COMMISSIONER OF INCOME-TAX,

WEST BENGAL, CALCUTTA v.

CALCUTTA HOSPITAL AND NURSING

HOME BENEFITS ASSOCIATION

April 2, 1965

[K. SUBBA RAO, J. C. SHAH AND S. M. S!KRI, JJ.] Indian Income Tax Act 1922, s. 2(6C); Rule 6 to. the Schedule- Profits of mutual insurance business whether can be included in income-Reserve for income tax whether taxable .

The respondent Association was a mutual insurance concern carrying on miscellaneous insurance business. The objects of the Association included provision of help anywhere in the world in respect of expenses of accommodation and treatment in nursing homes for members and their dependents. The members were reqmred to pay a monthly premium. In the assessments for the assessment years 1949-50 to 1953-54 the Income-tax Officer taxed the reserves for payment of income-tax which had been debited to the profit and loss account. The Appellate Assistant Commissioner as well as the Appellate Tribunal upheld the Income-tax Officer's order. The questions arising in the proceedings were; (1) whether the balance of profits of a mutual insurance concern were included in the deHnition of the word 'income' and if so (2) whether reserves for income-tax could be taxed. At the instance of the respondent a reference was made to the High Court. That Court held that the surplus, miscalled profit, arising to the company from the miscellaneous insurance transactions of mutual character was not asse~'Sable under the Indian Income-tax Act and that in any event, the assessee was entitled to deduct the reserves. The Revenue appealed to this Court with certificate.

HELD: (i) In s. 2(6CJ, the Legislature has evinced a clear intention to include the balance of profits under r. 6 within the meaning of the word 'income' in s. 3 of the Indian Income Tax Act, and accordingly such balance of profits is taxable. [639B-C] Ayrshire Employers Mutual Insurance Association Ltd. v. Commissioner of Inland Revenue, 27 T.C. 331, distinguished.

"Profits" in r. 6 cannot be said to mean "taxable profits". Rule 6 refers to 'balance of profits' as disclosed in the accounts submitted to the Superintendent of Insurance. The Superintendent of Insurance is not concerned with taxable profits. What he is concerned with is the balance of profits under the Insurance Act. [638E-Fl

Nor can the term 'profits' in r. 6 be interpreted in the narrow sense of including only profits from investments and other activities of a mutual insurance company, Rule 6 deals with "balance of profits". as a composite thing. It is impossible to dissect this composite thing.

[639A-B] Bombay Mutual Life Assurance Society Ltd. v. Commissioner of Income-tax, Bombay City, 20 I.T.-R 189, affirmed.

(ii) The Insurance Act makes detailed provisions to en, ure the true valuation of assets and the determmcl10n of the true balance of profits" of an insurance business and r. 6 should be construed in ' the light of this background. [639G-H]

> 632

A Pandy an Insurance Company Ltd. Madurai v. The Commissioner cj Income-tax, Madras, _[1965] 1 S.C.R. 367, referred to.

Examining r. 6 in the light of this background, the intention of the ru1e seems to be that the, balance of profits as disclosed by the accounts submitted to the Superintendent of Insurance and accepted by him would be binciing on the Income Tax Officer, exoept that lhe B Income Tax Officer would be entitled to exclude expenditure other than expenditure permissible under the provisions of s. 10 of the Act.

In the pres-=nt case it v...-as common ground bet\\een the parties that the reserves which were added to the balance of profits were not expenditure, The High Court rightly held that the reserve for income tax could not be taed. [639H-640B] c

CIVIL APPELLATE JURISDICTION: Civl Appeals Nos. 206 to 210 of 1964.

Appeals from the judgment and orders dated September 26, 1961 of the Calcutta High Court in Income-tax Reference No. 24 of 1957.

D Niren De, Additional Solicitor-General, Ganapathy Iyer and

R. N. Sachthey, for the appellants.

Sampat Iyengar, B.R.L. Iyengar and D. N. Gupta, for the respondents.

The Judgment of the Court was delivued by Sikri, J. These appeals by certificate granted by the High Court of Calcutta under s. 66(A)(2) of the Indian Income Tax Act, 1922, are directed against t:1e judgment of the said High Court answering two questions referred to it against the Revenue. The questions are :

l J) Whether the profit arising to the assessee company from miscellaneous insurance transactions of mutual character was assessable under the Indian Income Tax Act, and

12) If the answer to question No. (!) is in the affirmative, whether on the facts and in the circumstances of the case the balance of the profits as disclosed in the assessee company's pcofit and loss account after deducting the various reserves should be the taxable profits within the meaning of Section 2(6C) read with Rule 6 of the Schedule of the Indian Income Tax Act.

