HOOGLY TRUSf (PRIVATE) LID.

COMMis.SIONER OF INCOME-TAX, WEST BENGAL AND

ANDAMAN AND NICOBAR ISLANDS

February 4, 1969

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

rncome-tax Act (11 of 1922), s. 24(2) (before its amendment by the Finance Act of 1955)-Business in several commodities--Lcss in one- Set off claimed against profits in others--QuesUon of fact-When High Court can examine its correctness.

The asses.see carried on. business in several commodities including cloth.

In tlie assessment years 1953-54 and 1954-55 the assessee suffered loss in cloth business, and it was determined for the purposes of s. 24(2) of the

Income-tax Act, 1922 (as it stood before the amendment in 1955). During the subsequent three assessment years, the Income-tax Officer refused to allow the carry forward of these losses and their set off against the business profits of th°"" years on the ground that the losses determined in the preceding years arose out of the cloth business which was different from the other business carried on by the assessee.

He held that since the cloth business was not carried on during the relevant year of account the loss therefrom in preceding years could not be carried 'forward and set off against profits o( other business.

The Appellate Assistant Commissioner agreed with the Income-tax Officer. The Tribunal found (i) that the asscssce's dealings in cloth started very early and the introduction of control only changed the prooedure of carrying on the business, (ii) that the assessee has been doing business in several commodities and its trading in each commodity did not constitute separate business, (iii) that the cloth business never assumed the proportion or the stature of a distinct and separate business and (iv) that there was evidence to show dovetailing of cloth business into the general section. The question, as to whether on the facts and in the circumstances of the case, the cloth business and the business j.n the general section constituted the same business within the meaning elf s. 24(2) as it stood then, was referred to the High Court.

Relying on most of the facts determined by the Appellate Assistant Commissioner, the High Court answered the question against the asse>See.

In appeal, to this Court, the assessee contended that (i) the findings on questions of fact given by the Tribunal were final and it was not open to the High Court to examine their ccrrectness in the absence of any proper question on the point; and (ii) on the findings of the Tribunal the losses on account of cloth business were liable in law to be carried forward and set off against the profits during the relevant assessment years.

HELD : The question must be answered in the affirmative and in favour of the assessee.

(i) In spite of the form in which the question had been referred it was not open to the High Court to examine the correctness of the conclmioos of the Tribunal on facts. If the Tribunal does not consider the evidence covering all the matters and bases its findings upon some evidence only ignoring other essential material that would amount to a misdirection in law and the findings would give rise to a qu.,., tion liable to be referred to the High .Court. But it is equally well settled that if the question about the validity of the findings of fact is sought to be raised for one reason or

I another, reference of a proper question' challenging those findings must first be sought before those findings can l)e challenged before the High Court.

No attempt was made before the Tribunal to have any such question referred and in the absence of a proper question it was not open to the High Cowt to accept the findings of the Appellate Assistant Commissioner in preference to those given by the Tribunal or to come to any independent conclusion itself on the facts.

The Tribunal does not appear to have di<- cussed the entire evidenee on which the findings were based but the order of the Appellate Assistant Commissioner and his findings as also the entire record were before it and there is nothing to suggest that all the material 'facts were not present to its mind except that they are not mentioned in detail.

Its findings, therefore. must be accepted as final and the only question which it was open to the High Court to examine was whether the cloth business could be regarded as the same business within the meaning of s. 24(2) of the Act.

[563 B-D; 563 G]

India Cement Ltd. v. Commissioner of Income-tax, Madras, 60 I.T.R. 52, 64 and Hazarar Pir Mahomed Shah Saheb Roza Committee v. Commissioner of Income-tax, Gujarat, 63 I.T.R. 490, 496, referred to.

(ii) The question whether on the application of the settled tests dilferent ventures carried on by the assessee from the same business for the purpose cif •. 24(2) is a mixed question of law and fact The fair test is whether there was any inter-connection, any inter-lacing, any inter-dependence, any unity were found to exist by virtue of the common mge ment, common business organisation, common administration, common fund and common place of business. [564 D-E]

Setabganj Sugar Mills Ltd. v. Commissioner 'of Income-tax, Central.

Calcutta, 41 I.T.R. 272, 274, Scale! v. George Thomp, Pn &Co. Ltd., [19271 13 T.C. 83; Manila/ Dahyabhai v. Commissioner of Income-tax, Bombay City, 37 l.T.R. 398 and Commissioner of Income-tax,· Madras v. Prithvi Insurance Co. Ltd. 63 I.T.R. 632, 637, refetred to.

Applying these principles the conclusions which the Tribunal arri•ed at were correct.

CIVIL APPELLATE JURISDICTION : Civil Appeals No. 1659 to 1661 of 1968.

Appeals from the Judgment and order dated March 26, 1965 of the Calcutta High Court in Income-tax Reference No. 130 of 1961.

Sukumar Mitra and D. N. Mukherjee, for the appellant (in all the appeals).

S. T. Desai, S. K. Aiyar, R. H. Dhebar and B. D. Sharma, for the respondent (in all the appeals).

The Judgment of the Court was delivered by Grover, J.

These three appeals are by certificate from a common judgment of the Calcutta High Court answering .the f?llowing question referred to it by the Income Ta'I: Appellate Tnbunal in the negative and against the assessee :

"Whether on the facts and in the circumstances of the case, the cloth business of the assessee and its business in the General Section constituted the rune business

HOOGLX TRUST v. C.I.T. (Grover, /.)

within the meaning of s. 24(2) of the Indian Income-tax Act as it stood at the material time."

According to the statement of the case the assessee is a private limited company owning shares and securities and also doing business. The relevant assessment years are 1955-56, 1956-57, 1957- 58, the corresponding accounting years being the calendar years

1954, 1955 and 1596. In the assessment for the years 1953-54 and 1954-55 losses amounting to Rs. 2,13,898 and Rs. 46,050 respectively were determined for the purposes of s. 24(2) of the Income tax Act 1922, hereafter called the "Act''.

In the first year a loss of Rs. 2,08,686/- arose in cloth business whereas the balance of the loss occurred in the General section and the manure section. In the second year a loss of Rs. 46,050 occurred mainly in cloth business. During the three assessment years in questio~ the Income tax Officer refused to allow the carry forward of these losses and their set off against the busines~ profits of those years on the ground that the losses determined in the preceding yea-TS arose out of the cloth business which was different from the other business carried on by the assessee'and since the cloth business was not carried on during the relevant year of accoljllt the loss therefrom in pre.; eding years could not be carried forward and set off against profits of the other business. The Appellate Assistant Commissioner agreed with the cr , 'usion of the Income tax Officer. He rejected the contention of the asessee that common ownership, common direction and control. common financial arrangement, common staff and common balance sheet necessarily established that the business was single.

He took the view that the character of the cloth business carried on by the assessee was entirely different from the other business. He laid particular emphasis on the fact that the assessee acted as a dhtributing agent on behalf of the Government for cloth and cement and the mode of carrying on of that business was altogether different from that of its ordinary business.

He referred to the fact that the cloth business had a separate overdraft account with the Bank with which stocks of cloth had been pledged and there was separate staff for the cloth busjness even though the assessee claimed that a part of the staff in the General section also looked after the cloth business.

The assessee contended before the Tribunal in aopeal that till the end of 1945 its business was confined only to shares and the management of zamindari properties and that dealin!( in cloth began only in 1946 and in 1950 the a'sessee was droling in manure and in 1952, in paints as well.

After the introrluction of control on cloth in 1948 the company was appointed a~ a nominated buyer approved bv the Government doing busine<s at ji, own risk under conditions prescribed by the Government bv whom prices at which the goods were to be sold were fixed.

C'ertain expenses relating to the cloth business like motor car and godown

expenses were charged to the General account, whereas certain expenoes relating to the General section like rent and telephone charges were charged to the cloth account while audit fees were allocated to a different department.

The control over the different activities of the assessee was not exercised by the Director but by common mana7erial staff and there was sufficient financial inter-relation between the cloth business and the General section.

The Tribunal held that the assessee's dealings in cloth started as early as 1946 and that the introduction of control by the Government changed the procedure of carrying on the business. It was further found that the assessee had been doing business in several commodities one after the other or along with the other and apart from the fact that a separate profit and trading account was maintained for cloth business there was nothing to suggest that the cloth business assumed the proportion or the stature of a distinct and separate business.

It was accordingly held that the transactions in cloth were part and parcel of a single business carried on by the assessee and the loss therefrom could not be segregated as a loss from a distinct business for the purpose of s. 24(2) of the Act.

The High Court referred to certain other facts as found by the Appellate Assistant Commissioner. It had been found by him that the assessee was mainly dolJ11 banking business from 1942 to 1948 although it had, during that period, income from other sources.

In the year 1948 it started acting as the distributing agent of cloth on behalf of the Government. That business continued till the year 1952 when control on cloth was lifted. The assessee disposed of in retail stocks left over during the first few months of the year 1953. Thereafter the assessee ceased to have any dealings in cloth.

The High Court quoted extensively from the order of the Appellate Assistant Commissioner.

It felt that the Tribunal had not dealt with the matter in a satisfactory way.

Reference was made to its own decision in another case in which it had been held by the High Court that in order to find out whether the business of an assessee was the same in two different years the . prin1ary consideration was the nature of the business and the way it was conducted. Merely because the assessee's business was one of a dealer in several kinds of commodities it could not be said that it has only one business for the purpose of s. 24(2) when a part of its activities had come to an end. Relying on most of the facts determined by the Appellate Assistant Commissioner the High Court found difficulty in agreeing with the view on the Tribunal that there was any dovetailing of the cloth business into the General section. This is what the High Court said finally :

"In our opinion, (i) that the inference drawn by the appellate tribunal was not warranted by the facts on record and (2) that the cloth business was separate from

A the assessee's business in general section notwithstanding that there was some interconnection of expenses or control."

In order to decide the points raised before us it is necessary first to refer to the relevant provisions of the Act. Section 6 gives six heads of income profits and gains which shall be chargeable to income tax. Out of these the fourth head is "profits and gains of business, profession or vocation".

