196U

J-Ialisi11gh .1.\lfg.

Co. Lid. v.

Union of India

196U

April 18.

SUPRE.\1E COURT REPORTS [1960]

ln our view, the impugned s. ~.'iFFF(I) indudiug the proviso and the explanation thereto are not 1111constillltional as infringing the freedom guaranteed by Art. 19(l)(g) of the Constitution or as infringing Arts. 14 or 20 of the Constitution. On that. view, the petitions fail and are dismissed "ith costs.

There will univ be one hearing fee. '

Pe!.ilions dis111issed..

QAMAR SHAFFI TYABJI

THE COi\li\JlSSlONER, EXCESS PROFITS TAX,

HYDERABAD

(S. K. DAs, J. L. KAPCR and 1\I. 1-lmAYATCLLMI, Jj.)

Excess Profits Tax-Managing Agency and Selling Agency agreements-Construction-Delegation of Agency-Delegate, whether agent or employee-Remuneration and commission derived by such delegate-Liability to tax-Indian Contract Act, 1872 (9 of 1872), s. 194.

By an order of the Ruler of the erstwhile State of Hyderabad an institution was formed for the development of industries on behalf of the Government, called the Industrial Trust Fund, to be managed by a committee called Trustees.

In 1934 the Trustees entered into agreements with two cotton mills situated in the

State by virtue of which they were appointed secretaries, treasurers and agents of the said mills.

They were gi , en the general inanagement of the mills including the power to appoint employees and were also appointed selling agents of the mills.

By separate agreements the Trustees were -given power to delegate to other persons all or any of the powers under the agreements subject to the approval of the Board of Directors of the respective mills.

On December 6, 1938, the Trustes entered into an agreement with the appellant whereby they delegated their powers in his favour and appointed him as the managing agent of their business as secretaries, treasurers and agents, as also selling agent of the two mills, subject to their general control.

The appellant was to hold the office of managing agent and selling agent for the remaining period of the original' managing agency and. selling agency agreements.

The remuneration of the appellant for the managing agency was fixed at Rs. 2,000 per month and a commission of 21 per cent. out of the commission of 121per cent. per annum on the annual profits payable to the Trustees.

For the selling agency a separate commission was payable on the sale of different kinds of goods.

Clause 9 of the agreement provided

. .

: -·

... -

3 S.C.R.

SUPREME COURT REPORTS 547 . that the managing agent shall not assign the benefit of the agree-

J961J ment, the same being personal to himself.

For the accounting -- .. years 1941-42 and 1942-43 _the appe.llant was assessed to eXCss Q_am.n Sh1'jfi TyabJt profits tax, but he contended that the Trustees of the Industnal Commissiner, Trust Fund were the managing agents as also the selling agents Excess Profits Tnx, of the two mills, that the Trustees employed him on certain terms l{_rderabad and gave him certain powers, and that he was not carrying on an independent business of his own but was just carrying out the duties of an employee of the Trustees.

He claimed that his .remuneration under the agreement dated December 6, 1938, was merely salary and not income derived from business and therefore not liable to excess profits tax: Held, (1) that under the agreements of 1934 the Trustees as agents had express authority to name the appellant to act for the principal in the business of agency and that therefore the appellant was neither a servant nor a mere sub-agent, but an agent of the principal for such part of the business of agency as was entrusted to him, within the meaning of s. 194 of th.: Indian Contract Act, 1872 .

(2) that on the true construction of the agreement dated December 6, 1938, the appellant was undertaking a business of his own in accepting the duties and responsibilities of a managing agent of the two mills under the general control of the Trustees, and that, therefore, the income derived by him as remuneration and commission was liable to excess profits tax.

Lakshminarayan Ram Gopal and Son Ltd. v. The Government of Hyderabad, [19551 1 S.C.R. 393 and J. K. Trust, Bombay v. The Commissioner of Income-tax/ Exce.s Profits Tax, Bombay, [1958]

S.C.R. 65, relied on.

C1v1L

APPELLATE JllRJSDJCT!ON: Civil Appeals Nos. 824 and 825 of 19.57.

Appeals by special leave from the judgment and order dated April 10, 19.58, of the former Hyderabad High Court in E.P.T. References Nos. 452/5 and 4.rJ8/5 of l %8 F.

A. V. Viswnnatha Snstri, S. N. Andley, J. B. Dadachnnji, R11111eslrn•11r N nth and P. L. Vohrn, for the appellant.

K. N. Raja go/Jal' Sastri an<l D. GujJt11, for the respondent.

1960. April .18. The Judgment of the Court was delivered by ·

S. K. DAS, J.-These are two appeals with special s. K. Das J. leave from the ] udgment and Order of the High Court of Hyderabad dated April l 0, 1958, in two references under s. 48(3) of the Hyderabad Excess Profits Tax.

Act.

The question 1vhich the High Court answered against the assessee ir1 the said references was-

/960

Qom ; r Sha/Ji Tyalji

Com11issio11er.

ExreH Profits Tux,

IJ.1de t!had

.'I. K. ])as ].

548 SUPRE.l\IE COURT REPORTS [ 1960]

"'Yhether in Lhe circumstances of the case, the officers of the Exec." Profits Tax Department were

right in treating the income of the assessee or the lrnlustrial Trust Fune! as income from business." The High Court answered the question in the affirmative. The point for decision before us is if the High Court correctly ans11cred the question.

The relevant: facts which led to the question and ans"er arc these. There were two cot.ton mills in the State of Hyderabad (as it was then known) called Azamjahi mills ancl Osmanshahi mills.

They were public joint stock companies. By a Firman-e-Muharak of l 929 issued by the then Ruler of the State was formed an institution called the Industrial Trust Fund, the purpose of which was to help brgc and small industries on behalf of the Government of the State.

The management of the Trust was entrusted to a Committee which consistecl of three members of the Government. 11ho \\'ere called Trustees.

By two agreements dated April 12, 1!!34, and July 27, 1 CJ34, made between the Trustees of the one part and the two mills of the other, the Trustees were appointed secretaries, treasurers and agents of the said -mills.

Under these agreements the Trustees were given the general conduct

and man::igemcnt of the business and affairs of the mills and they were entitled to appoint employees and were also entitled to delegate to other pet:sons all or any of the powers, authorities, discretions, etc., under the agreements subject to the approval of the Board of Directors of the respective mills.

By two other ag-reements also dated April 12, I 0J4, and July 27, 1934, the Trustees were appointed selling agents of the mills.

By two agreements both dated October 16, J 'l'.l8, 1\'h ich 11ere supplemental t.u rhe selling agency agree1nents inentionecl above, the Trustees 'verc given power to clelegate all or any of their powers, authorities, etc., to other persons subject to the aJ?proval of the Board of Directors of the respective mills.

Till October, 1938, the Trustees exercised their powers and performed their functions under the agreements aforesaid through an Advisory Board, and Quamar Shaff1

Tyabji, appellant before us, was appointed chairman of the Advisory Board on a remuneration of Rs. l ,500

. .

per month plus a certain commission.

Sometime in 1960 1'938 the Advisory Board was dissolved .. and on Decem- Qamar Shoffi Tynbji her 6.·, 1938, an agreement was entered into between c "·. h , d ll Cl

I I f h ommrsszoner, t. e 1 rustees an the appe ant. a use . o t. e pre- Excess Profits Ta.•, amble of this agreement recited.: Hyderabad "The said Trustees are desirous of delegating such of. s. K. Das J. the powers, authorities and discretions as sµch secretaries, treasurers and agents as also as such selling agents of the said two mills as aforesaid as are hereinafter mentioned to and appointing the said Quamar Shaffi Tyabjee as the managing agent of the business of the said trustees as such secretaries and treasurers and agents as also as such selling agents of the said tlvo mills as aforesaid in and for the matters and purposes hereinafter mentioned."

The agreement then recited that the approval of the Board of Directors of the two mills having been obtained, the appellant was appointed managing agent of the business of the Trustees as secretaries, treasurers and agents and also as selling agents of the two mills.

Clause 2 of the agreement detailed the powers of the appellant which were the same as those of the Trustees to conduct and manage the business of the two mills, subject however to the general control of the Trustees.

In other. words, the full powers of management and of the selling agency in relation to both the mills were

dele~ated to the appellant.

Clause 3 said inter alia that the appellant would hold the office of managing agent and selling agent for the remaining period of the original managing agency and selling agency agreements.

The remuneration of the appellant fqr the managing agency was fixed at Rs. 2,000 per month and a commission of 2~ per cent. out of the commission of

12~ per cent. per annum on the annual profits p; tyable to the Trustees, subject to the condition that Osman shahi mills made an annual profit of Rs. 1,50,000 and the Azamjahi mills made an annual profit of Rs. 2,00,000.

For the selling agency a separate commission was payable on the sale of different kinds of goods subject again to the condition that the annual profits of the two mills did not fall below a particular figure.

Clause 6 of the agreement related to the appointment and duties of a mill expert.

Clause '/

8-6 SCI/ND/82

Qnmar Slwffi Tyahji v.

