(2) S.C.R.. SUPREME COURT REPORTS

MAHADEO v.

THE STATE OF BOMBAY

(and connected petitions)

(S. R. DAs, C. J., S. K. J;>As, P. B. GAJENDRAGADKAR, K. N. WANCHOO and M. HrnAYATULLAH, JJ.)

Fundamental Rights, Violation of-Agreement with Proprietors for grant of right to pick and carry away tendu leaves and other ancillary rights-N aturc of such rights-Non-Registration of agreement-Effect-Abolition of proprietary rights in Estates, etc.-Nonrccognition of the agreements by State, if violates fundamental rights -Central Provinces Land Revenue Act, r9r7 (Central Provinces II of r9r7), ss. 2(r3), 47(3), 202-Madhya Pradesh Abolition of Proprietary Rights (Estates, M ahals, Alienated Lands) Act, r950 (Madhya Pradesh I of r95r), ss. 2(6), 3, 4.

Some of the proprietors of the former State of Madhya Pradesh granted to the several petitioners rights to take forest produce, mainly tendu leaves, from the forests included in the Zamindaris belonging to the proprietors. The agreements conveyed to the petitioners in addition to the tendu leaves other forest produce like timber, bamboo-s, etc., the soil for making bricks, and the right to build on and occupy land for the purpose of their business. These rights were spread over many years, but in the case of a few the period during which the agreements were to operate expired in 1955 Some of the agreements were registered and the others unregistered. After the coming into force of the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, Alienated Lands) Act, 1950, the Government disclaimed the agreements and auctioned the rights afresh, acting under s. 3 of the Act under which "all proprietary rights in an estate ......... in the area specified in the notification, vesting in a proprietor of such estate ...... or in a person having interest in such proprietary right through the proprietor, shall pass froJU such proprietor or such other person to and vest in the State for the purposes of the State free of all encumbrances".

The petitioners filed petitions under Art. 32 of the Constitution of India challenging the legality of the action taken by the Government on 'the ground that it was an invasion of their fundamental rights. They contended (1) that the Government stepped into the shoes of the quondam proprietors and was bound by the agreements into which the latter had entered, before their proprietary rights were taken over by the Government, (2) that the petitioners were not proprietors as defined in the Act and therefore ss. 3 and 4 of the Act did not apply to them, (3) that the agreements were in essence and effect licenses granted to them to cut, gather and carry away the produce in the shape of

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March 9.

Mahadeo v.

The Stnte of Bombay

tendu leaves, or lac, or timber or wood, (4) that the agreements granted no 'interest in land' or 'benefit to arise out of land' and that object of the agreements could only be described as sale of goods as defined in the Indian Sale of Goods Act, and (5) that the interest of the petitioners was not proprietary right but only a right to get goods in the shape of leaves, etc.

The petitioners relied on the decision in FirmChhotabhai ]ethabai Patel and Co. v.

The State of Madhya Pradesh, [1953] S.C.R. 476.

Held: (1)that the agreements required registration and in the absence of it the rights could not be entertained.

Srimathi Shantabai v. State of Bombay, [1959] S.C.R. 265, followed.

(2) that in cases where the period stipulated in the agreement had expired, the only remedy, if any, was to sue for breach of contract and no \\'rit to enforce expired agreements could issue.

(3) that on their. true construction the agreements in question were not contracts of sale of goods.

(4) that both under the Act in question and the Central Provinces Land Revenue Act, 1917, the forests and trees in the Zamindari area belonged to the proprietors and they were items of proprietary' rights.

Consequently, the rights conveyed to the petitioners under the agreements '\Vere proprietary rights, which under ss. 3 and 4 of the Act, became vested in the State.

(5) that assuming that the agreements did not amount to grant of any proprietary right by the proprietors to the petitioners, the latter could have only the benefit of their respective contracts or licenses. In either case, the State had not, by the Act, aCquired or taken possession of such contracts or licenses and, consequently, there had been no infringement of the petitioners' fundamental rights which alone could support a petition under Art. 32 of the Constitution.

Chhotabai ]ethabai Patel and Co. v. The State of Madhya Pradesh, [1953] S.C.R. 476, not followed. Ananda Behera v. The State of Orissa, [1955] 2 S.C.R. 919, followed.

ORIGINAL JURISDICTION: Petitions Nos. 26 and 27 of 1954, 24 and 437 of 1955, 256 of 1956, 12, 16, 17 and 73 of 1957.

Petition under Article 32 of the Constitution of India for the enforcement of Fundamental Rights.

Jl, f. S. K.. Sastri, for the petitioners in Petitions Nos. 26 and 27 of 54 aud 24 of 1955.

V. N. Swami and M. S. K.. Sastri, for the petitioners in Petitions Nos. 437 of 55 and 256 of 56.

L. K. Jha, J. M. Thakur, S. N. Andley and J. B.

Dadachanji, for the petitioner in Petition No. 12 of 1957.

N. S. Bindra and Harbans Singh, for the petitioners in Petitions Nos. 16 and 17of1957.

N. S. Bindra and Govind Saran Singh, for the petitioner in Petition No. 73 of 1957.

H. N. Sanyal, Additional Solicitor-General of India, H.J. Umrigar and R. H. Dhebar, for the respondent in Petitions Nos. 26 and 27 of 1954, 24 and 437 of 1955, 256 of 1956 and 12 of 1957.

M. Adhikary, Advocate-General for the State of Madhya Pradesh and J. N. Shroff, for the respondent in Petitions Nos. 16, 17 and 73 of 1957.

1959. March 9.

The Judgment of the Court was delivered by

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Mahadeo v.

The State of Bombay

HrnAYATULLAH, J.-The judgment in Petition Hidayatullah ].

No. 12 of 1957 shall also dispose of petitions Nos. 26 and 27 of 1954, 24 and 437 of 1955, 256 of 1956 and 16, 17 and 73 of 1957.

These petitions under Art. 32 arise out of alleged agreements by which some of the proprietors in the' former State of Madhya Pradesh granted to one or other of the petitioners the right to take forest produce, mainly tendu leaves, from the forests included in Zamindari and Malguzari villages of the grantors.

Government has disclaimed these agreements and auctioned the rights afresh. The petitioners state that this is an invasion of their fundamental rights. The dates on which these alleged agreements were entered into, the terms thereof and the periods during which they were to subsist are different from case to case. It is not necessary in this judgment to recite the terms of these documents, and it is sufficient to group them for purpose of decision, on the bases whether the said agreements still subsist, and whether they are incor- •· porated in a registered instrument or not.

Petitions Nos. 437 of 1955 and 256 of 1956 are founded on unregistered documents. The answering respondent does not admit these documents, and contends that they cannot be looked into to prove tb.eir

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Mahadeo v.

The State of Bombay

Elidayatullah ] .

terms, in view of the decision of this Court in "Shrimathi Shantabai v. State of Bombay (1). .

Petitions Nos. 16, 17 and 73 of 1957 form another group, inasmuch as the period during which the alleged agreements were to operate expired in 1955.

Additionally, the documents on which the claim is founded . in those petitions are unregistered. In , the last mentioned case, it is pleaded that the answering State Government had recognised the agreements in favour of the petitioner but resiled from that position subsequently, which allegation has been adequately explained by the State Government in its affidavit. The recognition was not in favour of the petitioner but in favour of one Thakur Kamta Singh, who claimed under an agreement entered into by one Vishwanath Singh on a date when he had already transferred his interest in the Zamindari to his son, Onkar Prasad Singh. This point was therefore not taken before us at the hearing, and nothing more need be said about it. The main objection against these petitions is that the agreements having expired, there is nothing left to enforce either in favour of the petitioners or against the State Government, and the remedy, if any, of the petitioners is to sue the State and/or the proprietors for the breach.

The last group consists of Petitions Nos. 26 and 27 of 1954, 24 of 1955 and the present petition (No. 12 of 1957). In these petitions, the agreements with the petitioners are made by registered documents and the terms during which they are to operate have yet to expire. These cases, it is stated, fall outside the rule in Shantabai's case (1), to which reference has already been made. They are stated to fall within the decision of this Court reported in l!'irm Ghhotabhai J ethabai Patel and Go. v. The State of Madhya Pradesh (').

In all these petitions, counsel argue that the view expressed in the last mentioned case is correct, while the view in Shantabai' s case (1) needs further consideration.

The argument of the petitioners in these several cases is that Government steps into the shoes of the

(1) [1959] S.C.R. 265.

(2) (1953] S.C.R. 476.

quondam proprietors, and is bound by the agreements into which the latter had entered, before their proprietary rights were taken over by Government. They also raise the contention that the petitioners were not proprietors as defined in the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, Alienated Lands) Act, 1950 (hereinafter called the Act), and thus ss. 3 and 4 in terms do not apply to them. These sections, it is contended, do not apply to profit a prendre, which the petitioners enjoy under these agreements. In support of this contention, reference is made to the decision of this Court in Ohhotabhai's case (1), and to the definition of' proprietor' in the Act.

Reference is also made to some provisions of the C. P. Land Revenue Act to be mentioned hereafter, to prove that the persons on whom the right to collect forest produce was conferred by the proprietors cannot be regarded as proprietors even under that Act.

