Commissioner of

Income-tax, Bombay City v.

Ncmdlal Gandalal

HidayatullahJ.

SUPREME COURT REPORTS [1960]

the respondent bear his own costs and pay those of the appellant here and throughout.

ORDER OF COURT.

In accordance with the majority judgment of the Court, the appeal is dismissed with costs.

Appeal dismissed.

STATE OF BOMBAY

SUPREME GENERAL FILMS EXCHANGE LTD. (with connected appeal)

(S. K. DAs, A. K. SARKAR and M. HrnAYATULLAH, JJ.)

Court Fee-Amendment of statute enabling levy of higher court fee-When retrospective-Suit instituted before amendment, appeal filed thereafter-Court fee on memorandum of appeal-Court Fees Act, 1870 (7 of 1870), ss. 4, 6, Sch. I, Art. 1-Court Fees (Bombay Amendment) Act, 1954 (Rom. 12 of 1954).

In 1954 certain amendments were made in the Court Fees Act, 1870, as applied to Bombay by the Court Fees (Bombay Amendment) Act, 1954, by which the system of charging court fees in the Bombay High Court on the Original Side was altered and instead of a fixed fee payable on the plaint, etc., ad valorem fees became leviable. The amendments came into force on April 1, 1954, but there was no provision, express or by necessary intendment, for giving them retrospective effect.

In respect of appeals filed after that date against decrees passed in suits instituted before that date, the question arose as to whether the court fees payable on the memoranda of appeal were according to the law in force at the date of the filing of the suits or according to the law in force at the date of the filing of appeals: Held, that the court fees payable on the memoranda of appeal were according to the law as it stood at the date of the filing of the suits.

An impairment of the right of appeal by putting a new restriction thereon or imposing a more onerous condition is not a matter of procedure only; it impairs or imperils a substantive right and an enactment which does so is not retrospective unless it says" so expressly or by necessary intendment.

Hoosein Kasam Dada (India) Ltd. v. The State of Madhya Pradesh and others, [1953] S.C.R. 987 and Garikapatti Veerayya v.

N. Subbiah Choudhury, [1957] S.C.R. 488, followed.

A Reference under Section 5 of the Court Fees Act, (1954) 57 Born. L.R. 180, Amara Eswaramma and others v.

Makkam

....

r f .

Seethamina, A.I.R. 1955 Andhra 221, Arjun: v. Amrita and others, I.LR. [1956) Nag. 296 and Nagendra Nath Bose v. Mon Mohan Singh, (1930) 34 C.W.N. 1009, approved.

Mohri Kunwar v. Keshri Chand, l.L.R. [1941] All. 558, distinguished.

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 86 and 87 of 1956.

Appeals from the Judgment and Order dated November 24, 1954, of the Bombay High Court in Appeals Nos. 89/X and 96/X of 1954.

H. R. Khanna and R. H. Dhebar, for the appellants.

S. D. Goswami and Gopal Singh, for the respondents.

1960.

April 22.

The Judgment of the Court was delivered by

S. K. DAs, J.-These two consolidated appeals arise out of the juclment and order of the High Court of Bombay elated November 24, 1954, passed on two applications in t1vo appeals disposed of by the said High Court.

The facts are similar and the question of law arising therefrom is one and the same, namely, whether in the absence of provisions giving retrospective effect to certain amendments made in the Court Fees Act,

1870, as applied to Bombay by the Court Fees (Bombay Amendment) Act, 1954 (Bombay Act No. XII of 1954), which amendments came in force on April 1, 1954, hereinafter called the relevant date, the court fees payable on two memoranda of appeal were payable according to the law in force at the date of filing of the suits which was prior to the relevant date, or according to the law in force at the date of the filing of the memoranda of appeal which was after. the relevant date.

The facts are simple and may be very shortly stated.

On April 16, 1953, Messrs.

Sawaldas Madhavdas brought a suit against the Arati Cotton Mills Ltd., praying for a decree for rupees two lacs and odd.

The suit was decreed on July 22, 1954.

The Arati Cotton Mills Ltd. filed a memorandum of appeal against the said decree on September 4, 1954, and paid court fees of Rs. 3,193-12-0 on the said memorandum.

On or about October 5, l 954, a settlement was arrived at between the parties and on October 9, 1954, a prayer was made for dismissal of the appeal for want of prosecution.

On November 18, 1954, an application was

1960 . •

State of Bombay v. Supreme Central Films Exchange Ltd.

S.K. Das] ..

State of Bombay

Supreme General Films Exchange Ltd.

S.K. Das].

made under s. l 0 I. Code of Civil Procedure, by the Arati Cotton .\!ills Ltd., for refund of excess court fees paid 011 the memorandum of appeal.

In the application it was stated:

"The appellants say that the appeal having arisen out of a suit which had been instituted on or about

16th April, 1953, long prior to the coming into force of the Court Fees (Bombay Amendment) Act, XII of l 954, no court fees were payable on the memorandum of appeal herein except as provided in the Table of fees hereinafter mentioned and that it was due to a mistake that the appellants were called upon to pay the said institution fee amounting to Rs. 3,193-12-0 and the said sum was paid by the appellants under a bona fide mis take and/ or inad\ ertence and/ or oversight.

The appellants say that the only fee payable for the filing of the said memorandum of appeal was the fee of Rs. 'l2 under item No. 58 of the Table of fees set out at page 'l96 of the Rules of this Court.

The appellants say that they were not legally bound to pay anything more than the said sum of Rs. 32 and that sum of Rs. 3, Iii 1-12-0 paid by them in excess of the said sum of Rs. :l2 was paid by mistake and ignorance of the appellant"s legal rights and/or through inadvertence or oversight.

The appellants submit that it is necessary for the ends of justice that the said sum of Rs. J,161-12-0 should be ordered to be refunded to them."

Similarly, on December 17, 1953, Messrs. Rasiklal and Company Ltd., brought a suit against Messrs. Supreme General Films Exchange Ltd. and two other defendants in which a decree was passed on May 11, 1954, for a sum of Rs. H,876-12-0 against Messrs. Supreme General Films Exchange Ltd.

The latter filed a memorandum of appeal on July 31, 1954, and paid court fees of Rs. I ,958 on it.

