MADAN LAL PURI

SAIN DAS BERRY

July 27, 1971

re. A. VAIDIALINGAM, A. N. RAY AND D. G. PALEKAR, JJ.] B

Delhi Rent Control Act, 1958, ss. 14(1)(e) and 39(2)-Jurisdiclio11 of High Court.

The respondents who was the landlord of certain premises, filed an application under s. 14(l)(e) of the Delhi Rent Control Act, 1958, for the eviction of the appellant, who was the lessee, on the ground inter alia, C that the respondent required the premises bo.nafide for his occupation as a residence for himself and his family members. The Rent Controller found that the requirement of the landlord was not bonafide and dismissed the application. The order was confirmed in appeal by the Rent Control Tribunal. Tho respondent filed an appeal to the High Court under s. 39(2) of the Act Before the High Cow:t both parties agreed that the case should he remanded to the Tribunal for a finding on the question whether the premises available with the respondent could be considered to be •reasonably D suitable residential accommodation' as contemplated by s.- 14(l)(e).

On remand, the Tribunal reported that the premises in the occupation of the respondent were not reasonably sufficient for the respondent and his family.

The appellant however contended before the High Court, ignoring this finding of the Tribun, J, that on the concurrent findings of the two sub ordinate authorities that the landlord's requirement was not bonafide, there was no question of law involved and so the High Court had no jurisdiction under s. 39(2) to consider the correctness of those findings. The High E Court rejected the contention and held, that, in view of the finding on remand the decision of the subordinate authorities dismissing the respon. dent's application was erroneous.

fn appeal to this Court,

HELD: This Court in Kam/a Soni v. Rup Lal Mehra, C.A. No. 2150 of 1966 dated 26-9-1969 held that a finding on the issue whether the requiremenl of a landlord is bonafide is a finding on mixed questions of law and fact and not on facts only. Therefore, it was open to the High Court, when exercising jurisdiction under s. 39(2), to consider in proper cases the correctness of such a finding.

[939E-G]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 848 of

1971.

Appeal by special leave from the judgment and order dated December 7, 1970 of the Delhi High Court in S.A.O. No. 110-D of 1966.

Hardev Singh, K. P. Kapur and H. L Kapur, for the appel-

~~.

S. K. Mehta, K. L. Mehta and K. R. Nagaraja, for the respondent.

SUPREME COURT REPORT5 [1971] SUPP. s.c.R.

The Judgment of the Court was delivered by

Vaidialingam, J.-In thas appeal, Mr. Hardev Singh, learned counsel on behalf of the tenant-appellant, challenges the judgment and order dated December 7, 1970 of the Delhi High Court .iJi S.A.O. No. 110-D of 1966. Special leave has been granted by this Court limited to the question whether the High Court was justified, in view of s. 39(2) of the Delhi Rent Control Act, 1958 (hereinafter called the Act) in setting aside the decisions of the two subordinate authorities, dismissing the application filed by the respondent-landlord for evicting the appellant.

The facts leading up to this appeal may be brielly stated.

The appellant took on lease, the first lloor of the premises in question from the respondent on January 22, 1964 on a monthly rent of Rs. 250. The respondent who was the owner of the entire premises was then occupying the ground floor.

The landlord filed an application, before the Rent Controller on November 26, 1964 for eviction of the appellant from the portion in his occupation as lessee, on two grounds; (a) that the tenant has sub-let a part of the premises, and (b) that he required the premises bona fide for his occupation as a residence himself and his family members. The latter claim was based under cl. (e) of the proviso to sub-section (I) of s. 14 of the Act, which is as follows:-

"that the premises let for residential purposes are required bona fide by the landlord for occupation as a residence for himself or for any member of his family dependent on him, if he is the owner thereof, or for any person for whose benefit the premises are held and that the landlord or such person has no other reasonably suitable residential accommodation;"

The tenant opposed the claim of the landlord on both the grounds.

He denied the allegation of sub-letting.

He also contended that the landlord's requirement for his occupation was not bonafide. The tenant's plea was that the portion of the premises in his occupation was sufficient for his purpose. The Rent Controller accepted the plea of the tenant that there was no subletting. He also accepted his plea that the requirement of the landlord for his occupation was not bona fide. On these findings, the landlord's application was dismissed.

These two findings were also confirmed in the appeal filed by the landlord before the Rent Control Tribunal.

The question. regarding sub-letting, having been decided against the landlord by both the Tribunals, no longer survives and it was also not agitated before the High.

Court. It may be stated at this stage that the findings of both the tribunals on the question of bonafide requirement were recorded against the landlord, on the sole ground that the landlord must

M. L. PURI v. s. o. BERRY (Vaidialingam, J.) 937

have foreseen his requirement for additional accommodation A even at the time when he let out a part of the premises on January 22, 1964 to the appellant and therefore he was not entitled to ask for eviction under cl. (e) of the proviso to sub-section (!) of s. 14 of the Act. It is the view of both the Tribunals that when eviction is asked for within about 11 months of the letting, the claim of the landlord cannot be considered to be bonafide. ' B

The landlord carried the matter in appeal before the High Court under s. 39 of the Act. That section runs as follows :-

"39(1) Subject to the provisions of sub-section (2), an appeal shall lie to the High Court from an order made by the Tribunal within sixty days from the date of such order ;

Provided that the High Court may entertain the appeal after the expiry of the said period of sixty days, if it is satisfied that the appellant was prevented by sufli cient cause from filing the appeal In time.

(2) No appeal shall lie under sub-section (I), unless the appeal involves some substantial question of )aw."

Before the High Court, counsel for both parties made a representation that the Rent Control Tribunal has not recorded a finding on the question whether the premises avaiable with the landlord can be considered to be "reasonably suitable residential accommodation" as contemplated by cl. (e) of the proviso to s. 14 (!). Hence they made a joint request to remand the case to the Tribunal for a finding on the said question on the basis of the evidence already on record.

Accepting this joint request, the learned , Judge remanded the case to the Tribunal.

The latter, after a consideration of the materials on record as well as the extent of the premises in the occupation of the landlord and also having due regard to the number of family members living with the latter, held, in his report dated May 4, 1970, that the portion of the premises in the occupation of the landlord was not reasonably sufficient for a family consisting of the landlord, his wife, his son, son's wife and their chlldren. On this basis, he recorded a finding that the premises in the occupation of the respondent were not reasonably suitable for his residence.

So far as we could see, the correctness of these findings recor ded by the Rent Control Tribunal, in favour of the landlord, do not appear to have been challenged by the tenant before the High Court when. the appeal came up for final hearing. On the other hand, we find that the same contentions that were raised regard ing the bonafide requirement of the landlord and which found

acceptance at the hands of the Rent Controller and the Tribunal before remand were again raised by the tenant-appellant before the High Court. That is, in short, the appellant herein was con testing before the High Court, the appeal of the landlord, ignoring the findings of the Tribunal dated May 4, 1970. The main point that was urged by the appellant before the High Ccurt was that as the two subordinate Tribunals have recorded concurrent findings negativing the claim of the landlord regarding his bonafide requirement of the premises, the appeal filed by the landlord did not involve any substantial question of law. On this basis the appellant pressed for the dismissal of the landlord's appeal.

On the other hand, the respondent urged that both the subordinate Tribunals have not properly considered the question of the land lord's requirement ; and that the findings recorded against him were on irrelevant consideration. According to the landlord the • various material factors which have to be taken into account for adjudicating upon such a claim, have not been properly borne in mind by both the Tribunals. Quite naturally the landlord placed considerable reliance on the findings recorded on May 4,

1970 in his favour by the Tribunal.

The High Court rejected the contention of the appellant that it has no jurisdiction to consider the correctness of the findings recorded by the two subordinate authorities especially when the relevant matters to be taken into account for deciding such a question have not been borne in mind by those authorities. The High Court is of the view that the rejection by the Rent Con troller and the Tribunal of the claim of the landlord on the sole ground that he should have anticipated his requirement for the next 10 or II months when he let out the premises on lease on January 22, 1964, was erroneous. The High Court has further observed that none of the subordinate authorities have held that after letting out the premises on January 22, 1964 and before filing the application for eviction on November 26, 1964, the land lord has made any demand from the tenant for payment of higher rent. Finally, the High Court having due regard to the above circumstances and the size of the family of the landlord and the findings recorded by the Tribunal on May 4, 1970 held that the decision of the two subordinate authorities dismissing the land lord's application was erroneous. On the other hand, the learned Judge held that the landlord has made out is claim. under cl. (e) of the proviso to s. 14(1) of the Act. On this reasomng the learn ed Judge reversed the decision of the Rent Controller an~ !he Tribunal and allowed the application of the landlord for ev1ct10n

of the appellant. The appellant was given six months' time for

vcating the premises.