This, in main, is the argument in these cases, and even those petitioners whose agreements are incorporated in unregistered documents or whose agreements have since expired, adopted the same line of argument denying the necessity for registration of such agreements. The matter in so far as it relates to the first two groups is simple.

It has already been ruled in Shantabai's case (2) that if the right be claimed on foot of an unregistered agreement, it cannot be entertained. Such documents were examined from five different angles in that case, and it was held that the document-if it conferred a part or share in the proprietary right, or even a right to profit a prendreneeded registration to convey the right. If it created a bare licence, the licence came to an end with the interest of the licensors in the forests. If proprietary right was otherwise acquired, it vested in the State, and lastly, if the agreements created a purely personal right by contract, there was no deprivation of property, because the contract did not run with the land.

Bose, J., who delivered a separate judgment, also held that in the absence of registration no right was created.

(1) [1953] S.C.R, 476.

(2) [1959] S.C.R. 265.

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Mahadeo v.

The Slate of Bombay

Hidayatullah ].

Mahadeo v.

The State of Bombay

Hidayatullah f:

In view of the clear pronouncement of this Court, the first two groups of petitions must fail.

Petitions Nos. 16, 17 and 73 of 1957 also fail for the added reason that the agreements having expired, the only remedy, if any, is to sue for breach 'of contract and no writ to enforce expired agreements can issue.

This brings us to the arguments advanced in the last four petitions in the third group which were also adopted by the other petitioners, whose petitions we have just considered.

All these petitioners strongly relied upon Chhotabhai's case (1). It is therefore necessary to examine attentively what was decided there. In that case, it was held at p. 483 that:

"The contracts and agreements appear to be in essence and effect licenses gra.nted to the transferees to cut, gather, and carry away the produce in the shape of tendu leaves, or lac, or timber, or wood." Reference in this behalf was made to a decision of the Privy Council in Mohanl.al Hargovind of Jubbalpore v.

Commissioner of Income-tax, Central Provinces and Berar ('), where it was observed:

"The contracts grant no interest in land and no interest in the trees or plants themselves. They are simply and solely contracts giving to the grantees the right to pick and c1trry away leaves, which, of course, implies the right to appropriate them as their own property.

The small right of cultivation given in the first of the two contracts is merely ancillary and is of no more significance than would be, e.g., a right to spray a fruit tree given to the person who has bought the crop of apples.

The contracts are short-term contracts. The picking of the leaves under them has to start at once, or practically at once, and to proceed continuously." The Bench next observed that there was nothing in the Act to affect the validity of the several contracts and agreements, and that the petitioners were neither proprietors within the meaning of the Act, nor persons having "any interest in the proprietary right through the proprietors".

After quoting from Baden Powell's

(1) (1953] S.C.R. 476.

(2) I.L.R. 1949 Nag. 892, 898.

Land Systems of British India, Vol. I, p. 217, as to what was meant by 'proprietorship' in the Land Revenue Systems in India, it was observed that the definition of 'proprietor' in the Act conveyed the same sense.

Finally, repelling the argument that the agreements concerned " future goods '', it was held on the basis of a passage in Benjamin on Sale, 8th Edition, page 136, that a present sale of the right to goods having a "potential existence" could be made.

Since possession was taken under the agreements and consideration had also passed, there could be "a sale of a present right to the goods as soon as they come into existence."

Reference was also made (at pp. 480, 481) to s. 6 of the Act, which provides: . "(1) Except as provided in sub-section (2), the transfer of any right in the property which is liable to vest in the State under this Act made by the proprietor at any time after the 16th March, 1950, shall, as from the date of vesting, be void." It was observed in the case as follows:

"The date, 16th March, 1950, is probably the date when legislation on these lines was actively thought of, and sub-section (1) hits at transfers made after this date. This means that transfers before that date are not to be regarded as void. Even in the case of transfers after the said date, sub-section (2) provides that the Deputy Commissioner may declare that they are not void after the date of vesting, provided they were made in good faith and in the ordinary course of management.

The scheme of the Act as can be gathered from the provisions referred to above makes it reasonably clear that whatever was done before 16th March, 1950, by the proprietors by way of transfer of rights is not to be disturbed or affected, and that what vests in the State is what the proprietors had on the vesting date.

If the proprietor had any rights after the date of vesting which he could enforce against the transferee such a.s a. lessee or a licensee, those rights would no doubt vest in the State."

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Mahadeo v.

The State of Bombay

Hidayatullah ].

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Mahadeo v.

The State of Bombay

Hidayatullah ].

It was accordingly held that the State Government could not interfere with such agreements but had only the right to enforce rights arising therefrom "standing in the shoes of the proprietors."

It is clear from the foregoing analysis of the decision in Chhotabhai's case (') that on a construction of the documents there under consideration and itdopting a principle enunciated by the Privy Council in M ohan"lal Hargovind of Jubbalpore v. Commissioner of Incometax, Central Provinces and Berar (') and relying upon a passage each in Benjamin on Sale and the wellknown treatise of Baden-Powell, the Bench came to the conclusion that the documents there under consideration did not create any interest in land and did not constitute any grant of any proprietary interest in the estate but were merely contracts or licenses given to the petitioners "to cut, gather and carry away the produce in the shape of tendu leaves, or lac, or timber or wood". But then, it necessarily followed that the Act did not purport to affect the petitioners' rights under the contracts or licenses.

But what was the nature of those rights of the petitioners ? It is plain, that if they were merely CO):ltractual rights, then as pointed out in the two later decisions, in Ananda Behera v. The State of Orissa ('), Shantabai's case('), the State has not acquired or taken possession of those rights but has only declined to be bound by the agreements to which they were not a party. If, on the other hand, the petitioners were mere licensees, then also, as pointed out in the second of the two cases cited, the licenses came to an end on the extinction of the title of the licensors. In either case there was no question of the breach of any fundamental right of the petitioners which could support the petitions which were presented under Art. 32 of the Constitution. It is this aspect of the matter which was not brought to the notice of the Court, 'and the resulting omission to advert to it has seriously impaired, if not completely nullified, the effect and weight of the decision in Chhotabhai's case(') as a precedent.

(1) [1953] S.C.R. 476.

(2) I.L.R. 1949 Nag. 89>, 898.

(4) [1959] S.C.R. 265.

The argument of counsel in these cases followed the broad pattern of the decision in Ohhotabhai's case (1), and we next proceed to consider it. H is contended that what vests in the State is the right which the proprietors had on the date of vesting because s. 3 of the Act is not retrospective, and that the agreements are " in essence and effect licenses granted to the transferees to cut, gather and carry away the produce in the shape of tendu leaves, or lac, or timber or wood". These agreements, it is submitted, grant no 'interest in land ' or ' benefit to arise out of land', the object of the agreements can only be described as sale of' goods ' as defined in the Indian Sale of Goods Act, and the grant of such a. right is not comprehended in the first sub-section of s. 3 where it says:

" ............ all proprietary rights in an estate, mahal.. ...... .in the area specified in the notification, vesting in a proprietor of such estate, Mahal.. .... or in a person having interest in such proprietary right through the proprietor, shall pass from such proprietor or such other person to and vest in the State for the purposes of the State free of all encumbrances".

It is finally contended that the interest of these petitioners is not ' proprietary right ' at all but a right to get' goods ' in the shape of leaves, lac, etc. We have to examine these contentions critically.

Before we do so, it is necessary to set out in brief the terms of the agreements which have been produced in these cases. In Petition No. 12 of 1957 there were two agreements, Annexures A and B. The first was executed in 1944 and granted the right from 1947 to 1956; the second was executed in 1946 and granted the right from 1957 to 1966. These are long term agreements and they are typical from case to case.

Indeed, the second agreement was made even before the first began, and the total period is 20 years. In addition to the right to the leaves the documents provided for many other matters. It is convenient to quote only from Annexure ' B ' :

"Before this I had given you a similar contract selling Tendu leaves produce by contract dated

(1) [1953] S.C.R. 476.

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Mahadeo v.

The State of Bombay

Hidayatullah ].

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Alahadeo

The State of Bombay

Iiidayatullah ].

7-7-1944 registered on 12-7-1944. In pursuance of that registered contract, which is for five years from 1947 to 1951 and another for subsequent five years from 1952 to 1956 in all for ten years, you are to remain in possess10n and occupation of the areas and the Tendu leaves produce till the termination of the year 1956 for which time you continue your possession and thereafter in pursuance of this contract you continue for further period of ten years your possession and occupation from 1957 to 1966 as is usual and customary pruning and coppicing Tendu leaves plants, burning them, and instal Fadis for collection of Tendu leaves and construct Kothas (godo"wns) for storage of the leaves at your sweet will and choice on any open plot or land within the estate with my permission and you are allowed to take free of all costs any Adjat timber, bamboos, etc., from my forests for constructing them. I shall charge you no further consideration.

In the same manner, for the purpose of constructing these godowns and such thing you may according to your convenience (you may) manufacture bricks at any place you like in the vicinity of any rivers, rivulet, N ala or pond at your costs. I shall not receive from you any extra amount as rent for the use and occupation of land that will be used for construction of Kothas, for manufacturing bricks and for locating Fadis (Bidi leaves collection centres).

