MAHALAXMI SUGAR MILLS CO. LTD. v.

COMMISSIONER OF INCOME-TAX, DELID, NEW DELHI

• April 9, 1980

[N. L. UNTWALIA, R. S. PATHAK AND E. S. VENKATARAMIAH, JJ.] a

" Indian Income Tax Act 1922-Section 10(2) (xv)-Inter""t paid on arrears

of mgarcane cess-Whether penalty-Interest if a permissible deduction.

Section 3(2) of the U.P. Sugarcane Cess Act, 1956 provides that the owner of a sugar factory shall pay cess on sugaroone coming into the premises of a factory for use therein, on mch date and at such place as may be prescribed.

Sub-section (3) provides that if the cess is not paid by the specified date, interest at six per cent per annum is payable on the arrears from the specified date to the date of payment. Where a person is in default in making the payment of the cess, sub-section (5) provides that in addition to tbC amount of the arrears and interest a sum not exceeding ten per cent shall be recoverable by way of penalty from the person liable to pay the cess.

In respect of three assessment years the appellant-assessee, a manufacturer of sugar, in its income tax returns claimed deduction of certain sums paid by it by way of interest on arrears of cess due under the U.P. Sugarcane cess Act, 1956. The Income Tax Officer disallowed the clain1.

The Appellant Assistant Commissioner, whose view was upheld by the Appellate Tribunal, held that the payment of interest constituted a permissible deduc--

tion.

On reference the High Court held that , the interest paid on the arrears did not fall within the scope of s. 10(2) (xv) of the Indian Income Tax Act, 1922 for the reason that it was paid by way of penalty for an infringement of the law.

Allowina the appeal,

HEID : The interest paid under s. 3 (3) of the Cess Act cannot be de .. cribed as a penalty paid for an infringement of the law.

The assessee is entitled to claim the sum as a deduction uoder section 10(2) (xv) of the 1922 Act es expenditure laid out wholly or exclusively for the purpose of the business.

[427E]

(a) The interest payable on arrears of cess under s. 3(3) is in reality part and parcel of the liability to pay cess.

It is an accretion to the cess.

Under s. 3 (3) this enlargement of the cess liability is automatic and no specific order is necessary in order that the obligation to pay interest under this sub-section should accrue. The liability to pay interest is as certain as the liability to pay the cess. The interest payable is in the nature of com pensation paid to the Government for delay in the payment of cess. It is not by way of penalty. [425GHl

 A

(b) Interest on arrears of cess is t; tot a penalty because provision for

imposing penalty has been made separately by s. 3(5).

It is also not a penalty within the meaning of s. 4 which provides for criminal liability and criminal prosecution. The penalty payable under s. 3 ( 5) lies in the discretion of the collecting officer or authority. For imposing penalty under s. 4 no prosecution oon be instituted unless a complaint is made by or under the authority of the Cane Commissioner under s. 5(1) of the Cess Act.

[426A-BJ

(c) The procedure for collecting interest on arrears is different from the procedure for recovering penalty imposed under s. 3(5). The Collector proceeds to recover the arrear of cess as if it were an arrear of land revenue on receipt from the authority concerned of a certificate under s. 3 (6) specifying the aIDDunt of arrears including interest due.

The words "specifying the amount of arrears including interest" show that the interest is part of the arrears of cess.

In the case of penalty imposed under s. '3(5) a separate provision for recovery has been made under s. 3(7). Although the manner of recovery of penalty provided by s. 3 (7) is the same as the manner fpr recovery provided by s. 3(6) the Legislature has dealt with it aS some thin& diitinct from the recovery of arrears of cess including interest.

[426C-EJ

CML APPELLATE JURISDICTION : Civil Appeal Nos. 2440-2442 o~ D 1972.

From the Judgment and Order dated 25-10-1971 of the Delhi High.

Court in Income Tax Reference N06. 40 & 41 of 1970.

A. K. Sen and Mr. Bishamber Lal for tl]_e Appellant.

P. G. Ghokhale a"nd Miss A. Subhashini for the Respondent.

The Judgment of the Court was delivered by

PATHAK, J.-This appeal by certificate granted by the Delhi High Court raises the question whether interest paid on arrears of cess under s. 3 (3) of the U.P. Sugarcane Cess Act, 1956 is a permissible deduction under s. 10 (2) (xv) of the Indian Income Tax Act, 1922.

The assessee is a public limited company engaged in the business of the manufacture and sale of sugar. In its income-tax return for the assessment year 1959-60 (the previous year being the period ending 30th June,

1958) the assessee claimed a deduction of Rs. 1,20,859/- paid as interest on arrears of cess due under the U.P.

Sugarcane Cess Act, 1956. The Income-tax Officer disallowed the claim, but the Appellate Assitant Commissioner held that the pay- . ment of interest constitute a permissible deduction and this view was affirmed by the Income Tax Appellate Tribunal.

For the next assessment year 1960-61, (the previous year ending 30th June, 1959), the assessee claimed a sum of Rs. 1,83,731/- paid by way of interest

on the arrears of cess.

The claim met with the same fortune, disallowed by the Income Tax Officer but upheld by the Appellate Assistant Commissioner and the Appellate Tribunal.

At the instance of

the Revenue, the Appellate Tribunal referred the following question of law to the Delhi High Court in respect of the assessment years 1959tiO and 1960-61 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the interest of Rs. 1,20,859/- and Rs. l,83,731/-, paid by the assessee on the arrears of cess in the assessmen_! years 1959-60 and 1960-61 respectively, as revenue expenditure?"

For the assessment year 1961-62 also the previous year of which ended 30th June, 1960 the assessee claimed a deduction of Rs. 2,00,439 /- on account of interest paid by it on arrears of cess. This claim also was rejected by the Income Tax Officer but allowed by the Appellate Assistant Commissioner and the Appellate Tribunal. The Revenue obtained a reference to the High Court on the question:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the interest of Rs. 2,00,439 /-, paid by .the assessee on the arrears of cess,

j!S revenue expenditure?"

The references were disposed of by the High Court by its judgment dated 25th October 1971.

The questi.ons were answered in the negative.

The High Court took the view that .the claim of the B assessee did not satisfy the provisions of s. 10 (2) (iii) of the Indian Income Tax Act, 1922 because it was not interest paid on borrowed capital, and it did not fall within the scope of s. 10 (2) (xv) of the Act beca1l5!' it was paid by way of penalty for an infringement of the Act.

The High Court than certified under s. 66 (A) (2) of the Act that the cases were fit for appeal to this Court.

Learned couns.el for the asse~_e has made no attempt to justify the claim under s. 10 (2) (iii) and we are, therefore, relieved of the necessity of examining the validity of the claim by reference to that provision.

The case has been argued before us on the basis that it falls under s. 10 (2) (xv).

The validity of the U. P. Sugarcane Cess Act, 1956 (the "CeSB Act") was challenged by the assessee and several other sugar manufacturing companies by petitions under Article 226 of the Constitutien in the Allahabad High Court.

The High Court admitted the writ petitions and granted an order suspending the operation of the Act. The R High Court, on final hearing, dismissed the writ petitions.

But subsequently on appeal this Court declared the Cess Act ultra vires on

. A the ground that the Act fell beyond the competence of the State Legislature.

Thereafter, on 31st January, 1961, the President promulgated tjle U.P. Sugarcane Cess (Validation) Ordinance, 1961 validating the cess imposed, assessed or collected by the Government of Uttar Pradesh during the period 26th January, 1950 to the date of the commencement of the Ordinance (3rd February, 1961). The ordinance was replaced by the U.P. Sugarcane Cess (Validation) Act, 1961 (the "Validation Act").

The question whether the interest paid by the assessee under s. 3(3) of the Sugarcane Ces Act, 1956 can be allowed under s. 10(2)

(xv) of the Income Tax Act requires us to examine the relevant pro visions of the Cess Act.

The Act, as its long title states, is "an Act to amend and consolidate the law relating to the imposition of cess on sugarcane i'nrended for use, consumption in or sale to a factory".

The relevant provisions of s.3 declare :

"3. Imposition of cess-(1) The State Government may by notification in the official Gazette impose a cess not exceeding four annas per maund on the entry of the caJne fnto the premises of a factory for use, consumption or sale therein. ( 2) The cess imposed under sub-section ( 1) shall be payable by the owner of the factory and shall be paid on such date and at such place as may be prescribed.