Commissioner, Excess Profits Tax,

fi;•derabad

S. It. Das J.

550 SUPRElVIE COURT REPORTS [1960]

provided for the termination of the agreement anrl said that the :1greement shal! terminate on the rr•rnstces terminating: the earlier agrecn1cnl's in their favour, provided however that in the event of the said Trustees deciding to transfer the said respective agreements and the rights thereunder to any one they shall in the first instance offer the same to the said managing agent on the same t.erms and conditions as may have been offered to them and on the further term that the managing agent shall make arrangement to the sorisfaction of the said Trustees for the payment to them in cash or otherwise of the moneys they have spent in purchasing the managing agency rights of the said nm mills as also the balance then due of the unsecured loans (i.e., other than first debenture ]o, m) they have and may hereafter advance to the said two mills, so that the said managing agent shall have the first refusal thereof in the manner aforesaid, provided always

that the said managing agent shall intimate to the said Trustees his acceptance of the said term 1rithin six weeks of the communication to him of the said offer and in the event of his omission to do so he shall he deemed to have not accepted the same.

Clause 9 of the :igreement is also important.

It said: "The managing agent shall not assign the benefit of this agreement, the same being personal to himself."

CLrnscs 10 and 11 related to the eventuality of winding up of the mills and its effect Oil the appellant's rights under the agreement.

L'nder the terms of the agreement dated December fi, l !)38, the appellant conducted the business of the mills, both as to management and selling. lie was assessed to excess profits tax for the two chargeable accountrng periods 13.'i IF and l 3'i2F, corresponding to October I, 194 I, to September 30, l '142, and October 1, 1942, to September .o. 1943, respectively. The total income assessed for J 30 IF was Rs. 2,3/ ,45 I, which included a sum of Rs. 2, l l ,230 representing the appellant's managing agency allowance and commission.

The total income for l 352F was Rs. 4,'l0,027 which included Rs. 1,45,77'i being the managing agency commission and allowance of the appellant.

. -.

1 -, -.

~·.

Before the Excess Profits Tax authorities the appel- 1!_60 lant contended that he was only an employee of the Qamar Sha.ffi Tyabji Industrial Trust Fund and his remuneration under the c: ".· . ommzsszorter, agreement dated December 6, 1938, was merely salary Excess Prafits Tax, and not income derived from business and therefore Hyderabad not liable to excess profits tax.

The Excess Profits s. K. Das J.

Tax authorities negatived this contention, and as required by the High . Court the Commissioner of Income-tax, Hyderabad, referred the question of law which we have set out at the beginning of this judgment to the High Court for decision.

On behalf of the appellant it has been submitted that on a true construction of the relevant agreements the Industrial Trust Fund was the managing agent as also the selling agent of the two mills; the Trustees employed the appellant on certain terms and gave him certain powers, and therefore the appellant, an individual and not a firm, was not carrying on an independent business of his own; he was just carrying out the duties of an employee of the Trustees in spite of his being described as managing agent in the agreement of December 6, 1938.

His income, therefore, was not income derived from business.

\Ve are unable to accept this line of argument' as correct. In Lahshminarayan Ram Gopal and Son Ltd.

v. The Government of Hyderabad (1) this Court had occasion to explain the position of an agent, a servant and an independent contractor. It was there pointed out that the difference between the relations of master a:ncl servant and of principal and agent lay in this: a principal has the right to direct what work the agent has to do; but a master has the further right to direct how the work is to be done. An agent has to be distinguished on the one hand from a servant and on the other from an independent contractor.

A servant acts under the direct control and supervision of his master, and is bound to conform to all reasonable orders given in the course of his work. An agent though bound to exercise his authority in accordance with all lawful instructions which may be given to him from time to time by his principal, is not subject in its exercise to the direct control or supervision of the principal.

Indeed, learned counsel for the appel-

(1) [1955] I S.C.R. 393.

Qpmar Shaffi T; abji

C:ommissioner, Excess Profits Tax, Hyderabad

!ant accepts as correct. the distinction made above aml also accepts that the true relation between the Mills and the Trustees was that of principal and agent; but he contends that as between the Trustees and the appellant the relation was one of master and ser-

S. K. Das]. vant. 'We consider that this contention is wholly unsound. '~'e have examined the original agreement between the Mills and the Trustees elated April 12, 1934.

Clause 9 of that agreement said that "the agents may regulate and conduct their proceeding> in such manner as they may from time to time determine and may delegate all or any of their powers, authorities and discretions as secretaries, treasurers and agents of the company lo such person or persons and on such terms and conditions as they may think fit:, subject to the approval of the Board of Directors of the company." The delegation in favour of the appellant was made under this clause.

The position was therefore this: the Trustees as agents had express authority to name another person to act for the principal in the business of the agency, and they named the appellant with the approval of the Board of Directors.

Therefore, the appellant, was neither a servant nor a mere sub-agent.

He was an agent of the principal for such part of the business of the agency as was entrusted to him.

The position in law was as laid down in s. 194 of the Indian Contract Act.

In similar circumstances this Court has held that managing agency is business (sec L11/ishminamyan Rarn Gof1al and Son Ltd. v. The Gover11111ent of flyderabad (') and]. K. Trmt, Bombay v. The Commissioner of Income-tax Excess Profis Tax, Bombay (').

A consideration of the terms of the agreement of December 6, 1938, also leaves no mctnner of doubt in the matter.

Full powers of the Trustees as managing agents were delegated to the appellant under cl. 2 of the agreement, subject only to the general control of the Trustees and the clause stated that the appellant was to conduct and manage the business and affairs of the two mills.

Clause 3 relating to the tenure of the managing agency, cl. 4 rebting to remuneration, cl. 7 relating to tcrmiintion of business and i-he clauses

(1) [1955] 1 S.C.R. 393.

(2) [1958] S.C.R, G5.

' -

...

. .

relating to the eventuality of winding up of the mills -all these were appropriate to a business undertaking only and quite inappropriate to a relation of master and servant. The extent of the delegation of powers was also indicated by cl. 5 which said inter alia that the managing agent (meaning the appellant) must observe and perform all the terms and conditions of the earlier managing agency and selling agency agreements .in favour and on the part of the Trustees; in other words, the entire managing agency business was handed over to the appellant.

Learned counsel for the appellant emphasised cl. 9 which we had quoted e; ulier and said that it showed that the appellant could not assign any of the benefits under the agreement, which was personal to himself. vVe do not think that

cl. 9 changed the quality of the relation between the Trustees and the appellant.

The managing agency agreement must be read as a whole, and so read the conclusion which clearly emerges is that the appellant was undertaking a business of his own in accepting the duties and responsibilities of a managing agent of the two mills under the general control of the Trustees. The appellant was a man with previous business experience and held an agency of the Eastern Federal Union Insurance Co., which broqght him a substantial income.

Learned counsel. for the , appellant has relied on the decision in lnderchand Bari Ram v. Commissioner of Income-tax, U.P. & C.P. ('), where the distinction between the definitions of managing agent and m<inager under the Indian Companies Act, 1913, was pointed out. '\, Ye do not think that that decision gives any help to the appellant.

The question reallY is one of construction of the relevant agreements: what do their terms show-a relation of master and servant or an agency business? vVe have no doubt in our minds that what clearly emerges from the terms of the agreement of December 6, 1938, is a business of managing agency accepted and undertaken by the appellant. ' Therefore, the High Court correctly answered the question in the affirmative.

The appeals fail and are dismissed with costs. As the appeals have beei1 heard together, there will be one set of costs.

A pf; eals dismissed.

(I) [1952] 22 LT. R. 108.

Qamar Shaffi Tyabji v.

Commissiotur, Excess Profits Tax,

HJ'derabad

S. K. Das J.

Art. 19(l)(g)

Arts. 14

QAMAR SHAFFI TYABJI

S. K. DAs, J.

s. 194

Hyderabad

December 6, 1938

Clause 9

s. 194

Indian Contract Act, 1872

A. V. Viswnnatha

S. N. Andley

B. Dadachnnji

P. L. Vohrn

K. N. Raja

S. K. DAS

K. Das

s. 48(3)

April 12, 1!!34

July 27, 1

April 12, I 0J4

July 27, 1934

October 16, J 'l'.l8,

Tyabji

s. K. Das

Quamar Shaffi Tyabjee

Clause 2

Clause 3

Osman shahi mills

Azamjahi mills

Clause 6

Clause 9

October 1, 1942

Qpmar Shaffi

S. K. Das

April 12, 1934

Clause 9

s. 194

Indian Contract Act

cl. 2

Clause 3

cl. 4

cl. 7

[1955] 1 S.C.R. 393

cl. 5

cl. 9

cl. 9

Eastern Federal Union Insurance Co.

Indian Companies Act, 1913

S. K. Das


April 19.

Bashirbltai Mo!tamedbbai

Stale of Bombay

Sarkar J.

SUPREME COURT REPORTS

13ASHJlZl3HAl il!OHAillEDBHAl

THE STATE OF BOMBAY. (JAFER brA"I and A. K. SARKAR, JJ.)

[1960]

Criminal Law-Attempt to commit offence-Attempt to cheat-The complainant whether nzust be deceived-Indian Penal Code, (XLV of 1860), s. 511.

The offence of attempting to cheat n1ay be co1nmittcd even though the person attcrr ptcd to be cheated does not believe in the representations made to him and is not misled by them but only feigned belief in order to trap the offender.

Where misrepresentations had been made and money obtained from the persons sought to be cheated by the misrepresentations, there is an atten1pt to cheat and not increly a preparation for con1mitting that offence.

CRIMJ:->M.

APPELLATE .Jt'RISDtCTJO:->: Criminal Appeal No. 55 of 1955.