The appeal was, however, withdrawn with the leave of the High Court on September 27, 1954.

C\1essrs. Supreme General Films Exchange Ltd. then applied for refund of the excess court fees paid on a ground similar to that mentioned earlier in connection with the application of the Arati Cotton Mills Ltd.

,.. (

- <

. ') ~·

Both the applications were heard together after .issue of notice to the Advocate-General, Bombay, who appeared for 'the State of Bombay and opposed the applications.

By its judgment and order dated November 24, 1954, the High Court allowed the applications.

The State of Bombay then asked for and obtained a certificate in the two cases which were consolidated to the effect that they were fit for appeal to this Court.

These two appeals have been preferred on the strength of that certificate.

Now, the learned Chief Justice who delivered the judgment allowing the two applications, referred to an earlier decision of this, reported in A Reference Under

Section 5 of the Court Fees Act (') and said that that decision governed the present cases also.' The facts which led to the earlier decision were: (i) that prior to the relevant date a suit for partition of joint family property fell under Schedule II, Art. 17 (vii) of the Court Fees Act and the court fees payable were Rs. 18-12-0 only;

(ii) an amendment which came into effect on the rele0 vant date said that the court fees payable in such suits should be according to the value of the share in respect of which the suit is instituted; (iii) a suit for partition of joint family property was brought before the relevant date but an appeal was filed thereafter.

The question was: on the facts stated above, what court fees were payable on the memorandum of appeal.

Relying on the decision of this Court in H oosein Kasam Dada (India) Ltd. v.

The State of Madhya Pradesh and Others (') and certain other decisions to which we shall presently refer., the learned Chief Ji.:5tice held that a right of appeal is a substantive '/ight which vests in a litigant at the date of the filing of the suit, and cannot be taken away unless the legislature expressly or by necessary intendment says so; furthermore, an appeal is a continuation of the suit, and it is not merely that a right of appeal cannot be taken away by a procedural enactment which is not made retrospective, but the right cannot be impaired or imperilled nor can new conditions be attached to the filing of the appeal; nor can a condition already existing be made more onerous or more stringent so as to

(1) [1954] 57 Born. L.R 180.

(2) (1953] S.C.R. 987.

State. of Bombay

Supreme General

Films Exchange Ltd.

S.K. Das].

State of Bombay v.

Supreme General Films Exchangt

Ltd.

S.K. Das].

affect the right: of appeal arising out of a suit instituted prior to the enactment.

Learned counsel for the appellant has made a somewhat feeble attempt to distinguish the decision in A Reference Under Section 5 of the Court Fees Act (') on facts, but it cannot be seriously disputed that if that decision is correct, then it must govern the two cases before us.

Though the facts are not identical, we see no difference in principle between them.

On behalf of the St.ate of Bombay, appellant before us, the correctness of the decision has been challenged on the ground that there is no vested right in procedure and reliance has been placed on the principle

"that the presumption against a retrospective construction has no application to enactments which affect only the procedure and practice of the courts, even when the alteration which the statute makes may be disadvantageous to one of the parties" (see Maxwell on Interpretation of Statutes, 10th Edn., p. 22h).

Very strong reliance has been placed on the decision in Mohri Kunwar v. Keshri Chand (') and on the observations made therein to the effect that no suitor has a vested right to insist that during the pendency of a litigation which a suitor has started, the enactment relating to court fee shall not be changed and the fee leviable shall not he increased or reduced with regard to future appeals and he would be entitled to carry on proceedings on the basis of the law as it stood when the plaint was filed even though the law is different when he comes to file an appeal.

On behalf of the respondent it has been submitted that since the decision of the learned Chief Justice of the Bombay High Court in A Reference Under Section 5 of the Court Fees Act (1), there has been another decision of this Court which concludes the question (Garikapatti Veerayya v. N. Subbiah Choudhury) (3) and it is argued that the true principle is that where a right of appeal is impaired or imperilled or a more onerous or stringent condition is put on the right of appeal, the impairment, peril or imposition of a more stringent. condition is not retrospective unless

(1) [1954] 57 Born. L.R. 180.

(2) I.L.R. [1941] All. 558.

(3) [1957] S.C.R. 488.

-- -

, ....

. ) -

the legislature says so expressly or by necessary intendment.

It is necessary to state here what the High Cour.t has clearly pointed out with regard . to the amendments made by the Court Fees (Bombay Amendment) Act, 1954.

On the relevant date the whole system of charging court fees in the Bombay High Court on the Original Side was altered and instead of a fixed fee payable on the plaint, etc., ad valorem fees became leviable as in the districts.

The change was effected inter alia by deleting s. 4 and amending s. 6 of the Court Fees Act, 1870, and Art. I of Sch. I to the Act.

There was no prov1s10n, express or by necessary intendment, for giving retrospective effect to the amendments made in the sense of affecting a right of appeal arising out of a suit instituted prior to the relevant date.

As this position has not been contested, it is not necessary to read here the provisions of the Amending Act.

We proceed straightaway to consider the arguments advanced on behalf of the appellant.

So far as we~ have been able to appreciate the submissions made on behalf of the parties, the point of controversy is really this: is an impairment of the right of appeal by imposing a more stringent or onerous condition thereon a matter of procedure only or is it a matter of substantive right? v\le think that the question is really concluded by the decisions of this Court We refer first to the decision in Hoosein Kasam Dada (India) Ltd. v. The State of Madyha Pradesh ancl others (').

The facts of that case were these: Section 22(1) of the Central Provinces and Berar Sales Tax Act, 1947, provided that no appeal against an order of assessment should be entertained by the prescribed authority unless it was satisfied that such amount of tax as the :cippellant might admit to be due from him, had been paid.

This Act was amended on November 25, 1949, ; ind s. 22(1) as amended provided that no appeal' should be admitted by the said authority unless such

; i.ppeal was accompanied by satisfactory proof of the payment of the tax in respect of which the appeal had (I) [19!i3] S.C.R. 987.

20-6 SCI/ND/82

State of Bombay v.

Supreme General

Films Exchange

Ltd.

S.K.DasJ.

State of Bombay

Supreme General

Films Exchange

Ltd.

S.K. Das].

been preferred.