(3) Any arrear of cess not paid on the date prescribed under sub-section (2) shall carry interest at 6 per cent per annum from such date to date of payment. ( 4) The State Government may, for the purpose of

assessment and collection of the cess, appoint officers and l:, authorities and may also prescribe the manner in which the - cess shall be assessed and collected. ( 5) Where any person is in default in making the payment of the cess, the officer or authority empowered to collect the cess may direct that in addition to the amount of the arrears and interest a sum not exceeding 10 per cent thereof shall by way of penalty be recovered from the person liable to pay the cess. ·

( 6) The officer or authority empowered to collect the cess may forward to the Collector a certificate under his signature specifying the amount of arrears including interest due from any person, and on receipt ef such certificate the Collector shall proceed to recover the amount specified from such person as if it were an arrear of land revenue.

(7) Any sum imposed by way of penalty under subsection ( 5) shall be JT'., coverable in the mauner provided in sub-section (6) for the recovery of the arrear of cess".

Then follows s.4 and it provides :

"4. Penalties-If any person defaults in the payment of cess imposed under sub-section (1) of See.3, or, contravenes any provision of any rule made under this Act, he shall without prejudice to his liability therefor u'nder sub-section ( 5) of Sec.3 be liable to imprisonment up to six months or to a fine "not exceeding rupees five thousand or both and in the, case of continuing contra vent ion to a further fine not exceeding rupees one thousand for each day during which the contravention continues".

It is apparent that section 3 (2) requires the payment of cess on the date prescribed under the rules.

Rule 4 of the U.P. Sugarcane Cess Rules, 1956 provides that the cess due on the sui:arcane entering into the premises during the first fortnight of each calendar year must be deposited in the Government treasury by the twenty second day of that month and the cess due for the remainder of the month must be deposited before the seventh day of the next following month.

If the cess is not paid by the specified date, then by virtue of s.3 (3) the arrear of cess will carry interest at the rate of six per cent per annum from the specified date to the date of payment. Section 3 ( 5) is a very different provision. It does not deal with the interest paid on the arrears of cess but provides for an additional sum recoverable by way of penalty from a person who defaults in making payment of cess.

It is a thing apart from an arrear of cess and the interest due thereon.

Now the interest payable on an arrear of cess under s. 3(3) is G in reality part and parcel of the liability to pay cess.

It is an accretion to the cess.

The arrear of cess "carries" interest; if the cess ,';. is not paid within the prescribed peri!xl a larger sum will become payable as cess. The enlargement of the cess liability is automatic under s. 3 ( 3) . No specific order is necessary in order that the obligation to pay interest should accrue. The liability to pay interest 6 is as certain as the liability to pay cess. As soon as the prescribed date is crossed without payment of the cess, interest begins to accrue.

It is not a nalty, for which provisions has been separately made by s.3 ( 5). Nor is it a penalty within the meaning of s.4, which provides for a criminal liability and a criminal prosecution.

The penalty payable uhder s.3(5) lies in the discretion of the collecting officer or authority. In the case of the penalty under s.4, no prosecution can be instituted nnless, under s.5 ( 1), a complaint is made by or under the authority of the Cane Commissioner or the District Magistrate.

There is another consideration distinguishing the interest payable under s.3(3) from the penalty imposed under s.3(5). Section 3 ( 6) provides that the officer or authority empowered to collect the cess may forward to the Collector a certificate under his signature specifying the amount of arrears including interest due from any person, and on receipt of such certificate the Collector is required to proceed to recover the amount specified from such person as if it were an arrear of land revenue. The words used in s.3 ( 6) are "specifying the amount of arrears including interest", that is to say that the interest is part of the arrear of cess.

In the case of a penalty imposed under s.3(5), a separate provision for recovery has been made under s.3 (7). Although the manner of recovery of a penalty provided by s.3(7) is the same as the manner for recovery provided by s.3(6) of the arrears of cess, the Legislature dealt with it as something diBtinct from the recovery of the arrears of cess including interest. l'tt truth, the interest provided for under s.3 (3) is in the nature of compensation paid to the Government for delay in the payment of cess.

It is riot by way of penalty. The provision for penalty as a civil liability has been made nnder s.3 ( 5) and for penalty as a criminal offence under s.4. The Delhi High Court proceeded ehtirely on the basis that the interest bore the character of a penalty.

It was, according to the learned Jndges "penal interest".

The learned Judges failed to notice s.3(5) and s.4 and the other proVisions of the Cess Act.

We have been referred by the Revenue to Mahabir Sugar Mills (P) Ltd. v. Commissioner of Income Tax, U.P.(') and Commissioner o{ Income-Tax West Bengal v. A. K. Das,(2 ) but in those two cases the Delhi High Court and the Calcutta High Court respectively were concerned with a claim to deduction on account of. penalty paid under s.3(5) of the Cess Act.

Reliance was also placed on Commissioner of Income-Tax v. Oriental Carpet Manufacturers (India) P. Ltd.(') In that case, the High Court of Punjab and Haryana laid down that

(I) (1969) 71 I. T. R. 87.

(2) (1970) 77 J. T. R. 31.

(3) (1973) 90 I. T. R. 373.

interest paid by an assessee on account of delay in payment of the provisional demand of tax is not a permissible deduction under s.36

(1) (iii) and s.37 of the Income Tax Act. The learned Judges observed that the liability to tax, although arising out of a business activity, could not be said to be a liability related to the assessee'~ business. It is not necessary for us to express any opinion on the decil; ion.

The case is distinguishable because we are concerned with a particular statutory scheme enacted in ss.3 and 4 of the Cess Act before us.

Our attention has also been invited to Suraya Sugar Mills (P) Ltd. v. Commissioner of Income-Tax,(') where a Full Bench of the Allahabad High Court has held that the payment of interest under s.3(3) of the U.P. Sugarcane Purchase Tax Act, 1961 is a penal liability which accrues on an infraction of the law.

Section 3(3) of the U.P. Sugarcane Purchase Tax Act, 1961 does seem to be in pari materia with s. 3 (3) of the Cess Act.

But we think! we. should resist the blandishment to sit in judgment over that decision when it is not in appeal before us. We are concerned solely with the nature of the liability to pay interest under s.3 ( 3) of the ss Act.

A court should be slow to succumb to the temptation of deciding questions on the construction of a statute not directly before it.

In our opinion, the interest paid under s.3(3) of the Cess Act cannot be described as a penalty paid for an infringement of the Jaw.

As that is the only grO\Jnd on which the Revenue resists the claim of the assessee to a deduction of the interest under s.10(2)(xv) of the Income-Tax Act, the assessee is entitled to sncceed.

There is no dispute that the payment of interest represents expenditure laid out wholly or exclusively for the purpose of the business. There is also

ll-0 dispute that it is i'n the nature of revenue expenditure.

In the result, the appeal is allowed, the judgment dated 25th October, 1971 of the Delhi High Court is set aside and the question referred by the Income Tax Appellate Tribunal are answered in the affirmative, in favour of the assessee and against the Revenue.

The .assessee will be entitled to its costs of these appeals .

P.B.R..

Appeal allowed.

(1) (1979) 116 ( T. R. 367.

MAHALAXMI SUGAR MILLS CO. LTD

COMMISSIONER OF INCOME-TAX, DELHI, NEW DELHI

N. L. UNTWALIA

R. S. PATHAK

E. S. VENKATARAMIAH, JJ.

Indian Income Tax Act 1922

Section 10(2)

Section 3(2)

Sugarcane Cess Act, 1956

Sugarcane cess Act, 1956

s. 10(2)

Indian Income Tax Act, 1922

s. 3

section 10(2)

s. 3(3)

s. 3

s. 3(5)

s. 4

s. 3

s. 4

s. 5(1)

s. 3(5)

s. 3

s. 3(7)

s. 3

s. 3(6)

A. K. Sen

Bishamber Lal

P. G. Ghokhale

A. Subhashini

PATHAK

s. 3

Sugarcane Cess Act, 1956

s. 10

Indian Income Tax Act, 1922

Sugarcane Cess Act, 1956

Delhi High Court

25th October 1971

s. 10

Indian Income Tax Act, 1922

s. 10

s. 66

s. 10

s. 10

Sugarcane Cess Act, 1956

Article 226

Allahabad High Court

s. 3(3)

Sugarcane Ces Act, 1956

s. 10(2)

section 3

Sugarcane Cess Rules, 1956

Section 3

s. 3(3)

s. 3

Section 3

Visions of the Cess Act

Calcutta High Court

High Court of Punjab and Haryana

ss.3 and 4

Sugarcane Purchase Tax Act, 1961

Section 3(3)

Sugarcane Purchase Tax Act, 1961

s. 3

Income-Tax Act

25th October, 1971


• A

LIQUIDATOR OF MAHAMUDABAD PROPERTIES (P) LTD.