All those are included in the consideration fixed for this contract.

All these rights are already conferred on you in the previous contract dated 7-7-1944 and under this contract for the entire contract period. It is also open to you to collect Tendu leaves not only those growing in the summer season but also those growing in Kartik.

During the term of this contract, if for one reason or another it becomes necessary for you to sell the Tendu leaves produce and assign this contract to any •other person you can do so.

But you shall be responsible for me to give my consent after inquiring of the fitness of the intended transferee. However, you shall continue to be responsible to pay to me the agreed amount of instalments on or before the agreed dates ; and if the agreed amount of instalment is not paid to me on or

before the agreed date, I shall have full right to start proper proceedings in that connection".

In Petition No. 26 of 1954, the period of the two agreements was from 1944 to 1963. There too, the rights were similar to those in Petition No. 12 of 1957, and analogous terms are to be found in Petitions Nos. 27 of 1954 and 24 of 1955.

The question that arises is, what is the nature of this right? In English law, distinction was made between easements. and profit a prendre and a right to take the produce of the soil was regarded as a profit a prendre.

While easements were not regarded as an interest in land, a right to take the produce of the soil or a portion of it was an interest in land: Fitzgerald v. Fairbanks (1). Profit-a-prendre can be the subject of a grant.

Where they take the form of a grant, they are benefits arising from land. In all these cases, there is not a naked right to take the leaves of Tendu trees together with a right of ingress and of regress from the land; there are further benefits including the right to occupy the land, to erect buildings and to take other forest produce not necessarily standing timber, growing crop or grass. The right of ingress and of regress over land vesting in the State can only be exercised if the State as the owner of the land allows it, and even apart from the essential nature of the transaction, the State can prohibit it as the owner of the land.

Whether the right to the leaves can be regarded as a rig_ht to a growing crop has, however, to be efamined

with reference to all the terms of the documents and all the rights conveyed thereunder. If the right conveyed comprises more than the leaves of the trees, it may not be correct to refer to it as being in respect of 'growing crop ' simpliciter.

We are not concerned with the subtle distinctions made in English law between emblements, fructus naturals and fmctus industriales, but we have to consider whether the transaction concerns "goods" or "moveable property" ol"" immovable property ".-The law is ma.de difficult by the definitions which exist in the General Clauses Act, the Sale of Goods Act, the (I) [1897] 2 Ch. 96.

Mahadeo v.

The State of Bombay

Hidayatullah ].

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ll1 ahadeo v.

The State of Bo1nbay

Hidayatullah j.

Transfer of Property Act and the Registration Act.

These definitions must be placed alongside one another to get their ambits.

If the definitions are viewed together, it is plain that they do not tell us what "immovable property" is.

They only tell us what is either included or not included therein. One thing is clear, however, that things rooted in the earth as in the case of trees and shrubs, are immovable property both within the General Clauses Act and the Transfer of Property Act, but in the latter, "standing timber"," growing crop,, and " grass" though rooted in earth are not included. Of these, " growing crop " and " grass " form the subjectmatter of the sale of goods, and " standing timber"

comes within the last part of the definition of ' goods ' in the Indian Sale of Goods Act, to be subject thereto if the condition about severing mentioned in the definition of' goods' exists. It has already been pointed out that the agreements conveyed more than the tendu leaves to the petitioners. They conveyed other forest produce like timber, bamboos, etc., the soil for making bricks, the right to prune, coppice and burn tendu trees and the right. to build on and occupy land for the purpose of their business. These rights were spread over many years, and were not so simple as buying leaves, so to speak, in a shop. The expression " growing crop " might appropriately comprehend tendu leaves, but would not include, ' Adjat timber', bamboos, nor even tendu plants.

The petitioners were not to get leaves from the extant trees but also such trees as might grow in the future. They could even burn the old trees, presmnably, so that others might grow in their place. In these circumstances, the agreements cannot be said to be contracts of sale of' goods' simpliciter.

It remains now to consider whether the rights enjoyed by the petitioners can be said to fall within s. 3(1) of the Act. That section divests the proprietors of their proprietary rights, as also any other person having an interest in the proprietary right through the proprietor and vests those rights in the State.

That section has to be read with the section which

follows, and which sets out the consequences of vesting of such rights in the State. The rights which vest can be stated briefly to be (a) all proprietary rights in the proprietor, and (b) all proprietary rights in any person having interest in such proprietary rights through the proprietor. These rights vest in the State free of all encumbrances.

Section 4 of the Act provides inter alia that after the notification has been issued, then, 'notwithstanding anything contained in any contract, grant or document or in any other law for the time being in force and save as otherwise provided in this Act'-the following consequences (among others) shall ensue:

" (a) all rights, title and interest vesting in the proprietor or any person having interest in such proprietary right through the proprietor in such area including Land (cultivable or barren), grassland, scrubjungle, forest, trees, fisheries, wells, tanks, ponds, water-channels, ferries, pathways, village sites, hats, bazars and melas ; and in all subsoil, including rights, if any, in mines and minerals, whether being worked or not, shall cease and be vested in the State for purposes of the State free of all encumbrances; and the mortgage debt or charge on any proprietary right shall be a charge on the amount of compensation payable for such proprietary right to the proprietor under the provisions of this Act ;

(b) all grants and confirmation of title of or to land in the property so vesting or of or to any right or privilege in respect of such property or land revenue in respect thereof shall, whether liable to resumption or not, determine : ".

If these petitioners can be said to be possessing " an interest in the proprietary right '', then their rights, title and interest in the land determine under the Act, and vest in the State. The petitioners, therefore, contend that their rights under the agreements cannot be described as ' proprietary right ' or even a share of it.

They rely on the definition of ' proprietor ' in the Act, and refer under the authority of s. 2(b) of the Act to the Central Provinces Land Revenue Act, 1917.

The definition in the Act is not exhaustive. It only

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Mahadeo v.

The State of

Bombay

Hidayatullah ].

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Mahadeo v.

The State of Bombay

Hidayatullah ] ,

tells us who, besides the proprietor, is included in the term 'proprietor'. Further, the definitions in the Act are subordinate to the requirements of the context and the subject-matter of any particular enactment. From the Act, we know that the proprietor's interest in forest, trees, shrub, grass and the like passes to the State. The question th us resolves into two short ones-did the former proprietors own proprietary interest in these trees, and did they part with that proprietary interest and convey it to the petitioners ?

There is but little doubt that in so far as the Act is concerned, it does contemplate cesser of all proprietary rights in land, grass land, scrub jungle, forest and trees, whether owned by the proprietor or th rough him by some other person. The contention of the petitioners is that by the term "proprietor" is meant what that term conveys in the Central Provinces Land Revenue Act, and reference is made for this purpose to various sections therein. The term " proprietor" is defined in the Central Provinces Land Revenue Act thus:

""Proprietor" except_in sections 68, 93 and 94, includes a gaontia of a Government village in Sambalpur Territory." This definition does not advance the matter any further.- In several sections, special explanations are added to define "proprietors ". In all those explanations, the term is not defined, but is said to include 'thekedars or headmen with protected status', 'mortgagee with possession ', ' lessees holding under leases from year to year' and the like. In addition, there is invariably the inclusion of ' a transferee of proprietary rights in possession', which again leaves the matter at large. See ss. 2(5), 2(21), 53 and 68.

Counsel faced with this difficulty rely upon the scheme of settlement in Ch. VI of the Central Provinces Land Revenue Act, and the record of rights which consists of Khewat, a statement of persons possessing proprietary rights in the mahal including inferior proprietors or lessees or mortgagees in possession, specifying the nature and extent of the interest of each; and Khasra or field book and Jamabandi or list of persons

(~) S.C.R.

SUPR~ME COURT R~:Po:RTS 353 ·

cultivating or occupying land in the village.

These documents are prepard separately. The petitioners contend that by 'proprietary right' is meant that right which can find a place or be entered in the Khewat, and the rights enjoyed by the petitioners are not and cannot be entered in the Khewat because thay are not' proprietary rights'. They also refer to the schemes of settlement under which' proprietors',' subproprietors ', etc., are determined and offered assessment.

In our opinion, these arguments, though attractive, do not represent the whole of the matter. What these documents record and what the settlement operations determine are the kinds of' proprietors' among whorn the entire bundle of rights is shared. Every proprietor or sub-proprietor enjoys proprietary rights oTir land, forests, etc., falling within his interest. The right to forest trees, etc., is the qonsequence of proprietorship, and indeed, under s. 47(3) the State Government can declare which rights and interest must be regarded as 'proprietary rights'. That sub-section provides:

"The State Government may declare the rights and interests which shall be deemed to be proprietary rights and interests within the meaning of sub-section (2)." The second sub-section provides :

"The Deputy Commissioner shall ca urn to be recorded, in accordance with rules made under s. 227, all changes that have taken place in respect of, and all transactions that have affected, any of the proprietary rights and interests in any land."

The matter is made clear if one refers to the provisions of s. 202 of the Land Revenue Act. That section confers on Government the power to regulate the control and management of the forest-growth on the lands of any estate or mahal. A reading of sub-ss. (4) to (8) of that section clearly shows that forests belong to the proprietors from whom under those sub-sections they can be taken over for management, the profits of the management less expenes being paid to the proprietors or to superior and inferior proprietors as the case may be. Sub-sections (9) and (10) provide;

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Mahadeo v.

