8, S. Jfunno 1..l

8. 8. Rajk.,..,

Slid. J,

IY~2

Fth1uary 21.

436 SUPREME COURT REPORTS [1002] SUPP

as property. The High Court was therefore, in our judgment, in error in holding that the right dccla rc<l in favour of Khilonahai was not possessed by her, nor are we able to agree with the submission of the learned counsel for Raj Kumar th1t it was not property within the meaning of s. 14 of the Act.

On that view of the case, by virtue of ss. 15 and l6 of the Act, the interest deolared in favour of Khilonabai devolved upon her sons Munnalal and Ra.mchand to the exclusion of her grandson Rajkumar. The decree passed hy the High Cuurt is therefore modifie<l in this respect and the decree passed by the trial Court restored. Having regard to the p11rtial success of the parties, there will be no order as to costs in this appeal and in the High Court.

Appeal partl, y allowed.

R. C. JALL

UNION OF INDIA

(B. P. SI:SIIA, c. J., K.

SUBBA RAO, N. RAJAGO PALA AYYA~GAH, J. R. '.\TuDHOLKAR and T. L.

VENKATARAMA AIYAR, JJ.)

Railu•a.y -- ,'\1litfo1 recorer.rJ of CP&.r1-limitation-Jlaint .. n.inrzbilit11 -- Co11signee f !iable--l1ulirtn Limitation Act, mos (LY of 1908), Art.;, 149, no;; o -- Con•litution of l11dia, Arts 265, .)72 - Ordinance Yo. 39 or 1944 -- Ordinance 6 of 1947, .•.. 1-•; oal Production Fund Ritl,., /!144, rr.6, .1, 3(a), 3(b) -Supreme Court Rule.•, 19W, as amended, 0. XI' lll, r.2.

The appellant, Amalgamated Coalfields, despatched by rail three consignments of coal to appellant R. C. Jail from Junner-Deo to Indore. The appellant R. C. Jail took delivery of the coal after paying the freight, but by mistake the ccss payable as surcharge was not recovered from him at the time of delivery of goods. On April 15, 1953, the Union of India representing the Central and Western Railways filed a suit before the Civil Judge Chhindwara, for the recovery of the said cess. Since important questions of interpretation of 'the Government of India Act, 1935 and the Constitution were involved, the High Court withdrew the case to its own file for trial. The appellants inter alia, pleaded that the levy was illegal and the suit was barred by limitation. The High Court decreed the suit and held that it was within time and the appellants were liable to pay the cess against which the present appeals were preferred. It was urged by the appellants

(1) that art. 149 of the Indian Limitation Act did not apply and the suit was governed by art. 120 of the Limitation Act;

(2) that the tax could not be sustained under Art. 265 of the Constitution; ( 3) that the excise duty could not be levied on the consignee; ( 4) that the purpose of the Ordinance had exhausted and the Central Government could no longer levy the tax; (5) that under the statutory rules only the consignee was liable to pay.

Held, that art. 149 of the Indian Limitation Act read with art. 120 of the said Act applied to the present case and the suit was within time.

Kirpa Sanker v. Janki Prasad, A.I.R. 1942 Pat. 87, Secre, tary of State for India v. GuruProshad Dhur, (1893) I.L.R. 20 Cal 51; Inderchand v. Secretary of St, atefor India (194l) 9 I.T.R. 673 and Government of India v. Taylor, (1955) 27 l.T.R. 356, held inapplicable,

The repealing Ordinance, being a temporary one, expir ed after it fulfilled its purpose. As it had continued the life of the original Ordinance which was a permanent one, in respect of past transaction, the expiry of its life could not have any effect on that law to the extent saved. The repealed to ordinance, to the extent saved, continued to have force under Art. 372 of the Constitution and it could not be said that the coal cess was levied without authority of law within the meaning of Art. 265 of the Constitution. ·

Hansraj Moolji v. The State of Bombay, (1957) S.C.R. 634, relied on.

The Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within

1962 •

R. c. Jail

Union of IntlU.

R.C. Jail

•• llnion of India

4S8 SUPHEME COURT REPORTS [1962] SUPP.

the country.

Sulijcct ahvays to the legislathe cornpctencc of the taxi11g authority, the said tax can be levied at a convenient stage so long as the character of the impost, is not lost .

The method of collection does not affect the essence of the duty Out only relates to the n1achincry of collection for administrative convenience, \vhethcr in a particular case the tax ceases to be in essence an excise duty and the rational connection bet\\'Ccn the duty and the person on \vhom it is imposed ceased to exist is to be decided on a fair construction of the provisions of a particular act.

In re th' Cenlm/ Proii>!ce.1 and IJerar Acl. No. XIV of 1938, (1939) F.C.R. 18, The Pro1:ince of Afodra" v. Boddu Paidanna and Sons, ( 1942) F.C.R. 90 •nd Goi:ernor General in Council v. Province of Madra~, ( 1945) L:R. 72 I. A. 91 applied.

In vir:\v of!'. 3 of the repcali11g Ordinance it could not be said that the purpose of the Ordinance had been exhausted.

In the present case r. 3(a) of the Coal Production Fund Rules 1944, had no applic•tion and the only rules applicable was r. 3 (b). Ruic 6 does not say that if the consignee docs not pay the consignor is liable to pay and it does not purport to enlarge the statutory liability of the consignor or the consignee, as the case may be.

Held, further, that a point of law not taken in the statement of case cannot ordinarily be allowed to be urged at the time of hearing of the appeal.

CrvIL APPELi.AT~; .Jumsu1C'rION: Civil Appeals Nos. 183, 184 of 1959.

Appeals from the judgment and decree dated September 5, 1954, of the .llaclhya Pradesh High Court in M.C. Case o. 214 of 1!154.

A. V. Visu-anatha Sa, stri and J.B. Dadachanji for the app<ellant (in C. A. No. 183 of 1959) and respondent No. 2 (in C. A. No. 184 of 1959).

B. Se:n and .J. N. Shroff for the appellant (in C.A. Xo. 184 of 1959) and Respondent No. (In C. A

No. 183 of 1959).

C. K. Daphtary, SolicitorGtneral of India.

Y. Kumar and[>. D. Mown for respondent No.I. (in both the appeals).

1962. February 27. 'Ihe Judgment of the Court was delivered by

SUllBA RAO, J.-These two appeals by certificates are filed against the judgment and decree of the High Court of Madhya Pradesh, Jabalpur, by the two defendants in Civil Suit No. 1 of 1957, a suit filed by the Union of India, owlng and representing the Central and Western Railways Administrations, New Delhi; against tlie said defendants for the recovery of coal cess amounting to Rs. 81-4-0 and costs.

The material facts may be briefly stated.

Under Ordinance No. 39 of 1944, the Central Government was authorised to levy and collect as a cess on all coal and coke despatched from collieries in British India a dutv of excise at such rate, not exceeding Rs. 1-4-0 per 'ton. In exercise of the power conferred on the Central Government under s. 5 of the Ordinance, the said Government made rules ; and r. 3 thereof, the duty of excise imposed under the Ordinance on coal and coke shall, when such coal and coke is despatched by rail from collieries or coke plants, be collected by the Railway Administration by means of a surcharge on freight, and such duty of excise shall be recovered either from the consignor or the consignee, as the case may be. On January 1, 1947, February l, 1947 and February 7/9, 1947, the second defendant, namely the Amalgamated Coalfields, despatched by rail to the first defendant three consignments of coal from Junner-Deo to Indore. The freight for the three consignments was payable at the destination station

i. e, Indore. The first defendant duly paid the freight and took delivery of the coal but by some mistake the cess payable as surcharge on the three consignments was not recovered from the first defendant at the time of delivery of the goods. Under

R.C. Ja •l ...

Union of India

Subba Rao J.

1116%

11.C .• Jail

Y, Um.on o/ /nJ, a

Subba Rao J.

440 SlJPRE;\lE COURT REPORTS [Hl6:!] SUPP.

s. 55( 5) of the Indiau Hail ways Act the H.ailway Administration can rcco\'er tho freight or any balance thereof left umecuverc<l by way of 8Uit. Ou April 15, HJ53, the L:nion of Iudia, rcprcscntiJJg the Central and Wetem Hail'ways A<lministratiunB, filed Civil Suit No. UG of l!J53 in the Court ufthc Civil Ju<lgc, II Ciaos, at Chhindwam, for the recovery of the said ccso. The High Court w ith<lrcw the case and took it on its owu file for trial ou the ground that important-qu cstions of m t{)r prctation of the Government of India Act, l!i35, and the Comtitution were involved, an<l it was numbered us Civil Suit :\ o. I of HJ5i. The dcfeudants i11ter alia pleaded that the levy was illegal and the suit was bar red by limitation. The High Court held that the suit was within time unclt r Art. U!J of the Limitation ~.\ct and that the Jefendants were liable to pay the cess and decreed the suit. The first defendant filed Civil Appeal Xu. 183 of HJ5!J and the second defendant filed Civil App<; al o.184 of l!J59 against the said decree.

At the outset we may take up two 0f the pointll, which were not mentioned iu the statement

of case, raised by Mr. Viswanatha Sastri, foamed counsel for the appellant in Civil Appeal No. I 8il of l!J59.

The sai<I points are : (I) Coal ceas is a foe and not a tax or duty and(~) the first defcnda11t i.e., • the consignco, was a non-resident and, therefore, the Ordinance uot having extra-territorial operation could not reach him. '.l'heso two cont., ntious do not find place in the statement of case U8 they should. llndcr Order X \:III r. :! of the Supreme Court ltules, each party shall lodge his case within the time prcscri bed therein, and, under r. 3 thereof, the said case shall consist of two parts, and

Part II, which is relevant now, says that it shall 1et out the propositions of law to be urged in

...

support of the contentions of the party lodging the case. The object of the statement of case is not only to enlighten the Court on the questions that would be raised before it, but also to enable the opposite party to know before hand the arguments he would have to meet and to prepare his case that the statement of case should be complete and full is also emphasized by the fact that, under the Schedule of Fees, a decent fee is prescribed to the junior and senior advocates for preparing the samt. But we

regret to observe that sufficient care is not being taken in the preparation of the statement of case as contemplated by the said Rules. If the rules should serve the purpose they were intended for, it is necessary that counsel should, at the time of preparing the case, read their brief tlwroughly, decide for themselves the questions that will be raised and express them clearly therein. Any dereliction of this obvious duty cannot easily be overlooked.

This Court, therefore, ordinarily will not allow counsel at the time of hearing an appeal to raise questions not disclosed in the statement of case.

There are no exceptional circumstances in this case for us to depart from that saluta1y practice and we, therefore, cannot allow the appellant to raise these two questions before us.