COMMISSIONER OF INCOME TAX, WEST BENGAL II,

CALCUTTA April 9, 1980

[N. L. UNTWALIA AND R. S. PATHAK, JJ.]

Income Tax Act, 1961, Sections 22 and 23-Computation of Income frotn house property-Building not in a habita/Jle condition after it was released by Golcrnment consequent to derequisitioning-Assessee claiming remission in the computation of income of the entire annual value and also deductions on account of insurance premium and municipal taxes relating to the property- Permissibility of re1nission and deductions claimed-Competency of the High Court to give a direction to tile Appellate Tribunal, enabling the Revenue to tax income from the property, when the Revenue jailed to ask for a refertnce against Appellate Tribunal's decision-Nature of High Court's polver in a reference case.

The appellant-assessee, in his income tax return for the assesssment year 1962-63 (for which the previous year was the calendar year 1961) r'cited D that the annual value of the building derequisitioned by the Govt. on 26-12-1960 was Rs. 1,23,672/-. However on the ground that the building had remained: vacant throughout the previous year, the assessee claimed a remission in the computation of the income of the entire annual value. The assessee als0t cJairned a deduction on account of insurance premium and municipal taxes relating to the property.

The lncame Tax Officer took the view that e property was not in a habitable condition and did not admit of letting and therefore no question e.rose of applying the provisions of the Income Tax Act relating to the computation of income from property.

Accordingly, be held that the annual valueas well as the vacancy claim had to be ignored. The assessee appealed to the Appellate Assistant Commissioner who held that although the property ha<L remained vacant, it possessed an aunue.l value and should be considered for assessment.

On that view, he a1lo\.ved the deductions claimed by the assessee.

In second appeal, the Incon1e Tax Appellate Tribunal favoured the view taken by the Income Tax Officer and e.ccordingly held that the claim to deductions made by the assessee must fail.

The Tribunal, in other words, affirmed that the property fell outside the scope of s. 22 of the Act and, consequently, denied the deductions.

The Revenue appeared satisfied with the order Of Appellate Tribunal.

But, at the instance of the assessee a reference was. made to the High Court. The High Court was of the opinion that the Appellate Tribunal had misconceived the la\v in holding that because the property was in a state of disrepair it did not possess an annual value.

As regards the assessee's claim to the specified deduction, it held that while the insurance premium paid by it could be allowed, there was no merit in the claim on account of vacancy remission and payments of municipal taxes, Hence the appeal by special leave to this Court.

H Dismissing the appeal, the Court,

HELD : I. Whether the High Court was right in including a direction to the Appellate Tribunal to take into account the annual value of the property

LIQUIDATOR MAHAMUDABAO PROPERTIES V. C.I.T. 429

will depend on the appreciation of the true scope of the reference taken to A the High Court. The question referred to the High Court was rooted In the fundamental submission of the assessee that the property possessed an annual value for the purpose of Section 22 and it was, therefore, entitled to the vacancy remission end other deductions claimed by it. The frame of the question indicates that it has two parts, whether the Appellate Tribunal was right in holding that in computing the income from property the premises 3, Gun Foundry, possessed an annual value and whether the Appellate Tria bunal '\\'as right in disallowing the vacancy remission and other deductions in resoect of that property.

[434C-E]

Unless the property fall within the scope of Section 22 there was no occasion for considering the assessec's claim to the deductions.

The. High Court also, when considering the reference, examined the question in its bifurcated character. But although bifurcated. the thrust of the question was directed C to the consideration of the deductions claimed by the e.ssessee. Whether the property possessed an annual value was necessary to determine solely for the purpose of considering the claim to deductions. Unless the assessee was in- •terested in those deductions it. would not have asked for a finding that the property possessed an annual value. The High Court. wes, therefore, right in examining both parts of the question and in determining whether the property had an annual value and the deductions claimed were permissible.

[434E-G]

The High Court had to consider the first part of the question because that was the very case of the assessee throughout from the earliest stage of the proceeding. The need for the determination whether the property has an annual value arises only if it is found that on the tern1s of the statute the assessee is otherwise entitled to the deductions clairned by him. If those deductions are not permissible under the relevant section, no question arises of examin- E ing whether the property has 0n annual value. Viewed in that light, the determination of the question whether the property has an annual value faJLq_ into its proper place. [434G-H, 435A]

2. It is not open to the Revenue to contend that even though the claim to deduction must otherwise fail, the question whether the property has an annual value must still be considered.

If the Revenue intended that the High F Court should determine whether Qli property had an annual value as a ques~ tion iOOependent of its finding on the admissibility of the deductions, the Revenue should have applied to the Appellate Tribunal for a reference to the High Court accordingly.

It did not ask for a reference and, therefore it is not entitled to raise that contention now. [435A-C]

However, the only way of looking o.t the case, is whether on the assump- G . tion that the property has an annual value >1nd falls within the scope ot Section 22, the assessee is entitled to the deductions under Sections 23 and 24.

If he is entitled to any of those deductions, then in order to establish the foundation in which the deductions can be rooted it will be necessary to determine whether the property possesses an annual value.

That is what the High Court did, and the observations made by it must be construed accordingly. It may be that the deduction to which the assessee is found entitled H runs to a far smaller figure than the annual value property attributable to the property.

In that event the consequence will be a net annual value of some significance. ~-\nd this will be the consequence notwithstanding that

the reference is at the assessee.'s instance and no reference at all has been brought by the Revenue. The result appears anomalous, but aft.er all it is for the assessee to choose whether or not he wishes to take a reference to the High Court, and if he is found entitled to even one of the 4eductions claimed by him and effect cannot be given to that claim without the annual value of the property being computed he has only to thank himself.

[435C, F]

3. The High Court, on a reference before it, does not act as a court of appeal. The jurisdiction is advisory and no more. The High Court is empowered to decide the question of law referred to it, and to return its answer to the Appellate Tribunal. .The Appellate Tribunal then takes up the appeal

and disposes it of conform.ably with the answer returned by the High Court.

It is not part of the jurisdiction of the High Court to interlere and modify or set aside the appellate order of the Tribunal. [435F-H]

4. The proviso to Section 23(1) of the Income Tax Act, 1961 can be availed of only if the property is in the occupation of a tenant. It would seem so on the language of the proviso. The assessee does not rest his claim on any other provision of law. Jn the circumstances, the High Court is right in denying the claim in respect of municipal taxes. [436G-H]

5. The provisions of the Income-Tax Act relating to the charge on income apply in relation to a specific assessment year end the provisions of the Act providing for the computation of the chargeable income (which includes taking into account permissible deductions in the computation of the income chargeable under different heads) apply, in the absence of anything to the contrary, in relation to the relevant previous year.

The tolal incon1e of the previous year needs to the con1puted, and the different provisions relating to the com putation o.f income must be read and applied in the context of the facts and circumstances obtaining during that year, unless the context suggests the contrary. Consequently, \Vhen reading s.24(2)(ix) of the Income Tax Act, 1961

which speaks of property which is let and which \\'as vac;:ant during a part of the year, the Court must read it to mean property which was Jet during the previous year and was vacant during a part of the year.

It cannot refer to property which was not let at all during the previous year. [437D"E] F In the present case, there is no evidence to show that it was ever given out by the assessee that the property was available for letting. The e.ssessee is not entitled to the deductions claimed by it in respect of municipal taxes and a vacancy remission.

[437F]

Maharajadhiraja of Darbhanga. v. Com1nissioner of Income Tax, Bihar and Orissa, A.I.R. 1931 Patna 223; distinguished.

G CIVIL APPELLATE JURISDICTION: Civil Appeal No._ 2183 of 1972.

Appeal by Special Leave from the Judgment and Order dated 28-7-1970 of the Calcutta High Court in Income Tax Reference No. 45 of 1969. e F. S. Nariman and M. M. Kshatriya for the Appellant.

aind S. T. Desai, K. C. Dua, Miss A. Subhashini for the Respondent

S. Chaudhary. D. N." Gupta and T. A. Ramachandran for the A.

Respo'ndent Intervener.

