POONA ELECTRIC SUPPLY CO. LTD. v.

COMMISSIONER OF INCOME-TAX, BOMBAY

April 19, 1965 [K. SUBBA RAO, J. C. SHAH AND S. M. Sum, JJ.)

Income-tax Act (11 of 1922) s. 10(1)-Projit arrived at after deducting amount. according to Electricity (Supply) Act, 1943-Taxoblc inceme--If deductions can be allowed.

The appellant-company was a commercial undertaking, doing the business of supply of electricity .subject to the provisions of Electricity

(5upply) Act, 1948. For the purpose of rationalization of rates and keeping them under control, the licensee was directed by the Act to adjust the rates in such a way that the clear profit in any year did 1;1ot exceed the amount ot reasonable return as defined in the Act; but that if an excess was collected, the licensee should distribute half of that exces• by way of rebate to the consumers, 9r carry the amount forward in the accounts for distribution to the consumers.

For the purposes of the-Act, during the accounting years, the asses.- see credited certain amounts which formed part of the excess collected to the "Consumers Benefit Reserve Account", and claimed deduction of those amounts from the taxable income. The" Income Tax Officer and the Appellate Assistant Commissioner disallowed the .claim, but the Tribunal allowed the deductions. The High Court, on a reference, hel\! against the assessee.

In its appeal to this Court, the appellant contended inter alia that there was a distinction between commercial profit and "clear profit" under the Electricity (Supply) Act and that the real or commercial profit under s. 10(1) of the Income Tax Act, 1922, could be determined only after excluding the amounts statutorily transferred to the "Consumers Benefit Reserve Account", for, that amount represented a rebate to the consumers, of the excess amount collected from them.

HELD: As a business concern the real profit of the appellant had to be ascertained on the principles of commercial a.ccountancy. & a licensee governed by the statute its "clear profit" was ascertained in terms of the statute and the schedule annexed thereto. The two profits are for different purposes-one for commercial and tax purposes and the other for statutory purposes in order to maintain a reasonable level of rates. The amounts for which deduction was claimed were a part of the excess ainount paid to the assessee and reserved to be returned to the consumers. They did not form part of the assessee's. real profits, and therefore, to arrive at the taxable income of the assessee from the business, under s. 10(1) of the Income-tax Act the said amounts had to be deducted from its total income.

[827G-828A] , The income tax is a tax on the real income, that is, the real profits arrived at on commercial principlessubject to the provisions of the Income-tax Act. The real profit can be ascertained only by mU:- ing the permissible deductions. There is a clear cut distinction betwe_en deductions made for ascertainin!I the profits and distributions made out of profits. It is a question df fact to be found on the relevant circumstances, having regard to business principles. Anoth_.

11'

l'OO:\A ELECTHIC CO. t'. C.I.T. (Sulba Jlao, J.) 819

distinction that should, be borne in mind is that between the real and the statutory profits. that is between the commercial profits ond statutory profits. The latter are statutorily fixed for a specified purpose. The real profit of a businessman under s. 10(1) of the Incometax Act cannot obviouslv include the amounts returned by him by \\ay of' rebate to the co.nsumers, under statutory compulsion, from the statutory profits. [822C, 827E. F]

Case la\\' referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 633 and 634 of 1964.

Appeals from the judgement and order dated July 23 and 24, 1962 of the Bombay High Court in Income-tax R:eference No. 61 of 1961.

A. V. Vfa1m11atha Sastri, S. N. Vakil, T. A. Ramachandran, J. B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the appellant (in both the appeals).

Niren De, Additional Solicitor-General, R. Ganapathy Iyer and R. N. Sachthey, for respondent (in both the appeals).

A. V. Vishwanatha Sastri, M. N. Shroff and /. N. Shroff, for the Intervener <in all the appeals).

The Judgment of the Court was delivered by

Sobba Rao, J. The appellant, the Poona Electric Supply Co., Ltd., hereinafter called the Company, carried on the business of distribution of electricity in the city of Poona under a licence issued by the Government.. Under the relevant provisions of the Electricity (Supply) Act, 1948, (Act 54 of 1948), hereinafter called the Act, the Company's "clear profit" in any year should not, as far as possible, exceed the amount of "reasonable return" as defined under the Act. The excess, if any, after making some deductions, the Company has to distribute to its consumers in the form of rebate. During the assessment years 1953-54 and 1954--55 the Company claimed deduction of two amounts of Rs. 42,148/- and Rs. 77, 138 /- for the said two years from its taxable income as they were credited to "Consumers Benefit Reserve Account". The Income-tax Officer disallowed the claim; and on appeal the Appellate Assistant Commissioner agreed with the Income-tax Officer.

On a further appeal, the Incometax Appellate Tribunal accepted the contention of the appellant and allowed the deductions. At the instance of the Revenue, the Tribunal submitted the following question of law to the High Court of Judicature at Bombay for its opinion:

"Whether the two sums of Rs. 42, 148 /- in the assessment year 1953-54 and Rs. 77,138/- in the assessment year 1954-55 were deductible in computing income, profits and gains from the assessee's business assessable to tax.n

SUPREME

COURT

REPORTS [1965] 3 s.c.&.

A Division Bench of the. said High Court answered the question A in the negative and against the appellant. The present appeals have been filed by the Company after obtaining the requisite certificate from the High Court.

The argument of Mr. A. V. Viswanatha Sastri, learned counsel for the appellant, may be summarised thus: (!) There is, a B distinction. between commercial profit of a company and "clear profit" under the Act-one is arrived .at on commercial principles and the other is regulated by the statute; the real profit of a company under s. 10(1) of the Indian Income-tax Act can be determined only after excluding the amount statutorily transferred to the "Consumers Benefit Reserve Account", for that amount C represents a rebate to the customers of-the excess amount collected from them.

(2) As the reservation of a part of the said excess is a statutory condition subject to which the Company carries on its business, it is an expenditure wholly and exclusively incurred for the purpose of the Company's business and, therefore, it is an allowance deductible under s. 10(2)(xv) of the Income-tax Act for D computing the profit of the Appellant's business. (3) The Company follows the mercantile system of accounting and, therefore, the amount of rebate so reserved is deductible for arriving at the commercial profit of the Company in the year when the statutory liability arises and not when the amount is actually paid; and in the present case the statutory liability for the said two amounts E arose in the accounting years of 1952 and 1953.

Learned Additional Solicitor General contended that (1) under the relevant provisions of the Act the transference of a part of the said excess to the consumers benefit reserve account would only amount to apportionment or distribution of the profit after it has F been earned and, therefore, it is not a deductible item for ascertaining the profit of the Company under s. IO(l) of the Income-tax Act; (2) the said amol!nts could not be said to be an expenditure wholly and exclusively incurred for the purpose of the business, as the expenditure was not incurred either during the course of the business or for the purpose of earning the profits of the business, G but was only apportioned or distributed from and out of the profits already earned.

To appreciate the rival conientions and to arrive at a satiafactory solution it will be necessary to notice the relevant provisions of the Act and of the Income-tax Act.