\ The first question is whether the suit is barred by limitation. The coal cess should have been collected at the time of the delivery of the three consignments, namely, January 9, 194 7, February 8, 1\)47, and February 18, 1947, respectively. The suit was filed on April 24, 1953, that is, more than six years from the date of amount was payable. It is contended that the suit was, therefore, barred under Art, 120 of the Limitation Act.

The High Court held the suit was within time under Art. 149,

1962,

R. C. Jall

Union of lndi J

S ubba Bao J ,

lHJ

R. 0. J•/l

•• Union •!India

S.hb• Rao J.

442 SUPHEME COURT REPoRTS [1962) SUPP.

read with Art. t)O, of the Limitation Act. 'fhe said Artioles rrad : ----------·----------------

Period Time from which Description of suit of Iimiperiod Logins to tation. run.

149. Any suit by or on behalf of the Central Government or any 8tate Government oxcopt a suit before the Supreme Court in the exorcise of ita original jurisdic-- tion. 50.

For the hire of animals, vehicles, boats or house-hold furniture.

Sixty When tho period yearn of limitation would begin to run under this Act against a like suit by a private person.

Three Whon the hire yoars becomes payable.

120. Suit for which no Six period of limitation years is provided else-

When the right to sue accrues.

where in this schedule.

The High Court held that the suit was of the character of a suit contemplated by Art. 50 and therefore the Contra) Government could file the suit within 60 years from the date the freight beoa.me payable.

Mr. Sastri contend~ that a private person cannot file a suit like the suit filed by tho Central Government to recover a statutory ces3 and, therefore, Art. 149 does not avail the Government and that in the circumstances the suit is governed only by Art. 120 of the Limitation Act, which prescribes a period of six years from the date tho right to sue accrues.

The argument of the learned counsel appears to be plausible, but, in our view, has no merits. It

mixes up the question of maintainability of the suit with that of limitation prescribed under the Act.

For a suit described in Art. 149 a period of limitation of 60 years is prescribed and the period would begin to run as it would "against a like suit by a priv11.te person". The article does not posit that such a suit should have been maintainable at the instance of a private party: it assumes its maintainability and, on that basis, refers to the appropriate article of the Limitation Act for the limited purpose of ascertaining the starting point of limitation. The statute of limitation assumes the existence of a cause of action and does not define it or create one. To state it differently, if a private party had filed a suit for the recovery of a statutory duty, what would be the

artfole of the Limitation Act applicable to suoh a suit?

Article 50, which prescribes the period of limitation for a suit to recover the hire . of animals, vehicles, boats or household furniture, cannot obviously apply to a suit for the recovery of a statutory ccss filed at the instance of a private party. There is no other specific article in the Limitation Act applicable to such a suit and, therefore, it would be governed only by the residuary Article 120. Under

the said article, time runs from the time when the right to sue accrues. It follows that when such a suit is filed by the Central Government, the period of limitation of 60 years should be computed when the right to sue accrues. The right to sue accrued i11 the present case when the defendants refused to pay the cess when demanded. The decisions relied upon by the learned counsel in support of his conteµtion, namely, Kirpa Sanker v. Janki Prasad ('), S'ecretary of State for India v. Guru Prasad Dhur ('), 1 nderchand v. Secretary of State for I ndW,(') and Go'OON!-

ment of India v. Taylm (')have no bearing on the question raised in the present case, as none of those cases related to a suit filed by Government to recover amount due to it from defendants therein.

(I) A.I.R. 1942 Pat. 87.

(2) (1893) I.L.R. 20 Cal. 51.

(3) (1941) 9 I.T.R. 673.

(4) (1955) 27 I.T.R. 356.

1962 -.- R.0. J•ll

Union of.fndia

Subha Rao J.

R.r:. Jall

v •• l}nfou of lr.diu

S ubha Rao -J.

4-44 SuPREME COURT REPoRTS [1962] St:JPP.

We, therefore, hold that the snit waR clearly well within time and was not barred by limitation.

The nt'xt cont0ntion raises the question of validity of the levy.

The argumnt of the learned counsel nmy be summarized thus: Ordinance 3D of

l9i4 was a temporary Ordinanco, .'\nd that it was repcn, Jed by Ordinance 6 of 1947; that the saving clause in the latter Ordinance applying s. 6 of the General Clauses Aet to the repealed Orclinauce fell with the oxpiry of the repealing Ordinance on January I, 194i, with the result that there was no

la.w when the Constitution came into force so as to be continued under Art. :n~ thereof and, therefore, the duty, if any. pa.ya.hie under Ordinance 39 of 1944 could neither be levied nor r<>CO"l"ered after the Constitution came into force, as thero was no longer any authority of law to suatain the said tax within th1' meaning of Art, 265 of the Constitution. To a11preciato the contention it would be necessary to read the ma.teiial parts of the relevant provisions.

Ordinance 39 of 1944 Section 2.

Imposition and Collection of excise and Customs duties.- ( I) With effect from such date as the Central Government may, notification in the Official Gazette, appoint in this behalf, there shall be levied and collected as a cess for the purposes of this Ordinance, on all coal nnd coke despatched from collieries in British India a duty of excise a.t Buch rate, not excoeding one rupee a.nd four annas per ton, as

may from time to timo be fixed by the Central Govornment by notification in the Official Gazette. 'l'he Repe, aliny Ordinance. Ordinance 6 of 1947.

Section 2.

Tho Coal Production l•'und Ordinanoe, 1944, shall be repealed, and for the

avoidance of doubts it is hereby declared that the provisions of Section 6 of tbe General Clauses Act, 1897 (X of 1807) shall apply in respect of such repeal.

General Clauses Act, 1897 (X of 1897).

Section 6.

Where this Act, or any Central Act or Regulation made after the commencement of this Act, repeals any enactment hitherto, made or hereafter to be made, then unless a different intention appears, the repeal shall not:- x x x x x x (c) affect any right privilege, obligation or liability acqired, accrued or incurred under any enactment so repealed. x x x x x

(e) affect any ............ legl proceedings or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment ......... and any such legal proceedings or remedy may be instituted, continued or enforeed ......... as if the Regulating Repealing Act or Regulation had not been passed.

Section 30. In this Act, the expression Central Act, wherever it occurs ............ shall be deemed to include an Orilinance made and promulgated by the Gov<'rnOrGeneral .........

Constitution of India Article 372. { i) N otwitbstanding the repeal by this Constitution of the enactments referred to in article :{95 but subject to the other provisions of tbis Constitut, ion, all thn laws in force in the territory of India immediatelr btifore the cmnmenceent of thia,

R. C. Jail

V, Union of /11di1

Suhba Rno J,

19"2

R.C. Jall

Union of India

Subha Rao J.

446 SUPREME COUR'."i: .REPORTS [1962). SUPJ:>.

Constitution shall continue in force therein until altered or repealed or amended by a competent Legislaturn or other competent authority.

On August 26, 1944, the Governor-Gener.'>! of In<lia, in exel'ciso of tho powers vestPd in him urnkr s. 72 of the inth Schedule to the Government of Indi11.

Act, 1935, r<ad with India & Burma (Emergency Provisions) Act, 1940 promulgated •.he Coal Produc. tion Fund Ordinance 1944 (39 of 1944) to constitute

a fund for tho financing of activities for the improvement of production, marketing and distribution :if coal and coke. This Court in !Jri 1swj Moo/ji

v. The State of Romhay(1) held that the deletion of

the words "for the space of not moro than bix months from its promulgation" from H i~ of th" !lth Schedule of the Governm•mt of fndia Act, 193:>, bys. I (3) of The India and Burma (Emerg•ncy Provisions) Act, 1940, had tho effoct of equating Ordi nances which were promulgated between .June 27,

1940, and April I, 1946, with Acts passccl by t.he Indian Legislature without any limitation of time as regards their c!uration, and therefore continuing in forec until they wore repealed. It followH from thi; i decision that the Ordinance promulgated on August 26, 1944. was I' permanent one and would continue to be in fore till it was repealed.

The second Ordinance, that itc_ repealing, Ordinance, waH promulgated on April :!6, l!l4i, and the repeal took effect from :lfay I, 1947.

But in express term it declared that tho provisions of s. G of the General Clauses Act, 189i (X of l89i) Hhall apply in respect of the repeal. 'Vithout the said cxpr<>ss provision, s.H, read with s.30, of tho General Clauses Act, might have achi<'ved the said result, but e.T abundanti cautela and to place the matter bcy•HHI nny

controversy, s.(; of the General Clans<'S Act w1Ls expressly ma.de applicable to tho repeal.

Uoder s.6

(I) [1957].S.C.R._634.

or General Clauses Act, so far it is material to the present case, the repeal did not affect the right of the railway to recover the freight or the liability of the defendants to pay the same, and the remedy in respect of the said right and liability. Tl)e result was that Ordinance 39 of 1944 and the rules made thereunder must be held to continue to he in respect of the said right and liability, accured or incurr<'d before the said Ordinance was repealed and the remedies available thereunder. But the life of the repea ling Ordinance had expired on.November J, 1947.

What was the effect of the expiry of the repealing Ordinance on the said liability continued after repeal in respect of past transactions?

The repealing Ordinance, being a temporary one, expired after it fulfilled its purpose.

As it had continued the life of the original Ordinance, which was a permanent one, iu respect of past transactions, the expiry of its life could not have any effect on that law to the extent saved. The decisions relating to the repeal of a temporary Ordinance with a saving clause have no bearing in the present context, for in that case the repealed Ordinance, in so far as it was kept aliv<', could not have a larger lease of life than the repealed and the repealing Ordinances possessed. If so, it follows that the repealed Ordinance, to the e:ictent saved, continued to have force under the Art. 372 of the Constitution until it was altered, repealed or amended by competent Legislature. It cannot, therefore, be said that the coal cess was levied or collected without the authority of law,

It is then contended that the excise duty cannot legally be levied on the consignee, who had nothing to do with the manufacture or production of coal. The argument confuses the incidence of taxation with tJ>~ machinery provided for the collectjoµ tqereof. The natqre of an e:iccise d11ty J:ias beeIJ

R. G. Joli

•• Uaion of India

Subba Rao J,

/LC.Jail

v, Unim of Ind/•

Subb1 Rao J.

448 SUPREME COURT REPORTS (1962) SUPP.

considered by the Federal Court and the Privy Council. In In re lhe Central Province& und Bemr Act No.

XIV of lf)38( 1), which was a spclcial reference by the Governor Genenl to the Federal Court under~. :!l:l of the Govllrnmnt of forl.ia Act, l935. Gwyer, C.J.,

described "excise duty" thus:

'But its prima.ry and fundamental moaning in Englih is still that of a. tax on articles produced or motnufactured in the taxing country and int.ended for homo consumption."

In dealing with the contention advanced on behalf of the Government of India that an excise duty was a duty which may bu imposed on home-produced goods at any stage from production to consumption, the learned Chief Justice observed:

"Thia is to confuse two things, the na. ture of excise duties and the extent of the federal legislative power to impose them." After referring to Blackstone and Stophen's Commentaries, the learned Chief .Justice proceeded to state:

" ......... a brief examination of those duties shows that in practically all ces it iq the producer or manufacturer from whom the duty is collected.

