....

• I

3 S.0.R. SUPREME COURT REPORTS 789

Order of Court.

Ig6o

In view of the majority judgment of the Court, the Arunachalam Pillai appeal is allowed with costs in this Court, and the SouthernvRoadways case rem.anded to the High Court for a re-hearing by (Private) L1a. a single Judge. Costs in the High Court will . abide Subba Rao J. the result.

Appeal allowed.

SHRIMANT DATTAJIRAO

BAHIROJIRAO GHORPADE

SHRIMANT VIJAYASINHRAO AND ANOTHER.

/ . (S. K. DAS, A. K. SARKAR and M. HIDAYATULLAH, JJ.)

Saranjam Estate-Maintenance grant to junior member-Power of Government to resume and re-grant-Custom of lineal primogeniture, • extent and effect of-Suit challenging Government order of resumption and re-grant-If barred-Saranjam Rules-Bombay Revenue Jurisdiction Act, z876 (Bom. X of I876), s. 4.

Upon the death of the holder in 1932, the Government of Bombay by order dated June 7, 1932, resumed the Saranjam estate of Gajendragad and re-granted the same to his eldest son.

By the same order the assignment of some lands out of the estate in favour of B, a younger member of the family, by way of maintenance was also continued. On May 14, 1940, B died leaving his widow, A, and his undivided brother, D. A asked the Government for permission to adopt a son but without the permission being granted adopted Von July IO, l94I. By an order dated December 17, 1941, the Government continued the maintenance grant (Saranjam potgi) to D. Thereupon V filed a suit against ., the Government and D for recovery of the lands on the grounds

(i) that the order of the Government dated December 17, 1941, was ultra vires, null and void, and (ii) that by the custom of lineal primogeniture which prevailed in the family the lands, upon the death of B and upon the adoption of V by A, devolved upon V in preference to D. The suit was contested, inter alia, on . the grounds : (i) that under the relevant Saranjam Rules the interest of B came to an end on his death and was not such as could devolve upon V despite the order dated December 17, 1941,

(ii) that the alleged family custom did not apply to maintenance grants and (iii) that the suit was barred under s. 4 of the Bombay Revenue Jurisdiction Act, 1876 : Held, that the plaintiff was not entitled to the lands either under the Saranjam Rules or under the custom; further that the suit was barred by s. 4 of the Bombay Revenue Jurisdiction A.ct, 1876,

IQ~

i960

April 29.

The maintenance grant (potgi holding) was part of the

S . -- ..

Saranjarn and was governed by the incidents of Saranjarn tenure hriman~ D~_tta1irao and by the relevant Saran jam Rules.

Saran jam grants were BGk;;;;;;; o granted or 'vithheld at the will and pleasure of the sovereign v. power and the grant was always subject to interruption and Shrimant Vijayarevocation by resumption, temporary or absolute.

On the death sinhrao of B it was open to the Government to resume the grant and to grant it to D and this is what it did by the order dated December 17, 194r. The taking in adoption of the plaintiff by the widow of the deceased could not affect the operation of the order passed by the Government.

Daulatrao Malojirao v. Province of Bombay (1946) 49 Born.

L.R. 270, referred to.

Even under the custom of lineal primogeniture pleaded by the plaintiff, D was entitled to get the properties after the death of B. It was not pleaded that the properties once so vested were divested by subsequent adoption by the widow. Further it was neither pleaded nor proved that the custom took away the right of the Government to resume the maintenance grant and to make a fresh grant thereof.

Sub-clause 4 of the Bombay Revenue Jurisdiction Act, 1876, . barred the jurisdiction of civil courtsin respect of'' claims against the Government relating to lands granted or held as Saranjam".

The plaintiff asked for a finding that the order of December 17,

r94r, was null and void and did not affect the properties in suit.

Unless the order was out of his way, the plaintiff was not entitled to claim recovery of possession.

The claim v.1as one which fell .within the mischief of s. 4 and the suit was barred.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 37 of 1960.

Appeal from the judgment and decree dated November 12, 1952, of the Bombay High Court in First Appeal No. 492 of 1949, arising out of the judgment and decree dated the 20th April, 1949, of the First Class Sub-Judge, Dharwar, in Special Civil Suit No. 16 of 1943.

S. N. Andley, J.B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the appellant.

N aunit Lal, for respondent No. 1.

B. R. L. Iyengar and T. M. Sen, for respondent No. 2.

1960.

April 29.

The Judgment of the Court was delivered by :) s. K, Das], S. K. DAS, J.-This is an appeal on a certificate given by the High Court of Bombay, from the judgment and decree of the said High Court dated

'""'\

.....

November 12, 1952, by which it reversed the decision 196o of the Civil Judge, First Class, at Dharwar dated Shrima;;; J;;, ttajfrao April 20, 1949, in Special Civil Suit No. 16 of 1943.

Bahirojirao The material facts are these. Gajendragad in Taluk Gho_'t, ade Ron in the district of Dharwar is a Saranjam estate Shrimnt Vijaya-, k th G . d d S . b . b sinhrao nown as e aJen raga aranJam earmg num er _ 91 in the Saranjam list maintained by Government. s. K. Das J.

Within that estate lay village Dindur and survey field No. 302 of Unachgeri, which are the properties iri suit; One Bhujangarao Daulatrao Ghorpade was the holder of the Saranjam estate at the relevant time. In 1932 the Saranjam was resumed and regranted to the said Bhunjangarao by Resolution No. 8969 dated June 7, 1932, of the Government of Bombay in the Political Department. This Resolution said :

" The Governor in Council is pleased to direct that the Gajendragad Saranjam should be formally resumed and re.granted to Bhujangarao Daulatrao Ghorpade, the eldest son of the deceased Saranjamdar Daulatrao Bhujangarao Ghorpade, and that it should be entered in his sole name in the accounts of the Collector of Dharwar with effect from the date of the death of the last holder. The Collector should take steps to place the Saranjamdar in possession of the villages of the Saranjam estate which were in possession of the deceased Saranjamdar .

The Governor in Council agrees with the Commissioner, Southern Division, that the assignments held by the Bhaubands as potgi holders shoud be continued to them as at present." One of the younger branches of the Ghorpade family was Babasaheb Bahirojirao Ghorpade, to be referred to hereinafter as Babasaheb. He held by way of maintenance (as potgi holder) the aforesaid village of Dindur and survey field No. 302 of Unachgeri. He had an undivided brother called Dattojirao, who was defendant No. 2 in the suit and is appellant before us.

In this judgment we shall call him the appellant: Babasaheb died on May 14, 1940. On his death he left a widow named Abayabai and the appellant, his undivided brother. On July 10, 1941, Abayabai adopted Vijayasinhrao as a son to her deceased husband.

Vijayasinha was the plaintiff who brought the suit,

r960 and is now the principal respondent before us. It will

Shrima;;/ Dallajiiao be convenient if we call him the plaintiff-respondent,

BaJ, frojirao and state here that he was the natural son of Gko'./.ade Bhujangarao's younger brother, another Dattajirao

Shrimnt Vijayato be distinguished from the appellant who also bears

''::_h::'_o the same name. On Babasaheb's death Abayabai s. K Dos J. asked for sanction of Government to her taking a boy in adoption ; this application was opposed by the appellant. On December 17, 1941, the Government of • Bombay passed a Resolution in the following terms :

" 1. Government is pleased to direct that the -~ Saranjam potgi holding of village Dindur and Survey No. 302 of Unachgeri, which were assigned for maintenance to the deceased potgidar, Mr. Babasaheb Bahirajirao Ghorpade, at the time of the re-grant of the Gajendragad Saranjam, should be ,"' continued to his undivided brother, Mr. Dattajirao Bahirojirao Ghorpade. 2.

Government is also pleased to direct, under Rule 7 of the Saran jam Rules, that the new potgidar, Mr. Dattajirao Bahirojirao Ghorpade, should give to Bai Abaibai, widow of the deceased Potgidar, Mr.

Babasaheb Bahirojirao Ghorpade, an annual maintenance allowance of Rs. 300 for her life. .., 3.

These orders should take effect from the 14th May, 1940, i.e., the date on which the deceased potgidar, Babasaheb Bahirojirao Ghorpade, died. 4.

The Commissioner S. D. should be requested to communicate these orders to Bai Abaibai, widow of the late potgidar, with reference to her petitions addressed to him and also to the Rayats of Dindur, with reference to their petition, dated the 12th May, 1941. The orders shduld also be communicated to the present Saranjamdar of Gajendragad." On February 8, 1943, the plaintiff-respondent brought the suit against the Province of Bombay as defendant No. 1, the appellant as defendant No. 2 and Abayabai as defendant No. 3. The suit was contested by the Province of Bombay (now substituted by the State of Bombay) and the appellant. Abayabai supported the case of the plaintiff-respondent, but she died during the J, lenrlency of the suit.