Mr. Hardev Singh, learned counsel for the appellant, .has very strenously urged that in view of the concurrent findings.

M. L. PURI v. s. o. BERRY (Vataratrngam, J.)

recorded by the two subordinate tribunals, there was no question of la~ much less a substantial question of law arising for consideration before the High Court in the appeal filed by the landlord. Hen, e he urged that the interference by the High Court with the concurrent findings so recorded was not justified. Learned counsel further pointed out that the landlord has not made out his claim under cl. (e) of the proviso to s. 14(1) of the Act. Mr.

Hardev Singh referred us to certain decisions of this Court dealing with the question, under what circumstances it can be considered that a substantial question of law arises. We do not think it necessary, in the circumstances of this case, to refer to those decisions, as in our opinion they have no bearing on the short question that arises for consideration before us, namely, the power of the High Court under s. 39, to consider the correctness of a finding regarding bonafide requirement under cl. (e) of the proviso to s. 14(1) of the Act.

As we have already pointed out, the sole question that has to be decided by us is whether the High Court in reversing the decisions of the Rent Controller and the Tribunal, in the circumstancc3 of this case, can be considered to have exceeded its jurisdiction under s. 39(2). We are satisfied that the High Court has not exceeded its jurisdiction in any manner.

The argument of Mr. Hardev Singh that the High Court has exceeded its jurisdiction under s. 39(2) of the Act when it reversed the finding of the two subordinate authorities on the question of bonafide requirement has, in our opinion, no substance.

In Smt. Kam/a Soni v. Rup Lal Mehra('), this Court observed as follows:

" ...... Whether on the facts proved the requirement of the landlord is bona fide, within the meaning of s. 14(!)(e) is a finding on a mixed question of law and fact ...... "

From the above observations it is clear that an inference drawn by the subordinate authorities that the requirement of the respon dent was not bonafide, could not be regarded as conclusive. The High Court, in proper cases, has ample jurisdiction to Interfere with that finding and record its own conclusions on the basis of the materials on record.

We may also point out that in the case before us the position is made worse for the appellant in view of the finding recorded by the Tribunal in favour of the landlord on May 4, 1970. We have already pointed out the circumstances under which a finding was called for by the High Court. The High Court has accepted those findings and held in favour of the landlord that he has

(l) C. A. No. 2150of1966 decided on 26-9-1969.

made out a case under cl. (e) of the proviso to s. 14(!) of the Act.

Mr. Hardev Singh referred us to the decision of this Court reported in Bhagwan Dass and another v. S. Rajdev Singh and another('), wherein it has been observed :

"A second appeal lies to the High Court against the decision of the Rent Control Tribunal under Section 39(2) of the Delhi Rent Control Act, 1958, only if the appeal involves some substantial question of law. The Rent Controller and the Rent Control Tribunal, on a consideration of the relevant terms of the agreement and oral evidence and the circumstances found that a clear case of sub-letting was established. On that finding no question of law, much less a substantial question of law, arose."

The first part of the above extract lays down the nature of the jurisdiction exercised by the High Court under s. 39(2) of the Act.

In that decision, on facts, it was found both by the Rent Controller and the Tribunal, on a relevant consideration of the materials on record, that a case of sub-letting was established.

On such a finding concurrently arrived at by both the authorities, it was held by this Court that no question of law, much Jess a substantial question of law arose for consideration before the High Court.

But the facts in the case before us are entirely different. We have already pointed out that the question that fell to be considered by the High Court was whether the claim made by the landlord under cl. (e) of the proviso to s. 14(1) of the Act was bonafide. As already pointed out, this Court, in Smt. Kam/a Soni v. Rup Lal Mehra(''), has held that a finding on such an issue is not one of fact alone but is a finding of mixed question of law and fact, and that it was open to the High Court when exercising its jurisdiction under s. 39(2) of the Act, to consider the correctness or otherwise of such a finding.

The findings recorded on such an issue by the subordinate tribunals are not conclusive.

From the above discussion, it follows that the High Court has not exceeded its jurisdiction under s. 39(2) of the Act.

In consequence, the appeal fails and is dismissed.

In the circumstances of the case, parties will bear theit own costs.

V.P.S.

Appeal dismissed.

(l) A. I. R. 1970 S. C. 986.

(2) c. A. No. 2150of1966 decided on 26-9-1969.

MADAN LAL PURI

SAIN DAS BERRY

A. N. RAY

D. G. PALEKAR, JJ.

Delhi Rent Control Act, 1958

ss. 14(1)(e) and 39(2)

s. 14(l)(e)

Delhi Rent Control Act, 1958

s. 39(2)

s. 39(2)

s. 39(2)

s. 39(2)

Delhi Rent Control Act, 1958

s. 14

s. 14

s. 39

s. 14

s. 14(1)

s. 14(1)

s. 39

s. 14(1)

s. 39(2)

s. 39(2)

s. 14(!)(e)

s. 14(!)

Section 39(2)

Delhi Rent Control Act, 1958

s. 39(2)

s. 14(1)

s. 39(2)

s. 39(2)


SALES TAX COMMISSIONER, U. P.

M/S. LADHA SINGH MAL SINGH

July 27, 1971

(K. S. HEGDE AND A. N. GROVER, JJ.J

U.P. Sales Tax Act, 1948-Noti{ication dated June 19, 1948-Cloth manufactured by looms worked by power-If cloth manufactured by Mills.

Under the notification dated June 19, 1948 issued under s. 3(A) of the U.P. Sales Tax Act, 1948, sales tax at the rate of 6 pies in a rupee was

payable on "cloth manufactured by mills". Tax at that rate was sought C to be Jevied on cloth manufactured by means of looms worked by power on the basis that it was "cloth manufactured by mills" within the meaning of the notification. The High Court held that cloth manufactured by power looms could not fall under the term "cloth manufactured by mills". Dismissing the appeal,

HELD: What has to be seen is the context in which the word "mill" is used in the notification. The notification divides cloth broadly into two D categories-mill made and loom made.

Loom made cloth would include all cloth manufactured on looms and, therefore, whether the energy is supplied manually or by power cannot convert the essential character of the cloth, namely, its manufacture on looms.

As regards mill made cloth the actual process of weaving is more or less automatic, pre-conceived and definite and it involves functioning of machinery. In popular language a power loom cloth is never associated with a mill cloth. [942H

943A] E

Further, it -:annot be said that once the looms worked by power are used in a building the essential characteristics of mills would be satisfied.

To hold so would be contrary to the accepted and popular meaning of hand-loom or power-loom cloth and mill-made cloth. The distinction which v; as kept in view when the notification was promulgated was between the aforesaid two categories or types of cloth involving essentially a difference in the process in which it was manufactured. [943H-944B] F

Sri Dhandapani Power Loom Factory, Erode. v. Commercial Tax Officer, Coimbatore & Anr., 12 S.T.C. 304 and El/erker v.

Union Cold Storage Co. Ltd., [1939] I A.E.L.R. 23, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 564 of 1967.

Appeal by special leave from the judgment and order dated Aueust 9, 1966 of the Allahabad High Court in S.T.R. No. 563 of l962.

0. P. Rana, for the appellant.

The respondent did not appear.

The Judgment of the Court was delivered by H Grover, J.-The only point for decision in this appeal by special leave is whether the cloth manufactured by means of

942 SUPREME COUllT RBPORTS

[1971) SUPP. S.C.R.

looms worked by power can be regarded as "cloth manufactured by mills" for which sales tax was payable at the rate of 6 pies in a rupee in terms of the notification dated June 8, 1948 issued under s. 3A of the U.P. Sales Tax Act, 1948. The general rate of tax on sale of cloth otherwise was 3 pies per rupee. The High . Court on a reference made under the relevant provisions of the Act held that cloth manufactured by means of power looms could not fall under the term "cloth manufactured by the mills".

The approach of the High Court was that since the word "mills" had not been defined either by the Act or by the notifica tion mentioned before the meaning of the words "cloth manufac tured by the mills" must be considered according to the common understanding of mankind. Reference was made to the dictionary meaning as given in Websters' New International Dictionary, Vol. 2.

According to the dictionary two things were required

(1) a building and (2) a machinery, in order to constitute a "mill".

The meaning of the word "machine", according to the dictionary in a popular and mechanical sense is ".... .. .. .. .. .. . more or less complex combination of mechanical parts, as levers, gears spro cket wheels, pulleys, shafts and spindles, ropes, chains, and bands, cams and other turning and sliding pieces, springs, confined fluids etc., together with the frame work and fastenings, supporting and connecting them, as when it is designed to operate upon material to change it in some pre-conceived and definite manner ......... " According to the High Court looms which are merely worked by power would hardly fall within the meaning of the word "ma chine". It has been pointed out that looms worked by hand or by power have not been shown by any evidence to be different.