The Judgment of the Coun was delivered by

PATHAK, J.-This appeal by special leave is directed against the judgment of the Calcutta High Court on a question concerning the computation of income from house property under the Income-tax a !

Act, 1961.

The assessee, a private limited company, is !he owner of the property described as 3, Gun Foundry Road.

Originally it housed a jute baling press. The property was requisitioned by the West Bengal Government in 19 51. It was released to the asses see on December 26, 1960, after being used for housing refugees.

Evidently, the building had not received the care it deserved, for when the assessee resumed possession he found it in a sorry state.

The assessee filed an income-tax return for the assessment year 1962-63 (for which the previous year was the calendar year 1961), and the return recited that the aunual value of the building was Rs. 1,23,672. However, on the ground that the building had remained vacant throughout the previous year, the assessee claimed a remission in the computation of the iilcome of the entire annual value. The

assesisee also claimed a deduction on account of insurance premium and municipal taxes relating to the property.

The Income-tax Officer took the view that the property . was not in a habitable condition and did not admit of letting and therefore ilo question arose of applying the provisions of the Income Tax Act relating to the computation of income from property.

Accordingly, he held that the aunual value as well as the vacancy claim had to be ignored.

The assessee appealed to the Appellate Assistant Commissioner, who held that although the property had remained vacant, it possessed an annual value and should h~ considered for assessment.

On that view, he allowed the deductions claimed by the assessee. In second appeal, the Income Tax Appellate Tribunal favoured the view taken by the Inoome Tax Officer and accordingly held that the claim to deductions made by the assessee must fail.

The Tribunal, in other words, affirmed that the property fell outside the scope of S. 22 of the Act and, consequently, denied the deductions.

The Revenue appeared satisfied with the order of the Appellate Tribunal.

But, at the instailce of the assessee, a reference was made to the High Court at Calcutta on the following question :-

"Whether on the facts and in the circumstances of the . case and on the interpretation of sections 22 and 23 of the

' A

Income-tax Act, 1961 the Tribunal was right in holding that iu computing the income from property the l; lonafide annual value of the property at 3, Gun Foundry Road, Calcutta has not to be taken and in disallowing the vacancy remission and other deductions in respect of the aforesaid property ?"

The High Court was of opinion that the Appellate Tribunal had misconceived the law in holding that because the property was in a state of disrepair it did not possess an annual value.

As regards the assessee's claim to the specified deductions, it held that while the insurance premium paid by it could be allowed, there was no merit in the claim on account of vacancy remission and payment of . municipal taxes.

Accordingly, the High Court recorded :-

"On the first part of the question we hold that the Tribunal was wrong in holding that there was no annual value of this property No. 3, Gun Foundary Road and that it was o.utside the scope of section 22 of the Income-tax Act,

1961. We hold and we are of the opinion that this property has an annual value in the facts and circumstan~ of the case and it should be taken into account in the light of the principles and observations we have made above.

We therefore set aside that part of the order of the Tribunal and answer the question accordin&Jy.

The answer to this first part of the question is in the negative.

The answer to the second part of the question folloWIS from the answer to the first part of the question and is that the only deduction in the facts and circumstances of the present reference which the assessee can get is the deduction for insurance premium paid.

We hold further on this part of the question that the other deductions, namely, (a) vacancy remission and (b) municipal taxes are not permissible and the assessee is not entitled to claim them in the present reference. We answer the second part of the question accordingly.

The Tribunal, therefore, will dispose of the case conformably to this judgment and the interpretation of the principles enunciated herein under section 260 of the Incometax Act, 1961."

H At the outset a serious controversy arose before us on the point whether the High Court was right in including a direction in its judgment that the Appellate Tribunal should take into account its finding

that th" property possessed an annual value.

The assessee says that when the Appellate Tribunal had held that the property did not fall within the scope of s. 22, it was for the Revenue, in case it desired

tci charge the assessee on income from this property, to apply for a

~"forence to the High Court. It is urged that the Revenne having omi'ted to do so, it was not open to the High Court to make an order enabling the Revenue to tax any income from that property. On behalf of the Revenue, the submission is that inasmuch as the assessee had taken the case in reference to the High Court for an adjudication on the deductions claimed by it the point whether the property possessed an annual value and its income was chargeable was directly raised by the assessee itself, and therefore, the High Court was right in rendering a decision on this point.

"Income from house property" is one of the heads into which different categories of income included in the total income have been classified.

For the purpose of computing "income from house property", a code of provisions is incorporated in ss. 22 to 26 of the Act.

S. 22 declares that the annual value of property consisting of buildings or lands appurtenant thereto in the ownership of the assessee, excepting such portions of the property occupied for any business or profession carried on by him of which the profits are chargeable to income tax, shall bo chargeable to income tax as "income from house property".

The annual value is determined after making a deduction on account of municipal taxes.

The income from house property is then subject to the deductions set forth in Sec. 24. The deductions are made for th~ purpose of computing the net figure of the income from property.

In order to decide whether the High Court was right in including a direction to the Appellate Tribunal to take into account the annual value of the property, it is necessary to apprechtte the true scope of the reference taken to the High Court. The Income Tax Officer bad fo\Jnd that the property, having regard to its condition, was not capable of being let to tenants and therefore the gross value and the deductions claimed had to b~ iguored.

The assessee was aggrieved by that finding.

It must be remembred that in its return the assessee had indicated that the property possessed an annual value of Rs. 1,23,672 unless the property had an annual value, it believed, it could not be entitled to the deductions claimed by it. In appeal before the Appellate Assistant Commissioner, its case was that the property could not be ignored for the purposes of the Income-tax Act.

The contention was accepted by Appellate Assistant Commissioner, who held that the annual value of the property could not be

A ignored. and forther that the vacancy remission and other deductions claimed by the assessee were admissible.

When the Revenue proceeded in appeal to the Appellate Tribunal it urged that the assessee was not entitled to the deduction claimed in respect of the property.

The Appellate Tribunal considered the evidence relating to the conditfon of the building, and was of opinion that the building was not i'n a habitable condition and it could not be said that the property could be reasonably Jet out at any particular annual value.

In its opinion, the property fell outside the scope of Section 22 and, therefore, the Income Tax Officer was right in ignoring the property altqgether and in not computing any profit or loss in respect of it. The Appellate Tribunal set aside the order of the Appellate Assistant Commissioner and restored the order of the Income Tax iOlficer.

It was m the context of this train of proceedings that the assesse now took the case in reference to the High Court.

The question referred to the High Court was rooted in the fundamental submission of the assessec that the property possessed an annual value for l!he purpose of Section 22 and it was, t!rerefore, entitled to the vacancy remission and other deductions claiimd by it.

The frame of the question indicates that it has two parts, whether the Appellate Tribunal was right in holding that in computing the income from property the premises 3, Gun Foundry, posses9d an annual value and whether the Appellate Tribunal was right in disallowing the vacancy remission and other deductions in respect of that property.

Plainly, unless the property fell within the scope of Section 22 there was no occasion for consideri'ng the assessee's claim to the deductions.

The High Court also. when considering the reference, examined the question in its bifurcated character. But although, bifurcated, the thrust of the question was directed to the consideration of the deductions claimed by the assessre.

Whether the property possessed an annual value was necessary to determine solely for the purpose of considering the claim to deductions. Unless the assessee was interested in those deductions it would not have asked for a finding that the property possessed an annual value.

The High Court was, thevfore, right in examining both parts of the question and in determining whether the property had an annual value and the deductions claimed were permissible. The assessee can have no quarrel with the High Court considering the first part of the question, becaure that was the very case of the assessee throughout from the earliest stage of the proceeding. From what has gone before it is apparent that the determination whether the property has an annual value arises only if it is found that on the terms of the statute the assessee is otherwise entitled to the deductiom; claimed by him. If those deductions are not permissible under

the relevant section, no question arises of examining whether the property has an annual value.

Viewed in that light, the determination of the question whether the property has an annual value falls into its proper p\ace.

It cannot be contended that even though the claim to deductions must otherwise fail, the questiou whether the property has an annual value must still be considered.

Such a contention is not pen to the Re\•nue. If the Revenue intended that the High Court should determine whether the property had an annual value as a question independent of its finding on the admissibility of the deductions, the Revenue should have applied to the Appellate Tribunal for a reference to the High Court accordingly.