But there can be no reason in theory why an excise duty shoulrl not be imposed even on the retail sale of an artiele, if the taxing Act so providP8.

Subjeet alway8 to the legislative competence of the taxing authority, a duty on homo-produced good8

will obv:ioue ly be impose<! at the stage which the a.uthoritv find to be the most C'lnvcnient

and tho mc; st lucrative, wherever it may be: but that is a matter of the machin<"ry of co llcction, an< 1 does not affect the cAscntial nature of the tax. The ultimat,{i incidence of an exciRe duty, a typical indirect tax, must

, I) [1939) f.C.R, 18, 40, 41, 107,

always be on the consumer, who pays as he consumes or expends : and it continues to be excise duty, that is, a duty on home-produced or home-manufactured goods, no matter at what stage it is collected." J ayaka.r, J., made the rollowing pertinent remarks :

"And this, in my opinion, is as it should be, for if the proper import of an "excise li'luty" is that it is a tax on consumption, there is no reason why the State should not have the power to levy and collect it at any stage before consumption, namely, from the time the commodity is produced or manufactured up to the time it reaches the consumer." The Federal Court again, in The Province, of Madras

v. Boddu Paidanna and Son8( 1), in the context of a question that arose under the Madras General Sales Tax Act, 1939, restated the scope of an excise duty. Therein the learned Chief ustice observed:

"There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed, destroyed, or given away. A taxing authority will not ordinarily impose such a duty, because it is much more convenient administratively .to collect the duty (as in the case of most of the Indian Excise Acts) when the commodity leaves the factory for the first time, and also because the duty is intended to be an indirect duty which the manufacturer or producer is to pass on to the ultimate consumer, which he could not do if the commodity had, for example, been destroyed in the factory itself. It is the fact of manufacture which

(IJ [1942] F.C.R. 90, 101.

R. C. Jail

•• Unian of India

Sabha Rao J.

B. C Jail

•• ll.Wn aj India

SujlHI RaaJ.

450 SUPREME COURT REPORTs (1962] SUPP.

attracts the duty, even though it may be collected later ......... ".

The Judicial Committee, in Governor-Gt1wral in

Cauncil v. Province of Jludms (1), approved tho views expressed by the .Fedora) Court in regard to exciile duties. In that case; Lord Simonds, speaking for the Board, observed:

"An exhaustive discussion of this subject, from which their Lordships have obtained valuable assistance, is to be found in the judgment of the Federal Court in In re the Central Pro?/in.ces and Berar Act No. XIV of 1935 (').

Consistantly with this decision their Lordships aro of opinion that a duty of excise is primarily a cuty levied on a manufacturer or producer in respect of the commodity manufactered or produced. It is a tax on goods not on sales or the proceeds of sale of goods. Here, again, their Lordships find themsolves in complete accord with the reasoning and conolusions of the Federal Court in the Boddu Paidanna case(')."

Adverting to the decision of Boddu Paidanna case(') with approval, Lord Simonds made the following observations in pointing out the difference between excise tax and sales tax:

"The two taxes, the one levied on a manufacturer in respect of his goods, the other on a vendor in respect of his sales, may, as is there pointed out, in one sense overlap. But in law thero is no overlapping. The taxes are separate and distinct imposts. If in fact. they overlap, that may be because the taxing authority, imposing a duty of excise finds it convenient to impose that duty at the moment when the exciseable article leaves the

ii) (1945) I..R.72J.A.91, J03.

(2) (1939]F.C.R.IS, (3)

[ 1942] F.C.R. 90, IOI,

factory or workshop for the first time on the occasion of its sale. But that method of collecting the tax is an accident of administration; it is not of the essence of the duty of, excise, which is attracted by the manufacture itself.

With great respect, we accept the principles laid down by the said three decisions in the matter of levy of an excise duty and the machinery for collection thereof. Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. lt in an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer.

Therefore, subject always to the legislative competence of the taxing authority, the s><id tax ca.n be levied at a convenient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for adm1nistrative convenience. Whether in a particular case the tax ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposnd ceased to exist, is to be decided on a fair construction of the provisions of a particular Act.

In this case, a perusal of the provisions of the Ordinance clearly demonstrates that the duty imposed is in essence an excise duty and there is a rational connection between the said tax and the person on whom it is imposed. Section 2 of Ordinance 39 of 1944 clearly shows that the tax is an excise duty on the manufacture or production of coal or coke. Section 5(2) thereof confers in express terms a power on the Central Government to make rules, Inter alia, to provide for the manner in which the duties imposed by the Ordinance shall be oollected and the persons who shall be liable to pay

196•

R. C. Jail

v, Union of India

Suhba Rao J,

R. C. Jall

•• Union of India

Si.bba Roi J.

SUPRE'.IIE COURT REPORTS [1962] SUPP.

the duty. Ruic 3 of th~· Rules made by the Central Government provides for the recovery of excise duty on the coal produced; under the said rule it would be collected by the Railway Administration by means of a surcharge on freight and such duty of excise shall be recovered from the consignor, if the freight charges arc being prepaid, at the time of consignment or from the consignee, if the freight charges are collected at the destination of .tho consignment. The machinery provided for the collection of the tax is, in our view, a reasonable one.

Having regard to the nature of the tax, that is, the tax being an indirect one to be borne ultimately by the consumer, it cannot be said that there is no rational connection between the tax and the consignee, When the consignor pays, it cannot be denied that it is the most convenient stage for the collection of the tax, for it is the first time the coal leaves the posseSBion of the consignor. The fact that the consignee is made to pay, in the contingency contemplated by r.il(h) of the rules cannot affect the cFsence of the tax, for the consignor, if he had paid the freight, would have passed it on to the consignee and instead the consignee himself pays it. The Centrl Govemment was legally competent to evolve a suitable machinery for collection without disturbing the essence of the tax or ignoring the rational connection between the tax and the person on whom it is imposed. We hold that the machinery evolved under the Rules for collection of the duty satisfies the said conditions and thcreforn

the exigihility of the tax at the destination point in tho hands of tho consignee cannot legitimately be questioned.

Another facet of the contention of Mr. Sastri is that the purpose of tho Ordinance had worked itself out and, therofore, the Central Government could no longer levy or collect the tax. The pur. pose of the Ordinance was to constituted a fund -

for the financing of activities for the improvement of production, marketing and distribution of coal.

Section 3 of the repealiug Ordinance provided that the unexpended balance, if any, at the cr0dit of the Coal Production Fund constituted under the afore

said Ordinance shall be applied to such purposes connected with the coal industrv, a9 the Central Government may direct. The • validity of this Ordinance has not been questioned. It, therefore, follows that the purpose of the Ordinance has not been exhausted, for under s.3 of the repealing Ordinance, the Central Government is authorized to

apply the Coal Production Fund to such purposes connected with the coal industry. Thero is, therefore, no force in this argument.

The last contention is raised by the appellant in Civil Appeal No.184 of 1959. The High Court held him also liable for the payment of the cess on the grou nd that he was the person who entered into contract with the Railway Administration for the carriage of the goods and that the collection of freight was in respect of his goods and that he was the main contracting party. The decree was given against him on the basis that he was under a contractual obligation to pay the amount. Mr. Sen, appearing for this appellant, contends that the consignments were on F.O.R. basis and that under the statutory rules only the consignee is liable and that the High Court was wrong in giving a decree against him.

As we have already pointed out earlier, under r.3 of the Co11.l Production Fund Rules, 10±4, the Railway Administration is empowered only to collect the cess by means of a surcharge on freigh L from, (a) the consignor, if the freight charges ar!"

being pre-paid at the time of consignment, and ( u) from the consignee, if the freight charges are collected at the destination of the consignment. In the present case, r.3(a) has no application, for the

freiht charges were not pre-paid at the time of

R. C. Jal/ .. (Jnion of lnlia

Subba Rao J.

1962'

R. C. :Jll

_\'.!

Union of1n.dia

Subba Hao J.

454 SUPREME COURT REPORTS [1962] SUPP.

consignment, ahd therefore the only rule applicable whereunder the Railway AdministFatjon can seek to recover thecess is r.:{(b) i.e., the consignee hlj, s to pay it. ThP rule does not empower the Railway Administration to recover the tax, in the circumstances of the case, from the consignor.

Learned Solicitor General se'eks to sustain the decree of the High court on the basis of r:6, which reads : '.'Refunds and Rewveries :-(l) Where the simount of excise duty due under these rules has not been collected either wholly or in part - .or where the amount collected is in excess of fhe amount due, the Railway Administration shall-deal with the underoharges or overcharges, as the case may be, On the same_ principles as apply . to undercharges and OVE'rcharges in • regard to Railway freight charges."

- -~ It is suggested that, under this rul\l in the case of an undercharge, the Railway Administration can collect the deficit either from the codsign.or on consigI\ee.

The rule does not say that if the consignee does not pay the consignor is liablu to pay. The rule does not purport to en!ltrge the statutory liabHity of the consignor of the consignee, as the case may ue and, therefore, it must be understood to provide only for the r.13covery of undercharges from persons statutorily liable to pay in accordance with the principles gqverning the railway freight charges.

In the result; Civil Appeal No. 18.J of 1959 is dis.missed with costs of the first respondent, and Civil Appeal No. 184 of 1959 is allowed with .costs to be paid by the first respondent. . 0.A. 183 of 1959 dismissed.

0.A. 18'1of1959 allowed.

s. 14

ss. 15

R. C. JALL

UNION OF INDIA

SUBBA RAO

Limitation Act

Arts 265

Supreme Court Rule

Government of India Act, 1935

art. 149

Limitation Act

art. 120

Limitation Act

Art. 265

art. 149

Limitation Act

art. 120

Art. 372

Art. 265

(1939) F.C.R. 18

1942) F.C.R. 90

Coal Production Fund Rules 1944

s. 5

s. 55( 5)

Limitation Act

Art. 149,

1962

Limitation Act

Art. 50

Art. 149

Art. 120

Limitation Act

Art. 149

Limitation Act

Limitation Act

Article 50

Article 120

s. 6

Section 2

Section 2

Section 6

General Clauses Act, 1897

General Clauses Act, 1897

Section 6

Section 30

Constitution of India

Article 372

s. 72

Fund Ordinance 1944

General Clauses Act

General Clauses Act

General Clauses Act

Art. 372

Madras General Sales Tax Act, 1939

[1942] F.C.R. 90

1942] F.C.R. 90

Section 2

Section 5(2)

Section 3

Production Fund Rules


3 S.C.R.

SUPREME COURT REPORTS 455

THE INCOME TAX OFFICER

'I!

