co. Ltd. were parties to this document. The plot which the assessee had retained for himself was 104.13 aci:es in extent.

Its value was estimated bv the Income Tax Officer at Rs. 2,08,000.

The Income Tax Officer worked out the profit from the transaction ; if purchase and sale of land as follows :

"Sale price of 373 acres Rs. 5,18,500 Value of 104 acres retained by the assessee at Rs. 2,000 per acre . .

Rs. 2,08,000

Less Cost Rs. 7,26,500 Rs. 6,00,000

Rs. 1,26,500

The Income Tax Officer held that a sum of Rs. 1,25,000 in round. figures represented the assessee's profit from an adventure in the nature of trade and included this amount in his total income under section 34 (!)(a) of the Act.

The assessee appealed to the Appellate Assistant Commissioner who rejected the appeal. The assessee took the matter in further apoeal to the Appellate Tribunal which also rejected the aopeal holding that the amount of Rs. 1,25,000 represented profit from an adventure in the nature of trade. At the instance of the assessee the Appellate Tribunal stated a case to the High Court on. the following question Df Jaw:-

"Whether on the facts and in the Circumstances of the case, the transactions constituted a venture in the nature of trade and the surplus of Rs. 1,25,000 was assessable to tax ?"

By its judgment dated I 0th Oct'.lber, 1966, the Hih Court of Kerala answered the question in the affirmative and against the assessee. Thi• ao:oeal is broueht bv special leave from the iudgment of the High Court of Kerala, dated 10th October, 1966 in Income Tax Reference No. 18 of 1965.

The question whether a transaction is an adventure in the nature of trade must be decided on a consideration of all the relevant facts and circumstances which are proved in the particular case. The answer to the question does not depend upon the application of any abstract rule or principle or formula but must depend upon the total impression and effect of all the relevant facts and circumstances established in the particular case.

In California Copper Syndicate v. Harris,(1) Lord Justice Clerk observed:

"It is quite a well settld principle in dealing with questions of assessment of income tax that where the owner of an ordinary investment chooses to realise it, and obtains a greater price for it .than he originally acquired it at, the enhanced price is not profit .... assessable to income tax: But it is equally well established that enhanced values obtained from realisation or conversion of securities may be so assessable where what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business. . . . What is the line which separates the two classes of cases may be difficult to define, and each case must be considered according to its facts; the question to be determined being-Is the sum of gain that has been made a mere enhancement of value by realising a security or is it a gain made in the operation of business in carrying out a scheme for profit making ?"

But in judging the character of such transactions several factors have been treated as significant in decided cases.

For instance, if a transaction related to the business which is normally carried on by the assessee, though not directly a part of it, an intention to launch upon an adventure in the nature of trade may readily be inferred. A similar inference would arise where a commodity is purchased and sub-divided, altered, treated or repaired and sold or is converted into a different commodity and then sold.

The magnitude of the transaction of purchase, the nature of the commodity, the' subsequent dealings of the assessee, the nature of the organisation employed by the assessee and the manner of disposal may be such that the transaction inay be stamped with

the character of a trading nature. In Martin v. Lowry,(') the assessee purchased a large quantity of aeroplane linen and sold it in different Jots, and for the purpose of selling it started an advertising campaign, rented offices, engaged an advertising manager, a linen expert and a staff of clerks. maintained account books normally used by a trader, and passed receipts ai!ld payment

(1) [1904] S S.T.C. 159, 165--66.

(2) ll Ta~ cases 297, ,/

in connection with the linen through a separate banking account.

It was held that the assessee carried on an adventure in the nature of trade and so the profit was liable to be.taxed.

The same view was taken in Rutledge v. Commissioners of Inland Revenue(') in regard to an assessee who purchased very cheaply a vast quantity of toilet paper and within a short time thereafter sold the whole consignment at a considerable profit. Similarly, in Commissioner of Inland Revenue v. Fraser(') the assessee, a woodcutter, bought for resale, whisky in bond, in three lots.

He sold it later on at considerable profit. The assessee had never dealt in whisky before, he had no special knowledge of the trade, he did not take delivery of the whisky nor did he have it blended and advertised. Even so it was held that the transaction was an adventure 1n the nature of trade. Lord President Normand observed in the course of the judgment:

"It is in general more easy to hold that a single transaction entered into by an individual in the line of his own trade (although not part and parcel of his ordinary business) is an adventure in the nature of trade than to hold that a transaction entered into by an individual outside the line of his own trade or occupation is an adventure in the nature of trade. But what is a good deal more important is the nature of the transaction with reference to the commodity dealt in.

The individual who enters into a purchase of an article or commodity may have in view the resale of it at a profit, and yet it may be that that is not the only purpose for which he purchased the article of the commodity, nor the only purpose to which he might turn it if favourable opportunity of sale does not occur. In some of the cases the purchase of a picture has been given as an illustration. An amateur may purchase a picture with a view to its resale at a profit, and yet he may recognise at the time or afterwards that the possession of the picure will give him aesthetic enjoyment if he is unable ultimately, or at his chosen time, to realise it at a profit. A man may purchase stocks and shares with a view to selling em at an early date at a profit, bnt, if he does so, he rs purchasing something which is itself an investment, a potential source of revenue to him while he holds it. A man may purchase land with a view to realising .it at a prot, but it also .may yield him an income .while he contrnues to hold rt. If he continues to hold rt, there may be also a certain pride of possession

ut the. purchaser of a large quantity of a commodity like whisky, greatly in excess of what could be used b)

(!) 14 Tax C3ses 490.

(2) 24 Tax Cases 498.

himself, his family and friends, a commodity which A yields no pride of possession, which cannot be turned to account except by a process of realisation, I can scarcely consider to be other than an adventure in a transaction in the nature of a trade; and I can find no single fact among those stated by the Commissioners which in any way traverses that view. In my opinion, B the fact that the transaction was not in the way of business (whatever it was) of the respondent in no way alters the character which almost necessarily belongs to a transaction like this''.

These are cases of commercial commodities but a transaction of purchase of land cannot be assumed without more to be an adventure in the nature of trade. In Leeming v. Jones,(') a syndicate was formed to acquire an option over a rubber estate with a view to resell it at a profit, and finding the estate too small the syndicate acquired another estate and sold the two estates on profit. It was held that the transaction was not in the nature of trade and the profit was not liable to be assessed to tax.

The same view was expressed in Saroj Kumar Mazumdar v. Commissioner of Tncome Tax(") in which the assessee who carried 011 business of engineering works purchased land, which was under requisition by the Government, negotiated a sale before the la11d was de-reg•1isitioned and sold it after . the land was released.

But the circumstances of a particular case mav lead to the conclPsion that the purchase or resale of land is in the nature of trade. Tri Venkataswomi NaiO.u

& Co. v. Commissior>er of Income Tax,(') the appelhnt firm which acted as managing agents purchased. for a total wnsideration of R~. 8.713. four contiguous plots of land adjacent to the olace where the mills of the company mana.ed by it were situatea.

The first purchase was made in October. 1941 and S1'.bsequent nurchases were made in November, 1941, June 1942 am:l November, 1942. As long as the appellant was in possession of the land it made no effort to cultivate it or erect arv suoerstruc"1re dn it but allowed the land to remain unutilise'1 excent for the rent received from the house which existed on nne of the plots. The apnellant sold the land to the comnanv ma'1aged bv it in two Jots in Sentember and November, 1947, for a total consideration of Rs. ~2.600. The question was whether the sum of R0 .. 43,887 heinl! the e'.'Ccess realised by the appellant bv the two sales over its nurchase nrice. was. assessable to incowe:tax. The Apoelhte Tribunal reiected the contention of the anrellant that th~ oro., erties were bought as an investment and that the olots were• acauired for bnildin 11 tenements for the labourers or the mills bu• came to the conclusion that the transaction was an adventure in the nature

(1) 15 Tax Cases 333.

(2) 37 I, T.R. 242,

(3) 35 I.T.R. 594.

of trade. On a reference, the High Court _expressed the same view.

It was held by this Court in appeal that tl)e Appellate Tribunal

was right in inferring that the appellant knew that it would be able to sell the lands to the managea company whenever it thought it profitable so to do, that the appellant purchased the four plots of land with the sole intention of selling them to the mills at a profit and thaHhe High Court was right in holding that. the tan

sact10n was an adventure in the nature of trade. Agam m Raia J.