Appeal by special leave [rom the judgment and orcler dated August 26, l 967, of the 13ombay High Court in Criminal Appeal No. 1208 of l 955, arising out of the judgment and order dated March 81, I 'l:)5, of the Sessions Juclgc, 13aroda, i1t Cri1ni11; tl Appeal No. 13 of 195:).

M. I<. R11mm11111!11i and ]. 13. Dar/aclwnjl, for the appellant.

R. Gr111af1_athy Tyer and R. f-1. Dhe/)(/r, for the respondent.

1%0. April l!J. The Judgment of the Court was delivered by SARKAR, J.-The appellant and two others were convicted by a Magistrate under s. 420 read with ss. !i l 1 and ~4 of the I nclian Penal Code and each "as sentenced to rigorous imprisonment for 12 months and a fine of Rs. -'iOO and in default: of payment, a further period of imprisonrnent for four months.

On appeal the accused persons were acyuittecl by a Sessions Judge.

The State then appealed to the High Court at Bombay and the High Court set aside the order of acquittal and restored the order passed by the learned Magistrate.

Accused No. I alone has appealed against the order of the High Court to tbis Court.

The three accused persons approached one Rmnanlal and the third accused tokl Ramanlal that accused

.. .,

. -

• '!'.

Nos. 1 and 2 were proficient in duplicating currency notes and they were prepared to do it for Ramanal who should take advantage of the offer.

The third accused then asked Ramanlal to think over the matter and promised to come again.

Ramanlal later men-, tionecl this matter to his friend Champaklal, the complainant, and the two decided to trap the accused persons disbelieving their

(professed) power to duplicate notes.

The third accused again came as promised and met Ramanlal and Champaklal. Champakbl promised to find currency notes for Rs .. 20,000 for duplicating and a elate was fixed when it was lo be clone. Thereafter Ramanlal and Champaklal informed the police .. The police hid themselves -in the house of Ramanlal where it had been fixed with the accused that the duplicating would be done.

The three accused arrived duly. The second accued spread bottles, blank papers, etc., on a carpet and the first , accused, the appellant, asked Champaklal to produce the currencv notes.

Champaklal who was carrying a bag supposed to contain the promised currency notes worth Rs. :20,000, took out two currency notes of Rs. 100 each from the bag and gave them to the appellant.

As soon as the appellant had taken the money, Champaklal gave the pre-arranged signal and the police came into the room and arrested all the accused persons.

They were thereafter prosecuted for the offence of an attempt to cheat upon a complaint lodged by Cbampaklal with the result already mentioned.

Three points were argued by the learned advocate for the appellant.

First, it was said that the charge was for an attempt to cheat Champaklal but there was no evidence to show that any representation had been made by anyone to Champaklal.

The Courts below howewr found that such a representation had been made and we think that the finding is clearly ,; upported by the evidence on record.

The next point taken was that there had been no attempt to commit the offence of cheating but only a prep<tration to commit that offence which was not punishable.

It seems to us clear that an attempt to commit the offence had actually been made.

A false representation had been made, and a stim of Rs. 200

Bashirbhai Mohamedbhai v.

State nf BnmhqY,

Sar/.:ar J.

Bn1liirbkai lvluhnmedbl1ai

Stnlt nf Bombny

Sarkqr .J.

had been obtained from Champaklal.

These clearly arc acts done towards the commission of the offence within the meaning of s. 511 of the Indian Penal Code.

In fact t:hc making of the false representation is one of the ingredients for an offence of cheating under s. 420 of the Indian Penal Code.

So also the delivery of property is another of such ingredients.

Both these ingredients took place in this case and the accused brought them about.

Therefore it cannot be said that: the accused had only made a preparation and not an attempt to commit the offence.

The last point argued was that there was no attempt to cheat because the complainant had not been deceived.

It is true that the' complainant had not been taken in. He had never believed that the accused could actually duplicate currency notes.

He feigned belief only in order to trap the accused. That however clearly makes no difference so far as an attempt to cheat is concerned.

The accused had attempted to cheat the complainant. That they had failed in their attempt is irrelevant in considering whether they had committed the offence of attempting to cheat.

This view of the matter has been accepted in the High Courts uniformally.

In the Government of Brngal v.

Umesh Ch11nrle1 Mitter(') it was observed that "A man may attempt to cheat, although the person he attempts to cheat is forewarned, and is therefore not cheated.'' This is clearly the right view.

This appeal is entirely without merit and it ts cl ism issed.

A jJpenl dismissed.

(1) T.L.R. 16 Ced. 310, 316.

' . ..

Sarkar J.

THE STATE OF BOMBAY

Indian Penal Code

s. 511

s. 420

Penal Code

High Court at Bombay

Rmnanlal

Ramanal

Ramanlal

Champaklal

Champakbl

Cbampaklal

Bashirbhai Mohamedbhai

s. 511

Indian Penal Code

s. 420

Indian Penal Code


3 S.C.R.

SUPREJVIE: COURT REPORTS

SHOORJI VALLABHDAS & CO., BOMBAY

.v.

THE 1COMMISSIONER OF 1NCOME-T AX/EXCESS

PROFITS TAX, BOMBAY. (S. K. DAs, .J. L. KAPUR and M. HmAYATHULLAH, JJ.)

Income-tax-Place of accrual of income-Business of transporting cargo to ports in and outside British India-Managing Agency commission, a percentage of freightage-Managing agents' services f erf armed in British lndia~Liability to tax of, entire manag- --, ing agency commission-Excess Profits Tax Act, 1940 (15 of 1940), s. 5, proviso 3-lndian Income-tax Act, 1922 (II of 1922), s. 14(2)(c). , The appellant was the maaging agent of a company which was, at the relevant time, carrying on the business of transporting cargo in boats which touched ports in British India and in the Indian State of Cochin and other States.

Under the managing agency contract the remuneration payable to the appellant was • expressed in the following terms : "That the managing agent shall as and by way of remuneration for its services receive a commission of ten per cent. of the gross freight charged to the shippers ...

Such remuneration shall be payable to the managing. agents at the place where the same is earned by the company unless otherwise requested by the managing agent." The Income-tax Officer and the Excess Profits Tax Officer assessed the appellant to tax in respect of the whole of the managing commission received by it on the footing that the entire commission accrued or arose in British India.

The appellant claimed that a part of the managing agency commission accrued in the Indian States and not in British India and that it would be entitled to an apportionment of the managing agency commission and to claim exemption from tax in respect of. the commission which accrued outside British India under s. 14(2)(c) of the Indian Income-tax Act, 1922, and the third , proviso to s. 5 of the _Excess Profits Tax Act, 1940. The Appellate Tribunal found that' except booking and collecting some freight at Cochin, all other important and responsible work of managing the company was done from the head office at Bombay and not 'from Cochin: ·

Held, that normally the commission payable to the managing agent of a company accrues at the place where the business is actually done, that is, where rthe services of the managing agent are performed, and as On the finding in the present case the appellant practically .performed all the services at Bombay, the commission which it earned though computed on the percentage of freight, accrued or arose in British India.

Commissioner of Income-tax, Madras v. K. R. M. T. T. Thiagaraja Chetty and Co., [1950] S.C.R. 258, followed.

Commissioner of Income-tax, Bombay v. Ahmedbhai Umarbhai and Co., Bombay, [1950] S.C.R. 335 and Commissioner of lncometax, Bombay Presidency 'ilnd Aden v. Ghunilal B. Mehta, [19381 6 I.T.R. 521, distinguised.

9-6 SCT/ND/82

April 19.

Shnnrji Vn!lnhhrfns

& Co. v. r:ommissioner of

hvo1wln.\., F.xr1.u Prnjils TaxJ

lJmnbn)'

S. It. Dns .J.

558 SUl'REME COURT REPORTS [1960]

Salt and Industries AF; encies Ltd., Bombay v. Comtnissioner of Income-tax, Bombay City, [1950] 18 I.T.R. 58, considered.

C1v1L

APPELLATE juR1smcr10:-.;: Civil Appeal No. ~0:) of l 'lti:i.

Appeal by special leave from the .indgment :rnd order dated March 81, 111:)2, and .\larch 2, l9:i'l, of the Bombay High Court, in Income-tax Reference No. '18 of l'l:il.

R. .T. Ko/ah; Solirab N. Vnhil and S. N. A11dlr)•. for the appellant.

C. K. Daf1litmy, Solicifor-Ger1eral of India, R. Gnnnpnthy l)•Cr and D. Gup!a, for the respondent. l %0.

April l'l.

The .Judgment of the Court was delivered by S. K. DAs, .J.-This is an appeal "'ith special leave from the judgment and orders elated March 'll.

1 !J02, :rncl .\-l:irch 2, l 11.'i'l, of the High Court of Bombay in an I 11comc-I ax Reference No. -18 of l 'l!i 1 made by the Income-tax Appelbtc Tribunal, Bombay, under s. li6(l) of the Indian Income-tax Act, l'l22, aml s. 21 of the Excess Profits Tax Act, 1940.

\\'e mav shortly state the relevant facts first.

The assessce, i\lcssrs.

Shoorji Vallabhdas and Company, Bomh:11•, appellant herein, is a firm registered under the Indian Income-tax Act.

It helrl the managing agency of three companies, namely-(l) the Mahibar Steamship Company Ltd., (2) the :\'cw Dholcra Steamships Ltd.. and (3) the ;'\cw Dholera Shipping and Trading Comp:rny Ltd., for the periods material in this case.

The appellant as cilso the aforesaid three managed companies were resident in the taxable territories within the meaning of the Indian Income-tax Act.