Section 10 taxes the profits of business, profession or vocation carried on by the assessee. Sec tion 24(1) provides that where any assessee sustains a loss of profits or gains for any year under any of the heads mentioned in s. 6, he shall be entitled to have the amount of the loss set off against his income profits or gains under any other head in that year. It is unnecessary to refer to the proviso and the Explanations). Prior to its amendment by the Finance Act 1955, sub-s. (2) of s. 24 ran as follows :-

"(2) Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, in any business, profession or vocation, and the loss cannot be wholly set off under sub-section (I), so much of the loss as is not so set off or the whole loss where the asscssee had no other head of income shall be carried forward to the following year and set off against the profits and gains, if any, of the assessee from the same business, profession or vocation of that year ...... "

Sub-s. (2) of s. 24 was substituted by s. 16 of the Finance Act of 1955 the material portion for our purposes being :

"(2) Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, in any business, profession or vocation, and the loss cannot be wholly set off under subs. (1), so much of the loss as is not set oil' or the whole loss where the assessee had no other head of income shall be carried forward rt> the following year, and

(i) ................................... .

(Ii) where the loss was sustained by him in any other business, profession or vocation, it shall be set off against the profits and gains, if any, of any business, profession or vocation carried on by him in that year; provided that the business, profession or vocation in

which the loss was originally sustained continued to be A carried on by him in that year; and

( ''') tt

1U ............................ ..

The argument before us has proceeded on the footing that the matter has to be decided under sub-s. (2) as it stood before its amendment in 1955. The principle contentions on behalf of the appellant-assessee are two-fold. It is urged firstly that the findings on questions of fact given by the Tribunal were final and it was not open to the High Court to examine their correctness in the absence of any proper question on the point. Secondly, on the findings of the Tribunal the losses on account of cloth business were liable in Jaw to be carried forward and set off against the profits during the relevant assessment years.

On the other hand counsel for the respondent maintains that it was open to the High Court to prefer the findings of the Appellate Assistant Commissioner to those of the Tribunal because the Tribunal had based its conclusions on a misreading of evidence and on a consideration of irrelevant evidence.

Counsel further says that the Tribunal's decision was hardly a decision in the eye of law and that it had been rightly held by the High Court that th~ cloth business did not fall within the meaning of the expression "the same business" in s. 24(2) of the Act as it stood before the amendment of 1955. It has been held by this Court in Setabganj Sugar Mills Ltd. v. Commissioner of Income tax Central, Calcutta

( 1 ) that the question whether on the application of the settled tests different ventures carried on by the asessee form the same business for the purpose of s. 24(2) is a mixed question of Jaw and fact. Reference was made in this case to the principle stated by Rowlatt, J. in Scales v. George Thompson & Co, Ltd.{') that the real question is whether there was any inter-connection, any interlacing, any inter-dependence, any unity at all embracing those two businesses. The following observations from the judgment of this court may be reproduced :

"No doubt, findings of fact are involved because a variety of matters bearing on the unity of the business have to be investigated, such as unity of control and management, conduct of the business through the same

agency, the inter-relation of the businesses, the employment of same capital, the maintenance of common books of account, employment of same staff to run the business, the nature of the different transactions, the pos" sibility of one being closed without affecting the texture of the other and so forth. When, however, the true facts have been determined, the ultimate conclusion is a legal inference from proved facts, and it is one of mixed law

(I) 41I.T.R.272,'274.

(2) [1927] 13 T.C. 83.

and fact, on which depends the application of s. 24(2) of the Act. ............. "

It is not possible to accept the submission made on behalf of the respondent that in spite of the form in which the q_uestion had been referred it was open to the High Court to examme the correctness of the conclusions of the Tribunal on facts.

There can be no dispute that if the Tribunal does not consider the evidence covering all the matters and bases its findings upon some evidence only ignoring other essential material that would amount to a misdirection in law and the findings would give rise to a question liable to be referred to the High Court. But it is equally well settled that if it is sought to raise the question about the validity of the findings on fact for one reason or another, reference of a proper question challenging those findings must first be sought before those findings can be challenged before the High Court : See India Cement Ltd. v. Commissioner of Income tax, Madras(') and Hazarat Pir Malwmed Shah Saheb Roza Committee v. Commissioner of Income tax, Gujarat('). No attempt was made before the Tribunal to have any such question referred and in the absence of a proper question it was not open to the High Court to accept the findings of the Appellate Assistant Commissioner in preference to those given by the Tribunal or to come to any independent n clusion itself on facts.

The Tribunal gave the following findings : (1) The appellant's dealings in cloth started as early as 1946 and the introduction of control only changed the procedure of carrying on the business in the sense that the appellant became the nominated buyer .approved by the Government.

(2) The appellant had been doing business in several commodities one after the other or along with the other and its trading in each commodity did not constitute separate business.

(3) The cloth business never assumed the proportion or the stature of a distinct and separate business. ( 4) There was sufficient evidence to show dovetailing of the cloth section into the General section. The conclusion of the Tribunal on these findings was that the transactions in cloth were part and parcel of a single business carried on by the appellant and did not constitute a distinct business for the purpose of s. 24(2), The Tribunal does not appear to have discussed the entire evidence m which the findings were based but the order of the Appellate Assistant Commissioner and his findings as also the entire record were before it and there is nothing to suggest that all the material facts were not present to its mind except that they are not mentioned in detail.

Its fin.dings, therefore, must be accepted as final and the only question which it was open to the High Court to examine wa~ whether the cloth business could be regarded as the same businesi

(l) 601.T.R. 52, 64.

(2) 631.T.R. 490, 496.

within the meaning of s. 24(2) of the Act. A great deal of reliance has been placed on a decision of the Bombay High Court in Manila! Dahyabhai v. Commissioner of Income tax, Bombay City(').

There the claim that the businesses were the same was sought to be substantiated on the ground that only one set of accounts was being maintained; that both the businesses were carried on in the same premises with the help of the same staff; that the capital employed was the same, the receipts in respect of one of them being utilized for the purpose of the other and that the terms of overhead and other expenses were common. It was held that the aforesaid factors did not necessarily lead to the inference that the businesses must be regarded as one and the same. It was observed that though not conclusive but an important test was whether one of the two businesses conducted by the assessee could be stopped without affecting the texture or framework of the other. However in Commissioner of Income-tax, Madras v. Prithvi Insurance Co.

Ltd. (2) this Court said "we are unable to agree with counsel for the Commissioner that, the test, whether one of the businesses can be closed without affecting the conduct of the other business, is a decisive test in determining whether the two constitute the same business within the meaning of s. 24(2)." In that very case the test laid down by Rowlatt, J., in Scales v. George Thompson & Co.

Ltd., (') was accepted as a fair test and inter-connection, interlacing, inter-dependence and unity were found to exist by virtue of the common management, common business organisation, common administration, common fund and common place of business .

. . We have no manner of doubt that on applying these principles the conclusion at which the Tribunal arrived was correct and the question referred should have been answered in the affirmative and in favour of the assessee.

The appeals are consequently allowed with costs throughout and the answer returned by the High Court is hereby discharged. One hearing fee.

Y.P.

(1) 371.T.R. 398.

(2) 63 I.T.R. 632,637.

(3) [1927]13 T.C, 83

LS Sup CI/69=2, S00-13-3-70-GIPF.

Appeals allowed.

HOOGLY TRUSf (PRIVATE) LID

COMMISSIONER OF INCOME-TAX, WEST BENGAL AND ANDAMAN AND NICOBAR ISLANDS

C. SHAH

V. RAMASWAMI

A. N. GROVER, JJ.

s. 24(2)

s. 24(2)

Income-tax Act, 1922

s. 24(2)

s. 24(2)

CIVIL APPELLATE JURISDICTION

Sukumar Mitra

D. N. Mukherjee

S. T. Desai

S. K. Aiyar

R. H. Dhebar

B. D. Sharma

Grover

Calcutta High Court

s. 24(2)

Income-tax Act

s. 24(2)

Income tax Act 1922

s. 24(2)

s. 24(2)

Section 6

Section 10

s. 6

s. 24

31st day of March, 1940

s. 24

s. 16

s. 24(2)

s. 24(2)

Rowlatt

s. 24(2)

s. 24(2)

s. 24(2)

Bombay High Court

Manila

s. 24(2)


NATIONAL & GRINDLAYS BANK LTD. v.

THE MUNICIPAL CORPORATION OF GREATER

BOMBAY

February 5, 1969

 [V. RAMASWAMI AND. A. N. GROVER, JJ.)

Bombay Muaisipa/ Corparation Act 3 of 1888, S. 14&-Landlord leasi11g land to tenant who constructs thereon-Whether seti?n conte1nplates conzposite assess.men! of property tax on land and bulldlng-If prin1ary liability to tax that of landlord.

The appellant had leased a plot of land situated in the Malad Area in Greater Bombay at a rental on a monthly basis.

The lessee had constructed a house on the plot of land at his own cost. Prior to the merger of the Malad Area into Greater Bombay in February, 1947, the Malad District Municipality assessed and levied taxes on the land and the structures separately and recovered the same from the landlo:-d and the tenant.

After the merger, the respondent Bombay Municipal Corporation issued a notice to the appellant upcter section 167 of the Bombay Municipal Corporation Act No. 3 of 1883, informing him that there would be a composite assessment on him.

An appeal against the order to the Chief Judge, Small Causes Court. Bombay, under section 217 of the Act was dismissed.

A single bench of the High Court dismissed a further appeal on the view that it was bound by the decision in Rcmji Keshavji v . . \fonicipal Corporation of Bombay 56 B.L.R. 1132.

A Letters Patent appeal \Vas also dismissed.

In the appeal to this Court it was contended on behalf of the appellant that on a prope'r construction of section 146 (2) of th::: Act there should have been a separate assessment in respect of the building and the land; alternatively even if section 146(2) contemplates a composite assessment of the building and the land, a preliminary liability should be imposed upon the owner of the building in whom the right to let the building vests and not on the owner of the land; the appellant c; oud not be treated as a lessor under section 146(2) because it did not let the land with the building thereon as one unit to the lessee.

HELD : (I) The scheme under section 146 is that when the land is let a:id the tenant has built upon the land, there should be a composite assessment of tax: upon the land and the building taken together. In the case of such a composite unit the p'rimary liability of assessment of tax is intended to be on the lessor of the land under section 146 (2) (a) of the Act. [57 J F]

In .section 146(1) and (2) the word "premises" is used in contrast to section 146( 3) where the words "la!!d and building" are separately mentioned.