Rameshwar Rao v. Commissioner of income-tax Hyderabad, (1) the assessee purchased 217 acres of land from the pattadars and on a portion ol the land the assessee constructed a Ganj and shops.

The rest of the land he laid out as plots which he sold for a sum of Rs. 75,820. In computing the assessable income the Income Tax Officer added a sum of Rs. 75,~20 as receipt from business.

The decision of the Income Tax Officer was affirmed by the Appellate Commissioner and the Tribunal in appeal.

The High Court held on a reference by the Appellate Tribunal that there was evidence upon which the Appellate Tribunal could have come to the conclusion that the sum of Rs. 75,820 was the assessee's income from business. It was held by this Court on appeal that when a person acquired land with a view to selling it later after developing it, he was carrying on an activity resulting in profit, and the activity can only be described as a business venture. Where the person goes further and divides the land ii; ito plots, develops the area to make it more attractive and sells the land not as a single unit and as he bought it, but in parcels, he is dealing with land as his stock-in-trade. The decision of the High Court was accordingly affirmed and the appeal to this Court was dismissed.

As we have already .said it is not possible to evolve any single legal test or formula which can be applied in determining whether a transaction is an adventure in the nature of trade or not. The answer to the question must necessarily depend in each case 01l the total impression and effect of all the relevant factors and circumstances proved therein and which determine the character of the transaction. What then are the material facts found in the present case ?

It is clear from the recital of the agreement dated 15th October, 1955 that the intention of the assessee in purchasing the est.ate was to resell it at a profit. An advance of Rs. 11,000 was paid by the assessee on that date, the balance of Rs. 5,89,000 was to be paid on or before 25th September, 1955.

It was one of the terms of th~ agrem.ent that Mr. A. V. George was to execute the sale deed e!lher m tavour of the assessee or his nominees. It was also found that the assessee did not have the resources to buy any estate worth a lakh of rupees when he entered into the

agr~~~t_!_or __ the _p_u_rll.'.1se of Kuttiknl Estate for an amount of

llH~ I.T.R. 179.

Rs. 6 lakhs. In the intervening period between 15th August, 1955 and 31st March, 1956 the assessee divided the estate into 23 plots and arranged for the sale of 22 plots to different purchasers.

The division of the land into 23 plots and the sale to the various purchasers indicate that there was scheming and organisation on . the part of the assessee.

It was found tnat the assessee did not have the means and resources to cultivate the Jano himself and !hat he had arranged for the sale of 22 plots to different purchasers. Having regard to the total effect of all these circumstances we are of the opinion that the High Court was right in its conclusion that the transactions of the assessee constituted an adventure in the natW:e of trade and were in the course of a profit making scheme and the question was rightly answered by the High Court against the assessee.

It was then contended on behalf of the appellant that even assuming that there was an adventure in the nature of trade, the profits from such an adventure have not been properly ascertained in the present case. It was said that the Income-tax authorities were wrong in holding that the value of the 23rd plot retained by the assessee represented the profit made in the transaction.

The argument was that the adventure would terminate after the portion retained by the appellant was also sold and therefor~ the profits in the adventure could be determined only at the time of the completion of the sale of the entire estate. In our opinion, there is no justification for this argument. It is not a correct proposition to say that the profits of the assessee cannot be ascertained even on the assumption that the transaction of the adventure of trade was not completed. Under the Income Tax Act for the purpose of assessment each year is a self-contained unit and in the case of a trading advi:nture the profits have to be computed iri the manner provided by the statute. It is true that the Income Tax Act makes no express provision with regard to the value of stock.

It charges for payment of tax the income profits and gains which have to be computed in the manner provided by the Income Tax Act. In the case of a trading adventure the profits have to be calculated and adjusted in the light of the provisions of the Income Tax Act permitting allowances prescribed thereby. For that purpose it was the duty of the Income Tax Officer to find out what profit the business has made according to the true accountancy practice.

As a normal rule, the profit shoula be ascertained by valuing the stock-in-trade at the beginning and at the end of the accounting year, In Whimsier & Co. v. Commissioner of lnland Revenue(') Lord President Clyde observed at page 823 :

"In computing the balance of profits aRd gains for the purposes of income-tax .... two general and fundamental common places have already to be kept in mind.

(I) 12 Tax Cases 813,

In the first place, the J?rofits of any pcular year or accounting period must be taken to onsISt of the difference between the receipts from the trade or business during such year or accounting perioo and the expenditure laid out to earn those receipt. In the second place, the account o( profit and loss to be __ made up for the purpose of ascertaining that difference must be framed consistently with the ordinary principles of commercial accounting, so far as applicable, and in conformity wit?

the rules of the Income Tax Act, or of that Act as modified by the provisions and schedules of the Acts regulating excess profits duty, as the case may be.

For example, the ordinary principles of commercial accounting require that in the profit, and ioss account of a merchant's ur manufacturer's businllSS the values of the stock-in-trade at the beginning and at the end of the period covered by the account should be entered at cost or market price, whichever is the lower; although there is nothing about this in the taxing statutes".

In Commissioners of lnland Revenue v. Cock, Russell & Co.

Ltd.(') Croom-Johnson, J. in dealing with valuation of stock-intrade for purposes of taxation stated as follows :-

"There is no word in .the statutes or rules which deals with this. question of valuin_g stock-in-trade. There is nothing in the relevant legislation which indicates that in computing the profits and gains of a commercial concern the stock-in-trade at the start of the accounting period should be taken in and that the amount of the stock-in-trade at the end of the period should also be taken in.

It would be fantastic not to do it : it would be utterly impossible accurately to assess profits and gains merely on a statement of receipts and payments or on the basis of turnover.

It has Jong been recognised that the right method of assessing profits and gains is to take into account the value of the stock-in-trade at the beginning and the value of the stock-in-trade at the end as two of the items in the computation. I need not cite authority for the general proposition which is admitted at the Bar, that for the purposes of ascertaining profits and gains the ordinary principles of commercial accounting should be applied, so long as they do not conflict with any express provision of the relevant statutes." In Commissioner of lncome-tax, Madras v.

Krishnaswami Mudaliar and Ors. (2) it was observed by this Court that whiche.ver method of book keeping was adopted in the case of a trading

(I) 29 Tax Cases 387

(2) 53 1.T.R. 122.

venture for computing the true profits of the year the stock-in- A trade must be taken into account.

At page 132 of the report Shah, J. speaking for the Court stated the principle as follows :-

"These observations do not affect the true character of the profit of a business. Adjustments may have to be made in the principle having regard to the special character of the assets, the nature of the business and the appropriate allowances permitted, in order to arrive at the taxable profits.

They do not support the proposition that, in the case of a trading venture, you can arrive at the true profits of a year by ignoring altogether the valuation of the stock-in-trade at the end of the year, while. debiting its value at the commencement of the year as an outgoing; for determination of the profits by ignoring the valuation of the stock at the end of the year and debiting the value of the assets at the commencement of the year would not give a true picture of the profit for the year of account".

In view of this principle we are of the opinion that the Incomctax authorities have correctly estimated the profit of the assessee by treating the land as stock-in-trade and valuing it according to the normal accountancy practice.

For the reasons expressed we hold that the decision of the lligh Court of Kerala, dated 10th October, 1966, is corre"t and this appeal must be dismissed with costs.

Y.P.

Appeal dismissed.

P. M. MOHAMMAD MEERAKHAN

COMMISSIONER OF INCOME-TAX, ERNAKULAM

February 12, 1969

C. SHAH

V. RAMASWAMI

A. N. GROVER, JJ.

Income-tax Act

Income-tax Act

Income-tax Act

Income-tax Act

Income-tax Act

CIVIL APPELLATE JURISDICTION

S. T. Desai

Bhuvnesh Kumari

J.B. Dadachanji

. C.

Mathur

Sukumar Mitra

R. N. Sachthey

B. D. Sharma

Ramaswami

13th August, 1959

Mundakayam Valley Rubber Co. Ltd.

A. V. George

Kailas Rubber Co. Ltd.

A. V.

.eorge

15th August. 1955

25th September; 1955

A. V. Geore

Kallas Rubber Co. Ltd.

31st March, 1956

section 34

Hih Court of Kerala

10th October, 1966

Normand

Agam m Raia

15th October, 1955

25th September, 1955

15th August, 1955

Shah


A M. R. GOYEL, PROP. MIS MILKllIRAM BROS. BOMBAY

THE COMMISSIONER OF INCOME TAX, BOMBAY

CITY 1, BOMBAY

February 12, 1969

[J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.)