On November 26. 1947, the appellant submitted a return to the Sales Tax Officer, who, finding that the turnover exceeded 2 lacs, submitted the case to the Assistant Commissioner for disposal and the latter made an assessment on April 8, 1950.

The appellant preferred an appeal on May I 0, 1950, without depositing the amount of tax. in respect of which he had appealed. The Board of Revenue was of opinion that s. 22(1) as amended applied to the case as the assessment was made, and the appeal was preferred, after the amendment came into force and rejected the appeal. It was held by this court that the appellant had a vested right of appeal when the proceedings were initiated in 1947 and his right of appeal was governed by the law as it stood then. It was further held that the amendment of 1950 could not be regarded as a mere alteration in procedure or an alteration regulating the exercise of the right of appeal; it whittled down the right itself, and had no retrospective effect as the Amendment Act of 1950 did not expressly or bv necessary intenclment give it retrospective effect.

This decision proceeded on the principle that impairment of the right of appeal by imposing a more onerous condition is not a matter of procedure only. The decision in Garikapatti Veerayya

v. Subbiah Choudhury ('), referred specifically to two decisions relating to an increase in court fees bv subsequent amendment of the Court Fees Act, and one of the decisions was Sawaldas Madhavdas v.

Arati Cotton Mills Ltd. ('), the very decision which is under appeal here. The other decision was R. M. Seshadri

v. The Province of Madras (').

Perhaps, our attention was not then drawn to the circumstance that the decision in Sawaldas Madhavdas v. Arati Cotton Mills Ltd. (') was at the time pending in appeal here. The point of the decision in Garikapatti Veerayya (') is, however, this: this Court referred with approval to decisions which accepted the position that taking away a right of appeal and imposing a more onerous condition on such right involved the same principles as to retrospective effect of the subsequent legislation.

(1) [1957] S.C.R. 488.

(2) [1954] 57 B.L.R. 394._

(3) I.L.R. [1954] Mad 643.

I .

- -

A similar view was expressed in Amara Eswaramma and others v. Makkam Seethamma (1) and Arjun v.

A mrita and others (').

The appellant has relied on In re: Punya Nahako (3).

That was a case of review, and it was held that if between the date of the plaint or the appeal and the date for filing the petition for review, there was a change in the Court Fees Act increasing the fee payable ad valorem, the petitioner must pay at the increased rate.

The learned Chief Justice (Chagla, C.J.) expressed the· opinion that a review does not stand on the same footing as an appeal, and one cannot say that there is a substantive right of review. It may be pointed out here that even in respect of a review, a view different from that of the Madras High Court was taken in Parmeshar K urmi v. Bakhtwar Pande (').

It is, however, unnecessary to say anything more about a review, because we are not concerned with it in the present case. , In Anand Ram Pramhans and others v. Ramgulam Sahu and others (') the question which was mooted and discussed related to the proper presentation of a memorandum of appeal, and incidentally it was observed that the new Bihar and Orissa Court Fees Act which had already come into force applied to the case.

There was no discussion of the question as to whether the enactment in question was given retrospective effect or not.

As to the decision in Mohri Kunwar v. Keshri Chand (') on which so much reliance has been placed by the appellant, it is necessary to point out that the question there was if the right of appeal created by s. 6A of the Court Fees Act, which was added by U.P. Act, XIX of 1938, was available as against an order passed after the coming into force of the latter Act, although that Act was not in existence and consequently there was no right of appeal at the date of filing that plaint. It was held that the enactment, by the amending Act of 1938, of s. 6A which allmved an appeal against an order demanding the payment of a deficiency in court fees did not take away any right which was vested in the plaintiff on

(I) A.I.R. 1955 Andhra 221.

(2) I.L.R. [1956] Nag. 296.

(3) [1926] I.L.R. 50 Mad. 488.

(4) [1932] I.L.R. 54 All. 1092.

(5) A.I.R. ,1923 Pat. 150. (6) I.L.R. [1941] Aii. 558.

State of Bombay v.

Supreme General Films Exchange

Ltd.

S. K. Das J.

State of Bombay v.

Supreme General

Films Exchange Ltd.

S.K. Das:J.

the date on which he filed the plaint, it only conferred on him a new right; nor did it Lake away any right which was vested in the defendant, for though the defendant could object if the plaint was not properly >tamped and might also have a right to have the matter determined by the court he had no vested

- right in the procedure by which it was to be determined, and this procedure could be changed pending the suit and a change in procedure could not be said to deprive him of any vested right.

It would appear from what has been stated above that the decision proceeded on the footing that the amending Act conferred a new right of appeal, and not that it took away a vested right of appeal; and the reason of the decision was based on the principle that there is no vested right in the procednre by which the sufficiency of court fees is determined 'by a court.

That is a principle of a different character from the one v.re are concerned i; vit}1 in the present case, viz., the retrospective effect of a subsequent enactment which either takes away a right of appeal or impairs it by imposing a more stringent or onerous condition thereon. \Ve do 11ot, therefore, think that the Allahabad decision helps the appellant.

The question was considered in reverse in Delhi Cloth and General Mills Co. Ltd. v. Income-tax Commissioner, Delhi (') and the principle of Colonial Sugar Refining Co. v. Irving (') was applied.

Another decision in point is that of Nagendra Nath Bose v.

Mon Mohan Singh Roy (').

In that case the plaintiff instituted a suit for rent valued at Rs. J,306-15-0 and obtained a decree.

In execution of that decree the defaulting tenure was sold on November 20, 1926, for Rs. J ,600.

On December 19, l 928, an application was made under 0. 2 J, r. 90, of the Code of Civil Procedure, by the petitioner who was one of the judgment debtors for setting aside the sale.

That application having been dismissed for default of his appearance, the petitioner preferred an appeal to the District .Judge, Hoogly, who refused to admit the appeal on the gTound that the amount recoverable 111

(1) [1927] L.R. 54- T.A. 421.

(2) [1905] A.C. 31i9.

(3) [1930] 34 C.W.N. 1009.

> •

r I

- . -

execution of the decree had not . been deposited as required by the proviso to s. l 74(c) of the Bengal Tenancy Act as amended by an amending Act of 1928.