Section 146(3) which is admittedly not applicable in the present c'.ascs. furnishes a key to the interpretation of ~ction 146(2) (a) . . In the. contxt of section 146(3) the lessor of the premises, as mentioned n1 -; ectio:i 146('.!)(a) must be construed to mean the lessor Of the land on "hich the building has been constructed by the tenant. [571 DJ

Section 147 ptQvides for an apportionment of responsibility to property tx when the 'premises are let or sub-let; it is clear the intention of the legislature was to 'impose the primary liability for payment of property

tax upon the kssor of'the land to facilitate its collection and to give him the right to recoupment under section 147. [571 Fl

Rt11njl Keshavji v.

Muncicipal Corporation for Gr<'ater Bo111hay, 56 A B&m. L.R. 1132. approved.

(2) Even assuming that the meaning of section 146(2) is obscure and that it is possible to interpret it as throwing the primary liability for pa)' meat of property tax upon the lessee who has constructed a buildini on the laod, this was not a case where the law expressed by the High Court in Ra111ji Kt!shavji's case, should be interfered with.

That is the construction which the authorities have put upon it by their usage and con- B duct for a long period of time. and the Court may. the'refore resort tL1 contemporary construction by applying the principle "'optilnr. fegz1111 in- 1erpres est cons11et11do". [572 E]

Oh/son's case, [1891) I Q.B. 485, 489: Clyde Navigation Tm.Wes \'.

Laird, 8 A.C. 658, 670, referred to.

CIVIL APP ELLA TE JuRISDICTION : Civil Appeal No. 46.2 of 1966.

Appeal by special leave from the order dated March 25, 1964 -Of the Bombay High Court in Letters Patent Appeal No. 28 of 1964.

S. V. Gupte, P. P. Khambatta, D. P. 'Mehta, Bhuvnesh Kumari and O. C. Mathur, for the appellant.

M. C. Chagla and I. N. Shroff, for the respondent. '

The Judgment of the Court was delivered by Ramaswami, J.-The question of law involved in this appeal is whether the primary liability is imposed on the appellant under the Bombay Municipal Corporation Act, 1888 (Act No. 3 of

1888) to pay property taxes to the r, spondent i.e .. the Municipal Corporation of Greater Bombay in respect of lam!" owned by the appellant and let on a monthly basis to a third party who has constructed a building thereon.

The appellant is a banking company incorporated in the United Kingdom and has established places of business in India. The appellant is the sole trustee of the estate of the late Mr. F. E. Dinshaw and in that capacity is the owner of a plot of land at Manchubhai Road. Malad. Greater Bombay in the State of Maharashtra. bearing No. P-Ward No. 6418, Street No. 299B.

The said plot of land had been leased by the former trustee of the estate to one Mr. R. R. Pande (hereinafter referred to as the lessee) since a number of years at a monthly rent of Rs. 12.50.

The Jessee had constructed at his own cost a tiled house on the said plot of land. The Malad area merged into Greater Bombay on !st February. 1957. Upto the date of the merger the Malad District Municipality was assessing and levying taxes on the land and the structure separately and recovering the same from the landlord and the tenant.

After the merger, the Bombay Municipal Corporation issued a notice to the appellant under section

167 of the Act informing him that the assessment book had been amended by inserting the name of the appellant and that the rateable value of the house had been fixe~ at Rs. 43'0/-. Being aggrieved by this order the appellant preferred an apal to the Chief Judge, Small Causes Court, Bombay under section 217 of the Act.

The appeal was dismissed by the Chief Judge, Small Causes Court by his order dated 3rd August, 1960. The appellant took the matter in further appeal to the Bombay High Court.

The appeal was heard by Mr. Justice Patel and was dismissed on the 14th January, 1964. The learned Judge felt that he was bound by the decision of Chagla, C.J. and Shah, J. in Ramji li.eshav11 v. Municipal Corporation for Greater Bombay('). fhe appellant thereafter preferred a Letters Patent Appeal 1'/o. 28 of 1964 which was summarily dismissed by Chief Justice H. K.

Chainani and Mr. Justice Gokhale on 25th March, 1964. The pr=nt appeal is brought by special leave from the judgment of the Bombay High Court dated 25th March, 1964.

Section '3(r) of the Bombay Municipal Corporation Act, 1888 (Act No. 3 of 1888) (hereinafter called the Act) defines 'land' as including "land which is being built upon or is built upon or covered with water ...... ". Section 3(s) defines 'buildings' as including a house, out-house, stable. shed, hut and every other such structure. whether of masonry bricks, wood. mud, metal or llllY other material whatever.

Section 3(gg) defines 'premises' as including messuages, buildings and lands of any tenure, whether

OJJOll or enclosed, whether built on or not and whether public or private. Section 140 states :

"140. The following taxes shall be levied on buildings and lands in Greater Bombay and shall be cal~ "property taxes", namely :-

(a) a water tax of so many pet centum of their rateable value as the corporation shall deem reasonable for providing a water-supply for Greater Bombay.

(b) a halalkhor-tax of so many per centum, not ex- ding five of their. rateable value as will, in the opimo~ of the corporatton, suffice to provide for the collectmn, remoyl and disposal, by municipal agency, of all. excrement11tous and polluted matter from privies,

urml~ and cessP<J<?l~ and for efficiently maintaining and repamng the mumc1pal drains constructed or used for the receiptions or conveyance of such matter, subject however, to the provisions that the minimum amount of

uch tax to be levied in respect of any one separate hold-

1g of land'. o_r of ay one building or of any one portion of a bmldmg which is let as a separate holding, shall (I) 56 Born. L.R. 1132.

be six annas per month, and that the amount of such tax to be levied in respect of any hotel, club or other large premises may be. specially fixed under section 172;

( c) a general tax of not less than eight and not more than twenty-six per centum of their rateable value, together with not less than one-eighth and not more than three-quarters per centum of their rateable value added thereto in order to provide for the expense necessary for fulfilling the duties of the corporation arising under clause (k) of section 61 and Chapter XIV;

(ca) the education cess leviable under s. 195E;

(d) betterment charges leviable under Chapter XII-

A."

Section 146 provides :-

. "146. ( 1) Property taxes shall be leviable primarily from the actual occupier of the premises upon which the said taxes are assessed, if such occupier holds the said premises immediately from the Government or from the corporation or from a fazend\lf.

Provided that the property taxes due in respect of any premises owned by or vested in the Government and occupied by a Government servant or any other person on behalf of the Government for residential purposes shall be le viable primarily from the Government and not the occupier thereof.

(2) Otherwise the said taxes shall be primarily leviable as follows, namely :-

(a) if the premises are let, from the lessor;

(b) if the premises are sub-let, from the superior lessor; and

(c) if the premises are unfet, from the person in whom the right to let the same vests.

(3) But if any land has been let for any term exceeding one year to a tenant, and such tenant on any person deriving title howsoever from such tenant has built upon the land, the property taxes assessed upon the said land and upon the building erected thereon shall be leviable primarily from the said tenant or such person,· whether or not the premises be in the occupation of the said tenant or such person".

GR!NDLAYS BANK v. MUNIC. CORP, (Ramaswami, J.) 569

Section 14 7 states :

"147. (1) If any premises assessed to any property tax are let, and their rateable value exceeds the amount of rent payable in respect thereof to the person from whom, undmthe provisions of the last preceding section, the said tax is leviable, the said person shall be entitled to receive from his tenant the difference between the amount of the property tax levied from him, and the amount of which would be leviable from him it the said tax were calculated on the amount of rent payable to him.

(2) If the premises are sub-let and their rateable value exceeds the amount of rent payable in respect thereof to the tenant by his sub-tenant, or the amount of rent payable in spect thereof to a sub-tenant by the person holding under him, the said tenant shall be entitled to receive from his sub-tenant or the said subtenant shall be entitled to receive from the person holdin.1t under him, as the case may be, the difference between any sum recovered under this section from such tenant or sub-tenant and , the amount of property-tax which would be leviable in respect of the said premises if the rateable value thereof were equal to the difference between the amount of rent which such tenant or subtenant receives and the amount of rent wpich he pays.

(3) Any person entitled to receive any sum under this section shall have, tor the recovery thereof, the same rights and remedies as if such sum were rent payable to him by the person from whom he is entitled to receive the same".

Section 154(1) enacts as follows:-

"In order to fix the rateable value of any building or land assessable to a property-tax, there shall be deducted from the amount of the annual rent for which such land or building might reasonably be expected to let fro?J year to year a sum equal to ten per centum of 1!1e said annual rent and the said deduction shall be in heu of all allowances for repairs or on any other account whatever".

Section 155 enacts :-

"155. (1) To enable him to determine the rateable

alue of any bu.ilding or land and the person primarily hable for the payment of any property tax leviable in respect ereof the Commissioner may require the owner or occupier of sch building or land, or of any portion thereof, to furmsh him, within such reasonable period

as the Commissioner prescribes in this behalf, with in- "formation or with a written return signed by such owner or occupier-

(a) as to the name and place of abode of the owner or occupier, or of both the owner and occupier of such building or land; and

(b) as to the dimensions of such building or lnd, or of any portion thereof, and the rent, if a!/-Y, obtamed for such building, or -land, or any portion therc; of.

(2) Every owner or occupier on whom any such requisition is made shall be bound to comply with the same and, to give true information or to make a true return to the best. of his knowledge or belief.

(3) The Commissioner may also for the purpose aforesaid make an inspection of any such building or land".

Section 156 states:

"The Commissioner shall keep a book, to be called "the assessment book" in which shall be entered every official year- ( a) a list of all buildings and lands in Greater Bombay distinguishing each either by name or number, as he shall think fit;

(b) the rateable value of each such building and land determined in accordance with the foregoing provisions of this Act;

(c) the name of the person primarily liable for the payment of the pro'perty taxes, if any, leviable on each such building or land ..... .

It was contended by Mr. Khambatta that on a proper COllStruction of section 146(2) of the Act there should have been separate assessments in respect of the building and the fand in the present case. It was argued in the alternative that even if section 146(2) of the Act contemplates a composite assessment of th.e building and the land, the primary liability should be imposed upon the owner of the building and not on the owner of the land.