Jncometax-Person entering into contract for purchase of goods- Thereafter transferring benefit of contract for consideration-Whether con• sideration received wa.r capital receipt or revenue.

Uie appellant entered into a contract for the purchase of a large quantity of parachutes from the T. Company. The agreed purchase price was over Rs. 93 lacs and the assessee was required to deposit a sum of Rs. JO lacs by way of earnest money. As he did not have enough funds, he entered into an arrangement with certain other persons whereby the amount of Rs. 10 lacs was to be deposited by them and they were to receive a "net profit share of 9 annas in a rupee". The financiers later withdrew from the arrangement and the benefit of the contract for the purchase of parachutes was transferred to a firm for a sum of Rs. 3 lacs on November 30,

1946. A few days later another partnership took over the contract of purchase. The Income-tax Officer reopened the appellant's assessment for the assessment year 1947-48 on the ground that the income of Rs. 3 lacs had escaped assessment. After the appellant had failea in an appeal to the Appellate Assistant Commissioner, the Tribunal found that the appellant had in fact only received a sum of Rs. 1,87,000/- and rejected-his contention that this amount was in the nature of a premium for giving up his right to do business in parachutes and was, therefore, in the nature of a capital receipt and not revenue. It held that the assessee had received profit in respect of a venture in the nature of trade. The High Court, upon a reference, upheld the view taken by the Tribunal.

In appeal to this Court it was contended on behalf of the appellant that the agreement which he bad entered into with the T. Company was a capital asset or a source of possible income and the transfer which was made, was not of the good! which were to be acquired under the contract but the source itself, namely the appellant's share, right, title and interest was transferred and furthermdre the amount in question was received by the appellant for relinquishing his right to participate in the partnership which had been formed and from which he withdrew. It could not, therefore, partake of the character of a revenue receipt.

HELD : Dismissing the appe, al,

The Tribunal had rightly held that the appellant inded "to do and did a venture in the nature of trade". When the appellant agreed to accept a sum of Rs. 1,87,000/- in consideration for transferring the benefits of the contract, be could well be said to have concluded a deal which represented the profit which he anticipated by acquiring the parachutes.

The High Court had rightly found that the arranement made by the appellant with certain parties to finance tho transaction in return for a share of 9 annas in a rupee, was one which had been made between a person in need of money and certain financiers and that no partnership bad come into force.

Accordingly there could be no question of the appellant having relinquished a share in the partnership. (673 CJ . LlOSup./69-8

SUPREME COURT REPORTS.

[1969] 3 S.C.R.

CIVIL APPELLATE JuRISDICTlON: Civil Appeal No. 681 of A 1968.

Appeal by special leave from the judgment and order dated September 29, 1961 of the Bombay High Court in Income-tax Reference No. 46 of 1969.

I. N. Shroff, for the appellant.

S. K. Mitra, S. A. L. Narayan Rao and B. D. Sharma, for the respondent.

The Judgment of the Court was delivered by Grover, J. This is an appeal by special leave from a judgment of the Bombay High Comt answering the following question referred to it by the Income Tax Appellate Tribunal in the affirmative and against the assessee ;

'"Whether on the facts and circumstances of the case the receipt of Rs. 1,87,000 in the hands of the assessee is a revenue receipt and liable to income-tax ?"

The assessee used to carry on his business under the name and style of Milkhiram Bros.

He was being assessed from the year 1945-46 onwards.

On October 31, 1946 he secured a contract for the purchase of approximately 1,28,499 parachutes from Tata Aircraft Ltd.

The parachutes belonged to the Government of India and the Tata Aircrafts Ltd. was acting as the agent of the Government. The agreed purchase price of the parachutes was approximately Rs. 93t lakhs.

The cootract was entered into by means of letters.

The assessee addressed a letter, dated October 29, 1946 to Tata Aircraft Ltd. containing an offer. Tata Aircraft Ltd. sent a reply, dated November 1, 1946, confirming the sale on the te_m1s and conditions given in that letter. The assessee had to make a deposit by way of earnest money of a sum of Rs. 10 !akhs.

The assessee did not have enough funds with him. He entered into an arrangement with M/s. Nathmal Nihalchand, Pokhraj Hirachand and Harilal Hargovandas for financing the business. The details of this arrangement were contained in a letter, dated October 31, 1946. The amount of Rs. 10 lakhs was to be depo sited by the latter who were to receive a "net profit share of 9 As. in a rupee". The assessee later on arranged on November 30, 1946 with the financiers to withdraw from the old arrangement recorded in the letter, dated October 31, 1946.

The benefits .)f the contract of purchase of parachute were transferred to the firm styled as Pokhraj Hirachand for a sum of Rs. 3,00,000 on November 13, 1946.

On November 14, 1946 the parties ap proached Tata Aircraft Ltd. who agreed to accept M/s. Pokhraj Hirachand as purchasers of parachutes on the terms and conditions originally agreed to between the assessee-and that comP, any.

M!LKHIRAM BROS. v. C.l.T. (Grover, J.) 671

On November 22, 1946 an agreement of partnership was entered into between six persons, namely, Nathmal, Pokhraj, Chan<lumal, Prithviraj, Shapoorji & Co. Ltd. and Jamalbhai.

This partnership took over the contract of purchase entered into hy Pokhruj Hirachand. It was registered by the Income tax authorities for the assessment year 1948-49.

Ml s. Pokhraj Hirachand in their assessment claimed a deduction of Rs. 3,00,000 being the payment made to the assessee under the arrangement menlioned above. The Income tax authorities disallowed the claim on the ground that it was a capital payment.

The aforesaid firm appealed to the Tribunal which _held that only a payment of Rs. 1,87 ,000 _had been proved to have been made to the assessee. For the assessment year 194 7-48 the Income Tax Oilicer reopened the assessment of the assessee under s. 34 of the Income Tax Act, hereinafter called the "Act" on the ground that the income of Rs. 3,00,000 had escaped assessment.

The assessee contended that only a sum of Rs. 1,87,000 had been received by him and not Rs. 3,00,000.

The Tribunal decided that point in his favour in appeal after he had failed before the Appellate Assistant Commissioner.

The assessee's contention before the Tribunal was that the nature of the receipt of Rs. 1,87 ,000 was capital and not revenue. According to him the amount received was in the nature of a premium for giving up his right to do business in parachutes. The Tribunal did not accede to his contention and held that the assessee had received profit in respect of a venture in the nature of trade.

Thereupon the assessee moved the Tribunal and the question of law was referred.

The High Court entertained no doubt on the facts which had bei:n found that the receipt of Rs. 1,87,000 was a trading receipt.

This was so because the assessee was a businessman dealincr itl articles including parachute silk.

In the opinion of the lligh Court the contract which he entered into with Tata Aircraft Ltd. was a contract for the purchase of stock-in-trade for the business which he was carrying on. It was argued before the High Court that the amount .in questin had been received for relinquishing his. nght to parlicipation m the profi.ts of the partnership from which the assessee withdrew. Accordmg to the High Court such an argument had not been presented before the Appellate Tribunal.

The letters which were exchanged between the concerned parties wee also considered and the conclusion at which the High Court arnved was that the benefit of the contract which the assessee had entered into with M/ s. Tata Aircraft Ltd. had been

transfrred ?Y him in favour of Messrs.

Pokhraj Hirachand for a consideralion of Rs. 3,00,000 out of which a sum of Rs. 1,87,000 only had been found to have been actually received by the assessee.

That sum, therefore represented a receipt for transferring the

SUPREME COURT REPORTS [1969] 3 s.c.Jt

benefits of the contract entered into by the assessee in the ordinary course of the business.

On behalf of the assessee who is the appellant before us it is submitted that the sum of Rs. l,87,000 received by him could v.ot be regarded as income.

The agreement which had been entered into by the appellant with M/ s. Tata Aircraft Ltd. was a capital asset or a source of possible income and the transfer which was made was not of the goods which were to be acquired under the contract but the source of income itself, namely, the appellant's share, right, title and interest was transferred.

The second contention which was also raised before the High Court is that the amount in .question were received by the appellant for relinquishing his right to participate in the partnership which had been formed and from which he withdrew. It could not therefore partake of the character of a revenue receipt.

It appears that before the Tribunal only the first contention was raised.