The claim of the plaintiff-respondent was that on i96o his adoption the estate of his deceased adoptive father Shrimant Dattajirao devolved on him by the rule of lineal primogeniture fiakiroJirao • 11 Th • l f h Ghorpade m.preference to th~ appe ant. e mam pea o t e v plaintiff-respondent was stated in paragraph 6 of the Shrim0; nt Vijayaplaint, which read as follows : s•nhrao " 6. The Government Resolution passed by 5 K; Das l•· defendant No. 1 in 1941 is ultra vires and null and void for the following reasons :

(a) Defendant No. 1 made a regrant of the Saranjam estate to Shrimant Sardar Bhujangarao Ghorpade in 1932 and therein the suit properties were, according to defendant No. 1, continued tq the adoptive father of plaintiff. Under the Saranjam rules no occasion has arisen for interference by Government at this stage. The regrant made by Government would in any case be effective during the life-time of the grantee, viz., Shrimant Sardar

Bhujangarao Ghorpade. Further the said Shrimant Sardar Bhujangarao Ghorpade was not consulted by defendant No. 1 before the said Government Resolution.

(b) By the custom of the family to which the family belongs, the estate of a deceased person devolves by the rule of lineal primogeniture. Hence after the death of plaintiff's adoptive father anQ. the adoption of plaintiff himself, all the estate vested in plaintiff's adoptive father has devolved on the plaintiff in preference to defendant No. 2.

The action of defendant No. 1 in ignoring this rule of succession prevalent in the family is ultra vires and null and void." On the aforesaid pleas, the plaintiff-respondent prayed for (a) recovery of possession of properties in suit from the appellant, (b) mesne profits, and (c) costs.

On behalf of the Province of Bombay several pleas by way of defence were taken. The main pleas were

(1) assuming that the plaintiff-respondent was validly adopted, he had nevertheless no legal claim to the properties in suit because under the relevant Saranjam Rules the interest of Babasaheb came to an end on his death and was not of such a nature as would

r96o devolve on the plaintiff-respondent despite tbe Govern- Shrimant Dattajirao ment Resolution dated December 17, 1941, (2) that

Bahirojirao the alleged family custom did not apply to mainten- Gho; ade ance grants, and (3r that, in any event, the suit was

Shrimant Vijayabarred under s. 4 of the Bombay Revenue Jurisdiction sinhrao Act, 1876. The appellant besides supporting the afores. K. Das J. said pleas raised the additional pleas that there was no valid adoption of the plaintiff-respondent and Abayabai was expressly prohibited by her husband from adopting a son.

On these pleadings several issues were framed. The suit was originally dismissed on a preliminary ground, namely, that the plaint did not disclose any cause of action. The learned Civil Judge apparently took the view that the properties in suit were subject to the Saranjam Rules and on examining those rules, he came to the conclusion that as the plaintiff-respondent on his adoption became a nephew of the appellant and in that sense was claiming maintenance from the latter, it was necessary for him to have alleged the necessary circumstances under which certain members of a Saranjam Family are entitled to claim maintenance under Rule 7 of the said Rules and as those circumstances were not pleaded by the plaintiff-respondent, the plaint disclosed no cause of action. The High Court rightly pointed out that the plaintiff-respondent did not make a claim for maintenance under Rule 7 of the Saranjam Rules, but claimed that the properties in suit devolved on him by reason of his adoption and the custom of lineal primogeniture. Therefore, the High Court held that the claim of the plaintiff-respondent was much more fundamental than a mere claim of maintenance, and the learned Civil Judge had misdirected himself as to the true scope of the suit.

Accordingly, the High Court set aside the decree of dismissal and directed the suit to be tried on all the issues.

After this direction the learned Civil Judge tried all the issues.

Issues 1 and 2 related to the question of adoption, namely, (1) whether the ceremony of adoption was properly proved and (2) whether Babasaheb during his life-time had prohibited his wife from making an adoption. On the first issue the learned

Civil Judge found in favour of the plaintiff-respondent

I96° and on the second against him.

The High Courtshrima-,-; tn-attnjirao affirmed the finding on the first issue, and on a care- Bahirojiao fol and detailed examination of the evidence held on Gho•.t, a e the second issue that the learned Civil Judge was Shrimif"' Vijayawrong in holding that the adoption was invalid by •':'_h~~ reason of the alleged prohibition of Babasaheb. The s. K. Das J.

High Court held that there was no such prohibition, and the adoption was valid. We do not think that this finding of the High Court has been or can be successfully assailed before us.

Therefore, we have proceeded in this appeal on the basis that the plaint"I'- respondent was validly adopted by Abayabai on July 10, 1941.

We go now to a consideration of those issues which are material for a decision of this appeal. They are: Issue No. 3-Does plaintiff prove his title to the suit property?

Issue No. 4-Is it proved that the Government Resolution (D. G.) No. 8969 of December 17, 1941, is ultra vires and null and void as alleged in the plaint ?

Issue No. 5-Is the suit barred under section 4 of the Revenue Jurisdiction Act?

Issue No. 7-Is the alleged custom set up in para. 6(b) of the plaint proved?

On all these issues the learned Civil Judge found against, the plaintiff-respondent, and held that the latter was not entitled to recover possession of the properties in suit, that he had failed to prove the custom pleaded in paragraph 6(b) of the plaint, that the Government Resolution of December 17, 1941, was not ultra vires, and that the suit itself was barred under s. 4 of the Bombay Revenue Jurisdiction Act,

1876. The High Court reversed the decision of the learned Civil Judge on all the aforesaid issues, and held that as the properties in suit were given to the junior branch of Babasaheb for its maintenance and were impartible and governed by the rule of lineal primogeniture, they devolved on the appellant after Babasaheb's death; but as soon as Babasaheb's widow

z960 made a valid adoption, the properties were divested

Shrima.ntDttajfraoand inasmuch as the plaintiff-respondent became the Bahirojirao eldest member of the senior branch of Babasaheb's Gho; pade family, he became entitled thereto as a result of the

Shrimnt Vijayacombined effect of the family custom and ordinary

sinh.ao Hindu law. The High Court said that looked at from s. K. Das ./. this point of view, no question arose of the validity of the Government Resolution dated December 17, 1941, and no relief for possession'having been claimed against Government, the suit was not barred under s. 4 of the Bombay Revenue Jurisdiction Act, 1876 .

• On behalf of the appellant, it has been very strenuously argued that the High Court was in error in holding that the properties in suit which are part of a Saranjam, vested in the appellant on the death of Babasaheb and were then divested on the adopti9n of the plaintiff-respondent; it is contended that snch a conclusion is inconsistent with the nature of a Saranjam tenure and furthermore, the properties in suit having vested in the appellant by reason of the regrant dated December 17, 1941, they could not be divested by the adoption made on July 10, 1941. Nor does it follow, it is contended, from the custom pleaded in paragraph 6(b) of the plaint, apart from the question whether even that custom has been proved or not, that the properties in suit having once vested iti the appellant will be divested on a valid adoption.

Secondly, it has been contended that the High Court

was also in error in holding that there was no claim against Government within the meaning of the fourth sub-cl. of s. 4(a) of the Bombay Revenue Jurisdiction Act, 1876.

The argument before us has been that thPre was such a claim, and no Civil Court had jurisdiction to determine it.

We are satisfied that these arguments are correct and should be accepted. The claim of the plaintiffrespondent that the properties in suit devolved on him on his adoption may be examined either from the point of view of the Saranjam Rules or the custom which he pleaded in paragraph 6(b) of the plaint. Let us examine the claim first from the point of view of the Saranjam Rules assuming here that they apply,

.... -

as far as practicable, to maintenance grants (potgis) x960 within the Saranja_m. In the Resolution of June 7'.hrimantDattajirao 1932, quoted earher, the Government of Bombay JJahirojirao treated the potgi holders as being within the Saranjam Ghorpade_ and made provision for them. The Resolution of Shrima:i Vijaya• December 17, 1941, also proceeded on that footing. sinhiao Two earlier Resolutions, one of 1891 (Ex. 100) and s. K. vas J. the other of 1936 (Ex. 101 ), also treated the whole of Gajendragad and also parts thereof as a Saranjam.

Babasaheb in his lifetime wanted to surrender the grant in his favour to the Saranjamdar, but Government refqsed to accept such relinquishment.

Even Abayabai asked for permission of Government to . take a boy in adoption, which permission she did not obtain. All this shows that the potgi holding was part of the Saranjam and was treated as such by all the parties concerned.