The relevant facts and circumstances are as follows: The respondent. the Calcutta Hospital and Nursing Home Benefits Association Lim'ted. hereinafter referred to as the assessee, is a mutual insurance concern carrying on miscellaneous insurance business.

The principal objects for which the Associat; on was established were:

(!) By means of insurance on the mutual principle to provide, or help towards provid; ng, anywhere in the world for the expense of accommodation and treatment in hospitals

and nursing homes and of private nursing for members A and their dependants;

(2) To organise insurance on the mutual principle under Rules and Regulations to be framed for the purpose with the object of providing such hospital, med'cal, surgical, nursing and allied services as before mentioned, of supporting JI and assisting hospitals, in Calcutta or elsewhere; of relieving members or their dependants, in whole or in part fro; n the payment of hospital and other charges while in receipt of such hosp'tal, medical, surg'cal, nursing and allied services; and of reimbursing and repaying to members or their dependants in whole or in part, all payments for O such hospital and other charges wl:ich they may have incurred or made wh:le in receipt of such hospital, medical, surgical, nursing and allied services.

The members were required to pay a monthly premium, but there was a waiting period of four months for all benefits other than D maternity, for which the waiting period was one year. Benefits and privileges became available as from the first day of the fifth calenrlar month of registration (in respect of Maternity the 13th month) and contin_ued to be available thereafter so long as the subscriptions were not m arrear.

These appeals are concerned with the assessment years 1949-50 E to 1953-54 and the relevant accounting years ended on December 31, 1948, December 31, 1949, December 31, 1950, December 31, 1951 and December 31, 1952, respectively.

In the statement of the case, the Appellate Tribunal describes the accounts maintained by the assessee thus :

"The assessee's published revenue accounts contained three classifications, viz. (i) miscellaneous insurance business revenue account, (ii) profit and loss account and (iii) profit and loss appropriation account. In the miscellaneous insurance business revenue accounts were mcluded subscriptions from the members, gross premia from the members and from such amounts were deducted general reserve and or contingency reserve. Reserve so made were transferred to the balance sheet as credit accounts. The claims paid or payable and the expenses of management were deducted from this revenue account. The balance of the miscellaneous insurance business revenue account was transferred to the profit and loss account to the credit of which was further added interest on investments and the debits included provision for taxation. interest on loan. contribution to provident fund and depreeiation. The balance of this account being the balance of profit and loss account was transferred to the profit and lo&s appropriation account. Therefrom, in one year, ended

31st December, 1949, further deduction was made against. contingency reserve and the balance either loss or profit was carried forward."

We may now set out the facts regarding 1949-50 assessment.

It ; s not n11cessary to state the facts regarding other assessment years. The Income Tax Officer for the assessment year 1949-50 added the reserve for taxation, Rs. 1000 /-, to the net profit as per profit and loss acount, which showed a profit of Rs. J,653 /-, and after deducting depreciation, he assessed the total income at Rs. 2,651/ -.

On appeal, the Appellate Assistant Commissioner upheld the order of the Income Tax Officer. Following the decis'on of the Bombay High Court in Bombay Mutual Life

A"surance Society Ltd., v. Commissioner of Income Tax, Bombay City,(') he held that the income was assessable to income tax and that under Rule 6 of the Schedule to the Income Tax Act it was permiss'ble for the Income Tax Officer to add the reserves to the income disclosed in the profit and loss account. On further appeal, the Appellate Tribunal found no difficulty in holding that s. 2(6C) of the Income Tax Act, according to its true :nterpretation, included income or the profits of any insurance company of mutual assurance and the said profits shall be taken to be balance of the profits disclosed by the annual accounts. Regarding the reserve, the Tribunal held that the provision for reserve was not an expense to be deducted from the profits disclosed by the assessee company in order to arrive at the prorits within the meaning of r. 6, and the Income Tax Officer was entitled to add back the reserve.

The High Court held that the surplus, miscalled profit, arising to the assessee company from the miscellaneous insurance transactions of mutual character was not assessable under the Indian Income Tax Act and that, in any event, the assessee was entitled to deduct the reserve. The High Court distinguished Bombay Mutual Life Assurance Society Ltd. v.