The Tribunal found as a fact th.at it was the appellant who had entered into a contract with M/s. Tata Aircraft Ltd. for the purchase of parachutes for a fixed sum." He intended "to do and did a venture in the nature of trade". The Tribunal took into consideration the well-known normal method of doing supply business in our country. According to it, highly influential parties instead of doing the business themselves manage to seeure contracts and pass on the actual executioq of the business to others in return for a fixed sum of money. This is what the appellant did and the income which he received was liable to income tax.

It is difficult to see how on these findings the appellant could legitimately argue that the amount of Rs. 1,87,000 was a capital receipt.

It is true that by meaos of the letter, dated October 31, 1946 M/s.

Nathumal Nihalchand, Pokhraj Hirachand etc. were given 9 As. share in a rupee in the transaction and a partnership agreement was purported to have been entered into. But this letter merely embodied an arrangement for financing a busine'ss venture into which the appellant had entered. He did not have the funds and a deposit of Rs. 10 lakhs had to be made immediately. M/s.

Nathumal Nihalchand, Pokhraj Hirachand and others agreed to pay that amount to M/s. Tata Aircraft Ltd. It must be remembered that it was the appellant who had entered into the contract with Mis Tata Aircraft Ltd. in respect of the purchase of parachutes. When he agreed to accept a sum of Rs. 1,87 ,000 from the aforesaid persons as consideration for transferring the benefits of the contract the appellant can well be said to have concluded a deal which represented the profit which he anticipated by acquiring the parachutes.

It has been submitted on behalf of the appellant that he was not carrying on the business of transferring or selling the benefits

MILIOIIRAM nos. v. c.1.T. (Grover, !.) 673

A of contracts and therefore the contract entered into with M/ s. Tata Aircraft Ltd. could not be regarded as a part of his stock-in-trade It would seem that the Tribunal proceeded more on the footing that the contract relating to the parachutes was a venture in the nature of trade than on the basis that it constituted stock-in-trade of the appellant. It is, therefore, unnecessary to examine this B aspect of the matter. ·

It seems to us that the second contention of the appellant ought not to have been entertained by the High Court. It was not raised before the Tribunal.

At any rate, the High Court examined it fully and came to the conclusion that the arrangement contained in the letter, dated October 3-1, 1946 was one which C had been made between a person in need of money and certain financiers and that no partnership had come into existence. In that view of the matter there could be no question of the appellant having relinquished a share in the partnership.

. We would accordingly hold that the answer returned by the High Court was correct. The appeal fails and is dismissed with costs.

R.K.P.S.

Appeal dismissed.

M. R. GOYEL, PROP. M/S MILKHIRAM BROS. BOMBAY

February 12, 1969

C. SHAH

V. RAMASWAMI

A. N. GROVER, JJ.

November 30,

1946

CIVIL APPELLATE JuRISDICTlON

September 29, 1961

Bombay High Court

I. N. Shroff

S. K. Mitra

S. A. L. Narayan Rao

B. D. Sharma

Grover

Milkhiram Bros.

October 31, 1946

Tata Aircraft Ltd.

Government of India

Tata Aircrafts Ltd.

October 29, 1946

November 1, 1946

Nathmal Nihalchand

Pokhraj Hirachand

Harilal Hargovandas

November 30, 1946

November 13, 1946

November 14, 1946

November 22, 1946

Nathmal

Pokhraj

Chan<lumal

Prithviraj

Shapoorji & Co. Ltd.

Jamalbhai

s. 34

Nathumal Nihalchand

Mis Tata Aircraft Ltd.

October 3-1, 1946


DY. COMMISSIONER OF AGRICULTURAL INCOME TAX, A

ANDSALESTAX, CENTRALZONE, ERNAKULAM v.

M/S. PALAMPADAM PLANTATIONS LTD., KOTTAYAM

February 12, 1969

[J. C. SHAH, V. RAMASWAMI AND A, N. GROVER, JJ.]

Kera/a General Sales Tax Act (Kera/a 15 of 1963), s. 2(viii)- Dealer-Trees of spontaneous growth in private forest-I/ 'produced' hy

o"'ner of forest-'Produced', meaning of.

Where a person owns and maintains a private forest and sells trees of spontaneous growth therein but does not do anything towards the production of the trees or their uprooting, be is not a 'dealer' within the meaning of s. 2(viii) of the Kerala General Sales Tax Act. I963. In order t<> fall within the definition, a person must sell goods produced by him by manufacture, agriculture, horticulture or otherwise.

The intention of the Legislature in using the word 'produced' was to introduce an element of voli tion and effort involving the employment df some process for bringing into existence the goods.

Trees which hav~ grown spontaneously without any plantation by a person cannot be said to have been produced by him hy agriculture or horticulture or •otherwise', stnce the element of 'production is not present. [675 H; 676 A-B, C-D]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1058 of 1967.

Appeal by special leave from the order dated September 15, 1966 of the Kerala High Court in Tax Revisiqrl Case No. 106 of 1966.

M. R. Krishna Pillai, for the appellant.

The respondent did not appear.

The Judgment of the Court was delivered by

Grover, J. This is an appeal by special leave from a judgment of the Kerala High Court dismissing in limine a revision petition directed against the order of the Sales Tax Appellate Tribunal dated April 15, 1966 by which it was held that the respondent company was not a "dealer" within the meaning of s. 2(viii) of the Kerala General Sales Tax Act 1963 (Act 15 of 1963) hereinafter called the "Act''.

The respondent sold trees of spontaneous growth in its estate for Rs. 50,000 during the assessment year 1963-64. The assessing authority levied sales tax by treating the aforesaid amount as taxable turnover under the Act. In appeal the Appellate Assistant Commissioner confirmed that order. Before the Appellate Tribunal it was common ground that the trees sold were of spontaneous growth.

The Tribunal did not accede to the contention

DY. COMMR. s. T. v. PALAMPADAM (Grovu, J.) 675

of the State representative that Under the contrac.t, by the process of uprooting the trees, the respondent produced Umber and would be covered by the definition of a "dealer" contained in s. 2(viii) of the Act. It was held that uprooting of the trees was not being done by the respondent and no process had been employed by which it could be said that timber had been produced by it. The appellant herein filed a petition before the High Court raising the following questions of law :

"(1) Whether on the facts and in the circumstances of this case, a person owning and maintaining privte forest and selling trees of spontaneous growth therem, is a 'dealer' within the meaning of section 2 (viii) of the Kerala General Sales Tax Act, 1963 ?

(2) Whether such a person is liable to the levy of sales-tax respect of sales of his timber. under the s!tld Act?"

D As mentioned before the High Court rejected the petition for revision at the preliminary hearing.

The sole question is whether on the findings given by the Appellate Tribunal the respondent can be regarded as a "dealer" within the definitii:Jin given in s. 2(viii). According to that defi- E nition "dealer" means any person who carried on the business of buying, selling, supplying or distributing goods directly or otherwise whether for cash or for deferred payment or for commission, remuneration or other valuable cQ!lSideration and includes ..... .

( e) a person who sells goods produced by him by manufacture, agriculture, horticulture or otherwise.

It has been contended before us by learned counsel for the appellant that the Aopeliate Tribunal erred in assuming that any agricultural, horticultural or other process was involved in producing the timber sold. The basic questiol!f it is said, was whether ma!ntenance of a private forest with a view to producing and sellmg valuable timber with the usual attributes of business pre- G sent in the said activity, namely, periodicitv. continuity and profit motive would amount to such process.

The other question was whether the said activity i.e .. forestry would not come within the scope of "agriculture, horticulture or otherwise" particularly when the respondent owns substantial area of forest land, and timber from the trees of spontaneous growth is sold year after year with H the object of earning profit.

Now in order to fall within the definition of "dealer" a person must sell goods prod\lced by him by manufacture, agriculture,

SUPREME COURT REPORTS (1969] 3 s.c.R.

horticulture or otherwise.

Such trees which have grown spontaneously and without any plantation by that person cannot passibly

bei regarded as having been produced by him by agriculture 6f horticulture.

The word "otherwise" also cannot cover trees of spontaneous growth since the elemqn, t of production must be present. The context in which the word "produced" appears in the definition can only mean "to bring forth, bring into being or existence-to bring (a thing) into existence from its raw materials or elements : " (See the meaning oi the word "produce'' in the Shorter Oxford English Dictionary) .. According to Websters' International English Dictionary the verb "produce" means to bring forward, beget etc.

The juxtaposition of the word "manufacture" with "agriculture" "horticulture" is significant and cannot be lost sight of.