What is a Saranjam?

The word "Saranjam" literally means apparatus, provisions or materials. In his Glossary, Wilson defines Saranjam as temporary assignments of revenue from villages or lands for support of troops or for personal service usually for the lifetime of the grantees. Dr. G. D. Patel in his book on " The Indian Land Problem and Legislation "

has said:

"According to the account given by Col. Ethe- . ridge in his preface to the Saranjam List, it was the practice of the former Governments, both the Muslims and the Marathas, to maintain a species of feudal aristocracy for the State purposes by temporary assignments of revenue either for the support of the troops or personal service, the maintenance of official dignity or for other specific reasons. The holders of such lands were entrusted at the time with the necessary powers for enabling them to collect and appropriate the revenue and to administer the general management of the lands. Under the Muslim rule, such holdings were called J ahagirs and under the Maratha rule, they came to be called Saranjam. However, this distinction between these tenures ceased to exist during the Maratha period.

At the time of the introduction of the British rule,

r960 ·

Shrimant Dattajirao :' Bahirojirao.

the difference between a Jahagir and a Saranjam ceased to exist, to all intents and purposes. The two terms became convertible and all such grants came to be known by the general term "saranjam".

Apart from the Saranjam grants, which were found only in the Deccan, there were other grants of a political nature found scattered over the whole State. Their origins did not materially differ from those of the Saranjam with the result that the British treated them under the same rules called the Saranjam Rules".

Ghorpade

Shrimant Vijaya~

sinhr40

S. K. Das].

The Saranjam Rules were made in exercise of the . powers referred to in r. 10 of Schedule B of Act XI of 1852 and of the second sub-cl. to cl. 3 of s. 2 of Bombay Act VII of 1863. We may here reproduce some of these Rules:

" Rule 1-Saranjams shall be ordinarily continued in accordance with the decision already passed or which may hereafter be passed by Provincial Government in each case.

Rule 2-A Saranjam which has been decided to be hereditarily continuable shall ordinarily descend to the eldest male representative in the order of primogeniture, of the senior branch of the family descended from the First British grantee or any of his brothers who were undivided in interest. But Provincial Government reserve to themselves the rights for sufficient reasons to direct the continuance of the Saranjam to any other member of the said family, or as an act of grace, to a person adopted into the same family with the sanction of Provincial Government. When a saranjam is thus continued to an adopted son, he shall be liable to pay to Provincial Government a nazarana not , exceeding one year's value of the saranjam, and it . shall be levied from him in such instalments as Provincial Government may in each case direct.

Rule 5-Every saranjam shall be held as a life estate. It shall be formally resumed on the death of the holder, and in cases in which it is capable of further continuance, it shall be made over to the next holder as a fresh grant from Provincial

3 S.C.l{. SUPREME COURT REPOHTS 799

Government, unencumbered by a:iy debts or charges I96o save such c, s may be specially imposed by ProvincialshrimantDattajirao Government itself.

Bahirojirao , Ghorpade Rule 7-Every saranJamdar shall be responsible v. for making a suitable provision for the maintenance Shrimant Vijayasinhrao of the willow or widows of the preceding saranjamdar, his own brothers, or any other member of his S. K. Das J. family who, having a valid claim arising from infancy, mental or physical deformity rendering such member incapable of earning a livelihood, may be deemed deserving of support at his hands. When this obligation is not fulfilled by any saranjamdar, Provincial Government may direct him to make suitable provision for such person and may fix the amount, which he shall pay in each instance; provided that no one who has independent means of his own, or is, in the opinion of Provincial Govern- ' ment, otherwise sufficiently provided for, shall be entitled to maintenance from the Saranjamdar.

Rule 8-Every order passed by Provincial Government under the above rule for the grant of maintenance by a Saranjamdar shall hold good during his life only ".

The true nature of a Saranjam tenure was considered by a Full Bench of the Bombay High Court in Daulatrao Malojirao v. Province of Bombay(') where their Lordships after referring to the earlier decisions in Shekh Sultan Sani v. Shekh Ajmodin(2 ) and.Raghojirao v. Laxmanrao(3) observed:

" An examination of the authorities, makes it clear that the whole structure of a Saranjam tenure is founded in the sovereign right, which can only change by conquest or by treaty. So founded, jagirs and Saranjams, with the feudal incidents connected with them, are granted or withheld at the will and pleasure of the sovereign power, and, if granted, the fixity of tenure is always subject to interruption and revocation by resumption, be it temporary or absolute in character. No incident normally applicable

(1) (1946) 49 Bum. L.R. 270.

(2) (1892) L.R. 20 I.A. 50.

(3) (1912) 14 Born. L.R. 1226.

'960 to private rights between subject and subject can

Shrimant Dattajirao fetter or disturb the sovereign will ".

Bahirojirao I c 1 1 h h S Ghorpad• t seems to us mamiest y c ear t at t e araniam v.

Rules furnish no basis for the claim of the plaintiff- Shrimant Vijayad Ab b k d f h sinhrao respon ent. aya a1 as e or sanction to er taking a boy in adoption. No such sanction was s. K. Das f. given. On the death of Babasaheb, it was open to Government to resume the grant, and by its Resolution of December 17, 1941, Government directed that the Saranjam potgi holding of village Dindur and Survey No. 302 of Unachgeri should be continued to the appellant. This really amounted to a resumption and fresh grant and we do not agree with the High Court that the order passed amounted to no more than recognising the legal position according to the rule of succession and stood on the same footing as any order of ordinary mutation. The High Court has emphasised the use of the word " continued" in the Resolution dated December 17, 1941, and has contrasted that Resolution with the earlier Resolution dated June 7, 1932, which was clearly a Resolution giving effect to a resumption and regrant of the Gajendragad Saranjam. It may, however, be pointed out that in paragraph 2 of the earlier Resolution, Government used the same word "continued " in connection with the maintenance grants, namely, potgi holdings within a Saranjam. Nothing, therefore, turns upon the use of the word "continued" and if the Resolution dated December 17, 1941, is read as a whole it is clear that the potgi of village Dindur and Survey field No. 302 of Unachgeri was granted to the present appellant. It was open to Government to pass such an order, and we see no reasons to hold that it was null and void. Indeed, the High Court did not say that it was an invalid order; on the contrary, it said that it was a good order and operated with effect from the death of Babasaheb. But it said erroneously in our opinion, that by reason of the subsequent event of adoption, the order ceased, for all practical purposes, to have any effect from that event. It is well to remember that the doption took place on July 10, 1941, and the Resolut10n was passed on December 17,

1941, though it took effect retrospectively from the r96o date ?f death of Babasaheb. We see _no reasons why Shrima-;,, Dttajirao a vahd order made by Government will cease to have Bahirnjirao any effect because of an adoption made by Abayabai &ho; tade without sanction of Government. To hold that the Shrimant Vi; aya- Government Order ceased to have any effect by reason sinhrao of the act of a private party will be to go against the s. K. Das J. very nature of a Saranjam tenure.

Let us now examine the claim of the plaintiff-respondent from the point. of view of the custom pleaded in paragraph 6(b) of the plaint. The custom pleaded was the rule of lineal primogeniture. In its written statement Government said :

" The family custom alleged in clause (b) is not admitted, and it is denied that such a custom can apply in respect of maintenance grants. Under Rule 7 of the Saranjam Rules, which merely embody the customary law relating to Saranjams, Government is given absolute discretion to determine whether or not to make an order and what provision to make and in whose favour".

The appellant said:

"The contents of para. 6(b) of the plaint are not correct. The custom of descent by the rule of primogeniture is denied. This defendant has become the owner by survivorship, after the death of Babasaheb ".

The learned Civil Judge found that the custom pleaded in paragraph 6(b) of the plaint was not proved.

The High Court has not referred to any evidence on which the custom could be said to have been proved, but observed that "it is common ground that the properties which had been assigned to this branch for its maintenance is impartible and goes by primogeniture". Even if we assume that the High Court is right in its observation, though in face of the denial in the two written statements it is difficult to see how this could be common ground between the parties, we fail to appreciate how the assumption helps the plaintiff-respondent. On the operation of the rule of lineal primogeniture after the death of Babasaheb, the appellant became entitled to and got the

I96o properties. It was not pleaded in the plaint that the

Shrimot~Dttajirao properties once vested by the customary rule of lineal ,

8(;~" 017° primogeniture were divested on subsequent adoption 0 ~~· ' by the widow.

No such plea was specifically taken,

Shrimnt Vijaya: but the High Court relied on the concession made by -- 1 . earned advocate for the appellant that under ordmary s. K. Das J.