Commissioner of Incume Tax, Bomhay City(') on the ground that the Bombay decision was a life insurance decision and although it was a mutual life insurance sosiety, nevertheless different and special rules applied to life :nsurance and tht:. rules with which the Bombay decision was concerned were rules 2 and 3 which d; d not apply to mutual insurance other than life. The second point of distinction, according to the High Court, was the very distinctive clauses in the memorandum 0f objects and articles of association of the assessee.

Section 2(6CJ at the relevant time defined 'income' to include " ...... profits of any bus'ness of insurance carried on by a mutual insurance association computed in accordance with Rule 9 in the Schedule." We may mention that another s. 2(6CJ was substituted by Act XV of 1955, and the wording substituted by th; s Act in

(') 20 I.T.R.189.

SUPREME COURT REPGRTS (J 965) S 8.p, R

sub-clause (vii) is "the profits and gains of any business of insurance A carried on by a mutual insurance assoc'ation or by a co-operative society computed in accordance with rule 9 in the Schedule." But nothing turns on the change of the language as far as a mutual insurance association carrying on business of insurance is concerned.

Rule 9 of the Schedule reads thus B

"9. These rules apply to the assessment of the profits of any business of insurance carried on by a mutual insurance association ....... "

Rule 6 with which we are concerned reads thus:

"The profits and ga; ns of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts, copies of which are required under the Insurance Act, 1938, to be furnished to the Superintendent of Insurance after adjusting such balance so as to exclude from it any expend; ture other than expenditure which may under the provisions of Section 10 of this Act be allowed for in computing the profits and ga'ns of a business. Profits and losses on the realisation of investments and depreciation and appreciation of the value of investments shall be dealt with as provided in Rule 3 for the business of life insurance."

The Additional Solicitor General, appearing on behalf of the appellant, contends that the Bombay High Court was right in hold- . ing that "s. 2(6C) ; mports into the definition of 'income', which is to be found in the charging section 3, these profits whch may not be profits in the ordinary sense of the term but which are made profits by reason of Rule 2 of the Schedule because Rule 2 really gives an artificial extens; on to the meaning of the word 'profits' when it says that 'profits and gains shall be taken to be'. Therefore a new class of artificial income is created by this rule and that art;- ficial income is included into the meaning of Sectin 3 by reason of this rule."

Mr. Sampat Ayyangar, learned counsel for the assessee, relying on the decision of the House of Lords in Arvshire Employers Mutual Insurance Association Ltd. v. Commissioner of Inland Revenue,(') contends that the Legislature has not made its intention clear because it has used the word 'profits' in s. 2(6C) under a misapprehension that the surplus of a mutual insurance company

(') 27 T.C. 331.

C. I. T. t'. CAL, HOSP, & '1URSINO HOME BENEFIT ASSN. (Sikfi, J.) 637

A carrying on insurance business is profits. He says that in Arvshire Employers Mutual Insurance Association case(') the Legislature had proceeded on a similar misapprehension and the House of Lords held that s. 31 (I) of the Finance Act, 1933 (23 & 24 Geo.

V. c. 19) did not succeed in making the profits of a mutual insult ranee company taxable. He urges that we should follow this precedent. He relies on the following passage from the speech of Lord Macmillan at p. 347:

' "The structure of Section 31 (I) is quite simple. It assumes that a surplus arising from the transactions of an in- 0 corporated company with its members is not taxable as profits or gains. To render such a surplus taxable it enacts that the surplus, although in fact arising from transactions, of the company with its members, shall be deemed to be something which it !s not, namely, a surplus arising from D transactions of the company with non-members. The hypothes's is that a surplus arising on the transaction of a mutual insurance company with non-members is taxable as profits or gains of the company. But unfprtunately for the Inland Revenue the hypothesis is wrong. It is not E membership or non-membership which determines immunity from or liability to tax, it is the nature of the transactions. If the transactions are of the nature of mutual insurance the resultant surplus is not taxable whether the transactions are with members or with non-members." F He further relies on the observations of Lord Macmillan that "the Legislature has plainly missed fire. Its failure is perhaps less regrettable than it might have been, for the Sub-se.ction has not the meritorious object of preventing evasion of taxation, but the Jes~ laud' G able design of subjecting to tax as profit what the law has consistently and emphatically declared not to be profit." He says that similarly in this case the Legislature has plainly missed fire. In order to appreciate the scope of that decision, it is necessary to set out the relevant part of s. 31 of the Finance Act, 1933. Section 31(1) enact- B ed:

"31.-(1) In the application to any company or society of any provision or rule relating to profits or gains chargeable under Case I of Schedule D (which relates to trades) ...... any reference tG profits or gains shall be deemed to include a reference to a profit or surplus arising from trans-

(1) 27 TC. 331.

actions of the compa, ny or society with its members which would be included in profits or gains for the purposes of that provision or rule if those transactions were transactions w'th non-members, and the profit or surplus aforesaid shall be determined for the purposes of that provision or rule on the same principles as those on which profits or gains aris'ng from transactions with non-members would be so determined."