It was said that the right to Jet the building vests in the les$ce of the land and not in the appellant, and so, the primary liability was upon the Jessee under section 146(2) of the Act. The argument was pressed that the appellant cannot be treated as a lessor under section 146(2) of the Act, because the appellant has not let the

land with the building thereon as one unit to the lessee. The opposite viewpoint was presented on behalf of the respondent. It was argued, in the first place, that section 146(2) of the Act c0ntemplates that there should be a composite assement of the land and the building taken as one unit. In the case of such a composite assessment, the primary liability of the pyment of tax was on the.landlord under sub-section (2)(a) of section 146 except in the case referred to in sub-section (3) where the primary liability was upon the tenant and not upon the landlord. Admittedly, the present case did not fall under section 146(3), and, therefor7, the primary liability was placed upon the appellant. In our op~ nion, .the argument put forward on behalf of the respondent is well-founded and must be accepted as correct. In the first place, the language of section 146(2) indicates that the Legislarure contemplated that in a case where the land and the building are owned by different persons there should be a composite assessment of property tax. The reason is that in section 146( 1) and (2) the word 'premises' is used in contrast to section 146(3) where the words 'land and building' are separately mentioned. . In section 154( 1) of the Act again, the Legislature uses the expression 'building or land'.

Then section 155 provides for the right of the Commissioner to call information from the owner or the occupier in order to enable him to determine the rateable value of any building or land and the person primarily liable for the payment of any property tax levied in respect thereof.

Section 156 provides that the CommiSsioner shall maintain a book to be called 'the assessment book' which book is to contain among other things a list of all lands and buildings. Therefore, the scheme of section 146 is hat when the land is let and the tenant has built upon the land, there should be a composite assessment of tax upon the land and building taken together. We are further of opinion that in the case of such a composite unit the primary liability of

assessment of tax is intended to be on the lessor of the land under section ! 46(2)(a) of the Act. It was objected by Mr. Khambatta that the appellant was only the lessor of the land and not of the building, and so, the appellant cannot be held to be the lessor within the meaninl( of s.ection 146(2) (a). We do not think that there is any merit in this objection.

Section 146(3) of the Act furnishes the key to the interpretation of section 146(2)(a). In the context of section 146 ( 3) the lessor of the premises as mentioned in section 146(2)( a) must be construed as to mean the lessor of the land on which the building has been constructed bv the tenant. In this connection. reference should be made to section 14 7 which provides for an apportionment of responsibility for property tax when the premises assssed are let or sub-let.

The language of this sub-section uggests that the lessor of the land has the right of recovering from his tenant the amount of tax

which he has paid in excess of the tax which the property is liable to pay on the basis of the rent recovered by the lessor. It is also clear that the intention of the Legislature in fixing the primary liability of property tax upon the owner of the land in a case not falling under s. 146(3) of the Act is to facilitate the collection of property tax. In the case of a monthly tenant who puts up a temporary shack or asbestos shed on the land and who may at any time terminate the lease at a short notice, it is not always possible for the Corporation to keep track of the lessee and to collect the property tax from him. It is 'not unreasonable therefore that in a case of this description the Legislature should impose the primary liability for the payment of the property tax upon the lessor of the land and to give him the right of recoupment under section

147. A similar view with regard to the interpretation of section 146 of the Act was expressed by a Division Bench of the Bombay High Court consisting of Chagla, C.J. and Shah, J. in Ramji Keshavji's(') case. It was held by the learned judges in that case that where the owner of a land had leased it to a tenant for a period of one year and the tet had put up a structure upon the land, the owner of the land was primarily liable to pay property tax together with the. structure constructed thereon.

Counsel on behalf of the appellant challenged the correctness of this decision, but for the reasons already expressed we hold that the ratio of this decisiQn is correct.

We shall, however, assume in favour of the appellant that the meaning of section 146(2) ot the Act is obscure and that it is possible to interpret it as throwing the primary liability for payme¢1.t

of property tax upon the lessee who has constructed a building on the land.

Even upon that assumption we think that the view of the law expressed by the Bombay High Court in this case ought not to be interfered with. The reason is that in a case where the meaning of an enactment is obscure, the Court may resort to contemporary construction, that is the construction which the authorities have put upon it by their usage and conduct for a long period of time. The principle applicable is "optima /egum interpres est

consuetudo"('). In Oh/son's case('), "in dealing with the interpretation of section 39 of the Pawnbrokers Act, 1872, Stephen, J. said :

"What weighs with rile very greatly in coming to the present conclusion is the practice of the Inland Revenue Commissioners for the past sixteen year>.

So Jong ago as f874 this very point was decided by Sir Thomas Henry, for whose decisions we all have very great respect; and the least that can be said with regard to the

(1) 56 Born. L. R. 1132.

(2) 2Co.Rep.81.

(3) (18911 1 Q.B. 485, 489.

GRINDLAYS BANK v. MUNIC. COllP, (Ramaswami, J.) 573

A case before him is that he pointedly called the attecition of the commissioners to the case-the learned magistrate having offered to state a case-an offer refused by the commissioner, who by their refusal must be taken to have acquiesced in the decision.

That is a very strong contemporaneous exposition of the meaning of the Act".

B The same principle was referred .to by Lord Blackburn iin Clyde Navigation Trustees v. Laird('). The question in dispute in that case was whether the Clyde Navigation Consolidation Act, 185 8

(repealing eight' prior Acts) imposed navigation dues on timber floated up the Clyde in logs chained together. From 1858 to 1882 dues had been levied on this class of timber Without resistance from C the owners; aild some judges in the Court of Session suggested that this non-resistance might be considered in construing the statute. On this point Lord Blackbum said :

"I think that submission raises a strong prima facie ground for thinking that there must exiSt some legal ground on which they (the owners) could not resist, And I think a court should be cautious, and not decide unnecessarily that there is no such ground. If the Lord President (Inglis) means no more than this when he calls it 'contemporanea exposito of the statutes which is almost irresistible', I agree with him. I do not think that he mean's that enjoyment at least for llllY period short of that which gives rise to prescription, if founded on a mistaken construction of a statute, binds the court so as to prevent it from gi~ the true construction. If he did, I should not agree with him, for whom I know of no !1uthority, and am not aware of any principle, for so saymg".

F In our opinion, the principle of contemporanea exposito applies to the present case. The Act was passed in the year 18 8 8 aind there appears to be a practice followed by the Bombay Municipal

orporation for a very long time of treating the land and the buildmg cnstructed upon it as single unit and charging the property tax upon the owner of the lllllld in a case where the land is let for G a od of less than one year to a tenant who has constructed a bwlding thereon [See Ramji Keshavji's case(2 )].

For the re115ons expressed, we hold that there is no merit in this appeal which is accordingly dismissed with costs. ·

R.K.P.S.

Appeal dismissed.

(H SA.C.658,670.

(2) 56 Bom. L.R. 1132.

LIOSup./69-2

NATIONAL & GRINDLAYS BANK LTD

February 5, 1969

V. RAMASWAMI

A. N. GROVER, JJ.

S. 14

Bombay

Malad District Municipality

section 167

Small Causes Court. Bombay

section 217

section 146

section 146(2)

section 146(2)

section 146

section 146

section 146(1)

section 146( 3)

Section 146(3)

section 146(3)

Section 147

section 147

section 146(2)

Ra111ji Kt!shavji

Clyde Navigation

Laird

S. V. Gupte

P. P. Khambatta

D. P. 'Mehta

Bhuvnesh Kumari

O. C. Mathur

M. C. Chagla

I. N. Shroff

Ramaswami

Municipal Corporation of Greater Bombay

United Kingdom

India

F. E. Dinshaw

Maharashtra

R. R. Pande

Bombay Municipal Corporation

section

167

Chief Judge, Small Causes Court, Bombay

section 217

3rd August, 1960

Bombay High Court

Patel

14th January, 1964

Chagla

Shah

H. K.

Chainani

Gokhale

25th March, 1964

Bombay Municipal Corporation Act, 1888

Section 3(s)

Section 3(gg)

Section 140

section 172

section 61

s. 195E

Section 146

Section 14

Section 154(1)

Section 155

Section 156

Khambatta

section 146(2)

section 146(2)

section 146(2)

section 146(2)

section 146(2)

section 146

section 146(3)

section 146(2)

section 146( 1)

section 146(3)

section 154( 1)

section 155

Section 156

section 146

Section 146(3)

section 146(2)(a)

section 146

section 146(2)( a)

section 14

s. 146(3)

section

147

section 146

Ramji Keshavji

section 146(2)

section 39

Pawnbrokers Act, 1872

Stephen

Thomas Henry

Blackburn

Blackbum

Inglis

Bombay Municipal

orporation


SAMPAT PRAKASH

STATE OF JAMMU & KASHMIR

February 6, 1969

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

Jammu and Kashmir Preventi.-e Detention Act (! & K 13 of 1964) as amended by Amending Act 8 of 1967, ss. 8(2) & 10--0rder of detention without reference to Advisory Board-Crder revoked at the end of 6 months c-nd fresh order passed with new grourtds-If mala fidr--Indefiniteness due to withholding of facts under s. 8(2)-/f order vague.

On March 16, 1968, the petitioner was anested and orderOd to be detained under.•. 3(1)(a)(i) of the Jammu and Kashmir Preventive Detention Act, 1964.

On September 16,, 1968, the order was revoked and another order was served on him.

On September 24, 1968 the peti tioner was served with the jlTounds for the fresh order of detention. His case was reforred to the Advisory Board on October 26, 1968 and the Board recommended his detention. Under s. 10 of the Act, as amended by s. 13A, of the Amcndfu~ Act 8 of 1967, the Government is required to refer a case to the Advisory Board within 60 days from the date of detention.

In a petition for the issue of a writ of habeas corpus, it was contend cd that : (! ) Since the case of the petitioner was not referred to the Advisory Board within 60 days of the date of detention (March 16, 1968) the detention was invalid; (2) The authorities acted ma/a fide in making the detention order; ( 3) The grounds in suppolrt of the order were vague and indefinite; and ( 4) Ti..at his being subjected to solitary conftnement while in detention was illegal.