Hindu law the properties which were vested in the appellant were divested on a subsequent valid adoption . by the widow.

We consider it unnecessary to go into the vexed question of divesting of an .estate on a subsequent valid adoption by the widow. It is enough to point out that the plaint disclosed no such case; no such issue was raised .and it was not open o the plaintiff-respondent to make out a new case fo; the first time in appeal. The plaintiff-respondent seu up a family custom of lineal primogeniture different fr01_, the ordinary law of inheritance; it was incumbent on him to allege and prove the custom on which he relied and to show its precise extent and how far it prevailed over ordinary Hindu law. In our opinion, he failed to plead or prove any family custom by which th!!. properties devolved on him. Moreover, in order fo succeed the plaintiff-respondent must further establish that the custom was such as would bind the Government. The appellant and the Government never conceded that the custom of lineal primogeniture, if it prevailed in the family, took away the right of Government to resume the maintenance grant which was pat"t of a Saranjam and make a. fresh grant thereof in accordance with the Saranjam Rules.

Now, as to s. 4 of the Bombay Revenue Jurisdiction Act, 1876. The section, so far as it is relevant for our purpose, says:-

" S. 4.-Subject to the exceptions hereinafter appearing, no Civil Court shall exercise jurisdiction as to any of the following matters :

(a) claims against the Government relating to any property appertaining to the office of any hereditary officer appointed or recognised under Bombay Act No. III of 1874 or any other Jaw for the time being in force, or of any other village-officer or \ servant, or

t. /

-~-· -" ·-~

claims to perform the duties of any such officer I96o or servant, or in respect of any injury caused by Shrimant Dattajirao exclusion from such office or service, or Ba_hiroji>ao suits to set aside or avoid any order under the Gho::ade same Act or any other law relating to the same Shrimnt Vijayasubject for the time being in force passed by the sinhrao State Government or any officer duly authorized 's. K. Das j. in that behalf, or claims against the Government relating to lands held under treaty, or to lands granted or held as Saranjam, or on other political tenure, or to lands declared by the Provincial Government or any officer duly authorized in that behalf to be held for service".

In M allappa alias A nnasaheb Basvantrao Desai N adgouda v. Tukko Narshinha Mutalik Desai and Others (1) it was pointed out that in the section a distinction has been made between claims and suits. The subclause we are concerned with is the fourth sub-clause which relates inter alia to" claims against the Government relating to lands granted or held as Saranjam ".

The High Court has taken the view that no claim was made against Government in the present case.

We are unable to agree. In express terms, the plaintiffrespondent asked for a finding that the Government Resolution dated December 17, 1941, was null and

void and did not affect the properties in suit because the Government had either no authority to make such an order or no occasion to do so.

He asked for possession of those properties in spite of the orders of Government. In these circumstances we must hold that Government was more than a purely formal party, and a claim was made against it in respect of the orders contained in its Resolution dated December 17, 1941. Unless the Resolution is out of his way, the plaintiff.respondent is not entitled to claim recovery of possession from the appellant with mesne profits, etc. The Civil Court has no jurisdiction to determine any claim against the Government in the niatter of the Resolution of December 17, 1941, relating to Saranjam lands, and the suit was barred under s. 4 of the Bombay Revenue J urisdictiori Ac't,' 1876.' ·

(I) l.L.R. [1937J Ilo~. 464.

r96o We accordingly allow this appeal, set aside the

Shrimant Dattajirao judgment and decree of the High Court dated N ovem-

Buhirojirao ber 12 1952 and restore that of the learned Civil

Gho~ade Judge' dated' April 20, 1949. The appellant will be Shrimant Vijayaentitled to his_ costs throughout from the plaiutiffsinhrao -

S. K, Das j.

April 29.

respondent.

Appeal allowed.

M/S. CHANDAJI KUBAJI & CO.

THE STATE OF ANDHRA PRADESH. (S. K. DAS, J. L. K~PUR and M. HIDAYATULLAH, JJ.)

R_eview-Grounds for-Whether allowable on party's own deliberate negligence and intentional withholding of evidence-The Madras General Sales Tax Act, I939 (Mad. Act IX of Ig39), s. I2A

(6) (a).

The appellant company was a dealer in ghee and groundnut oil et~. The Deputy Commercial Tax Officer assessed it to sales tax for the year 1948-49 on a turnover of Rs. 28,69,151 and odd. Similarly for the year 1949-50 the appellant was assessed to sales tax on a turnover of Rs. 28,72,083 and odd.

The appellant challenged these assessments and its appeal before the Commercial Tax Officer having failed the two matters came up in second appeal before the Sales Tax Appellate Tribunal. In the Tribunal the appellant did not place any materials in support of its contentions and the two appeals were disposed of by the Tribunal holding that the appellant was correctly assessed to sales tax. In respect of the aforesaid orders of the Tribunal the appellant filed applications for review under s. l2A(6)(a) of the Madras General Sales Tax Act, 1939 (Mad. Act IX of 1939), taking the plea that in the first case the materials could not be placed before the Tribunal as there was none to instruct the appellant's advocate in English or Telegu, and in the second case the relevant correspondence was mixed up with other records. The Tribunal rejected the applications for review on the ground that a failure to produce the necessary materials in support of a plea taken before it, due either to gross negligence or deliberate withholding, did not come within the reason of s. 12A(6)(a) of the Act. The High Court upheld the decision of the Tribunal. On appeal by specialleave in one case and a certificate of the High Court in the other : Held, that the provision ins. l2A(6)(a) of the Madras General Sales Tax Act, 1939 (Mad. Act IX of 1939), permits a review when through some oversight, mistake or error the necessary facts, basic or evidentiary, were not present before the Court when it passed the order sought to be reviewed, but a party was not

Arunachalam Pillai

SHRIMANT VIJAYASINHRAO AND ANOTHER

S. K. DAS

A. K. SARKAR

M. HIDAYATULLAH, JJ.

Bombay Revenue Jurisdiction Act

s. 4

Government of Bombay

May 14, 1940

December 17, 1941

s. 4

Bombay Revenue Jurisdiction Act, 1876

s. 4

December 17, 194r

clause 4

Bombay Revenue Jurisdiction Act, 1876

s. 4

S. N. Andley

J.B. Dadachanji

Rameshwar Nath

P. L. Vohra

N aunit Lal

B. R. L. Iyengar

T. M. Sen

s. K, Das

April 20, 1949

s. K. Das

Dindur

Bhujangarao Daulatrao Ghorpade

June 7, 1932

Dharwar

Saranjamdar

Bhaubands

Ghorpade

Babasaheb Bahirojirao Ghorpade

Unachgeri

Dattojirao

Babasaheb

Abayabai

July 10, 1941

Abayabai

Vijayasinhrao

Vijayasinha

Abayabai s. K Dos

Government of • Bombay

Babasaheb Bahirajirao Ghorpade

Gajendragad Saranjam

Dattajirao Bahirojirao Ghorpade

Dattajirao Bahirojirao Ghorpade

Bai Abaibai

Potgidar

Commissioner S. D.

12th May, 1941

February 8, 1943

Abayabai

State of Bombay

Shrimant Dattajirao

Shrimant Sardar Bhujangarao Ghorpade

Shrimant Sardar

Bhujangarao Ghorpade

Bombay

Bahirojirao

s. 4

K. Das

Bahirojiao

Shrimif"' Vijayawrong

K. Das

section 4

s. 4

Bombay Revenue Jurisdiction Act

s. K. Das

s. 4

Bombay Revenue Jurisdiction Act, 1876

s. 4(a)

Bombay Revenue Jurisdiction Act, 1876

Government of Bombay JJahirojirao

In the Resolution of June 7'.hrimantDattajirao 1932, quoted earher, the Government of Bombay JJahirojirao treated the potgi holders as being within the Saranjam Ghorpade and made provision for them.

Shrima:i Vijaya•

K.

Wilson

G. D. Patel

Ethe-

Shrimant Vijaya~

S. K. Das

Schedule B of Act

cl. 3

s. 2

Bombay Act VII of 1863

Bombay High Court

(1892) L.R. 20 I.A. 50

Shrimant Vijayad

December 17,

1941

Shrimnt Vijaya

s. 4

Bombay Revenue Jurisdiction Act, 1876

S. 4

s. 4

Shrimant Dattajirao

S. K, Das

CHANDAJI KUBAJI

STATE OF ANDHRA PRADESH

L. K

Sales Tax Appellate Tribunal

Madras General Sales Tax Act, 1939

s. 12A(6)(a)

Madras General Sales Tax Act, 1939


SUPREME COURT REPORTS [1960)

r96o We accordingly allow this appeal, set aside the

Shrimant Dattajirao judgment and decree of the High Court dated N ovem-

Buhirojirao ber 12 1952 and restore that of the learned Civil

Gho~ade Judge' dated' April 20, 1949. The appellant will be Shrimant Vijayaentitled to his_ costs throughout from the plaiutiffsinhrao -

S. K, Das j.

April 29.

respondent.