The State of Bombay

Hidayatullah J.

Mahadeo v.

The State of Bombay

Hidayatullah ].

354 SUPREME COURT REPOR1'S t1959j Supp.

(9) "No lease, lien, encumbrance or contract with respect to the forest land held under direct manage - ment shall be binding upon the Government.

(10) On the expiration of the period fixed for th~ direct management, the forest land shall be restored to the proprietor thereof."

Even here, the term ' proprietor ' is explained. by the usual explanation showing the same category of persons as included in'the section.

From this, it is quite clear. that forests and trees belonged to the proprietors, and they were items of proprietary rights. The first of the two questions posed by us, therefore, admits of none but an affirmative answer.

If then the forest and the trees belonged to the proprietors as items in their ' proprietary rights ', it is quite clear that these items of proprietary rights have been transferred to the petitioners. Tlie answer to the second question is also in the affirmative. Being a 'proprietary right ', it vests in the State under ss. 3 and 4 of the Act. The decision in Chhotabhai's case (1) treated these rights as bare licenses, and it was apparently given per incuriam, and cannot therefore be followed.

Even assuming that the documents in question do not amount to grant of any proprietary right by the proprietors to the petitioners, the latter can have only the benefi£ of their respective contracts or licenses. In either case, the State has not, by the Act, acquired or taken possession of such contracts or licenses and consequently, there has been no infringement of the petitioners' fundamental right which alone can support a petition under Art. 32 of the Constitution.

The result is that these petitions fail, and are dismissed, but in view of the fact -that they were filed because of the .decision in Chhotabhai's case (1), there shall be no order about costs.

Petitions dismissed.

(1) [1953] S.C.R. 476.

MAHADEO

THE STATE OF BOMBAY

S. R. DAs

P. B. GAJENDRAGADKAR

K. N. WANCHOO

Central Provinces Land Revenue Act

ss. 2(r3), 47(3), 202

ss. 2(6), 3, 4

s. 3

Art. 32

Constitution of India

ss. 3 and 4

Sale of Goods Act

ss. 3 and 4

Art. 32

[1955] 2 S.C.R. 919

Article 32

Constitution of India

Art. 32

ss. 3 and 4

Land Revenue Act

s. 6

Art. 32

s. 3

Sale of Goods Act

s. 3

General Clauses Act

Sale of Goods Act

General Clauses Act

Transfer of Property Act

Sale of Goods Act

s. 3(1)

Section 4

s. 2(b)

sections 68, 93 and 94

ss. 2(5), 2(21), 53 and 68

s. 47(3)

s. 227

s. 202

ss. 3 and 4

Art. 32


(2) S.C.R.

SUPREME COURT REPORTS 355

MCGREGOR & BALFOUR LTD. v.

THE COMMISSIONER OF INCOME-TAX,

WEST BENGAL

(B. P. SINHA, J. L. KAPUR and

M. HIDAYATPLLAH, JJ.)

Income-tax-Company carrying on business in England and India-Refund of excess profits tax paid in England-If can be taxed in India-Indian Finance Act, Ig46, s. II(4).

The appellant carried on business in England and in India.

For the previous years it paid excess profits tax in both countries and it obtained deduction of the amounts so paid from its profits and gains for the purposes of the Indian Income-tax Act. In the assessment year 1947-48 it obtained a repayment of Rs. 2,31,009 out of the excess profits tax paid in England. The Income-tax authorities acting under s. n(14), Indian Finance Act, 1946, included this amount received in England in the taxable profits of the appellant. The appellant contended that the repayment not being within the taxable territory it could not be taxed.

Held, that the amount received as repayment of the excess profits tax was rightly taxed. Under s. n(14) the amount of repayment was deemed to be ' income ' for purposes of the Indian Income-tax Act and that 'income' was to be treated as the income for the previous year during which the repayment was made.

Section n(14) created a liability irrespective of the considerations arising from the general provisions of the income-tax law. The distinction between incomes within and without taxable territories was made unnecessary by s. n(14).

Eglinton Silica Brick Co. Ltd. v. Marria:n, (1924) 9 Tax Cas. 92; A. & W. Nesbitt Ltd. v. Mitchell, (1926) II Tax Cas. 217 and Kirke's Trustees v. The Commissioners of Inland Revenue, (1926) II Tax Cas. 323, applied.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 265 of 1956.

Appeal from the judgment and order dated August 26, 1954, of the Calcutta High Court in Income-tax Reference No. 107 of 1952.

S. Mitra, Dipak Chaudhry and B. N. Ghosh, for the appellants.

G. K. Daphtary, Solicitor-General o.f India, K. N.

Rajagopala Sastri, R.H. Dhebar and D. Gupta, for the respondent.

I959

March r6.

1959 1959.

March 16. The Judgment of the Court was Mcgregor & delivered by .

Balfour Ltd.

HIDAYATULLAH, J.-Messrs. Mcgregor & Balfour,

C . v: ,, Ltd., Calcutta (hereinafter called the Company) is a ommissioner o, C . t d . th U 't d K" d I r,, coine-tax, ompany mcorpora e m e m e mg om. ts west Bengal head office is also there. It, however, does business in India also. In some of the previous years, the Com- Hidayatullah J. pany was required to pay excess profits tax both in England and in India. When it did so, it obtained deduction of the amounts from its profits and gains for purposes of the Indian Income-tax Act, under s. 12(2) of the Indian Excess Profits Tax Act..

In the assessment year 1947-1948 which corresponded to the accounting year of the Company ending on October 31, 1946, it obtained a repayment of Rs. 2,31,009 out of the excess profits tax paid in England. This was under s. 28(1) of 4 & 5, Geo. VI, Ch. 30. For purposes of the levy of the Indian Income-tax, this sum 1was included in the taxable profits of the Company by the Income-tax Officer.

He purported to act under s. 11(14) of the Indian Finance Act, 1946 (hereinafter called the Act).

The income of the Company in India was held to be Rs. 6,34,937 (including the sum of Rs. 2,31,009) while the income outside the taxable territory was held to be Rs. 4,29,620.

Applying s. 4A(c)(b) of the Indian Income-tax Act, the Income-tax Officer. assessed the Company on its total world income.

The appeals of the Company made successively to the Appellate Assistant Commissioner and the Incometax Appellate Tribunal were dismissed. The Tribunal, however, referred the following questions of law to the High Court at Calcutta under s. 66 of the Indian Income-tax Act :

"(1) Whether on the above facts and circumstances of this case the Tribunal was right in holding that the sum of Rs. 2,31,009 was income of the assessee during the assessment year under consideration and was liable to be assessed under the Indian Income-tax Act? and {2) If so, whether this amount could not be taken into consideration for determining the residence of the

assessee under s. 4A(c)(b) of the Indian Income-tax

I959

Act ?, ,, Mcgregor & This reference was heard by Chakravarti, C. J., and Balfour Ltd.

Lahiri, J., who by their judgment dated August 26, v. 1954, answered the first question in the affirmative Commissioner of and the second in the negative.

They, however, ncoe-tozi granted a certificate under s. 66A of the Indian Inest enga come-tax Act, read with Art. 135 of the Constitution Hidayatullah J. to appeal to this Court. No appeal has been filed on behalf of the Department, and the second of the two questions must be taken to be finally settled in this case.

The contentions of the Company in this appeal, thus, concern only the first question, and they are two: It was said firstly thats. 11(14) of the Finance Act could not be made applicable to the assessment year 1947-1948, because the provision was not incorporated in the Indian Income-tax Act or repeated in the subsequent Finance Acts. This argument was not seriously pressed before us, and beyond mentioning it, Mr. Mitra for the Company did not choose to elaborate it. We think that Mr. Mitra has been quite correct in not pursuing the matter. The section framed as it is, does apply to subsequent assessment years just as it did to the assessment for 1946-194 7, and prima f acie, it was not necessary to follow one of the two courses detailed above. Since the point was not pressed before us, we need not give our reasons here.

It was said nextly that the High Court was in error in construing s. 11(14) of the Finance Act as a provision which created a liability proprio vigore, as if it was a charging section. It was contended that the repayment was not within the taxable territory, and in view of the answer to the second question as to the applicability of s. 4A(c)(b}, there could be no tax upon it. On behalf of the Department it was argued that the sub-section created a charge by itself and the fiction therein created being sufficient and clear, it was not necessary to consider where the income arose.

Section 11(14) of the Finance Act reads as follows:

"Where under the provisions of sub-section (2) of

•959 Section 12 of the Excess Profits Tax Act, 1940 (XV of

Mcgregor & 1940), excess profits tax payable under the Jaw in Balfour Ltd. force in the United Kingdom has been deducted in v. computing for the purposes of income-tax and super- Commissioner of tax the profits and gains of any business, the amount

Income-tax. of any repayment under sub-sectiori (1) of Section 28 of West Bengal the Finance Act. 1941, (4 & 5, Geo. 6, c. 30), as amend-

Hidayatullah J. ed by Section 37 of the Finance Act, 1942 (5 & 6, Geo 6, c. 21 ), in respect of those profits, shall be deemed to be income for the purposes of the Indian Income-tax Act, 1922, and shall, for the purpose of assessment to income-tax and super-tax, be treated as income of the previous year during which the repayment is made." This section may be compared with 1 R. 4(1) of the Rules which are applicable to cases I and II of sch.