It does not appear to have been disputed before the High Court that a building having looms worked by manual labour would not be a mill. The court found no difference between building containing looms worked by manual labour or by power.

According to Words and Phrases, Vol. 27 the term "mill" in modem usage, includes various machines or combinations of machinery, as cotton mills, fulling mills, powder mills, etc., to some of which the. term "manufactory" or "factory" is also applied. In our judgment although the dictionary meaning may be of considerable assistance in deciding the point before us but what has to be seen is the context in which the word "mills" is used in the notification. It is common ground that if cloth was manufactured by looms worked by manual labour the notification was not applicable and the rate of tax per rupee was 3 pies but if he cloth was manufactured by mills then the rate was to be 6 pies. Thus cloth has been divided broadly into two categories. mill-made and loom-made. It is quite obvious that loom-made cloth would include all cloth manufactured on looms. It is diffi cult to understand how the energy by which the looms are worked

s. T. c. v. LADHA SINGH (Grover, J.) 943

would make any difference. In other words whether the energy A is supplied manually or by power cannot convert the essential character of the cloth, namely, its manufacture on looms.

As regards mill made cloth the actual process of weaving Is more or less automatic, preconceived and definite and it involves the functioning of machinery.

Ramchandra Iyer J., in Sri Dhanda- B .Pani Power-loom Factory, Erode v. Commercial Tax Officer, Coimbatore and Anr.('), was right in observing that mill cloth is a familiar variety of cloth and everybody knows what a mill is. In popular language, a power., loom cloth is never associated with a mill cloth.

According to Mcnaghten J., in Ellerker v. Union Cold Storage Co. Ltd., (') a mill is building where goods are subjected to treatment or processing of some sort and where machinery is used for that purpose. The illustrations given were :

"The miller in his com-mill grinds wheat into fiour, D •Or oats into oatmeal. So too, at a scutching-mill the miller scutches the fiax, to prepare it for spinning. The saw-mill, the rolling mill, the flatting mill, the puffing mill and the cotton mill are all buildings where goods are

treated or subjected to some process." E

It must be remembered that the meaning of the word "mill" or "mills" would vary according to the context in which that word is used. In the above case a company carried on a large cold storage business. In some of the cold stores part of the building was used for the manufacture of ice for sale ; others were F only used for the purpose ol storage. It was held that all the premises fell within the meaning of the words in Scb.edule D.

Cases I and. II, r. 5(2) of the Ince.me-tax Act which were : Mi!Ts factories or other similar premises.

Counsel for the appellant has sought to argue that once the looms worked by power are used In a building the essential characteristics of "mills" would be satisfied and if any cloth is manufactured on those looms it would be cloth manufactured by

"mills" within the meaning of the notification. The falacy

11) 12 S. T. C. 304,

(2) [1939] A. B. L. R.. 23

SUPREME COURT REPORTS [1971 SUPP. s.c.R.

A in this argument is that by the same reasoning a building in which looms worked by manual labour are to be found would also have to be regarded as "mills". This would be contrary to the accepted and popular meaning of handloom or power loom cloth anct mill made cloth. We are satisfied that the distinction which was ll kept in view when the notification was promulgated was between the aforesaid two categories or types of cloth involving essentially a difference in the process by which it was manufactured.

We would accordingly uphold the view of the High Court and dismiss the appeal. There will be no order as to costs.

KB.N.

Appeal dismissed.

SALES TAX COMMISSIONER, U.

S. LADHA SINGH MAL SINGH

K. S. HEGDE

A. N. GROVER, JJ

Sales Tax Act, 1948

s. 3(A)

Sales Tax Act, 1948

s. 3A

Sales Tax Act, 1948


DELm CLOTH AND GENERAL MILLS CO. LTD. ETC.

COMMISSIONER OF SALF.S TAX, INDORE July 28, 1971

[K. S. HEGDE AND A. N. GROVER, JJ.)

Madhya Pradesh General Sales Tax A.ct, 1958, ss. 2(c), (o), (t), and 4- Sales Tax recovered from buyer-If part of turnover.

The assessee, while selling goods, charged the sales tax separately and collected it from the buyers. It did not include the sales-tax so collec

ted in its turnover. The authorities under the Madhya Pradesh General C Sales Tax Act, 1958, as well as the High Court, held that the sales tax collected from the buyers was a part of the price of the goods sold and tborefore should have been included in the assessee's turnover.

In appeal to this Court, HELD: Under s. 4 of the Act the liability to pay tax is that of the dealer. There is no provision in the Act imposing any liability on the purchaser to pay the tax so imposed on the dealer and there no law D empowering the dealer to collect the tax from bis buyer. Hence the dealer would not be legally entitled to collect the tax payable by him from his buyer, and whatever collection the dealer makes from his customers can only be by adding the tax to the price, so that, the tax becomes part of the valuable consideration given by a purchaser for the goods purchased by him.

Therefore, the distinction between the two amounts-tax and price-loses all significance, and the tax becomes a part of the sale price as defined in s. 2(c) of the Act and must be taken into consideration in com- E puling the turnover. (9480-G ; 950A)

Tata Iron & Steel Co. Ltd. v. Stat• of Bihar, [1958) S.C.R. 1355, Mis. George Oaks (P) Ltd. v. State of Madras, 12 S.T.C. 476, Paprika Ltd, .t Anr. v. Board of Trade, (1944) All. E.R. 372 and Lov. v, Norman Wright (Buil<krs) Ltd., [1944] I All. E.R. 618, referred to.

Deputy Commissioner of Commercial Taxes, Coimbatore, v. M. Krisllnaswamy Mudaliar & Sons, 5 S.T.C. 88, distinguished.

QVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1272 and 1273 of 1967.

Appeals by special leave from the judgment and order dated July 10, 1967 of the Madhya Prad_esh High Court in Misc. Civil Cases Nos. 61 and 62 of 1967.

AND

Civil Appeal No. 2453 of f968.

S. T. Desai, A. N. Sinha and G. S. Chatterjee for the appellant (in C.As. Nos, 1272 and 1273 of 1967).

A. N. Sinha, for the appellant (in C.A. No. 2453 of 1968).

I. N. Shroff, for the respondent (in all the appeals).

6~-1 s.c. India/71

SUPRBMll COURT REPORTS (1971] SUPP. S.c;.R

The Judgment of the Court was delivered by

Hegde, J.-These appeals by special leave arise trom the decision of the High Court of Madhya Pradesh in three references under s. 44(1) of the Madhya Pradesh General Sales Tax Act, 1958 (to be hereinafter referred to as the Act). Those references were made at the instance of the assessee who is the appellant in all these appeals. The question of law referred to the High Court for its opinion in each one of these cases is identical and that question reads:

"In the facts and circumstances of the case is the sales tax recovered by the petitioner a part of the sale price as defined in clause (o) of Section 2 of the Madhya Pradesh General Sales Tax Act, 1958."

Herein we are concerned with. the assessment years 1961-1962, 1962-1963 and 1963-1964. The assessee is-a dealer in Vanaspati.

The facts found are that while selling Vanaspati, the assessee

barged the sales tax separately and collected the same from his buyers. To each of its buyer it issued a receipt in respect of each sale transaction wherein it showed the price of the goods as such and the sales tax payable on the price of those goods. In the turnover returned it did not include the sales tax collected by it from its buyers but the authorities under the Act as well as the High Court held that sales tax collected by it from its buyers was a part of the price of the goods sold and therefore the same. will have to be taken into consideration in computing its turnover.

The assessee is challenging that conclusion.

Section 4 of that Act is the charging section. Sub-s. (!) thereof says:

"Every dealer whose turnover during a period of twelve months inJt:nediatelv preceding the commencement of this Act exceeds the limit specified in sub-section (5), shall from such commencement be liable to pay tax under this Act on his taxable turnover in respect of sales or supplies of goods effected in Madhya Pradesh."

A dealer is defined in s. 2(d) as meaning any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration or other valuable consideration, be it a society, a club, firm or association which buys goods from or sells, supplies or distributes goods to its members or commission . agent, a broker, a del-creders agent. an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of any principal.

"Turnover" is defined thus in s. 2(t) :

" "turnover" used in relation to any period means the aggregate of the amount of sale prices received and receivable by a dealer in respect of any sale or supply or distribution of goods made during that period, whether or not the whole or any portion of such turnover is liable to tax hut after deducting the amount, if any, refunded by the dealer to a purchaser, in respect of any goods pµrchased and returned by the purchaser w.ithin the prescribed period :

Provided that in the case of a sale by a person of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest, whether as owner, usufructuary mortgagee, tenant or otherwise, the amount of the consideration relating to such sale shall be excluded from his turnover when such produce is sold in the form in which it was produced, without being subjected to any physical, chemical or other process for being made fit for consumption save mere dehusking, cleaning, grading or sorting."