The gist of the relevant pro.visions may be stated thus: No person can supply electric energy m any area unless he has obtained a licence from the State Gov'ernment under s. 3(1) of the Indian Electricity Act, 1910 (9 of 1910). The Act, i.e., The Electricity (Supply) Act, 1948, provides for the rationalization of ile production and supply of electricity and generally for taking

POONA ELEC'rRIC co. v C.I.T. {Bubb~ Rao, J.) 8~1

measures conducive to electrical development. One of its main objects is to prevent such licensees from charging unreasonablerates to the detriment of the consumers. Under s. 57(1) of the Act the provisions of the Sixth Schedule and the table appended. to the Seventh Schedule thereto are deemed to be incorporated in the licence of every licensee. Paragraph I of the Sixth Schedule imposes a duty on every such licensee to so adjust his rates for the sale of electricity by periodical revision that his clear profit in any year shall not, as far as possible, exceed the amount of "reasonable return".

The expressions "clear profit" and "reasonable return" are defined. Under Para. II thereof if the clear profit of a licensee in any year of account is in excess of the amount of reasonable return, one-third of such excess, not exceeding 7! % of the amount of reasonable return, shall be at the disposal of the undertaking; one half of the said excess shall either be distributed in the form of a proportional rebate on the amounts collected from the sale of electricity and meter rentals or carried forward in the accounts of the licensee for distribution to the consumers in future in such manner as the State Government may direct. It is, therefore, clear from these provisions that for the purpose of rationalization of rates and keeping them under control the licensee is directed to adjust his rates in such a way that his clear profit in any year. shall not, as far as possible, exceed the amount of reasonable profit; but if an excess is collected, the licensee shall E distribute half of that excess in the form of a proportional rebate to the consumers or carry forward the same in his accounts for future distribution to the consumers.

Briefly stated, the schemeof the provisions is that a part of . the excess collected is returned to the consumers by way of a rebate. The question is whether

F the amount so returned or retur.nable by the licensee to his consumers is deductible for ascertaining his taxable income from his business under s. 10(1) or s. 10(2)(xv) of the Income-tax Act.

Learned Additional Solicitor General took us though the various paragraphs of the Sixth Schedule to the Act and argued that under them the licensee's clear profit was arrived at after alf the G deductions were made, including the appropriations for all taxes on income and profits and, therefore, the distribution of a part of the excess was only a distribution out of the profits. There is plausibility in this argument and at tht' first blushit appears to be attractive. But there is an obvious fallacy underlying the argument and that arises from the fact that the argument equates the expres- H sion "clear profit" with that of commercial profits. The object of the Act and that of the Sixth Schedule thereto, as aforesaid, is to statutorily rationalize and regulate the rates chargeable for the energy supplied in the interest of the public and for electrical development. The rules embodied in the Sixth Schedule to the Aot are intended only to achieve that object. Under the said rules certain appropriations and certain deductions have to be made to arrive at the clear profit; otherwise the items may be manipulated

822 SUl'REl!E COURT REPORTi (1965] 3 s.C.R.

to susiain a demand for abnormal rates. The rules have no con- A cern with income-tax; though for the purpose of arriving at the clear profit the taxes paid are also deductible. If this distinction is borne in mind, the problem presented is easily and readily solved.

Under s. lO(i) of the Income-tax Act, tax shall be payable by B an assessee under the head "profits and gains of business" in respect of profits and gains of any business carried on by him. The said profits and gains are not profits regulated by any statute, but profits in a business computed on business principles. They are business profits and not statutory profits. They are real profits and not notional profits. The real profit of a businessman under c s. 10(1) of the Income-tax Act cannot obviously include the amounts returned by him by way of rebate to the consumers under statutory compulsion. It is as if he received only from the consumers the original amount minus the amount he returned to them. In substance there. cannot be any difference between a businessman collecting from his constituents a sum of Rs. Y in D addition to Rs. X by mistake and returning Rs. Y to them and another businessman collecting Rs. X alone. The amount returned is not a part of the profits at all.

In this context some of the decisions cited. at the Bar may be of some help.

In Pondicherry Railway Co., Ltd. v. Commissioner of Income-tax, Madras('). under an agreement with the French E Colonial Government the railway company had to pay to the said Government half of its net profits calculated as provided thereunder. One of the questioni that arose in the appeal was whether the appellant-company was entitled to deduct the payments made under the agreement with the said Government as being expenditure incurred solely for the purpose of earning such profits within F s. 10(9) of the Income-tax Act. In dealing with the question, Lord Macmillan observed:

"A payment out of profits and conditional on profits being earned cannot accurately be described as a payment made to earn profits. It assumes that profits have first G come into existence. But profits on their coming into existence attract tax at that point, and the revenue is not concerned with the subsequent application qf the profits." The learned Lord, after citing with approval the principle laid down by Lord Chancellor Halsbury in Gresham Life Assurance B Society v. Styles('), proceeded to observe:

"The word 'profits' I think is to be understood in its natural and proper sense ... in a sense which no. ~mercial man would misunderstand. But once an md1V1dual or

(') 119311 L.R. 58 A.C. 239, 251-252, 252,

I') [1892] A.O. 309.

. ·,

FOONA ELECTRIC co. v. C.LT. (Subba Rao, J.) 8~3

a company has in that proper sense ascertained what are the profits of his business or his trade, the destination of those profits or the charge which ha~ been made on those profits by previous agreement or otherwise is perfectly immaterial. The tax is payable upon the profits realized, and the meaning to my mind is rendered plain by the words 'payable out of profits."

The distinction between payment out of profits and a payment to earn profits is unexceptionable. The di!Rculty is to ascertain in each case whether a particular payment falls under one or other of the two categories. The statement in the aforesaid observations that a payment conditional on profits being earned cannot be a payment made to earn profits has been modified and explained by the Privy Council in The Indian Radio and Cable Communications Company, Ltd., v. The Commissioner of Income-tax, Bombay Presidency & Aden('). There, their Lordships were dealing with a case of a . joint venture by two companies; and Lord Maugham pointed out thus:

"It may be admitted that, as Mr.

Latter contended, it is not universally true to say that a payment the making of which is conditional on profits being earned cannot properly be described as an expenditure incurred for E the purpose of earning such profit~. The typical exception is that of a payment to a director or a manager of a commission on the profits of a company."

To that extent the principle laid down by Lord Macmillan in the case of Pondicherry Railway Co.(') has been modified. Lord F Macmillan himself in a later decision in The Union Cold Storage Co. Ltd., v. Adamson (H. M. Inspector of Taxes)(') explained his observations in the Pondicberry Railway Co.'s case('). There, the appellant-company leased lands and premises abroad under a deed reserving a particular rent per annum. The deed provided

that if at the end of any financial year it was found that after providing for this rent the result of the Company's operations was insufficient to pay both interest on its charges and debentures and dividends at fixed rates on its preference shares and also al least

10 per cent, on its ordinary shares, the rent for the year was to be abated to the extent of the deficiency, repayment of rent already paid being made if necessary.

The question raised in that case was whether such repayments made were ailowable as deduction.

in assessing the Company's income to income-tax. The House of Lords held that they were allowable deductions.