HELD : ( 1) There was no reason for not accepting the statement of the State that it was not intended, when the detention order of March 16, 1968 was passed that theo petitioner was to be 'kept in detention for a period longer than 6 months. Therefore, his case fell within the terms of s. 13A(I) which provides that 'notwithstanding anything contained in this A~', a person may be detained for a period not longer than 6 months without obtaining the opinion of the Advisory Board.

In the present case, the petitioner was detained under the first order only for .a period of 6 months when that order was revoked by the second order of deten

tin. [579. CJ ( 2) The grounds for the Jwo orders are not identical.

Wben the first order was passed the petitioner was not intended to be detained for a period exceeding 6 months. Thereafter, in consequence of forther in formation that the petitioner was violent by nature and was a perpetual threat to the maintenance of public order, the Government had to issue a fresh order.· Therefore, it could not be said that the Government acted ma/a fide in making either the original or the fresh order. [579

G-H;

580 A-BJ

 (3) The order clearly stated faclts relevant to the grounds. of deten tion except those which Govelrnment considered to be against public in terest to disclose. Under s. 8(2) it is open to the Government to with

hold such facts.

Because of the withholding of such facts the 1gronnd,, in the order of detention could not be said to be vague or indefinite.

[580 C-E] .

( 4) Notwithstanding the broad principles of the rule of law, equality and liberty of the individual enshrined in the Constitution, it tolerates on account of the peculiar conditions prevailing, legislation in relation to preventive detention, which is a negation of the rule of law, equality and liberty. But it is implicit in the Constitutional scheme that the power to detain is not a power to publish and .the restrkti_ons plac.ed must. consi~ tently with the effectjveness of detention, be m101mal. Smee a detenu is

not a convict he cannot be subjected to solitary confinement. [580 E-G]

ORIGINAL JURISDICTION : Writ Petition No. 361 of 1968.

Petition under Art. 32 of the Constitution of India for writ iin the nature of habeas corpus.

M. K. Ramamurthi, Shyamala Pappu and Vineet Kumar, for the petitioner.

R. Gopalakrishnan and R. N. Sachthey, for the respondent.

The Judgment of the Court was delivered by Shah, J, On March 16, 1968 the petitioner was arrested and ordered to be detained u?Jer s. 3 (1 )(a)( i) of the J amrnu and Kashmir Preventive Detention Act 13 of 1964. On March 26, 1968, he was served witl:i the grounds of detention.

On May 3, 1968, the petitioner moved a petition for a writ of habeas corpus in this Court. • The petition was rejected by this Court on October 10, 1968. In the mea; tiWhile the order dated March 16, 1968, was revoked on September 16., 1968, and another order was served upon the petitioner on the same day.

On September 24, 1968, he was siirved with the grounds of detention for the fresh order, and his case was referred to the Advisory Board on October 26, 1968. On October 30, 1968, the Advisory Board recommended that the petitioner be detained.

The petitioner then moved this petition on November 11 1968 for a writ of habeas corpus. '

. Tv.:o contentions in the. 1;1ature of preliminary objections were

r~J.Sed m suport .of the petitin. It was urged that ( 1) the petitioner was, m spite of a specific request, denied a personal hearing before the Advisory Board, and ( 2) that the Chief Minister w.ho was in chaFge ?f the portfolio relating to preventive detention did not apPly his m!Dd to the case of the petitioner before making the order of detention.

An affidavit is filed by the Secretary to the Government of J ammu & Kashmir affirming that the petitiQ\DCr mad~ no request for production before the Board for a personal heanng. He has also affirmed that the Chief Minister did consider _the cse of the petitioner and directed that the petitioner be detained in custody under the Preventive DetentiQ!li Act. In view of this affidavit, counsel for the petitioner did not press the two preliminary contentions.

Counsel urged that the order of dettion was invalid because A ( 1) that the case of the petitioner was not referred to the Advisory Board till September 24, 1968 and' on that account bis detention was invalid, and he could not be continued in detention thereafter; (2) that in makiing the detention order the authorities acted ma/a fide; and ( 3) the grounds in support of the order were vague and indefinite.

By Art. 22 of the Constitution certain protection is conferred upon persons who are detained under orders of preventive detejn• tion.

But Art. 35 ( c) in its application to the State of Jammu & Kashmir provides :

"no law with respect to preventive detention made by the Legislature of the State of Jammu and Kashmir, whether before or after the commencement of the Constitution (ApplicatiQII to Jammu and Kashmir) Order, 1954, shall be void on the ground that it is inconsistent with any of the provisions of this (Pan ID) Part, but any such law shall, to the extent of such inconsistency, cease to have effect on the expiration of fifteen years from the commencement of the said Order, except as respects things done or omitted to be done before the expiration thereof."

The protection of els. ( 5) , ( 6) & ( 7) of Art. 22 insofar the provisions of the Act enacted by the Jammu and Kashmir Legislature are inconsistent therewith does not avail the petitioner.

By s. 3 the Government of Jammu and Kashmir is emtitled, if satisfied with respect to any person that with a view to preventing him from acting in any manner prejudicial to the security of the State or the maintenance of public order, to make an order direct- that such person be detained.

By s. 8 it is provided :

"(1 ) When a person is detained in pursuance of a detention order, the authority making the order shall, as soon as may be, but not later than five days from the date of detention, communicate to him the grounds on which the order has beeon made, and shall afford him the earliest opportunity of making a representation against the order to the Government. ( 2) Nothing in sub-section ( 1 ) shall require the authority to disclose facts whih it considers to be against the public interest to dlSClose."

Section 9 provides for the constitution of Advisory Board allkl s. 10 deals with references to the Advisory Board. By that sec- H tion the Government is required within thirty days from the .date of detention under the order to place before the AdVJSory Board the grounds on which the order has been made and the

representatiQD,, if any, made by the person affected by the order.

By s. 12 it is provided :

"( 1) In any case where the Advisory Board has reported that there is in its opinion sufficient cause for the detention of a person, the Government may confirm the detention order and continue the detention of the person concerned for such period as it ):hinks fit. ( 2) In any case where the Advisory Board has reported that there is in its opinion no sufficient cause for the detention of the persqn concerned, the Government shall revoke the detention order and cause the person to be released forthwith." Section 13 prescribes the maximum period of detention for which any person may be detained in pursuance of any detention order.

Section 13A which was added by Act 8 of 1967 enables the State to detain a person for a period of two years.

Section l 3A provides :

" ( 1) Notwithstanding anything contaii!led in this Act, any person detained under a detention order made in any of the following classes of cases or under any of the following circumstances niay be dotalned for a

period longer than three months, but not longer than six months, from the date of detention, without o~ ing the opinion of any Advisory Board, namely, when such person has been detained with a view to preventing him from acting in any manner prejudicial to-

(i) the security of the State;

(ii) the maintenance of public order; Provided that where any such person has been detained with a view to preventing him from acting ili. any manner prejudicial to the security of the State aiid the grounds on which the detention order has been made are not communicated to him under the proviso to tion 8 ( 1 ) , such person may be detained for a period of two years from the date of detention without obtaining the opinion of the Advisory Board. . (2) In the .case ?f evC!)' person detained with a view to preventing him . from acting in any manner prejudicial to the security of the State or the maintonance Of public order, the provisions of this Act shall have effect subject to the following modifications, namely:-

(a) in sub-section ( 3) of section 3 for the words 'twelve days', the words 'tWenty-four days' shall be substituted.

( b) in sub-section ( 1 ) of section 8,- A

(i) for the words 'five days' the words 'ten day's shall be substituted;

(ii) the following proviso shall be inserted at the end, namely :-

'Provided that nothing in this sub-section shall apply to the case of any p.erson detained with a view to preventing him from acting in any manner prejudicial to the security of the State, if the authority making the order, by the same or a subsequent order directs that the person detained may be informed that it would be against public interest to communicate to him the grounds on which the detention order has been made.'

(c) in section 10,-

( i) after the words, 'In every case where a detention order has been made under this Act' . occurring in the beginning, the brackets and words '[other than a case to which the proviso to section 8 (1) applies]' shall be inserted, and

(ii) for the words 'thirty days' the words 'sixty days' shall be substituted;

(b) in section 11, for the words 'ten weeks' the words 'five months' shall be substituted."

The effect of s. 13A insofar as it is relevant to this case is to authorise the State in the cases specifii!d to detain a person without obtaining the opinion of the Advisory Board, if he is to be detained for a period longer than three months, but not longer than six months from the date of detention. By sub-s. (2) the periods prescribed for the various steps under the Act are doubled; for making report to the District Magistrate when he exercises the power of detention the period is extended to twenty-four days : for the Government to serve the grounds of the order under s. 8( 1) the period is extended to ten days; and for the Advisory Board to make its report in cases covered by s. l 3A the period is extended to .sixty days.

Again by the proviso to s. 8 ( 1) the Government is entitled to withhold in serving grounds upon the detenu that it would be against public mterest to communicate to him the grounds on which the detention order has been made.

Relying upon the terms of s. 10 ( 1) as ameinded by s. 13A it was urged that the Government was bound to refer the case of the petitioner within sixty days from the date of detention and since no reference was made the detention of the petitioner under the order dated March 16, 1968, was unauthorised. This argument is plainly unsustainable.

Section 13A opens with the words "Notwithstanding anything contained in this Act", and provides that a person may be detained for a period not longer than Six

months without obtaining the opinion of the Advisory Board. It is plainly contemplated thereby that the Government may deoide not to refer the case of the detenu to the Advisory Board; because the period for which he is to be detained is not to exceed six months.

Section 13A is an exception to s. 10 as well as to all other relevant provisions of the Act, and in case of conflict s. 13A prevails.

The petitioner was detained for six months from March 16, 1968 to September 16, 1968 without obtaining the opinion of the Advisory Board.

We wi!J be justified in acceptin'g the contention of the State tlrat it was intended, when the order was passed detaining the petitioner, that he was not to be kept in detention for a period longer tha.n. six months and his case fell within the terms of s. 13A (1) and on that account it was not necessary to obtain the opinion of the Advisory Board.

It was said by counsel for the petitioner that the plea of the State was inconsisteot with the course of events, and the State Government had taken shelter under the provisions of s. 13A ( 1) even though they had at no stage any desire to release the petitioner from jail at the expiry of or within six months.

