January 25.

SUPREME COURT REPORTS [1960 (2)]

J. V. GOKAL & Co. (PRIVATE) LTD. v.

THE ASSISTANT COLLECTOR OF SALES-TAX

(INSPECTION) AND OTHERS (B. P. SINHA, c. J., P. B. GAJENDRAGADKAR, K. SUBBA RAO, K. c. DAS GUPTA AND J. c. SHAH, JJ.) Sales Tax-Sale in the course of import-Goods on high seas- Transfer of shipping documents against payment Whether amounts to delivery of goods-Whether transaction exempt from tax- Constitution of India, Art, 286(r)(b).

The petitioner who entered into contracts with the Government of India for the supply of certain quantities of sugar of foreign origin, placed orders \vith dealers in foreign countries and made arrangements for transporting the goods to Bombay by engaging steamers. When the goods were on the high seas and before the vessels arrived at Bo1nbay harbour, the petitioner delivered to the Government the shipping documents including the bill of lading pertaining to the goods and received the price.

After the goods reached the port, they were taken delivery of by the Government of India after paying the requisite customs duties to the authorities concerned.

For the assessment year 1954-55, the Assistant Collector of Sales Tax held that sales tax was payable by the petitioner in respect of the transaction relating to the sugar sold to the Government. The petitioner claimed, inter alia, that the sales had taken place in the course of import and therefore they were not liable to sales tax under Art. 286(1)(b) of the Constitution of India.

But it was contended for the Sales Tax Authorities that the sales were not in the course of import and that, in any case, under the terms of the contracts the intention of the parties was that notwithstanding the delivery of the bills of lading against payment the property in the goods should not pass to the Government till actual delivery was made.

Held:

(1) that under Art. 286(r)(b) of the Constitution of India the course of the import of the goods starts at a point when the goods cross the customs barrier of the foreign country and ends at a point in the importing country after the goods cross the customs barrier ;

(2) that an importer can, if he receives the shipping documents, transfer the property in the goods when they are on the high seas to a third party by delivering to him shipping documents against payment and such a sale is one made in the course of import;

(3) that the delivery of a bill of lading while the goods are afloat is equivalent to the delivery of the goods themselves; Sanders Brothers v. Maclean & Co,, (1883) II Q. B. D. 327, relied on.

(4) that oii a true construction of the contracts in question the property in the goods passed to the Government of India

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when the shipping documents were delivered to them against I{!6o payment; and (S) that the sales in question took place in the course of]. V. Gol1at & Co import into India and were exempted from sales tax under Art. v. 286(r)(b) of the Constitution.

Assistant State of Travancore-Cochin v. The Bombay Co. Ltd., [1952] Collector of S. C. R. III2, followed.

Sales-Tax ORIGINAL JURISDICTION: Petition No. 38 of 1959.

Petition under article 32 of the Constitution of India for enforcement of Fundamenal Rights.

Purshottam Tricumdas, and I. N. Shroff, for the Petitioner.

A. V. Viswanatha Sastri, R. Ganapathi Iyer and R. H. Dhebar, for the respondents.

N. A. Palkhivala and I. N. Shroff, for Interveners Nos. 1 to 3 (The Bombay Chamber of Commerce & Industry, Bombay and others).

C. J(. Daphtary, Solicitor General of India and T. M. Sen, for intervener No. 4 (Attorney-Genral for India).

1960. January 25.

The Judgment of the Court was delivered by Subba Rao].

SuBBA RAO, J.-This is a petition under Art. 32 of the Constitution for quashing the order of the first respondent dated February 9, 1959, setting aside the order .of the second respondent allowing a deduction of an amount of Rs. 1,86,42,730-15-0 from the petitioner's sales tax turn-over on the ground that the said amount was not liable to tax by virtue of s. 46 of the Bombay Sales Tax Act, 1953 (Act III of 1953), (hereinafter called the Act).

The material facts are not in dispute and they may be briefly stated : The petitioner is a private company within the meaning of the Companies. Act, 1956, and has its registered office at Kasturi Buildings, Bombay-I. On March 24, 1954 and April 15, 1954, the petitioner entered into two contracts with the Government of India for selling to the latter two

consignments of sugar-one of 9500 Long Tons of sugar of Peruvian origin and the other of 25000 Metric Tons of sugar of continental origin. To fulfil the terms of the contracts, the petitioner placed order with dealers in foreign countries. The following are the particulars relating to the first contract dated

r960 March 24, 1954, for the Rupply of 9500 Long Tons of -- sugar: ]. V. Gokal & Co

(i) 3rd April, 1954 Letter of Credit opened by the petitioner. v.

Assistant Collector of

Sales~Tax

Subba Rao].

(ii) 3rd l\fay, 1954 S. S. Alba sails from Sala verry (Peru) carrying 9782.01688 Long Tons of sugar.

(iii) 26th May, 1954 The petitioner delivered to its

(iv) 7th June, 1954

(v) 26th June, 1954

Bankers, the Central Bank of India Limited, Bombay, along with the invoice for Rs. 50,35,405-11-0

the Documents of Title (viz. the Bills of Lading duly endorsed in favour of the Government of India, Ministry of Food & Agriculture (Agriculture) to the above goods) together with other papers (such as Certificates) and instructed the said Bankers to present the same to the Government of India, and to collect the said amount of Rs. 50,35,405-11-0 from the Deputy Accountant General (Food & Rehabilitation), New Delhi ........ .

Payment made to petitioner's Bankers by the Government of India against delivery of Invoice and Bills of Lading.

Date of arrival of S. S. Alba at Bombay Harbour.

The corresponding details pertaining to the second contract are as follows :

Vessel Vessel Vessel S. S. Eleni s. s.

S.S. Inger Stathatos Giovanni Marie Amendola I.

II.

III.

IV.

(i) 9910-858 9919-7158 4464-315 Total 24292- 8888 Tons.

Tons.

Tons Tons.

(ii) 15/6th 15/6th 15/6th Letter of Credit opened June. 1954. June, 1954. June, 1954 by petitioner.

(iii) roth 31st July, 31st July, Date of Sailing of July, 1954. 1954. 1954, Vessel.

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....,

...

Ig6o Vessel S.S. Eleni

Stathatos

Vessel s. s.

Giovanni Amendola

Vessel S.S. Inger Marie ]. V. Gokal & Co.

(iv) 22nd 12th August.16th August, July, 1954. 1954. 1954.

(v) 26th 18th August,19th August, July, 1954. . 1954. 1954.

(vi) 12th 3rd Septem- 9th Septem- August 1954. ber, 1954. ber, 1954.

The petitioner delivered to its Bankers, the Bank of Baroda Limited, Bombay, along with its invoices for Rs. 50,43,501-8-0, Rs. 22, 69,800-13-0, Rs. 50,38, 997-14-0 respectively the Documents of Title (viz. the Bills of Lading) duly endorsed in favour of the Government of India, Ministry of Food & Agriculture (Agriculture) to the above goods together with other papers (such as Certificates) and instructed the said Bankers to present the same to the Government of India and collect the said amounts of Rs. 50.{3, 501-8-0, Rs. 22,69, 800-13-0 and Rs. 50,38, 997-14-0, from the Deputy Accountant General (Food & Rehabilita- _ tion) New Delhi.

Payment made to the petitioner's Bankers by the Government of India against delivery of Invoices and Bills of Lading.

Date of arrival of Vessel at Bombay Harbour.

The foregoing particulars disclose that some weeks before the vessel arrived at the Bombay harbour, i.e., when the vessels were on the high seas, the Government of India received the documents of title, including bills of lading, pertaining to the sugar purchased by them and paid the price to the petitioner. Indeed after the goods reached the port, they were unloaded, taken delivery of, and cleared by the Government of

Assistant Collector of

Sales-Tax

Subba Rao f

India after paying the requisite customs duties to the authorities concerned. f. v. Gvkat & Co.

For the assessment year 1954.55, i.e., April 1, 195! v.

Aosistant to March 31, 1955, the petitioner was assessed to sales- Coll"tor of tax by the Sales Tax Officer, Licence1Circle, Division 1, Sales-Tax Bombay. In calculating the turn-over of the petitioner, the Sales Tax Officer deducted the price of the Subba Rao J. said two sales from the petitioner's turn-over. On January 31, 1958, the first respondent, the Assistant Collector of Sales Tax, issued a notice to the petitioner under s. 31 of the Act proposing to review the said assessment order passed by the Sales Tax Officer. In due course the petitioner filed objections and made his representations. The petitioner contended before the first respondent that the notice should have been

• issued, if at all, under s. 15 and not under s. 31 of the Act inasmuch as the sales had been disclosed to the Sales Tax Officer and the deduction of the same had been allowed by him. It was also pleaded that in any event the sales had taken place in the course of import and therefore they were not liable to sales tax. The first respondent rejected both the contentions and held that sales tax was payable in respect of the said two transactions. He reassessed the petitioner to a total amount of sales tax and general tax of Rs.10,22,850-12-0 .Jess Rs. 315-3-0 already paid by the petitioner, i.e., a sum of Rs. 10,22,535-9-0 and directed the second respondent, the Sales Tax Officer, to issue a notice of demand for the said amount. Pursuant to that order, the second respondent issued a notice dated ]'ebruary 14, 1959. The petitioner has filed the present petition for the issue of a writ of certiorari cancelling the demand notice issuPd by the second respondent.