It did not ask for a reference and, therefore it is not entitled to raise that contention now.

It seems to us that there is ol:ily one way of looking at the case, and that is Whether on the assumption that the property has an annual value and falls within the scope of Section 22, the assessee is ntitled to the deductions under Sections 23 and 24. If he is entitled to anyof those deductions, then in order to establish the foundation in which the deductions can be rooted it will be necessary to determine whether the property possesses an annual value.

That is what the High Court did, and the observations made by it must be construed accordingly.

It may' be that the deduction to which the assessee is found entitled runs to a far smaller figure than the annual value property attributable to the p, roperty. In that event the consequence will be a net annual value of some significance.

And this will be the consequence notwithstanding that the reference is at the ass>;:s.see's instance and no reference at all has been brought by the Revenue.

Theresult appears a, nomalous, but after all it is for the assessee to choose whether or not he wishes to take a reference to the High Court, and if he is found entitled to even one of 1he deductions claimed by him and effect cannot be given to 1hat clainl without the annual value of the property being computed he ba8 only to thank himself.

At the same time, we must point out that the High Court, after holding that the property has an annual value, bas erred in stating that it sets aside that part of the order of the Appellate Tribunal.

The High Court, on a reference before it, does not act as a court of appeal.

The jurisdiction is advisory and no more.

The High .Court is empowered to decide the question of law referred to it, and to

return its answer to the Appellate Tribunal. . The AppeHate Tribunal then takes up the appeal and disposes it of confurmably with the answer returned by the High Court. It is not part of the jurisdiction of the High Court to interfere and modify or set aside the appellate order of the Tribunal. _

8-289SCI/80

436 SUPREME COURT REPOllTS [1980] 3 s.c.R.

A~ has been said earlier, the High Court considered both parts of the question referred to it, whether the property possessed an a'nnual value and whether the deductions claimed by the assessee were admissible.

It examined first whether the deductions were admissible. It found that the amount of Rs. 689 paid on account of fire insurance premium in respect of the property was deductible from the annual value under s. 24(1)(ii). Regarding the claim under s. 24( 1 )(ix) on account of vacancy remission, it disallowed the deduction on the ground that the property was not let during the previous year. The claim to deduction under s. 23 of the municipal taxes paid in respect of the property was also rejected in the view that the muni cipal taxes could be deducted only if the property was in the occupation of a tenant.

The High Court then turned to the fundamntal question whether the property possessed an annual value for the purpose of s. 22, and held that merely because the building was in a state of disrepair it could not be predicated that it had no annual value.

In the result, on the question referred by the Apllate Tribunal it returned the opinion that the property possessed an annual value and that the assessee was entitled to a deduction in respect of insurance premium only.

In this appeal, the only question is whether the High Court is right in holding that the assessee is not entitled to any deduction on account of municipal taxes and the vacancy remission claimed by it.

The claim to the deduction of municipal taxes is made under the proviso to s. 23 (1). The proviso reads :

"Provided that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property are under the Jaw authorising such levy, payable wholly by the owner, or partly by the owner and partly by the tenant, a deduction shall be made equal to the part, if any, of the tenant's liability borne by the owner."

It is immediately apparent that the proviso to s. 23(1) can be availed of only if the property is in the occupation of a tenant. It would seem so on the language of the proviso.

The assessee does 'not rest his claim on any other provision of law. In the circumstances, the High Court is right in denying the claim in respect of municipal taxes.

The next deduction claimed requires the consideration of s. 24( 1) {ix) of the Act.

S. 24(1) (ix) reads:

"24(1) Income chargeable under the head 'Income from house property' shall, subject to the provisions of subsection (2), be computed after making the following deduc- • tions, namely

cl

xx xx xx xx xx

(ix) Where the property is let and was vacant during a part of the year, that part of the annual value which is proportionate to the period during which the property is wholly unoccupied or, where the property is let out i'n parts, that portion of the annual value appropriate to any vacant part, which is proportionate to the perlod during which such part is wholly unoccupied ...... "

The question is whether the property, 3 Gun Foundry Road, which admittedly has remained vacant since December 26, 1960 can attract s. 24(2) (ix). It is plain that it cannot. The provisions of the Income-tax Act relating to the charge on income apply in relation to a specific assessment year and the provisions of the Act providing for the computation of the chargeable income (which includes taking into account permissible deductions in the computation. of the income chargeable under different heads) apply, in the absence of anything to the contrary in relation to the relevant previous year.

The total income of the previous )'ar needs to be computed, aod the different provisions relating to the computation of income must be read and applied in the context of the facts and circumstances obtaining during that year, unless the context suggests the contrary.

Consequently, when readings. 24(2) (ix) which speaks of property which is let and which was vacant during a part of the year, we must read it to mean property which was let durin: the previous year and was vacant during a part of the year.

It cannot refer to property which was not let at all during the previous year. In the presenti case, there is no evidence to show that it was ever even given out by the assessee that the property was available for letting.

We were referred to Maharajadhiraja of Darbhanga v. Commissioner of Income-tax, Bihar und Orissa, (') where it was observed by the Patna Hi~ Court that s. 9

(1) .paragraph 7 of the Income Tax Act, 1922 could be invoked i'n a case where a house not in the occupation of the owner was habitually let to tenants and the vacancies referred to are vacancies between the different tenancies, or a house thou&Ji not let is dismantled and shut up by the owner.

We have carefully read the judgmeht

(I) A.T. R. 1931 Patna 223.

delivered by that High Court, and it appears that the observation is a mere obiter.

The actual point for decision was in fact quite different. It was a case where the assessee, who owned several houses kept them furnished and open for his residence and never let them to any tenant, and he did not occupy some of them during the relevant previous year.

He claimed a vacancy remission in respect of them.

The High Court, in our opinion, rightly rejected the claim. It may also be pointed out that the statutory provision cousidered there was materially different from the one before us.

In our judgment, the assessee is not entitled to the deductions claimed by it in respect of municipal taxes and a vacancy remission.

The gh Court is right in its view in respect of this part of the case.

The appeal is dismissed.

There is no order as to costs.

S.R.

Appeal dismissed.

April 9, 1980

N. L. UNTWALIA

R. S. PATHAK, JJ.

Income Tax Act, 1961

Sections 22 and 23

s. 22

Section 22

Section 22

Section 22

Sections 23 and 24

Section 23(1)

Income Tax Act, 1961

Income-Tax Act

Income Tax Act, 1961

Calcutta High Court

e F. S. Nariman

M. M. Kshatriya

aind S. T. Desai

K. C. Dua

A. Subhashini

S. Chaudhary

D. N." Gupta

T. A. Ramachandran

PATHAK

West Bengal Government

December 26, 1960

S. 22

High Court at Calcutta

sections 22 and 23

Income-tax Act, 1961

Calcutta

section 22

Income-tax Act

section 260

Incometax Act, 1961

s. 22

ss. 22 to 26

S. 22

Sec. 24

Income-tax Act

Section 22

Section 22

Section 22

Section 22

Sections 23 and 24

s. 24(1)(ii)

s. 24( 1 )(ix)

s. 23

s. 22

s. 23

s. 23(1)

s. 24( 1)

S. 24(1)

s. 24(2)

Income-tax Act

Patna Hi~ Court

s. 9

Income Tax Act, 1922


SULTAN AHMD. OWASI

MOHD. OSMAN SHAHEED AND ORS.

April 10, 1980

(S. MURTAZA FAZAL ALI AND P. S. KAJLASAM, JJ:J

Election Petition-Applications for summoning of witnesses and amend ment of counter-Practice and Procedure under the Repr, esentatiOn of People Act-Sections 87 and 116 of the Representation of the People Act read with Order VIII Rule 2 of Civil Procedure Code.

In the two election petitions E. P. No. 18178 and E. P. No. 20178 filed by the defeated candidates, allegation of corrupt practice, namely "indulgence in C promoting hatred rousing religious sentiments by speeches made at certain places" was made against the appellant, a succesSful candidate.

After the election petitioner closed his evidence and the High Court directed tho appellant to file the list of his witnesses, the appellant filed two applications before the High Court namely, one for summoning witnesses Nos. 6, 8, 15 and 16 and another for amendment of his counter. The High Court however refused to D summon these witnesses on the ground that no foundation for the facts on the basis of which these witnesses were sought to be cited or for the points on which they were to be, examined was laid in the counfer. Similarly, the fligh Court rejected the application for amendment of the counter on the same grounds. The High Court was of the view that in the absence of any specific .plea of alibi, having been taken in the counter. the appellant could not be allowed to examine the witnesses or amend the counter. Hence the two B appeals, by special leave.