The business of the i\Tabbar Steamship Company Ltd. and of the Nrn Dholera Steamships Ltd. was ro carry cargo in cargo boats which touched ports in British Inclia, Cochin State. TraYancore State and Saurashtra, as they were then known.

The appellant became the managing agent of the i\lalahar Steamship Comp:im Ltd. "ith effect from April l, l 94.3, and the firm consisted of Shoorji Vallabhdas and his two sons.

Formerly, Shoorji Vallabhdas alone "as the managing agent of the i\blabar Steamship Companv Ltd. and a managing :ip; ency :1greement dated September l Ii,

.. .

1938, was executed between the managing agent and the managed company, and. that agreement as varied by two subsequent: deeds dated June 26, 1942, and December 7, l 943, constituted the contract of managing agency between the appellant and the managed company.

Under the managing agency contract the remuneration payable to the appellant after September I, 19-1\ was expressed in the following terms:

"That the remuneration of the Managing Agents as and from 1st September one thousand nine hundred and forty-three shall be ten per cent. ( 10%) on the freight charged to the shippers instead of annas fourteen per ton as mentioned in clause ( 1) of the said first supplemental agreement: dated the 26th clay of June,

194~~."

The managmg agency agreement dated June 8, l 94(:i, between the appellant and the second managed company, New Dholera Steamships Ltd., provided inter alia as follows:

wfhat the Managing Agents shall as and by way of remuneration for their services in relation to the shipping business of the Company receive a commission of ten per cent. (IO'j';,) of the gross freight charged to the shippern and/or passage money charged to the passengers.

Such remuneration shall be payable to the l\fanaging Agents at the place where the same is earned by the Company unless otherwise requested by the Managing Agents.

The remuneration of the Managing Agents in relation to the business of Company other than the shipping bminess shall be (10%) ten per cent. on the gross profits that may be earned in such business."

It may be stated here, however, that no question arose as to the remuneration of the Managing Agent in

1relat:ion to business other than shipping business, because no business other than shipping business was carried on by the managed company during the relevant period.

The third managed Company, viz., the New Dholera Shipping and Trading Company Ltd., confined its husi ness during the relevant accounting period to stevedoring and trading only.

The managing agency agreement also elated June 8, 19,16, with the third

Slwo1ji Vallobhdas

& Co. v.

Commissioner of

lncOme-tax/

~Excess Profits Tax, Bombay

S. K. Das J.

ShoorJi Valtabhdaj

& Co.

v. (.'ommissio1ur of

lncomelax/ Excess Profits Tax,

Bombn.Ji

S. K. Da' J.

560 SUPRElVIE COURT REPORTS [1960]

managed company provided inter alia for the payment of remuneration in the following terms:

"That the Managing Agents shall as and by way of remuneration for their services receive a commission at the rate of 25 per cent. of the net: profits of the co.mpany.

Such remuneration shall be payable to the Managing Agents al the place where the same is earned by t.hc Managing Agents unless otherwise requested by the Managing Agents." The appellant was assessed lo income-tax fur three assessment years, namely, 1915-1946, 19·16-1947 and I 94 7-1948, the previous ye an being t.he financial years 1944-1945, I 94fi-l 'J-16 and l 94 6-1 !J47 respectively.

The appellant was likewise assessed lo excess profits tax under t.he Excess Profits Tax Act, 1940, for the respective chargeable accounting periods which were also three in number, namely, Apt ii I, 1943, to March 31, 1944, Aprill, 1944, to March 31, 1'!45, and Aprill,

1945, to March 31, 1946.

The Tncome-tax Officer and the Excess Profits Tax Officer assessed the appellant to tax in respect. of the whole of the managing agency commission received from the three m'111aged companies on the footing that the entire managing agency commission accrued or arose in British India.

The appellant went up in appeal to the Appellate Assistant Commissioner from the assessment orders on the ground inter alia that. a part of the managing agency commission received from the three managed companies accrued in the Cochin and TraYancore States and not in British India and was therefore exempt from tax under the relevant provisions (as they stood at the material time) of the Indian Income-tax Act, 1922, and the Excess Profits Tax Act, 1940.

Thus, the dispute was about the place of accrual of the income in question.

As to the managed companies, the Income-tax authorities accepted the position that the profits of the three managed companies partly accrued in British India and partly in the Indian States; but they did not accept the claim of the appellant that part of its 111a11agi.ng agency con1n1ission fron1 the three rnanag-ecl companies accrued or arose in the Cochin and Travancore Srates.

The Appellate Assistant.

Commissioner hy different orders all dated

. .

~ T

- -

3S.C.R.

StJPR 1l~}ME 'C0UR'r REPORTS 561

May 4, 1950, dimissecl all the appeals.

The Appellant went in appeal to the Income-tax Appellate Tribunal.

Bv its order elated December 11, 1950, the Tribunal also. dismissed_ the appeals. The appellant then made an application to the Tribunal to refer certain questions of law which arose out of its order, to the High Court of Bombay. The Tribunal referred two such questions:

" ( l) Did a part of the managing agency commission earned by the assessee accrue or arise in the Cochin State inasmuch as the managing agency commission is computed on the basis of . the freight earned by the managed company in the Cochin State or otherwise?

(2) Did the whole or part of the dividend income accrue or arise in the Cochin State?" The expression Cochin State in the questions obviously referred to both Cochin and Travancore States.

On l'>'larch 31, 1952, the reference came up for consideration before the High Court, and after hearing Counsel, the High Court reformulated the first question as follows:

"vVhere the actual business of managrng agency was done which yielded the commission which is sought to be taxed?"

The High Court directed the Tribunal to submit a supplemental statement of the case on the first question as reformulated.

The second question was not pressed by learned counsel for the appellant and does not no\1r survive.

, The Tribunal submitted a supplemental statement of the case on August 29, 1952 .. The reference was fipally heard on March 2, 1953, and the High Court answered the question by saying that the actual business of the managing agency which yielded the commission was done at Bombay and not at Cochin.

In arriving at the conclusion the High Court proceeded on the footing that the finding of the Tribunal in effect was that baning freight and collecting it at Cochin, all other important' and responsible work of managi11g the managed companies was clone from the head office at: Bombay.

It has been argued on behalf of the appellant that the High Court erroneously reformulated the question,

Shoo1ji Vallabhdas & r:o. v.

Commissioner of lncome-tox/ Excess Profits Tax,

Bombay

S. K. Das J.

\ ....

JY6o and that the real question of law is whether on the facts and circunrstances of the case, an !'art of the Slwa1ji V11/Lc.bhdas

& Co. 111anagi11g agency co1nn1ission accruccl outside British c,,,,,,.;:,;,,, u of lndia so that the appellant would be entitled to an

lucom~-tax/ ap}JOrtionrnc11t of the 1na11aging agency co1nn11ss1011 E:i:cess Pro.lits T 11x, ancl to clain1 exetll)Jtion fro111 tax i11 resjJCCt of tl1e Bombay commission which accrued outside British lndia under s. K. Va> J. s. 14(2)( c) of the I nclian l ncome-tax Act, 1 YZZ (as it then stood) and the third proviso to s. 5 of the Excess

Profits Tax Act, 1940.

IL has been further contended that in vie11 of the findings of the Tribunal that (a) the commission earned was a pcrcentage of the freight and passage money received by two of the managed companies in Cochin and Travancorc States, (b) a part of the commission "as payable there and (c) a part of the services was also rendered by the appellant: as manag ing agent in those States, the High Court was in error in coming to its conclusion that the \\'hole of the 1nanaging agency co1nn1ision accruell or at"ose in Bon1~

bay.

Whil.e 11e agree with learned coumcl for the appellant that the real <1ucstion in this case is 11hether any part of the 111anaging agency co111111ission accrued outside British J nclia, we do not agree with him that the High Court was wrong in reformulating the ques tion.

The Tribunal formulated the question as though the computation of the appellant's remuneration on the basis of freight det:ennincd the place of accrual; in this the Tribunal was in error, and the High Court rightly pointed out that the test to he applied "as not how the remuneratiop was to be computed or quanti fled, but where the services "ere performed by the appellant, which yielded the profits sought to be t; ixed.

The High Coun rightly reformulated the question ou that basis, and asked the Tribunal to submit a supplemental statement of the case on the matcri; tls avaihiblc and placed before it by the appellant bearing on the question as reformulated by the I-ligh Court.

\Vhat did the Tribunal find in this case as to the place "here the actual business was done, i.e.. !he services were performed by the appellant as rnanag111g ; went which vieklccl the commission?

After referring h • - ' " t~ the :igrrrments rcl:11ing to the cornp1llat ion of remuneration, the Trib1!11al said in its order dated

. -

.. -·

December l 1, 1 <J:)O, that (a) from time to time one of the p:1rtners of the appellant firm went to Cochin to attend to the business, (b) the managed companies had an officer in Cochin, and ( c) the payments said to have been made to certain employees at Cochin were fictitioi:1s.

In the supplementary statement, the Tribunal pointed out that it was not known ,\rhether the partner who went to Cochin went in his capacity as partner of the appellant: firm or as a director of one of the managed companies: the appellant firm had rented a flat at Cochin on Rs. 20 per month and rnaint::-iined some employees at Cochin for securing freight: and the local office of the appellam firm at Cochin rented at Rs.' I 0 per month maintained only one. book containing cash, journal and ledger.