The learned Solicitor-General intervened on behalf of the Union Government and Mr. Palkhivala intervened for interveners 1 to 3, and both of them supported the petitioner.

Mr. Purshottam Tricumdas, appearing for the petitioner, raised before us the following contentions:

(1) Under Art. 286(l)(b) of the Constitution, as it stood before the Constitution (Sixth Amendment) Act, 1956, the sales in question were not liable to sales tax inasmuch as they took place in the course of import of the

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goods into the territory of India; (2) the said sales z960 were exempted from sales tax by the Bombay State v - under the explanation to Art. 286(1) of the Constitu- 1 Gokal & co. tion, as the goods were delivered for the purpose of As:tant consumption in States other than Bombay; (3) the Collector of sales were effected outside the State of Bombay i.e., Sales-Tax New Delhi, and therefore they were also exempted under Art. 286(l)(a} of the Constitution; and (4) the Subba Rao J. first respondent could have only interfered with the earlier order of assessment under s. 15 of the Act within three years from the end of the assessment year 1954-55, i.e., March 31, 1955, and that the said period havingelapsed, hehad no power to interfere in revision under s. 31 of the Act.

The first point is the most substantial. one in the case and if the petitioner succeeds on that point, no other question would arise for consideration.

The first question turns upon the interpretation of Art. 286(l)(b) of the Constitution before it was amended by the Constitution (Sixth Amendment) Act, 1956.

The said Article read ;

"(1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale cir purchase takes place- ............................................................

(b) in the course of the import of goods into, or export of the goods out of, tho territory of India. " Under this Article, if the sales by the petitioner to the Government of India took place in the course of the import of the goods into the territory of India, the Bombay State would have no power to impose sales tax on the said sales.

What does the phrase "in the course of the import of the goods into the territory of India" convey? The crucial words of the phrase are "import" and " in the course of". The term "import" signifies etymologically " to bring in ". To import goods into the territory of India therefore means to bring into the territory of India goods from abroad. The words "course " means " progress from point to point". The course of import, therefore, starts from one point and ends at. another.

It starts when the goods cross the customs barrier in foreign country and erids when they cross.the customs

z96o barrier in the importing country. These words were - subject of judicial scrutiny by this Court in State of J. v. Gokol & Co. Travancore-Oochin v. Shunmugha Vilas Cashew Nut

Factory (1).

Construing these words, Patani"ali Sastri Assistant Colleclo' of C.J., observed at p. 62 : Sales-Tax " The word "course" etymologically denotes movement from one point to another, and the Subba Rao J. expression "in the course of" not only implies a period of time during which the movement is in progress but postulates also a connected relation. " As regards the limits of the course, the learned Chief Justice observed at p. 68 :

"It would seem, therefore, logical to hold that the course or the export out of, or of the import into the territory of India does not commence or termi- . nate until the goods cross the customs barrier. " Das, J., as he then was, in his dissenting judgment practically agreod with Patanjali Sastri, C. J., on the interpretation of the said words. The learned J ud.ge expressed his view at p. 92 thus :

" The word "course" conveys to my mind the idea of a gradual and continuous flow, an advance, a journey, a passage or progress from one place to another. Etymologically it means and implies motion, a forward movement. The phrase "in the course of" clearly has reference to a period of time during which the movement is in progress. . Therefore, the words "in the course of the import of the goods into and the export of the goods out of the territory of India " obviously cover the period of time during which the goods are on their import or export journey".

We respectfully agree with the aforesaid observations of the learned Judges. The course of the import of the goods may be said to begin when the goods enter their import journey, i.e., when they cross the customs barrier of the foreign country and end when they cross the customs barrier of the importing country.

The next question is, when can it be said that a sale takes place in the course of import journey ?

This Court in State of Travancore-Oochin v. The Bombay Go. Ltd. (2) held that a sale which occasioned

(1) [1954J s.c.u. s~

(2) [1952] S.C.R. III2

I ~

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the export was a sale that took place in the course of r960 export of the goods. If A, a merchant in India, sells his - goods to a merchant in London and puts through the f. v. Gokal & Co. transaction by transporting the goods by a ship to Ass~; tant London, the said sale which occasioned the export is Collector of exempted under Art. 286(l)(b) of the Constitution from Sales-Ta" the levy of sales tax:. The same principle applies to a converse case of goods which occasioned the import of Subba Rao J. the goods into India. This Court again in State of Travancore-Cochin v. hanmugha Vilas Cashew Nut Factory (1) extended the doctrine to a case of ale or a purchase of goods effected within the State by transfer of shipping documents while the goods were in the course of transit. The decision dealt with three types of purchases, viz., (i) purchases made in the local market; (ii) purchases made in the neighbouring districts of an adjacent State; and (iii) imports from Africa. The imports from Africa consisted of two groups-one group consisted of goods that were purchased when they were on the high seas and_ shipped from the African ports to Cochin or Quilon : we are not concerned with the other group. In the said case som~ commission agents at Bombay arranged for the purchase on behalf of the assessee, got delivery of the shipping documents at Bombay through a bank which advanced money against the shipping documents and collected the same from the assessees at destination. This Court, by a majority, held that, in respect of the purchases falling under the first group of imports, the commission agents acted merely as agents of the respondents therein and that the said purch<tses occasioned the import and therefore came within the exemption. That was not a case where the goods were sold by an importer in India to a third party when the goods were on the high seas. It was a case where a party in Cochin purchased goods which were on the high seas through his ageqt at Bombay and the agent paid the price through a bank against the shipping documents. But the learned Judge, Patanjali Sastri, C. J., expressing the majority view, considered the scope of the exemption in all its aspects and summarized the conclusions thus at p. 69;

(1) [1954] S.C, l{, 53•

J. V. Gokal & Co. v.

Assistant Collector of

Sales-Tax

Subba Rao].

"Our conclusions may be summed up as follows:-

(1) Sales by export and purchases by import fall within the exemption under article 286(l)(b) ..... . . ..... (2) Purchases in the State by the exporter for the purpose of export as well as sales in the State by the importer after the goods have crossed the customs barrier are not within the exemption. (3) Sales in the State by the exporter or importer by transfer of shipping documents while the goods are beyond the customs barrier are within the exemption, assuming that the State power of taxation extends to such transactions. " Das, J., as he then was, in his dissenting judgment, agreed with Patanjali Sastri, C. J., on the third conclusion with which we are now concerned. The learned Judge put forward his view at p. 94 thus:

"Such sales or purchases, by delivery of shipping documents while the goods are on the high seas on their import journey were and are well recognized species of transactions done every day on a large scale in big commercial towns like Bombay and Calcutta and are indeed the necessary and concomitant incidents of foreign trade. To hold that these sales or purchases do not take place " in the course of" import or export but are to be regarded as purely ordinary local or home transactions distinct from foreign trade, is to ignore the realities of the situation. Such a construction will permit the imposition of tax by a State over and above the customs duty or export duty levied by Parliament.

Such double taxation on the same lot of goods will increase the price of the goods and, in the case of export, may prevent the exporters from competing in the world market and, in the case of import, will put a greater burden on the consumers. This will eventually hamper and prejudically affect our foreign trade and will bring about precisely that calamity which it is the intention and purpose of our Constitution to prevent." The learned Judge also in his judgment elaborately considered the great hardship that would be caused to an Indian importer ifhe was not permitted to sell the goods which were on the high seas by delivery oJ

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shipping documents against payment. Though that z96o case dealt with a different situation, we agree with the - learned Judge's observations that an importer can, if.I v. Gokal & co. he receives the shipping documents, transfer the v.

Assistant property in the goods when they are on the high seas Collector of to a third party by delivering to him shipping docu- Sales-Tax ments against payment and such a sale is one made in the course of import.

Subba Rao].