D of the Income-tax Act, 1918 (8 & 9, Geo. V, c. 40):.

"Where any person has paid excess profits duty, the amount so paid shall be allowed as a deduction in computing the profits or gains of the year which included the end of the accounting period in respect of which the excess profits duty has been paid; but where any person has received repayment of any amount previously paid by him by way of excess profits duty, the amount repaid shall be treated as profit for the year in which the repayment is received."

The English rule above quoted deals first with the deduction of the amount paid as excess profits duty from the profits or gains of .the year which inclndes the end of the accounting period in respect of which the excess profits duty has been paid,-a matter dealt with in s. 12(2) of the Indian Excess Profits Tax Act, and next with the assessability to tax of the amount repaid from the excess profits duty previously charged -a matter dealt with in sub-ss. (11) and (14) of s. 11 of the Finance Act.

The object and purpose of the legislation in each case is the same, and though the two provisions are not ipsissima verba, tpey are substantially in the same words and also in pari materia. The concluding words of the English rule "the amount repaid shall be treated as profits of the year in which the repayment is received ", and which have been interpreted by

(2) s.c.tt. SUPREME C0t1RT lt~POR'J.IS as9

English Courts may specially be compared with the concluding words of subs. (14) of s. 11 of the :Finance Mcgregor &.

Act, which run: Balfour Ltd. "any repayment ...... shall, for the purposes of v. assessment to income-tax and super-tax, be treated as Commissioner of the income of the previous year during which the Income-tax, repayment is made." West Bengal There can be no doubt that the intention underlying the two provisions is the same, and the language is substantially similar.

Now, the English rule was interpreted by the English Courts to create a liability irrespective of considerations arising from the general provisions of the income-tax law. In Eglinton Silica Brick Co., Ltd. v.

Marrian (1), the assessee company which had gone into voluntary liquidation in 1904 was carried on by the liquidator till 1921 when the business was sold to another company which took it over on October 5, 1921, and the business of the appellant company then ceased. The income-tax assessment for the year 1921- 22 was apportioned between the two companies and inasmuch as the assessee company had suffered a loss, it was reduced to nil in its case. The assessee company then received£. 7,224 and£. 1,150 in 1952 after it had ceased to carry on business as repayments of excess profits duty, and this income was assessed under R. 4(1) above mentioned. The question was whether this was right.

The case was considered by the Lords of the First Division, and they gave their opinion against the assessee firm.

The Lord President (Clyde) with whom Lords Skerrington, Cullen and Sands agreed (Lord Sands dubitans) explained the two parts of the rule as follows:

"The principle is obvi.ous. It is that if a taxpayer has made profits assessable (directly, or indirectly through the operation of the three years' average) to income tax, and the Revenue takes a share of those profits in the name of Excess Profits Duty, it is only fair that the profits actually assessed to Income Tax should suffer some corresponding deduction ......... "

(1) (1924) 9 Tax Cas. 92, 98.

Hidayatullah J.

Mcgregor &> Balfour Ltd. v.

Com1nissioner of Income tax, West Bengal "'

Jfidayatullah ].

The problem which arose in the case of repay. ment of Excess Profits Duty was different.

Nobody knew or could know how soon, or how late, repayment might fall to be made; nor whether the business whose profits were assessed to Excess Profits Duty would be in the same hands when repayment (if any) came to be made. By that time the business might ha\e ceased to be in existence. Repayment might therefore have to be made to a person who was not carrying on. the original business. The original trader might have given up business, died, and an executor might have come in his place. The solution provided for all these cases is that contained in the second part of the para. graph, according to which the amount repaid to any person is to be ' treated as profit for the year in which the repayment is received.' It is obvious that the amount of the former trading profits so repaid could not actually be trading profits for such year. None the less, the amount repaid is to be treated as if it were that which-in fact-it is not, and cannot be. The amount repaid consists of trading profits which reach the taxpayer out of their proper time. However belated his fruition of them, they have not lost their original character as trading profits. In my opinion, this is what explains the position of paragraph (1) of l't ule 4 as part of the Rules under Cases I and II of Schedule D, which are concerned with the profits of trades and vocations. That some artificia.l rule should be formulated was in the circumstances inevitable, and the highly artificial character of the rule adopted is shown by the words in which it is expressed-' the amount repaid shall be treated lts profit for the year in which the repayment is received.' In short, the amount repaid is deemed to be something that it is not, and could not in the actual circumstances possi. bly be. Nor is this in any. way unreasonable or contrary to what might be expected, if regard be had to the subject-matter. For, as has been seen, the Excess Profits Duty was itself a part of the trading profits computed by methods familiar under the Income Tax Act. It was not merely a part of something which entered into the computation of profit; it was actual

computed profit.

And, but for the disparity between the' accounting period' and the three years' average, it would have been directly assessable to Income

Tax."

A similar view was taken in the Court of Appeal by Lord Hanworth, M. R., Scrutton, L. J., u.nd Romer, J. (Scrutton, L. J., dubitans) in A. & W. Nesbitt Ltd. v.

Mitchell (1).

There too, the assessee company after suffering losses in the accounting period May 1 to November 25, 1920, went into liquidation and ceased to trade. On April 22, 1924, the repayment of Excess Profits Duty took place, and this was assessed to income-tax. The Master of the Rolls described the amount received as repayment in these words:

"But in respect of what is that payment made?

It is not a legacy, it is not a sum which has fallen from the skies ; it is a sum which is repaid because there was too large a sum paid by the Company to the Revenue Authorities over the whole period during which Excess Profits Duty was paid, and that sum means and is intended to represent a repayment of a sum which was paid by them in respect of the duty charged upon the excess profits of their trading. It comes back, therefore, not having lost its character but being still the repayment of a sum-too much, it is true,-but a sum taken out of the profits which were made by the Company in the course of its trading, profits which at the time they were made were subject to Income Tax and subject to Excess Profits Duty, and that is the character of the repayment that has been made." Dealing with the rule, the Master of the Rolls observed:

"I have pointed out, this is a case where the Company has received pay.mentof an amount previously paid by way of Excess Profits Duty and having that characteristic attaching to it ; and we are told by the Statute that when such a sum is repaid it is to be treated as a profit for the year in which the repayment is received. It is said it may be treated as a

{1) (1926) n Tax Cas. 2n, 217, 218. 46

I959

Mcgregor & Balfour Ltd. v.

Commissioner of

Income-tax, West Bengal

Hidayatullah ].

z959 profit; but it ought not to be treated as an assessable profit. The answer, to my mind, is that it is paid back

:.~;;:: 0 ~,~ not by way of a sum which has no origin or ancestry; it v. is a sum which represents a repayment of the amount Commissioner of previouly paid by that Company in the form of Excess

Inoomo-tax.

Profits Duty upon their trading. If it is to have that West Bengal character and is to be treated as such a profit, altho-

Hidayatullah 1. ugh it be a repayment of sums paid in respect of profits, it is to be treated as a profit for the year in which the repayment is received.

The word 'treated' indicates that it is to be dee-; ed to be something which in fact it is not, or whether it is so or not it is to be treated as a profit, and therefore it is, to my mind, impossible to discuss the question of whether or not difficulties may arise or whether it may be criticised as financially not quite sound that it should be treated in this method in that particular year ; but we are told by the Statute that it is to be treated as a profit for the year in which the repayment is received." In a case similar on facts as the ones cited above (Kirke's Trustees v. '1.'he Commissioners of Inland Revenue(')), the House of Lords (Viscount Cave, L. C., Lord Atkinson, Lord Shaw of Dunfermline, Lord Sumner and Lord Carson) placed the same construction upon the latter part of H. 4(1).

The following passage in the speech of Lord Sumner, explaining the extent of the fiction in the latter part of the Rule, is extremely instructive :

"The express mandatory terms of the sentence show, in carefully chosen language, that he is to submit to something by reason of his having previously enjoyed this advantage in the shape of repayment of an amount previously paid by way of Excess Profits Duty. Something which is not a profit, but is only a money repayment, something which may not result in a profit, because although trading goes on there is so great a loss on the year that this repayment does not make up the deficit, something which may not be a trading profit, because trading has ceased altogether, nevertheless is to be treated as profit and as profit for the year. ' Treated ' is a fresh word free from legal technicality.

(1) (1926) 11 Tax Cas. 323, 332.

It is the widest word that could be chosen. The Legisz959 lature avoided saying 'shall be assessed as' or 'shall h . f fi d l , Mcvego• & be brought into t e computat10n o pro t an oss , Balfou• Ltd. and simply says that something which is not profit v. but mere payment shall be treated as profit, which it Commissioner of may or may not be, and as profit for the xear. I think, Income-tax, therefore, that the word 'treated' is an apt word to West Bengal impose a charge".

Hiaayatullah J.

See also in this connection Olive and Partington Ltd. v.