The intention in employing the word "produced" obviously was to introduce an element of volition and effort involving the employment of some process for bnnging into existence the goods.

The respondent in the present case has not been found to have done anything towards the production of the trees and even the cutting has been done .by the contractor. The respondent therefore cannot possibly be regarded as a person who sells goods produced by him by agriculture, horticulture or otherwise.

On the above view of the matter. the appeal fails and is dismissed.

As there is no appearance on behalf of the respondent there will be no order as to costs in this Court.

V.P.S.

Appeal dismissed.

DY. COMMISSIONER OF AGRICULTURAL INCOME TAX, AND SALES TAX,CENTRAL ZONE, ERNAKULAM

February 12, 1969

C. SHAH

V. RAMASWAMI

N. GROVER, JJ.

General Sales Tax Act

s. 2(viii)

s. 2(viii)

Kerala High Court

Grover

s. 2(viii)

Kerala General Sales Tax Act 1963

s. 2(viii)

section 2

Kerala General Sales Tax Act, 1963

s. 2(viii)


FlRM ISHARDAS DEVI CHAND .t ANR.

R. B. PARKASH CHAND & ANR.

February 13, 1969

[S. M. S!KRI, R. S. BACHAWAT AND K. S. HEGDE, JJ.]

Code of Civil Procedure, O .. XXXIX r. 2 and 0. XLIIJ r. 1--0rder of trial cour( dismissing an application for temporary injunction on the gr"und that it did not satisfy the terms of 0. XXXIX r. 2 war an order under thar rule-It wds appealable under 0. XLIII r. 1.

The appellants who claimed to be tenants of the respondents in respect of certain premises in Amritsar brought a auit for a permanent injunction restraining the latter 1from taking possession of the said premises in execution of an eviction order obtained by the respondent against the appellant and another, as per Rent Controller's order dated February 22, 1967. They also filed a J?!!tition purporting to be under 0. 39 r. 2 and s. 151 of the Code of Civil Procedure for !lfant of a temporary injunction till the disposal of the suit. The trial court, namely the sub-Judge, found that the appellants were sub-tenants 'and not tenants and that the liability to be ejected in execution of a valid Order could not be said to be an 'injury' within 0. 39, r. 2. On this view the trial court dismissed the application 'for temporary injunction. The appellants filed an appeal befere the District Judge which was dismissed on the preliminary ground that no appeal lay.

The High Court dismissed the revision filed by the appellants in limine. With special leave the appellants came to this Court.

HELD : (i) The order of the trial court was clearly appealable under

0. XLIII r. I C.P.C. which provides inter alia for an appeal against an order under 0. XXX1X r. 2. [679 DJ

It was common ground that tho appellants filed an application under

0. XXXIX rr. 1 and 2 and s. 151 C.P.C. .Tho learned Sub-Judge had to consider whether this application was competent or not competent under r. 2 of 0. XXXIX. In deciding that no such application 'Jay under

0. XXXIX r. 2 on the ground that -what the appellants were complaining of. was not an injury within 0. XXXIX r. 2 he was passing an order under

0. XXXIX r. 2 itself.

In appeal the appellants could contend that the learned_ Sub-Judge had misconstrued 0. XXX1X r. 2 including the. word 'injury'!679 Fl

Thel' reliminary objection of the respondent before the learned District Judge that the order of tho S'Jb-Judge was passed under s. 151 C.P.C. and not under 0. XXXIX rr. 1 and 2 C.P.C. w .. not sound because in holding that 0. XXXIX r. 2 did not apply the learned Sub-Judge was not exercising his inherent powers. [679 G-H]

Hemant Kumar v. Ayodhya Prasad, A.I.R. 1957 M.B. 95 and Abdul Hamid Khan v .. Tridip Kumar Chanda, A.LR. 1953 Ass. 104, referred to.

(ii) On merit! however tho appeal had to be dismissed .. there was not much to be said in favour of issuing a temporary injunction because the appellants had not made out a prima facie cllllC. In the exercise of its powers under Art. 136 interference by this Court with the order of the district Judge would not be justified. [680 D]

SUPRBM! COURT REPORTS

[1969] 3 S.C.R.

CIVIL APPELLATE JURISD!CT[ON : Civil Appeal No. 1709 of A 1968.

Appeal by special leave from the judgment and order dated May 22, 1968 of the Punjab and Haryana High Court in Civil Revision No. 422 of 1968.

Bishan Narain, B. Datta and 0. C. Mathur, for the appellants.

M. S. Gupta aind S. K. Dhingra, for respondent No. 1.

The Judgment of the Court was delivered by Sikri, J. This appeal by special leave arises out of the order dated July 20, 1967, of Sub-Judge, Amritsar, dismissing an application under 0. XXXIX rr. 1 & 2, C.P.C., and s. 151, C.P.C., filed by the appellants .for grant of a temporary injunction till the disposal of the suit brought by the appellants.

The appellants filed an appeal against that order to the District Judge, Amritsar, who upheld the preliminary objection of the respondents that no appeal lay against that order on the ground that the order was passed under s. 151, C.P.C., and not under O. XXXIX rr. 1 & 2.

The High Court dismissed the revision filed by the appellants in limine.

The appellants having obtained special leave the matter is before us.

The relevant facts may be shortly stated. Firm Ishar Das Devi Chand a:nd its two partners, Devi Chand and Manohar Lal. brought a suit for a permanent injunction restraining R. B. Parkash Chand, respClflldent before us, from taking possession of the demised premises, namely, No. 1045/II-13, Katra Ahluwalia, Amritsar, in execution of an eviction order obtained by the respondent agamt the appellants 'and one Shri Ishar Das, as per Rent

Controlle~'s order dated Feb. 22, 1967. It appears that Ishar Das, partner of the firm called Tara Chand Ishar Das, had executed a rent note, dated May 1, 1948, in favour of the respondent.

On February 22, 1967, the Rent Contro!ler passed an order of ejectment against the fihn Tara Chand lshar Das a)!ld

Shri.Ishar Das.

It ppears that in the eviction applicatio.n filed by the respondent the appellants had filed an application under s. 4 of the East

Punjab Urban Rent Restriction Act, 1949,. which was dismissed.

In that application an issue was raised as to whether any relationship of landlord and tenant existed between the appellants and the respondent.

It was contended before the learned Sub Judge that the res- H pondcnt had accepted payment of three cheques, one on March 13, 1963. forRs.1,175/-, second on April 2, 1964, for Rs. 1,875/- and the third cheque on June 17, 1965, for Rs. 1,500/-.

FIRM ISHARDAS V. PARKAsH CHAND (Sikri, /.) 679

A According to the appellants, this acceptance of the rent made them tenants under the respondent.

The learned Sub Judge wont into these facts and came to the conclusion that the appellants had not made out a prima facie case.

According to the learned Sub-Judge, even if the payment had been received, as alleged by the appe!Iants, then B it would not mean that the landlord accepted the occupiers of the premises as his tenants. Following Hemant Kumar v. Ayodhya Prasad(') and Abdul Hamid Khan v. TridirJ Kumar Chandra(') he held that the appe!lants were sub-tenants,' and that the liability to be ejected in execution of a valid order could not be said to be an "injury" within 0. XXXIX r. 2. The Trial Court thought C that the appe!lants could have other efficacious remedies to obstruct possession under the provisions of Civil Procedure Code.

According to the Trial Court, however, unless the ejectmerrrt order was set aside its execution could not be an "injury'' as contemplated by Jaw.

It seems to us that this order dated July 20, 1967 was clearly D appealable under 0. XLIII r. 1, C.P.C. Order XLIII inter alia provides:

"0. XLilI r. 1. An appeal shall lie from the following orders under the provisions of section 104, namely,: ..........................................

(r) an order under rule I, rule 2, rule 4 or rule 10 of Order XXXIX." It is common ground that the appe!lants filed an application under 0. XXXIX rr. 1 & 2, and s. 151, C.P.C. The learned Sub Judge had to consider whether this application was compe- F tent or not competent under r. 2 of 0. XXXIX.

In deciding that no such application Jay under 0. XXXIX r. 2 on the ground that what the appellants were complaining of was not an injury within 0. XXXIX r. 2 he was passing an order under 0. XXXIX r. 2 itself. In appeal the appellant~ could contend that the learned Sub Judge had misconstrued 0. XXXIX r. 2, including the word "injury".