The legal position vis-a-vis the import-sale can be summarized thus; (1) The course of import of goods starts at a point when the goods cross the customs barrier of the foreign country and ends at a point in the importing country after the goods cross the customs barrier ; (2) the sale which occasions the import is a sale in the course of import; (3) a purchase by an importer of goods when they are on the high seas by payment against shipping documents is also a purchase in the course of import and (4) a sale by an importer of goods, after the property in the goods passed to him either after the receipt of the documents of title against payment or otherwise, to a third party by a similar process is also a sale in the course of import.

The next question is whether the sales by the petitioner to the Government of India are sales in the course of import. From the facts narrated supra, it is seen that the petitioner, pursuant to the earlier contracts entered into with the Government of India, delivered the shipping docume'nts, including the bill of lading to the Government against payment when the goods were on the high seas. In view of the foregoing discussion, it should be held that the sales fall under the fourth principle and therefore they were sales that took place in the course of import of the goods into India. A bill of lading is "a writing, signed on behalf of the owner of the ship in which goods are embarked, acknowledging the receipt of the goods, and undertaking to deliver them at the end of the voyage subject to such conditions as may be mentioned in the bill of lading'. It is well settled in commercial world that a bill of lading represents the goods and the transfer of it operates as a transfer of the goods, The legal effect of th.e transfer of a bill of

z9<0 lading has been enunciated by Bowen, L. J., in Sanden - Brothers v. Macl-an & Go. (1) thus at p. 341: J. v. Gokal & Co. "The law as to the indorsement of bills of lading A,,:; tant is as clear as in my opinion the practice of all Collector of European merchants is thoroughly understood. A Sal<S-Tax cargo at sea while in the hands of the carrier is

Subba Rao]. necessarily incapable of physical delivery. During this period of transit and voyage, the bill of lading by the law merchant is universally recognised as its symbol, and the indorsement and delivery of the bill of lading operates as a symbolical delivery of cargo.

Property in the goods passes by s_uch indorse_ment and delivery of the bill of lading, whenever it is the intention of the parties that the property should pass just as under similar circumstances the propei:ty would pass by an actual delivery of the goods.

And for the purpose of passing such property in the goods and completing the title of the indorsee to full possession thereof, the bill of lading, until complete delivery of the cargo has been made on shore to some one rightfully claiming under it, remains in force as a symbol, and carries with it not only the full ownership of the goods, but also all rights created by the contract of carriage between the shipper and the shipowner. It is a key which in the hands of a rightfull owner is intended to unlock the door of the warehouse, floating or fixed, in which the goods may chance to be. " We have quoted the passage in extenso as it clearly and fully states the law on the subject. It is not disputed that the law in India is also similar to that in England. The delivery of the bill of lading while the goods are afloat is equivalent to the delivery of the goods themselves. The learned counsel concedes that ordinarily that will be so, but contends that in the present case, the contract clearly indicates that the intention of the parties was that till actual delivery was made the property in the goods would not pass to the buyer. Both the contracts are similar in terms and they follow the standard terms prescribed by the Government. The main terms of the contracts may be summarized thus:

(I) (1883) II Q.B.D. 327.

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....

...

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The first clause defines the term "sellers" to mea.n

I,60 the party selling the sugar and the term "the Govern- J. v. Gok., z & Co. ment" to mean the President of India. Clause 2 prescribes that suitable gunny bags approved by 'Ass;; tant the Government should be used for importing sugar. collector of Clause 3 provides for inspection of quality, weight Sales-Tax and packing of sugar by the Government at the time of shipment. Clause 4 says that sugar shall be shipped Subba Rao f. to particular ports. Clause 5 compels the sellers to engage steamers on charter terms, empowers the Government to take delivery of the goods at the port of discharge from the ship's rail and imposes the burden on the sellers to meet the expenses of stevedoring, lighterage where necessary, hiring of cranes, dock dues and pilotage. Clause 6 deals with the mode

o~ payment for supplies made; under that clause the sellers are to submit a bill for full •payment of cost and freight value to the Government in the Ministry of Food and Agriculture; New Delhi, duly supported by a complete set of clean on board bills of lading consisting of three negotiable and three non-negotiable copies, a certificate of origin of sugar, a certificate of quality, weight and packing, a certificate from the ship-owners that the freight has been paid in full and that the ship owners retain no lien whatsoever on the cargo on that account. Under clause 6 (c) letter of credit shall be opened by the sellers at their cost, and the Government of India agree to arrange for the foreign exchange as necessary to the extent of the cost-and-freight-value of the quantity of sugar purchased on the production of an import licence which will be issued on application to the proper authority on their prescribed form.

Clause 8 confers on the Government a right, in the event of the sellers' failure to supply the sugar in accordance with the terms of the contract, to recover any sum as liquidated damages, and/or by way of penalty upto a prescribed amount. Clause 9 authorizes the Government, in the event of the sellers failing to observe or perform any provisions of the contract, to terminate the contract forthwith. Clause II under the heading "Force Majeure" confers on the Government, in case delivery in whole or in part is prevented or delayed directly no

r960 or indirectly by any cause of ]'orce Majeure, war, - strikes, rebellion, insurrection, political disturbances, J. v. Gokal & Co. civil commotion, fire or flood, on account of plague

v. or other epidemics, the right to cancel the contract Assistant c011"10, of for the quantities so prevented or delayed. After the Saleo-Tax sellers entered into the contracts, they obtained the requisite licences from the Government, opened letters Subba 11ao J. of credit, placed orders with foreign companies, engaged a steamer on charter terms, took delivery of the goods from the foreign firms and, when the goods were on the high seas, delivered the documents of title to the Central Government against payment and the said Government, taking the licence from the sellers, cleared the goods at the Bombay harbour.

Let us now scrutinize the terms of the contract to ascertain whether they disclose any intention of the parties that notwithstanding the delivery of the bill of lading against payment the property in the goods should. not pass to the Government. The circumstances under which the contracts were entered into between the parties indicate that both the parties were interested to see that property in the goods passed in the ordinary way when the shipping documents were handed over to the Government against payment. The sellers had to meet their liability to the foreign companies with whom they opened letters of credit and the Government must have been anxious to get the title to the goods so that the sellers might not divert the goods towards their other commitments or to other buyers for more tempting prices. Under the contract every safeguard for securing the goods of agreed specifications was provided for in the earlier clauses and therefore there was no reason for postponing the passing of the property in the goods to the buyer till the goods were actually delivered in the port. The sellers on their side would have been anxious that the property should pass when the goods were on the high seas, for otherwise they would be compelled to pay sales tax. Nor are the clauses of the contracts relied upon by the respondents inconsistent with the property in the goods passing in accordance with the mercantile usage. The liability undertaken by the sellers to meet the expenses relating

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...

to stevedorage, lighterage where necessary, hiring of rg6o cranes, dock dues and pilotage, at the time of delivery 1 v ~1 & c of the goods on which reliance is placed to indicate a · :.a o. contrary intention, in our view, has nothing to do Assistant with the question raised, for that liability can rest Collector of with the sellers even after the property in the goods Sales-Tax has passed to the buyers; nor clauses 9 to 11 on which Subba Rao]. strong reliance is placed by the learned counsel are inconsistent with the property in the goods passing 1 to the buyer; they could legitimately be made applicable to a point of time when the property in the goods has not passed to the buyer. If the sellers fail to observe the performance of any provisions of the . contracts before the property in the goods passed to the buyer, under clause 9 of the contracts the buyer can cancel the contract. So too, under cl. II, if any contemplated mishap takes place on the high seas by force majeure, the seller shall send a cablegram to that effect and the buyer is empowered to cancel the whole of the contract or a part of it. This also applies to a point of time before the property in the goods has passed to the buyer. If, on the other hand, the seller delivers the shipping documents against payment and thereafter if he does not deliver the goods at the port, the buyer may have other remedies for the recovery of damages etc. But that right is not covered by either cl. (9) or cl. (11) of the contract. A scrutiny of all the terms of the contract does not indicate the intention that the property in the goods shall not pass to the buyer notwithstanding delivery of shipping documents against payment.

Apart from the terms of the contract, reliance is also placed by the learned counsel for the respondents on the following circumstances: (i) the seller himself chartered the ship; and (ii) the licence issued by the Government was made non-transferable. We do not see how these two facts indicate the contrary intention.

If the seller himself chartered a steamer, when the goods he purchased were loaded in the ship, the. property in the goods passed to him and therefore he was in a position to sell the same to the Government.

The fact that the licence was non-transferable has no relation to the property in the goods passing

I960 to the Government. The licence issued by the Govern- - ment is an exercise of the statutory power under the J. v. Goilal & Co. relevant Act.

Whether the petitioner sold the goods

Asstant to the Government or to a third party, he had to Collector of obtain a licence.