ARVIND N. MAFATLAL

(B. P. SINHA, c. J., K. SUBBA RAO, N. RAJAGOPALA

AYYANGAR, J. R. MUDHOLKAR and

T. L. VENKATARAMA AIYAR, JJ.)

lneome Tax-Partners of registered firm holding shares of company as benamidars of the firm-Error in computing tax- Proceeding to rectify errors-Income tax officer, if could effect readju8tment to avoid illogicalities-lncometax Act, 1922( 11 of 1922), 88. 16(2), 18(5), 35.

The respondents were the four partners of a firm M, which was registered under the Indian Income Tax Act.

Three of these four partners held amongst them forty shares in private limited company which was registered in the Phaltan State.

For the account year ending 30-9-1945 the Phaltan Company disclosed a net profit, but did not declare any divi <lend out of these profits but paid income-tax and super-tax thereon.

After the merger of Phaltan State in the Indian Union, the Income-tax Officer issued notice to the Phaltan Company under s. 34 of the Act and acting under the provisions of s.23A directed that the undistributed assessable income of the company should be deemed to have been distributed as dividend among the shareholders. Before the date of this order, the assessment of the firm Mand the individual assessment of its four partners had been completed.

In order to bring to tax the undistributed dividend deemed to be declared under s.23A among the shareholders of the company, notices were issued to the four partners under s.34 of the Income-tax Act.

In response to the notice, the partners appeared and contended that the forty shares held by the three of the four partners were in fact the property of the registered firm M. This contention was accepted by the Income-Tax Officer who thereupon treated the dividend attributable to the total of the forty shares as the dividend income of the firrn and proceeded to the apportion the said income among the four partners in proportion of the hares which each of them held in the firm and added this to the income already assessed. In doing so however, the Income-tax Officer commited an error. In rrcomputing the total income of each of these folJl" ,.ssesses he included only the net dividend "deemed tq

196P

February t'l.

Tiu lnumt T .x

Officer

v. iruiM N. MaftJtJal

be received" by each but as again this addition he allowed a deduction of the tax paid by the company attributable to such dividend. Subc; cqL1cntly this rnic; takc \Ya<> discovered and thereupon the [ncon1e-1ax Officer i:-sucd notice pointing out the error in including in the inco1nc the net dividend without being grossed up, \Yhilc at the same time allowing credit for the tax deemed to have br-en paid thereon, and averred that this wa.c; a mistake apparent on the record" which he proposed to rectify under s.35 of the Act.

Held, that in vic1, v of the dccbion in .M/s. Hou1rah Trading Co. v.

Co, nniissioner uf Income-.1ax, it is only the rcgistere<J shareholder::. \'/h:> arc entitled to the benefit of the credit for tax paid by the company under s.18(5) as well as tl1e cnnesponding grossing up under s.16(2).

On that basis the only prsons \vho were entitled to be treated as shareholders to whom the provisions of s.16(2) ands. 18(5) of the lncomc-1'ax Act \\'ere attracccd were the three partners in whose natne the forty shares stood registered.

Held. further, that the Income-tax Officer and Jurisdiction under s.3j Eo rectify errors but not to effect merely rc-arljustmcn t o as to avoid the illogicality in an error which is still permitted to contint1c.

!Jehl, also, that it is not possible to correct the initial error in the procee:iings because the notice under s.35 issued tu the parties \\hich is thr foundation of the jurisdiction to effect the rcc1ific;1tion 1 sought not the correction of the error but the perpetuation of it th'lugh. in an altered and a less objectionable frcn11 the point of vic\v of Revenue.

lJ!t:ssrs. llo1crnh 7'rading Co., Ltd. v. TM Commis1ioner of Income-tar, Calr.atlct, ll9:19 Supp. 2. S. C.R. 448 applied.

CIVIL APPELLATE JuRISllICTION: C. As. Nos. 502 to 505 of 1960.

Appeals from the judgment and orders datd Janunry 14, 19.57 of the Bomhny High Court in Special Civil Applicn.tions Xos, 1848 to 1851 of 1956.

N. D. Karkhrini8 and P. D. Men.on for the l\ppellant (in a.II the four appeals).

S. T. Desai .and J. N. Shroff for the Respondents.

1962. February, 27. The Judgment of the Court was delivered by

AYYANGAR, J.-These four appeals are pursuant to certificates granted by the High Court of Bombay under Art. 133(l)(c} of the constitution and raise identical questions for consideration. 'rhe respondent in these four appeals are each of the four partners in a firm constituted under the name of Mafatlal Gagalbhai & Sons and which was composed of Navinchandra Mafatlal, Arvind N.

Mafatlal, Yoginder N. Mafatlal and Homant Mafatlal with shares of 5/16, 3/16, 3/16. and 5/16 respectively in that firm (It has to be mentioned that Navinchandra died subsequent to the decision of the High Court and his legal representatives have been

brought on record in Civil Appeal No. 502of19f9 but this circumstance being irrelevant we are ignoring it for the purposes of these appeals). The firm was registered under the Indian Income Tax Act. There was a private limited company named Mafatlal Apte and Kantilal Limited registered under the Phaltan State Companies Act. Ten Shares in this private company stood in the name of Navin Chandra, 10 in the name of Arvind and 20 in the name of Hamant.

For the account year of the company ending Sep- . tember 30, 1945 tl:>e company disclosed a net profit of Rs. 1,09,165/-. The company, however, did not declare any dividend out of those profits but paid income-tax and super-tax thereon. After the merger of the Phaltan State in the Indian Union and the extension of the provisions of the Indian Income Tax Act thereto, the Income Tax Officer who had jurisdiction over the assessment of the company, issued notice to it under s. 34 of the Indian Income Tax Act and acting under the provisions of s. ~3A thereof directed that the undistributed assessable incom!' of the company which amounted to Rs. 68,228/- should be deell'.led to have been djstribnted as divide:nd

196!

Ihe lni:om1 Tax

 • O.fficer •• A.•ind N. Mafatl al

Ayyangar J.

Tht lncuma TAK

O/fl"r

•• • Ard"d N. Maf•llaJ

Ayan.('4" J.

among the shareholders as on the date of the General Rody Meeting of the company (i.e., on Jia.rch II

1940).

Before the <late of thiH order the aHsessment of the firm of Mafatlal Gagalbhai & Sons and the individual aRscssrnent of its four partners had been compl<'td. In order to bring to tax the undistribu ted dividend "deemed to bo declared" under s. 23A among the shareholderR of the compan.v notices were i;; sued to tlw foul' partners under s. 3! of the Inc''llh' T; ix Act. [n response to the notice the partners appeared and it was stated in their behalf that. the 40 shareR heir! by three of the partners in

th" company were in fact thn property of the Rq; ist1red firm and were held by them benami for the fi:m.

This eontention was accptl'<I by the Income Tax Oflicer who then'upon treated the divi d('n<l attributable to the 40 shar('s as tho dividend income of the firm an•l proceeded to apportion the saicl incunw among the four partners in the. propor. tion of tho shares "hi1h each of them held in the firm and added this to the income already assessed, Jn doing so however, the Income Tax OfficBr committ.ccl an error. In recomputing the total income of t:ach of thPoe four ass1.ss., t•s lw included only the net dividend "dec:mPrl to he received'' I"· ear., h but as against thi• addition he allowed a de;1uctio11 of the tax paid by the company attributable to such dividend. There was no appieal again,; t these assess• mPnt orders which bocamc final.

Subsequently this mistake was diR<, overcd and thereupon the Income Tax officer issued notices tu the fuur partnerH on April 1:1, 19;)4 pointing out the error in including in the income the net. divideut without being rosse<l up, while at the samu time allowing credit for the I.ax deomed to have b1•cn paid thereon. He a1crrcd that this was a mi•t.ake apparent from the rncorclH and stated that he intun<le1l to rectify th•i •amo under s. :l;) of th<' lnc:ome Tax Act.

The four a8BCH se1>s oi.Jj"ctcd to the rectification, but almost tho o!ltirely of the grounds on which the objection w~'

based related to the legality of the original assessment and the assessees desired that if any rectification was to be made it must be in relation to those items and not in regard to that for which notice had been served. The Income Tax Officer by his order dated October 12, 1955 rectified the assessment by grossing up the newly added dividendincome by the addition of the tax deemed to have been paid by the company thereon and retained the original relief granted under 's. 18( 5) of the Act.

After unsuccessfully appealing to the higher authorities for relief against this rcetification the assessees filed writ petitions invoking the jurisdiction of the High Court under Arts. 226 and 227 of the constitution for prohibiting the authorities from taking proceedings for the enforcement of the orders dated October 12, 1955.

The learned Judges allowed the petitions. The Income Tax Officer thereafter moved the High Court for certificates of fitness under Art. 133(l)(c) and these having been granted the appeals are now before us.

The ground upon which the learned Judges granted• the relief to the respondents was briefly this : The order of assessment had proceeded on the basis that the firm of Mafatlal Gagalbhai & Sons was the shareholder who had bet>n in receipt of the dividend-income and the individual partners of the firm had been made liable for their share of the profits derived from th; s registered firm. In such circumstances the learned Judges held that what was distributed to the individual partners could not be deemed to bn dividend-income within s. 16(2) of the Income Tax Act. It is to test the correctness of this construction of s. 16(2) that these appeals have been preforred.

In our opinion, however the appeals have to be dismissed on a short ground which does not involve any consideration of the correctness of the constrqction adopted by the Hi$h Coqrt, of s.16(2)

196~

The ln&"mt TDX

Officer

A, vjnd N. Mafatlal •

AyyanlarJ.

Tiu ft1rotrl4 T11x

Ofji"'

At11ind N • .\l ojatlai

460 SUPREME OOURT REPORTS (1962] SUPP.

of the Income Tax Act. This Court has held in Messrs. Howrah Trading Co., Ltd. v. '!'he Commissioner of Income-1'm: Calwtta (1) that it is only the registered shareholder who is entitled to the benefit of the cr•)dit for tax paid by the co!upany under s. 18(5) ae well as the corresponding grossing up under s. 16( 2).

On that basis the only prsons who were entitled to ho treated as shareholders to whom the provisions of ss. 16(2) and 18(1) of the Income Tax Act wore attracted W('re the three partnern in whose names thP 40 shares stood registered, as detailed <'Airlier.

An error had therf'fore been committed by the Ineome Tax Offieer in treating the registered firm as the owner of the shares in respect of the entire number of •IO shares. It was not this initial and fundamental error th:it was sought to be r<'ctified

by tho proceedings under s. 35, hut. tho removal of an , inomaly in that error which continued to be affirmed; in other words the object of the proceedings under s. ;15 was t•> carry out to its logical con clusion the error which had been committed in the order of assesRment dated October 12, l!J55 paBRed after invoking the provisions of s. 34.

We consider the submission of leiirned Counsel for th?: respondents that the Income Tax Officer had jurisdiction under s. 3.) to rectify errors hut not to effect merely readjustments so as to avoid illogicalities in an error wliih is still permitted to continue is wellfounded.