When the observations of Lord Macmillan in the Pondicherry Railway Co.'s case(') were pressed upon the House in support of the contention

(') (1937) 5 I.T.R. 270, 277.

(') (1931) 16 A.C. 328, 331.

(') L.R. 58 A.C. c39.

8!14

SUPRBMB

COURT

REPORTS

.[1965] 3 B.C.R.

on behalf of the Revenue, Lord Macmillan explained his earlier A observations thus: , "When, therefore, in the passage referred to by the Attorney- General in the Pondicherry case I said that "a payment out of profits and conditional on profits. being earned cannot accurately be described as a payment B made to earn profits", I was dealing with a case' in which the obligation was, first of all, to ascertain the profits in a prescribed manner, after providing for all f outlays incurred in earning them, and then to divide them. Here the question is whether or not a deduction for rent has to be made in ascertaining the profits, and the question is not one of the distribution of profits at O all." ·-

Though a contractual term of payment of rent operated after the profits were ascertained and on the insufficiency to meet certain obligations was discovered, the House of Lords did not find any difficulty in holding that the deductions for rent were made only D for ascertaining the profits and not for distributing the same. The decision of the Court of Appeal in British Sugar Manufacturers, Ltd. v. Harris (Inspector of Taxes(') is rather instructive. There, a company carrying on a manufacturing business agreed with two other companies to pay them a stated percentage of its "net profits" in consideration of their giving to the company the full benefit of E their technical and financial knowledge and experience, and giving to the company and its directors advice to the best of their ability.

The question arose whether in computing the profits of the company for the purpose of income-tax, the company was entitled to deduct the sums so paid as being money wholly and exclusively laid out or expended for the purposes of the trade within Rule 3(a) F of Cases I and II. Greene, M. R., pithily observed thus:

"Once you realise that as a matter of construction the word

"profits" may be used in one sense for one purpOie and in another sense for another purpose, I think you have the real solution of the difficulties that have arisen G in this case." Applying that test, the Master of the Rolls held. that:

"In the present case there are two funds of so-called profit§

which come into the picture. The first one is the fund which has to be ascertained for the purposes of calcu- H lating the 20 per cent. ..................... Now when that amount has been ascertained, that fund has ceased to have any usefulness at all, and it then becomes necessary to ascertain what are the divisible profits, a::id for that purpose, to take another account, which not only would bring in depreciation, but would also take into

(1) [1939] 7 I.T.R. IOI, 105, 106, 108-109. . '

POONA ELECTRIC co. v. C.I.T. (Subba Rao, J.) 8211

account the sum that had been paid out to the Skoda works, and the Corporation upon the taking of the first account."

Romer, L. J., put the test in a different way when he said:

"Is the payment that has to be made hy the .trader under the contract in question a mere division of profits with another party or is it a payment to the other party, the amount of which is ascertained by reference to the pro fits?"

MacKinnon, L. J., stated much to the same effect thus:

"The whole question in this, as in other cases, is whether this, which is an annual payment, is an annual payment to be taken into account in order to ascertain the profits, or is it an annual payment payable out of the profits after they have been ascertained? I think the true facts of this case are that it is of the former character. The difficulty in the case arises largely because of the necessary ambiguity in the word "profits" and the fact that in this agreement "profits" as a word does appear; but "profits", as I think, quite clearly of a different description from the annual profits or gains with which one is concerned in assessing the

incometax."

This decision accepts the principle that a contract or a statute may provide for the ascertainment of two profits for different pm poses and the question to be decided in each case is whether the amount claimed as deduction is payable out of the real profits.

F The Judicial Committee again in Raja Bejoy Singh Dudhuria v.

Commissioner of Income-tax, Calcutta(') emphasized the concept of real income in the context of payment of income-tax.

Lord Macmillan, speaking for the Board, after adverting to the Imperial System of inco_me-tax legislation, proceeded to observe:

"The correlative of the obligation to return as income sums which are really charges upon the taxpayer's income is the right to reimbursement of the tax on such charges. The Indian Income-tax Act makes no similar provision for the deduction of tax at the source and the consequent reimbursement of the taxpayer in the case of such a charge as that to which the revenues of the appellant are subject ............................ , . that the omission from the Indian Act of any such provision points rather to an intention to tax, in Lord Davey's phrase, only "the real income" of the taxpayer, than to an intention to impose, without right of reimbursement, a tax on what is a charge upon his income."

(') L.R. (1933) 60 I.A. 196, 202.

826 SUPRE14ll: COURT REPORTS [1~£n} 3 s.c.R.

The concept of "real income" is also expounded in the decision A of the Bombay High Court in H. M. Kashiparekh & Co .. Ltd. v.

Commissioner of Income-tax, Bombay North('). There, under the managing agency agreement the managing agent was under a duty to forgo up to one-third of its commission where the profits of the managed company were not sufficient to pay a dividend of

6 per cent. The contention of the Revenue that such a surrender Bof the commission under the provisions mentioned in the agreement was not deductible for the purpose of income-tax was negatived. The principle has been succinctly stated in the headnote thus:

"The principle of real income is not to be subordinated as c to amount virtually to a negation of it when a surrender or concession or rebate in respect of managing agency commission is made, agreed to or given on grounds of commercial expediency, simply because it takes place some time after the close of an accounting year. In examining any transaction and situation of D ( this nature the court would have more regard to the reality and speciality of the situation rather than the purely theoretical or doctrinaire aspect of it. It will lay greater emphasis on the business aspect of the matter viewed as a whole when that can be done without disregarding statutory language." E

Now let us look at two of the cases on which strong reliance is placed on behalf of the Revenue. In Mersey Docks and Harbour Board v. Lucas(') the harbour board was empowered by Act of Parliament to levy dock dues to be applied in maintaining the concern and in paying interest on moneys borrowed; any surplus F income remaining after meeting these charges was directed to be applied in forming a sinking fund to extinguish the debt incurred in the construction of the docks. It went to reduce the capital liability. The question was whether the sum carried to the sinkini: fund, and the surplus carried to the following year's accounts, were "profits" within the meaning of the Income-tax Acts. The House of Lords held that the surplus was profit assessable to the income- G tax. In this case the surplus income formed the sinking , fund and was utilised to pay off the debts of the harbour board; therefore, the Court rightly held that the said amount was utilised by the ]Joard from and out of its profits and, therefore, the said surplus could not be an allowable deduction. The decision of the Queen's 11 Bench Division in Paddington Burial Board v. Commissioners of Inland Revenue(') was also based on the same principle. Under a public Act of Parliament a burial ground was provided out of the poor rates, and fees were charged to persons using it; any

(') (!D~O) 39 I.T.R. 706, 707.

(') (1883) 2 T.C. 25.

(') (18841 2 T.C. 46.

...

, i I

POONA ELECTRIC ce. 1'. C.I.T. (8ubba Rao, J.) 827

A surplus of income over expenditure was applied in aid of the poor rates as required by the Act. It was held that the surplus was a profit assessable to income-tax. It will be seen that the burial ground was managed on behalf of the Parish of Pa.ddington and the surplus was applied for the benefit of the parishners.