The Tribunal concludedits supplementary statement thus:

"As for the staff maintained at Cochin, . it was alleged that K. P. Joshi and subsequently

G. H.

Narechania were p; iid Rs. 18,000 each ye; ir.

The so-called payment was disallowed by the Appellate Tribunal.

It observed that debit entries in regard to th<; salaries paid by the assessee firm were collusive and fictitious.

As for the presence of the partners of the, assessee firm at Cochin, it appears from the Appellate Assist; int Commissioner's order tlut it was adrni-ttr\1 before him tlut none of the partners of the firm ever attended to the comp; iny's business at Cochin or Alleppey.

...... '.' ................ ;, ........................................... .

"There i:s no clear evidence on the record as to wh:it the assessee firm did as the managing agents of the three managed companies; in other words. how the assessee firm "as carrying on the managing agency business.

The partners of the assessee firm (not necessarily all) were on the Bo:ircl of Directors of the managed companies.

They held a large number of shares in the 'managed companies.

The Mala bar Steamship Co. I.Id. hd an. office of it own "to secure freight"..

The Cochin office of the assessee firm, as far as one could make out, did practically nothing, except receive l 0% of .the gross freight at Cochin and retain the net income therefrom".

Shnmji Vallabhrlas

& Co.

Commissioner of Income-Tax/ Excess Profits T nx,

Bombtl)'

S. K. Das}.

Sfwmji Vaflabhdns

& Co. v.

Commissioner o.f

Income-lax/ Rxre.u Profits Tax,

Bomba)'

S. IL. Das J.

No\\', the question is-on the aforesaid findings of fact reached by the Tribunal-where did the commission payable to the managing agent accrue?

It is "ell to remember that the problem in this case is not so much when the commission accrued as where it accruecl, thou.h the question as to \\'here and when may be interlinked. \Ve think that normally, the r<1n11n1ss1nn payable to the rnanaging ag-ents oE a company accrues at the place where the services are performed b\· the managing agents.

It was so held by this Cqurt in K. R. M. T. T. Thi11gnrnja Chrll)' and Comj>nn)• v. Commissioner of Income-tax, Madras, No. 2('). The assessee in that case, Thiagaraja Chettiar, claimed that a portion of the commission credited to it in the company's accounts accrued to it in the Indian States "here the company had opened branches for selling nrn and as the commission was not remitted to British India. it \\'as not assessable to tax.

This Court obser\wl:

"The short answer to this argument is that the business of the company was carried on in British India, that the commission earned bv the firm on 'he profits made h,- the company in the States arose out of one indivisible agreement to charge the reduced commission of Ci per cent. on the profits of the companv and t.ha.t the managing agents had been rloing the business of the agency in British India and not in the States.

It. is not suggestcd that the managing agents performed anv fnnct.ions in the States."

The same question of the place of accrual arose in a somewhat. different context in Commissioner of lncorne-tax. Bomlrn)' Presidr:nC)' and Aden \'. Chunilnl B. 1Wehta (') where a person resident in British India and carrying on business there controlled transactions abroad, and the question was if he was liable to pay tax upon profits deriYcd by him from contracts made for the nurch; ise and sale of commodities in various markets-' Liverpool, London, New York, etc.

The assessee disputed his liability in respect of such profits on the ground that they were not profits "accruing or arising in British India".

It was held that the .mere fact. that the profits made depended on the exercise m

ti) [1953] 24 l.T.R 535.

(2) fl93B] 6 J.T.R. 521.

~- ..

British India of knowledge, skill and judgment on the 1960 part of the assessee did not mean that the profits arose Sho01ji Vallabhdas or accrued in British India, and there was no necessity & Co. arising out of the general conception of a business as Commiioner of an organisation that the 1xofits of the btlsjness must Income-Tax .

Excess Profits tax/ 4nse only at one place, namely, the place of central Bombay control of the business.

Delivering the judgment of the Privy Council in that case, Sir George Rankin observed:

"I'he words "accruing or arising the British India" may be taken, provisionally and in the first place, as an ordinary English phrase which derives no special meaning from the Act.

The alternative "accruing or arising in" and the antithesis between these words and the words "received in" or "brought into" afford no safe inference of any special meaning. "Profit. ..... accruing or arising in British India" are words which in their ordinary meaning seem to reqt1ire a place to be assigned as that at which the result of trading operation comes, whether gradually or suddenly, into existence." ...................................................... . ..........................................................................

" "Their Lordships are not laying down any rule of general application to all classes of foreign transactions, or even with respect to the sale of goods. To do so would be nearly impossible and wholly unwise.

They are not saying that the place of formation of the contract prevails against everything else.

In some circumstances it may be so, but other matters-acts clone under the contract, for example-cannot be ruled out a priori.

In the case before the Board the contracts were neither framed nor carried out in British India; the High Court's conclusion that the profits accrued or arose outside British India is well-founded."

A similar view was expressed in two earlier decisions: (1) In Re: The Aurangabad Mills Ltd. (1) where a reference was made to Commissioner of Taxation v. Kirk, (1900) Appeal Cases, page 588 and it was pointed out that the circumstance that the affairs of the company were directed from Bombay was not the detetmining test; but the test was where the processes

(1) [1921] I.L.R. 45 Born. 12$6,

10-6 SCI/ND/SZ

S. K. Das].

Shonji Vallnb}ufas

& Co. v.

Commissionl!r of

lnr.:ome-taxf Excess Pro.fits Tax, Bo, nba)'

S. K. Das J.

which yielded tl1e income were carried oul and 1.k1t was outside British India; (2) The Co111111issioner of fncome-lax, Bom/)(1)' Presidr; ncy v. l\1es.1rs. S11r11/1chand Hulrnrnchand of Born/)ln', a firm (') where the assessees acted as the secretaries, treasurers and agents of a mill company registered at Indore, outside British India, and under the terms of' agreement, the assessees were entitled to charge and receive as selling agents commission on the gross sale proceeds of all doth produced by the mill and the company opened a shop in Bombay for the sale of cloth produced by the mill which was managed by the assessees.

The sale proceeds "ere sent to Indore and the assessees were paid the commission at Indore.

The question arose whether the commission was liable to be assessed to income-tax in Bombay, and it was held that the income accrued in British India. Jn Comrn.issiona of T-nco111e-l11x. Bomlwy

v. Alm1crl/Jhni U11111r/1/111i and Co., JJ0111bny(2) this Court dccilt with a case where a firm resident in British Inclia carried on the business of manufacturing ; rncl selling groundnut oil; it owned some oil mills within British India and a mill in Raichur in the l-1\'Clcrabad Stcite where oil was manufactured.

One of th~ questions for decision was whether the profits of that part of the business, viz., the manufacture of oil at the mill in Rciichur accrued or arose in Raiclrnr within the meaning of the thircl proviso to s. ') of the Excess Profits Tax Act, l !l40.

A majority of .Judges held that the profits arose in Rciichur, and in a composite business, the profits need not arise at one place only but may arise at more than one place aml an apportionment may b~ necessary.

Th is "as not, however, a case of ma nag1 ng agency.

"'c now come to the decision in Salt and fndwtries

Agniris f, f:d., Bo111/Jny v. Co111111issioncr of Tncome-tax, Bomba)> City (') a decision of the same learned Chief Justice, in respect of which learned counsel for the appellant has made some very serious comments.

The facts of that case were these: the assessees, a company incorporated in Bombay were the managing agents of another company incorporated in Bombay and having its salt works at Aden and at Kanclla in die Kutch

(1) [1930] I.LR. 55 Rom. 231.

(2) [1950] S.C.R. 335.

(3) [1950] 18 I.T.R. ;, s.

State.

The assessee's registered office was in Bombay, where the board of directors met,· the books of account were maintained and various types of work connected with the company were clone.

Under the managing agency agreement the assessees were entitled to a commission at the rate of 12~- per cent. per annum on the annual net profits of the company and in any event a minimum of Rs. :W,000 per annum. The agreement also provided that such portion of the commission as was attributable to the net profits of the company arising or accruing in the Indian State was to be paid to the managing :1gents in such State and that with regard to the minimum commission half of it was to be paid in the State.

In pursuance of the assessees' articles of association the board of directors passed a resolution delegating a particular director to guide the company's operation in the State of Kutch and during the year of account that director supervised the salt works at Kanclla.

The qvestion was whether the sum of Rs. 88,065 representing assessees commission attributable to the salt works at .Kanclla accrued or arose at Kanclla or in British India.

First, the learned Chief Justice referred to the test to be applied in order to determine where the profits of the assessee company accrned or arose, and he said that the test was to find out where the actual business of the company was clone which yielded the profits sought to be taxed.

In that connexion he said:

"The work of the maHaging agents must be looked upon as a unit and not as divided up into so many different categories, to each one of which a certain portion of the commissi9n earned by the managing .agents can be attributed or allocated."

He then went on to consider when the right to managing agency commission arose in that case and came to the conclusion, which was decisive in his op1111on, that it arose when all the accounts of the working of the company were submitted to the head office in Bombay and the profits were determined: therefore, the sum of Rs. 88.065 accrued or arose to the :1sscssccs in Bombay and not in the Indian State both for purposes of income-tax and excess profits tax.

S!ll!orji Vallahhdas

& Co. v.

Commissioner of Income-tax/ Excess Profits Tax, Bombay ·

S.K. Das].