It has furthl'r to be mentioned that it is not possible to correct the initial error in these proceedings because the notice under s. 3 3 w)lich is the foundation of tho jurisdiction of the officer to effect the rectification, sou!!ht in realitv not t.he correction of the (•rror but the 1>erpotuation of it though in an altered a11<l less nhjeetionable form from the point of view of Revenue. In thi~ connection it would ho noticccl Lh:it one of th" four partners-¥ oginder l\fafatle.1 had no shares standing in his name and br

\I) [1959J Supp. 2 s.c.R. ff!!,

the order of 'tSsessment under s. 34 he had been saddled with a liability to the extent of his 3/16th share •in the firm, though this has been partially offset by the credit given to him, obviously wrongly, of relief under s. 18(5) of the tax deemed to have been paid by the company on that incomes.

We therefore consider that the appeals must fail.

They are accordingly dismissed but in the circumstances of this case there will be no order as to costs.

Appeals dismissed.

KANJI MANJI

THE TRUSTEES OF THE PORT OF BOMBAY (S. K. DAS, M. HIDAYATULLAH and J. c. SHAH, JJ.)

Ejectment-Suit by Government or local Authority against assignees of leased land and building-Applicability of Rent Act-Jurisdiction of City Civil Court-Joint tenancy-Notice on one tenant, if sufficient-Suit if bad for non-joinder of legal representative of the deceased joint tenant-Assignee of tenancy if bound by the terms of the original lease-Where eviction of sub-tenant not possib/, e under statute, whether a ground to defeat the rights of the Local Authorities-Bombay Rents.

Hotel and Lodging Houses Rates (Control) Act, 1947 (Bom. 57 of 1947),

88. 4, 5( 8), 15.

In 1924, the Trustees of Port of Bombay granted a lease of land for ten years to a partnership firm, with the covenant that the lessee would, at their own expense construct upon the said land, certain buildings to the specifications of the trustees.

It was provided inter alia that the lessee would be at liberty to remove the buildings, erected by them, within three months after the expiration of the term. It is not clear what happened actually after the expiration of the term of ten years.

In 1942, the Trustees granted to M/s. D and 0 their respective heirs, executors, administrators and assigns, a monthly tenancy of the land together with the buildings standing thereon. It was agreed with them that on the

The Income T

Officer

Aruind N. Mofatlal

Ayyangar J.

19&2

Fbruary 27.

455

THE INCOME TAX OFFICER

ARVIND N. MAFATLAL

B. P. SINHA

K. SUBBA RAO

AYYANGAR, J.

R. MUDHOLKAR

s. 34

Income-tax Act

Companies Act

s. 34

s. 23A

s. 3

s. 18( 5)

Arts. 226 and 227

Art. 133(l)(c)

s. 16(2)

s. 16(2)

s. 18(5)

s. 16( 2)

ss. 16(2) and 18(1)

s. 35

s. 34

s. 3

s. 3

s. 34

s. 18(5)


3 $.C.R.

SUPREME COURT REPORTS 461

the order of 'tSsessment under s. 34 he had been saddled with a liability to the extent of his 3/16th share •in the firm, though this has been partially offset by the credit given to him, obviously wrongly, of relief under s. 18(5) of the tax deemed to have been paid by the company on that incomes.

We therefore consider that the appeals must fail.

They are accordingly dismissed but in the circumstances of this case there will be no order as to costs.

Appeals dismissed.

KANJI MANJI

THE TRUSTEES OF THE PORT OF BOMBAY (S. K. DAS, M. HIDAYATULLAH and J. c. SHAH, JJ.)

Ejectment-Suit by Government or local Authority against assignees of leased land and building-Applicability of Rent Act-Jurisdiction of City Civil Court-Joint tenancy-Notice on one tenant, if sufficient-Suit if bad for non-joinder of legal representative of the deceased joint tenant-Assignee of tenancy if bound by the terms of the original lease-Where eviction of sub-tenant not possib/, e under statute, whether a ground to defeat the rights of the Local Authorities-Bombay Rents.

Hotel and Lodging Houses Rates (Control) Act, 1947 (Bom. 57 of 1947),

88. 4, 5( 8), 15.

In 1924, the Trustees of Port of Bombay granted a lease of land for ten years to a partnership firm, with the covenant that the lessee would, at their own expense construct upon the said land, certain buildings to the specifications of the trustees.

It was provided inter alia that the lessee would be at liberty to remove the buildings, erected by them, within three months after the expiration of the term. It is not clear what happened actually after the expiration of the term of ten years.

In 1942, the Trustees granted to M/s. D and 0 their respective heirs, executors, administrators and assigns, a monthly tenancy of the land together with the buildings standing thereon. It was agreed with them that on the

The Income T

Officer

Aruind N. Mofatlal

Ayyangar J.

19&2

Fbruary 27.

Kanji Monj&

TA, Tf'usluJ oj th1

Pt11t of Bornbo;1

462 SDPRE}fE COURT REPORTS [1962] SUPP.

determination of the tenancy, they , .. ould have to remove such UuiJdings as "'ere standing upon the demised land.

In 1947 Mis. D and 0 assigned rheir right> in the lease to one R and the appellant K , ... hich \.\'as accepted hy tht: trustees.

After due notice in J 9'i6, the Trustees filed a suit for ejectrnent against Rand K, in tl1c Bombay (; ity Civil Court. R had died before the filing of the suit and the plaint was amended by striking out the name of R. The appellant as defendant took a number of pleas; (a) notice was invalid as it had been served only upon one of the lessees, (b) suit was bad for non-joinder of the heirs and the legal representatives of R, (c) Jurisdiction of City Civil Court was challenged as the suit was governed by Rent Act, (d) and lastly, that the contrar.t to deliver vacant possession \vas in1possible of pcrformanrc and the said irnpos:siliility rendered the clairn of the plaintiffs incompetent. field, that once it i!' held that the tenancy \vasjoint a notice to one of thr joint tenants \vas sufficient, and the suit for the .same reason was good.

Held, further, that the suit as laid for vacant possession of the site and in tlie City Civil Court '"'as co1npetant.

Held, that in view of the definition "premises" in s.5(8) and the events leading to the arncndment of s. 4, the amendment was enacted to cut down by a definition the operation the word~ "any prendses belonging to the Government or a local authority" by excluding buildings which \\ere occupied ny sub-tenants even though tile building belonged to the Government or continued to belong to it and any action of the Government or local authority in respect of the land falls to be governed by >Ubs. (I) and not sub-s (4) (a) of the Rent-control Act.

Held, therefore, if tl1c Government or a local authority v.:anL<; to evict a person from the land, the provisions of the Bombay Rents, Hotel and Lodging Houses Rates (Control) Act, 1947, do not come in the way.

For the same reason, the suit for ejectment docs not have to be filed in the court of s111all causes, as required l>y a !lent Control 1\ct but in the City Civil Co"rt.

If the origipa) lessees took on lease not only the land but also the building, it is not open to their assignees to clain1 that the ownership of the Government extended only to the land and not to the buildings.

If the appellant cannot evict his teilant so as to be able to remove the building, in exercise of the right conferred on him, that is _an unfortunate circumstance, 'vhich does not serve to entitle him to defeat the rights of Pact Authorities.

Quero :-The Port Trust Authorities, whether c.an evict the sub-tenants ? Bhatia Co-operative Housing Society Ltd. v. D. C. Patel,

(1953) S.C.R. 185 and Ram Bhagwandas v. Bombay Corporation, A.I.R. 1956 Born. 364, referred to. .

CIVIL APPELLArE JURISDICTION: Civil Appeal No. 302 of 1961.

Appeal by special leave from the judgment and order dated September 24, 1959, of the Bombay High Court in F.A. No. 731 of 1959.

B. Se:n and/. N. Shroff, for the appellant.

M. C. Seialvad, Attorney General of India, B.

Parthasarthi, J.B. Dadachanji, 0. 0. Mathur and Ravinder Narain, for the respondents.

1962. February, 27. The Judgment of the Court was delivered by

I96B

Kanji Manji

The Trustees o/Thl

Port of Bombay

HrnAYATULLAH, J.-This appeal arises out of a Hidayatul/oh J. suit tried in the Bombay CityCivilCourt at Bombay, filed by the respondents, the Trustees of the Port of Bombay, for the ejectment of the appellant, Kanji Manji, and one Rupji Jeraji who had died even before the suit was filed, from a plot situated 'at Haji Bunder Mazgaon, Sewri Reclamation Estate, Born bay. and for possasion of the land. There was a claim for Rs. 10,871-14-0 being the arrears of water charges and property taxes, with which we are not concerned. The suit was decreed by the • Bombay City Civil Court, and the appellant was ordered to vacate the suit premises and to deliver vacant possession thereof.

An appeal wa.s filed against the decree in the High Court of Judicature at Bombay, but it was dismissed summarily on September 24, 1959. The High Court also refused an application for a certificate, but the appellant applied for special leave, and having obtained it, filed the present appeal.

In 1924, the Trustees of the Port of Bombay granted a lease of the said land to five persons, who

19~2

Knnji~Manji

•• 'Tlte . rn1stee r of 1 ht

Porl of Bornhay

idayalul/aA J,

464 StJl>REME COURT REPORTS [1962] SVPP.

were trading in pitrtncrship under the name and style of :\fancherji Vadilal and Company. This lease was for a term of l 0 'ears commencing from December I!, HJ23. For the first six months, the conventional rent of pepper corn, if demanded, was payable, and thereafter for the remainder of the term, a monthly rent of Rs. 633-5-4 was payable on the first day of every month.

The lessees were also to p&y all rates, taxes, assessments, etc.

Ono of the covenants of the leaso was that the leBBees would, at their own expense and during the first six months period, construct upon the said piece of land buildings for us as bullock stabhis and offices according to the specification given to them by tho s&id Trustees and to be approved by them. It was provided, inkr alia, that upon the expiration of the term, if the lessees had observed and performed all the co.vonants, they"would ht' at liberty, at their own expense, to remove the buildings erected by them upon the demises on condition that the removal would be completed within three months after the expiration of the term. During this peri.od of throe months, the lessees were to pay the monthly rent and also to pay all rates and taxes etc. and if they failed to remove the buildings within the period of three Calendar moriths from the expiration of the t!lrm and within like peirod to fill up all excavations and to level up and restore the land, the right to remove the buildings would stand determined, and the buildings would bolong to the Trustees, who would be entitled to remove them and to clear, Jovel and restore the land and recover the

costs from the lessees.

It is not clear from the record as to what happened actually after the expiry of the term.

But on August l l, 1942, the Trustees of tho Port of Bombay granted to Moroshwar Narayan Dhotre and Dinshaw lustomji Ogre, carrying on busineBB under the name and style of Messrs.