In the words of Day, J., it was a business carried on for the benefit of :B the rate-payers of the parish of Paddington. This case also, therefore, dealt with payments out of profits utilised for the benefit of those on whose behalf the business was conducted. In Young (H. M. Inspector of Taxes) v. Racecourse Bi(fing Control Board(') the question that arose was whether the Racecourse Betting Control Board was entitled in computing the profits of the trade of totalisa- C tor operator for the years 1953-54 and 1954-55 to deduct certain payments. The Board would be entitled, under the appropriate statutes, to deduct payment of moneys wholly and exclusively laid out or expended for the purpose of trade. It was held in that case that the said payments were a!l voluntary payments and were not made for the purpose of the trade.

This decision has no bearing D on the question raised before us.

The saio decisions lead to the following results: Income-tax is a tax on the real income, i.e., the profits arrived at on commercial principles subject to the provisions of the Income-tax Act. The real profits can be ascertained only by making the permissible E deductions.

There is a clear-cut distinction between deductions made for ascertaining the profits and distributions made out of profits.

In a given case whether the outgoings fall in one or the other of the heads is a question of fact to be found on the relevant circumstances, having regard to business principles. Another distinction that shall be borne in mind is that between the real and r the statutory profits. i.e., between the commercial profits and statutory profits. The latter are statutorily fixed for a specified purpose. [f we bear in mind these two principles there will be no difficulty in answering the question raised.

The appe!lant-company is a commercial undertaking. It does business of the supply of electricity subject to the provisions of the Act.

As a business concern its real profit has to be ascertained on the principles of commercial accountancy. As a licensee governed by the statute its clear profit is ascertained in terms of the statute and the schedule annexed thereto.

The two profits are for different purposes-one is for commercial and tax purposes

and the other is for statutory purposes in order to maintain a reasonable level of rates. For the purposes of the Act, during the accounting years the assessee credited the said amounts to the "Consumers Benefit Reserve Account". They were pa\j of the excess amount paid to it and reserved to be returned to the consumers.

They did not form part of the asessee's real pr9fits.

So, to arrive at the taxable income of the assessee from the business

(') (1959) 38 T.C. 452 (H.L.).

LP(D)5SCf-14

82ti 'sUPRI<:ME

COUUT Rl'Olfl'S [ IUGu J 3 8.U.1<

under s. 10(1) of the Act, the said amounts have to be deducted A from its total income. "

In this view it is not necessary to express our opinion on the question whether the said amounts would be allowable deductions under s. 10(2)(xv) of the Act.

The next question is whether the amounts so reserved for B future payment were deductible in computing the income, profits or gains from the assessee's business for the assessment years 1953-54 and 1954-55. It is not disputed that the assessee adopts the mercantile system of accounting. The liability to return the amounts was incurred by the assessee during the relevant accounting years. This C'..ourt held in Calcutta Co. Ltd., v. Commissioner C of Income-tax, West Bengal(') that where an assessee ml!intained

his accounts on mercantile basis, the accrued liability and the estimated expenditure which it would incur in discharging the same could be deducted from the income of the accounting year iR which the said liability accrued.

Indeed, this legal position was not contested on behalf of the Revenue.

D In the result we answer the question referred to the High Court in the affirmative and in favour of the assessee. The order of the High Court is set aside. The appeals are allowed with costs.

Appeals allowed.

(1) (1969) 87 LT.B. I,

" '

POONA ELECTRIC SUPPLY CO. LTD

COMMISSIONER OF INCOME-TAX, BOMBAY

April 19, 1965

K. SUBBA RAO, J.

C. SHAH

Income-tax Act

s. 10(1)

s. 10(1)

Income Tax Act, 1922

s. 10(1)

Income-tax Act

Income-tax Act

Sulba Jlao

s. 10(1)

Bombay High Court

A. V. Vfa1m11atha Sastri

S. N. Vakil

T. A. Ramachandran

J. B. Dadachanji

0. C. Mathur

Ravinder Narain

Niren De

R. Ganapathy Iyer

R. N. Sachthey

A. V. Vishwanatha Sastri

M. N. Shroff

Sobba Rao

Poona Electric Supply Co., Ltd.

High Court of Judicature at Bombay

A. V. Viswanatha Sastri

s. 10(1)

Income-tax Act

s. 10(2)(xv)

Income-tax Act

Income-tax Act

Income-tax Act

s. 3(1)

Indian Electricity Act, 1910

s. 57(1)

Sixth Schedule

Seventh Schedule

Sixth Schedule

s. 10(1)

s. 10(2)(xv)

Income-tax Act

Sixth Schedule

Sixth Schedule

Income-tax Act

s. 10(1)

Income-tax Act

s. 10(9)

Income-tax Act

Macmillan

Halsbury

Maugham

Latter

Pondicherry Railway Co.

F Macmillan

Pondicberry Railway Co.

Macmillan

Greene

Skoda works

Romer

MacKinnon

Income-tax Act

Davey

s 11

Parliament

8ubba Rao

Pa.ddington

Paddington

Racecourse Betting Control Board

Income-tax Act

s. 10(1)

s. 10(2)(xv)


• A

c - D

...

SOUTH ASIA INDUSTRIES PRIVATE. LTD. v.

S. SARUP SINGH AND OTHERS

April 19, 1965

[A. K. SARKAR, J. R. MUDHOLKAR AND R. S. BACHAWAT, JJ.]

Delhi Rent Control Act (Act 59 of 1958), s. 14(1), Pr.oviso (b)~ Scope of.

The respondents were the owners of certain premises in New Delhi. The lessee-a company-of these premises ass1gne.d the leas.e to the appellant. Alleging that the transfer was done without their consent, the respondents filed an application against .the lessee and the appellant under s. 14(1) proviso (b) of the Delhi Rent Control Act, 1958, for recovery of possession. Pending the proceedings, the

lessee went into liquidation and its name was struck off from the record. The Controller thereafter, passed an order in favour of. the respondents. Having moved unsuccessfnlly the Rent Control Tribunal and the High Court, the appellant, appealed to the Supreme Court contending that: (i) the order made against the appellant, after the lessee ceased to be a party, was incompetent, as the only person against whom an order for recovery of possession can be made under the clause, is the tenant who assigned the tenancy, and

(ii) the clause in the lease by which the term "lessee" included the lessee's assignee operated as a consent by the respondents, to assign.

HELD: (i) (Per Sarkar, J.). The Act contemplates orders for recovery of possession also against persons Other than a tenant who has assigned or sub-let without the landlord's consent, so that, where the tenant becomes extinct without leaving any successor, an order can be made against a person who took an assignment of the lease from the tenant before the lease became extinct. [833C, D-E] The proviso expressly states when an order of ejectment can be made and the clauses of the proviso are not intended to indicate the persons against w.hom an order for recovery of possession could be made, but only the circumstances in which an order for recovery of possession may be made. [832E-G] The expression "the tenant 11 in cl. (b) is used only to emphasise that the tenant assigning must be the tenant of the landord seeking eviction. So read, the effect of the clause is that a land-lord can recover possession if his tenant assi_gns or sub-lets without his consent [832H, 833A-Bl .