Indeed in the present case, the Sales-Tax• licence was given to the seller with the express object of fulfilling the contracts with the Government and Subba Rao J. was issued several days after the contracts were executed, and indeed the Government took the licence from the seller and cleared the goods through their officer.

Ig60

January 29

For all the foregoing reasons we hold that the property in the goods passed to the Government of India when the shipping documents were delivered to them against payment. It follows that the sale of the gooQ.s by the petitioner to the Government of India took place when the goods were on the high seas.

That being so, the sales in question must be held to have taken place in the course of the impor~ into India and therefore they would be exempted from sales tax under Art. 286(1)(b) of the Constitution.

In this view, no other question. would arise for consideration. In the result the order of the Assistant Collector of Sales Tax is set aside and that of the Sales Tax Officer is restored. The respondents will pay the costs of the petitioner.

Petition allowed.

STATE 0]' BOMBAY & OTHERS

THE HOSPITAL MAZDOOR SABHA & OTHERS

(P. B. GAJENDRAGADKAR, K. SUBBA RAO AND

K. 0. DAS GUPTA, JJ.)

Industrial Dispu.te-Retrenchment of worhmen by hospital without compc11satio11-V alidity-H ospital, if an industry- ' l ndustry' Meaning-Industrial Disputes Act. I947 (I4 of Ig47). ss. 2(j). 25F. 25r.

The serYices of respondents 2 and 3, engaged as 'vard eervants in the J. J. Group of Hospital, Bombay, under State

control and management were retrenched without payment of ... compensation as required bys. 25F(b) of the Industrial Disputes ...

J. V. GOKAL & Co. (PRIVATE) LTD

P. B. GAJENDRAGADKAR

K. SUBBA RAO

K. c. DAS GUPTA

c. SHAH, JJ.

Constitution of India

Government of India

Bombay

Art. 286(1)(b)

Constitution of India

Art. 286(r)(b)

Constitution of India

India

article 32

Constitution of India

Purshottam Tricumdas

I. N. Shroff

A. V. Viswanatha Sastri

R. Ganapathi Iyer

R. H. Dhebar

N. A. Palkhivala

T. M. Sen

Subba Rao

SuBBA RAO

Art. 32

s. 46

Bombay Sales Tax Act, 1953

March 24, 1954

April 15, 1954

S. S. Alba

New Delhi

Subba Rao

s. 31

s. 15

s. 31

'ebruary 14, 1959

Palkhivala

Purshottam Tricumdas

Art. 286(l)(b)

Art. 286(1)

Subba Rao

s. 15

March 31, 1955

s. 31

Art. 286(l)(b)

Bombay State

Das

Patanjali Sastri

London

Art. 286(l)(b)

Africa

Cochin

Quilon

article 286(l)(b)

Calcutta

Parliament

Bowen

England

Clause 2

Clause 3

Clause 4

Clause 5

Clause 6

clause 6

Clause 8

Clause 9

Central Government

clause 9

Art. 286(1)(b)

STATE 0]' BOMBAY

HOSPITAL MAZDOOR SABHA

K. 0. DAS GUPTA

Meaning-Industrial Disputes Act

ss. 2(j)

J. J. Group of Hospital, Bombay


SUPREME COURT REPORTS [1960(2)]

I960 to the Government. The licence issued by the Govern- - ment is an exercise of the statutory power under the J. v. Goilal & Co. relevant Act.

Whether the petitioner sold the goods

Asstant to the Government or to a third party, he had to Collector of obtain a licence.

Indeed in the present case, the Sales-Tax• licence was given to the seller with the express object of fulfilling the contracts with the Government and Subba Rao J. was issued several days after the contracts were executed, and indeed the Government took the licence from the seller and cleared the goods through their officer.

Ig60

January 29

For all the foregoing reasons we hold that the property in the goods passed to the Government of India when the shipping documents were delivered to them against payment. It follows that the sale of the gooQ.s by the petitioner to the Government of India took place when the goods were on the high seas.

That being so, the sales in question must be held to have taken place in the course of the impor~ into India and therefore they would be exempted from sales tax under Art. 286(1)(b) of the Constitution.

In this view, no other question. would arise for consideration. In the result the order of the Assistant Collector of Sales Tax is set aside and that of the Sales Tax Officer is restored. The respondents will pay the costs of the petitioner.

Petition allowed.

STATE 0]' BOMBAY & OTHERS

THE HOSPITAL MAZDOOR SABHA & OTHERS

(P. B. GAJENDRAGADKAR, K. SUBBA RAO AND

K. 0. DAS GUPTA, JJ.)

Industrial Dispu.te-Retrenchment of worhmen by hospital without compc11satio11-V alidity-H ospital, if an industry- ' l ndustry' Meaning-Industrial Disputes Act. I947 (I4 of Ig47). ss. 2(j). 25F. 25r.

The serYices of respondents 2 and 3, engaged as 'vard eervants in the J. J. Group of Hospital, Bombay, under State

control and management were retrenched without payment of ... compensation as required bys. 25F(b) of the Industrial Disputes ...

Act, 1947. The respondents applied to the High Court for a writ of mandamus under Art. 226 of the Constitution.

The

Ig6o

single Judge who heard the matter held that non-payment of State of Bombay retrenchment compensation did not render the retrenchment orders invalid as s. 251 of the Act provided a specific remedy for its recovery and dismissed the application. The Division Bench on appeal reversed the decision of the single Judge upholding the

The Hospital Mazdoor Sabha

respondents' contention that the said hospitals were an industry Gajendragadkar ]. as defined by s. 2(j) of the Act and non-payment of retrenchment compensation rendered the retrenchment bad in law. On appeal by the State of Bombay.

Held, that the decision of the Division Bench was right and must be affirmed.

The mandatory language of s. 25F(b) of the Industrial Disputes Act, 1947, plain and unambiguous in effect, leaves no manner of doubt that the payment of compensation as required by it is a condition precedent to retrenchment and that s. 251 of the Act is intended to provide for the recovery of other monies that became due to the employees under Ch. V of the Act.

The object and the scope of the Act, as apparent from its various provisions, made it amply clear that the Legislature in defining the the word 'industry' in s. 2(j) of the Act was deliberately using term of wide import in its first clause and referring to several other industries in the second in an inclusive way obviously denoting extention.- In construing the definition, therefore, it is inappropriate to apply the maxim noscitur a sociis so as to restrict its meaning. The maxim is a rule of construction and can apply only where the intention of the Legislature in associating terms of wider import with those or narrower import or the meaning of the wider terms used is in doubt.

The corporation of Glasgow v. Glasgow Tramway and Omnibus Co. Ltd., 1898 A. C. 631, referred to.

Nor can undue importance be attached to the conventional meaning attributed to trade or business in construing the wide words of the definition since it has lost some of its force and can no longer be wholly valid for the purpose of industrial adjudication in a modern welfare state. It is clear that the presence of a profit motive or the investment of capital, traditionally associated with notion of trade and business, can be no indispensible requisite for an industry under s. 2(j) of the Act.

Such activities of the Governmnt as can properly be decribed as regal or sovereign activities easily fall outside the scope of the definition: But the field of such activities cannot be extended to cover. other activities which are undertaken by the State in implementation of the Directive Principles of State Policy and the ideal of a welfare State.

Coomber v. Justices of Berks, 9 A. C. 6r, referred to.

Although it 'may not be possible to enumerate all possible attributes that can make an activity an undertaking under s. 2(j) as being analogous to trade or business, the working principle should be that any activity systematically and habitually undertaken for the production or distribution of goods or for the rendering of material services to the community or a part of it State of Bombay with the help of employees organised or arranged in the manner v.

The Hospital M azdoor Sabha

of a trade or business in such an undertaking.

No question of the application of the doctrine of qu.id pro qtto can arise in deciding such a matter, for that would only be raising the question of profit motive in another form.

So judged there could be no doubt that the State in running the hospitals in question was carrying on an industry within the meaning of the Act.

D. N. Banerji v. P.R. Mukherjee, (r953) S. C.R. 302, Baroda Borough Mitnicipality v. Its Workmen, (r957) S. C. R. 33, Sri Vishitddhananda Saraswathi Marwari Hospital v. Their Workmen

(r952) II L. L. J. 327 and The Federated State School Teachers' Association of Australia v. The State of Victoria & Ors., (r929) 4r C. L. R. 569, referred to.

Brij Mohan Bagaria v. Chatterjee (N. C.) (r958) L. L. J. r90, disapproved.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 712 of 1957.

Appeal from the judgment and order dated April 18, 1956, of the Bombay High Court in Appeal No. 65of1955, arising out of the judgment and order dated July 28, 1955, of the said High Court is Misc.

Petition No. 113 of 1955.