Dinshaw and Company and their respective heirs, executors

administrators and assigns, a monthly tenancy of the land together with the buildingo standing thereon and all the rights, easem0nts and a ppurtenances belonging to the premises on payment of monthly rent of Rs. 300/ ., clear of all deductions on the first. day of each Calender month and payment of all rates, taxes etc.

The lessees covenanted not to add to, or alter the said buildings and conveniences etc., without previous consent, in writting, of the Trustees and to maintain the property in good repair. at their own cost.

They further agreed ;

"to peacefully leave and yield up the demised premises together with all buildings thereon as prepared and kept at the expiration or sooner determination of the tenancy here- . by created or in the event of the ; renants

becoming en tit led to remove the buildings .. standing on the demised land at the expira, tion or sooner determination of the . tenii.ncy hereby created pursuant to the proviso in that behalf hereafter con-. tained to peaceably leave and yield up the demised laud cleared and levelled to the. satisfaction in all respects of the Trustees." The provisos, inter <ilia, include the following covenants binding the lessees :

"(2) Either party to \chese presents may terminate the tenancy hereby created by giving to the other of them one calendar month's notice in writing to expire on the 1st day of any calendar month.

(4) The Tenants may during the period of, notice for determination of tenancy hereby created in accordance with proviso No. 2 herein before conta.ined remove such buildings as have been standing upon the demised land provided that the Tenants shall have paid all rent hereby reserved up to the determination

Kanji Manji

; v4 ·, The TruiieesoJ The

f:or:t of BomPdy

HidayatullahJ.

Ir, nji M OJ!ji

•• n, r,..,,,,. ofT/i, p.,, of Bamb9

Hicia, otuJ/aA I.

466 .SUPREME cOURT REPORTR (1962] SUPP.

of this tenancy and shall have performed and observed all the covenantH on the part o( the Tenants and the conditions herein contained or referred to."

On February 28, 1947, Morcshwar Narayan Dhotre and Dinshaw Rustomji Ogra assigned their rights in the lease to Ruµji Jeraj and Kanji Manji who, according to the deed of assignment (Ex.D) paid Rs. 22,250/· to the assignor~. and this assignment appears to have been accepted by the lessors.

On January 25, I 956, the Trustees of the port of Bombay sent a notice to Rupji Jcraj and Kanji Manji requiring them to vacate the prumiscs and deliver vacant and peaceful JlOfHession of tho land on :February 29, 1956.

This notice was not oomplied with, and tho suit was filed for their eject ment, as stated already. In the plaint, tho first relief claimed was that "tho defondant be ordered and decreed to forthwith deliver vacant and pea.ccful possession of tho demised premises situate at Mazagaon Sewri Reclamation Estate and more particularly described in Ex. A hereto." Exhibit A mentioned the following:

"All that piece or parcel of land situate at Haji Bunder, Muzagaon Sewri Hoclama.tion Estate, Bombay, admcasuring 5066 6/9 square yards or thereabouts bearing Cadastra.l Survey No. 272/145 of PareJ.Sewreo Division.'

The suit, as stat<, d was filed against Loth Rupji Jeraj and Kanji Manji, but lator, the plaint was a.mended by striking out the name of Rupji Jeraj. who had died much earlier.

The appellant, as defendant, raised a number of pleas. His main contention was that the notice dated January 25, 195'3 was invalid, inasmuch as it had heen served only upon one of the lessees (Kanji Mnji) and not upon the heirs and legal representatives of Rupji J eraj.

He also contended

___..

3 S.C.R. SUPREME cOURT REPORTS 467

that the suit was bad for non-joinder of the heirs and legal representatives of Rupji Jeraj, who were necessary parties.

He raised a plea of jurisdiction, alleging that the suit had to be filed in the Court of Small.Causes, Bombay, inasmuch as it was governed by the Bombay Rents, Hotel and Lodging Houses Rates (Control) Act, 1947. He further claimed the protection of s. 4, sub-s. 4 (a) of this Act which, he said, applied to him and not subs. (1) of the same section. He contended tha.t, in view of the prohibition contained in the Act, he could not evict his sub.tenants and that the contract that he must deliver vacant possession was impossible of performance, and the said impossibility rendered the claim of the plaintiffs incompetent.

All. these pleas were found against the appellant. It was held that the tenancy was a joint tenancy that a notice io one of the joint tenants was sufficient, and that the suit also was not bad for non-joinder of the legal representatives of Rupji Jeraj. The t1ial Judge held that the present agreement was enforceable, inasmuch as this case was governed by subs. ( l) and not subs. 4 (a) of s. 4 of the Act.

For the same . reason, the trial Judge also held that the suit was properly laid in the Bombay City Civil Court at Bombay. The same contentions were raised before us, and we shall deal with them in the same order.

The argument about notice need not detain us long.

By the deed of assignment dated February 28, 1947, the tenants took the pretniees as joint tenants. The exact words of the assignment were that " ...... the Assignors do and each of them doth hereby assign and assure with the Assignees as Joint Tenants ...... ". The deed of assignment was approved and accepted by the Tmstees of the l' ort of Bombay, and Rupji Jeraj and the appellant must be regarded as joint tenants. The trial Judge

I96S

Kanji Manji

V, The Tntslets nj Thi

Port of Bombay

Bidoyotulhh J.

K01iji M anji

The Truslus of I he

Porl oJ Bombay - llUl•.JGIUll•h J.

468 SUPREME COURT REPoRTS [1962) SUPP.

therefore, rightly held t.hm to be so.

Once it is held that the tenancy was joint, a notice to one of the joint tenants was sufficient, and the suit for the same rcaso11 was also good.

Mr. R. Sen, in arguing the case of the appellant, did not seek to urge the opposite.

In our opinion, the notice and the frame of the suit were, therefore, proper, and this argument has no merit.

The real controversy in t.his case centres round the applicability of the Bombay Rents, Hotel and Lodging Houses Rates (Control) Act, 194 i (shortly called the Hent Control Act in the judgment) to tho present suit, and from that also arises tho quostiou of the jurisdiction of the Bombay City Civil Court. The latter argument about the juris. diction of the Court can only arise, if the Rent Control Act applies to the present facts. We shall, therefore, consider these two points together.

It must not be overlooked that the suit was for eviction from the land only. Vnder the Rent Control Act, the word 'prcmisos" is defined by s.5(8) inter alia, as follows:

''Premises" means- (a) any land not being used for agricultural purposes.

The Act, prior to its amendment in l 953 by the Bombay Act IV of 1953, provided by s.4(1)

as follows:

"This Act shall not apply to any premises belonging to the Government or a local authority or apply a;; against the Government to any tenancy or other like relationship created by a grant from the Government in respect of premises taken on lease or requisitioned by the Government; but it shall apply in respect of premiaes let to the Government or a local authority ...•.. " This sub-section was considered by the Born bay

....

!) ,

3's.c.R.

SUPREfE COURT REPORTS 469

' JI '

' 'I ' H; igh Gourt in a case, which was brought up in appeal to this Qourt by special leave. 'rhe judgment of, this Court 1 is reported in Bhatia Go-operative Housing Society, Ltd. v. D. G. Patel('). In that case, building sites were auctioned in 1908 by the City Improvement Trust, Bombay.

One of the conditions of the sate was that tbe bidder sh"Ju!J construct a building, on the site, of a certain- .\faluo and according to a plan approved by the City Imppve ment Trust.

One Sitaram Laxmf\n was the highest bidder' and he constructed a building, as ag-reed.

Hp w:; is then gra,.nted a lease of the land together

w1li phe building for 999 years.

Subsequently in lp~5, the Bomoay Municipality succeedtd the City Improvement Trust, and the Bha.tia Co-opfrative Housing Society Ltd. acquired the less'ee's interest, A suit was filed by the Co-operative Society against its own tenants in the Bombay City Civil'Court. Tlie plea was that the suit ought to .have been filed in the Court of Small Cm1ses, as required by the Rent Control Act.

Tho plaintiff reFeC! upon sub-s. (l) of s. 4 to show that tho Act !iid not apply 'to suoh a suit.

This con tcntion of the plaintiff was accepted by the Trial Jnclge, who decreed the claim. The Bombay High, Conrt, however,. on appeal, held that sob-s.(l) of s. 4 did not apply, and that as between the Co-:iper11tive Society and its sub-tenants, the suit was governed 'by the Rent Control Act an\} ought to go before the 'court of Small Causes.

The High Court, therefore ordered that tbe plaint be returned for

presntation to the proper Court.

, .This •Court, on appeal by special leave, reversed the decision of the High Court, n, nd restored that of the Trial J uclge.

This Court poihted otit that sub's. ( 1) of's. 4 had three parts, viz.

"( l) this Act i; hall not. apply to _premie~ belonging to-the Government or a local . autlroi'ity; \I) [19.53j,8. C. R .• 1q~.

19fil

Kanji Manji

l t.l lty, t\ • T"1'#TfriStelB"d1 Tit 1

Po1t--of B ombc.y

H iJl'l.fa!ulfob .1.

Kanji lltm; i

v. 'Fht T1usltts of Tiu

I'o1t of Bom•ts)

lliria~Yt1ful/ah J,

4iO SUPREME C0URT REPORTS (1962] SUPP.

( 2) this Act shall not apply as against th<J Governme11t to any tenancy or other like relationship created hy grant from the Government in reHpcct of premiseo taken on lease or

rcquiaitioned by the Government; and

(3) thi8 Act shall apply in respect of pre mises let out to the Government or a locrd

authority."

This court further held that• the first part of the sub-section mentioned as part No.( I) a hove had no reforence to anv l-lnanc\' or other like relationship as in the ltter pa; t, and was general in character.

In framing it in that way, the intention was obviously different, and it was to exempt premises of a particular type from the operation of the Act altogether, and the exemption attached to the premises. Reason;; were given by this Court why it thought th1tt this exemption was general and the immunity abolute. Into thesn reason8 we arc not now required to go.

As between the Bombay llfunicipnlity and the lessee, it. was held that tho land 1md the buil<lin~? bPlongcd to the former as owners anl nol to the lessee. This Court, therefore, observed at p. l ll6:

"The trut-h is that the lessor after tho building was el't'Clcd b,-, cn, me the owner of it and all the time thereafter the demised premises which include the building have belonged to him subject to the right. of enjoyment of tho lessee in terms of tho lease." The Act \\'RS thus held not to apply to such suits,

and the ord"r of the High Court was reversed.

At first, an Orrlinance and later, an Act were passed to nullify the effect of this ruling by the addition of sub-s.4(a).

Th11t sub-section now reads as follows :

"(4)(a).