G The preliminary objection of the respondemt before the learned District Judge that the order dated July 20, 1967, of the Sub- Judge was passed under s. 151, C.P.C., and not under 0. XXXIX rr. } &_ 2, C.P.C., is not sound because in holding that 0. XXXIX .r. 2 did not apply the .]earned Sub Judge was not exercising his inherent powers. What the learned District Judge seems to have H done is to hold that the application for temporary injunction did not fall within 0. XXXIX r. 2 and, therefore, no appeal lay. This

(I) A.l.R, 1957 M.B. 9S.

(2) A.l.R. 1953 Asi. 104.

680 SUPllEMI! CO~T Rl!PORTS [1969) 3 sc.R.

reasoning is really on the merits of the case and not relevant to the pre!imi,!lary objection raised by the respondent.

We must, therefore, hold that the District Judge and the High Court erred in holding that no appeal lay against the order of the Trial Court, dated July 20, 1967.

Two courses are now open to us; one, that we should set aside the order of t.'le District Judge and direct him to decide the appeal on the merits, and the other, that we should dispose of the matter here.

We were informed by the learned counsel for the respondent that the ejectment order dated February 22, 1967, had bee\11 set aside and the application for temporary injunction had become inlructuous. But the !Camed counsel for the appellants says that the High Court, in appeal, might restore that order, and the matter should be remitted to the District Judge.

It seems to us that in exercise ot the powers under Art. 136 we should not interfere with the order of the District Judge. Qn the merits there is not much to be said in favour of issuing a temporary injunction because the appellants have not made out a prima facie case. The application of the appellants under s. 4 of the East Puujab Urban Rent Restriction Act stood di•missed and the order dismissing that application has not been challenged by the appellant~ up-to-date. In the proceedings the respondent had denied that there was any relationship of landlord and tenant existing between the appellants and the respondent. Further the learned Sub I udge, after holding that the appellants had been guilty of !aches and delays, came to the conclusion that the balance of con'venieni:e was more in favour of the respondent than in favour of the appellants. The learned Sub Judge does not seem to have exercised his discretion capriciously or arbitrarily and no case for interference has been made out.

In the result the appeal fails and is dismissed, but under the circumstances there will be no order as to costs.

G.C.

Appeal dismissed.

•\:

v B .

FlRM ISHARDAS DEVI CHAND

R. B. PARKASH CHAND & ANR

February 13, 1969

R. S. BACHAWAT

K. S. HEGDE, JJ.

Code of Civil Procedure

Amritsar

February 22, 1967

s. 151

the Code of Civil Procedure

C.P.C

s. 151

C.P.C

s. 151

C.P.C

C.P.C

Art. 136

CIVIL APPELLATE JURISD!CT[ON

Bishan Narain

B. Datta

0. C. Mathur

M. S. Gupta

aind S. K. Dhingra

Sikri

C.P.C

s. 151

C.P.C

District Judge, Amritsar

s. 151

C.P.C

Ishar Das Devi Chand

Devi Chand

Manohar Lal

R. B. Parkash Chand

Ishar Das

Tara Chand Ishar Das

s. 4

Punjab Urban Rent Restriction Act, 1949

Civil Procedure Code

July 20, 1967

C.P.C

section 104

s. 151

C.P.C

s. 151

C.P.C

C.P.C

Art. 136

s. 4


STATE BANK OF INDIA v.

GHAMANDI RAM (DEAD) THROUGH SHRI GURBAX RAI

February 13, 1969

[I. C. SHAH, V. RAMASWAMI AND A. N. GROVER, II.]

Hindu Law-Joim Hindu family firm-I/ ·rsol( or 'body of individuaJs not incorporated'.

Private International Law-Priority between voluntary and involur.- tary assignments of debts.

The respondent was the karta of a joint Hindu family firm carrying on business, before the partition of India, in area now forming part ot Pakistan. The firm had a cash credit account with the Imperial Bank (now State Bank of India) in that area and had pledged its goods with the Bank as security for repayment of the advances. After the partition, the family and its members came away to India and became evacuees in relation to Pakistan. The Bank sold the pledged goods in 1948, and after adjusting the amounts due to it credited the surplus amount in the account of the firm. The Pakistan (Administration of Evacuee Property) Ordinan.ce,

1949, was promulgated on October IS, 1949 and was amended by the Pakistan (Administration of Evacuee Property) Amendment Act, 1951.

Under s. 6( I) of the Ordinance all evacuee property shall vest and shall be deemed to have vested in the Custodian in Pakistan from March I,

1947. By a notification dated February 19, 1952 the Pakistan Government exempted, 'from the operation of tho provision of the Ordinance 'cash deposits made in Banks by persons other than companies or associations or bodies of individuals whether incorporated or not'.

The respondent applied under s. 13 of the Displaced Persons (Debts Adjustments) Act, 1951 (Indian Act) before the Tribunal constituted under the Act, claiming the amount in the Bank credited in the account of the family.

The Tribunal dismissed the application.

In revision, the High Court allowed the claim on the ground that the amount was a 'cash deposit made by an individual' in terms of the Pakistan Notification dated February 19, 1952.

In appeal to this Court,

HELD: (I) Having regard to the juristic nature of the Hindu Joint family under the Mitakshara Law, the family firm could not be treated as a 'person' within the meaning lit the Pakistan notification. The firm was 'a body of individuals not incorporated' and hence the amount in the Bank was evacuee property and had become vested in the Custodian of Evacuee Property, Pakistan, with effect from March I, 1947. (687 E-F]

Sundar•anam Maistri v. Nara.rimhulu Maistri, I.L.R. 15 Mad. 149, 154, referred to.

(2) The rule of Private International Law i& that where an involuntary usignment occurs after a voluntary assignment has already been made, the question whether the righb of the voluntary assignee have been postponed or def~ WO!Jld be govern~ by tho. kx situs lit the debt. In. the piaent case, smce \he mvoluntary us1gnment 10 favour of tho eu.todian in Pakistan occurred in 1949, when the Ordinance was promulaated after the voluntarf •ssillD'llent by the Bank in favour of the ftrm In 1948 and the lftus of

the debt was Pakistan (the Bank having gamishable assets of the respon- A dent in Pakistan which could be attached by the Custodian in Pakistan). the question of priority would be governed by the law in Palilitan, namely, the provisions of the Ordinance; and under the Ordinance, the amount vested in the Custodian in Pakistan with effect from March I, 1947. Therefore, the liability of the Bank to the firm must be deemed to have been extinguished.

[687 H; 688 G; 689 F] Re: Queensland Mercantile and Agency Co. [1891] 1 Ch. 536 and B Arab Bank Ltd. v. Barclays Bank (Dominion, Colonial and Overseas) [1954] AC. 495, applied.

Dicey, Conflict of Laws, 8th Edn. p. 780, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 449 of 196.6.

Appeal by special leave from the judgment a!Dd order dated C September 12, 1963 of the Punjab High Court Circuit Bench at Delhi in Civil Revision No. 104-D of 1958.

Niren De, Attorney-General, S. V. Gupte, H. L. Anand and K. B. Mehta, for the appellant.

Bishambar Lal, M. R. Garg, H. K. Puri and Radha Kishan Makhija, for the respondent.

The Judgment of the Court was delivered by Ramaswami, J. Mis. Ghamandi Ram Gurbax Rai, a iomt Hindu family firm consisting of Ghamandi Ram, since deceased, Gurbax Rai, Chaman Lal and Jagan Nath, used to carry on business in Bhawalpur State now forming part of West Pakistan, be

fore the partition of India. Shri Ghamandi Ram was the manager and karta of the said joint Hindu family firm during the mate

rial period. Before the partition of India, the joint Hindu family firm had a cash credit account in its name in the then Imperial Bank of J, ndia, Bhawalpur State now within Pakistan territory.

The said firm had pledged goods as security for the repayment of the advances made in the said account. On the partition of India, the joint Hindu family and its members admittedly became evacuees and the then Imperial Bank of India, Blrawalpur State, sold the pledged goods in the year 1948 for the realisation of its dues 1n the said cash credit account and credited a sum of Rs. 2,541/ 11/- left as surplus balance after the adjustment of the dues of the Imperial Bank of India in the said account.

On October 15, 1949, the Pakistan Government promulgated Pakistan (Administration of Evacuee property) Ordinance, 1949 (Ordinance No. XV oi 1949) whereby all property in Pakistan in which an evacuee had any right or interest vested in lhe Custodian of Evacuee Property with retrospective effect from March 1, 194 7. The expression 'evacuee property' was defin.ed by s. 2 sub-s. ( 3) of the Ordinance to include any right or interest in joint Hindu family property. 'Ca5h deposits in Banks' were how-

A ever excepted from the definition oi. the term 'property' by s. 2(5) of the Ordinance.