Appeal allowed.

M/S. CHANDAJI KUBAJI & CO.

THE STATE OF ANDHRA PRADESH. (S. K. DAS, J. L. K~PUR and M. HIDAYATULLAH, JJ.)

R_eview-Grounds for-Whether allowable on party's own deliberate negligence and intentional withholding of evidence-The Madras General Sales Tax Act, I939 (Mad. Act IX of Ig39), s. I2A

(6) (a).

The appellant company was a dealer in ghee and groundnut oil et~. The Deputy Commercial Tax Officer assessed it to sales tax for the year 1948-49 on a turnover of Rs. 28,69,151 and odd. Similarly for the year 1949-50 the appellant was assessed to sales tax on a turnover of Rs. 28,72,083 and odd.

The appellant challenged these assessments and its appeal before the Commercial Tax Officer having failed the two matters came up in second appeal before the Sales Tax Appellate Tribunal. In the Tribunal the appellant did not place any materials in support of its contentions and the two appeals were disposed of by the Tribunal holding that the appellant was correctly assessed to sales tax. In respect of the aforesaid orders of the Tribunal the appellant filed applications for review under s. l2A(6)(a) of the Madras General Sales Tax Act, 1939 (Mad. Act IX of 1939), taking the plea that in the first case the materials could not be placed before the Tribunal as there was none to instruct the appellant's advocate in English or Telegu, and in the second case the relevant correspondence was mixed up with other records. The Tribunal rejected the applications for review on the ground that a failure to produce the necessary materials in support of a plea taken before it, due either to gross negligence or deliberate withholding, did not come within the reason of s. 12A(6)(a) of the Act. The High Court upheld the decision of the Tribunal. On appeal by specialleave in one case and a certificate of the High Court in the other : Held, that the provision ins. l2A(6)(a) of the Madras General Sales Tax Act, 1939 (Mad. Act IX of 1939), permits a review when through some oversight, mistake or error the necessary facts, basic or evidentiary, were not present before the Court when it passed the order sought to be reviewed, but a party was not

entitled to ask for a review when it had deliberately or intentionally withheld evidence in support of a claim made by it.

State of Andhra v.

Sri Arisetty Sriramulu, A.LR. r957 Andhra Pradesh r30, not approved.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 420of1957.

Appeal by special leave from the judgment and order dated August 8, 1955, of the former Andhra High Court in Tax Revision Case No. 2 of 1955.

WITH Civil Appeal No. 142 of 1958.

Appeal from the' judgment and order dated July 28, 1955, of the former Andhra High Court in T.R.C.

No. 32 of 1954.

N. Rajeswara Rao and Sarrlar Bahailur, for the appellants (in both the appeals).

T. V. R. Tatachari and T. M. Sen, for the respondent (in both the appeallil).

ll960. April 29.

The Judgment of the Court was delivered by

Chandaji Kubaji 0- Co.

v; State of A ndhra Pradesh

R K. DAS, J.-These two appeals, one with special s. K. Das J. leave from this Court and the other on a certificate

grnnted by the High Court of Andhra, have been heard together and this judgment will govern them bo•jh,

'rhe faets are similar and the short question for decision is whether the appellant, Messrs. Chandaji Knbaji and Company, Guntur, was entitled to apply under s. 12A(6)(a) of the Madras General Sales Tax Act, 1939 (Madras Act IX of 1939), as applied to.

Andhra, for a review of an order of the Appellate Tribunal made under sub-s. (4) of s. 12A of the said

Act. The relevant facts are these. The appellant is a dealer in ghee, groundnut oil, chillies, etc., and was carrying on its business at Guntur. In Civil Appeal No. 420 of 1957, the Deputy Commercial Tax Officer, Guntur, a.ssessed the appellant to sales tax for the yea, r 1948 .. 49 on a turnover of Rs. 28,69,151 and odd.

Tbe appellant having unsuccessfully appealed to the Commercial Tax Officer, Guntur, made a second appeal to the Sales Tax Appellate Tribunal, hereinafter called

z960

Chandaji Kubaji 6- Co. v.

State of Andhra

Pradesh

S. K. Das J.

the Tribunal. Before the Tribunal the appellant contended inter alia that out of the total turnover a sum of Rs. 10,45,156 and odd related to commission purchase of commodities taxable at the stage of sale on behalf of principals resident outside the State of Andhra and was not therefore taxable by the respondent State. In respect of this plea the Tribunal said :

"As regards the alleged commission agency business to the tune of Rs. 10,45,156-4-9 the appellants have neither advanced arguments nor placed before us any materials in support of the contention raised in this behalf ".

In the result the Tribunal dismissed the appeal on May 30, 1953.

In Civil Appeal No. 142 of 1958 the appellant was assessed by the Deputy Commercial Tax Officer, Guntur, on a net turnover of Rs. 28,72,083 and odd for the year 1949-50.

The appellant objected to the inclusion of a sum of Rs. 19,89,076 and odd on the ground that the goods relating thereto had been consigned to self and despatched to places outside the State and in fact were delivered outside the State.

This plea was disallowed by the Sales Tax authorities, and the Tribunal said :

" In the grounds of appeal it has been urged with regard to these sale transactions the ownership in the goods continued to vest in the appellant till the sale price was collected and the goods were delivered to the buyers at places outside the State. Beyond advancing a broad argument of this type no material has been placed before us or was placed bef0re the assessing authority or the Commercial Tax Officer to support the appellant's version that the property in the goods passed to the buyer only at places outside the State ".

x x x " It is not denied that though contracts in writing were not entered into, these transactions were the result of correspondence between the appellant on the one hand as seller and various persons on the other as buyers. It is conceded that such corresp9rr<fonce exists but the appellants have not chosen

,..3 S.C.R. SUPREME COURT REPOltTS 807

to make this correspondence available either to us or to the officer below. When documents which would establish the nature of the transaction beyond doubt are available and have been withheld by the appellant, the normal result is that an inference adverse to his contention has to be drawn. We are accordingly of the opinion that in this case, the sales must be deemed to have taken place within this State and that they have been rightly included in the taxable turnover ".

The appeal was disposed of on this finding on August 19, 1952. In respect of both the aforesaid orders the appellant filed applications for review under s. 12A(6)(a) of the Act. That section, in so far as it is relevant for these appeals, reads :

" 12A(6)(a)-The Appellate Tribunal may, on the application either of the assessee or of the Deputy Commissioner, review any order passed by it under sub-section (4) on the basis of facts which were not before it when it passed the order :

Provided that no such application shall be preferred more than once in respect of the same order ".

The point taken on behalf of the appellant in Civil Appeal No. 420 of 1957 was that the accounts were in Gujrati language and as there was none on behalf of the appellant who could give instructions to the appellant's advocate either in Telugu or English when tlie appeal was heard by the Tribunal, the appellant could not place the materials before the Tribunal. In the other appeal, the point taken in support of the application for review was that the relevant correspondence was mixed up with other records and so it could not be placed before the Tribunal. The Tribunal rejected the applications for review on the ground that a failure to produce the necessary materials in support of a plea taken before it, due either to gross negligence or deliberate withholding, did not come within the reason of s. 12A(6)(a) as stated in the expression " on the basis of facts which were not before it when it passed the order". The appellant then moved the. High Court in revision under s. 12B of the Act and

L960

Chandaji Kubaji& Co. v.

State of Andnra

Pradesh

S. K. Das j.

z960

Chandaji Kubf1ji ($..Co.

v. ?late of A ndhra

Pradesh

contended that the view which the Tribunal took of s.12A(6)(a) was not correct. The High Court drew a distinction between what it called basic facts and evidence in support thereof and said:

" There is an essential distinction between a fact and the evidence to establish that fact".

S. J(. Das]. x x X "Section 12A(6)(a) in our view is not intended to give two opportunities to every assessee to establish his case before a Tribunal. It is really conceived in the interests of. the assessee, who was not able to place some fact"s before the Tribunal at the first instance which would have made a difference in its decision ".

In the view which the High Court took of s. 12A(6)(a), it held that the applications for review were rightly rejected.