The oxpresaion "premises

b, Jonging to the Government or a local authority" in sub-section ( 1) hall, notwithstanding anything contained in the said subsection or in any judgment, decree or order of a Court, not include a building erected on any land held by any person from the Government or a local authority under an agreement, lease or other grant, although having regard to the provisions of such agreement, lease or grant the building so erected may belong or continue to belong to the Government or the local authority, as the case may be; and ( b) notwithstanding anything contained in section 15, such person shall be entitled to create a tenancy in respect of such building or a part thereof." The amendment achieved two different things. It enabled t, ha lessee of the particular kind of building described in cl. (a) to create sub-tenancies in spite of the ban against sub-tenancies contained in s.15.

It also exuluded from the operation of sub-s.( l) the buildingR specified in cl. (a) of the sub-section.

The amendment said nothing about the relationship of the Government or the local authority, on the one hand, and the lessee, on the other, in respect of the land. The word "premises" in subs.( I) could mean the land or the buildings or both.

Sub-section (4)(a) dealt only with the buildings, and dirl not deal with the land, because it used the word "buildings" and not the more general word "premises". The import of sub-s.(4)(a) of s.4 was thus limited to buildings, and did not extent to land.

The sub-section, however, was drafted somowhat inartistically, and the obscurity of the ]ang.rnge presents some difficulty. The Trial Judge fol1011ed a decision of the Bombay High Court rep 1rted in Ram Bhagwandas v. Bombay Oorparation( I). fn that case, one Khudabaksh Irani had

(l) AJ.R; 1956. Bom. 364;

Kllffjt M 1nji

•• TIN T ru.s lees of Tb,

Purl of Bamhay

Hid•yaMlah J.

K.J1ji ,, f 411ji

• v._ Tiu Tru,.ieei of Th~

Putt uf BitJ//bay

!l iJ.1.Yat:dia11 J.

472 SUPREME COURT REPORTS [1962] SUPP.

taken lease of certain plot, s some 30 yoars back, and con.structed some structures upon the open plot, and renter! them out as tenem, Jnts. In 1947, Iraini said them t'l one l'ya.balli. In l9al, the llfonicip11l Corporation filed~ suit to eject Tyaballi . from the plots, and by a 1•onsont decree, Tyaballi

agrred to deliver up vacant awl peaceful posaession of the plots clear of 1dl structurns.

Tyaballi failed to romovp, the structures, 1tnd the unicipal Corporntion sought to execute t.he decree.

The tenants thereupon filed a suit under 0. 21, r.103 of the Civil Procedure Code against Municipal Corporation, but the suit was dismissed. In the 1tppoal which was filed iu the High Court, it was con'Jeded that the :\funicipal Corporation was the

ownrs of the plots in question, but protection was ela.imed on the basis of sub-s.(4)(a) of s.4 of the Rent Control Act.

Chagla, C. J. in dealing with th<.< history of the <tmending A1; t., pDinted out that tho legisl1iture was seeking to protect by that subsection tenants ·•ho oecupie<l buildings put upon land belonging to a local authority, if the buildings

oceupied hy them were construcl{•d under an agreemout under whirh the les;"" was under an obligation to construct buildiugs.

He pointed out that the protect.ion of sub-s.(4)(a) wa8 to buildings and not to land, and thllt the phrase "under an agreement, lease or other grant" ID'Jrlified not only "held by any person from Go\'ornm0nt or local authority"

but also "erected 011 any land".

He, therefore, held that the wordH "erected on any land held by any porson from a local authority" wero descriptive of th" building and did 1101 emphasirle the point of time when the building was erected.

By that phrase, what was emphasised was "th1tt tho na.turo of the building must be such as to sati8fy the test that it was erected 1m ln.nd held by a person from a

local authority and tho kst must be 1tppliod at the time when the protection is sought.''

as.c.R.

SUPREME COURT REPORTS 473

In this case, it is contended, as it was contended in the Bombay High Court, that so long as a building was erected under an agreement with Government or a local authority, the benefit of sub-s.(4)(a) of s. 4 would be available, no matter how many hands th~ property might have chitnged.

This argument was considered by the learned Chief Justice, and was rejected.

In 0ur opinion, th0ugh the section is far from clear,. the meaning given by the learned Chief Justice is the only possible meaning, regard being had to the circumstances in which this sub-section came to be enacted.

Those circumstances were: In a case in which the holder of the land from a local authf, rity was seeking to evict his sub-tenantR, it was held by the Bombay High Court that the matter was governed by the Rent Control Act. This

Court held that suh-s.(l) applied and the suit was not governed by the Rent Control Act. The amendment was enacted to cut down by a. definition th~ operation of the words "any premises belonging t'> the Government or a local authority", by e:x:cluding

only buildings which were occupied by sub-tenants even though the buildings belonged to the Government or continued to belong to it.

Clause (b) of sub-s.(4) c:x:cluded also s. 15, which prohibited subletting by a tenant.

That, however, was limited to the cas9 of buildings only, and did not apply to the case of land. In this situation, any action by tho Government or tho local authority in respect of land falls to be governed by sub-s.(1) and notsub-s.(4)(a), and sub-s.( l) prrts the case in relation to land entirely out of the Rent Control Act. Tim net result, there. fore, is that if Government or a local anthoritv wants to evict a person from the land, the provision's of the Rent Contrul Act do not come in the way.

For the same reason, the suit for ejectment docs uot have to be filed in the Court, of Small C1msc•s, as required by the Rent Control Act but in the City Qivil Court, as has been done in this oase.

. Kanji MtJnji

Th. Truslu• ofTJ,.

Porl of Bo; nbnJ

Hidoyalu/lah ' .

Konji Ma1iji

Tht Tru.stus of The PMt of Bo1nba_;· .. ' l/idayalullah .1.

474 SUPREME OOURT REPORTS (1962] SUPP.

There is one more reason in this case for reaching the same conclusion, because at. the time of the lease in l!M'.!, the lessee8, from whom the appe]. ]ant claims a.%ignment, wen• given a hase not only of the land but of the buiklings. The wholo tenor of thu agrecml'nt shows that tho title of the lesse<>s

wa~ precarious. Tt was a monthly tDn:incy liable to be terminated with a notice umh•r the rransfer of Property Act, and tiwrc wa.s only a grace that the lessees, when evi"tecl, might rcmr., n buildings within one month of their eviction.

This precarious interest was obtained by the assignee by an aRsign mPnt, :tnd the o; amc thing appli('S to them. If the original lessees took on k11s' not onl.v the land but also the lmilding~. it is not. open to th<!ir nssignees to claim that the ownership of the Oovcrnmf'l1t. extend. ed only to the 1.111rl ancl not to the buildings.

By the admissions in the tle"d of lease am! thP 1'arious elauS<'S, it is quite cloitr that t hcsc buildingR cannot now he described a~ buildings constructed uncl('r an agreement with thc Oov<'rrurn,11t.. hut rnther as buildings belonging to GovPrnm,.nt which wero leased out with the land but in resp•ct of which by a concession, the l"sHoes were ••ntitl., rl to remnve the

lmildingA within 0110 month after cvietion.

Tn our opinion, the snit a,; laid for vaeant po:isessinn of the site :ind in the Cit.v Ci1il Cuurt wnH romp..tent.

It was contender! tlmt the ontrart wns incap able of being pmformtcl, becau8c at l1ast between

the pres•, nt appellant and hi• suh tenants tlw provi. sions of the' !tent Control Act would apply, awl he would not be able to <'Viet tlwm in hi8 turn. It was, therefore, argll"d that. this impossibility on the part oft.he appellant to fulfil his nbligationa to deliver vacant posH., HAion rendcrd that portion of the lease deed um•nforceah1" nnd void. lt is to be noticed that the appellant docs not claim th1tt by reason of the imp088ihility the whole of the lease

deed becomes void, because if he did so, the suit of the Port Trust authorities would be perfectly justified without any more. He only seeks to show that that portion of the deed dealing with delivery of vacant possession has become impossible of performance. Such a situation had also arisen in the case of the Bombay High Court in R(/, m Bhagwandas

v. Bombay Oorporation (1), and the assignee of the lessee was unable to deliver vacant possession.

Whether or not the Port Trust authorities would be able hereafter to evict the sub-tenants of the appellant is a matter, on which we need not express any opinion. If the appellant cannot evict his subtenants so as to be able to remove the buildings, in exercise of the rigM conferred on him, that is an unfortunate circum>tance, which does not serve to entitle him to defeat the rights of the Port Trust

authorities. They are only claiming vacant possession of the site, and under the agreement, if the appellant does not remove the b11ildings within one month, then they wmild be entitled to t.ake possession of tl1e land with the buildings, whatever might be the rights of the sub-tenants, and as to which,

[1, S we have pointed out already, we say nothing.

In our opinion, the appeal must fail, and is rlismissed; but in the circumstances of the case, we do not make any order about costs.

Appeal dismissed.

J96B

Kor.di Mpnji

•• Tiu Trust"' of The

Port of Bombay

Hiday1Jtufla~ J,

s. 34

s. 18(5)

KANJI MANJI

M. HIDAYATULLAH

c. SHAH, JJ.

s. 4

s. 4

s. 4

s. 4

Vnder the Rent Control Act

Bombay Act IV of 1953

s. 4

s. 4

s. 4

section 15

s. 4

s. 15


""ili62

1Veb; u(f'; jzs.

' t > '~· I ,: l

~ ~· \

! \ i

476 sui>.RE'ME oodk'f .R.E.PdRTsp9a2jsdi>P.

K., SIMRATHMULL

V.

S. NANJALI.1\GfAH GOW DER I

(::i. K. DAS, M . .l:ImAYA'T(JLLA.Ha.nd J'. l). SILl'.H,:Jlf.)

\ .. ... , Contr!'l't-Coenan!Jor re?onve11~>1c~. ~.prqp~~IK.~.U.?jeYf. to fulfilment of oonditoons-lfailure of cond•t•JJ:J>, whe!her specific 'performarlce could be deln"nded=Where ri!Jht extinguished-

O'ou>ts equitable.iurisdiction could be invoked-'I'mnsfer of Property Act; (4 of 1882)-Specific 'Reli~' Act (1 of•J877).

' ' • I • , By a, deed dated FebruFy, 19, 1948 the -respondeµ, t .1old his house to the appellant in cohsideration of

0 disharging liability torepay a.loan of Rs, 1500/- borrowed by 1ihe lres- .pondent.

T\VO other documents Telflting.; to the house were executed on the same day (J) a -deed by• the appellantragreeing, to reconvey the house if the ryspo'!dent paiq, s., l/iOQ/,• in these two years; (2) p. rent note by the, p; spon?ent ., a\'d. his father agreeing tc1 pay Rs. 26-4-0 per menscm as rent for occupation of the house.

Under 1the agreement of 'iec6nveyance the exercise of the right td demarfd reconV'eyanc"'e 'was subject to~ t, vo, conditions, firstlY, that the right nius.t. be exer cised within 2 years and 1 secondly, that,, he rent -payal;>lct_, under .the rent note should not remain in arrears for more than six

months at any time.