Allowing the appeals the Court,

. HELD : 1. Under the provisions of the Representation of People Act, the onus Jies entirely on the petitioner to prove the corrupt practices alleged against the elected, candidate. The. necessary facts and particulars and the statements of facts etc. are to be pleaded by the election petitioner with exactitude and precision. It is now well settled by a large catena of the authorities of this Court tha~ a charge of corrupt practice must be proved to the hilt, the standard of proof of such a11egation is the same as a charge of fraud in a criminal case. f442B-Cl

~ D. Venkata Reddy v. R. Sultan and Ors., [19761 2 S. C. C. followed.

' ,.l

2. So far as the elected candidate is concerned, he is merely to rebut the allegations made by the petitioner in accordance with the provisions of the Civil Procedure Code as far as practicable. In the instant case, the appellant had taken an express plea in his counter that he did not make any 9peech at the places alleged by the election petitioner. He also stated that tape records or the cassets alleged to contain his speech were fabricated.

One of the ways of proving this plea could be by showing that the appellant was not physically present at the places where the speeches are alleged. to. have been made as he was present at that time, at some other place. This is what the appellant sought to do through the proposed amendment and by summoning

the witnesses. Thus it was. clearly open to the appellant to have proved facts in order to rebut the allegations made by the petitioner that he was not present at the places where he is said to have made speeches. [442E-G]

3. Under s. 116 of the Representation of the People Act an election petition has to be tried as nearly as possible according to the procedure applicable under the Civil Procedure Code to the trial of suits. Under O.VIII R. 2 the defendant must raise by his pleading all ritatters which show that the suit is not maintainable, or that the transaction is either void or voidable in point of law, and all such. grounds of defence, as, if not raised, would be likely to take the opposite party by surprise, or would raise issues of fact not arising out of the pjaint. Having expressly denied the allegation of having made the speech, the appellant was fully justified in raising this defence. [442G-H, 443A]

In the instant case, it cannot be said that the witnesses sought to be examined by the appellant or the plea which he claimed in his counter by virtue of the amendment would spring surprise on the election petitioner because the appellant had already denied in clear terms that he never made any speeches at the places mentioned in the election petition. There was no corres ponding duty on the appellant to give full particulars or detailed statemrnt of fact which the petitioner had to do in order to set at naught the electoral pro cess which resulted in the election of the appellant. [443A-CJ

4. So far as the discretion vested on the HigQ Court by Section 87 of the Representation of the People Act, 1951 to refuse to summon any witness lies onJy when it is of the opinion that the evidence of the witness is not material or that the party tendering such witness is doing so on frivolous ground or with a view to delay the proceedings.

[443.D-EJ

In the instant case none of these conditions are present. In order to repet the plea of the election petitioner, the appellant was entitled to lead evidence to show that he did not make any speech as he was physically incapable in doing so at the time and place as alleged by the petitioner.

By virtue of the amendment the appellant sought to insert a plea that he could not have madethe speeches as alleged by the election petitioner because he was at that time out of station and was present in Adoni-180 miles from the places where he is said to have delivered speeches. In fact, witnesses Nos. 6, 8, 15, 16 and 1.7 were summoned to prove the fact that this appellant was in Adoni. [4410-H.

442A, 443E]

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2036- 2039/79.

Appeals by special leave from the Judgment and Orders dated 27-4-1979, and 25-6-1979 of the Andhra Pradesh High Court in U.R.S. Nos. 4039 and 4040 in W.P. Nos. 18 & 20 of 1978 and application Nos. 75 .& 76 in WP Nos. 18 & 20 of 1978 respectively.

M. A. Abdul Khader, Mukramuddin and G. Narayana Rao for the Appellants.

Dr. Y. S. Chitale, K. Ram Kumar and T. A. Ramcha; idran for the Respondent.

The Judgment of the Court was delivered by

.. , t-..

J A

s. A. OWASI V. OSMANSHAHBBD (Fazal Ali, J.) 441

FAZAL Au, J.

These appeals by special leave have been filed by the appellant who was respondent No. 1 (before the High Court), the elected candidate from the Charminar Assembly Constituency No. 218 in the State of Andhra Pradesh.

The election petitioner Mohd. Osman Shaheed filed election petition for setting aside the election of the appdlant being E.P. No. 18/78 in the High Court.

Ahmed Hosain, a candidate who was defeated also filed another electio'n peti:ion No. 20/78 on the same grounds assailing the elec tion of the appellant. In the aforesaid election petitions before the High Court two applications were filed in each of tlie petition by the appellant, one for summoning witnesses Nos. 6, 8, 15 and 16 and the other for amendment of the counter. These applications were filed after the petitioner closed the evidence and the High Court directed the appellant to file the list of witnesses.

The High Court, however, refused to summon these witnesses on the ground that no foundation for the facts on the basis of which these witnesses were sought to be cited or for the points on which they were to be examined was laid in the counter. Similarly the HiVi Court rejected the application for amendment of the counter on the same grounds. The High Court was of the view that in the absence of any specific plea of alibi having been taken in the counter, the appellant could not be allowed to examine the witnesses or amend the counter.

Appeal Nos. 2036-37 /79 are direcetd against the order striking out the witnesses nos. 6, 8, 15, 16 and 17 and Appeal Nos. 2038-39/79

are directed against the order rejecting the application for amendment of the counter.

We have heard counsel for the parties and have gone through the Judgment of the High Court.

We have also perused the application for amending the written statement. It appears that one of the main allegations made against the appellant was that he had delivered speeches at Khilawat, Chowk and Baragalll on 17-2-78 and 21-2-78 respectively in which he indulged in promoting hatred rousing religious sentiments. It was further alleged in Election Petition No. 20/78 that he made another speech at Baragalli where also he indulged in preaching religions hatred against the election petitioner. In his counter the appellant stoutly denied the allegation that he ever made any speech at these places at all.

The respondent denied having made speech at all at Khilawat or Chowk or Baragalli.

By virtue of the amendment, the appellant sought to insert a plea that he could not have made the speeches as alleged by the election peti tioner because he was at that time out of station and was presell.t in Adoni-180 miles from the places where he is said to have delivered

A , speeches. In fact, witnesses nos. 6, 8, 15, 16 and 17 were summoned to prove the fact that this appellant was in Adoni.

With due respect, we may observe that in refusing the amendment of the Counter or summoning the witnesses, the High Court seems. to have over-looked the fact that U:Uder the provisions of the B Representation of People Act, the onus lies entirely on the petitioner to prove the corrupt practices alleged against the elected candidate.

The necessary facts and particulars and the siatements of facts etc. are to be pleded by the election petitioner with exectitude and precision.

It is now well settled by a large catena of the authorities of this Court that a charge of corrupt practice must be proved to C the hilt, the standard of proof of such allegation is the same as a charge of fraud in a criminal case.

In the case of D. Venkata Reddy

v. R. Sultan & Ors.,(') this Court observed as follows :-

• D

"Anoth•er principle that is equally well settled is that election petitioner in order to succeed must plead all material particulars and prove them by clear and cogent evidence.

The allegations of corrupt practices hoeing in the nature of a quasi-criminal charge the same must be proved beyond any shadow of doubt."

So far as the elected candidate is concerned, he is merely to rebut the allegations made by the petitioner in accordance with the provisions of the Civil Procedure Code, as far as practicable.

In the instant case the appellant had taken an express plea in his counter that he did not make any speech at the places alleged by the election petitioner. He also stated that tape records or . the cassete alleged to contain his speech were fabricated.

One of the ways of proving this plea could be by showing that the appellant was not physically present at the places where the speeches are alleged to have been . made as he was present at that time, at some other place.

This is what the appellant sought to do through the proposed amendment and by summoning the witnesses.

Thus it was clearly open to the appellant to have proved these facts i\1 order to rebut the allegations made by the petitioner that he was present at the places where he is said to have made speeches. Under s. 116 of the Representation of the

People Act an election petition has to be tried as nearly as possible according to the procedure applicable under the Civil Procedure Code to the trial of suits.