In the two appeals before us the argument has been that the Tribunal as also the High Court took an erroneous view of the true scope and effect of s. 12A (6)(a) of the Act. Our attention has been drawn to a subsequent Full Bench decision of the same High Court in The State of Andhra v. Sri Arisetty Sriramulu (1) and it has been submitted that the view expressed therein is the correct view. In that decision, it was held that the word "facts" in s. 12A(6)(a) may be taken to have been used in the sense in which it is used in the law of evidence, that is to say, as including the factum probandum or the principal fact to be proved and the factum probans or the evidentiary facts from which the principal fact follows .immediately or by inference; facts may be either "facts in issue " which are the principal matters in dispute or relevant facts which are evidentiary and which directly or by inference, prove or disprove the "facts in issue".

In the view which we have taken of these two appeals, it is not necessary to discuss at great length the divergent views taken in the High Court of Andhra as to the true scope and effect of s. 12A(6)(a) of the Act.

A Division Bench expressed the view that " facts" in the sub-section meant basic facts, that is, \ti A.LR. 1957 Andhra Pradesh 130.

3 8.C.R. SUPREME COUR'r REPOR'r8 809

facts necessary to sustain a claim, and drew a distinction between such facts and the evidence required to establish them; it further expressed the view that under s. 12A(6)(a) the Tribunal may review its order if any of the basic facts were not present before it when it passed the order, but the sub-section was not meant to give a second opportunity to a party to produce fresh evidence. The Full Bench took a wider view of the sub-section and said that facts referred to in the sub-section might be " facts in issue" or "evidentiary facts". We think that in an appropriate case evidentiary facts may be so interlinked with the facts in issue that they may also fall within the purview of the sub-section. The Full Bench, however, went a step further and said that even if relevant evidentiary facts were intentionally or deliberately withheld or suppressed, the party guilty of such suppression or withholding would still be entitled to ask for a review under s. 12A(6)(a).

We say this with great respect, but this is precisely what the section does not permit. The Full Bench said:

"The language of section 12A(6)(a) is so wide and general that it might possibly lead to inconvenient results in that it might enable an assessee to get a further chance of hearing before the Appellate Tribunal on the strength of evidence which he negligently or designedly failed to produce at the first hearing.

As the language used in section 12A(6)(a) is clear and unequivocal and, in our opinion, capable only of one interpretation, we are bound to give effect to it in spite of the possibility of any inconvenience resulting therefrom. The inconvenience, if any, is not to the assessee for whose benefit the provision is intended. In any case, the remedy is with the Legislature".

It is, we think, doing great violence to language to say that an intentional or deliberate withholding or suppression of evidence in support of a plea or contention or a basic fact urged before the Tribunal, is comprehended within the expression " facts which were not before it (Tribunal) when it passed the order". 'fo so construe the section is to put a, premium

Chandaji Kubaji& Co. v.

State of Anahra

Pradesh

S. K. Das].

Chandaji Kubaji & Co. v.

State of A ndhra

P-radesh

S. K. Das].

x960

May3.

on deliberate negligence and fraud and amounts to allowing a party to profit from its own wrong. We do not think that such a construction follows from the language used, which is more consistent with the view that the provision ins. 12A(6)(a) permits a review when through some oversight, mistake or error the necessary facts, basic or evidentiary, were not present before the Court when it passed the order sought to be reviewed. It is entirely wrong to think that the subsection permits a party to play hide and seek with a judicial Tribunal; that is to say to raise a fact in issue or evidentiary fact as a plea in support of a claim and at the same time deliberately withhold the evidence in support thereof. Such a situation cannot be said to be one within the meaning of the expression "facts not present before the Tribunal ".

In the appeals before us there was intentional withholding or suppression of evidence. In the case, the materials were not produced on the plea that they were written in Gujrati and nobody was avail:; tble to instruct counsel in English or Telugu and in the other, on an equally specious plea that the correspondence was mixed up with other records for about two years.

These two appeals can be disposed of on this short ground that the appellant was not entitled to ask for review under s. 12A(6)(a) by reason of his own deliberate negligence and intentional withholding of evidence.

We see no merit in these appeals and dismiss them with costs.

Appeals dismissed.

THE COTTON AGENTS LTD., BOMBAY

COMMISSIONER OF INCOME-TAX,

BOMBAY. . (S. K. DAS and M. HrnAYATULLAH, JJ.) Income-tax-Managing Agency Agreement-Proper construction of-Commission on sale proceeds of the managed company-Time of accruing.

Messrs. Shivnarayan Surajmal Nomani were the managing agents of the New Swadeshi Mills of Ahmedabad Ltd. The Nemani group and the appellant-company which is the assessee

Das j.

S. CHANDAJI KUBAJI & CO.

THE STATE OF ANDHRA PRADESH

M. HIDAYATULLAH, JJ.

Madras General Sales Tax Act, 1939

s. 12A(6)(a)

Madras General Sales Tax Act, 1939

N. Rajeswara Rao

Sarrlar Bahailur

T. V. R. Tatachari

T. M. Sen

Chandaji Kubaji 0- Co.

State of A ndhra Pradesh

R K. DAS

K. Das

High Court of Andhra

Chandaji Knbaji and Company, Guntur

s. 12A(6)(a)

Madras General Sales Tax Act, 1939

Madras Act IX of 1939

Andhra

s. 12A

Guntur

Sales Tax Appellate Tribunal

S. K. Das

May 30, 1953

August 19, 1952

s. 12A(6)(a)

s. 12A(6)(a)

s. 12B

Chandaji Kubaji

Chandaji Kubf1ji

late of A ndhra

Pradesh

Section 12A(6)(a)

s. 12A(6)(a)

s. 12A

s. 12A(6)(a)

s. 12A(6)(a)

8.C.R. SUPREME

s. 12A(6)(a)

s. 12A(6)(a)

section 12A(6)(a)

section 12A(6)(a)

s. 12A(6)(a)

COTTON AGENTS LTD

M. HrnAYATULLAH

Shivnarayan Surajmal Nomani

New Swadeshi Mills of Ahmedabad Ltd.

Nemani group


Chandaji Kubaji & Co. v.

State of A ndhra

P-radesh

S. K. Das].

x960

May3.

SUPREME COURT REPORTS [1960]

on deliberate negligence and fraud and amounts to allowing a party to profit from its own wrong. We do not think that such a construction follows from the language used, which is more consistent with the view that the provision ins. 12A(6)(a) permits a review when through some oversight, mistake or error the necessary facts, basic or evidentiary, were not present before the Court when it passed the order sought to be reviewed. It is entirely wrong to think that the subsection permits a party to play hide and seek with a judicial Tribunal; that is to say to raise a fact in issue or evidentiary fact as a plea in support of a claim and at the same time deliberately withhold the evidence in support thereof. Such a situation cannot be said to be one within the meaning of the expression "facts not present before the Tribunal ".

In the appeals before us there was intentional withholding or suppression of evidence. In the case, the materials were not produced on the plea that they were written in Gujrati and nobody was avail:; tble to instruct counsel in English or Telugu and in the other, on an equally specious plea that the correspondence was mixed up with other records for about two years.

These two appeals can be disposed of on this short ground that the appellant was not entitled to ask for review under s. 12A(6)(a) by reason of his own deliberate negligence and intentional withholding of evidence.

We see no merit in these appeals and dismiss them with costs.

Appeals dismissed.

THE COTTON AGENTS LTD., BOMBAY

COMMISSIONER OF INCOME-TAX,

BOMBAY. . (S. K. DAS and M. HrnAYATULLAH, JJ.) Income-tax-Managing Agency Agreement-Proper construction of-Commission on sale proceeds of the managed company-Time of accruing.

Messrs. Shivnarayan Surajmal Nomani were the managing agents of the New Swadeshi Mills of Ahmedabad Ltd. The Nemani group and the appellant-company which is the assessee

, J .. ,..,. ...

held a substantial number of shares of the said mills. Sometime z96o 'in 1944 some difference arose between them and it was decided -- that the Nemani group should sell its block of shares to the Cotton A gents l.td. appellant company at an agreed price and then the appellant v. company would become the managing agents of the mills com- Commissioner 0!

Income-tax pany on payment of Rs. 5,00,000 to the Nemani group and would be entitled to the emoluments of the managing agents as from April l, 1944 , The relevant portion of the Managing Agency Agreement ran thus :-

" (2) The remuneration of the agents as such agents of the company as aforesaid shall be as follows :- A commission at the rate of three and a half per cent. on the gross proceeds of all sales of the yarn, cloth, waste and other articles manufactured by the company earned in any year or other period for which the accounts of the company are made up and laid before the General Meeting."

" (3) The said commission shall become due to the Managing Agents at the end of each financial year or other period for which the accounts of the company are to be laid before the General , Meeting and shall be payable and paid immediately after such accounts have been passed by the General Meeting."