The Court will not be justified in assuming from the circumstance

that a fresh order has been issued that the Government acted ma/a fide in making the original order or the fresh order. The only plea raised by the l_)Ctitioner in support of that plea is in paragraph-15 of the petitton, that the cancellation of the earlier order of detention and the service of the fresh order of detention on the petitioner was "a part and parcel of the scheme cf the State to suppress the peaceful trade umon movement", and that the fresh order of detention was passed ma/a fide.

No particulars are furnished which justify an inference that in resorting to the provisions of the Act the Government's action was actuated by ill-will or taken for some collateral purpose.

Reliance was also placed upon the recitals in the grounds supplied to the petitioner on March 16, 1968 and under the fresh detention order dated September, 16, 1968, and it was contended that the grounds bei1ng identical an inference followed that the previous detention order was continued on the same grounds on

hich the original order was passed.

On comparing the grounds 1t cannot be said that they are identical.

It is stated in the last pan of the Annexure to the grounds of detention under order dated September 16, 1968, that from the middle of January to March 1968 the petitioner went underground and during that period he used to attend secret meetings in which he used to stress upon the Government employees that their demands cannot be

conceded by the GoveJiliment unless they resort to violence that the petitioner was violent by nature and was a perpetual threat to the maintenance of public order. It cannot also be said that merely because the previous order had been passed under which the petitjoner was intended to be detained for a period of six months thereafter in consequence of further information the Government was required to issue a fresh order, the original order or the fresh order was illegal.

The plea that the grounds were vague and indefinite cannot also be accepted.

It is recited in the order that the petitiOjler was informed that his detention was ordered on grounds specified in the Annexure appended thereto, which also contained facts relevant thereto except those which the Government considered to be against public interest to disclose.

By virtue of sub-s. (2) of s. 8, it is open to the Government not to disclose facts which it considers to be against the public interest to disclose.

In the pre5ent case the order clearly states that the Government were of the view that facts relevant to the grounds except those which the Government considered to be against public interest to disclose were intimated to the petitioner.

The Annexure may appear somewhat indefinite . and vague.

But that is obviously because facts which in the view of the Government, were against public interest to disclose, were withheld from the petitioner. The Government have p0wer to withhold information about those facts, and they did so.

The grounds cannot in the circumstances be said to be vague and indefinite.

One more question peeds to be dealt with.

The petitioner who was present in the Court atthe time of hearing of this petition complained that he is subjected to solitary confinement while in detention. It must be emphasized that a detenu is not a F convict.

Our Constitution, notwithstandiing the broad principlei of the rule of Jaw, equality and liberty of the individual enshrined therein, tolerates, on account of peculiar conditions prevailing, legislation which is a negation of the rule of law, equality and liberty.

But it is implicit in the CQ!lstitutional scheme that the power to detain is not a power to punish for offences which an executive authority in his subjective satisfaction believes a citizen G to have committed.

Power to detain is primarily intended to be exercised in those rare cases when the larger interest of the State demand that restrictions shall .be placed upqjl> the liberty of a citiren curbing his future activities.

The restrictions so placed must, consistently with the effectiveness of detention, be minimal.

The petition fails and is dismissed.

V.P.S.

Petition dismissed.

SAMPAT PRAKASH

STATE OF JAMMU & KASHMIR

February 6, 1969

C. SHAH

V. RAMASWAMI

A. N. GROVER, JJ.

ss. 8(2) & 10

s. 8(2)

September 16,, 1968

September 24, 1968

October 26, 1968

s. 10

s. 13A

March 16, 1968

s. 13A(I)

s. 8(2)

Art. 32

Constitution of India

M. K. Ramamurthi

Shyamala Pappu

Vineet Kumar

R. Gopalakrishnan

R. N. Sachthey

Shah

s. 3

Kashmir Preventive Detention Act

March 26, 1968

May 3, 1968

September 16., 1968

October 30, 1968

November 11 1968

Government of J ammu & Kashmir

Art. 22

Art. 35

State of Jammu & Kashmir

Jammu and Kashmir

Art. 22

Jammu and Kashmir Legislature

s. 3

Government of Jammu and Kashmir

s. 8

Section 9

s. 10

s. 12

Section 13

Section 13A

section 3

section 8

section 10

section 8

section 11

s. 13A

s. 8( 1)

s. 8

s. 10

s. 13A

Section 13A

Section 13A

s. 10

s. 13A

September 16, 1968

s. 13A

s. 13A

September, 16, 1968

s. 8


VISWESARDAS GOKULDAS v.

B. K. NARAYAN SINGH & ANR.

February 6, 1969

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

Contract Act, 1872 (9 of 1872), ss. 2 (6), 3 and ?-Suit. for specific performance of contract-Contract whether concluded-Acceptance of offer through plaint filed in another suit whether constitutes proper acceptance-Service of copy of plaint whether constitutes communication of acceptance.

Under a contract dated August 3, 1957 the defndant agreed to sell to the plaintiffs 40,000 tons of float iron lying in a mining area in the Hooadurgo Taluka in Mysore State, and gave them a right to win and remove iron ore.

On September 2, 1957, the defendant wrote to the plaintiffs that further to the agreement dated August 3, 1957, he agreed to assign the said lease area of 184 acres for iron and manganese ores to the plaintiffs subject to their paying one lakh and eighty thousand rupees within three months. The three months expired on November 6, 1957 without the offer being accepted by the plaintiffs orally or by letter.

On October 31, 1957 the defendant posted a letter to the plaintiffs revoking the offer, which reached them on November 6, 1957. The plaintiffs instituted a suit (0.S. No. 55 of 1957) against the defendant alleging that by contract dated September 2, 1957 the defendant had agreed to aasign to the plaintiffs his leasehold interest in the aforesaid 184 acres of land and claiming specific\ performance of the contract.

The trial court decreed the suit. The defendant appealed to the High Court.

On the question whether the offer made in the defendant's letter of September 2, 1957 had been accepted by the plaintiffs the High Court held that the plaintiffs had accepted the said offer in their plaint in anothe'r suit relating to the possession of the same land (O.S. No. 46 of 1957) a copy of which was served On the defendant on November 5, 1957 a day earlier than the defendant's letter revoking the offer reached the plaintiffs. Despite this finding, on another ground, the High Court allowed the defendant's appeal and dismissed the suit, namely, O.S. No. 55 of 1957. The plaintiff appealed with certificate to this Court.

HELD : The appeal must be dismissed on the ground that Ihm was no concluded contract between the parties. [585 C-Dl

The letter dated September 2, 1957 sent by the defendant to the plainti1fs, though worded as an agreement was in point of law an offer only.

The defendant was at liberty to revoke the offer at any time before its acceptance by the plaintiffs.

The defendant's letter revoking the offer reached the plaintiifs on Novembe'r 6, 1957. Before that date the plaintilh did not accept the offer either orally or by letter. The High Court

as wrong in holding that the plaintiffs accepted the offer by their plaint m O.S. No. 46 of 1957 and that this acceptance was communicated to the defendant before November 6, 1957. [583 B-E]

H . Considering the contents of its relevant paragraphs the plaint in question was not in point of law an acceptance of the offer, nor was it intended .to be an acceptance. It is not usual to accept a business offer by a plamt; nor is it usual to communicate an acceptance by serving a copy

of the plaint through the medium of the Court. To hold thu8 would be A straining the language of ss. 2(6), 3 and 7 of the Contract Act. [585 A-Bl

The old chancery practice under which the mere filing of a bill in a suit to enforce specific performance was regarded as sufficient acceptance of the defendant's offe'r unless the offer had been withdrawn before the filing of the suit, cannot be applicable under the present Indian praci- B tice and procedure. [585 C-EJ The argument based on Bloum's case that the communication of an assent was not necessary and mere mental assent of the plaintiffs to the defendant's proposal was sufficient. was misconceived. [585 Fl

Boys v. Ayerst, (1822) 6 Madd. 316, 326=56 E.R. 1112, 1115, Agar

v. Biden, (1833) 2 L.J. Ch. 3 and Bloxam's case, 33 Beav 529, distinguished.

C In re : Pe/latt' s case, L.R. 2 Ch. App. 527, applied.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1851 of 1968.

Appeal from the judgment and decree dated June 19, 1963 of the Mysore High Court in Regular Appeal No. 231 of 1960.

D Sltyamala Pappu and Vineet Kumar, for the appellant.

K. R. Chaudhuri and K. Rajendra Chaudhuri, for respondent No. 1.

S. V. Gupte, G. R. Ethirajulu Naidu, B. N. Sen, 0. P. Khaitan, A. N. Parikh, K. 1?.. Chaudhuri and K.. Rajendra Chaudhuri, for E respondent No. 2.

The Judgment of the Court was delivered by

Bachawat J. The plaintiffs instituted a suit (O.S. No. 55 of 1957 against the defendant alleging that by a contract dated September 2, 1957 the defendant had agreed to assign to the plaintiffs his leasehold interest under a mining lease in respect of 184 acres of land in Kudrekainave Kava!, Hosadurga Taluk, and claiming specific performance of the contract.

The Trial Court decreed the suit. The defendant filed an appeal against the decree. The High Court allowed the appeal and dismissed the suit.

The present appeal has been filed by the plaintiffs after obtaining a certificate under Art. 133 of the Constitution.

The main question arising in this appeal is whether therr. was a contract as alleged in the plaint.

Under a contract dated August 3, 1957, the defendant agreed to sell to the plaintiffs 40000 tons of float iron lying in the aforesaid mining area and gave them the right to win and remove the iron ore.

We are not directly concerned with this contract in this appeal.

On September 2, 1957 the defendant wrote the following letter to the plaintiffs :-

"Further to our agreement dated 3rd August 1957 I hereby agree to assign the said lease area of 184 acres for iron and manngase ores, in your favour, subject to your paying me one lakh and eighty thousand rupees at your option to be decided by you within three months from this date."

This document though worded as an agreement wasi in point of law an offer only.

As a matter of fact, on September 2, 1957 the plaintiffs had not agreed to purchase the mining lease.

Until both parties were bound there could be no coDcluded contract. The promise to keep the offer open for three months was not supported by any consideration. The defendant was at liberty to revoke the offer at any time before its acceptance by the plaintiffs. On October 31, 1957, the defendant posted a letter to the plaintiffs revoking the offer.