When thai iespoildent Cle'manped sPci fie perfdtmance of -the agreemnt of reconve1ance, !the first condition was fulfilled but the second was, not. The suit for,, specific performance o'f the igreemcnf Of recovey~ anc; e was dismissed, for in the view of the trial.ct:>urt the conditions of the agrcement.t hasi: inot been , stiA•l~.comJSlied with, and the agreement stood cancelled.

Tc1e High Court in second appeal reversed the decree and ordered specific J p;:rformabce. ..,

Held, that the covenant for reconveyance was in the n_ature of a concession granted by the purchaser . . , Held, further that the conces-sion being subject to certain conditions were not fulfilled the right to demand reconveyancc could not be enforced.

The court had no equitable jurisdictio11 to relieve against the extinction of the right to demand reconveyence.

Shanmugam Pillai v. Annnlakshmi Ammal, A. I. R. ( 1950) F. C. 38, folbwed.

John H. Kilm<r v. British Col1'mbi'1. Orchard Lands Ltd.

J L R. (1913) A. C. 319, DeQendrtl. Pr<!Bad Sitk.fl v. Sttrll!ldr\l '"i

3 s.ci.R.

SUPRtllME COUR'r REPOR'rS 477

Prasad Sukul, (1935) L. R. 63 I.A. 26 and Davis v. 1'homas, ( 1930) 39 E. R. 195, referred to.

CIVIL APPELLA~'E JURISDIW'ION : Civil Appeal No. 8 of 1960.

Ajlpeal by special leave from the judgment and decree dated January 30, 1956, of the Madras High Court in Special L. Appeal No. 2174 of 1952.

Bhawani Lal and P. G. Agarwala, for the appellant.

R. Ganapathy Iyer, R. Thiagarajan and G. Gopalakrishnan, for the respondent .

. 1962. February 28. The Judgment of the Court was delivered by

SHAH, J.-This is an appeal with special leave against the judgment of the High Court of Madras.

On February 18, 1948, S. Nanjalingiah Gowderhereinafter referred to as the plaintiff-borrowed Rs. 1,500/- from K. Simrathmull-hereinaHer called the defendant.

On February 19, 1948 the plaintiff executed a sale deed conveying to the defendant certain land at Ootacamund together with a house standing thereon and belonging to him for Rs. 700/-. Two other documents were executed on the same day : ( l) a deed of reconveyance (Ext. A-1) (counterpart of the sale deed) in favour of the plaintiff which contained the following covenant:

"If you pay the sum of Rs. 1500/- within a period of two years I shall at your cost and your responsibility execute a sale in respect of the under-mentioned 'land and house.

You. shall pay the assessment for the house and the municipal tax, you shall if there is any arrears of rent pay the same, prior to the sale, a.i per the rental deed executed by you and your father~ If there is arrears of rent for six

K. Simr'athmull

v, S. Non; O'lingiah

GowJ, r

Shah J,

}, . SimralAmull

S. Nonjalihtioh

Ot11tdt1

Shah J,

478 SUPREME COURT REPORTS [1962) SUPP.

months, the aforesaid counterpart deed shall become cancelle<l.",

and (2) a lien\ Note by t.he plaintiff and his fath•r Rora Gowder in favour of the defendant agreeing to pay rent@ 1 's. 26/4/- per mensem for occupation of the house and the land.

Rent accruing dull was not paid regularly by the plaintiff and his father, and by April 1949 it was in arrears for sev<'n monthR.

The plaintiff sent Rs. 52/8/- by postal money ord<r being rent for two months, on April 20, 19'19, but it waR not accepted by the defendant.

The plaintiff then filed on November 7, 1949 a suit in the Court of the Subonlinate Judge, Ootacamun<l for specific performance of the agreement of recunveyance contained in the deed Ext. A-1.

The suit was dismissed, for, in tho view of tho trial Court, the conditions incorporated in Ext. A-1, had not been strictly complied with, and the agreement stood cancelled. The decree of the trial Court was affirmed in appn~ I. But in second app•al the High Comt of \Tadras reversed the decree and ordered specific performance.

The sale deer!, the deed of reconveyance Ext.

A-I and the Rent Xoto Ext. B-1 were undoubtedly

parts of th!l same transaction.

The plea of the plaintiff that the sale deed Ext. A- I conatituted a transaction of mortgage by conditional sale is inadmissible, because the sale dcd and the covenant for reconveyance aro contained in separate documents.

Indisputably, ou tho findings of the trial Court and confirmed by tho Appellate Courts, the plaintiff has not c; implied with the terms of the agreement for reconvcyance. The plaintiff, however submitted that the court could relieve him against the forfeiture of his rigtits in exerciso of the courts equitable jurisdiction. Tho defendant submitted that the covenant for roconvcyance was in the nature of a eoncossion grunted by the ddendant subject to certain conditions and if the conditions were not

fulfilled the right could not be enforced. On this question the trial Judge with whom the First Appellate Court agreed held that the court had no jurisdiction to relieve against the extinction of the right to demand reconveyance, because the plaintiff had failed to comply strictly with the conditions of the deed. The High Court held that the equitable jurisdiction of the Court could properly he exerciseed in favour of the plaintiff so as to relieve him against the extinction of his right.

The plaintiff had sold his property to the defendant.. There is now no dispute that though the sale deed was for Rs.700/-. it was in satisfaction of the loan bmrowed on February 18, 1948 for Rs. 1500/- that the sale deed was executed. By the deed Ext. A-1 the defendant gave plaintiff a concession: he agreed to reconvey the house, but the exercise of the right of demanding reconveyance hy the plaintiff was subject to two conditions (1) that the right must be exercised within two years, and (2) that the rent payable under Ext. B-1 should not be in arrears' for more than six months at any time.

When the plaintiff dtanded specific performance of the agreement of reconveyance, the first condition was fulfilled but the second was not. It is true that equity relieves against penalties when the intention of the the penalty is to secure payment of a sum of money or attainment of some other object, and when the event upon which the penalty is made payable can be adequately compensated by payment of interest or otherwise. Thus relief is granted in equity against the penalty in a money bond, and also against penal sums made payable on breach of bonds, covenants and agreements for payment of money by instalments, or for doing or omitting to do a particular act (see Halsbury's Laws of England III Edition vol. 14 page 620 Art. 114 7). The cases in John H. Kilmer v. BritiNh Columbia Orchard Land, s Ltd. (') and Devendra Prasad Sukul and others v.

Surendra Prasad Sukul and Another(') are illustrations

(I) L.R, (1918) A,.C. 319.

(2) ( 193S) L.R. 63 I.A. 26.

K. imrathmull

S. Nanjalingiah

Gowder

Shah J.

198t

K. Simrallamull

v ,\'. NOnjaJingi41a

Gowitr

Sh oh J,

480 SUPRE:.'.!E COURT REPOP.TS [1002) SUPP.

of that principle. Bnt there is a well recognised exception to thiH rulo which i~ enunciated in Halshury's Laws of England Vol. 14 TTI Eclition page 622 p1tragraph 1151, as follows: "Where under a contract., conveyance, or will it beneficial ri11ht is to arifie up, m tho performance by the beneficiary of some act in a

statc<l manner, or at a stated timl', the act must bo performed accordingly in order to obtain the enjoyment of the right, and in the .absence of fraud, accident or surprisP, equity will not rnlicve against a breach of the terms".

The Federal Court in 8hanmuyam Pillai and others v. Annalakskmi Ammal and others(') held by a majority of three to two that where under an agreement an option to a vendor is reserved for repurchasing the property sold by him the option is in the nature of a concession or privilego and may be exercised on strict fulfilment of the conditions on the fulfilment of which it is made exercisable. If the original vendor fails to act punctually according to the terms of the contract, the right to repurchase will be Jost and cannot be spocifically enforced.

Hefusal to enforce the tHms sprcifica!Jy for failure to abide by the conditions does not amount . to enforcement of a penalty and the Court has no power to afford relief against the forfiture arising as a result of breach of such a eondition.

A majority of the Judges of the Court in that case followed the principle set out in Davis v. '!'lwma.~ (').

We accept the view of tho majority enunciated in Slummur; am Pillai's case. The decree passed by tbc High Court must therefore be sot aside and the decree pnssed by the trial Court

restored.

But the property in dispute is valuable.

Evon on the defond1int's case it was on thl' date of tho institution of the suit worth Rs. 15000/-. The defendant purchased it only about a year and seven months prior h> the <late of the institution of the suit for Rs. 1500/-.

He appears to have overreached the plaintiff and taken a document of salo

(IJ Al R. (19SOJ P.C. 38.

(2) ( 1930) 39 E.R. ! 95.

conveying the property when a mere loan was intended on the security of the property. It is unfortunate, having regard to the provision of s. 58(c) of the Transfer of Property Act, that the plaintiff is debarred from proving that the transaction was in the nature of a mortgage. In the circumstances we direct that there will be no order as to costs throughout.

Appe, al allowed.

ORIENT WEAVING MILLd (P) LTD.

THE UNION OF INDIA

(B. P. SINHA, c. J., J. L. KAPUR, M. HIDAYATULLAH, J. c. SHAH and J. R. MUDHOLKAR, JJ.)

Central Excise-Power of Central Government to grant exemption-Rule-Notification granting exemption to co-operah'.ve society-Constitutional mlidity-Central Excises and Salt Act, 1944 (1of1944), ss. 37(2), cl. (xvii)-Central Excise Rules, 1944, r. 8(1)-Constitution of India, Arts, 14, 19(1)(/) and (g), 43.

By r. 8 (1) of the Central Excise Rules, 1944, framed by the Central Government in exercise of its Power under s. 37(2)

cl. xvii of the Central Excises and Salt Act, 1944, "the Central Government may from time to time, by notification in the Official Gazette, exempt subject to such conditions as may be specified in the notification any excisable goods for the whole or any part of the duty leviable on such go'.>ds." By two notifications issued under the said rule the Central Government exempted cotton fabrics produced on po, ver looms owned Dy co-operative societies ti'om the duty leviable thereon subject to certain conditions.

Under s 38 of the Act the said rule and notifications on publication in the Official Gazette had effect as if enacted in the Act. The petitioners, apprehending loss of business in competition with the fifth respondent, a co-operative society, chal1enged the rule and the notifications on the grounds( I) that the power of exemption conferred on the Union Government violated Arts. 14, 19(l)(fl and (g} of the Constitution and (2) that assuming that it did

196!

K. Simrathmull '.

S. Nanjalingioh

Gowder

Shah J.

Ftbuary 38.

, SIMRATHMULL

i. K. DAS

(1935) L. R. 63 I.A. 26

s. 26

Art. 114

L.R. 63 I.A. 26

s. 58(c)

Transfer of Property Act

ss. 37(2)

Central Excise Rules, 1944

Constitution of India

Central Excise Rules, 1944

s. 37(2)

Central Excises and Salt Act, 1944

s 38