"Sale price" is defined in s. 2(o) :

" 'sale price' , means the amount payable to a dealer as valuable consideration for the sale of any goods, les.s any sum allowed as cash discount according to or<fi.

E nary trade practice but includillg any sum charged for anything done by the dealer in respect of the goods at the time or before delivery thereof other than the cost of installation when such cost is <Separately charged and the expression 'purchase price' shall be construed accordingly." F

In view of the definition of sale price. all that we have to see is whether the , collection of sales tax. , by the dealer from his pur chasers can be considered as valuable consideration received by lliln for the sale of goods.

Under s. 4 the liability to pay tax is that of the dealer. The G purchaser bas no liability to pay tax. There is no provision in the Act from which it can be gathered that the Act imposes any liability on the purchaser to pay the tax imposed on the dealer.

If the dealer passes on his tax burden to bis purchasers be can

only do it by adding the tax in question to the price of the goods sold. In that event the price fixed for the goods including the tax H payable becomes the valuable consideration given by the purchasers for the goods purchased by him. If thai be so, the tax collect by the dealer from his purchasers becomes a part of the sale

SUPREME COURT REPORTS (1971] SllPP. s.c.R.

price fixed, as defined in s. 2(o). In some of the Sales Tax Acts power bas been conferred on the dealers to pass on the incidence of tax to the purchasers subject to certain conditions. Those provisions may call for different consideration. In the Act there is no such provision except s. 7-A which was introduced into the Act by Madhya Pradesh Act 23 of 1963. That provision would have relevance only in respect of the assessment for the year 1963-64.

Section 7-A says:

"No dealer shall collect any amount, by way of sales-tax or purchase tax, from a person who sells agricultural or horticultural produce grown by himself or grown on any land in which he has an interest, whetllr as owner, usufructuary mortgagee, tenant or otherwis~.

when such produce is sold in the form in which it was produced, without being subjected to any physical, chemical or other process for being made fit for consumption save niere dehusking, cleaning, grading or sorting."

In these appeals, it is not necessary to examine the relevance of that provision. But that provision does not give any statutory power to collect sales tax as such from any class of buyers.

There is no other provision in the Act which. confers such a power on the dealers. Unless the price of an article is controlled, it is always open to the buyer and the seller to agree upon the price to be payable. While doing so it is open to the dealer to include in the price the tax payable by him to the government. If he does so, he cannot be said to be collecting the tax payable by him from his buyers. The levy and collection of tax is regulated by law and not by contract. So long as there is no law empowering the dealer to collect tax from h.is buyer or seller, there is no legal basis for saying that the dealer is entitled to collect the tax payable by him from his buyer or seller. Whatever collection that may be made by the dealer from his customers the same can only be considered as valuable consideration for the goods sold.

In MI s. George Oakes (Private) Ltd. v. The State of Madras and Ors. (') this Court was called upon to consider whether a dealer can pass on his tax liability as such to his customer. In that decision while rejecting the contention that the tax liability as such can be transferred to the buyers this Court referred to the observations of Lawrence J. in Paprika Ltd. and anr. v. Board of

(I) 12 S.T.C. 476.

Trade(') and Goddard L. J. in Love v. Norman Wright (Builders) A Ltd.(').

In the former case Lawrence J. observed :

"Whenever a sale attracts purchase tax, that tax presumably affects; the price which the seller who is liable to pay the tax demands but it does not cease to be the price which the buyer has to pay even if the price is exprssed as x plus purchase tax."

In Love's case (supra) Goddard L. J. observed :

"Where an article is taxed, whether by purchase tax, customs duty, or excise duty, the tax becomes part ofl the price which ordinarily the buyer will have to pay. The price of an ounce of tobacco is what it is because of the rate of tax, but on a sale there is only one consideration though made up of cost plus profit plus tax. So, if a seller offers goods for sale, it is for him to quote a price which Includes the tax if he de sires to pass it on to the buyer. If the buyer agrees to the price, it is not for him to consider how it is made up or whether the seller has included tax or not."

In that decision reference was also made to the decision of this Court in Tata Iron and Steel Co. Ltd. v. State of Bihar(') Therein Das C. J. who delivered the majority judgment of the Court said :

"The circumstance that the 1947 Act, after the amendment, permitted the seller who was a registered dealer to collect the sales tax as a tax from the pur chaser does not do away with the primary liability of the seller to pay the sales tax.

This is further made clear by the fact that the registered dealer need not, if he so pleases or chooses, collect the tax from the pur

chase~ and sometimes by reason of competition with other registered 'dealers he may find it profitable to sell his goods and to retain his old customers even at the sacrifice of the sales tax. This also makes it clear that the sales tax need not be passed on to the purcha sers and this fact does not alter the real nature of the tax, which by the express provisions of the law, is cast

upon the seller. The buyer is under no libility to pay sales tax in addition to the agreed sale pnce unless the contract specifically provides otherwise.

See Love v.

Norman Wright (Builders), Ltd."(')

(I} [1944] I, All. E.R. 372.

(2) [1944]1 All. E.R. 618.

(3) [19S9] S. C. R. 13SS.

SUPREME COURT REPORTS [1971] SUPP. s.c.Jt.

From all these observations, it is clear that when the seller passed on his tax liability to the buyer, the amount recovered by dealer is really part of the entire consideration paid by the buyer and the distinction between the two amounts, tax and price looses all significance.

In support of his contention tbA: appellant relied on the decision of the Madras High Court in The Deputy Commilsioner of Commercial Taxes, Coimbatore v. M.

Krishna.rwamy Mudaliar and sons('). Therein on an interpretation of relevant provisions of the Madras General Sales Tax Act, the court came to the conclusion that the sales tax which the dealer was authori&- ed to collect from his customers was not a part of the sale price received by him. This conclusion was primarily based on s. 8(B) (!) of the Madras General Sales Tax Act, 1939. There is no similar provision in the Act. Therefore it is not necessary for us to consider the correctness of that decision.

In the result these appeals fail and they are dismissed with costs. Hearing fee one set.

V. P. S.

Appeals dismissed • .

(I) SS. T.C. 88. r

DELHI CLOTH AND GENERAL MILLS CO. LTD. ETC

COMMISSIONER OF SALF.S TAX, INDORE

K. S. HEGDE

A. N. GROVER, JJ.

ss. 2(c)

s. 4

s. 2(c)

s. 44(1)

Section 2

Section 4

s. 2(d)

s. 2(t)

s. 2(o)

s. 4

s. 2(o)

s. 7

Section 7

s. 8(B)

Madras General Sales Tax Act, 1939


COMMISSIONER OF INCOME TAX, WEST BENGAl.

BALKRISHAN MALHOTRA

July 28, 1971

[K. S. HEGDE AND A. N. GROVER, JJ.J

Income-tax Act, 1922, s. 34(3)-.Assessment' meaning of-Whether assessment completed on day of computation of income by Income-tu Officer or when the tax due is computed.

The original assessment of the assessee for the assessment year 1944- 45 was made sometime before March 13, 1953.

Subsequently after obtaining the sanction of the Commissioner of Income-tax, the Income-tax Officer reopened the assessment nnder s. 34(l)(a) of the Income-tax Act,

1922. On March 13, 1953 he issued a notice to the assessee under s. 34 read with s. :.'!2(2) of the Act. After considering .the objection of the assessee, the Incon1e-tax Officer made an assessment order under s. 34 read with s. 23

(4) of the Act on March 8, 1954 in which he computed the income of the assessee. But on that day he' did not determine the tax due from the assessee. He determined the tax and issued a notice under s. 28(3) in Form

30 only on March 31. 1954. The assessee contended that the assessment was barred under s. 34(3). The contention was rejected by the authorities under the Act incluping the appellate tribunal but the High Court gave ils advisory opinion in favour of the assessee. In appeal to this Court by the Revenue the main question for consideration was whether the assessment was complete on the date when the income was assessed by the Income-tax Officer or on the date when the tax was computed.

HELD: The appeal must fail.

As long back as September 24, 1953 the High Court of Madras in Vishwanathan Chettiar's case came to the conclusion that the word 'assessments' in the proviso to s. 34(3) means not merely the computation of the income of the assessee but also the determination of the tax payable by

him. No other High Court has taken a different view. The Revenue must p have in all these years acted on the basis of that decision of the Madras High Court.

Interpretation of a provision in a taxing statute rendered years back and accepted and acted upon by the department shuld not be easily departed from. The corresponding provisions of the 1961 Act are materially different fro111 the provisions of the 1922 Act.

Under these circumstances this Court would not be justified in departing from the interpretation placed by the High Court in Viswanathan Chettiar's case though a different view of the law may be reasonably possible.

[954F-H] G

RM.P .R.. Viswanathan Chettiar v. Commissioner of Income-tax, Madras, 25 I.T.R. 79, affirmed.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1391 of 1967.