The Ordinance was amended in 1951 by the Pakistan (Administration of Evacuee Property) Amendment Act, 1951 (Act No. VI of 1951) whereby s. 2(5) of the Ori nance was amended so as to brimg cash deposits in Banks withm the definition of the term 'property'.

By a notification dated B February 19, 1952, the Pakistan Government exempted from the operation of the provisions of the said Ordinance 'cash deposits made at Banks by persons other than compamies or associations or bodies of individuals whether incorporated or not'.

c On May 9, 1953, Shri Ghamandi Ram (now deceased) as manager and karta of the joint Hindu family firm filed an application lljllder s. 13 of the Displaced Persons (Debts Adjustments) Act, 1951 (Act No. 70 of 1951) before the Tribunal constituted under the said Act at Delhi claiming Rs. 3,165/11/- including Rs. 2,341/11/- on account of the said principal and interest at 6% per annum on , the ground that the said amount had not be- D come evacuee property and the liability of the Imperial Bank of India had not therefore ceased. During the pendency of the proceedings before the Tribunal the appellant Bank was constituted Ujll.der the provisions of the State Bank of India Act, 1955 (Act No. 23 of 1955) and succeeded to the entire rights and liabilities of the Imperial Bank of India.

The appellant was accordingly E substituted in the said proceedings for the Imperial Bank of India.

By its order dated November 1, 1956, the Tribunal dismissed the application of the respondent on the ground that m terms of the law enforced in Pakistan the deposit in the Bank in the account of the firm had become an evacuee property and would be deemed to have vested in the Custodian with effect from March I, 194 7 and by virtue of the said vesting the liability of the Bank had F ceased. The Tribunal fUrther held that the only property in the pledged goods, which belonged to the firm, was the equity of redemption and that had vested in the Custodiain being a 'property' within the meanin~ of the said Ordinance. The respondent took the matter in revis10n before the Punjab High Court being Civil Revision No. 104-D of 1958. The application was allowed by Mr. Justice D. K. Mahajan by his judgment dated 12th September, 1963 on the ground that the amount claimed by the res- G

pondent was cash deposit made by an individual in terms of the notification dated February 19, 1952 and was thus beyond the purview of the provisioni; of the Ordinance. The learned Judge

accordigly set aside the order oi. the Tribunal and granted a decree m favour of the respondent for the amount claimed. This

ppeal. is brought by special leave from the judgment of the Pun- 1ab High Court dated 12th September, 1963 in Civil Revision No. 104-D of 1958.

Section 2 sub-section ( 3) of the Pakistan (Administration of Evacuee Property) Ordinance, 1949 (Ordinance No. 15 of 1949) defiines the term 'evacuee property' as meaning any property in which an evacuee has any right or interest, or which is held by or for him in trust, and includes-

(a) any right or interest in joint Hindu family pr~ perty which would accrue to the evacuee up0n the partition of the ame, or

(b) property obtained from an evacuee after the twentyeighth day of February, 194 7, until confirmed by the Custodian,

but does not include-

(i) any movable property in the immediate physical possession of any evacuee, or

(ii) any property belonging to a joint stock company the head office of \l(hich was situated, before the fifteenth day of August, 1947, in any place in the territories now comprising Indta, and continues to be so situated after the said date".

Section 2 sub-section (5) defines the term 'property' as follows:-

" 'property' means property of any kind, and includes ainy right or interest in such property and any debt or actionable claim, but does not include a mere right to sue or a cash deposit in a bank",

Section 2(5) of the Ordinance was amended by Pakistan (Administration of Evacuee Property) Amendment Act, 1951 (Act ; No.

VI of 1951) in the following mall(ller:

"2(b) in clause (5) the words 'or a cash deposit in Bank' shall be omitted".

Section 6 of the Ordinance states :

"6 ( 1) All evacuee property shall vest and shall be deemed always to have vested in the Custodian with

effect from the first day of March, 1947.

" The notification of February 19, 1952 issued by the Pakistan Government in exercise of the powers conferred by section 45 of the Ordinance is in the following terms :

"In exercise of the powers conferred by section 45 of the Pakistan (Administration of Evacuee Property) Ordinance XV of 1949, the Central Government in

A supersession of its Ministry's notification F. 22(1)51-P dated the 9th May, 1951 is pleased to exempt from the operation of the provisions of the said Ordinance cash deposits made at Banks by persons other than companies or associatiQnS or bodies of individuals whether incorporated or not".

B Section 7 of the Ordinance states :

"7. ( 1) Every person who is, or has at any time after the twentyeighth day of February, 1947, been in possession, supervision or management of any evacuee property, shall be deemed to hold or to have held, as the case may be, such property on behalf of the Custo- C dian,

( 2) Every person who is in possession, supervision or management of any evacuee property or property which he knows or has reason to believe is evacuee property shall, as soon as may be but not later than sixty days from the commencement of this Ordinance, iintimate to the Custodian in writing his willingness to surrender such property to the Custodian or to any person authorised by the Custodian in this behalf upon receipt of a notice from the Custodian that the property is evacuee property, and shall surrender the same if called upon by the Custodian or any person authorised as aforesaid. ( 3) The provisions of sub-section ( 2) shall t apply to any person who is in possession, supervision or management of any evacuee property by virtue of an allotment made by a Rehabilitation Authority".

Section 7 of the Ordinance was amended i(Jl 19 51 in the follow- F ing terms :-

"5. In sub-section (2) of section 7 of the Ordinance, for the words 'sixty days from the commencement of this Ordinance' the words 'such date as may be notified by the Central Government i.n the Official Gaz.ette' shall be substituted, a!Jd the words 'upon receipt of a notice from the Custodian that the property is evacuee property' shall be omitted".

Section 11 of the Ordinance states :

"11. ( 1) Any amount due to any evacuee or payable in respect of any evacuee property, shall' be paid to the Custodian by the person Hable to pay the same.

(2) Any person who makes a payment under subsection ( 1) shall be discharged from further !iability to pay to the extent o( the payment made.

LIOSup./69-9

(3) Without prejudice to any penalty to which he may be liable under section 29, any person who makes or has made any payment otherwise than in accordance with suli-section ( 1) or any law for the time bei(ng in force requiring payment of any such amount as is mentioned in sub-section ( 1) to be made to the Custodian shall not be discharged from his obligation to pay the amount due, and the right of the Custodian to enforce such obligati~ against such person shall remain unaffected".

The first question involved in this appeal is whether upon a correct interpretation of the notification of the Pakistan Government dated February 19, 1952, the joint Hindu family firm

"Ghamandi Ram Gurbax Rai" was 'a body of individuals' within the meani.ng of the notification and whether the amount in dispute had accordingly become vested in the Custodian of Evacuee Propeny, Pakistan with effect from March 1, 1947 by virtue of the provisions of the Ordinance thereby divesting the said joint Hindu family firm of its interest therein.

According to the Mitakshara School of Hindu Law all the propeny of a Hindu joint family is held in collective ownership by all the coparceners in a quasi-corporate capacity.

The textual authority of the Mitakshara lays . down in express terms that the joint family property is held in trust for the joint family members then living and thereafter to be born (See Mitakshara, Ch. 1. 1-27). The incidents of co-parcenership under the Mitakshara - law are : first, the lineal male descendants of a person up to the third generation, acquire on birth ownership in the ancestral properties is common; fifthly, that no aiienation of the propeny any time work out their rights by asking for partitiom; thirdly, that till partition each member has got ownership extending over the entire propeny, conjointly with the rest; fourthly, that as a result of such co-ownership the possession and enjoyment of the properties is common; fifthly, that no alienatiQa of the property is possible unless it be for necessity, without the concurrence of the coparceners, and sixthly, that the interest of a deceased meml"r lapses on his . death to the survivors.

A coparcenary under the M1takshara School is a creature of law and cannot arise by !let of parties except in so tar that on adoption the adopted son becomes a co-parcener with his adoptive father as regards the ancestral properties of the latter. In Sundarsanam Maistri v.