G. K Daphtary, Solicitor-General of India, and R. H. Dhebar, for the appellants.

K. R. Chaudhuri, T. S. Venkataraman and K. R. Sharma, for the respondents.

1960. January 29.

The Judgment of the Court

Gajendragadka. ]. was delivered by . .

GAJENDRAGADKAR, J.-Thrs rs an appeal by the State of Bombay (hereinafter called the appellant) and two others and it arises from a writ petition filed against it by the Hospital Mazdoor Sabha, a trade union registered under the Industrial Trade Unions Act XIV of 1926 and two of its members Mrs.

Vatsala Narayan and Mrs. Ruth Isaac (hereinafter called respondents 1 to 3).

Respondents 2 and 3 were employed as Ward servants in the J. J. group of Hospitals. The superintendent of this said group of Hospitals informed the said respondents by notices issued respectively against them that their services would be terminated with effect from the dates mentioned in the said notices and in accordance with the said notices their services were in fact terminated;

S.O.R.

SPPREME COURT REPORTS 869

subsequently in their place two State servants who 1960 were discharged from the Civil Supplies Department were appointed. The writ petition filed by the State of Bombay v. respondents alleged that the retrenchment of Tie Hospital respondents 2 and 3 was void as it did not comply Mazdoor Sabha with the mandatory provisions of ss. 25F and 25H of the lndustrial Disputes Act, 1947 (14 of 1947) Gojendragadkar ]. (hereinafter called the Act) and it claimed a writ of mandamus directing the appellant to reinstate them in their posts.

This petition was resisted by the appellant on several grounds.

It was urged that the orders terminating the services of respondents 2 and 3 were not void and so the respondents' claim for a writ was unjustified on the merits and it was argued that the writ application was wholly misconceived inasmuch as the J. J group of Hospitals did not constitute an industry and so the relevant provisions of the Act were inapplicable to the respondent's case.

This writ petition was heard by Tendolkar J.

The learned judge did not think it necessary to consider what he called the somewhat ticklish question as to whether the group of Hospitals cons- titutes an industry because he held that even assuming that the relevant provisions of the Act were applicable and could be invoked by the respondents it was not shown that the impugned orders were void.

In his opinion non-compliance with the provisions Of

s. 25]' did not invalidate the said orders, and it was open to the respondents to seek for an appropriate remedy under s. 251 of the Act. He also held that the question about the application of s. 25H did not arise. On these findings the writ petition filed by the respondents was dismissed.

The matter was then taken before the Court of Appeal. The Court of Appeal held that the impugned orders had not complied with the mandatory provisions of s. 25F and so they were invalid and inoperative.

That is why the question as to whether s. 25H applied was not considered by it. The finding that the impugned orders were invalid for contravention of the mandatory provisions of s. 25F made it necessary to decide the larger issue as to whether the Act

1 960 applied to the Hospitals. The Court of Appeal has observed that it was first inclined to send the matter Sta.le of liombay v. back to Tendolkar J. but it was requested by the The H0>pital learned counsel appearing for both the parties that it M"zdou• Sabha would be better if the said question was decided by it -- as it was a question of law and the decision of the Gajendmgadko• f. said issue by the Court of Appeal would a, void a remand and a further a.ppeal. That is how the iswc

was considered by the Court of Appeal and answered in favour of the raspondents. In the result the decision of Tendolkar J. was reversed, the writ petition was allowed and a writ in the nature' of mandamus was issued against the appellant.

The appellant then applied for and obtained a certificate of fitness from the Bombay High Court and with the said certificate it has brought the present appeal before us. On behalf of the appellant two points have been raised for our decision in the present appeal: Was the Appellate Court justified in holding that the contravention of the material provisions of s. 25ll' of the Act rendered the impugned orders invalid; and do the relevant provisions of the Act apply to the group of Hospitals run by the appellant; are they an industry within the meaning of the Act ?

Before dealing with these points it would be relevant to state the materia, l facts in regard to the group of Hospitals themselves which are not in dispute. This group consists of five Hospitals. It appears that in 1835 Sir Robert Grant, the then Governor of Bombay, desired tci start an institution for the purposes of imparting medical education in the Presidency of Bombay. His proposal in that behalf was sanctioned by the Board of Directors of the East India Company and funds amounting to Rs. 44,000 were collected for the purpose and an equal amount was contributed by the Directors to defray the cost of construction of the College building. In 1843 the foundation of the Medical College building was laid and the same was completed in 1845.

About that time an idea of building a hospital for the sick people of all classes and castes was mooted and Sir Jamsetjee .Jeejibhoy offered donation and some contribution was made by the Government

+• -

with which the J. J. Hospital was constructed and it 1960

was formally opened on May 15, 1845. Similarly the State of Bomba_v other four Hospitals in the group were built in course v. of time from donations. Except for a small amount The Ho, pital qf Rs. 10,000 the rest of the expenditure which is in the Mazdoor Sabha neighbourhood of Rs. 27 lakhs is entirely met by the appellant out of the grant sanctioned in the budget Gajendragadkar J. under the head "38-Medicial ". The group is under the administrative control of the Surgeon-General of the appellant and its day-to-day affairs are conducted and controlled by the Superintendent who is a full time employee of the appellant; the residential staff: including the Resident Medical Officers, Assistant Medical Officers, Housemen, Nurses and others are all full-time employees of the appellant and their salaries are drawn on the establish.ment pay bills every month and paid entirely by the appellant.

This group serves' as a clinical training ground for students of the Grant Medical College which is a Government Medical College run and managed by the appellant for imparting medical sciences leading to the Degrees of

Bachelor of Medicine and Bachelor of 1:-\urgery of the Bombay University as well as various Post-Graduate qualifications of the said University and the College of Physicians and Surgeons, Boru bay; the group is thus run and managed by the appellant to provide medical relief and to promote the health of the people of Bombay.

Now, turning to the first point, it may be stated that the facts on which the respondents' plea is based are not in dispute. It is conceded that the services of respondents 2 and 3 have been retrenched though it may be for the purpose of making room for other Government servants with a longer record of service who had to be retrenched owing to the closure of the appellant's Civil Supplies Department. It is also not disputed that the said respondents had not been paid at the time of retrenchment compensation as prescribed by s. 25F(b). The respondents' contention is that the failure to comply with the said requirement makes the order of retrenchment invalid. This plea has been upheld by the Court of Appeal.

Section 25F (b) provides that no workman employed

z96o in any industry who has been in continuous service for not less than one year under an employer shall be State of Bombay h d b 1 h b "d retrenc e y that employer unti he as een pa1 Th' Zspital at the time of retrenchment compensation which Mazdaor Sabha shall be equivalent to fifteen days' average pay for every completed year of service or any part thereof Gajmdragadkar ]. in excess of six months.

Clauses (a) and (c) of the said section prescribe similar conditions but we are not concerned with them. On a plain reading of s. 25F (b) it is clear that the requirement prescribed by it is a condition precedent for the retrenchment of the workman. The section provides that no workman shall he retrenched until the condition in question has been satisfied. It is difficult to accede to the argument that when the section imposes in mandatory terms a condition precedent, non-compliance with the said condition would not render the impugned retrenchment invalid.

The argument which appealed to Tendolkar, J., however, was that the consequence of non-compliance with the requirement of s. 25F (b) was not to render the impugned retrenchment invalid, because he thought that by s. 251 a specific provision has been made for the recovery of the amount prescribed by s. 25F (b).

Section 251 provides for the recovery of monies due from employers under Ch. V, and according to Tendolkor J. this provision covers the amount due to the workman by way of compensation under s. 25F (b).

In our opinion, this view is untenable. Having regard to the fact that the words used in s. 25F (b) are mandatory and their effect is plain and unambiguous it seems to us that the Court of Appeal was right in holding thats. 251 covered cases of recovery of monies other than those specified ins. 25F (b), and it is obvious that there are several other cases in which monies become due from the employers to the employees under Ch. V; it is for the recovery of these monies that s. 251 had been enacted. Therefore, we see no substance in the argument that the Court of Appeal has misconstrued s. 25F (b ).

That being so. failure to comply with the said provision renders the impugned orders invalid and inoperatjve,

- .-

Does the said provision apply to the present z96o proceedings ? In other words, is the Act itself State of Bombay applicable to the group of Hospitals with which we v • . are concerned? That is the next question which The Hospital calls for an answer in the present appeal. Indeed it Mazdoor Sabha is this general question which has been strenuously -- argued before us by the learned Solicitor-General on Gajendragadkar J. behalf of the appellant. The decision of this question depends upon the interpretation of the dt:; finition of "industry" prescribed by s. 2(j) of the Act.