Under 0. VIII R. 2 the defendant must raise by his pleading all matters which show that the suit is not maintainable, or that the transaction is either void or voidable in point of law, and all such grounds of defence, as, if not raised, would be likely

(I) [1976] 2 s. c. c. 455

.. -1 .

s. A. OWASI v. OSMANSHAHEED (Fazal Ali, J.) 443

to take the opposite party by surprise, or would raise issues of fact not arising out of the plaint.

Having expressly denied the allegation of having made the speech, the appellant was fully justified in raising this defence.

Thus in the instant case it cannot be said that the witnesses sought to be examined by the appellant or the plea which he claimed in his counter by virtue of the amendment would spring surprise on the election petitioner because the appellant had already denied in clear terms that he never made any speeches at the places mentioned in the election petition.

There was no corresponding duty on the appellant to give full particulars or detailed statement of fact which the petitioner had to do in order to set at naught the electoral process which resulted in the election of the appellant. In fact proviso to s. 87 of the Representation of the People Act which may be extracted thus provides : "Provided that the High Court shall have the discretion to refuse, for reasons to b~ recorded in writing, to examine . any witness or witnesses is not material for the decision of the petition or that the party tendering such witness or witnesses is doing so oh frivolous grounds or with a view to delay the proceedings." So far as the discretion on the High Court to refuse to summon any witness lies only when it is of the opinion that the evidence of the witness is not material or that the party tendering such witness is doing so oh frivolous ground or with a view to delay the proceedings.

Nohe of these conditions appear to be present in the instant case nor did the High Court dismiss the application for amendment of the counter or refused to examine the witnesses on the grounds mentioned above.

It is, therefore, manifest that in order to repel the plea of the election petitioner the appellant was entitled to lead evidence to show that he did not make any speech as he was physically

incapab:e in doing so at the time and place as alleged by the election petitioner. For these reasons, therefore, we are clearly of the opinion that the High Courr was wrong in disallowing the prayer made by the appellant for examining the witnesses and for allowing amendment of the counter.

The appeals are accordingly allowed, the Judgment of the High Court is se.t aside and the High Court is directed to allow the appellant to examine witnesses Nos. 6, 8, 15, 16 & 17 and the amendment prayed for by the appellant is also hereby allowed.

The High Court will dispose of the election petition now as expeditiously as possible.

The costs of these appeals will abide the result of the election petition.

S.R.

Appeals allowed.

SULTAN AHMD. OWASI

MOHD. OSMAN SHAHEED AND ORS

April 10, 1980

S. MURTAZA FAZAL ALI

On of People Act

Sections 87 and 116

Representation of the People Act

Civil Procedure Code

s. 116

Representation of the People Act

Section 87

Representation of the People Act, 1951

Adoni

CIVIL APPELLATE JURISDICTION

M. A. Abdul Khader

Mukramuddin

G. Narayana Rao

Y. S. Chitale

K. Ram Kumar

T. A. Ramcha

A. OWASI V. OSMANSHAHBBD

Fazal Ali

FAZAL Au

Mohd. Osman Shaheed

Ahmed Hosain

Khilawat

Baragalll

Baragalli

s. 116

s. 87

Representation of the People Act


PARASRAM HARNAND RAO

SHANTI PRASAD NARINDER KUMAR JAIN & ANR.

April 10, 1980

[S. MURTAZA FA.ZAL ALI AND P. S. KAILASAM, JJ.]

Delhi Rent Control Act, Section 25 read with Order IX Rule 9 C. P. C., scope of-Whether the dismissal of the earlier suit of respondent-tenant for default of appearance under Ordex IX Rule 9 C. P. C. a bar for an application under section 25 of the Delhi Rent Control Act.

C Transfer of tenancy rights by the Official Liquidator, whether voluntary and _l__ did not come under the mischief of section 14(1) (b) of the D<lhi Rent Control Act.

The appellant landlord executed a .lease in respect of the disputed premises in favour of respondent 2 for three years as far back as 1-4-1942. In 1948, a suit was brought by the appellant for eviction of the tenant for non payment, D of rent on the ground of conversion of the user of the premises. The suit for possession was however dimissed but a decree dated 31-11-1948 for arrears of rent was passed and it was held that Laxmi Bank was the real tenant. Subsequently, the Bombay High .Court ordered the Bank to be wound up and in the winding up proceedings, the High Court appointed an Official Liquidator who on 16-2-1961 sold the tenancy rights to respondent No. 1. The sale was confirmed by the High Court on the same dte and as a result thereof respondent E No. 1 took possession pf the premises on 24-2-1961. On 5-4-1961, the landlord appellant filed ao application under the Delhi Rent Control Act for eviction of Laxmi Bank. On 31-7-1961, a decree for eviction was passed in favour of the appellant.

On 22-1-1963, respondent No. 1 filed a suit for declaration that he , was a ten'.lnt Of the landlord appellant. The suit was dismissed for non-prosecution on 5-5-1964 and an application to set aside the ex parte order was also dismissed and the appeal against that order also failed.

Thereafter F respondent No. 1 filed an application under Section 25 Oil' the Delhi Rent Control Act for recalling the warrant of possession issued by the Court in pursuance of the decree dated 31-7-1961 in favour of the appellant. The Rent Controller allowed it on 20-12-1966.

An appeal to the Rent Controller Tribunal was ., f_ ordered by order dfited 25-11-1968 in favour of the appellant A second appeal filed by respondent No. 1 to the High Court was allowed in his favour and the Rent Controller's order allowing recalling of the warrant of possession was -4 G restored. Hence the appeal by special leave by the landlord.

Allowing the appeal, the Court

HEID : 1. The application of respondent No. 1 under Section 25 of the Delhi Rent Control Act is clearly barred by the principle contained in order IX Rule 9 Civil Procedure Code. It was the appellant who brought the previous suit which resulted in a decree for eviction of the tenant on 31-7-1961-a date when the Ist respondent had already taken possessicin of the premises by virtue of transfer made by the Official Llquidator. There is nothing to show that respondent No. 1 was a tenant within the meaning of Delhi Rent Control

Act so as to maintain an application under section 2S of the Act, when in A fact he was an unlawful sub-lessee.

[447A, E, F-G]

Suraj Ratan Thirani and Ors. v.

Aza1nabad Tea Co. and Ors. {1964) 6 S. C. R. 192; applied,

2. The language of section 14(b) of the Delhi Rent Control Act is wide enough not only to include any sub-lease but even an assignment or any other B mode by which possession of the tenanted premises is parted. In view of the wide amplitude of s, 14 (b), it does not exclude even in involuntary sale,

[4480-EJ

In the instant case, the official Liquidator had merely stepped into the shoes of Laxmi Bank which was the original tenant and even if the official liquidator had transferred the tenancy interest to respondent No. 1 under the C order of the Court, it was on behalf of the original tenant. It was undoubtedly a voluntary sale which clearly fell within the mischief of s. 14 (1\ (b) of the De1hi Rent Control Act.

Assuming that the sale by the Official Liquidator was an involuntary sale, then it undoubted\ y beCame an assignment as provided for by s. 14 (b) of Delhi Rent Control Act.

[448A-C]

Krishna Das Nandy v. Bidhan Chandra Roy, A.I.R. 1959 Cal. 181) Over• D rnled.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1085 of 1970.

Appeal by Special Leave from the Judgment and Order dated

17. 3. 1969 of the Delhi High Court in SAD No. 2/69.

P. R. Mridul and 0. P. Sharma for the Appellant.

S. K. Bisaria for the Respondent.

The Judgment of the Court was delivered by

F AZAL Au, J.

This appeal by special leave is directed against a

(I' judgment of the Delhi Court and arises out of , an application filed by Respondent No. 1 who claimed to be the .te)J.ant of the appellant, recalling the warrant of possession issued by the Controller in pursuance of a decree dated 31-7-1961 passed against the 1st resrondent.

The case had a rather chequered career having passed through G several phases. To begin with the landlord-appellant executed a lease in respect of the disputed premises in favour of Respondent No. 2 for three years as far back as 1.4.1942. In 1948, a suit was brought by the appellant for eviction of the tenant for non-payment of rent on the ground of conversion of the user of the premises.

The suit for possession was however dismissed buta decree dated 31. 11. 1948 B for arrears of rent was passed and it was held that Laxmi Bank was the real tenant.

Subsequently, the Bombay High Court ordered the

SUPREME COURT REPORTS [1980) 3 s.c.it.