Rose (1).

These cases were relied on by Chakravarti, C. J., and Lahiri, J., in the judgment under appeal, and the learned Judges pointed out that the addition of the words " for the purposes of assessment to income-tax and super-tax" rather strengthen the reasoning in its application to the words of the Indian Statute. We agree with this statement. It is to be noticed that the sub-section creates two fictions.

By the first fiction it makes the amount of any repayment 'income' for the purposes of the Indian Income-tax Act, and goes on to say that that ' income ' shall be ' treated ' for purposes of assessment to income-tax and super-tax, as the income of the previous year.

Mr. Mitra, for the Company contends that no doubt the 'amount may be treated as' income' for the purposes of the Indian Income-tax Act, but the Department is still under a duty to prove that the Company is liable to tax at all.

According to him, this will ha.ve to be treated as income received outside the taxable territory, because if the fiction contemplated its being treated as 'within the taxable territory ', it would have said so specifically. In our opinion, this submission cannot be accepted.

That this would have been taxable income but for the provisions of s. 12(2) of the Excess Profits Tax Act, goes without saying. The income character of the receipt is restored by the fiction, and it is to be brought under assessment without any further proof than this that it has been received as repayment of tbe United Kingdom tax, in respect of which a deduction was made in the earlier years. The distinction between

(r) (1929) 14 Tax Cas. 701.

'959 incomes within and without taxable territories is made unnecessary by demanding that this amount by way Mcgregor &· f h ]] b b h d ' Balfour Ltd. o repayment s a e roug t to tax an ' treated as v. income within the previous year. The effect thus is Commissioner of that the sub-section charges the said amount with a

Income-tax. liability to tax by its own force or ta borrow the words West Dengal of Lord Sumner, is apt to 'impose a charge'.

In our opinion, the amount received as repayment Hidayatullah J. of excess profits tax must be deemed to be 'income '

I959

March I6.

for the purposes of the Indian Income-tax Act and for assessment it must be treated as income of the previous year. The answer to question No. 1 given by the Calcutta High Court was thus correct.

The appeal fails, and is dismissed with costs.

Appeal dismissed.

ADDITIONAL COLLECTOR, BAN ARES

MAHARAJ KISH ORE KHANNA

(JAFER IMAM, A. K. SARKAR and K. SuBBA RAo, JJ.)'

Execution of Decrees-Decree passed by Special Judge in U.P. • -If can be exernted outside U. P.-Extra-territoriality-Transfer of such decree-Collector and Additional Collector, if exercise same powers-Limitation-U. P. Encumbered Estates Act, r934 (U. P.

XXV of I934), ss. r4(7) and 24(3)-Code of Civil Procedure, r908 (V of r908), s. 39-Indian Limitation Act, r908 (IX of r908), Art. r82.

The respondent, who owned landed properties at Banaras in Uttar Pradesh and at Purnea in Bihar, was heavily indebted and applied to the Collector, Banaras under s. 4 of the U. P. Encumbered Estates Act, 1934, for liquidation of his debts.

The Collector, acting under s. 6, forwarded the application to the Special Judge, appointed under the Act who on March 21, 1940, passed after the enquiry directed by the Act three money decrees in favour of three creditors of the respondent and forwarded them to the Collector for execution. Section 14(7) of the Act provided that such decrees were to be deemed to be decrees of a civil Court

355

MCGREGOR & BALFOUR LTD

B. P. SINHA, J.

L. KAPUR

Income-tax Act

Indian Finance Act, 1946

Income-tax Act

Income-tax Act

s. 12(2)

s. 28(1)

s. 11(14)

Indian Finance Act, 1946

s. 4A(c)(b)

Income-tax Act

s. 66

Income-tax Act

Income-tax Act

s. 4A(c)(b)

s. 66A

Art. 135

Income-tax Act

s. 11(14)

Section 12

Excess Profits Tax Act, 1940

Section 28

West Bengal the Finance Act

Section 37

Finance Act, 1942

Indian Income-tax Act, 1922

Income-tax Act, 1918

s. 12(2)

s. 11

s. 11

Schedule D

Income-tax Act

Income-tax Act

s. 12(2)

Income-tax Act

Encumbered Estates Act

Code of Civil Procedure

s. 39

Indian Limitation Act

s. 4

Encumbered Estates Act, 1934

s. 6

Section 14(7)


364 SUPREME COURT REPORTS [1959] Supp.

'959 incomes within and without taxable territories is made unnecessary by demanding that this amount by way Mcgregor &· f h ]] b b h d ' Balfour Ltd. o repayment s a e roug t to tax an ' treated as v. income within the previous year. The effect thus is Commissioner of that the sub-section charges the said amount with a

Income-tax. liability to tax by its own force or ta borrow the words West Dengal of Lord Sumner, is apt to 'impose a charge'.

In our opinion, the amount received as repayment Hidayatullah J. of excess profits tax must be deemed to be 'income '

I959

March I6.

for the purposes of the Indian Income-tax Act and for assessment it must be treated as income of the previous year. The answer to question No. 1 given by the Calcutta High Court was thus correct.

The appeal fails, and is dismissed with costs.

Appeal dismissed.

ADDITIONAL COLLECTOR, BAN ARES

MAHARAJ KISH ORE KHANNA

(JAFER IMAM, A. K. SARKAR and K. SuBBA RAo, JJ.)'

Execution of Decrees-Decree passed by Special Judge in U.P. • -If can be exernted outside U. P.-Extra-territoriality-Transfer of such decree-Collector and Additional Collector, if exercise same powers-Limitation-U. P. Encumbered Estates Act, r934 (U. P.

XXV of I934), ss. r4(7) and 24(3)-Code of Civil Procedure, r908 (V of r908), s. 39-Indian Limitation Act, r908 (IX of r908), Art. r82.

The respondent, who owned landed properties at Banaras in Uttar Pradesh and at Purnea in Bihar, was heavily indebted and applied to the Collector, Banaras under s. 4 of the U. P. Encumbered Estates Act, 1934, for liquidation of his debts.

The Collector, acting under s. 6, forwarded the application to the Special Judge, appointed under the Act who on March 21, 1940, passed after the enquiry directed by the Act three money decrees in favour of three creditors of the respondent and forwarded them to the Collector for execution. Section 14(7) of the Act provided that such decrees were to be deemed to be decrees of a civil Court

of competent jurisdiction. Section 24(3) of the Act provided x959 that for purposes of execution against property outside U. P. such decrees were to be deemed to be in favour of the Collector. The Additional execution of the decrees was commenced by the Additional Collector, Banares Collector, Banaras against the respondent's properties in U. P. v.

Thereafter, the Additional Collector applied to the Additional Maharaj Civil Judge, Banaras, and on January 4, 1947, got the said decrees Kishore Khanna transferred to the Subordinate Judge, Purnea and on March 17,

1947. he applied to the Subordinate Judge for execution of the decrees by attachment and sale of the respondents properties at Purnea. The Subordinate Judge made an order directing execution to issue, but, on appeal, the High Court set aside the order on the ground that the Subordinate Judge had no jurisdiction to entertain the executiol). application.

Held, that the Subordinate Judge Purnea had jurisdiction to execute the decrees. By virtue of s. 14(7) of the Act a decree of the Special Judge was, within U. P., a decree for all purposes of the Code of Civil Procedure and could properly be transferred under s. 39 of the Code for execution to a Court outside U. P.

No question of extra-territorial operation of the Act arose in the application of s. 14(7) to the decrees as the Purnea Court was merely applying the U. P. Act to decrees passed in U. P.

For the purposes of execution and sale the Additional Collector was to be deemed to be the Collector as he exercised the Collector's powers in this regard. As such the applications for transfer and execution of the decree were properly made by the Additional Collector.

It was the same Court which exercised the powers of the Additional Civil Judge as also those of the Special Judge. The order of transfer of the decree made by the Additional Civil Judge could be treated as having been made by the Special Judge. As such it was made by the same Court which passed the decrees and was a good order under s. 39 of the Code.

The application for execution before the Subordinate Judge, Purnea was made while execution proceedings in respect of the same decrees were pending before the Additional Collector, Banaras and was a continuation of the same. No question of limitation could arise in respect of such an application. ...

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 298of1955.

Appeal from the judgment and order dated April 28, 1953, of the Patna High Court in Appeal from Original Order No. 90 of 1949, arising out of the judgment and order dated January 25, 1949, of the Sub-Judge, Purnea, in Misc. Case No. 54 of 1947.

Sir Iqbal Ahmad, S. N. Andley, J. B. Dadachanji and Rameshwar Nath, for the appe1lant.

'959 M. G. Setalvad, Attorney-General for India and R. G.

Additional Prasad, for the respondent.

Collector, Banares

1959. March 16.

The Judgment of the Court v. was delivered by Maharaj Kishore Khanna SARKAR, J.-This appeal arises out of a proceeding in execution of an adjudication made under the pro- Sarkar J. visions of the United Provinces Encumbered Estates Act, 1934 (U. P. XXV of 1934), an Act passed by the legislature of the United Provinces, now called the Uttar Pradesh. The questions that arise in this appeal largely turn on the provisions of that Act and they have therefore to be referred to.