Let us first read the definition. Section 2(j) providies that " industry" means any business, trade, undertaking, manufacture o!' calling of employers and includes any calling, service, employment, handicraft, or industrial occupation or a.vocation of workmen.

It would be noticed that the words used in the definition are very wide in their import and even so its latter part purports to provide an inclusive definition.

The word "undertaking" according to Webster means "anything undertaken; any business, work or project which one engages in or attempts, an enterprise ''. Similarly, "trade " according to Halsbury, in its primary meaning, is "exchange of goods for goods or goods for money", and in its secondary meaning it is " any business carried on with a view to profit whether manual or mercantile, as distinguished from the liberal arts or learned professions and from agriculture"; whereas "business" is a wider term not synonymous with trade and means practically " anything which is an occupation as distinguished from a pleasure". The word " calling " again is very wide; it means " one's usual occupation, vocation, business or trade"; so is the word " service " very wide in its import. Prima facie, if the definition has deliberately used words of such wide import, it would be necessary to read those words in their wide denotation; and so read, Hospitals cannot be excluded from the definition.

It is, however, contended that, in construing the definition, we must adopt the rule of construction noscuntur a sociis. This rule, according to Maxwell, . means that, when two or more words which are

susce; ptible of analogous meaning are coupled togez960 ther they are understood to be used in their cognate sense.

They take as it were their colour from each State of Bombay h h h 1 d v. ot er, t at is, t e more genera is restricte to a sense

The Ho<pital analogous to a less general. The same rule is thus .Wazdo°' Sabha interpreted in "Words and Phrases" (Vol. XIV, . -- p. 207) : "Associated words take their meaning from GaJendrngadkar J. one another under the doctrine of noscuntur a sociis, the philosophy of which is that the meaning of a doubtful word may be ascertained by reference to the meaning of words associated with it; such doctrine is broader than the maxim Ejusdem Generis." In fact the latter . maxim "is only an illustration or specific application of the broader maxim noscuntur a sociis ". The argument is that certain essential features or attributes are invariably associated with the words " business and trade " as understood in the popular and conventional sense, and it is the colour of these attributes which is taken by the other words used in the definition though t.heir normal import may be much wider.

We are not impressed by this argument. It must be borne in mind that noscuntur a sociis is merely a rule of construction and it cannot prevail in cases where it is clear that the wider words have been deliberately used in order to make the scope of the defined word correspondingly wider. It is only where the intention of the Legislature in associating wider words with words of narrower significance is doubtful, or otherwise not clear that the present rule of construction can be usefully applied. It can also be applied where the meaning of the words of wider import is doubtful; but, where the object of the Legislature in using wider words is

clear and free of ambiguity, the rule of construction in question cannot be pressed into service.

As has been observed by Earl of Hals bury, L. C., in The Corporation of Glasgow v. Glasgow Tramway and Omnibus Co. Ltd. (1), in dealing with the wider words used in s. 6 of Valuation of Lands (Scotland) Act, 1854, "the words 'free from all expenses whatever in connection with the said tramways' appear to me to be so wide in their application that I should have thought it impossible to qualify or cut them down by their being associated with other words on the ·

\ti (1898) A.C 631 at p. 634,

principle of their being ejusdem generis with the r9 6o Previous won.ls enumerated". lf the object and scope of the statute are considered there would be no

State of Bomba; y

v. difficulty in holding that the relevant words of wide The Hospitat import have been deliberately used by the Legislature Mazdoor Sabha in defining "industry,; in s. 2(j).

The object of the Act was to make provision for the investigation and Gajendragadkar ]. settlement of industrial disputes, and the extent and scope of its provisions would be realised if we bear in . mind the definition of" industrial dispute" given by s. 2(k), of" wages" by s. 2(rr), "workman " by s. 2(s), and of" employer" by s. 2(g). Besides, the definition of public utility service prescribed by s. 2(m) is very significant. One has merely to glance at. the six categories of public utility service mentioned by s. 2(m) to realise that the rule of construction on which the appellant relies is inapplicable in interpreting the definition prescribed by s. 2(j).

There is another point which cannot be ignored.

Section 2(j) does not define " industry " in the usual manner by prescribing what it means: the first clause of the definition gives the statutory meaning of "industry" and the second clause deliberately refers to several other.}tems of industry and brings them in the definition in an inclusive way. It is obvious that the words used in an inclusive definition denote extension and cannot be treated as restricted in any. sense. (Vide: Stroud's "Judicial Dictionary", Vol. 2, p. 1415). Where we are dealing with an inclusive definition it would be inappropriate to put a restrictive interpretation upon terms of wider denotation.

Besides, it would be relevant to point out that too much reliance cannot be placed on what are described as the essential attributes or features of trade or business as conventionally understood.

The conventional meaning attributed to the words "trade and business" has lost some of it validity for the purpose of industrial adjudication. Industrial adjudication has necessarily to be aware of the current of socio-economic thought around; it must recognise that. in the modern welfare State healthy indutitrial relations are a matter of paramount import.

r960 ance and its essential function is to assist the State by helping a solution of industrial disputes which State of Bombay t• t d. d h f cons 1tu e a IStrnct an persistent p enomenon o The ;:; spital modern industrialised States. In attempting to solve Mazdoor Sabha industrial disputes industrial adjudication does not -. aud should not adopt a doctrinnaire approach. It Gajendragadkar f. must evolve some working principles and should generally avoid formulating or adopting abstract generalisations. Nevertheless it cannot harp back to old.age notions about the relations between employer and employee or to the doctrine of laissez faire which then governed the regulation of the said relations.

That is why, we think, in construing the wide words used in s. 2(j) it would be erroneous to attach undue importance to attributes associated with business or trade in the popular mind in days gone by.

It is clear, however, that though s. 2(j) uses words of very wide denotation, a line would have to be drawn in a fair and just manner so as to exclude some callings, services or undertakings. If all the words used are given their widest meaning, all services and all callings would come within the purview of the definition; even service rendered by a servant purely in a personal or domestic matter or even in a casual way would fall within the definition. It is not and cannot be suggested that in its wide sweep the . word "service" is intended to include service howsoever rendered in whatsoever capacity and for whatsoever reason.

We must, therefore, consider where the line should be drawn and what limitations can and should be reasonably implied in interpreting the wide words used in s. 2(j); and that no doubt is a somewhat difficult problem to decide.

It is true that under the old-world notion prevailing under the capitalist form of society industry generally means an economic activity involving investment of capital systematically carried on for profit for the production or sale of goods by the employment of labour.

When it is urged by the appellant that an undertaking should be analogous to trade or business what is really intended is that unless the undertaking in question shares the aforesaid essential features associated with the conventional notion of tra.:ie or

business it should not be treated as falling under s. 2(j).

I960 There are two serious difficulties in accepting such a State of Bombay suggestion, and indeed the appellant concedes the v. presence of these two difficulties. It is not disputed The Hospital that under s. 2(j) an activity can and must be regarded Mazdoor Sabha as an industry even though in carrying it out profit . - motive may be absent. It is also common ground Ga1endragadkar J. that the absence of investment of any capital would not make a material difference to the applicability of s. 2(j). Thus, two of the important attributes conventionally associated with trade or business are not necessarily predicated in interpreting s. 2(j). What then can be said to be the attributes or features which should be common between trade and business on the one hand and an undertaking and other items mention- . ed in s. 2(j) on the other ?

It would be possible to exclude some activities from s. 2(j) without any difficulty. Negatively stated the activities of the Government which can be properly described as regal or sovereign activities are outside the scope of s. 2(j). These are functions which a constitutional Government can and must undertake for governance and which no private citizen can undertake. This position is not in dispute. An attempt is, however, made by the appellant to suggest that in view of the Directive Principles enunciated in

Part IV of the Constitution and in view of the ideal of a welfare State which has been placed before the country, Governments, both at the level of the States as well as at the Centre, undertake several welfare activities; and the argument is that the field of governmental or regal activities which are excluded from the operation of s. 2(j) should be extended to cover other activities undertaken by the Governments in pursuit of their welfare policies. In our opinion, this contention cannot be accepted. The activities which do not fall within s. 2(j) and which are described as governmental or regal or sovereign have been pithily described by Lord Watson as "the primary and inalienable functions of a constitutional Government" (Vide : Coomber v. Justices of Berks(1) ) ; and it is only these activities that are outside the scope of s. 2(j). It sounds incongruous and self-contradictory

(l) h88;!) App. cas, 61. •

,,6° to suggest that activities undertaken by the Government in the interests of socio-economic progress of State of Bombay fi l the country as bene cia measures should be exempted The ;;~, p, tal from the operation of the Act which in substance is a Mazdoor Sabha very important beneficial measure itself.