The contention of the petitioner was that the amending provision, which came into force on February 21, 1929, could not affect his right of appeal from the decision on an application made on December 19, 1928, for setting aside the sale.

Mitter, J., said: "We think the contention of the petitioner is wellfouncled and must prevail. That a right of appeal is a substantive right cannot now be seriously disputed. lt is not a mere matter of procedure.

Prior to the amendment of 1928 there was an appeal against an order refusing to set aside a sale (for that is the effect also where the application to set aside the sale is dismissed for default) under the provisions of Order 43, rule ( l ), of the Code of Civil Procedure.

That right was unhampered by any restriction of the kind now imposed by s. 174(5), proviso.

The Court was bound to admit the appeal whether the appellant deposited the amount recoverable in execution of the decree or not.

By requiring such deposit as a condition precedent to the admission of the appeal, a new restriction has been put on the right of appeal, the admission of which is now hedged in with a condition.

There Can be no doubt that the right of appeal has been affected by the new provision and in the absence of an express enactment this amendment cannot apply to proceedings pending at the elate when the new amendment came into force.

It is true that the appeal was filed after the Act came into force, but that circumstance is immaterial-for the date to be looked into for this purpose is the date of the original proceeding which eventually culminated in the appeal." This decision was approved by this Court both in Hoosein Kaam Dada (1) and Karikojlatti V eerayya (').

It is thus clear that in a long line of decisions approved by this Court and at least in one given by this Court, it has been held that an impairment of the right of appeal by putting a new restriction thereon or imposing a more onerous condition is not a matter of procedure only; it impairs or imp_erils a

(IJ [1953] S.C.R. 987.

(2) [1957] S.C.R 488.

State of Bombay v.

Supreme General Films Exchange Ltd.

S. K. Das].

State of Bombay

Suj; reme Gener(!l

lillms Exchange

Lid.

S.K. Da.J.

Af,,-il 22.

substantive right and an enactment which does so is not retrospective unless it says so expressly or by necessary intendment.

\Ve are, therefore, of the view that the High Court was right in the view it took, and the orders of refund of excess court fees which it passed were correct in law.

Accordingly, the appeals fail and are dismissed with costs.

There will be one set of costs, as the appeals have been consolidated and heard together.

Appeals dismissed.

BRlJENDRALAL GUPTA AND ANOTHER

v. j\\'ALAPRASAD AND OTHERS. (P. B. GAJENDRAGADKAR, K. N. WANCHOO and

K. C. DAS GUPTA, JJ.) Election-Nomination, rejection of-Non-mention of age in nomination paper-If defect of substantial nature-Omission, if amounts to defect-Scrutiny-When enquiry necessary-Electoral Roll-Entry regarding age-How far conclusive-Representation of the People Act, 1951 (43 of 1951), ss. 33 and 36-Representation of the People Act, 1950 (43 of 1950), ss. 16 and 19.

Thirteen candicates filed their nomination papers for election to the Legislative Assembly of Madhya Pradesh.

The nomination of U was rejected on the ground that he failed to give a declaration as to his age as required in the nomination paper.

After the poll the appellants were declared duly elected.

Thereupon one of the unsuccessful candidates J filed an elecion petition challenging the election of the appellants, inter alia, on the ground that the nomination of U had been improperly rejected.

The Election Tribunal dismissed the petition holding that U made no attempt before the returning officer to remedy the defect in the nomination paper, that the defect could not in law have been remedied at the stage of the scrutiny, that the defect was of a substantial character and that the rejection of the nomination was proper. On appeal the High Court held that at the time of the scrutiny U had offered to supply the omission but the returning officer had refused to allow him to do so, that the ret_urning officer was bound to make a summary enquiry before rejection,_ the nomination, that the non-mention of age in the nomination paper was not a defect of a substantial character and that the rejection of the nomination was improper and consequently allowed the appeal and set aside the election of the appellants:

STATE OF BOMBAY

SUPREME GENERAL FILMS EXCHANGE LTD

S. K. DAs

A. K. SARKAR

ss. 4, 6

Art. 1

Court Fees Act, 1870

Bombay

Bombay High Court

April 1, 1954

Section 5

Court Fees Act

Seethamina

CIVIL APPELLATE JURISDICTION

H. R. Khanna

R. H. Dhebar

S. D. Goswami

Gopal Singh

Court Fees Act

April 16, 1953

Sawaldas Madhavdas

Arati Cotton Mills Ltd.

July 22, 1954

September 4, 1954

October 5, l 954

October 9, 1954

November 18, 1954

Code of Civil Procedure

December 17, 1953

Rasiklal and Company Ltd.

Supreme General Films Exchange Ltd.

May 11, 1954

Supreme General Films Exchange Ltd.

July 31, 1954

September 27, 1954

State of Bombay

November 24, 1954

Section 5

Court Fees Act

Schedule II

Art. 17

Court Fees Act

State of Madhya Pradesh

State. of Bombay

Supreme General

Films Exchange Ltd.

Supreme General Films Exchangt

Ltd.

Section 5

Court Fees Act

Section 5

Court Fees Act

s. 4

s. 6

Court Fees Act, 1870

Section 22(1)

November 25, 1949

s. 22(1)

s. 22(1)

Court Fees Act

Garikapatti Veerayya

Punya Nahako

Court Fees Act

Chagla

Madras High Court

Bihar and Orissa Court Fees Act

s. 6A

Court Fees Act

s. 6A

State

State of Bombay v.

Supreme General Films Exchange

Ltd.

S. K. Das J.

State of Bombay v.

Supreme General

Films Exchange Ltd.

S.K. Das:J.

the date on which he filed the plaint, it only conferred on him a new right; nor did it Lake away any right which was vested in the defendant, for though the defendant could object if the plaint was not properly >tamped and might also have a right to have the matter determined by the court he had no vested
right in the procedure by which it was to be determined, and this procedure could be changed pending the suit and a change in procedure could not be said to deprive him of any vested right.

Supreme General Films Exchange

Ltd.