Since the object of the proviso is to enable the landlord to recover possession in the specified cases, orders against all "persons in

oc.cupation" must have been contemplat.ed so that the landlord might without further tTouble recover posses1on. Sction 18 plainly implies that an order for recovery of possession against a sub-tenant is contemplated by the proviso. Further, the order for recovery of possession would, under s. 25, be binding on the assignee or sub-tenant and therf?re, they \Vould be interested in showing that there was' the requ1s1te coi:isent, and hence \Voulct be entitled to be m"ade parties to the proceedmgs. If they are thus entitled to be heard to oppose the order of ev1ct1on, such an order could be made ar:rainst them a1.:::o

[833F-G, H; 834C, E, H-835A]

- • 829

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(1965) 3 S.C.R.

Per Bachawat J.(i): Both the tenant and the assignee were pro- A perly parties to the proceedings for possession and if the tenant comf pany had been dissolved, there is no reason why the proceedings could not continue against the assignee alone. f839G] It is true that other clauses of the proviso contemplate eviction of the tenant on the ground of some act on the part of the tenant against whom the proceeding for possession is brought, but under cl. (b), the assignment is a ground of eviction of both the assigning tenant and the assignee and the Controller has jurisdiction to make an order for possession not only against the assigning tenant but also against the assignee. [839H-840B]

Per Mudholkar J. (Dissenting)

The right which the respondents possessed to evict the defunct company from the premises, because the company had assigned the tenancy to the appellant without the respondents' consent could not be availed< of by them, and the appellant could therefore continue in possession. [838B-C]

The ban against eviction of a tenant in s. 14(1) is lifted by the proviso only with respect to the tenant and not to any other person, because, a proviso is subservient to the main provision. Therefore, the D tenant must be a party to the proceeding right up to the date of making of the order of eviction. Unless an order is obtained against the tenant there would be no occasion for pressing in aid s. 25. Unlike

the case of death of or assignment by, a tenant, an anomalous position results wi)ere the tenant happening to be a company is dissolved during the pendency of proeeedings and cannot be represented by any one, because of a lacuna in the law. But such lacuna cannot be E removed bx_ the Courts without assuming a power to legislate.

[836H, 837F-H] ·

(ii) Per Sarkar J.: The clause in the lease according to which "the lessee" includes his assignee, does not lead to the conclusion tbat he lessor consented to the assignment. Besides, the consent contemplated by the proviso is a direct consent to a contemplated assignment to a particular assignee. [835F-G] F Regional Properties Ltd. v. Frankenchwerth, [1951] 1 All E. R. 178, applied.

Per Bachawat J: The consent contemplated by cl. (b) may be either general or special, but the clause in the lease would not amount to a con8ent by the landlord to an assignment either expressly or by necessary implication. [840D-E]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 149 of 1965.

Appeal by special leave from the judgment and order dated May 10, 1963 of the Punjab High Court (Circuit Bench) in S.A.0.

No. 40-D of 1963.

C. B. Agarwala, B. R. L. Iyengar, P. N. Chaddha, S. K.

Mehta and K. L. Mehta, for the appellant.

S. T. Desai and Gopal Singh for Harbans Singh, for respondents Nos. I & 2.

Gurcharan Singh and Gopal Singh for Harbans Singh, for respondents Nos. 3 to 5.

s. ASJA INlHJS'l'lUl'~S i'. S1\H.FP (Sarkar, J.) 831

• A Sarkar and Bachawat, JJ. delivered separate but concurring judgments. Mudholkar, J. delivered a dissenting Opinion.

Sarkar, J. The respondents are the owners of certain premises in Connaught Circus in New Delhi, which were let out to Allen Berry & Co. <Calcutta) Ltd. Sometime in 1959 Allen Berry & Co.

B transferred the lease to the appellant and put the latter in possession.

Alleging that the transfer had been made without their consent, the respondents made an application under cl. (b) of the proviso to sub-s. (1) of s. 14 of the Delhi Rent Control Act, 1958 to the Controller appointed under it against Allen Berry & Co. and the apellant for an order for recovery of possession of the pre- C mises from them. While the application was pending, Allen Berry & Co. went into liquidation and was in due course dissolved and its name was, thereupon, struck off from the records of the proceedings. The Controller later heard the application and made an order in favour of the respondents for recovery of possession of the premises from the appellant alone. An appeal by the appellant D to the Rent Control Tribunal under the Act against this order was

G ..

dismissed.

The appellant then moved the High Court of Punjab for setting aside the order of the Tribunal, but there also it was unsuccessful. It has now come to this Court in further appeal.

It was contended that the order for reovery of possession made against the appellant after Allen Berry & Co. had ceased to be a party to the proceedings, was incompetent. This contention was based on an interpretation of the terms of sub-s. (J) of s. 14, the material part of whici) is set out below:

S. 14

(1) Notwithstanding anything to the contrary contained in any other Jaw or contract, no order or decree for the recovery of possession of any premises shall be made by any court or Controller in favour of the landlord against a tenant: Provided that the Controller may, on an application made to him in the prescribed manner, make an order for the recovery of possession of the premises on one or more of the following grounds only, namely:-

(a)

(b) that the tenant has, on or after the 9th day of June, 1952, sub-let, assigned or otherwise parted with the possession of the whole or any part of the premises without obtaining the consent in writing of the landlord;

The contention of the appelJant was put in this way: The first part of sub-s. (]) ofs. 14 puts a complete ban on recovery of nossess10n fron:i all tenants .. The pr<;>viso to it is only an excepting clause and 11 hfts that ban m the crrcumstances mentioned in it.

It follows that the proviso, though it does not expressly mention

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(1965) 3 S.C.R.

tenants, permits orders for recovery of possession against them A alone.

The tenant in cl. (b) of the proviso means only the tenant sought to be evicted under the proviso, such tenant having also to be by the express terms of the clause, a tenant who has assigned his ienancy. This follows from the use of the article "the" before the word "tenant" there.

Therefore the only person against whom an order for recovery of possession can be made under cl. (b) of B the proviso to sub-s. (]) of s. 14 is the tenant who has assigned his tenancy. No such order can, hence, be made against the person to whom the tenancy has been assigned. As the appellant was such a person, no order for eviction could be made against it.

I wish to observe at once that if this contention is correct-which I do no~ think it is-then the order could never be made against C the appellant and the fact that Allen Berry & Co. ceased to be a party to the proceedings made no difference in this regard.

The argument of the appellant is really. based on the article "the" prefixed to the word "tenant" in cl. (b) of the proviso. It is paid that the article -clearly indicates that the only person against D whom an dl'der for ejectment can be made under cl. (b) is the tenant who assigns or sub-lets or parts with possession of the tenancy without the landlord's consent.

I am unable to accept this argu- -nent.

The proviso expressly states that an order for ejectment can be made "on one or more of the following grounds" and then sets the grounds out in the different clauses that follow, one of E which is cl. (b) with which we are concerned. The clauses, therefore, set out the circumstances in which the operative part of the proviso is set in motion, that is, the circumstances in which an order for recovery of possession may be made. If this is so, as I think it is, the clauses could not have been intended to indiq1te the person against whom an order for recovery of possession could F be made. This purpose was entirely different.