In this connection it would be relevant to point out Gajendragodkor J. that the definition of the word "employer" given by s. 2(g) is not without significance: an "employer" means under s. 2(g) (i) "in relation to an industry carried on by or under the authority of any department of the Central Government or State Government authority prescribed in this behalf, or where no authority is prescribed the head of the department." This dt; Jinition clearly indicates that the Legislature intended the application of the Act to activities of the Government which fall within s. 2(j).

In considering the question as to whether the group of Hospitals run by the appellant undoubtedly for the purpose of giving medical relief to the citizens and for helping to impart medical education are an undertaking or not, it would be pertinent to enquire whether an activity of a like nature would be an undertaking if it is carried on by a private citizen or a group of private citizens. There is no doubt that if a hospital is run by private citizens for profit it would be an undertaking very much like the trade or business in their conventional sense.

We have already stated that the presence of profit motive is not essential for bringing an undertaking within s. 2 (j). If that be so, if a private citizen runs a hospital without charging any fees from the patients treated in it, it would nevertheless be an undertaking under s. 2(j).

Thus the character of the activity involved in running a hospital brings the institution of the hospital within s. 2(j).

Does it make any difference that the hospital is run by the Government in the interpretation of the word "undertaking" in s. 2(j) ? In our opinion, the answer to this question must be in the negative. It is the character of the activity which decides the question as to whether the activity in question attracts the provision of s. 2(j); who conducts the activity and whether it is conducted for profit or not do ot make a material difference,

... /

...

...

We have yet to decide which are the attributes the i9rin Presence of which makes an activity an undertaking 5 -1

-JJb . . . . . tate o om ay w1thm s. 2(J), on the ground that it is analogous to trade or business. It is difficult to state these possible The Jl; spital atkibutes definitely or exhaustively; as a working Mazdoor Sabha principle it may be stated that an activity syste- -- matically or habitually undertaken for the production Gajendragadkar J. or distribution of goods or for the rendering of material services to the community at large or a part of such community with the help of employees is an undertaking. Such an activity generally involves the co-operation of the employer and the employees; and its object is the satisfaction C?f material human needs. It must be organised or arranged in a manner in which trade or business is generally organised or arranged. It must not be casual nor must it be for oneself nor for pleasure. Thus the manner in which the activity in question is organised or arranged, the condi.tion of the co-operation between employer and the employee necessary for its success and its object to render material service to the community can be regarded as some of the features which are distinctive of activities to which s. 2(j) applies. Judged by this test there would be no difficulty in holding that the State is carrying on an undertaking when it runs the group of Hospitals in question. , Is quid pro quo necessary for bringing an activity under s. 2(j) ? It has been urged before us that though profit motive may not be essential, it is nevertheless necessary that the person who carries on the activity should receive some consideration in return ; and it is only if the test of quid pro quo is satisfied that an activity should be treated as an undertaking.

Though this argument is put in a slightly different form, in substance it is really based on the idea that profit motive is necessary to make any activity an undertaking analogous to trade or business. If the absence of profit motive is immaterial why should an activity be excluded from s. 2(j) merely because the person responsible for the conduct of the activity expects no consideration, does not want any quid pro quri and is actuated by philanthropic or charitable motive? In our opinion, in deciding the question as

IIZ

8SO SUPR.EME COUHT REPORTS [l!lG0(2)1

r960 to whether any activity in question is an undertaking under s. 2(j) the doctrine of quid pro quo can have no State of Hombay application.

Therefore, we arc satificd that the v.

The Ho>pital High Court was right. in coming to the conclusion Mazda°' Sabha that the conduct and running of the group ofHospitfils

by the appellant fimotmted to an undertaking under Gajendragadkar ]. s. 2 (j) find the relevant provisions of the Act were

applicfible.

In this connection it would be relevant to refer to the fact that in the First Schedule to the Aet which enumerates industries which may be declared as public utility service under s 2(n)(vi), three entries have bcPn added by Act 36 of 1956. They are Defence Establishment, services in hospitals and dispensari<•s, and Fire Brigade service. In other words, by the addition of these three entries the Legislfiture has clearly indic"ted its intention that service in hospitals find dispensaries can be declared to be a public utility sPrvice under s. 2(n)(vi); and there is no doubt that unless the service in hospitals falls under s. 2(j) and is treated as an industry it cannot be declared to be a public utili1y service. It is true that this p"rticnlar entry bad not been included in the First Schedule at the time when the present reference waR made, but its subs<quent inclusion can be reasonably taken as evidence of legislative intention, and, if on a construction of s. 2(j) we have independently reached the conclusion that service in hospitals is service or the conduct of hospitals is an undertaking, we may reasonably seek to derive corroboration to our coJtclusion by this sub, equent legislative enactment,.

After tho addition of the relevant entry in the First Schedule it would 11ot he open to anybody to suggest that service in hospita, Js does not fall under s. 2(j).

It now remains to consider some of the decisions to which our attention was invited. In D. N. Banerji v.

P.R. jjfukherjee & Ors. (1 ), this Court was dealing with an industrial dispute raised by the Municipal Workers' Union of the Budge Budge Municipality, on behalf of the Sanitary Inspector and Head Clerk of the said Municipality on the ground that the dismissal of the said two Municipal employees was unjustified and

(1) [1953] S.C.H. 302,

', -

I -

S.C.R.

SUPREME COURT REPORT8 881

illegal, and that they were entitled to an order ®f 1v6o reinstatement. The dispute thus referred to the Industrial Tribunal was decided in favour of the Union State of Bombay v. and an award was made directing the Municipality to The Hospital reinstate the said two employees. The Municipality MazdJor Sabha then took the matter to the High Court at Calcutta by - means of a petition for a writ of certiorari under Arts. Gajendragadkar J.

226_ and 227 of the Constitution. It was urged in support of the petition that the Act was inapplicable to the dispute in question and that there was really no industrial dispute which could be validly referred to the Industria, l Tribunal. Other contentions were also raised but it is unnecessary to refer to them. The High Court rejected all thepleas raised by the Municipality and dismissed the application for a writ. The Municipality then brought the dispute to this Court

under Art. 132(1) of the Constitution. This Court dismissed the appeal preferred by the Municipality and confirmed the order of the High Court. In dealing with the appeal this Court laid down certain propositions which are relevant for our purpose in the present appeal. It was observed that' in determining the meaning of the word "industry" and " industrial dispute" it was necessary to leave aside the original meaning attributed to the words in a simpler state of society; then the contention of the Municipality that its activities in question did not amount to an industry were dealt with in these words : " The only ground on which one could say that what would amount to the carrying on of an industry if it is done by a private person ceases to be so if the same work is carried on by a local body like the Municipality is that in the latter there is nothing like the investment of any capital or the existence of a profit earning notice as there generally is in a buisiness. But neither the one nor the other seems a sine qua on or necessary element in the modern conception of industry ". It is because of this positive decision that the appellant has fairly conceded in the course 0£ the argument before us that the absence of the profit motive or of investment of capital would not make a material difference in determining the character of any activity. This Court has also examined the other relevant fiwtpx:s pertaining

r96o to the construction of the word "industry " and "industrial dispute" and has declared its deci- State of Rombay H sion thus; aving regard to the definitions found Th' ;;;, p; tal . in our Act the aim or objective that the Legislature Mazda" Sabha had in view and the nature, variety and range of disputes that occur between employers and employees,

Gaj, ndmgadlwr J. we are forced to the conclusion that the definitions in our Act include also disputes that might arise between municipalities and their employees in branches of work that {Jan be said to be analogus to tbe carrying out of a trade or business". In the prrnent appeal we have to decide the question as to what attributes or features can be said to make an activity in question analogous to trade or business. Incidentally we may add that quite apart from the relevant considerations which we have already discussed it would be difficult to suggest that though the sanitary department of a local body is an undertaking under s. 2(j) a hospital run by a Government is not.

This decision has been referred to by this Court in Baroda Borough 111unicipality v. Its Workmen('), and it has been observed that it is now finally settled that a municipal undertaking of the nature with which the court was then concerned is an industry within the meaning of the definition of that word ins. 2(j) of the Act, and that the expression "industrial dispute" in that Act includes disputes between municipalities and their employees in branches of work that can be regarded as analogous to the carrying on of a trade or business. In that case this Court was concerned with the claim for bonus made by the workmen of the Baroda Borough Municipality and it was rejected; comment has been made by learned counsel on some of the grounds accepted by this Court in support of its final decision, but in the present appeal we are not concerned with the claim for bonus and it is not necessary for us to refer to the said comment or to deal with it.