Appeal from the judgment and order dated May 31, 1963 of the Calcutta High Court in Income-tax Reference No. 4 of

1%0.

912 SUPREME COOllT ltEPOitTS [1971] SUPP. s.c.R.

A Jagadish Swarup Solicitor-Oeneral, B.

D. Ahuja and B. D.

Sharma, for the appellant.

. Sukumar Mitra, and Rameshwar Nath, for the respondent.

The Judgment of the Court was delivered by

Hegde, J.-This appeal by certificate by the Revenue is directed against the order made by the High Court of Calcutta in a reference under s. 66(1) of the Indian Income Tax Act, 1922 (to be hereinafter referred to as the Act).

At the instance of the assessee, the Income-tax Appellate Tribunal 'A' Bench, Ca)cutta referred to the High Court for its opinion two questions of law viz. :

"(I) Whether the assessment is complete on the date when the income is assessed by the Income-tax Officer or on the date when the tax is computed by him and the challan demanding the tax is issued ?

(2) Whether on the facts admitted or found in this case, the assessment was time barred under the first proviso to section 34(3) of the Indian Income-tax Act ?"

The original assessment of the assessee for the assessment year 1944-45 was made sometime before March 13, 1953. Subsequently after obtaining the sanction of the Commissioner of Income-tax, the Income-tax Officer re-opened the assessment under s. 34(1) (a) of the Act.

On March 13, 1953 he issued a notice to the assessee under s. 34 read with s. 22(2) of the Act. After considering the objection of the assessee, the Incometax Officer computed the income of the assessee under s. 34 read with s. 23(4) on March 8, 1954 at Rs. 60,000. The note made by the Income-tax Officer on that day in the order sheet reads :

"Assessed as per assessment order on a total income of Rs. 60,000 for the 311sessment year 1944-45 under s. 34/23(4)"

But on that date the Income-tax Officer did not determine the tax due from the assessee. It appears that he determined the tax due from the assessee and issued a notice under s. 28(3) in Form 30 only on March 31, 1954. The assessee contended that the assessment is barred under s. 34(3).

That contention WaB rejected by the authorities under the Act including the appellate tribunal but on a reference made by the tribunal to the High Court, the High Court following the decision of the Madras High Court in RM. P. R. Viswanathan Chettiar v. Commissioner of

C.!.T ••• BALICR!SHAN {Hegde, J.)

Income Tax, Madras(') accepted the contention of the assessee while giving its advisory opinion on the questions of law referred to it by the appellate tribunal. This appeal is directed against that decision.

The provisions of law which are material for deciding the point in issue are ss. 23 and 34(3) of the Act. Those provisions at the material time read as follows :

"23(1). If the Income-tax Officer is satisfied without requiring the presence of the assessee or the production by him of any evidence that a return made under section 22 is correct and complete, he shall assess the total income of the assessee, and shaU determine the sum payable by him on the basis of such return.

(2) If the Income-tax Officer is not satisfied without requiring the presene of the person who made the return or the production of evidence that return made under section 22 is correct and complete, he shall serve on such person a notice requiring him, on a date to be therein specified, either to attend at the Incomertax Officer's Office or to produce, or to cause to be there produced, any evidence on which such person may rely in support of the return.

(3) On the day specified in the notice issued under sub-section (2) or as soon afterwards as may be, the Income-tax Officer, after hearing such evidence as such person may produce and such other evidence as the Income-tax Officer may require, on specified points, shaJl by an order in writing, assess the total income of the assessee, and determine the sum payable by him on the basis of such assessment.

(4) If any person falls to make the return required by any notice given under sub-section . (2) of section 22 and has not made a return or a revised return under sub-section (3) of the same section or fails to comply with all the terms of a notice issued under sub-section

(4) of the saime section or, having made a return, fails to comply with all the terms of a notice issued under subsection (2) of the section, the Icome-tax Officer shall make the assessment to the best of his judgment and determine the sum payable by the assessec on the basis of such assessment.

Section 34(3)-No order of assessment under section 23 to which clause (c) of sub-section (!) of section 28

(I) 25, I.T.R, 79,

Sl/PREME COURT REPORTS [1971] SUPP. s; c:lt.

applies or of assessment or re-assessment in cases falling within clause (a) of sub-section (!) of this section shall be made after the expiry of 8 years and no order of assessment or re-assessment in any other case shall be made after the expiry of 4 years from the end of the year in which the income, profits or claims were first assessable :

Provided that where a notice under sub-section (I) has been issued within the time therein !Unite<', the assessment or re-assessment to be made in pursuance of such notiee may be made before the expiry of one year . from the date of the service of the notice even if such period exceeds the period of 8 years or 4 years as the case may be".

It has been stated over and over again by this Court 36 well as by the Judicial Committee that the words "assessment" and the "assessee" are used in different places in the Act with different meaning. Therefore in finding out the true meaning of those words in any provision, we have to see to the context in which the word is used and the purpose intended to be achieved. It is true that sub-ss. I, 3 and 4 of s. 23 require the Income-tax Officer to "assess the total income of the assessee and . determine the sum payable by him". In other words in those provisions the word "Msess" has been used with reference to computation of the income of the assessee and not the determination of his tax liability.

But in s. 34(3) the word used is not "assess" but "assessment". The question for decision is what is the meaning of that word ? . As long back as September 24, 1953, the High Court of Madras in Viswanathan Chettiar's case(') came to the conclusion that the word "assessment" in proviso to s. 34(3) means not merely the computation of the income of the assessee but also the determination of the tax payable by him. No other High Court h36 taken a contrary view.

The Revenue must have in all these years acted on the basis of that decision of the Madras High Court. Interpretation of a provision in a taxing sta.tute rendered s back and accepted and acted upon by ithe depairtmmt

should not be easily departed from. It may be that another view of the law is possible but law is not a mere mental exercise.

The courts .while reconsidering the decisions rendered long time back particularly under taxing statutes cannot ignore the' harm that is likely to happen by unsettling law that had been once settled; We may also note that the Act has been repealed by the Income-tax Act, 1961. The corresponding provisions of the 1961 Act are materially dilfc:rent from the provisions referred "> earlier. Under these clrcumsmnces we do not think that we would'.

(ll 25 J.T. R. 79.

c.1.T. v. BALKRISHAN (Hegde, J.) 9i$

be justified in departing from the' interpretstion placed by the A Madras High Court in Viswanathan Chettiar's case(') though a different view of the law may be reasonably possible.

In the result this appeal fails and the same is dismissed.

But in the circumstances of the case we make no order as to costs.

G.C Appeal dismissed.

(I.I 2$ J.T.L 79 •

COMMISSIONER OF INCOME TAX, WEST BENGAl

BALKRISHAN MALHOTRA

K. S. HEGDE

A. N. GROVER, JJ

Income-tax Act, 1922

s. 34(3)

s. 34(l)(a)

Income-tax Act

s. 34

s. 34

s. 23

s. 28(3)

s. 34(3)

s. 34(3)

s. 66(1)

Indian Income Tax Act, 1922

section 34(3)

Income-tax Act

s. 34(1)

s. 34

s. 22(2)

s. 34

s. 23(4)

s. 34

s. 28(3)

s. 34(3)

ss. 23 and 34(3)

section 22

section 22

section 22

Section 34(3)

section 23

section 28

s. 23

s. 34(3)

s. 34(3)


WOPANSAO

N. L. ODYUO & ORS.

July 28, 1971

[J. M. SHELAT AND A. N. RAY, JJ.]

Representation of the People A.ct, 1950-Section 20(3) & 30-Service Personnel-Statutory fiction does not take away right to get registered in constituency where personnel ordinarily residing, though place of .service

alsv---Electoral roll-Finality of.

The appellant challenged the election of respondent No. I to the Naga Land Assembly on the ground that the result of the election in so far as it concerned the respondent had been materially affected by the improper reception of votes cast in his favour by the personnel of the 12th Battalion Assam Rifles. It was urged (i) that the Electoral Registration Officer had no jurisdiction to register the personnel of the 12th Batallion Assam Rifles as voters, because, the service personnel under s. 20(3) of the 1950 Act would be deemed to be ordinarily resident on any date in the constituency in which, but for his having such service qualifications he would have been ordinarily resident on that date and (ii) that the service personnel were not Indian citizens. The High Court dismissed the election petition. Dismissing the appeal to this Court,

HELD: (i) Section 30 of the 1950 Act does not confer jurisdiction on a civil court to entertain or adjudicate upon a question whether a person is or is not entitled to register himself in the electoral roll of a constituency or to question the illegality of the action taken by or under the authority of the Electoral Registration Officer or any decision given by the authority appointed under the 1950 Act for the revision of any such roll. The civil court therefore would have no jurisdiction to adjudicate upon a question whether the personnel of the 12th Battalion Assa1n Riff.cs in the present case were validly registered as service electors. [958E, F]

B. M. Ramaswamy v. B. M. Krishnamurthy. [1963] 3 S.C.R. 479 and Kabul Singh v. Kundan Singh, [1970] I S.C.R. 845, referred to.