I am not suggesting that an order for recovery of possession against the assigning tenant cannot be made.

All that I say is that the clauses do not intend to indicate the persons against whom an order for recovery of possession can be made and so it cannot be argued that the order cannot be made against any other person.

Now the article "the" appears to me to have been used to show that the tenant assigning, must be the tenant of the landlord seeking eviction.

So rea<i, the effect of the proviso in cl. (b) is that a landlord can recover possession if his tenant has assigned, sub-let or transferred possession without his consent. This would B be the natural reading of the provision and would carry out the intention of the . Act. If this is not the correct reading of the provision, the situation would be anomalous.

As the word "tenant" includes by virtue of its definition in s. 2(1), a sub-tenant, it would at least be arguable that cl. (b) authorised a superior landlord to recover possession when the sub-tenant assigned with out his consent.

That could not possibly have been intended for

8. ASIA INDUSTHIES I'. SAHUP (Sarkar, J.) 833

• .fl. the intermediate tenant would then have lost his tenancy for no fault of his.

Therefore, I think the article "the" was used only to emphasize that the tt'nant assigning must be the tenant of thehindlord seeking eviction.

The article "the" does nm, in my opinion, lead inevitably to the conclusion that the only person against whom an order for recovery of possession can be made on the ground B mentioned in cl. (b) is the tenant assigning or sub-letting or parting with possession of his tenancy without the landlord's consent.

I think there are good reasons why it must be held that the Act contemplated orders for recovery of possession also against persons other than a tenant who has assigned or sub-let without C the landlord's consent. The offending tenant must of course go for, as 1 have said, he is the immediate tenant of the landlord desiring to recover possession and if he remains he would be. entitled to possession and the landlord cannot recover possession.

But this does not mean that the order may not also direct the removal from possession of others along with the immediate tenant

. D when there is one.

The reason for this view I will presently state.

If I am right in what I have said, it will follow that in a case like the present where the tenant becomes extinct without leaving any successor on whom the tenancy devolves, an order can be made against a person who took an assignment of the lease from the tenant before it became extinct.

l t is trite saying that the object of interpreting a statute is to ascertain the intention of the legislature enacting it.

When I enquire about the intention behind this statute, I find that far from lending any support to the -appellant's contention it tends quite the other way. First, I observe that the object of the first part of sub-s. (!) of s. 14 is to ban all recovery of possession of tenanted premises by a landlord and that of the proviso is to lift that ban in specified cases. The object of the proviso is then to enable the landlord to recover possession in any of the specified cases.

Assume that the present is a case where the landlord became entitled to recover possession under cl. (b) of the proviso; clearly then the statute intended the landlord to recover possession. It would be our duty to give effect to that intention unless the language used made it plainly impossible.

I have earlier said that the language used does not compel the view that the only person against whom an order for recovery of possession can be made is the tenant assigning or sub-letting without the landlord's consent. That being so, orders against all "persons in occupation" must have been contemplated so that the landlord might without further trouble recover possession.

Further I find it impossible to hold that the language used indicates an intention that when a right has accrued to a landlord to recover possession, that right would be taken away from him when the tenant assigning has become extinct without leaving a successor, an event which is only accidental and certainly rare. A court would be fully justified in holding that in such a case it was

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[1965] 3 ~.C.R.

intended that an order for recovery of possession can be made A against the assignee alohe fr that would enable the object of the statute which was to enable the landlord to recover possession, to be achieved.

An interpretation which defeats the object of a statute is, of course, not permissible.

Then, looking at s. 18 of the Act I find that it clearly colltem- B plates an order for recovery of possession under s. 14 against a sub-tenant. It says, "Where an order for eviction in respect of any premises is made under s. 14 against a tenant but not against a sub-tenant referred to in section 17", then in the circumstances mentioned, the sub-tenant shall be deemed to become a direct tenant under the landlord. This section plainly implies that an C order for recovery of possession against a sub-tenant is contem plated by cl. (b) of the proviso to sub-s. q) of s. J.4. The appellant's argument to the contrary cannot be sustained against the clear implication of the Act. If s. 14 contemplates an eviction order against a sub-tenant, it must . equally contemplate such an order against assignees of tenants, Jor the section makes no distinction D between sub-tenants and assignees for the purpose of making such orders.

I am not unmindful of the fact that where an order for recovery of possession of any premises is made under s. 14 against a tenant assigning or sub-letting without the landlord's consent. E

that order would under s. 25 of the Act be binding on all persons in occupation of the premises except those who leave independent title to them. This section does not however say that an order for recovery of possession against an assignee of a lessee cannot be made. It would not, therefore, support an argument that an order for recovery of possession could be made under s. 14 against an assignee or a sub-tenant. On the other hand, it seems to me that to an application under cl. (b) of the proviso to sub-s. (!) of s. 14 an assignee or sub-tenant, as the case may be, should be a proper party. Under this provision an ejectment order can be made only when the assignment or sub-letting was without the consent of the landlord. If it was with such consent, the assignee or the sub-tenant would be protected by the Act. An assignee or a sub-tenant is, therefore, interested in showing that there was the requisite consent.

They should hence be entitle; i to be made parties to the proceedings.

Otherwise, if under s. 25 an eviction order obtained against the direct tenant is binding on them, they would be liable to be condemned without a hearing. It is no argument against this view that the direct tenant would protect them, for they cannot be made to depend on him for the protection of their rights. The direct tenant may be negligent or incompetent in his defence; he may even collude with the landlord or he may just not bother. If the assignee or the sub-tenant is thus entitled to be heard to oppose the order for eviction, that would be another reason .for saying that an order eviction could be made against them also; if they could oppose the

o. A'1-' l'DUSTRIES v. SARUP (Mud/dkar, J.) 835

A making of the order, it would be unnatural to say that the order could not be made against them. In what I have said in this paragraph, I do not wish to be understood as holding that in view of s. 25 an order for eviction ~.gains! a tenant is in fact binding on his assignee or sub-tenant. Such a decision is not necessary for this case. [ wish, however, to point out that ifs. 25 does not make the eject- B ment order so binding, the appellant cannot resort to it for any assistance.

I have now dealt with the first argument in support of the appeal and I find it unacceptable. The other argument was that the order for recovery of possession was unwarranted as in fact there had been a consent of the respondents to the assignment in favour of the appellant. It is said that the consent was given by a clause in the lease under which Allen Berry & Co. held which reads as follows: -

"That whenever such an interpretation. would be nece>sary

in order to give the fullest scope and effect legally possible to any covenant or contract herein contained, the expressi0n "The Lessor" hereinbefore used shall include his heirs, executors, administrators and assigns and the expression "THE LESSEE" hereinbefore used shall include their representatives and assigns."

I am unable to accept this contention also.

I notice that the lease gave no express right to the lessee to assign with or without the consent of the lessor. The lessee no

doubt had that right under the Transfer of Property Act. It may be that under the clause the lessee's assignee would be included in the expression "lessee" as used in the lease; that is the entire effect of th~ clause.

But this would be so whether the lessor had consented to the assignment or not.