1960 Now, learned counsel for the appellant has no

Shoarji Vallabhd" quarrel with the decision in so far as it laid down

& :_a. that (a) the Lest is to find out where the business is

Commissi011er of actually done, i.e., wl1ere tJ1e services are performed, Incam•-tax/ d (b) h 1 · Excess Profits Tax, an t e rig 1t to managing agency co111n11ss1on arose Bambay in that case when all the accounts of the working of s. K. DasJ. the company were submitted to the head office in Bombay and the profits were determined.

Learned counsel has contended that in the case under our consideration the services were performed partly in British India and partly .in. Cochin and the right to 111anag1ng agency con11111ss1011 arose as soon as the freight was paid at least in respect of two of the managed companies.

He has submitted, however, that the learned Chief .Justice was m error if he intended to lay down a rule of universal application that the work of the managing agents must always be looked upon as a unit and can never to be divided into categ'Ories.

It. is contended that the services of a managing agent can be performed at more than one place, and legally it is possible to apportion the commission and attribute a pan of it: to services rendered outside the taxable territories.

We consider it unnecessary in the present case to decide the question of performance of services and resultant apportionment, if any, on a theoretical or hypothetical basis, because the case can be disposed of on the short ground that on the findings of the Tribunal, the remuneration of Lhe managing agents accrued at Bombay. vVe had referred earlier to the findings reached by the Tribunal.

These findings show that except for an attempt at make-believe, no services were really performed by the appellant at Cochin.

No doubt, some freight was secured and paid for at Cochin.

But the managed company also had an office at Cochin to secure freight.

It has been argued that under the terms of the managing agency agTeements, the managing agents employed the staff, etc., and for two of the companies which carried on the cargo business, securing freight was the principal part of the managing agency business. The Hih Court, however. rightly pointed out:

' .

. -

"In our opm10n, it is not possible to read the managing agency agreement in that light.

All that clause 2 of the agreement does is to lay clown the standard by which the commission is to be computed and determined, and it lays down two different standards, one with regard to the shipping business and the other with regard to the other businesses, but as far as the business of the managing agency is concerned their responsibilities and their duties are integrated duties and responsibilities which are set out in the different clauses of the agreement.

It is impossible to contend that they had not to supervise, control and manage the shipping business and, as we have already said the business of a shipping company is vastly more detailed and responsible than the mere task of finding people to go by ship or send their goods by ship and for that purpose paying freight. . Freight is merely the resultant profit which accrues to a shipping company.

In order that that profit should result the company has got to have ships, it has got to have seaworthy ships, it has got to have sailors and officers, it has got to look to the repairs of the ships, the renovation o.f the ships and the replacements of the ships.

All this is part of the shipping company's business and all this business had to be attended to by the managing agents and the question is, where did they attend to this business.

The finding on this question is clear.

The finding, in effect, is that barring booking freight, and collecting freight at Cochin, all other important and responsible work of managing the managed companies was done from the head office at Bombay and not from Cohin."

On the findings reached, the position in law is quite clea1'.

The decisions to which we have referred clearly establish that normally, the commission payable to the managing agents accrues at the place where the business is actuallv clone, that is, where the services of the managig agents are performed.

In th is case the appellant practically performed all the services at Bombay, and therefore the commission which it earned though computerl on the percentage of freight and /or passage money in respect of two .of the managed companies, accrued or arose in British

Shoorji Vallabhdas & Ca. v.

Commissiontr of

ln.ome-tax/ Excess Profits Tax, Bombay

S. K. Das].

Sftaorji Vatlabhdas

& Co. v.

Commissioner of

lucome-laxf Excess Profits T1, x,

Bombay

S . .K. Das J.

A.fHif 20

India.

As to t.hc t.hir<l mauaged company whose business was stevedoring and t.rading and t.hc remuneration was payable at 2:"i per cent. of the net profits, there can be no doubt that the remuneration accrued at Bombay.

Therefore, the High Court of Bombay correctly answerc<l the question against. the appellant.

The appeal accordingly fails and is dismissed with cusr.s.

A j1j1eal dismissed.

R/\JK!; f\JARI KAUSHALYA DE\11

BAWA PRJJ":'.JA SINGH AND ANOTHER.

(P. B. GAJEXDRAGADKAR, K. N. \VAl'\CHOO and K. c. DAS GUPTA, JJ.)

Mortgage-Whether a "pecuniary liability"-The Displaced Persons (Debts Adjustment) Act (LX X of 1951), ss. 2(6), sub-els.

(a) (b) (c) 13, 15, 16(5), 17, 21.

The appellant executed two usufructuary mortgages in favour of the respondents in 1946 with respect to two properties

. -

situated in Ferozepur city and herself took the properties on lease ..... on the same date. 1he respondents filed an applicationunder s. 13 of the Displaced Persons (Debts Adjustment) Act, LXX of 1951, for recovery of the principal sum due and also the arrears of rent.

The appellant contested the application on the ground, 1'"7~ inter alia, that the liability was not a debt under the Act as it "' was not a pecuniary liability and that mortgages in relation to properties situated now in India were not covered by it.

The Tribunal allowed the application and passed a preliminary decree for sale.

The appellant's appeal to the High Court and another under the Letters Patent were both dismissed.

On appeal by special leave: Held, that a mortgage debt would create a pecuniary liability upon the 1nortgagor and would be covered bv, the definition of the word "debt" in s. 2(6) of the Act.

There is nothing in any provision of the Act which would cut down the plain meaning of the words "pecuniary liability" as used in s. 2(6) read with sub-cl. (c) thereof or restrict those wide words to liability other than that secured by a mortgage.

Under sub-cl. (c) o[ s. 2(6) a displaced person to whom a mortgage debt is due f rorn any or her person, whether a displaced ,. person or not, ordinarily residing in the territories to which the Act extends can take the benefit of this Act.

SHOORJI VALLABHDAS & CO., BOMBAY

THE COMMISSIONER OF INCOME-TAX/EXCESS PROFITS TAX, BOMBAY

L. KAPUR

Excess Profits Tax Act, 1940

s. 5

Income-tax Act, 1922

s. 14(2)(c)

India

Indian

Cochin

Indian States

British India

s. 14(2)(c)

Indian Income-tax Act, 1922

s. 5

Excess Profits Tax Act, 1940

Bombay

Solirab N. Vnhil

S. N.

C. K. Daf1litmy

R. Gnnnpnthy

D. Gup!a

Income-tax Act

s. 21

Excess Profits Tax Act, 1940

Shoorji Vallabhdas and Company

Income-tax Act

Income-tax Act

i\Tabbar Steamship Company Ltd.

Nrn Dholera Steamships Ltd.

British Inclia

Cochin State

TraYancore State

Saurashtra

i\lalahar Steamship Comp:im Ltd.

Shoorji Vallabhdas

i\blabar Steamship Companv Ltd.

June 26, 1942

June 8, 19,16

S. K. Das

S. K. Da

Excess Profits Tax Act, 1940

March 31, 1944,

March 31, 1'!45, and

March 31, 1946

TraYancore

Indian Income-tax Act, 1922

Excess Profits Tax Act, 1940

Travancore

High Court of Bombay

August 29, 1952

March 2, 1953

s. 14(2)( c)

s. 5

Profits Tax Act, 1940

Travancorc

K. P. Joshi

G. H.

Narechania

Alleppey

Mala bar Steamship Co.

IL. Das

Thiagaraja Chettiar

States

Liverpool

London

New York

George Rankin

Aurangabad Mills Ltd.

Indore

Raichur

Rciichur

Raiclrnr

Aden

Kanclla

Kutch

.Kanclla

s. K. DasJ.

clause 2

Cohin

S . .K. Das

P. B. GAJEXDRAGADKAR

K. N. \VAl'\CHOO and

K. c. DAS GUPTA

ss. 2(6)

s. 13

s. 2(6)

s. 2(6)

s. 2(6)


Sftaorji Vatlabhdas

& Co. v.

Commissioner of

lucome-laxf Excess Profits T1, x,

Bombay

S . .K. Das J.

A.fHif 20

SUPREME COURT REPORTS [1960]

India.

As to t.hc t.hir<l mauaged company whose business was stevedoring and t.rading and t.hc remuneration was payable at 2:"i per cent. of the net profits, there can be no doubt that the remuneration accrued at Bombay.

Therefore, the High Court of Bombay correctly answerc<l the question against. the appellant.

The appeal accordingly fails and is dismissed with cusr.s.

A j1j1eal dismissed.

R/\JK!; f\JARI KAUSHALYA DE\11

BAWA PRJJ":'.JA SINGH AND ANOTHER.

(P. B. GAJEXDRAGADKAR, K. N. \VAl'\CHOO and K. c. DAS GUPTA, JJ.)

Mortgage-Whether a "pecuniary liability"-The Displaced Persons (Debts Adjustment) Act (LX X of 1951), ss. 2(6), sub-els.

(a) (b) (c) 13, 15, 16(5), 17, 21.

The appellant executed two usufructuary mortgages in favour of the respondents in 1946 with respect to two properties

. -

situated in Ferozepur city and herself took the properties on lease ..... on the same date. 1he respondents filed an applicationunder s. 13 of the Displaced Persons (Debts Adjustment) Act, LXX of 1951, for recovery of the principal sum due and also the arrears of rent.

The appellant contested the application on the ground, 1'"7~ inter alia, that the liability was not a debt under the Act as it "' was not a pecuniary liability and that mortgages in relation to properties situated now in India were not covered by it.

The Tribunal allowed the application and passed a preliminary decree for sale.