S. K. Das

S.K. Das

Allahabad

Delhi

November 20, 1926

December 19, l 928

the Code of Civil Procedure

District .Judge, Hoogly

February 21, 1929

December 19, 1928

Mitter

the Code of Civil Procedure

s. 174(5)

Hoosein Kaam Dada

State of Bombay

BRlJENDRALAL GUPTA

j\\'ALAPRASAD

P. B. GAJENDRAGADKAR

K. N. WANCHOO

K. C. DAS GUPTA

Representation of the People Act, 1951

ss. 33 and 36

Representation of the People Act, 1950

ss. 16 and 19


-. .: -

3 S.C.R.

SUPREME COURT REPORTS 669

M/S. PIYARE LAL ADISHWAR LAL v.

THE COMMISSIONER OF INCOME-TAX, DELHI.

(S. K. DAS, J. L. KAPUR and M. HIDAYATULLAH, JJ.) Income Tax-Agreement between Treasurer and Bank--Construction-Treasurr, whether servant of Bank-Treasurer furnishing security of joint family property-Emoluments received by Treasurer, whether income of joint f amily-lndian Income-tax Act, 1922 (1] of 1922) SS. 7 JO.

S was the karta of the Hindu undivided family, consisting of himself and his younger brother. Their father was the Treasurer of a Bank till his death in 1950.

During his father's lifetime S was employed as an overseer in the Bank on a salary of Rs. 400 a month, and, subsequently, after his father's death he was appointed Treasurer of the Bank at Delhi and sixteen other branches of the Bank.

As Treasurer he furnished security to the Bank of ceriain properties of the Hindu undivided family.

The agreement dated September 19, 1950, between him and the Bank, showed that he was appointed Treasurer on a monthly salary of Rs. 1,750 and he was also paid certain sums of money for guaranteeing the conduct of the cashiers and other members of the Cash Department Staff which he was . required to employ with the approval of the Bank.

He was to carry out his duties as directed by the Bank and if in the discharge of his duties he caused. any loss to the Bank he was liable to make good the loss.

He was not required to serve personally, but his services could be terminated by notice. In the vear of account 1950-51 he received from the Bank a sum of Rs. 23.286 as Treasurer. The Income-tax authorities considered that this sum was not the individual income of S as salary but was part of the income of the Hindu undivided family and taxed it as such on the grounds (1) that the agreement between S and the Bank showed that the relationship between them was no~ one of master and servant but that of an employer and independent contractor and that the emoluments received by the Treasurer were profits and gains of business, (2) that S was appointed Treasurer not on account of any personal qualification but because his father was a Treasurer --rof the Bank before him, and (3) that as the security furnished by

S came out of the joint family properties, the emoluments could

IJOt be said to have been earned without detriment to the family property and therefore were part of the Hindu undivided family: Held, (1) That on the true construction of the agreement dated September 19, 1950, the Treasurer was a servant of the Bank.

Sivanandan Sharma v. The Puniab National Bank Ltd. [1955] 1 S.C.R. 1427 and Dharangadlzara Chemical Works Ltd. v. State of Saurashtra, [1957] S.C.R. 152, relied on.

(2) That in view of the fact that there was nothing to show that S had received any particular training at the expense of the

23-6 SCI/ND/82

April 26.

196G

Piyare Lal Adishwar Lai

Commissioner of

Income-tax,

Delhi •

Kapur J.

family funds or that his appointmen_t as Treasurer was the result of any outlay or expenditure of or detriment to the family property, but on the other hand his previous experience as an overseer of the Bank was indicative of personal fitness for his appointment as Treasurer, the mere fact he had lodged joint family property by way of security would not make his earnings as Treasurer part of the income of the Hindu undivided family.

The use of the words "risk of" and "detriment to" in Gokul Chand v. Firm Hukum Chand Nath Mal, (1921) L.R. 48 I.A. 162, explained.

Accordingly, the emoluments received by S were in the nature of salary and therccore assessable under s. 7 of the Indian Incom<;-tax Act, 1922, and not under s. 10 of the Act as profits and gains of business, and the salary was the income of the individual, S, and not the income of the Hindu undivided family.

CrvIL APPELLATE JimrsmcTION: Civil Appeal No. 123 of 1957.

Appeal from the judgment and order dated May 12, 1955, of the Punjab High Court in Civil Reference No. l 7 /1953. .

A. V. Viswanatha Sastri, S. N. Andley, ]. B. Dadachanji, Ramcshwar Nath and P. L. Vohra, for the appellants.

C. K. Daphtary, Solicitor-General of India, R. Ganapathy Iyer and D. Gupta, for the respondent.

1960. April 26. The Judgment of the Court was delivered by

KAPUR, J.-This is an appeal against the judgment and order of the High Court of Punjab made on a reference under s. 66(1) of the Indian Income-tax Act which was answered in favour of the Commissioner of Income-tax. The appellant is the assessee-a Hindu undivided family-with Sheel Chandra as its Karta and the respondent is the Commissioner of Income-tax.

The appeal relates to the assessment year 1951-!>2.

The appellant, a Hindu undivicjed family, consisted of Sheel Chandra and his younger brother.

Their father, Adishwar Lal, upto his death on April 16, 1950, was the Treasurer of several branches of the Central Bank of India (which in the judgment will be referred to as the Bank).

During his father's lifetime Sheel Chandra was employed as an Overseer in the Bank on a salary of Rs. 400 a month.

Sheel Chandra was appointed Treasurer of the Bank at Delhi and sixteen

- -

other branches of the Bank. As Treasurer he furnished security to the Bank of certain properties of the Hindu undivided family, which consisted of title deeds of immovable properties in Chandni Chowk, Delhi, and Government of India securities of -the value of Rs. 75,000.

The Hindu undivided family owns considerable property.

Its income from house property alone is Rs. 50,000 per annum 'lnd it owns stocks, shares and Government securities also of considerable value.

As Treasurer Sheel Chandra received in the year of account from the Bank a sum of Rs. 23,286 and the question for decision is whether this sum is the individual income of Sheel Chandra as salary or it is part of the income of the Hindu undivided family.

The Income-tax Authorities held this sum to .be the latter and taxed it as such.

The Income-tax Appellate Tribunal in upholding this view held that on a proper construction of the written agreement between Sheel Chandra and the Bank, the emoluments received by the Treasurer were profits and gains of business and it further held1 that as the security furnished by Sheel Chandra came out of the joint family properties, the emoluments could not be said to have been earned without detriment to the family property and therefore were part of the income of the Hindu undivided family.