The assessment year was 1946-47, and the year ending with Diwali, 1945 (October 18, 1944, to November 4, 1945) was the accounting year. The managing agency commission from Aprill, 1944, to December 31, 1944, amounted to Rs. 2,20>433 and from January l, 1945, to March 31, 1945, to Rs. 67,959.

The case of the appellant-company was that for the assessment year 1946-47 it was liable to pay tax only on the commission of Rs. 67,959 which it had earned by working as managing agent of the Mills company and it was not liable to pay tax on the sum of Rs. 2,20>433 On a difference of opinion having arisen between the departmental taxing authorities and the Tribunal the following question was referred to the High Court for decision :-

" Whether on the facts and circumstances of the case the managing agency commission of 3!% on sales made by the New Swadeshi Mills of Ahmedabad Ltd., between April l, 1944, and December 31, 1944, accrued to Shivnarayan Surajmal Nemani or to the assessee ? "

. The High Court following the decision of the Supreme Court in E. D. Sassoon and Company Ltd. v. Commissioner of Income-tax, Bombay City, held that the appellant company was liable to pay tax on the whole of the commission as the commission accrued due on March 31, 1945, and they became entitled to receive it at the end of the year; it also held that no debt was created in favour of the agents when the goods were sold. On appeal by the a:ssessee company on a certificate of the High Court : Held, that the view of the High Court was correct. The commission. of the managing agents accrued and became due at the end of the financial year and that neither any debt nor any right to receive payment arose in favour of the aenb• when each

r960 transaction of sale took place. No income arose or accrued on the sale proceeds at the time of each sale.

Cotton Agent' Ltd, E. D. Sassoon and Company Ltd. v. Commissioner of Income- _•·. tax, Bombay, [1955] l S.C.R. 313, referred to.

Commimoner of L k G l d 5 Th Tncome-lax a shminarayan Ram opa an ons v. e Government of Hyderabad, [r955] r S.C.R. 393, followed.

Commissioners of Inland Revenue v. Gardner Mountain & D'Ambrumenil Ltd., (r947) 29 T.C. 69 and Turner Morrison & Co. Ltd. v. Commissioner of Income-tax, West Bengal., [r953] 23 I.T.R. 152, distinguished. -:-. 1 CIVIL APPELLATE JURISDICTION: Civil Appeal No. 100 of 1959.

Appeal from the judgment and order dated February 11, 1957, of the Bombay High Court in Income-tax Reference No. 53 of 1956.

R. J. Kolah, Dwarkadas, S. N. Andley, J.B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the appellants.

K. N. Rajagopal Sastri and D. Gupta, for the respondent. 1960.

May 3.

The Judgment of the Court was delivered by s. K. D•" J.

S. K. DAS, J.-This is an appeal on a certificate granted by the High Court of Bombay, under s. 66A (2) of the Indian Income-tax Act, l922. The short facts are these. The Cotton Agents Limited, Bombay, are a limited liability company registered under the Indian Companies Act and will be called the assessee Company in this judgment. It held a substantial number of shares of the New Swadeshi Mills of Ahmedabad, Ltd. (hereinafter called the Mills Company). Messrs.

Shivnarayan Surajmal Nemani (called the Nemani group) also held a block of shares of the Mills Company along with its managing agency. The assessment year was 1946-47, and the year ending with Diwali, 1945 (October 18, 1944, to November 4, 1945) was the accounting year. Sometime in 1944 so.me differences arose between the assessee Company and the Nemani group; these differences were referred to one Govindram Seksaria, who decided that the Nemani group should sell its block of shares to the assessee Compa.ny e, t an agreed price. It was further decided

... <:>..- ·~ • l 1 .... .,.. •• •

that a sum of Rs. 5,00,000 be paid by the assessee x9i; o

Compay to the Neahni grTouh:p as the price tof the Cotton Agents Ltd;

managmg agency rig ts. 1s arrangemen was v. approved by the share-holders of the Mills Company aommissiomr of by a resolution dated January 4, 1945, and came into Income-ta~ effect immediately. The agreement further was that th C Id · S, K.Dasj. e assessee ompany wou come m as managmg agents of the Mills Company in place of the Nemani group and would be entitled to the emoluments of the managing agents as from Aprill, 1944. The managing agency commission from April 1, 1944, to December 31, 1944, amounted to Rs. 2,20,433 and from January 1, 1945, to March 31, 1945, to Rs. 67,959. The case of the assessee Company was that for the assessment year 1!146-4 7 it was liable to pay tax only on the commission of Rs. 67,959 which it had earned by working as managing agent of the Mills Company and it was not liable to pay tax on the sum of Rs. 2,20,433. This contention of the assessee Company was not accepted by the departmental taxing authorities; but the Tribunal decided in its favour.

The assessee Company's case before the Tribunal was that as the managing agency commission was based on the sales, the commission accrued to the managing agents as and when the sales were made and furthermore the sum of Rs. 5,00,000 paid by the assessee Company to the retiring managing agents included the purchase price of the mana.ging agency commission which had accrued in the hands of the retiring agents. The Tribunal expressed the view that on a true construction of the relevant managing agency agreement, the 3! per cent. commission on sales made when the Nemani group was the managing agent accrued to that group and not to the assessee Company and thus a debt was created in favour of the Nemani group on every sale during its period of managing agency and only the payment of the debt was deferred till the accounts of the Mills Company were passed at a general meeting; therefore, the commission prior to the close of the year 1944 was assessable in the hands of the Nemani group and thereafter in the hands of the assessee Compa:1y.

The Department, however, contended that the whole

of the managing agency commission accrued to the assessee.

Thereupon, at the instance of the Depart- Cotton A;, ents Ltd. ment, the Tribunal referred the following question of

commissioner of law to the High Court for decision :-

Income-tax "Whether on the facts and circumstances of the

S. J(. Das J. case the managing agency commission at 3t% on sales made by the New Swadeshi Mills of Ahmed a bad Ltd., between April I, 1944, and December 31, 1944, accrued to Shivnarayan Surajmal Nemani, or to the assessee ? '' The High Court hEild that the matter was concluded by the decision of this Court in E. D. Sassoon and Company Ltd. v. Commissioner of Income-tax, Bombay City (' ). With reference to the argument of learned counsel for the assessee Company that the commission was payable on the sale proceeds and not on the profits as in Sassoon's case('), it said:

"We would have given serious thought to this aspect of the matter but for the view we take that the decision of the Supreme Court with regard to the question of creation of the debt and with regard to the serving by the managing agents for a term of one year being a condition precedent for their being entitled to receive payment, is indistinguishable on the facts of this case.

We may point out that here as in the Sassoon's case(') the commission of 3t per cent. is to be earned in any year, and also by clause 3 of the agreement the commission is to become due to the managing agents at the end of each financial year. Therefore, till the end of the financial year there is no debt whatsoever created in favour of the managing agents and also their right to receive payment depends upon their having served for a whole year. Under the circumstances we must hold, following the decision of the Supreme Court, that the assessees are liable to pay tax on the whole of the commission as the commission accrued due on March 31, 1945, and they became entitled to receive it at the end of the year. We do not agree with the view of the Tribunal that according to the agreement of the managing agents the debt was

(1) [1955] 1 S.C.R. 313.

. -

,.J

created in favour of the agents when the goods were 1960 sold by the company and that the payent was Cotton Agents Lta; deferred to a date after the accounts havrng been v. passed by the shareholders in the. general meeting Commission.r nf of the company. In no view of the case can it be, Income-tax said that the debt was created in favour of the agents when the goods were sold". s. K. Das.!- The answer to the question really depends on a construction of the relevant terms of the managing agency agreement dated March 15, 1925, entered into between the Mills Company and the Nemani group.

Before we proceed to a consideration of those terms it is necessary to state that the Department has assessed the Nemani group also to tax in respect of the commission for the period April 1, 1944, to December 31, 1944. That circumstance has, however, no bearing on the question of construction and learned counsel for the Department has stated before us that there is no intention to tax two parties for the same income and if the tax has been realised from both fol'

the same income, it will have to be refunded to one of the two parties after the decision of this Court.

We are not considering in this case the validity or otherwise of what are known as protective or precautionary assessments, and nothing said in this judgment has any bearing on that question.

We go at once to the Managing Agency Agreement dated March 15, 1925. Under that agreement the managing agents were appointed for a period of fifty one years, but with liberty to them to resign the appointment and retire from the agency at any time by twelve calendar months' notice in writing, such notice to t:ixpire at the end of any financial year of the

Mills Company. Then came els. (2) and (3) of the agreement, which are material and must be quoted so far as they are necessary for our purpose :-

" (2) The remuneration of the Agents as -such Agents of the Company as aforesaid shall be as follows:- A commission at the rate of three and a half per cent. on the gross proceeds of .all sales of the yarn, cloth, waste and other articles manufactured

Cotton Agents Ltd.