(ii) But lack of power in the Electoral Registration Officer to register voters in violation of the provisions of the relevant statutes would lead to the ground of improper reception, refusal or rejection of any vote or reception of any vote which is void and would. therefore, be a ground for avoiding the election under s. 100(1) (d) (iil) of the 1951 Act.

[959GJ

Baidyanath Panjiar v. Sitaram Mahto, [1970] I S.C.R. 839, referred to.

(iii) In the present case the Electoral Registration Officer was within his jurisdiction to register the personnel of the 12th Batallion as ordinary residents in the constituency by reason of their statements in the prescribed forms. The effect of s. 20(5) of the 1950 Act is that statement of a member having service qualification is to be accepted as correct in the absence of evidence to the contrary. There was no evidence to displace the state ments in tho present case. [960E)

Under 1. 20(3) a fiction is created that members having service qualification would be deemed to be ordinarily resident at their home town or place but for their service qualification. The statutory fic\ion is intended

WOPA!CSAO V. N. L. ODYUO (Ray, J.) 957

to confer the riaht to be reaistered as electors at their homo town or vii- A !age but the fii; tion cannot take away the riaht of persons possessinc

service qualification to aet themselvea reaistered in a constituency in which they were ordinarily residina tbouah 1uch place happens to be their place of service. [961B)

!iv) There was no evidence to substantiate the alleaation that the mom. bers of the service personnel were not Indian citizens. On the contrary it was in evidence that the Electoral Registration Officer was satisfied about' B the declarations of the members of the service personnel about their citi zenship. [962F]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1792 of 1970.

Appeal under s. 116A of the Representation of the People Act, 1951 from the judgment and order dated July 17; 1970 of the Assam and Nagaland High Court in Election Petition No. 1 of 1969.

V. K. Krishna Menon, D. P. Singh, Narayana Net/or and V. J. Francis, for the appellant.

A. K. Sen, S. K. Ghosh, Naunit Lal, A. R. Barthakur, R. C.

Chaudhary and Swranjit Sodhi, for respondent No. 1.

The Judgment of the Court was delivered by

Ray, J.-This is an appeal from the judgment dated 17 July, 1970 of the High Court of Assam and Naga.land dismissing 1he appellant's election petition .

. The appellant, respondent No. I Odyuo .and respondents No. 2 allfl 3 were candidates at 37-Wokha Constituency.at the election held in the month of February, 1969 for the purpose of constituting a new Lepslative Assembly of the State of Nagaland.

The respondent Odyuo was declared elected. Odyuo obtained 1517 votes and the appellant 1485 votes.

Odyuo secured 32 votes more than the appellant.

The appellant challenged the election of the respondent Odyuo as a member from 37-Wokha Constituency in the Naga- G land Constituent Assembly.

The grounds for imhing the election were principally these. First, the result of the election in so far as it concerned the respondent Odyuo had been mate rially affected by the improper reception of 348 votes cast in his favour by the personnel of the 12th Battalion Assam Rifles then posted at Wokha and also by the wives of some of them who in view H of section 20(3) of the Representation of the People Act, 1950 referred to for the sake of brevity as the 1950 Act were not eli

gible to be enrolled as voters in the electoral roll of the Wokh31

SUPREME COURT REPORTS [1971] SUPP. s.c.R.

Constituency. Second, the majority of those 348 voters were not citizens of India, and, therefore, the votes cast by them in favour of the respondent Odyuo were void. Third, if the aforesaid 348 votes or the majority of them as void votes were left out of account, the appellant had secured a majority of valid votes.

Among the ten issues framed at the trial counsel for the appellant advanced arguments only on two issues. First, whether the personnel of the 12th Battalion, Assam Rifles whose names are registered as service electors in the last part of the Electoral Roll for 37-Wokha Constituency would, but for their service qualification, have been ordinarily resident of Wokha Constituency within the meaning of section 20(3) of the Representation of the People Act, 1950. Second, whether any of the electors registered as service electors in the last part of the said Electoral Roll were not Indian citizens.

This Court in B. M. Ramaswamy v. B. M. Krishnamurthy & Ors.(') held that the finality of the electoral roll cannot be challenged in a proceeding impeaching the validity of the election. The effect of section 30 of the 1950 Act was construed by this Court in the recent decision in Kabul Singh v. Kundlm Singh & Ors.(') to be that sections 14 to 24 of the 1950 Act are a complete code in the matter of preparation and maintenance of electoral rolls and section 30 of the 1950 Act does not confer jurisdiction on a civil court to entertain or adjudicate upon a question whether a person 'is or is not entitled to register himself in the electoral roll in a constituency or to question the illegality of the action taken by or under the authority of the Electoral Registration Officer or any decision given by the authority appointed under the 1950 Act for the revision of any such roll.

The civil court therefore would have no jurisdiction to adjudicate upon a question whether the personnel of the 12th Battalion Assam Rifles in the present case were validly registered as service electors. The contention on behalf of the appellant in the present case was that the Electoral Registration Officer had no jurisdiction to register the personnel of the 12th Battalion Assam Rifles as voters in Wokha Constituency because the service personnel under section 20(3) of the 1950 Act would he deemed to be ordinarily residents on any date in the constituency in which, but for his h3ving such service qualification, he would have been ordinarily resident on that date.

The gist of the appellant's contention is that the members having service qualification cannot be registered as voters in the constituency in whieh they are posted or stationed in service and the Electoral

(!) [1963] 3 S.C.P.. 479.

(2) [1970] I S.C.R. 845

__,

WOPANsAO V. N. L. ODYUO (Ray, J.)

Registration Officer would have no jurisdiction to register the persons having service qualification as voters in the constituency in which they are stationed In service.

The jurisdiction of the Electoral Registration Officer who registered the personnel of the 12th Battalion Assam Rifles as voters in Wokha Constituency wall impeached on the ground that the service personnel were in

th~ eye of law not ordinarily resident In the Wokha Constituency and as such they were not eligible to be registered as voters in the electoral roll of the said constituency.

The other grounds on which the qualification of the service personnel to be registered as voters in the Wokha Constituency was questioned was that they were not Indian citizens.

Article 326 of the Constitution confers voting rights on citizens of India.

Section 16 of the 1950 Act disqualifies a person for registration as a voter if he is not a citizen of India. Section 62 of the Representation of the People Act, 1951 called the 1951 Act prohibits a person from voting at an election in any constituency if he is subject to any disqualifications mentioned in section 16 of the 1950 Act. Under section !OO(l)(d)(iii) of the 1951 Act if the result of the election in so far it concerned the returned candidate has been materially affected by the improper reception, refusal or rejection of any vote or reception of vote whlch is void, the court would have jurisdiction to declare such an election void.

Therefore, if the allegation that the personnel of the 12th Battalion Assam Rifles were not Indian citizens was established;'"" it was submitted that the election would be declared void.

The jurisdiction of the Electoral Registration Officer to register the voters was submitted on behalf of the appellant to be an infraction of the provisions contained in sectio11 20 of the

1950 Act on the ground of the service personnel not being entitled to be voters at Wokha Constituency, and of section 16 of the 1950 Act read with section 62 of the 1951 Act challenging the qualification of the voters on the ground of citizenship.

This Court in Baidyanath Panjiar v.

Sitaram Mahto & Ors.(') held that the lack of power of the Electoral Registration Officer to register voters in violation of the provisions of the relevant statutes would lead to the ground of improper reception, refusal or rejection of any vote or reception of any vote which is void and would. therefore. be a ground for avoiding the election under section I OO(l)(iii) of the 1951 Act.

Section 20 of the 1950. Act gives the meaning of the words 'ordinarily resident'.

Under section 20(3) of the 1950 Act any person having a service qualification shall be deemed to be ordinarily resident on any date in the constituency in which, but for his having such service qualification, he woald have been 0rdinarily resident on that date. Service qualification is defined in section

(\) [IJ7J] I S. C.R. 839.

960 IUPlllll! COVllT RIPOllTS [1971] SUPP. s.c.ll.

20(8) of the 1950 Act to mean inter alio a member of the Armed i:orces of the Union, or a member of a force to which the provi s1ons of the Army Act, 1950 have been made applicable. Section 20(5) of the 1950 Act enacts that the statement of any person as is referred to in section 2()(3) in the Act made In the prescribed form and verified in the prescribed manner, that but for his having the service qualification he would have been ordinarily resident in the specified place on any daote, shall, in the absence of evidence to the contrary, be accepted as correct.