So far as the decisions of the Industrial Tribunals are concerned it appears that the Labour Appellate Tribunal has held as early as 1952 that a hospital is an undertaking within the meaning ofs. 2(j). In

, ·(1) [r957J s.c.R. 33-

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Sri Vishuddhananda Sa.raswathi Marwari Hospital v. x960 Their W or km en (1) the Labour Appellate 'lribunal b State of Bombay considered at length the policy and o ject of the Act, several judgments cited before it and came to the The ;; spital conclusion that the definition of industry in s. 2(j) was Mazdoor Sabha of wide amplitude and that there was no good reason for cutting down its natural meaning so as to limitGajendragadkar J. its operation to profit-making enterprises only. It has not been suggested before us that this view has ever been doubted or dissented from in any subsequent industrial adjudication. In judicial discussions about the scope and character of the concept of industry as it has developed in a . modern democratic State the decision of the High Court of Australia in The Federated State School Teachers' -1ssociation of Australia And The State of

Victoria & Ors (2), is generally cited. In that case, according to the majority decision it was held that the educational activities of the 8taLe carried on under the appropriate statutes and statutory regulations of each State relating to education did not constitute an industry with the meaning of s. 4 of the Commonwealth Conciliation and Arbitration Act, 1904-1928; that the occupation of teachers so employed was not an industrial occupation; and that the dispute which existed between the State and the teachers employed by them was therefore, not an industrial dispute within s. 51 (xxxv) of the Constitution.

Isaacs J., however, struck an emphatic note of dissent, and the principles enunciated in this note of di><sent have received approval from industrial tribunals in this country, and they have been rightly accepted by the Bombay High Court as affording valuable assistance in deciding the question in the present proceedings. Isaacs J. has uttered a note of caution that in dealing with industrial disputes industrial adjudicators must be conversant with the current knowledge on the subject ahd they should not ignore the constant currents of life around them for otherwise it would introduce a serious infirmity in their approach.

Dealing with the general characteristics of industrial enterprises the learned judge observed

(r) [19521 II L.L.J. 327.

(2) [1929] 4 C.LR. 569, ·.

I960 that they contribute more or less to tbe general welfare of the community; and he has reiterated his State of Bonibay earlier observations on the point in these words: v.

The Hospital "Industrial disputes occur when in relation to opera- Mazdoor Sabha tions in which capital and labour are contributed in co-operation for the satisfaction of human wants or Gnjendragadkar J.desires, those engaged in co-operation dispute as to basis to be observed by the parties engaged, respecting either a share of the product or any other terms or conditions of their co-operation ". According to the learned judge; the question must always be decided by determing the true character of the activity in question. It is these tests which the High Court has applied in deciding the present dispute and we are in general agreement with the decision of the High Court. We ought to make it clear that in the present appeal we are not expressing any opinion on the question as to whether running an educational institution would be an industry under the Act; that question does not arise in the present proceedings.

There are two more decisions to which reference may. be made before we part with this appeal. In Brij ~Mohan Bagaria And Chatterjee (N.C.) & Ors. \1), the Calcutta High Court was dealing with a dispute between an attorney of the court and some of his e.mployees who had been dismissed by him ; and it was held that the said dispute was outside the purview of the Act. Sinha J., who heard the petition filed by the attorney, observed that "however extended the meaning be given to the word industry or to industrial dispute or to undertaking or calling we cannot include within their concept the case of an individual who carries on a profession dependent upon its own intellectual skill". The learned judge has then added that " every case must be decided upon its own facts". It appears that, according to the learned judge, if an attorney or a doctor or a lawyer who follows a liberal profession, the pursuit of which depends upon his own education, intellectual attainments and special equipment, engages employees, that would not mean that the employer is engaging in an industry under s. 2(j); but with the question of the attorney or doctor

(1) (1958) II L.L, J. 190.

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...

or the lawyer we are not directly concerned in the 1,60 present appeal.

We have, however, referred to this decision because, in the course of discussion, the State of llombay learned judge has expressed his dissent from the view.

The ;; spital taken by the Bombay High Court in regard to Mazdoor Sabha

hospitalE<, and we wish to make it clear that, in ou.r ... - opinion, the criticiEm made by the learned judgeGayendragadkar J . against the inclusion of hospitals within s. 2(j) is not well-founded.

Dealing with a similar case of an attorney, the Bombay High Court ha.s taken the same view in National Union of Commercial Employees & Anr. And Meher (M.R.) & Ors. (Pereira Fazalbhoy & Co.)(1).

We would accordingly hold that the High Court was right in holding t.hat the dispute between the appellant and the respondents was an industrial dispute to which s. 25F of the Act applied. The order passed by the High Court on the writ petition filed by the respondents is confirmed and the appea.l is dismissed with costs.

Appeal dismissed.

S. N. NAMASIVAYAM CHETTIAR

THE COMMISSIONER OF INCOME-TAX, .

MADRAS (With connected appeals)

(J. L. KAPUR AND M. HIDAYATULLAH, JJ.) ..

Income Tax-Assessment-Rejection of accounts and estimate of profits-C amputation of profits supported by cases of other assessees- Stock register-Effect of non-production-In'dian Income-tax Act;. r922 (XI of r922) s. I] proviso.

The appellant, a resident and ordinarily resident in India, carried on trade in Colombo in grains and foodstuffs for cattle.

For the relevant assessment years the Income-tax Officer rejected the acr.ounts produred by the appellant on the grounds inter alia that there was absence of vouchers and that the stock account and the manufacturing account had not been kept or produced ·

and he then made an estimate of the profits.

The Appellat~ Tribunal also agreed with the Income-tax Officer and held that the correci: profits could not be deduced from the books produced by the assessee and that therefore the proviso to s. 13 of the

(r) \19~9} II L.L.J. 38.

1960 February, 3

Subba Rao J.

Government of India

India

Art. 286(1)(b)

STATE 0]' BOMBAY & OTHERS

THE HOSPITAL MAZDOOR SABHA & OTHERS

K. SUBBA RAO

K. 0. DAS GUPTA

Meaning-Industrial Disputes Act

ss. 2(j)

Art. 226

State of Bombay

s. 251

Hospital Mazdoor Sabha

s. 2(j)

State of Bombay

s. 25F(b)

Industrial Disputes Act, 1947

s. 251

s. 2(j)

s. 2(j)

s. 2(j)

CIVIL APPELLATE JURISDICTION

R. H. Dhebar

K. R. Chaudhuri

T. S. Venkataraman

K. R. Sharma

Gajendragadka

GAJENDRAGADKAR

Hospital Mazdoor Sabha

Unions Act XIV of 1926

Vatsala Narayan

Ruth Isaac

State of Bombay

ss. 25F and 25H

Disputes Act, 1947

Gojendragadkar

Tendolkar

s. 25

s. 251

s. 25H

s. 25F

s. 25H

s. 25F

Gajendmgadko•

Bombay High Court

s. 25

Robert Grant

Bombay

East India Company

May 15, 1845

State of Bomba_v

Gajendragadkar

s. 25F(b)

Section 25F

s. 25F

s. 25F

s. 251

s. 25F

Section 251

Tendolkor

s. 25F

s. 25F

s. 251

s. 25F

s. 2(j)

Section 2(j)

Halsbury

Maxwell

GaJendrngadkar

s. 6

s. 2(j)

s. 2(k)

s. 2(rr)

s. 2(s)

s. 2(g)

s. 2(m)

s. 2(m)

s. 2(j)

Section 2(j)

Stroud

s. 2(j)

s. 2(j)

s. 2(j)

s. 2(j)

s. 2(j)

s. 2(j)

s. 2(j)

s. 2(j)

s. 2(j)

s. 2(j)

s. 2(j)

s. 2(j)

Watson

s. 2(j)

Gajendragodkor

s. 2(g)

s. 2(g)

Central Government

s. 2(j)

s. 2

s. 2(j)

s. 2(j)

s. 2(j)

s. 2(j)

s. 2(J)

s. 2(j)

s. 2(j)

s. 2(j)

s. 2(j)

s. 2

First Schedule

s 2(n)(vi)

s. 2(n)(vi)

s. 2(j)

First Schedule

s. 2(j)

First Schedule

s. 2(j)

Municipality MazdJor Sabha

High Court at Calcutta

Art. 132(1)

s. 2(j)

Baroda Borough Municipality

s. 2(j)

limitGajendragadkar

High Court of Australia

s. 4

s. 51

Isaacs

State of Bonibay

Gnjendragadkar J.desires

Calcutta High Court

Sinha

s. 2(j)

judgeGayendragadkar

s. 2(j)

s. 25F

S. N. NAMASIVAYAM CHETTIAR

J. L. KAPUR

M. HIDAYATULLAH

Income-tax Act

Colombo

s. 13