Therefore, this clause does not lead to the conclusion that the_ lessQI' had consented to the assignment. It is of no assistance in the present case. I am also inclined to the view that the consent contemplated by s. 14(1) proviso (b) is a direct consent to a contemplated assignment to a particular assignee: see Regional Properties, Ltd. v. Frankenschwerth(').

Clearly the clause in the case relied upon could not be a consent of this kind.

This point, therefore, also fails.

For these reasons I would dismiss the appe~.J with costs.

Mudholkar, J, In this appeal by certificate granted by the Pun- H jab High Court an unusual question arises for consideration. 'That question is whether an application made under s. 14(i)(b) of the Delhi Rent Control Act, 1958 by a landlord of a building in Delhi against a tenant who happens to he a company incorporated under the Indian Companies Act, cannot be proceeded with and granted on the ground that before the making of any order thereon by the

(') (1951) I All. E.R. 178.

SUPREME COURT REPORTS [1965] 3 s.c.R.

Rent Controller the Company. is dissolved and is struck oil' the A record of the case. According tg the appellant who claims to be an assignee from the original tenant, that is, the Company, such an application cannot be proceeded with. and granted while accordiiig to the respondent landlord the fact that the company is dissolved makes no difference.

The facts which are not in dispute and which have been stated in the judgment of Bachawat J., need not be recapitulated because what I have already said is sufficient to enable me to deal with othe point.

The relevant part of s. 14(1) reads thus :

"Notwithstanding anything to the contrary contained in any other law or contract no order or decree for the recovery of possession of any premises shall be made by any Court or Controller in favour of the landlord a, gainst a tenant:

Provided that the Controller may, on an application made D •

•' .. '

to him in the prescribed manner, make an order for the recovery of possession of the premises on one or more of the following grounds only, namely: -

(b) that the tenant has, on or after the 9th day of June, 1952, sublet, assigned or otherwise parted with the possession of the whole or any part of the premises without obtaining the consent in writing of the landlord;

It is not necessary to refer to cl. (a) or to the several clauses following cl. (b) in this sub-section or to any of the sub-sections of. s. 14.

Looking at sub-s. (!)what we find is that it enacts a bar to

the making of an order or decree for the recovery of possession of any premises by any court or the controller against a tenant. In G other words the jurisdiction of a civil court or even of the Rent Controller to make an order of eviction against the tenant is taken away. The proviso, however, lifts the ban against eviction in certain circumstances one of which is that set out in cl. (b). What is important to bear in mind is that sub-s. (!) is intended to protect the possession of the tenant.

A proviso to a section or a sub-sec- H tion is subservient to the main provision. , It would, therefore, follow that the ban against the eviction is lifted only with respect to the possession of the tenant and not of any other person. In 110 far as persons other than the tenant who may be in possession of the premises which pertain to the . tenancy is concerned, the matter is dealt with by s. 25 and we can leave that out at any rate for the present. Another thing to be noticed about s. 14 is that

.,.

s. MIA INDUSTRIES v. SARUP \Mudholkar, J.) 837

though under s. 2(i)(b) of the Act the word "tenant" includes several other persons in addition to the one with whom there was a contract that expression must be regarded as relating to the same individual in the entire section or at least in subs. (!) of s. 14 wherever it occurs. Thus, if in the first part of sub-s. (I) of s. 14 "tenant" is regarded as meaning as "assignee" of the tenant then it would have to be given the same meaning in cl. (b) of sub-s. (I) of s. 14. That is to say that if there is a sub-letting or a further assignment or any other kind of parting with possession by an assignee of the original tenant (the assignment by the original tenant having been accepted or acquiesed in by the landlord) such assignee can be evicted by the landlord if the action of the assignee of the kind mentioned was taken by him without his written consent.

Now, since sub-s. (!) is a bar to the jurisdiction of the Rent Controller to make an order or decree for recovery of possession against a tenant it must necessarily follow'that the tenant must be D a party to a proceeding before him right up to the date of the making of the decree or order.

Thus, if the tenant dies during the pendency of th~ proceedings and his legal representative is not substituted on the record in his place, the proceeding will abate against him and the Rent Controller will ))ave no jurisdiction to make an order in favour of the landlord. That is to say, the pro- E viso will not be available to the landlord no matter what the tenant had .done if the records of the proceeding became defective because neither the tenant nor his legal representative was any longer "! party to those proceedings.

The reason for this is that the ground upon which the landlord's application is based can be availed of for lifting the ban on the eviction by the Rent Controller F of the tenant alone.

Unless an order is obtained against the tenant there would be no occasiOn for pressing in aid the provisions of s. 25 of the Act.

Where during the pendency of the proceedings before the Rent Controller the tenant dies or makes an assignment of whatever interest he may still have left in the demised premises no difficulty would arise because his legal representative or G assignee could be brought on record in his place. But, it must be admitted, that an anomalous position results where the tenant happening to be a company is dissolved during the pendency of the proceedings and can, therefore, be not represented by any person.

The Act does not contemplate this position nor even does the Code of Civil Procedure and so we have it that the defect in the record H resulting from the dissolution of a company cannot be removed at all.

The result, however, of this is that the jurisdiction of the Controller to proceed with the application of the landlord and therefore to make eventually an order or decree entitling the landlord to recover possession from the tenant ceases to be exercisable. Apparently this curious position arises because of a lacuna in the law.

Such a lacuna cannot be removed by the Courts without assuming the power to legislate-whit:h obviously is beyond the

838 SU!>REl!E

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REPORTS [1965) 3 s.c.R.

competence of any court. The duty of courts is merely to ad- A minister the law as they find it. The only way for remedying the defect is for the legislature to step in and amend the law.

The result of what has happened in this case is that the right which the landlord possessed to evicV the now defunct company from the premises through the. intervention of the Rent Controller B because the company had assigned the demised premises to an other without his consent can no longer be availed of by him. The assignee, who is the appellant before us, can therefore contintte to be in possession of the premises even though he may have been liable to be evicted with the aid of s. 25 had the company not been dissolved in the meanwhile. Whether the landlord has now a a right under the general law to evict the appellant is not a matter upon which I would express an opinion because it does not strictly arise at this stage. For these reasons I would allow the appeal, set aside the orders of the courts below and dismiss the application of the respondent-landlord under s. 14(1)(b) of the Act. In the particular circumstances of the case I would direct that costs D throughout shall be borne by the parties as incurred.

Bachawat, J. Originally one-Amar Sarup owned the land and building at p•1t No. 5, Block 'M', Connaught Circus, New Delhi.

By a lease dated March 1, 1956, Amar Sarup leased the property_ to Allen Berry & Co. (Calcutta) Ltd., (hereinafter referred to as the E tenant) for a period of five years on a monthly rent of Rs. 297 / ·.

Sometime thereafter, Amar Sarup transferred the property to the respondents.