At the instance of the appellant the Tribunal referred under s. 66(1) the following two questions to the High Court: -

(1) "Whether in the facts and circumstances of the case and on a true construction of the agreement between the Central Bank of India and Sheel Chandra the salary and other emoluments received by Sheel Chandra as Treasurer of the said Bank are assessable under the head 'salary' or under the head 'Profits and gains of business'."

(2) "Whether in the facts and circumstances of the case, Sheel Chandra's emoluments as Treasurer of the Central Bank of India Ltd. were rightly assessed in the hands of the Hindu undivided family of which he is the Karta".

Both questions were answered against the appellant.

On a consideration of the various clauses of the agreement between Sheel Chandra and the Bank, the

Piyare Lal Arlishwar Lal

Commissioner of income-tax, Delhi

Kapur J.

Pi_yare Lal Adishwar Lal v.

Commissioner of

lncometax,

Delhi

Kap11r j.

High Court held that the relationship between them was not one of master and servant but that of an employer and independent contractor and therefore the emoluments received by Sheel Chandra as Treasurer were not salary but profits and gains of business.

As to the second question the High Court was of the opinion that the emoluments were the income of the Hindu undivided family because Sheel Chandra was not appointed Treasurer on account of any personal qualification but be was appointed becanse (a) his father was a Treasurer of the Bank before him and (b) he had furnished substantial security which was part of the property of the Hindu undivided family.

Against this judgment and order the appellant has come in appeal to this Court.

The nature of the employment of Sheel Chandra has to be gathered from the agreement dated September 19, 1950, between him and the Bank.

It shows that on his application for appointment as a Treasurer at "Delhi and sixteen other branches of the Bank, the Bank appointed him Treasurer for those branches and he could, by mutual agTcement, be appointed at other branches in the Punjab, U. P. and Rajasthan.

The appointment took effect from April 16, 1950.

Sheel Chandra undertook to perform the duties and be responsible as Treasurer of the various branches of the Bank and was required to engage and employ subordinate staff called the Cash Department Staff such as Head Cashiers, Cashiers, Potdars, Guaranteed Peons, Godown Keepers, Assistant Godown Keepers, Chowkidars and Clerks and other persons necessary for the efficient working of the said offices.

He h~:l the power to "control, dismiss and change" this Staff at his pleasure but he could not engage or transfer any member of the Staff except with the approval of the Bank and had to dismiss any such member if so required by the Managing Director of the Bank or Agent of the Office.

The Treasurer and the Cash Department Staff were to do and be responsible for all work in connection with receipts and payments of monies and bad to do such other work as was customarily done by cashiers

--

and shroffs of Banks. The Treasurer was also responsible for the correctness and genuineness of all hundies and cheques bearing signatures and endorsements in vernacular and for genuineness of all signatures and writings in any language or character or any securities, voucher deeds, documen_ts and writings which the Treasurer or. the Cash Department Staff dealt with and in case of any loss or damage arising out of any forged signatures and endorsements on any document accepted or dealt with by the Cash Department Staff as correct and geni1ine, the Treasurer was responsible to make good the loss.

He was also required,· when asked by the Bank, to engage the necessary staff, to look after the goods pledged with the Bank and he was responsible for the good conduct of such staff.

It was also his duty to make enquiries and report upon the identity, credit and solvency of persons dealing with the Bank and was liable for any loss arising out of any wilful misrepre, sentation or negligence in the enquiry or report made by him or his representative in any matter arising in the course of employment.

He or his representative were also required, when asked, to give reliable information in regard to hundi business but he was not responsible for any damage or loss arising therefrom.

He also undertook when required by the Officers of the Bank to value and give correct certificate in regard to the genuineness, fineness and weight of bullion and gold ornaments and other valuable pledged with the Bank.

He was responsible for any loss to the Bank in case of any wilful misrepresentation or negligence in regard to this branch of his duty.

He further undertook to supply to the Bank as many persons as were required at the various branches of the Bank which the Bank opened in future.

He undertook responsibility for the safe custody of the nionies and ornaments and other valuables kept with or pledged with the Bank as also for the . Bills of exchange, promissory notes, hundies or other securities.

Besides .this he was required to satisfy the Agent r the ¥anager of the branch that all the monies of the Bank fq1id other valuable securities which had not been duly

Piyare Lal Adishwar Lal v.

CommissiotJer of

Income.tax,

Delhi

Kapur].

Pi.yare Lnl Adishwar Lal

Commissiontr of

Income-tax,

!Jelhi

Kapur J.

used and accounted for were intact and in their proper places.

Sheel Chandra was paid a salary of Rs. 1,750 per mensum for all the branches he was employed in.

Besides this he was paid certain sums of money for guaranteeing the conduct of Godown Keepers, Assistant Godown Keepers and Chowkidars supplied by him. If the branches or out-agencies were increased he was to receive such increase in salary as might mutually be agreed upon.

On the closing of any branch there was to be a corresponding reduction in the remuneration. The members of the Cash Department Staff were to be paid travelling allowance according to the rules of the Bank.

In addition to the remuneration above mentioned the Treasurer or his authorised representative when v1s1tmg different branches were to get actual railway fare. The various members of the Cash Department Staff were to be paid their salary directly by the Bank but the Bank was not bound to pay more than the scale laid down by it.

The permanent members of the Cash Department Staff were to get the usual increments and benefit of Provident Fund and travelling allowance in accordance with the rules of the Bank. The Treasurer was required to engage members of the Cash Staff on salaries laid down by the Bank and if he paid anything more than the usual Bank scale he had to pay it himself.

The Treasurer was also entitled to nominate and appoint a representative to carry on the duties undertaken by him at the various offices of the Bank but these appointments were subject to the approval of the Bank.

The Treasurer was responsible for the acts of omission and commission and for neglect and default of his representatives and for each and every member of the Cash Department Staff. There are various clauses in the agreement requiring the Treasurer or his representative to perform their duties efficiently, honestly and in a proper manner.

The Treasurer ' and the Cash Department Staff were under t.he control of the Bank. "They were required to make enquiries in the books of account which were furnished by the Bank giving full particulars of all monies received and paid

- --

. .