Under section 20(6) of the 1950 Act tile wife of any such person as is referred to in sub-section (3), shall if she be ordinarily residing with such person be deemed to be ordinarily resident in the constituency specified by such person under sub-section (5).

The personnel of the 12th Battalion Assam Rifles at Wokha had indisputably service qualification. It is In evidence that the personnel of the 12th Battalion had been residing at Wokha lO years prior to the time of the preparation of the electoral rolls and at the time of preparation of the electoral rolls res:ded at Wokha.

The service personnel made statements under section 20(5) of the Act that but for their having the service qualification they would have been ordinarily residents at Wokha. They also made statements that their wives were residing with them. They submitted forms in the prescribed forms. These statements made under Rule 7 of the Registration of Electoral Rules, 1960 were submitted to the Registration Officer. The effect of section 20(5) of the 1950 Act is that statement of a member having service qualification is to be accepted as correct in the absence of evidence to the contrary. There was no evidence to displace the statements in the present case. The evidence Is that the Electoral Registration Officer accepted the statements as correct and registered the names of the personnel of the 12th Battalion.

Tile contention on behalf of the appellant was that a member h&ving service qualification can only be ordinarily residen~ at the constituency in which but for his having service qualification he would have been ordinarily resident on that date, and, therefore, since Wokha was the place for service, Wokha could not be tl:c place for ordinary residence and his home town or village would be the only place where he would be ordinarily resident.

Such a construction would be misrea ding section 20(3) of the 1950 Act, .hav!ng sevice qualification would be deemed to be odinarily res1dnt at their home town or place but for their service qualification. When the personnel made statements to the effect that they ordinarily resided at Wokha, they did not want to take advantage of the fiction of being ordinarily resident at their home

WOPAN!IAO v. N. L. ODYUO (Ray, J.)

town or village but they stated that they were ordinarily resident at Wokha..

The Electoral Registration Officer was within his jurisdic1io.n to register the personnel of the 12th Battalion as ordinary residents at Wokha by reason of their statements in tile prescribed forms. The statutory fiction is intended to confer the right to be registered as electors at their home town or village bat the fiction cannot take away the right of persons possessin3 service qualification to get themselves registered at a constituency in which they are ordinarily residing though such place happens to be their place of service.

A contention was advanced on behalf of the appellant that i; registering the service electors the Registration Officer did not exercise his discretion but merely carried out the orders and directions of the Chief Ele<; toral Officer. The l{igh Court referred to the directions and instructions for preparation of electoral rolls for Armed Forces personnel and held that the staten1ents in form No. 2 as prescribed by Rule 7 of the Regist

ration of Electoral Rules, 1960 were checked PY 'the Pfficer in -<'.barge of the Record Office and were thereafter forwarded to the Chief Electoral Officer concerned in whose office the statements were sorted out according to the constituency and thereafter forwarded to the Electoral Registration Officer concerned.

We agree with the reasons and conclusion of the High Court that the decision of the statutory authority which acted on the declara tions submitted by the service. personnel verified and found to be correct was beyond any challenge on the materials on record.

The contentions on behalf of the appellant were that of the 348 service electors 37 were not Indian citizens, 35 of them being Nepa.ti and 2 Sikkimese and further that out of the remaining service .electors excepting 69 the rest were not Indian citizens. lbese 'fere the allegations of the appellant in the particulars furnilihed by him in an application dated 4 October, 1969.

The appellant in his evidence stated that he was not clear whether the service electors were citizens of India or foreigners.

It was also his evidence that when he asked the Record Officer at Shillong he learnt that many of the service personnel were not

Indian citizens. The evidence of the appellant is not substantive evidence, or any proof of the allegation. Part of it is hearsay and is not corroborated. The other part is not of evidentiary vaAue.

The appellant relied heavily on the evidence of P. W. 6, Dhrubajyoti Lahiri in proof of the allegation that the majority of the service personnel were not Indian citizens. Lahiri said that

there was a Long Roll in two volumes which were marked Exhibill 17 and 18. The Long Roll was the register containing the l"llRidential particulars of the personnel, the date of enrolment. and

61-1 S.C. Indi•/71

SllPREME COURT REPORTS

[1971) SUPP. S.C.R.

other heads of entries, namely, serial number in the book, number of personnel, rank, name, father's name, religion and class or caste, residential particulars giving village, neacest railway station,

Post Office, Tehsil and Thana, District and Province, date of birth, enrolment, discharge, Education. There is no column or heading regarding nationality in the Long Roll. Exhibit 19 which was tendered in evidence was a list in tabular form. Exhibit 19 was prepared by Lahiri. He said that he himself compared it with the Long Roll. Lahiri's evidence was that there was no column in the Long Roll for citizenship. Lahiri's evidence was that the home address of some of these service personnel was Nepal. ln cross-examination, Lahiri said that the service personnel were called Nepali by common parlance.

Lahiri also said that the service personnel filled up the forms declaring that they were Indian citizens and Lahiri himself also asked the service personnel about their citizenship. His evidence was that these members of the service personnel were Indian citizens.

It is in evidence that the Electoral Registration Officer said that he was satisfied about the declarations of the members of the service personnel about their Indian citizenship. The High Court correctly found that in the sta.tements furnished by the service

peronnel being Exhibit 6 series and Exhibit A series, they declared themselves to be citizens of India and the statements were verified by the Record Officer.

The High Court also correctly held that no objection was taken at any stage and no notice was given to any member of the service personnel that their names would be objected to on the ground thwt they were not Indian citizens and they have not been given any opportunity of being heard in respect of the allegation. No such member of the service personnel was examined. There is no evidence to substantiate the allegation which was made that members of the service personnel were not Indian citizens. On the contrary, the evidence oral as well as documentacy is overwhelming and unrebutted that each member of the service personnel made a statement declaring himself to be an Indian citizen.

The contentions advanced on behalf of the appellant fail.

The appeal is dismissed with costs.

K.B.N.

Appeal dismisNd.

WOPANSAO

N. L. ODYUO & ORS

M. SHELAT

A. N. RAY, JJ.

Section 20(3) & 30

s. 20(3)

Section 30

[1963] 3 S.C.R. 479

s. 100(1)

s. 20(5)

s. 116A

Representation of the People Act, 1951

section 20(3)

Representation of the People Act, 1950

section 20(3)

Representation of the People Act, 1950

section 30

sections 14 to 24

section 30

section 20(3)

Article 326

Section 16

Section 62

Representation of the People Act, 1951

section 16

section 16

section 62

Section 20

section 20(3)

Army Act, 1950

Section 20(5)

section 2()(3)

section 20(6)

section 20(5)

Registration of Electoral Rules, 1960

section 20(5)

section 20(3)

ration of Electoral Rules, 1960


DALMIA J'AIN & CO. LTD. v.

COMMISSIONER OF INCOME-TAX,

BIHAR & ORISSA, PATNA

July 29, 1971

[K. S. HEGDE AND A. N. GROVER, JJ.]

Income Tax-Litigation .expenses-Capital expenditure or Revenue -expenditure-Tests for determining. •

The appellant-assessee, one of whose business activities was quarry ing limestone, was working a quarry as agent of the government with an understanding that the quarry would be leased out to the assessee if the :government succeeded in the litigation in respect of it. Whtn the assessee

was in possession, a company instituted a suit against the government for !pecific performance of an agreement to lease the quarry. The assessee was made a party to the suit and a claim for damages was made against the government as well as the assessee. This Court granted a decree for damages and the assessee was also made liable to pay damages. On tl:ie question whether the litigation expenses incurred by the asscssee constituted expenditure laid out wholly and exclusively for the purpose of the .assessee's business or whether it was incurred for the purpose of acquiring a new asset, HELD : (j) Where the expenditure laid out for the acquisition or improvement of a fixed capital asset is attributable to capital, it is capital expenditure but if it is incurred to protect the trade or business of the assessee, it is a revenue expenditure. In deciding whether a particular expenditure is capital or revenue in nature, what the courts have to see is

V.'hether the expenditure in question was incurred to create any new assrt or was incurred for maintaining the business of the company. If it is the former it is capital expenditure; if it is the latter, it is revenue expenditure.

[965A-966B]

(ii) In the present case the expenditure was incurred for the purpose of protecting the assessee's business and, therefore, was revenue expenditure.

The assessee was dracged into the litigation and a claim for damages was made against the assessee also. The litigation came to be instituted against 'the assessee because the assessee was working the quarry and it was working the same at the time of the litigation. Therefore, the only reasonable inference that could be drawn was that the assessee resisted the suit in order to protect its business and not with a view to safeguarding its pro!lpects of getting a new lease. [9660]

Shree Meenakshi Mills Ltd. v. Commissioner of Income-Tax, Madras, (;3 I.T.R. 207, referred to.

OvlL APPELLATE JURISDICilON : Civil Appeal No. 1812 of 1967.