The appellant's appeal to the High Court and another under the Letters Patent were both dismissed.

On appeal by special leave: Held, that a mortgage debt would create a pecuniary liability upon the 1nortgagor and would be covered bv, the definition of the word "debt" in s. 2(6) of the Act.

There is nothing in any provision of the Act which would cut down the plain meaning of the words "pecuniary liability" as used in s. 2(6) read with sub-cl. (c) thereof or restrict those wide words to liability other than that secured by a mortgage.

Under sub-cl. (c) o[ s. 2(6) a displaced person to whom a mortgage debt is due f rorn any or her person, whether a displaced ,. person or not, ordinarily residing in the territories to which the Act extends can take the benefit of this Act.

- '

The interest of the prior mortgagee or the subsequent mortgagee if any would not be affected by a decree passed on an application under s. 13 of the Act.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 38 of 1960.

Appeal by special leave from the judgment and order dated October 6, 1958, of the Punjab High Court in Letters Patent Appeal No. 52 of l C)i)4, arising out of the judgment and order elated June Fi, 1954, of the said High Court in First Appeal from Order

No. 149 of 1953.

Y. Kumar, for the appellant.

Bakshi Man Singh and Sardar Singh, for the respondents.

1960. April 20.

The Judgment of the Court was delivered by

\VANCHOO, J.-This is an appeal by special leave against the judgment of the Punjab High Court.

The brief facts necessary for present purposes are these.

The appellant had executed two usufructuary mortgages with respect to two properties situate in Ferozepore citv in favour of the respondents in J 946.

She also took both properties on lease on the same date.

An application was filed by the respondents under s. 13 of the Displaced Persons (Debts Adjustment) Act, >Jo. LXX of J 951 (hereinafter called the Act), for recovery of the principal sum due as well as the rent which was said to be inarrears.

The application was resisted by the appellant on various grounds, one of which was that no snch application lay as the liability was not a debt under the Act.

The tribunal negatived the contention of the appellant and passed a preliminary decree for sale.

Six month's time was allowed to the appellant to pay the decretal amount, failing which the respondents were at liberty to get a final decree prepared and bring the properties to sale.

The appellant went in appeal to the High Court but the appeal was dismissed.

Then there was a Letters Patent Appeal, which was also dismissed.

The appellant then applied for and was granted special leave bv this Court, and that is how the matter has come UJJ before us.

The only point for our consideration is whether t.he liability created under a mortgage is a debt within

Rtefkumari Kausha/..yadevi

Bawa Prifma

Singh

Wmzchoo ].

Raj/,-umnri

Kausharadeui

Bawa Prilmn

Si11gh

Jf'anchnn J.

the meaning of s. '.2(G) of the Act.

The rclev; mt part of that provision rum as follows:-

" 'Debt' meam any pecuniary liability, whether payable presently or in future, or under a decree or order of civil or revenue court or otherwise, or whether ascertained or to be ascertained, which-

(a) in the case of a displaced person who has left or been displaced from his place of residence in any area now forming part of West Pakistan, was incurred before he came to reside 111 any area now lorming part of India;

(b) in the case of a displaced person who, before and after the l.th day of August, 1947, has been residing in any area now forming part of India, was incurred before the said date on the security of any immovable property situate in the territories now forming part of 'Vest Pakistan:

Provided that where any such liability was incrn red on the security of immovable properties situate both in India and in 'Nest Pakistan, the liability shall be so apportioned between the said properties that the liability in relation to each of the said properties bears the same proportion to the tutal amount of the debts as the value of each of the properties as at the date of the transaction hears to the total value of the properties furnished as security, and the liability, for the purposes of this clause, shall be the liability which is relatable to the property in vVest Pakistan;

(c) is due to a displaced person from any other person (whether a displaced person or not) ordinarily residing in the territories to which this Act extends;

x x x x

The contention 011 behalf of the appellant is that the liability 1111<10 a mortgage is not a pecuniary liability and therefore s. 2(6) will not apply to a mort- . gage debt.

It is further urged that the scheme of the Act shows that mortgages in relation to properties situate in what is now India are not covered by the Act at all.

"" r •

nebt is defined in s. 2(6) as meaning any pecuniary 1iability and has been restricted by the three subclauses _in the sub-ection with reference to the person who might be o-wrng the debt 01~ to whom the debt might be owed. Sub-els. (a) and (b) refer to the debts owed by a displaced person as defined in the Act while sub-cl. (c) refers to a debt due to a displaced person.

Sub-cl. (c) has therefore to be taken independently of snb-cls. (a) and (b), for it refers to a creditor who is a displaced person while the other two sub-clauses refer to a debtor who is a displaced person.

Under subcl. (c) a displaced person who is a creditor can recover the debt clue to him from any other person, whether a . displaced person or not, who is residing in the territories to which the Act extends.

The main contention of the appellant in this connection is that a mortgage debt is not a pecunfary liability and therefore does not fall within the definition of debt at all. vVe are of opinion that there is no force in this contention; The words "pecuniary liability" will cover any liability which is of a monetary. nature.

Now the definition of a. mortgage in s. 58 of the Transfer of Property Act.

No. 4 of 1882, shows that though it is the transfer of an interest in specific immovable property, the purpose of the transfer is to secure the payment of money advanced or to be advanced by way of loan or to secure an existing or future debt or the performance of an engagement which may give rise to a pecuniary liability.

The money advanced by way of loan, for example, which is secured by a mortgage, obviously creates a pecuniary liability.

It is true that a mortgage in addition to creating the pecuniary liability also transfers interest in the specific immovable property to secure that liability; none the less the loan or debt to secure which the mortgage is created will remain a pecuniary liability of the person creating the mortgage .. Therefore a mortgage debt would create a pecuniary liability upon the mortgagor arid would be covered by the definition of the word "debt" in s. 2(6). v\Te may in this connection refer to the Displaced Persons (Institution of Suits) Act, No. XL VII of 1948, which has been practically repealed by the

ll-6 SCI/ND/82

Rajkumari Kaushalyia Devi v.

Bawa Pritma Singh

Wanchoo J.

Rajkwnari Ka11shaf.ya Devi

Bawa Pritma Singh

JVm1rlwn J.

Act.

In LiiaL hw, >11.ils relating Lo immO\'; ible pro pcny "c1-c specially excepted 1I11<le1 s. 'f, but there is no such prmision in the Act. ,\g,, in s. 6 of the Displaced Persons (Legal Proceedings) Act, No. XXV of

I 'll'l, which has also ],.:en repealed by the Act mentions decrees or orden for payment of money while in s.

I :'i of the Act which deals with the same matter !hose words "re omitted and the words "proreerlings in respect of any debt" are used inste'ad.

There can be no doubt in consequence that. the Act is a comprehensive law dealing "'it.h all kinds of pecuniary liability. 'Ve are thereforeof opinion that s. 2(6) dearly incllldes a mortgage debt and under sub-cl. (c) thereof a displaced person to whom such a debt is clue from any other person, whether a displaced person or not, ordinarilv residing in the territories to which the Act extends cn take die benefit of this Act.

Let us now see whether there is anything in the scheme of the Act which in any way militates against the pbin words of s. 2(fi).

Learned counsel for the appellant: in the first place refers to sub-cl. (b) of s. 2(ri) in this connection and points out that that subclanse specifically deals with mortgage debts secured on arn immovable property situate in the territories forn1ing part of 'Vest Pakistan.

Tt is nrgcd that there w:is a specific provision with respect to mortgage debts in relation to immovable properties in \\Test P"kistan and that if it were intender[ that mortgage of immovable properties situate in 'vhat is now India would also be dealt with under the Act there woulcl

have been a similar specific pronston in the Act.

Further it. is pointed out th:it the proviso to subcl. (b) lo s. 2(6) provides for apportioning the mortgage debt in c; iscs where the property on which the clcb1

is secured is both in \\Test Pakistan and in India and restricts the application of sub-cl. (b) only to that part of the clebt winch "as secured on the property i 11 '\'est: Pakistan and thm excludes from the operation of sub-cl. (h) th"t part: of the clebt which is secured on property in India.

That is undoubtedly so.

The reason howc1'C1" for this speci; il provision is to be found in the later prmision contained in s. 16 ll\· which a ch; ll'ge was created on com1, cnsation to be ,;.i, en to a ' - h '

3 S.C.R.

SUPRE1\1E COURT REPORTS 575

displaced person with respect to the mortgage debt 1960 secured on immovable property in Pakistan or in the alternative a charge vl'as created on property given Rajkumari in exchange for the property in Pakistan on which Kaushal; a Devi the debt was charged.

The special provision therev. .. fore in sub-cl. (b) of s. 2(6) would not in these circum- Bawa Pntma Singh stances cut down the plain meaning of the words used -- Wanchoo J. in sub-cl. ( c) or restrict the, wide words "pecuniary liability" to liability other than that secured by a mortgage.

Incidentally 1Ne may mention that subcl. (b) itself shows that pecuniary liability includes a mortgage debt, for it shO'ws that any liability which was incurred on the security of any immovable property situate in \'Vest Pakistan would be a debt within the meaning of s. 2(6) and therefore a pecuniary liability.

It is next urged that when the legislature excepted . the property in India which was encumbered from being dealt with under sub-cl. (b) so far as displaced debtors were concerned, there is no reason why it should allow the displaced creditors to proceed under the Act with respect to iportgage debts.