This letter reached the plaintiffs on November 6, 19S'l. Before that date the plaintiffs did not accept the offer either orally or by any letter sent to the defendant.

On November 1, 1957, the plaintiffs filed a suit (0.S. No. 46 of 1957) against the defendant claiming a declaration that they were entitled to remain in possession of the mining area. The primary object of the suit was to enforce the plaintiffs' right under the contract dated August 3, 1957. The defendant filed his written statement in that suit on November 5, 1957. The High Court held that the plaintiffs accepted the offer of September' 2, 1957 by their plaint in O.S. No. 46 of 1957 and that this acceptance was communicated to the defendant before November 6, 1957.

We are unable to agree with this finding.

The pleadings and issues raised the question whether a contract was made 001 September 2, 1957. If the plaintiffs desired to set up a new case that the contract was concluded in November 1957 they should have amended their pleadings accordingly.

We need not say anything more on this point because we find that the plaintiffs have failed to establish the new case.

In paragraphs 14 and 19 of the plaint in O.S. . No. 46 of 1957 the plaintiffs alleged that by the letter dated September 2, 1957 the defendant agreed to assign the mining lease, that they were read:,: and willing to perform the CQntract and that they reserved their right to file a suit for specific performance. The suggestion was that the contract was concluded on September 2, 1957 and that in breach of the contract the defendant failed to apply for a00 obtain the necessary consent of the central government to the assignment of the mining lease. Paragraph 17 and the. prayer portion of the plaint suggested that by virtue of this contract and the earlier contract dated August 3, 1957 they were entitled to remain in possession of the mining area.

The suggestion was an atempt to add to the terms of the offer of September 12, 1957. On acceptance of the offer according to its !erms the plaintiffs could not get a possessory ri$ht before executl?n of a conveyance of the mining lease. :fjit pomt of law, the plamt was not an acceptance of the offer, not was it intended to be an acceptance.

It is not usual to accept a business offer by plaint; nor is it usal to commujllicate an acceptance by servmg a copy of the plamt through the medium of the Court.

We shall e straining the language of ss. 2(6), 3 & 7 the Contract Act 1f we were to hold that the plaint was an acceptance and that the service of a copy of the plaid! along with the writ of summons was 'a communication of the acceptance.

Under the old chancery practice the mere filing of a bill in C a suit to enforce specific performance was regarded as sufficient acoeptance of the defendant's offer unless the offer had been withdrawn before the filing of the suit, see Boys v. Ayerst('), Agar v. Biden(2 ); Fry ori Specific Performance, 8th ed., art. 306, page 142, Pomeroy on Specific Performance, :!rd ed., art. 66, pp. 169-170. It may well be doubted whether this rule can apply under our present practice and procedure.

A plaint in a suit for specific performance should allege a concluded contract, see the Code of Civil Procedure Ist Schedule Appendix A, Form No. 48.

The offer as well as the acceptance should precede the institutioo of the suit.

However, the precise paint does not arise in this case. 0.S. No. 46 of 1957 was not a suit for specific performance of the contract.

Before the present suit for specific performance of the contract was institllted, the offer had been withdrawn.

Counsel for the appellant relyilllg on Bloxam's Case( 3 ) submitted that the communication of an acceptance was not necessary.

The argument is misconceived.

We have held that the plaint in O.S. No. 46 of 1957 was not an acceptance.

There was no other acceptance either oral or in writing.

Mere mental assent of the plaintiffs to the defendant's proposal is not sufficient. In the peculiar facts of B/oxam's case a contract to take shares was concluded by an oral -application for shares followed by allotment though no notice of allotment was given t? the applica.nt.

Ordinarily there is Olb contraot unless there is an acceptance of the application for shares and the acceptance is communicated to the applicant, see In re: Pe/latfs Case(').

In the last case Lord Cairns, L.J.' pointed out that B/oxam's case tllmed on its own special facts.

Bloxam was orally informed that if he did not receive 3ill answer within a certain tinte he was to consider , his application granted. In the peculiar cir-

(1) 1822 6 Madd. 316, 326=56 E.R.1112, 1115..

(2) 1833 2 L. J. Ch. 3.

(3) 33 Beav. 529.

(4) L.R. 2 Ch. App, 527.

A cumstances, Bloxam could be regaided as having dispensed with the necessity of the communication Oif the acceptance: In the

present case we are not concerned with a contract to take shares.

The defendant made an offer to assign a minfug lease.

No acceptance was made or communicated to the defendant before he withdrew the offer.

There was no concluded contract ai:id B the appeal must .fail on this ground.

The High Court held that the assignment of the mining lease could not be lawfully made without the sanction of the State Government and the approval of the 'Central Government d that as the governments concerned could not be compelled to . accord the necessary sanction and approval, the contract to assign the minipg lease could not be specifically pcrf ormed and on this ground the High Court dismissed the suit- We do not think it necessary to express any opinion on . this question.

The appeal is liable to be dismissed in view of our conclusion that 1Aere was no .concluded contract between the parties.

In the result, the appeal is dismissed. The appellant will pay one set of costs to the respondents.

G.C.

Appeal dismissed.

VISWESARDAS GOKULDAS

B. K. NARAYAN SINGH & ANR

February 6, 1969

S. M. SIKRI

R. S. BACHAWAT

K. S. HEGDE, JJ.

Contract Act, 1872

ss. 2

Mysore

September 2, 1957

November 6, 1957

October 31, 1957

November 5, 1957

ss. 2(6), 3 and 7

Bloum

Bloxam

Sltyamala Pappu

Vineet Kumar

K. R. Chaudhuri

K. Rajendra Chaudhuri

S. V. Gupte

G. R. Ethirajulu Naidu

B. N. Sen

. P. Khaitan

A. N. Parikh

K.. Rajendra Chaudhuri

Bachawat

Kudrekainave Kava

Art. 133

August 3, 1957

3rd August 1957

November 6, 19S'l

November 1, 1957

September' 2, 1957

September 12, 1957

ss. 2(6), 3 & 7

art. 306

art. 66

the Code of Civil Procedure

Cairns

oxam

Central Government


COMMISSIONER OF INCOMETAX, BANGALORE A

SHRI D. C. SHAH February 6, 1969

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

Jncome-tcx-Hindu undivided fami(v invested funds in firm-Remuneration earned by member as offker of the firm-Whether income of family or individ11al member.

The assessee-a Hindu undivided family-through its karta was a partner in two firms. The Karta had rich experience in the line of business carried on by the fil'llls. In oile of the films, the Karta was appointed as its Managiag Partner and paid .a remuneration as Managing 'Partner in addition to the benefits enjoyed as a partner.

In the other firm, another partner was appointed as the Managing Partner, and it was provided that on his retirement, the Karta was to be appointed as the Managing Partner. and entitled to the remunerations. The Karta was appointed the Managing Partner of the se<Pnd firm also on the retirement of its earlier Managing Partner. The assessee-family claimed that the remunerations received by the Karla as Managing Partner should be deleted from the assessment of the assessee, and they were the personal income of the Karta.

HELD : The remuneration of the Karta was not earned on account of any detriment to the joint family assets and the accounts received by the Karta as the Managing Partner of the two partnerships were not assessable as tbe income of the Hindu undivided family. [591 Fl

Upon the facts of the case, there was no real or sufficient connection between the investment of the joint family funds and the remuneration paid. by the partners to the Karta.

The remuneration was paid not because of the family funds invested in the partnership, but for the personal qualifications of the Karta. [591 D-F]

S. R. M.CT. PL. Pa/aniappa Chettiar v. Commissioner of Income-tax, F 68 I.T.R. 221, followed.

Gurunnth V.. Dhakappa v. Commissioner of Income-tax, Mysore, 53 J.T.R. 575; V. D. Dhanwatey v. Commissioner of Income.tax, 68 J.T.R. 365; M. D. Dlianwate, v v. Commissioner of Income-tax, 68 J.T.R. 285; P. N. Krishna Iyer v. Com1nissioner of Inco1ne-tax Kera/a, [1969) 1 S.C.R. 943 and Co1nn1issioner of Jnco1ne-tax, Mysore v. G V. Dhakappa, Civil Appeal No. 713 of 1965 decided on 23-7-1968, referred to.

CIVIL APPELI.ATE JURISDICTION: Civil Appeals Nos. 817 and 818 of.1966.

Appeals by special leave from the judgment and order dated January 19, 1965 of the Mysore High Court itn. I.T.R.C. No. 1 of 19~ H Niren De, Attorney-General, S. C. Manchanda and R. N. Sachthey, for the appellant.

M. C. Chagla, Sharad !. Mhaispurkar, 0. P. Malhotra and

0. C. Mathur, for the respondent.

The Judgment of the Court was delivered by Ramaswami, J, The respondent is a Hindu Undivided Family (hereinafter called the assessee) of which Shri D. C. Shah is the karta. The assessment years are 1959-60 and 1960-61 and the relevant accounting periods are Samvat years 2014 and 2015.

The assessee through its karta Shri D. C. Shah was a partner in the firms of (1) M/s C. U. Shah and Co. and (2) M/s Oriental Can Manufacturing Co. as per terms and conditions set out in th": Instruments of Partnership dated 5-6-1961 and 11-9-1957. Shn

D. C. Shah was paid a remuneration of Rs. 12,000/- per year for both the assessment years by M/s C. U. Shah and Company. He was paid Rs. 10,000/- for the assessment year 1959-60 by the Oriental Can Manufacturing Company. The amounts received by

Shri D. C. Shah were shown by the assessee in its returns of income along with balanc.~ of the share income from the aforesaid firms. The Income Tax Officer in assessing the Hindu Undivided Family included the iemuneration received by Shri D. C. Shah as a part of the share income from the respective firms. Before the Appellate Assistant Commissioner the assessee contended that the remuneration received by Shri D. C. Shah was his personal income and the amounts were wrongly shown in the returns of the Hindu Undivided Family as its income and should not have been included in the assessment. In so contending the assessee relied on clauses 8, 9 and 10 of the Instrument of Partnership dated 5-6-1961 by which the firm of Mis C. U. Shah and Company was constituted. The assessee also relied on clauses 14, 15 and 16 of the Instrument of Partnership dated 11-9-1957 by which the firm of Mis Oriental Can Manufacturing Company was constituted.