Appeal from the judgment and order dated January 13 1966 of the Patna High Court in Misc. Judicial Case No. 66S ot' 1962.

t63

SUPREME COURT RBPORTS [197IJ SOPP. s.c.R.

A M. C. Chagla and R Gopalakrishnan, for the appellant.

Jagadish Swarup, Solicitor-General, B. B. Ahu; a and B. D.

Sharma, for the respondent.

The Judgment of the Court was delivered by

B Hegde J.-This appeal a.rises from the decision of the High Court of Patna in a reference under s. 66(1) of the Indian Income tax Act, 1922 (to be hereinafter referred to as the Act). In that reference several questions of law were referred to the High Court for its opinion. In this appeal we are concerned with only one of those questions and that question is :

C "Whether on the facts and circumstances of the case

the Tribunal was justified in holding that litigation expenses of Rs. 1,29,994/· incurred by the assessee for the assessment year 1951-52 constitute expenditure laid out wholly and exclusively for the purpose of the assessee's business"?

The relevant facts as found by the tribunal may now be briefly stated. The litigation expenses in question relate to the protracted litigation in respect of Murli Hills. Those Hills were owned by the Sta.le of Bihar. On April I, 1928, the State Government gave a lease of those Hills to Kutchwar Lime Company for 20 years for the purpose of quarrying limestone therein. In the lease deed entered into between the parties, there was a clause preventing the lessee from assigning its rights to a.ny third party without the consent of the lessor.

In January 1933, Kutchwar Lime Co. went into voluntary liquidation and the liquidators assigned the lease-hold right to Subodh Gopal Bose in September 1933 without the permission of the State Government.

The assignee took possession of the property on March 9, 1933 but wa6 topped from working the quarry by the Government.

The Government forfeited the lease of the Kutchwar Lime Company on March 23, 1933 and re-entered into possession. The Government granted a fresh lease of those Hills to Kalyanpur Lime Company for a period of 20 years with effect from April, 1934. On September 24, 1934 the Kutchwar Lime Co. sued the Government for a. declaration that the lease granted to it in 1928 had not been validly forfeited and for an injunction restraining the respondent from granting Murli Hills on lease to anyone else. The suit was decreed by the High Court on February 7, 1936 and the decree was affirmed by the Privy Council on November 19, 1937. The Kalyanpur Lime Co. va.cated the quarry in April 1936 after the Kutchwar Lime Company started contempt proceedings. Kutchwar Lime Company got possession of the Murli Hills and remain ed in possession until the lease expired on March 31, 1948. The

DAI.MIA JAIN & co. I'. c.1.T. (Htgde, J.)

Government then re-entered into possession. Thereafter Kalyanpur Lime Comp3!lly repeatedly asked the Government to execute the lease as agreed to by it in 1934. The Government refused to do so and informed the Kalyanpur Lime Company on June 2, 1949 that the Government has decided to lease Murli Hills to the assessee. The Government leased the Murli Hills to the assessee for one year from September 22, 1949 to September 22

1950. Therea.fter the Government appointed the assessee as the agent of the Goverment for working in the quarry with an understanding that the Murli Hills will be leased out to the assessee if the Government succeed in the litigation.

When the assessee company was in possession of the Murli Hills as an agent of the Government, the Kalyanpur Lime Company filed a suit for specific performance.

In the alternative it claimed damages.

In that suit the Kalyanpur Lime Company impleaded the State of Bihar as well as the assessee as defendants. It is necessary to remember that in that suit a claim for damaoges was also made in the alternative. That suit was resisted by the State Government as well as by the assessee. That suit was dismissed by the High Court. The appeal of the Kalyanpur Lime Company was allowed by this Court and the suit decreed against both the defendants.

But as by that time the term of the lease agreed upon between the State Government and the Kalyanpur Lime Company had come to an end this Court insteoo of granting a decree for specific performance granted a decree for damages. Under that decree. the asscssee company was also made liable to pay damages-see the decision by this Court in Civil Appeals Nos. 1170 and 1171 of 1965.

From the facts stated above, it is clear that Kalyanpur Lime Company claimed damages not only from the State Government but also from the assessee company which in the course of its business was acting as the a.gent of the Government, no doubt with the prospect of getting a lease of the Murli Hills if the Government succeeded in the litigation. In the judgment of this Court it was observed that the assessee had no locus standi to resist the suit of Kalyanpur Lime Company.

The question for decision is whether the litigation expenses incurred by the assessee were for the purpose of creating, curing or completing the assessee's title to capita-I or whether it was for the purpose of protecting its business. If it is the former then the expenses incurred must be considered as capital expenditure.

But on the other hand if it is held that the expenses were incurred to protect the business of the assessee then it must be considered as a business loss. The principle which has to be deduced from decided cases is that where the expenditure laid out for the acqui sition or improvement of a fixed capital asset is attributable to

96i

tlH

SUPREME COURT REPORTS (1971] SUPP.s.c.R.

capital it is capital expenditure but if it is incurred to protect the trade or business of the assesee then it is a• revenue expenditure.

In deciding whether a particular expenditure is capital or revenue in nature, what the courts have to see is whether the expenditure in question was incurred to create any new asset or was inc, urred for maiintaining the business of the company. If it is the former it is the capital expenditure; if it is the latter, it is the revenue

nditure.

The Income-tax Officer as well as the Appellate Assistant Commissioner came to the conclusion that the expenditure i11 question was incurred for the purpose of acquiring a new asset.

Their orders are not cleair as to what is the new asset intended to be acquired by the assessee. Possibly they were of the opinion, as was urged by the learned Solicitor-General on behalf of the Revenue that the expenditure was incurred for securing the assessee's prospect of getting a lease of the Murli Hills if and when the Government suceeded in th.~ litigation. But the appellate tribunal took a different view of the matter. It came to the conclusion that the expenditure in question was incurred to protect the business of the assessee. On the other hand, the High Court agreed with the view taken by the Income-tax Officer and the Appellate Assistant Commissioner.

The salient facts that could be gathered from the materiol before the tribunal are : (!) one of the business activities of the assessee was to quarry lime stone; (2) the Murli Hills had been leased out by the Government to the assessee for a period of one year from September 22, 1949 to September 22, 1950; (3) Thereafter the assessee was working the quarry in question as the agent of the Government; (4) in the suit filed by the Kalyanpur i, ime Company, the assessee had been made a party; and (5) in that suit a claim for da.mages was mad.e both against the Government a' well as agai'1st the assessee.

What has been overlooked by the High Court is that the assessee did not get into the litigation of its own accord. It was dragged into the Jitigaition by the Kalyanpur Lime Co. Further the Kalyanpur Lime Comp3ny had made a claim for damages against the assessee also. This litigation came to be instituted against the assessee because the assessee was working the Murli Hills.

It was working the same at the time of the litigaition.

From these facts, the only reasonable inference that ca•n be drawn is that the assessee resisted the suit in order to protect its business as opined by the tribunal and not with a• view to safeguard its prospects of getting a new lease. At any rate the view taken by the tribunal on the facts before it that the assessee incurred the expenditure in question to protect its business interest cann.Ot be

DALMIA JAIN & co. v. C.l.T. (Hegde, J.)

considered as a unreasonable view. As observed by this Court in Shree Meenakshi Mills Ltd. v.

Commissioner of lncomtnr, M 'ldras(') that deductibility of expendi:ure incurred in prosecuting a civil proceeding depends upon the nature and purpose of the legal proceeding.in relation to the assessee's business and the same cannot be &ffected by the final outcome of that proceeding.

However wrong-headed, ill-advised, unduly optimistic or overconfident in his conviction the assessee might appear in the light of the ultimate decision, expenditure in starting and prosecuting a civil proceeding cannot be denied as a permissible deduction in computing the taxable income merely because the proceeding had failed, if otherwise the expenditure was laid out for the purpose of the business wholly and exclusively, that is, reasonably and honestly incurred to promote the interest of the business.

Persistence of the assessee in launching the proceeding and carrying it from court to court and incurring expenditure for that purpose is not a ground for disallowing the claim.

In this case the assessee stands on a better footing. It did not initiate the proceeding. It merely defended the claim made against it. The claim was made against it because it was working the Murli Hills though as an &gent of the Government. Therefore the civil proceedings were launched against it because of

on~ of its business activities. Under those circumstances we are of opinion that the High Court was not right in holding that the expel!diture in question was not a revenue expenditure.

For the reasons mentioned above we revoke the answer given by the High Court to the question referred to it for its opinion and in its place we answer that question in the affirmative and in favour of the assessee. The assessee is entitled to its costs both in this Court as well as in the High Court.

K.B.N.

Appeal allowed.

(I) 63 l.T.R. 207.

DALMIA J'AIN & CO. LTD

K. S. HEGDE

A. N. GROVER, JJ.

s. 66(1)

Indian Income tax Act, 1922