Bank to be wound up and in the winding up proceedings, the said High Court appointed an Official Liquidator who on 16. 2. 1961 sold the tenancy rights to Respondent No. 1-S. N. Jain. This sale was confirmed by the High Court on the same date and as a result 'thereof

respondent No. 1 took possession of the premises on 24.2.1961. On

5. 4. 1961, the land-lord-appellant filed an application under the Delhi Rent Control Act for eviction of Laxmi Bank. On 31. 7. 1961, a decree for eviction was passed in favour of the landlord-appellant. On

23-1-1963. Respondent No. 1 filed a suit for a declaration that he was a tenant of the landlord-appellant.

This suit was dismissed for non-prosecution on 5.5.1964 and an application to set aside the exparte decree was also dismissed and the appeal against that order also failed. Thereafter Respondent No. 1 filed an application under s. 25 of Delhi Rent Control Act (hereinafter referred to as the Act) for recalling the warrant of possession issued by the Court in pursuance of the decree dated 31. 7. 1961 in favour of the landlord.

The present appeal arises out of these proceedings.

The Rent Controller allowed the application and recalled the warrant of possession by its Order dated 20. 12. 1966. The matter was then taken up by the landlord in appeal to the Rent Control Tribunal which _by its Order dated 25. 11. 1968 reversed the order of the Rent Controller and dismissed the tenant's application. A second appeal against the order of Tribunal was then filed by the tenant to the High Court which reversed the order of the Rent Control Tribunal and restored the order of the Rent Controller, hence this appeal by special leave.

Mr. Mridul appearing for the appellant challenged before us the findings of the High Court on point nos. 1 & 3 which are formulated at page 91 of the judgment of the Delhi High Court. These points may be extracted thus :-

"(!) The application made by the appellant before the High Court under section 25 was not barred by reason of the dismissal of the appllant's suit for default of appearance under Order IX Rule 9, C.P.C.

(3) The transfer to the appellant by th~ Official Liquidator of the tenancy rights being voluntary did not come within the mischief of section 14(1 )(b) of the Act.

In the first place it was argued that so far as point Ne. 1 is concerned, the High , Court was wrong in holding that the application of ti Respondent No. 1 was not barred by the reason of the dismissal of the appellant's suit for setting aside the ex-parte decree by the principle of 'Res Judicata or Order IX Rule 9 C.P.C.

It was contended tha-

_..__

even if. the previous suit filed by respondent No. ,1 for declaration of his status as a tenant was dismissed for default but as the application for setting aside the decree also failed, there was an adjudication against the then plaintiff-respondent No. 1 and therefore the present

suit was clearly barred by the principles pf Res Judicata or Order IX Rule 9.

At any rate there can be no escape from the posiliP'n that the application of respondent No. 1 would be clearly barred by the principle contained in Order IX Rule 9. C.P.C. In case of Suraj Ratan Thirani & Ors. v. The Azamabad Tea Co. & Ors.(') this Court held thus:

"We are not however impressed by the argument that the ban imposed by 0. IX, r. 9 creates merely p. personal bar or estoppel against the particular plaintiff suing on the same cause of action and leaves the matter at large for those claiming under him.

Beyond the absence in 0. IX, r. 9 of the words referring "to those claiming nnder the , plaintiff" there is nothing to warrant this argument. It has neither principle, nor logic to commend it • . . . . . . . The rule would obviously have no value and the bar imposed by it would be rendered meaningless if the plaintiff whose suit was dismissed for default had only to transfer the property to another and the latter was able to agitate rights which his vendor was precluded by law from putting forward."

In the instant case it was appellant who brought the previous suit which resulted in a decree fpr eviction of the tenant on 31-7-1961a date when the 1st respondent had already taken possession of the premises by virtue of transfer tnade by the Official Liquidator. Thus the identity of the subiect matter being substantially the same, this case clearly falls within the ambit of the ratio in the case supra. On this ground alone therefore the appellant is entitled to succeed because the High Court with due respect does opt appear to have properly construed the scope of Order IX Rule 9 C.P .C. There is however nothing to show that respondent No.1 was tenant within the meaning of Rent Control Act so as to maintain an application under s. 25 of the Act when in fact he was an unlawful sub-lessee. As regards point No. 3, the High Court relying on a decision of Calcutta High Court in Krishna Das Nandy vs. Bidhan Chandra Roy(') has found that as the transfer in favour of respondent No. 1 by the Official Liquidator was confirmed by the Court, the status of the tenant by respondent No. 1 was acquired by operation of law and therefore the transfer

(I) [1964] 6 S. C. R. 192.

(2) A. I. R. 1959 Cal. 181.

SUPREME COURT REPORTS

[1980] 3 S.C.R.

was an involuntary transfer and the provisions of Rent Control Act would not be attracted.

After careful perusal of Calcutta case, in 1be first place it appears that the section concerned bas not been ex

tracted and we are not in a position to know what was the actual language of the section of the Bengal Act. Secondly, in our opinion, the official liquidator had merely stepped into the shoes of Laxm£

Bank which was the original tenant and even if the official liquida tor had transferred the tenancy interest to respondent No. 1 under the orders of the Court, it was on behalf of the original tenant. It was undoubtedly a voluntary sale which clearly fell within the mischief of s.14(1) (b) of the Delhi Rent Control Act.

Assuming that the sale by the official Liquidator was an involuntary sale, then it undoubtedly became an assignment as provided for by s. 14(b) of Delhi Rent Control Act.

S. 14(b) runs thus :-

"14(b )-that the renant has; on or after the 9th day of June, 1952, sublet, assigned or otherwise parted with the possession of the whole or any part of the premises with out obtaining the consent in writing of the landlord."

The language of s. 14(b) is wide enou1; h not only to include any sub-lease but even an assignment or auy other mode by which possession of the tenanted premises is parted. In view of the wide amplitude of s.14(b) we are clearly of the opinion that it does not exclude even an involuntary sale.

Fore these reasons therefore we a, re unable to agree with the view taken by the High Court.

The appeal is accordin:ly allowed, the judgment and decree of the High Court are set aside and the plaintiff's application under s. 25> of the Delhi Rent Control Act is dismissed.

Mr. Bisaria, learned counsel appearin1; for the respondent submitted that 31\ the tenant has been in the premises for a period of 19 years and is conducting business therein, he may be permitted sufficient time to make alternative arrangements.

Mr. Mridul appearing for the' appellant fairly conceded that he would have no objection if one year's time is allowed to the respondent provided be gives an undertaking for banding over peaceful and vacant possession at the expiry of the time.

We therefore allow time to the respondent to vacate the premises on or before 15th April, 1981 on the condition that he files an undertaking within two weeks to the :effect ( 1) that he shall hand-over vacant and peaceful possession to the landlord on or before 15th April, 1981; (2) that be shall not induct any person on the premises; (3) that be shall go on paying the compensation for wrongful use of premises equivalent to the rent.

I ,.ll,

P. H. RAO v. SHANTI PRA~AD (Fazal Ali,/.) 449

The ulldertaking must be filed supported by an affidavit within A two weeks from today failing which the order granting time shall stand revoked.

There will be no order as to costs.

S.R.

Appeal allowed.

April 10, 1980

S. MURTAZA FA.ZAL ALI

P. S. KAILASAM, JJ.

Delhi Rent Control Act

Section 25

Order IX Rule

section 25

section 14(1)

Rent Control Act

Laxmi Bank

Bombay High .Court

Section 25

Section 25

Civil Procedure Code

Act

section 2S

1964) 6 S. C. R. 192

section 14(b)

s. 14

Rent Control Act

s. 14

Delhi Rent Control Act

P. R. Mridul

0. P. Sharma

S. K. Bisaria

F AZAL Au

31. 11. 1948

Bombay High Court

16. 2. 1961

S. N. Jain

31. 7. 1961

s. 25

Delhi Rent Control Act

20. 12. 1966

25. 11. 1968

Mridul

Delhi High Court

section 25

Order IX Rule

C.P.C

section 14(1 )(b)

Res Judicata or Order IX Rule

C.P.C

Res Judicata or Order IX Rule

Order IX Rule

C.P.C

Rent Control Act

s. 25

Calcutta High Court

[1964] 6 S. C. R. 192

Rent Control Act

Calcutta

s. 14(b)

Delhi Rent Control Act

S. 14(b)

9th day of June, 1952

s. 14(b)

s. 25

Bisaria

15th April, 1981