1960 by them and in such manner as the Agent of the Bank might from time to time direct in writing.

The Treasurer had to carry out his duties faithfully and Jtf,:ar Lfat any communication made by the Bank to any member v. of the Cash Department Staff was to be considered as Commissioner •f d

lncomt-tax, a communication made to the Treasurer himself an Delhi he was bound to take notice of it.

The agreement could be terminated by three calendar months' notice

iIJ writing by either side but in the event of any breach of any condition of the agreement by the Treasurer his services could be terminated forthwith; but his liability was to continue. There was also an arbitration clause.

Counsel for the appellant contended that the various provisions of the agreement showed that Sheel Chandra was a servant of the Bank and not an indepndent contractor.

He laid particular emphasis on the fact that he was appointed a Treasurer on a monthly salary and his services could be terminated forthwith in certain circumstances.

Besides this he

ws to carry out his duties as directed by the Bank and was to discharge his duties faithfully and if in the discharge of his duties he caused any loss to the Bank he was liable to make good the loss.

These factors, according to him, showed that he was not an independent contrnctor or an agent of the Bank but was a salaried servant. The contention on behalf of the respondent on the other hand was that the agreement ' showed that Sheel Chandra was carrying on a business in that he was supplying cashiers and other members of the Cash Department Staff for a monetary consideration.

He guaranteed their fidelity which was an insurance undertaken by him.

He was to get certain sums of money for supplying each member of certain classes of servants to the Bank and the agreement between the Bank and Sheel Chandra could be terminated by notice and there was an arbitration clause and he was not required to serve personally.

Undoubtedly there are some terms in the agreement which are unusual as ordinary agreements of service go but in the case of an agreement between a Bank and a Treasurer they are not so unusual.

There was

Kapur J.

Pi)•are Lal Adishwar Lal v.

Comrnissio11er of l11conu-tax,

Delhi

Kapur J.

an agreement with very similar dauses in Shivanandan Sharma v. The Punjab National Bank Ltd. (') and it was held to be an agreement of service and not of agency.

Now, the duties of Sheel Chandra under the agreement are such as are peculiar to the employment of Treasurers.

It is true that as Treasurer, Sheel Chandra had also undertaken to indemnify the Bank not only for his own default but also for the default of the members of the Cash Department Staff.

But Banks have to deal with monies, valuable securities, g<; lld and other valuables and must necessarily employ servants whose honesty is guaranteed and it is necessary for the Bank to have someone in its employment wLo can perform these duties in a responsible manner and be answerable to the Bank for negligence and default in the performance of this class of work.

In the very nature of things one man cannot do all this work, not even at one branch, what to say of several branches; other people have therefore to be employee! and although the persons. employed in the Cash Departi:nent are servants of the Bank they do the work which Treasurers ordinarily and customarily do and consequently the Treasurer is made responsible for any damage which the Bank suffers due to the default of the Treasurer or of those em ployed to do the work of the Cash Department.

It is difficult' to lay clown any one test to distinguish the relationship of master and servant from that of an employer and independent contractor.

In many cases the test laid clown is that in the case of master and servant the master can order or require what is to be done and how it is to be clone but in the case of an independent contractor an employer can only say what is to be done but not how it shall be done. But this test also does not apply to all cases, e.g., in the case of Ship's master, a chauffeur or a reporter of a newspaper.

It was pointed out in Cassid)' v. Ministry of Health (') that in the case of contract of service "a man is employed as part of the business, and his work is done as an integral part of the business whereas under a contract for services the contractor is not (I) (195c•] 1 S.C.R. 112i. (2)

[1951] 2 K.B. 343, 352·3.

- -

integrated into the business but is only accessory to it". In certam cases it has been laid down that the indicia of a contract of service are (a) the master's power of selection of the servant; (b) the payment of wages or other remunerations; (c) the master's right to control the method of doing the work and (d) the master's right of suspension or dismissal: Short v.

I and Henderson Ltd. (1).

Bhagwati, J., in Dharangadhara Chemical Works Ltd. v. State of Saurashtra (2) said that in all cases the correct method of approach is whether having regard to the nature of work there was due control and supervision by the employer.

We have given above the duties of the Treasurer in the present case, his obligations and the manner of control exercised over him and the staff employed by him to carry out the work of the Cash Department of the Bank.

It is no doubt true that the Treasurer guaranteed his fidelity, good faitl). and ho; nesty of the persons who were employed in the Cash Department of the Bank but that was a part of the duty that he undertook and that is peculiar to the very nature of his' employment.

Applying the test which was laid down by Bhagwati, J., in Dharangadhara Chemical Works Ltd. v. State of Saur0;5htra (') that having regard to the nature of the work whether there was due control and supervision of the Bank over the Treasurer, the Treasurer in the instant case must be held to be a servant of the Bank.

What we have to see is the effect of the agreement as a whole and taking the various clauses together it must be held that Sheel Chandra, the Treasurer, was a servant of the Bank.

In view of this it is not necessary to discuss in detail the various cases that were cited at the bar. K. P. Bhargava v. The Commissioner vf Income- Tax, U. P. (') was the case of .a Treasurer of the Central Bank of India at Agra.

There he was paid a salary of Rs. I 00 and a commission for his work as a Guarantee Commission Agent but the terms of the contract were different and that was clearly a case of a Guarantee Commission Agency.

(I) 62 T.L.R. 427, 429. (2)

[1957] S.C.R. 152, 160.

(3) [1954] 26 I.T.R, 489. .

24-6 SCI/ND/82

Piyare Lal Adishwar Lal

CommisJioner of

In.come-tax,

Dell; ii

Kapur J.

Piyare Lal Adishwar Lal

Lala ]eewan Lal v. Commissione1 of lncomelax (')' was also a case of commission agency and in the pecu

liar circumstances of that case it was held to be business within s. 2(5) of the Excess Profits Tax Act.

Commissiontr of The assessee there was paid a commission of 4 annas

Incometax, per cent. on the value of the contracts secured b)' him.

Delhi

Kapur J.