In or about May, 1959, the tenant assigned the tenancy rights. and parted with possession of the whole of the premises to the appellant. On October 6, 1959, the respondents filed an application before the Rent Controller, Delhi praying for F eviction of the tenant and the appellant. The tenant, a limited company, had gone into voluntary Jiq1uidation on September 26, 1959 and it was finally wound up an~ dissolved on October 29,

1960. On its dissolution, the tenant ceased to exist, and by order of the Rent Controller, its name was s)ruck off from the array of parties in the pending application. By an order dated October G 10, 1962, the Rent Controller passed [ order of eviction against the appellant. An appeal by the app llant to the Rent Control Tribunal, Delhi was dismissed on Janu ry 23, 1963, and a second appeal to the Punjab High Court was ismissed on May 10, 1963.

A Letters Patent Appeal from the ordfr dated May I 0, 1963 was dismissed on December II, 1963 on \he ground that the appeal B. was not maintainable. and an appeal to this Court from the last • order was dismissed on January 18, 1965. The appellant has now preferred this appeal from the order dated May 10, 1963 by special leave granted by this Court.

The respondents-landlords instituted the proceeding for eviction of the tenant and its assignee relying on the provisions of

t A

ASIA INDUSTitIES v. ·~UP (Bac/iawat, J.) 839

s. 14(1) of the Delhi Rent Control Act, 1958 (Act 59 of 1958). the relevant portion of which is as follows:

"14()). Notwithstanding anything to the contrary contained in any other law or contract, no order or decree for the recovery of possession of any premises shall be made by any court or Controller in favour of the landlord against a tenant: Provided that the Controller may, on an application made to him in the prescribed manner, make an order for the recovery of possession of the premises on one or more of the following grounds, namely: -

• • •

(b) that the tenant has, on or after the 9th day of June, I 962 sub-Jet, assigned or otherwise parted with the possession of the whole or any part of the premises without obtaining the consent in writing of the land- n lord;"

The case of the landlords is that "the tenant has ... assigned ... the whole of the premises without obtaining the consent in writing of the landlord", and, therefore, the Controller had jurisdiction to make an order for possession.

The tenant is forbidden by s.

I 6(3)(b) of the Act to make the assignment, for contravention of s. !6(3)(b) he is punishable with fine under s. 48(2), and the assignment is a ground for eviction under s. 14(1), proviso, paragraph (b), and so, the landlords submit that the Controller had jurisdiction to make the order for possession against the tenant and its assignee, and on the dissolution of the tenant, against the assignee alone.

Counsel for the appellant contended that the Controller had no jurisdiction to make the order for possession in the absence of the original tenant. I cannot accept this submission.

Both the tenant and the assignee were properly parties to the proceedings for possession, and if the tenant-company bad not been dissolved, the Controller would have been competent to make the order for possession. The tenant bas since been dissolved and ceased to exist, no one can be substituted in its place, and I do not see why the proceedings cannot now continue against the assignee alone.

Paragraph (b) of the proviso to s. 14(1) evidently contemplates proceedings for possession against both the tenant and the assignee, who as a result of the assignment bas been put in possession of the premises. Counsel for the appellant made the alternative submission that paragraph (b) contemplates an assignment by the tenant against whom the order for eviction is made, and as the appellant was the assignee and not the assignor, there was no ground for its eviction under paragraph (b). It is true that other paragraphs of the proviso contemplate the eviction of the tenant on the ground of some act on the part of the tenant against whom

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REPORTS [1965] 3 s.c.R.

the proceeding for possession is. brought, but under paragraph (b), A the assignment is a ground of eviction of both the assigning tenant and the assignee, and in the event of an assignment without the consent in writing of the landlord, the Controller has jurisdiction to make an order for possession not only against the assigning tenant but also against the assignee.

Counsel for the appellant next referred us to cl. 7 of the lease, which is in these terms:

"That, whenever such an interpretation would be necessary

in order to give the fullest scope and effect legally possible to any covenant or contract herein contained, 0 the expression 'The Lessor' hereinbefore used shall include his heirs, executors, administrators and assigns and the expression 'The Lessee' hereinbefore used shall include their representatives and assigns."

Counsel for the appellant submitted that by cl. 7 of the lease, the landlords have given their consent in writing to the assignment. I D cannot accept this submission. The consent in writing within the meaning of paragraph (b) of the proviso to s. 14(1) may be either general or special, but no such consent was given by cl. 7.

The effect of cl. 7 is that the assignee of the lease enjoys the benefits and is subject to the burden of the covenants in the lease, but the clause does not amount to a consent by the landlord to an assign- E ment either expressly or by necessary implication. The assign ment to the appellant was without the consent in writing of the respondents. The Controller rightly passed the order for. possession of the premises.

Counsel for the appellant contended that the contractual term F of the lease not having expired on October 6, 1959, the proceeding before the Controller was not maintainable. We indicated in the course of the argument that this contention not having been raised in the Courts below, we are not inclined to allow the appellant to raise it here for the first time.

G In the result, the appeal is dismissed with costs.

ORDER

In accordance with the opinion of the majority, the appeal is dismissed with costs. The appellant will have a month's time from B today to vacate the premises:

SOUTH ASIA INDUSTRIES PRIVATE. LTD

S. SARUP SINGH AND OTHERS

A. K. SARKAR, J.

R. MUDHOLKAR

R. S. BACHAWAT, JJ.

Delhi Rent Control Act

s. 14(1)

s. 14(1)

Delhi Rent Control Act, 1958

Supreme Court

s. 25

Bachawat

If they are thus entitled to be heard to oppose the order of ev1ct1on, such an order could be made ar:rainst them a1.:::o

[833F-G, H; 834C, E, H-835A]
• 829

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(1965) 3 S.C.R.

Per Bachawat J.(i): Both the tenant and the assignee were pro- A perly parties to the proceedings for possession and if the tenant comf pany had been dissolved, there is no reason why the proceedings could not continue against the assignee alone.

Mudholkar

s. 14(1)

s. 25

Sarkar

C. B. Agarwala

B. R. L. Iyengar

P. N. Chaddha

S. K.

Mehta

K. L. Mehta

S. T. Desai

Gopal Singh

Gurcharan Singh

Harbans Singh

A Sarkar

New Delhi

Allen Berry & Co. <Calcutta) Ltd.

s. 14

Delhi Rent Control Act, 1958

Allen Berry & Co.

High Court of Punjab

s. 14

S. 14

9th day of June, 1952

s. 14

Allen Berry

s. 2(1)

ASIA INDUSTHIES I'. SAHUP

s. 14

s. 18

s. 14

s. 14

section 17

s. 14

s. 14

s. 25

s. 14

s. 14

s. 25

s. 25

Transfer of Property Act

s. 14(1)

s. 14(i)(b)

Delhi Rent Control Act, 1958

s. 14(1)

s. 14

s. 25

s. 14

s. 2(i)(b)

s. 14

s. 14

s. 14

s. 25

the Code of Civil Procedure

s. 25

s. 14(1)(b)

Amar Sarup

Allen Berry & Co. (Calcutta) Ltd.

October 6, 1959

September 26, 1959

October 29,

1960

Rent Control Tribunal, Delhi

Janu ry 23, 1963

Punjab High Court

May 10, 1963

January 18, 1965

s. 14(1)

Delhi Rent Control Act, 1958

s. 48(2)

s. 14(1)

s. 14(1)

cl. 7

cl. 7

s. 14(1)

cl. 7

cl. 7