Commissioner of

Income-ta%

s. K.t'Das J.

by the Company earned in any year or other period for which the accounts of the Company are made up and laid before the General Meeting."

Provided, etc., (it is unnecessary to quote the proviso).

" (3) The said commission shall become due to the Ma.naging Agents at the end of each financial year or other period for whieh the accounts of the Company are to be laid before the General Meeting and shall be payable and paid immediately after such accounts have been passed by the General Meeting".

Clauses (6) to (11) recited the rights and duties of the managing agents, one of such rights being to retain, reimburse and pay themselves "all sums due to the agents for commission". Clauses (13) and (14) dealt with the right to assign the remuneration and the managing agency, and said inter alia that" it shall be lawful for the agents to assign this agreement and the benefit thereof and their rights and privileges, etc., to any person or firm or company having authority by its constitution to become bound by the obligations undertaken by the agents ........................... and the Company shall be bound to recognise the person, firm or company aforesaid as the agents of the Company".

It is unnecessary to read the other clauses of the managing agency agreement.

The controversy before us hinges really on the scope and effect of clauses (2) and (3), read in the context of the agreement as a whole. On behalf of the assessee Company the argument is that under cl. (2) the managing agency remuneration accrued at the rate of 3! per cent. on the gross proceeds of all sales; the word " all" is emphasised, and it is argued that the remuneration accrued as ea.ch sale took place, the totality of sales giving the gross sale proceeds. It is argued that embedded in each sale was the managing agency commission of the assessee Company. It is further sug£lested on behalf of the assessee Company that though cl. (3) uses the word " due '', it merely

inr1irat.ed the time of payment and not that of accrual,

We do not think that this reading of the two clauses r960 is correct. In our view, cl. (3) is the accrual clause; -- . . it shows that the commission became due at the end Cotton Agents Ud. of each financial year or other period for which the Commi;; ioner of accounts of the Mills Company were to be laid before inoome-tax the General Meeting. Significantly enough, the clause consists of two parts; one part says when the coms, K. Das J; mission becomes due and the other says when it is to be payable and paid. In very clear terms, the clause says that the commission becomes due normally at the end of the financial year, but is payable after the accounts have been passed by the General Meeting.

Let us contrast cl. (3) with cl. (2).

Clause (2) states how the remuneration has to be calculated. It says in effect that the remuneration has to be cn.lculated at the rate of 3! per cent. on the gross proceeds of all sales, etc., earned in any year or other period for which the accounts of the Mills Company are made up.

Putting the two clauses side by side, the conclusion at which we have arrived is that in their true scope and effect cl. (3) determines the time of accrual of the managing agency remuneration and cl. (2) determines the rate at which the remuneration is to be calculated; and as to the time of payment, that is determined by the second part of cl. (3). - This view of the managing agency agreement of March 15, 1925, concludes the appeal. If the remuneration accrued at the end of the financial year, then undoubtedly it accrued in the hands of the assessee Company. It remains now to refer briefly to some of the decisions cited at the Bar.

As to th~ decision in Sassoon'8 case(1) it is pointed out that the commission there payable by way of remuneration was a percentage on the net profits and this, - it is argued for the assessee Company, distinguishes that decision from the present case. Indeed, it is true that in Sassoon's case (1) the remuneration was fixed at a percentage on the net profits, but the real point of the decision was as to when the remuneration accrued.

On this point the majority of learned Judges said:

(t) (1q551 r 1>.C.R. 313.

1960 "It is clear therefore that income may accrue to an

Cotton A, gents Lid. assessee without he actu.al receipt o~ the sae. If v. the assessee acqmres a right to receive the mcome, Commissioner of the income can be said to have accrued to him though

Income-lo~ it may be received later on its being ascertained. The basic conception is that he must have acquired a s. K. Das f right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro: see W. S. Try Ltd. v. Johnson(') and Webb v.

Stenton (').

Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he had acquired a right to receive the income or that income has accrued to him".

It has been argued before us that the decision requires reconsideration because it failed to make a further distinction, a distinction which it is stated arises in law, between the right to receive payment and the creation of a debt. We consider it unnecessary to consider such a distinction, if any such exists, in the present case. On our view of the managing agency agreement, the commission of the managing agents became due at the end of the financial year and that is when it accrued; and there were neither any debt created nor any right to receive payment when each transaction of sale took place.

We were also addressed at some length on the further question whether managing agency is service and if so, whether it must be for one full year or whether apportionment is permissible.

These questions do not fall for decision in the present case and we express no opinion thereon.

We have proceeded in this case on the footing that the managing agency work of the assessee Company constituted business within the rule of the decision in Lakshminarayan Ram GopaJ, and Sons Ltd. v. The Government of Hyderabad(') and on that footing we have decided the question of accrual.

In Commissioners of Inland Revenue v. Gardner Mountain & D'AmbrumenilLtd. ('), on which learned counsel for the appellant placed reliance, the facts were quite

(1) [1946] I All E.R. 53Z. 539

(3) (1955] (1) S.C.R. 393.

(2) [1883] II Q.B D. 518, 522. 527.

(4) (1941] 29 T.C. Lg.

' --

different and on a true construction of the agreements 1960 there, it was held that the commission payable under - d ' t th Cotton Agents Ltd certam un er-writers agreemen s arose m e year m which the policies were underwritten. That decision Commi;; ioner of proceeded on a construction of the agreements there Income-tax considered ; and it is no authority for construing other agreements of a different character. Learned s. K Das J. counsel for the appellant relied on Turner Morrison & Co. Ltd. v. Commissioner of Income-tax, West Bengal(1) for his contention that in the sale proceeds of each

transaction of sale were embedded the income, profits' or gains to be earned by the managing agents and, therefore, the accrual took place on each transaction, ofsale. The observations at page 160 of the report on which reliance was placed were made in a different context, namely, in the context of the place of receipt of income in relation to the provisions of s. 4(l)(a) of the Income-tax Act.

Learned counsel for the respondent has pointed out to us that the observations of Lord Justice Fry in Colquhoun v. Brooks (2) were not very accurately reproduced in Rogers Pyatt Shellac and Co. v. Secretary of State for India (3). He submitted that Lord Justice Fry did not say that the words " accrual" or "arising" represented a stage anterior to the point of time when the income becomes receivable and connote a character of the income which is more or less inchoate.

He has argued that there is nothing inchoate about the income when it arises or accrues.

We consider it unnecessary to embark on a discussion as to how far the aforesaid observations require consideration by us.

It is enough to say that on the view which we have taken of the relevant clauses of the managing agency agreement, no income arose or accrued on the sale proceeds at the time of each transaction of sale ; the income accrued at the end of the financial year at the rate of 3! per cent. on t}ie gross proceeds of all sales of yarn, cloth, waste, etc., earned in any one year. In that view of the matter, the High Court correctly answered the question.

The appeal fails and is dismissed with costs.

Appeal dismissed.

(r) [r953] 23 I.T.R. r52.

(2) (r888) 21 Q.B.D. 52, 59. <3l (1924111.r.c. 363, 372,

S. K. Das

s. 12A(6)(a)

THE COTTON AGENTS LTD., BOMBAY

S. K. DAS

M. HrnAYATULLAH

Shivnarayan Surajmal Nomani

Nemani group

Nemani group

Diwali, 1945 (

October 18, 1944

November 4, 1945

Aprill, 1944

December 31, 1944

January l, 1945

March 31, 1945

New Swadeshi Mills of Ahmedabad Ltd.

April l, 1944

Shivnarayan Surajmal Nemani

Supreme Court

Commissioner of Income-tax, Bombay

R. J. Kolah

Dwarkadas

S. N. Andley

J.B. Dadachanji

Rameshwar Nath

P. L. Vohra

K. N. Rajagopal Sastri

D. Gupta

s. K. D•" J.

High Court of Bombay

s. 66A

Income-tax Act

Cotton Agents Limited, Bombay

Companies Act

New Swadeshi Mills of Ahmedabad, Ltd.

Shivnarayan Surajmal Nemani

Govindram Seksaria

January 4, 1945

April 1, 1944

January 1, 1945

Das

New Swadeshi Mills of Ahmed

Sassoon

clause 3

[1955] 1 S.C.R. 313

March 15, 1925

Cotton Agents Ltd.

K.t'Das

K. Das

K Das

s. 4(l)(a)

Income-tax Act

Fry