Clauses 8, 9 and 10 of the Instrument of Partnership dated 5-6-1961 are to the following effect :

"8. The partner No. 1 Shri D. C. Shah who has been managing the business of this firm shall hereinafter also cntinu~ to act as Managing partner for conducting the said busmess free from any interference of other partners, of whatsoever nature.

The said Managing partner shall manage, direct, appoint and/or remove any one of the employees, and/or do all other things which include right to raw cheques, to make, delive; and accept documents either legal or commercial in respect of the partnership business as may be deemed

necssary for effetively carrying on the partnership busmess.

The said Managing partner shall be paid Rs .. ~,000/- (Rupees one thousand only) per month in addition to all other benefits that he is entitled to enjoy as a partner of the firm.

9. The said Managing partner shall continue to be the Managing Partner for his life time or his retirement whichever is earlier.

10. All other partners shall devote as much time to the furtherance of the partnership business as they think proper, necessary and advisable".

Clauses 14, 15 and 16 of the Instrument of Partnership dated 11-9-1957 are to the following effect :

"14. The partner No. 2 shall be the Managing Partner for conducting the said business free from any interference of whatsoever nature by others. The said Managing Partner shall manage, carry, direct, appoint and/ or remove any of the employees and/ or Agent and do all other things, as may be deemed necessary, for effectively carrying on the Partnership business. The said Managing Partner shall be entitled, in addition to all other benefits, to a monthly remuneration of Rs. 2,000/- (Rupees two thousand only).

15. The Parmer No. 2 shall continue to be the Managing Partner for his ljfetime or retirement. In. the event of Partner No. 2's demise or retirement, whichever is earlier, the Partner No. 1 shall then act and perform duties and functions of Managing Partner. In the event of the demise or retirement of Partner No. 1, the Ml!llaging Partner shall be appointed by the remaining partners or their legal representatives, as the case may be.

16. Partner No. 3 shall be responsible for the duties and functions to be performed under the direction of No. 2, the Managing Partner. In the event of failure on the part of No. 3 to perform duties and functions or otherwise entrusted by No. 2, the Managing Partner, the matter shall be referred to No. 2 and his decision shall be binding on No. 3".

The Appellate Assistant Commissioner accepted the conten• tion of the assessee and held that the remuneration paid and received by Shri D. C Shah should be deleted from the assessment G of the assessee. The Income Tax Officer thereafter preferred appeals to the Income Tax Tribunal which set aside the order of the Appellate Assistant Commissioner and held that the remuneration paid should be included in the total income of the assessee. At the instance of the assessee, the Income Tax Appel late Tribunal stated a case to the High Court on .the following question of law :- a "Whether on the facts and in the circumstances of the case. was the salary -received by D. C. Shah from the

two firms of M/s C. U. Shah & Co. and M/s Oriental Can Manufacturing Co., includible in the assessment of the H.U.F. of which Shri D. C. Shah was the Karta'?"

The High Court relying upon its earlier decision in Gurunath V. Dhakappa v. Commissioner of Income-tax, Mysore(') held that the salary received by Shri D. C. Shah from the aforesaid firms cannot be included in the assessment of the Hindu Undivided Family of which he was the karta. These appeals are brought by special leave on behalf of the Commissioner of Income Tax, Bangalore from the judgment of the Mysore High Court, dated 19th January, 1965 in Income Tax Referen'e No. I of 1964.

The question whether the remuneration earned by a member of a Hindu Undivided Family as an officer of a company or a firm in which the assets of the Hindu Undivided Family have either been invested or the office has been acquired with the aid of the funds of the family is the income of the family or the individual income of the member has been the subject matter of consideration in several cases before this Court. In V. D. Dhanwatey v. Commissioner of Income-tax('), V the karta of a Hindu Undivided Family contributed to the capital of a firm out of the funds of the family. Under the agreement of the partnership the general management and supervision of the partnership business was to be in the hands of V and he was to be paid a monthly remuneration out of the gross earnings of the partnership business.

It was found that V joined the partinership as representing the family and became a partner on account of the investments of the joint family assets in the capital of the partnership and that the remuneration received by V was only an increased share of the profits paid to him as representing the family.

In this state of facts it was held by this. Court that the remuneration paid to V

was directly related to the investments of the assets of the family in the partnership business and "there was a real and sufficient connection between the investment from the joint family funds and the remuneration paid to V". It was therefore held by this Court that the salary paid to V was, rightly assessed as the income of the Hindu Undivided Family. In M. D. Dhanwatey v. Commissioner of Income Tax(•) the facts were parallel to the facts in V. D.

Dhanwatey's case(') and the salary received by the karta of the Hindu Undivided Family was treated as the income of the family.

In S. R. M. CT. PL. Palaniappa Chettiar v. Commissioner of Income Tax('), the material facts were different. The karta of a Hindu Undivided Family acquired 90 out of 300 shares in a transport company with the funds of the family. In course of time he

(I) 53 1.T.R. 575.

(3) 68 l.T.R. 285.

LIOSup./69--3

(2) 68 LT.R. 365.

(4) 68 1.T.R. 221.

became the Managing Director of the Company.

As Managing Director the katta was entitled to salary and commission on the net profits of the company, and was entrusted with control over the financial and administrative affairs of the company. The only qualification under the. Articles of Association for the .otlii;:e of a Director, was the holdmg of not less than 25 sh; ires m hts own right. It was found that' the shares were acquired by the fanily not with the object that the karta should become the Managmg Director, but in the ordinary course of investment and there was no real connection between 'the investment of the joint family funds in the purchase of the shares and the appointment of the karta as Managing Director of the company.

It was held therefore that the remuneration of the Managing Director was not earned on account of any detriment to the joint family assets and the amounts received by the karta as Managing Director's remuneration, commission and 'sitting fee' were not assessable as the income of the Hindu Undivided Family.

In P. N. Krishna Iyer v. Commissioner of Income Tax Kerala(' ), the principle laid down in V. D. Dhanwatey's case(")

was applied. It was held that the remuneration received by the assessee from the company of which he was the Managing Director together with commission and 'sitting fee', should be included in the assessment of the Hindu Undivided Family.

It was pointed out that the shares which qualified the assessee to become a member of the company were purchased with the aid of the joint family funds.

The shares which were allotted to the assessee in lieu of his services were also treated as shares belonging to the joint family.

The entire capital assets of the company originally belonged to the joint family and were made available to the company in consideration of a mere promise to pay the amount for which the assets were valued. The income was primarily earned by utilising the joint family assets or funds and the mere fact that in the process of gaining the advantage an element of personal service or skill or labour was involved did not alter the character of the income. . In cases of this class the character of the receipt must be determined by reference to its source, its relation to the assets of the family and the proximity of the connection between the investment from the joint family funds and the remuneration paid.

Applying the principle laid down in V. D. Dhanwatey's case(3 ), it was held that the tribunal was justified in holding that the income from the saJary, commission or 'sitting fee' obtained by the assessee did not represent his individual income but was the income of the Hindu Undivided Family ol which he was the karta.

(1) [196911 S.C.R. 943.

(2) 68 l.T.R. 365.

A In Commissioner of Income Tax, Mysore v. G. V. Dhakap pa('), the principle laid down in V. D. Dhanwatey's(') case was applied again. It was held that there was no finding that the income which was received by G. V. Dhakappa was directly related to any assets of the family utilised in the partnership, and, therefore, the income of G. V. Dhaka pp a cannot be treated B as the income of the Hindu Undivided Family.

In Olll' opinion, the present case falls within the principle laid down by this Court in S.R.M. CT. PL. Palaniappa Chettiar's case('). It has been found that Shri D. C. Shah was a man of rich experience in the line of business which these two firms were carrying on. Clauses 9 and 10 of the Partnership deed dated .C 5-6-1961 indicate that the remuneration was paid inot because ol the family funds invested in the partnership but for the personal qualification of Shri D. C. Shah. In the case of Oriental Can Manufacturing Company clause 14 provided for Shri K. K. Dhote being appointed .as the Managing partner. After the said Shri lllhote retired Sbri D. C. Shah was appointed as the Managing 8 partner during the assessment year 1959-60. Clause 15 of the partnership deed provided for such an appointment. A reading of clauses 14, 15 and 16 of the Partnership Deed indicate• that the remuneration was paid for the specific acts of management done by Shri D. C. Shah resting on his personal qualification and not because he represented the firm.

It should also be noticed that no other .partner was paid any salary.

Upon the particular J; facts of this case, it is mainilest that there WJIS no real or sufficient

connection between the investment of the joint family funds and the remuneration paid by the partnership to Shri D. C. Shah. It follows that the remuneration of Shri D. C. Shah was not earned on account of any detriment to the joint family assets and the

amounts of remuneration received by Shri D. C. Shah as the I' Managing partner of the two partnerships were not assessable as

income of the Hindu Undi'Yided Family.

For these reasons we hold that there is no merit in these appeals which are accordingly dismissed with costs. There will be one hearing fee.

Y.P.

Appeals dismissed.

(I) Civil Appeal No. 713of1965 decided on 23-7 1968. 68 LT.a. :Ms.

(3) 68 LT.It.. 221.

COMMISSIONER OF INCOMETAX, BANGALORE

SHRI D. C. SHAH

February 6, 1969

V. RAMASWAMI

A. N. GROVER, JJ.

Karla

Karta

[1969) 1 S.C.R. 943

CIVIL APPELI.ATE JURISDICTION

S. C. Manchanda

R. N. Sachthey

M. C. Chagla

Sharad !. Mhaispurkar

. P. Malhotra

C. Mathur

Ramaswami

D. C. Shah

C. U. Shah and Co.

Oriental Can Manufacturing Co.

C. U. Shah

Oriental Can Manufacturing Company

Mis C. U. Shah

Mis Oriental Can Manufacturing Company

D. C. Shah

D. C Shah

C. U. Shah & Co.

Bangalore

Mysore High Court

19th January, 1965

V. D.

Dhanwatey

karta

V. D. Dhanwatey

G. V. Dhakappa

G. V. Dhaka

clause 14

K. K. Dhote

lllhote

Clause 15

23-7 1968