The Act was intended to give relief to the proprie-. tors of certain landed properties in the United Provinces.

Section 4 of the Act enabled a proprietor of such landed properties to make an application in writing to the Collector of the District in which any of his lands is situate, stating the amount of his debts and asking for the application of the Act to him.

Upon such an application being made, the Collector is to make an order under s. 6 forwarding it to a Special Judge appointed under the Act who, under s. 3 is any civil judicial officer appointed for a local area, to exercise the powers conferred and to perform the duties imposed, by the Act.

Section 7 of the Act provides that upon the making of an order by the Collector under s. 6, subject to certain exceptions which it is not necessary to enumerate, all proceedings pending in the courts in the United Provinces in respect of a debt due by the applicant shall be stayed and all execution processes issued against him by such courts shall become null and void and no fresh process in execution shall be issued against him, nor any fresh suit or other proceeding instituted. The Special Judge after he has received the application sent to him by the Collector is required by s. 8 to call upon the applicant to submit a written statement verified in the manner of a plaint, setting out full particulars of his debts, the names and addresses of his creditors and the nature and extent of his proprietary rights in land as also of all his properties which are liable to attachment under s. 60 of

the Code of Civil Proced"ure.

Under s. 9 the Special r959 Judge has then to publish a notice calling upon per- Aaai 1 sons having claims against the applicant to submit the Collector'. '°;; nares same within a time specified. Section 10 states that v. the claimant shall give full particulars of his claim Maharaj and of the applicant's properties. Section 11 provides Kishore Khanna that the Special Judge will publish a further notice Sarkar f. specifying the properties mentioned by the applicant as belonging to him and any person wishing to make a claim to any such property has to do so within a certain period. The same section gives power to the Special Judge to decide the claims made to the properties and provides that the decision made by him is • to be deemed to be a decree of a civil court of competent jurisdiction. Section 14 lays down that the Special Judge will inquire into the claims submitted by the creditors against the applicant and decide the questions in issue on the same principles as .those on which a court of law would have decided them, but he has the power to reduce the interest due and to give relief to the applicant in respect of such claims under certain specified United Provinces Acts. Sub-section (7) of s. 14 provides that if upon enquiry the Special Judge finds that any amount is due to any claimant he shall pass a simple money decree for such amount together with costs and interest and " such decree shall be deemed to be a decree of a civil court of competent jurisdiction " but it shall not be executable within the United Provinces except under the provisions of the Act. The next section to be referred to is s. 19 which requires the Special Judge to send the decrees grantedunder s. 14(7) to the Collector for execution in accordance with the provisions of Chapter V of the Act and to inform him of the nature and extent of the property which he has found to be liable to satisfy the debts of the applicant. Then come the provisions as to execution contained in Chapter V.

The sections in this Chapter provide that the Collector will himself and without being required to be moved for the purpose by any person, proceed to execute the decree against the properties of the applicant within the United Provinces by the various methods indicated, and for

'959 realising the value of the applicant's properties the Col- Aaai 1 lector shall have all the powers of a civil court for the Collecto: ' 0 ;:nares execution of a decree.

With regard to the properties ·•. of the applicant outside the United Provinces, the Act Maharaj could not provide for execution.

To cover such cases Kishore Khanna it was enacted by s. 24(3) -that for the purpose of

Sarkar ]. execution against property outside the United Provinces the decrees passed by the Special Judge would be deemed to be decrees in favour of the Collector. These are all the provisions of the Act that need be referred to for the purposes of this case.

The facts may now be stated. The respondent was • the proprietor of landed properties in the United Provinces and was entitled to claim relief under the Act.

Re became heavily encumbered in debts. It is not necessary to go into his financial embarrassment in great detail and it will be enough to say that in 1926 and 1927 he had created several mortgages on his properties in favour of the Allahabad Bank, the Banares Bank and a person called Kalia, for very large sums.

In 1929, the Banares Bank filed a suit against the respondent in the Court of the Additional Sub-Judge, Banares, in the United Provinces for enforcement of its mortgage making the other creditors of the respondent named above parties to the suit. A decree was passed in that suit giving the creditors priority in a certain order. The Allahabad Bank not being satisfied with that order of priority, filed an appeal in the High Court at Allahabad which was decided in its favour.

While the appeal was pending, the respon- -dent applied to the Collector of Banares for relief under the Act.

The procedure laid down in the Act as earlier summarised was duly followed and on March 21, 1940, the Special Judge of Banares to whom the application had been forwarded by the Collector, passed three money decrees in favour of the three creditors of the respondent mentioned above in a certain order of priority with which we shall not be concerned in this case. The total amount of such decrees came nearly to rupees nine lacs. He then sent the decrees to the Collector of Banares for execution as required by the Act. The execution of the decrees

was thereafter commenced by the Additional Collecx959 tor, Banares under the provisions of the Act against Add.. 1 h t • . h U . d p . itiona t e proper ies in t e mte rovmces.

Collector, Banares The respondent owns an estate in the district of v.

Purnea in Bihar, called the Semapur estate. Under Maharaj s. 24(3) of the Act earlier mentioned, the decrees Kishore J(hanna passed by the Special Judge are to be deemed to be d £ h f Sarkar ]. ecrees in avour of the Collector for t e purpose o execution against the Semapur estate. The Additional Collector, Banares, applied to the Additional Civil Judge, Banares, for transmission of the said decrees to the Court of the Subordinate J u<lge, Purnea for execution and an order for transmission of the decrees to the Court at Purnea was accordingly made by that Judge on January 4, 1947. Thereafter on March 17, 1947, the Additional Collector, Banares, applied to the Subordinate Judge, Purnea, as the transferee Court to execute the decrees by attachment and sale of the Semapur estate. The Subordinate Judge thereupon made an order directing execution to issue as sought.

The respondent preferred an appeal to the High Court at Patna from this order of the Subordinate Judge, Purnea and his appeal was allowed with the result that the execution of the decrees against the Semapur estate failed.

The present appeal is. by the Additional Collector, Banares against the order of the High Court.

The first question that arises in this appeal is whether the Subordinate Judge, Purnea, had jurisdiction to order execution of the decree transferred to him.

The High Court held that he did not have that jurisdiction. The matter was put in this way. The decree was not a decree under the Code of Civil Procedure.

It was only to be deemed as such because of s. 14(7) of the Act. The Act was an Act of the United Provinces legislature which could not pass a legislation having effect outside the United Provinces.

The operation of s. 14(7) of the Act had therefore to be confined within the borders of the United Provinces.

The Subordinate Judge, Purnea could not apply that section in Bihar and treat the decree as a decree

' 959 under the Code. If he could not do so he could not Additional order execution of the decree. If he were permitted Collector, Banares so to apply the Act, then an Act of the legislature of

v. . the United 'Provinces would be indirectly affecting MaharaJ property outside the United Provinces which it could Kishore J(hanna t d' tl d Th A t Id b 1 d . B. _ no irec y o. e c cou e app ie m 1har

5., kar J. only by giving it an extra-territorial operation. This the law did not allow. So the decree could not be executed in Purnea: We think that this argument is fallacious.

No question of any extra-territorial application of the United Provinces Act, either directly or indirectly, arises in this case. It is clear that by virtue of s. 14(7) of the Act, a decree of the Special Judge under the Act is within the United Provinces, a decree for all purposes of the Code. It could therefore be transferred decree under s. 39 of the Code c;>f Ci vi! Procedure to a court outside the United Provinces, for execution. Now when a decree is transferred, it is the duty of the transferee court to execute it by all methods provided by the Code of Civil Procedure. But it is said that the transferee court must be satisfied that it is a decree under the Code of Ci vi! Procedure before it can order execution under that Code.

How then is the transferee court to decide that ? . It has before it a decree passed not by itself but by another court. It has therefore to satisfy itself that the decree was one w hicb, for that court, was a decree passed under the Code. In order to do that it is a_sked to apply .the United Provinces Act to the decree passed within the United Provinces. How can it be said that if it so applies the United Provinces Act it is giving it an extra-territorial operation? It is doing nothing of the kiud. It is applying an Act of the United Provinces to something which happened within the territories of those Provinces; it is applying an United Provinces Act to a matter within the competence of the legislature of the United Provinces to legislate upon.

No doubt a court outside the United Provinces is applying a statute of those Provinces, but that does not amount to giving extra-territorial operation to that tatute. If the statute is being so applied

I959 to one of its legitimate objects, it is not being given any extra-territorial operation at all.

W f h fi d d•ffi 1 t t h th Additional e urt er n it i cu t o apprema e ow e c 11 1 B application by the Subordinate Judge of Purnea of the

0\_ anares United Provinces Act to the decree of the Special Maharaj Judge, Banares, sent to him for execution, results in Kishore Khanna the United Provinces Act affecting property outside the United Provinces. The only result of such appli- Sarkar J. cation is to remove the objection that that decree is not a decree of a court in the United Provinces passed under the Code ; the Act is not thereby made to affect property outside the United Provinces. Of course, if that decree is a decree under the Code it can be executed against any property outside the United Provinces.

That however is not the result of the United Provinces Act but of the Code of Civil Procedure which is a central legislation and applies to Bihar also.