Narasimhulu Maistri an/i Anr.( 1) Mr. Justice Bhashyam Ayyangar stated the legal position thus :- ·

"The Mitakshara doctrine of joint family propcny is founded upon the existence of an undivided family, all

(I) I.L.R. 25 Mad, 149, 154.

a corporate body [Gan Savant Bal Savant v. Narayan Dhond Savant(') and Mayne's 'Hindu Law and Usage',

6th edition paragraph 270] and the possession ot property by suh coipor'.lte body. The t reqite therefore is the family urut; and the possess10n by 1t of property is the second requisie. For the present putp?se, female members of the family may be left out of consideration 8jDd the conception_ of a Hindu family is a common male ancestor with his lineal descendants in the male line, and so long as that family is in its normal condition viz., the undivided state-it forms a corporate body. Such corporate body, with its heritage; is purely a creature of law and cannot be created by act of parties, save in so far that, by adoption, a stranger may be affiliated as a member of that corporate family".

Adverting to the nature of the property owned by such a family the learned Judge proceeded to state :

"As regards the property of such family, the 'un obstructed heritage' devolving on such family, with its accretions, is owned by the family as a corporate body, and one or more branches of that family, each forming a corporate body within a larger corporate body, m'1y possess separate 'unobstructed heritage' which, with its accretions, may be exclusively owned by such branch as a corporate body".

Having regard to the juristic nature of the Hindu joint family, according to the doctrine of_ Mitakshara, we are of the opinion that the Hindu joi, nt family firm of Ghamandi Ram Gurbax Rai cannot be treated as an 'individual' within the meaning of the notification of the Pakistan Government dated 19th February, 1952, but the said firm must be treated as 'a body of i, ndividuals F whether incorporated or not' within the meaning of that notification.

We proceed to consider the next question arising in this appeal viz., whether the liability of the appellant to the respondent in India would be deemed to be extiµguished in view of the opera- G lion of the Pakistan Evacuee Property Ordinance and in view of our finding that the amount in dispute had become vested in the Custodian of Evacuee Property, Pakistan with effect from March 1, 194 7 by virtue of the provisions of the Ordinance. It is oot disputed that the appellant had got gamishabk assets in Pakistan out of which the Pakistan Government could realise the amount by attachment of the property of the appellant. The question is : H what is the rule of Pnvate International Law iln such a case of involuntary assignment of debts ?

The question has arisen in

(I) l.L.R. 7 Born. 467.

English Courts with regard to the legislation passe4 during or after a war by which the contractual rights of the enemies vested in the public authorities such as custodians or admWiistrators of enemy property.

It was held in English Courts tl:iat in such a case the question whether a given contractual right, e.g., a W:bt, is transferred under such legislation and whether therefore payment to a custodian or administrator has the effect of discharging the debtor, depends on the situs of that right and not oo much on the proper law of the contract from which the right arises. (See Dicey Conflict of Laws, 8th Ed. p. 780). For example in Arab Bank Ltd. v.

Barclays Bank (Dominion, Colonial and Overseas) (1), the appellant Bank had a credit balance on the current account with the respondent bank's branch in Jerusalem. The British Mandate over Palestine expired at midnight on May 14, 1948, and thereupon the Provisional Council of State and the Provisional Government of the State of Israel were constituted. War broke out between Israel and the Arab States, which rendered the further performance of the contract of current account impossible. From the date of the termination of the Mandate the appellant B.ank's premises were situate in Arab controlled territory and the resJ;>C!ndent Bank's premises were situate in Israel territory. By legislation the State of Israel vested in an official c'alled the 'Custodiap of the Property of Absentees', the property in the State of Israel belonging to a class of persons and corporations which included the Arab Bank.

The respondents paid the appellants' credit balances, amount'1g to some £ 5,83,000 to the custodian. In

1950 the appellants sued the respondents for this sum.

It was held that the right to be paid the credit balance survived the outbreak of wm:, remaining in existence subject to the suspension of the appellant bank's right to recover it.

Being locally situate in Israel, it became subject to the legislation of that State vested in the custodian, and was not recoverable by the appellant bank from the respondent bank.

The key to the problem lies in distinguishing between ( 1) questions of assignability, which are governed by tlie proper law of the debt, aipd (2) questions of attachment or garnishment (involuntary assigmnent) governed by the lex situs of the debt. If, for example, an involuntaty assignment occurs after a voluntary assignment has already beein made, the lex situs determines whether the rights of the voluntaty assignee have been postponed or defeated.

If the voluntary assignment occurs first, the lex situs determines what rights, if any, the voluntary assignee has acquired.

A question of priorities. arose in the case of Re : Queenlrland Mercantile and Agency

Co.( 2), the facts of which were as follows :-

"The Union Bank of Australia held debentures issued by the Queensland Company charging the shares

(I) [19541 A.C. 495.

(2) [1891] 1 Ch. 536.

in that compll\ll'y that were not fully paid up. The Bank was domiciled in England and the company in Queensland. After the capital had been called up, but before it was paid by the shareholders, who thus became debtors of the company, the X Company domiciled in Scotland, began an action for rregligence in Scotland against the Queensland Company, and immediately issued the Scottish process of arrestment against numerous shareholders who were domiciled in Scotland.

The effect of this process according to Scottish law was to prevent the shareholders, pendiJng a decision in the action of negligence, from paying the cails to the company".

The question that fell to be decided was whether the Union Bank, as debenture-holders, were entitled to be paid first out of the unpaid shares, according to the Jaw of England llllid of Queensland; or whether the X Company in accordance with the law of Scotland, had a prior right over the snares to the extent of the damages D that they might be awarded in the action of negligence.

A question of priorities betweetr two assignees was thus raised.

The Union Baink contended that the. question fell to be decided by the law of Queensland, since the Queerol>tand Company was a creditor in respect of the u, npaid shares and any assignment by it must be teSted bv the law of its domicil.

North, J., however, applied 'I Scottish Jaw. His reasoning was that since the debtors were residf\D't in Scotland and therefore the unpaid calls which formed the subject-matter of the assignments were situated in that country, the assignment must rank in the order prescribed by Scottish law.

He assimilated choses in action to tangi'ble movables, assertini! that 'an assignment of the latter class of nroperty was .governed by the lex situs.

In our opiinion the same legal position r prevails in India and therefore the liability of the appellant in this case to the respondent in India must be deemed to have been extinguished.

For these reasons we hold that this apJieal should be allowed, the iudgment of the Punjab High Court dated 12th September. 1963 in Civil RevisiQn No. 104-D of 1958 should be set aside and the iudii; ment of the Tribunal under the Displaced Person<

(Debt Adjustment) Act in case No. 74./11/13 of 1956/1952 should be restored dismissine: the claim of the respondent. There will be no order with regard to costs in the High Court. But as directed by this Court on 30th October 1964, while grantine: spechil leave, appelfant will pay the cost of respQlldents in this Court.

V, P, S, Appeal al/owed,

STATE BANK OF INDIA

February 13, 1969

I. C. SHAH

V. RAMASWAMI

A. N. GROVER

Imperial Bank

State Bank of India

India

Pakistan

October IS, 1949

Amendment Act, 1951

s. 6( I)

February 19, 1952

Pakistan Government

s. 13

CIVIL APPELLATE JURISDICTION

Niren De

S. V. Gupte

H. L. Anand

K. B. Mehta

Bishambar Lal

M. R. Garg

H. K. Puri

Radha Kishan Makhija

Ramaswami

Mis. Ghamandi Ram Gurbax Rai

Ghamandi Ram

Gurbax Rai

Chaman Lal

Jagan Nath

Bhawalpur State

West Pakistan

Imperial Bank of India

October 15, 1949

March 1, 194

s. 2

s. 2(5)

Amendment Act, 1951

s. 2(5)

May 9, 1953

s. 13

Delhi

State Bank of India Act, 1955

November 1, 1956

Punjab High Court

D. K. Mahajan

12th September, 1963

Section 2

Section 2

Section 2(5)

Amendment Act, 1951

Section 6

section 45

section 45

Central Government

9th May, 1951

Section 7

Section 7

section 7

Section 11

section 29

Ghamandi Ram Gurbax Rai

March 1, 1947

Bhashyam Ayyangar

Mayne

_ Mitakshara

Ghamandi Ram Gurbax Rai

19th February, 1952

March 1, 194 7

Jerusalem

Palestine

May 14, 1948

Provisional Council of State

Israel

B.ank

State of Israel

Arab Bank

Queenlrland Mercantile and Agency

Union Bank of Australia

England

Queensland

Scotland

Union Bank

North

12th September. 1963

30th October 1964