This argument, however, overlooks the provision in sub-cl. (a) under which a displaced debtor can take the benefit of the Act, once it is held that the words "pecuniary liability" also include mortgage debt.

As we have said before sub-cl. (b) was dealing with a special situation which was worked out in s. 16 of the Act and the general right of a displaced debtor to take advantage of the Act is to be found in sub-cl. (a) and that subclause will cover a mortgage debt as it is a pecuniary liability.

Reliance was then placed on s. 16(5), which gives a right to the creditor to elect tq be treated as an unsecured creditor in rebtion to the debt, in which case the provisions of the Act would. apply accordingly.

It was urged that this sub-section requires that a creditor must make an electio'n before he can take the benefit of this Act. v\Te arc of opinion that this argument has no force, for sub-s. (rl) of s. Hi only deals with , a situation which arises where the mortgage, ch::irge or lien was on immovable property situate in \i\'cst Pakistan.

It does not deal at all with cases

576 SUPREl\1E COURT REPORTS [1960]

where the morlgage, charge or lien is on immovable property siluate outside \\'est Pakistan.

Rajkumari Reference \vas Lhcn made to s. 17 of the Act. lt Kaushalya Devi deals wi t:h debts secured on mma ble properties.

That

v. section is again concerned with displaced debtors and Bawa Pritma Singh 'd ] · 'Jl ] k \ b

Wanchoo J.

prov1 es 10\v equ1t1es vv1 Je \\or cc out et\veen a displaced debtor and his creditor with respect to debts secured on movable property. \\'e see nothing in this section which can cut down the amplitude of the words used in s. 2(6)(c).

Reference was then macle to s. 21 which provides for scaling down debts.

That is however a general provision dealing with debts of all kinds and there is nothing in that section which shows that the word "debt" as defined in s. 2(6) refers only to claims for money and does not i 11clucle a mortgage debt.

Tims we sec nothing in any provision of the Act or in its scheme which would cut down the meaning we have given to the words "pecuniary liability" as used in s. 2(6) read with sub-cl. (c) thereof.

le was also urged that if mortgage debts on property situate in J ndia were covered by the Act, there is no machinery (like s. )(i) for enforcemem of the creditors' rights in respect. thereof.

This is not correct. Section 10 provides for the claim of a displaced creditor against a displaced debtor and s. 1 :; provides for the claim of a displaced creditor against any other person who is not a displaced debtor.

Section 11 then provides how an application under s. JU will be dealt: with and under sub-s. (2) thereof ; i decree can be passed under certain circumstances against the displaced debtor. Similarly under s. 14(2) a tribunal can pass such decree in relation to an application under s. IB as it thinks fit.

These decrees are executable under s. 28 of the Act.

Therefore even when the debt 1s a mortgage debt there is provision in the Act for enforcement of that debt, though of course this provision is different from the provision contained in s. 16, which was dealing with the special situation of properties under mortgage situate in vV est Pakistan.

\Ve mav also refer to s. !l of the Act which bvs down that the provisions of the Act and of t:lic Rules

and Orders made thereunder shaU have effect notwith- 1960 standing anything inconsistent therewith contained in any other law for the time being in force.

The Rajkwnari effect of this overriding provision .is to make a suit !Caushalya Devi like the ]Jresem maintainable in spite of the provisions B Pv. s , . . . awa ritma rngrl applymg to such sutts 111 other laws. -- The last contention on behalf of the appellant is Wanchoo J. that if s. 2(6)(c) empowers a displaced creditor to make an application under s. 13 even with respect to a mortgage debt, there will be hardship to prior mortgagees or subsequent mortgagees inasmuch as these persons cannot be dealt with under the Act.

Section 13 empowers a displaced person claiming .a debt from any other person who is not a displaced person to apply within one year of the coming into force of the Act in any local area to the tribunal having jurisdiction in the matter.

The provision is obviously e.nacted to give relief for a short period only.

Section 25 of the Act provides for the regulation of all proceedings under the Act by the provisions contained in the Code of Civil Procedure save as expressly provided in the Act or in any rules made thereunder.

But assuming that in spite of this provision, 0. XXXJV, r. 1 of the Code of Civil Procedure will not apply to proceedings under the Act and all -those having an interest in the mortgage security cannot be joined as parties as required by 0. XXXIV, r. I, the interest of prior or puisne mortgagees cannot in any case be affected by the decree passed under the Act. The Explanation to

0. XXXIV, r. I, shows that a prior mortgagee need not be made a party to a suit for sale by a puisne mortgagee.

So far .therefore as a prior mortgagee is concerned, his rights will not be affected by the decree passed under s. 13 of the Act, just as his rights are not ; iffected by the decree passed under 0. XXXlV.

So far as mortgagees subsequent to the displaced creditor who applies under s. l ;3 ; ire concerned, their interests will also not be jeopardized by the deo:ee which may be passed under s. I :l.

Even under 0. XXXlV, which requires puisne or wbsequent mortgagees to be joi 11ed as parties in a suit for sale, a <lecree obt; ii ned in a suit lo which the s11bscg11cnt mottgagce was not joined as a party cloes not affect his rights and Lhe

z96o proceedings in such a. suit a.re not binding on him so Rajkumarl. as to affect his rights und.er the second mortgage. He Kaushalya v.V; can thus follow the property by suing his mortgagor, . v. even though it may have been sold under the decree . ilawaPritmaSingliofa.U: earlier mortgagee in a. suit to which he was not a.. pa.rty .• __ Therefore, .the interest of the prior mort- Wa,,.hoo' J • . gagee or the subsequent mortgagee, if any, would not . be affected by a decree passed on an application under s. 13 and there is no reason therefore to cut down the plain meaning of the words used in B. 2 (6}(c) on the ground that the procedings: under the .Act would prejudicially-. affect' the -rights• of: prior or puisne

r96o

April zo.

mortgagees>•·• ' · . ., ·-· _ • • r "' • There is therefore no.· force in this appeal and it is hereby dismissed with costs." .... ·: ·

" ·:·r:, _; ~-. ,' -'. ;:T .... Appl dis1nissed. ,··

'.,,

' - .. , :r , li ·.: .~.:,:~IAHAi>EOL.AilKANODIA,.· .. rr: li'. -, 11 - - '. •• -i ~-1 - . ;_i ::· . .i ;_ •l .. ~:f-, ·:.~·:_ -· ' '";_,.::-,~ ,, v•, '•' ,-,; U'i ~. ' ('. ":.<:· ' / >, : .-THE -.AD~IINISTRATOR-GENERµ. OF-.

.; ... , ,, ; .:"' <:, ... WESTBENGA.L.• ;'-:\'-·" ·

- , ' :• j • ' ' . (P .. B. GA.JENDRAGADKAR,- K. N; . w ANCHOO . : .•·· "' :.':and K. C. DAs Gm.A.; JJ:)- - ..

'!\~-,~-- : .• _-:-.-~_!;:; i ,,_.',:.,_~.·- ~-' •.. '.:;; -· .. , • .Thika Tenancy..,-Decree for possession against tenant-Applicaiicln'f<W rdiefby lenant-,-Amendment. of Act withretrospective

'operation~Effect-:.fnterpretation of Statute-Principles of construction~Thika Tenancy• Act (W:B. z of r949f; s. 28-Thika. Tenancy Amendment Act (W .B. 6 of r953). s.'I(z). ·. -:: ·with a" view to i; ive protection to Thika' tenants against eviction and in certain.other matters, the West Bengal -Legislature enacted -the Calcutta Thika Tenancy Acti 1949 .. That Act . was amended by the Calcutta Thika Tenancy Amendment Act,

:i:g5j, which omitted s: 28 of the Act. The question for decision in

- the appeal was whether . the cappellant against whom proceedings

for' execution of a decree for ejectment was pending, who had appli~ __ . ed -for, relief under s; 28 when that section was in force, was - -

 entitled:to have his ; application , disposed of in accordance with the provisions of s. 28, which had ceased to exist retrospectively though. it remained undisposed of 'on the date the Amendment Act came into force:· • · · ' - . '. . .. ·: · ·· ", r; Held, thats, 1, 'sub-5: (2) Of the Calcutb. Thlka 'Tenanc{A.ct t953,• clearly intended that no reilef under s.' 28 of the brigfnal

High Court of Bombay

11

BAWA PRJJ":'.JA SINGH AND ANOTHER

K. c. DAS GUPTA, JJ.

ss. 2(6)

s. 13

India

s. 2(6)

s. 2(6)

s. 2(6)

s. 13

Punjab High Court

Y. Kumar

Bakshi Man Singh

Sardar Singh

\VANCHOO

s. 13

Jf'anchnn

l.th day of August, 1947

Nest Pakistan

s. 2(6)

s. 2(6)

s. 58

Transfer of Property Act

s. 2(6)

s. 6

s. 2(6)

s. 2(fi)

s. 2(ri)

s. 2(6)

s. 16

Pakistan

Rajkumari

Kaushal

s. 2(6)

Bawa Pntma Singh

Wanchoo

s. 2(6)

s. 16

s. 16(5)

s. 17

Kaushalya Devi

s. 2(6)(c)

s. 21

s. 2(6)

s. 2(6)

Section 10

s. 1

Section 11

s. 14(2)

s. 28

s. 16

Caushalya Devi

s. 2(6)(c)

s. 13

Section 13

Section 25

the Code of Civil Procedure

the Code of Civil Procedure

s. 13

s. 13

s. 28

Tenancy Amendment Act

s. 28