Subsequently the commission was increased to Re. 1 per cent. and for this extra commission he agreed to reimburse the m.ill in case of failure of a person purchasing through him to pay the price. Counsel for the respondent: also relied on Commissioner of hu:om.c-fa."

v. Kalu Babu Lal Chand (') where the Managing Director's remuneration was held to be the income of a joint family to be assessed as such in its hands. That case is distinguishable.

There the karta of a Hindu undivided family took over a business as a going concern and carried on the business till the company was

incorporated.

The shares in the name of karta and his brother were acquired with the funds of the joint family.

The company was floated with the funds of the joint family and was financed by it and the remuneration received was credited in the books of the family.

The office of the Managing Director itself was assignable.

The Articles of Association provided that the karta or his assigns or successors in buiness "whether under his name or any other style or firm" would be the Managing Director of the Company and he was to continue for life until removed because of fraud or dishonesty. Thus the acquisition of business. the floatation of the Company and the appointment of the Managing Director were inseparably linked together. The facts of that case were quite different from that of the present case which are akin to the facts in Shivanandan Sharma v. Punjab National Bank Ltd. (').

The next question for decision is whether the salary of Sheel Chandra as Treasurer of the Bank is assessable as part of. the income of Hindu undivided family of which he is the karta or as his separate income.

Both the Appellate Tribunal and the High Court were of the opinion that the emoluments as Trea.mrer wer<>

not acquired without any detriment and risk to the

(1) [1953] 24 l.T.R. 217, (2)

[19GOJ 1 S.C.R. 320. (3)

[19.\51 1 $.C.R. 1427.

- -

- -

family property and therefore formed part of the • income of the indu undivided family.

Treasurership 1s an employment of responsibility, trust and fidelity and personal integrity and ability and mere ability to furnish a substantial security is not the sole or even the main reason for being appointed to such a responsible post in a Bank. like the Central Bank of tlndia. On the other hand his previous experience as an Overseer of the Bank and bis being appointed on his applying for the post are indicative of personal fitness for it.

There is nothing to show that Sheel Chandra had received any particular training at the expense of the family funds or his appointment was the result of any outlay or expenditure of or detriment to the family property. But it was argued on behalf of the respondent that because he had lodged joint family. property by way of security his earnings as Treasurer became a part of the income of the Hindu undivided family for the reason that the acquisition was not without risk to the family estate.

He relied on Gokul Chand v.

Firm Hukum Chand Nath Mal (1) and Commissioner of lncome-ta.x v. Kalu Ba.bu Lal Chand (').

In the former , case a member of the joint family entered the Civil

Service and that was made possible by the expenditure of family funds which enabled him to acquire the necessary qualifications and it was that fact which made his earnmgs part of the family mcome.

The following passage m that judgment at p. 168 was emphasised: -

"It may be said to be direct in the one case and remote in the other, but if risk of or detriment to family property is the point in both cases, there appears to be no such merit in "science"; recognised by the sages of the Hindu law, as would warrant the exclusion of gains of science as such from the category of partible acquisitions".

Counsel particularly relied on the words 'risk of' and contended that by reason of the family property being given in security, the risk as understood in that judgment had arisen, because it became liable for any loss that might be incurred during the course of employ~ ment of Sheel Chandra.

The word 'risk' in that

(1) [1921] 48 I.A. 162.

Piyare Lal Adishwar Lal v.

Copzmissioner of

Income-tax,

Delhi

Kapur].

Piyare Lal Adishwar Lal v.

Comrnissioner of

Income-tax,

Delhi

Kapur J.

SL'PREME COURT REPORTS [1960]

judgment must be read in the context in which it was used.

Family estate was used and expenditure was incurred for equipping one of its members to join the Indian Civil Service. It was in that connection that the words 'risk of' or 'detriment to' family property were used.

The latter case, Kalu Babu Lal Chau.d's case ('), has already been discussed.

The facts and circumstances of that case were different.

The cases which the Privy Council relied upon in Gokul Chand's case (were all cases where joint family funds had been expended to fit a member of the joint family for the particular profession or avocation the income of which was the subject matter of dispute but the respondents were not able to refer to any decision in which it was held that the mere fact of giving joint family property in security for the good conduct of a member of the family employed in a post of trust was sufficient to make the emoluments of the post joint family property because of any detriment to family property or risk of loss. It has not been shown that in this case there was any detriment to the family property within the meaning of the term as used in decided cases.

In our opinion the judgment of the High Court was erroneous on both questions which were referred to it and they should both have been decided in favour of the appellant.

The emoluments received by Sheel Chandra were in the nature of salary and therefore assessable under s. 7 of the Income-tax Act and not under s. 10 of the Act as profits and gains of business and the salary was the income of the individual, i.e., Sheel Chandra and not the income of the Hindu undivided family.

\Ve therefore allow this appeal and set aside the judgment and order of the High Court. The appellant will have its costs in this Court as well as in the High Court.

Appeal allowed.

(I) [19GO] I S.C.R. 320.

(2) [1921] 4B LA. IG2.

669

M/S. PIYARE LAL ADISHWAR LAL

THE COMMISSIONER OF INCOME-TAX, DELHI

S. K. DAS, J.

L. KAPUR

M. HIDAYATULLAH, JJ.

Income-tax Act, 1922

SS. 7

Delhi

September 19, 1950

[1955] 1 S.C.R. 1427

April 26.

196

Piyare Lal

(1921) L.R. 48 I.A. 162

s. 7

s. 10

A. V. Viswanatha Sastri

S. N. Andley

B. Dadachanji

Ramcshwar Nath

P. L. Vohra

C. K. Daphtary

R. Ganapathy Iyer

D. Gupta

KAPUR

High Court of Punjab

s. 66(1)

Income-tax Act

Sheel Chandra

Adishwar Lal

April 16, 1950

Central Bank of India

Chandni Chowk

Government of India

s. 66(1)

Central Bank of India Ltd.

Commissioner of

lncometax,

Delhi

Punjab

U. P.

Rajasthan

Pi.yare Lnl Adishwar Lal

Kapur

Bhagwati

Agra

Piyare Lal Adishwar Lal

s. 2(5)

Kalu Babu Lal Chand

Central Bank

Kalu Babu Lal Chau.d

Gokul Chand

s. 7

Income-tax Act

s. 10