The High Court was therefore wrong in thinking that the Subordinate Judge, Purnea, had no jurisdiction to execute the decree passed under the Act within the United Provinces and sent to him for execution.

It was then contended that the order of transfer of the decree was invalid because under s. 39 of the Code such an order could be made only on the application of the decree-holder and in the present case it had not been made on his application. His point was this.

Under s. 24(3) of the Act, a decree of the Special Judge is to be deemed to be a decree in favour of the Collector for the purpose of execution against property outside the United Provinces. Therefore, in the present case it was the Collector, Banares, who was the decreeholder and he alone could apply for the transfer of the decree. Actually however the order for the transfer had been made in this case on the application of the Additional Collector, Banares. So it was said the order was invalid. Now this argument depends upon the Collector and the Additional Collector being different persons. It is clear however that they are not.

That appears from ss. 14 and 14A of the United Provinces Land Revenue Act, 1901, to which our attention was drawn. Section 14 gives power to the Government to appoint a Collector for discharging the

•959 duties mentioned in the Act or anv other law for the

Add. . 1 time being in force.

Section 14A(l) gives power to Co!lector' 1 '°;:nares the Government to appoint an Additional Collector. ',,.

Sub-section (3) of s. 14A provides that the "Addi- Mah•raj tional Collector shall exercise such powers and perform Kishore Khanna such duties of a Collector" as the Government may - direct. The Additional Collector therefore exercises .Sarkar J. . such of the powers and discharges such of the functions of the Collector, as the Government directs him to do.

We have before us a document containing such an order by which the work of sale and execution which under the Encumbered Estates Act had to be done by a Collector, had been entrusted to the Additional Collector. It follows that for the purposes of execution and sale under the Act, the Additional Collector is to be deemed to be the Collector as he exercises the latter's powers in this regard. The Additional Collector was hence quite competent to apply for the transfer of the decree . . The third point against the validity of the order of the learned Subordinate Judge was that under s. 39 of the Code the decree could be transferred only by the Court which passed it. It was said that in the present case it is only by virtue of s. 14 of the Act • that the decision of the Special Judge is deemed to be a decree ; that since it was his decision, he must be deemed to have passed it. It was then pointed out that the order for the transfer of the decree had in fact been made by the Additional Civil Judge, Banares, and not by the Special Judge, Banares, and hence that order was of no effect.

This is an argument with which we are not much impressed. It has been pointed out to us that the powers of a special Judge under the Act were conferred on the Court of the Additional Subordinate Judge, Banares, by the United Provinces Government's Revenue Department notification No. 767-Rev. published in the United Provinces Gazette of the 12th October, 1935. The Additional Subordinate Judge later came to be called the Additional Civil Judge. It is therefore the same court which exercises the powers of an Additional Civil Judge as also those of a Special Judge under the Act.

We find

no difficulty in treating the order of transfer as havz959 ing been made by the Special Judge. The fact that All;;- 1 the order purported to be made by the Additional Collector: io;:narcs Civil Judge was a matter of mere irregularity and canv. not make it invalid. Nor do we find any lack of Maharaj power in the Special Judge to order a transfer of the Kishore Hhanna decrees .. The Act provides hat his adjudication Sarkar J. would be treated as a decree of a civil court of competent jurisdiction. The execution of such a decree outside the United Provinces is also clearly contemplated bys. 24(3).

We have earlier held that such execution is permissible in law. That being so, in order to give effect to the provisions of the Act it has to be held that the Special Judge must be deemed to be a court which passed the decree within the meaning of s. 39 of the Code of Civil Procedure. Nor does there seem to be any objection to think that the Special Judge is a civil court. From the provisions of the Act earlier set out there is no doubt that he adjudicates upon rights of the parties and acts in the same way as any other civil court would do. Indeed, apart from the fact that the proceedings before him do not commence by the filing of a plaint, we find no distinction between him and a court as ordinarily understood. The order of transfer of the decree is hence, in our view, clearly a good order.

Lastly, it was said that the decree was barred by limitation long before the order for its transfer was made. It was contended that art. 182 of the Limitation Act governed the case, and the application for its execution had been made beyond the time limited.

The question is, does the article apply? The High Court held that that article had no application to the present case and that no question of limitation arose " for the execution proceeding in Purnea Court is merely a continuation of the execution proceeding pending before the Collector of Banares ". In our opinion, the High Court was right in the view that it took. It is quite clear that if the application for execution with which we are concerned was made in a pending execution proceeding, no question of the application of art. 182 arises. It has long been

1959 recognised by the courts in our country that a right to . . continue a proceeding which is pending is a right Add•trnnal h" h f d d d f c u 1 B w IC arises rom ay to ay an no question o any 0

0 '~. anarcs bar of limitation with regard to the enforcement of

Maharaj such a right arises: See Kedar Nath Dutt v. Harra J(ishoro Khanna Chand Dutt('); Subba Ghariar v. Muthuveeran Pillai (2).

The question then is, was the application for execu- Sarkar J. tion which has resulted in the order under appeal, one for continuing a pending execution proceeding? It is not disputed that all along since the decree was sent by the Special Judge to the Collector for executionand before that date the decree was not executableit has continuously been in execution under the provisions of the Act by the Additional Collector, Banares, and that such execution proceeding was pending on the date of the present application for execution. The question thus is, whether the execution proceeding started in the Court of the Subordinate Judge, Purnea, was a continuation of the execution proceeding by the Additional Collector, Banares. We think it was.

We have to remember thats. 14(7) of the Act which said that an adjudication of the Special Judge was to be deemed to be a decree also provided that that decree would not be executable within the United Provinces except under the provisions of the Act.

We have also to remember that the Act provided that as against the properties within the United Provinces the decree could only be executed by the Collector on his own by the various methods provided. We may also point out that s. 24(4) provides that for the purpose of such execution the Collector is to have all the powers of a civil court for the execution of a decree. It is therefore clear that the only mode of execution of the decree within the United Provinces contemplated by the Act is the execution by the Collector. Within the United Provinces the execution of the decree by the Collector would be deemed to be an execution under the Civil Procedure Code. The execution by the Collector is execution of what is a decree within the Code. When the decree is executed outside the United Provinces, where, as already stated, it can be legally

(1) (1B82) U,.R. 8 Cal. 420.

(2) (1912) I.L.R. 36 Mad. 553.

executed, the amount realised by the execution by the

I959 Collector has to be taken into account.

When the Adar 1 Subordinate Judge, Purnea, has to decide the question Collector'. '°;:nares whether the application for execution made to him is v. in continuance of an existing execution proceeding, he Maharaj has to recognise the proceeding before the Additional Kishore Khanna Collector, Banares, as a proceeding in execution under the Code for it is so under the Act. In doing this, for Sarkar ].

the reasons earlier mentioned, he would not be giving any extra-territorial operation _to the Act. It seems to us therefore that the execution of the decree by the Collector must be deemed to be execution of a decree for all purposes and therefore an application l)'.lade to the Subordinate Judge, Purnea, for execution of the same decree while an execution proceeding was pending before the Collector, must be a continuation of the r oo:ecution last mentioned.

No question of limitation can arise in regard to such an application.

We think therefore that this appeal must succeed.

We set aside the order of the High Court and restore the order of the Subordinate Judge, Purnea. The respondent will pay the costs of the appellant in this Court and in the High Court.

Appeal allowed.

THE COMMISSIONER OF INCOME-TAX,

HYDERABAD-DECCAN v.

MESSRS. VAZIR SULTAN & SONS

(N. H. BHAGWATI, B. P. SINHA and

J. L. KAPUR, JJ.)

Income Tax-Capital or income-Compensation for termination of agency-Agency terminable at will-Partial termination of agency -Sterilisation of asset or loss of profit-Indian Income-tax Act, r922 (XI of r922).

In 1931 the respondent, a registered firm, was appointed the sole selling agents and distributors for the Hyderabad State of

I959

March 20.

Income-tax Act

ADDITIONAL COLLECTOR, BAN ARES

MAHARAJ KISH ORE KHANNA

JAFER IMAM

A. K. SARKAR

K. SuBBA RAo, JJ.

Encumbered Estates Act

Code of Civil Procedure

s. 39

Indian Limitation Act

s. 4

Encumbered Estates Act, 1934

s. 6

Section 14(7)

Section 24(3)

s. 14(7)

the Code of Civil Procedure

s. 39

s. 14(7)

s. 39

Section 4

s. 6

Special Judge appointed under the Act

s. 3

Section 7

s. 6

s. 8

s. 60

s. 9

Section 10

Section 11

Section 14

United Provinces Act

s. 14

s. 19

s. 14(7)

s. 24(3)

s. 24(3)

the Code of Civil Procedure

s. 14(7)

s. 14(7)

s. 14(7)

s. 39

the Code of Civil Procedure

United Provinces Act

United Provinces Act

Kishore Khanna the United Provinces Act

the Code of Civil Procedure

s. 39

s. 24(3)

ss. 14 and 14A

United Provinces Land Revenue Act, 1901

Section 14

Section 14A(l)

s. 14A

s. 39

s. 14

s. 39

the Code of Civil Procedure

art. 182

Limitation Act

art. 182

s. 24(4)

Income-tax Act