The Section adopted the device of a deeming provision. The profits arising from the transact'ons of a company or society with its members were deemed to be prots arising from transactions with non-members. Parliament assumed that the latter were taxable. As this hypothesis was wrong, Parl'ament failed in its objective. But the Indian Legislalure did not adopt any deeming device.

It defined 'income' to include profits of any bus'ness of insurance carried on by a mutual insurance assoc!ation. What are those profits is then explainea by reference to the Schedule. The effect of this in substance 's to incorporate r. 6 into the definition. If the legisla-· ture had defined income to include profits of insurance carried on by a mutual insurance association computed according to r. 6, very little would have remained arguable.

It 's, however, urged that in r. 6 also the word 'profits' means taxable profits. But r. 6 speaks of balance of profits as disclosed in the accounts submitted to the Superintendent of Insurance. Tre Superintendent of Insurance is not concerned with taxable profits.

What he is concernd with, inter alia, is the balance of profits for the purpme of the Insurance AG!.

It is then urged that in the definition the word 'surplus' should have been used instead of profits. But the word 'surplus' has a technical significance in the Insurance Act, and it seems to us that it would have been inexpedient to use the word 'surplus'. At any rate. r. 6 would then have been drafted differently.

It is finally urged that this is a taxing statute and we should give a str'ct construction to the definition. The definition could still operate if we interpret it in a narrow sense as to include profits from investments and other activities of a mutual insurance company. It

is said that this definition was inserted to make it clear that such profits would be taxable. We cannot acc; ede to this contention. It B was well established that such profits would be taxablf; apartfrom the new definition. We cannot understand why it was necessary

r, J, T. V, CAL, HOS!'. & NURSING HOME BENEFIT ASSN. (Si/cri, J.) 639

A to make it doubly clear. Moreover, r. 6 deals with balance of profits, which would include profits arising from the business of insurance of a mutual character. It dea'.ls with balance of profits as a compcsite thing. It is impossible to d; ssect this composite thing. If we were to accede to the assessee's contention, the definition would serve

no purpose whatsoever.

It seems to us that the Legislature has evinced a clear intention to include the balance of profits as computed under r. 6 within the word 'income' in s. 3 of the Income Tax Act, and accordingly such balance of profits is taxable.

We are unable to agree with the High Court that the Bombay case is distinguishable in principle. It is true that the Bombay High Court was concerned with r. 2, but when we go to the schedule and find out what is the balance of profits or surplus that has been made taxable, it does not make any difference to the construction of s. 2(6C) whether it is r. 2 that is applied or r. 6. Therefore, disagreeing with the High Court, we answer the first question in the affirmative.

This takes us to the second question. The answer to this question depends on the true interpretation of r. 6. It seems to us that on its language the Income Tax Officer is bound to accept the balance of profits d; sclosed by the annual accounts, copies of which have been submitted to the Superintendent of Insurance. He can only adjust this balance so as to exclude from it any expenditure other than expenditure which may under the provisions of s. 10 be allowed for in comput; ng the profits and gains of a business. We are not concerned here with the latter part of r. 6 dealing with profits and losses on the realisation of investments, and depreciation and appreciation of the value of investments. This Court examined the provisions of the Insurance Act in connection with the Schedule in Pandvan Insurance Company Ltd., Madurai v. The Commissioner

of Income-Tax, Madras(') and arrived at the conclusion that the Insurance Act "makes detailed provisions to ensure the true valuation of assets and the determination of the true balance of profits of an insurance business" and that r. 6 should be construed in the light of this background.

Examining r. 6 in the light of this background, it seems to us . that the intention of the rule is that the balance of profits as disclosed by the accounts submitted to the Superintendent of Insurance and accepted by him would be binding on the Income Tax Officer,

(') [1965] I S.C.R. 3C7.

except that the Inco:ne Tax Officer would be entitled to exclude expenditure other than expenditure perm'ssible under the provisions of s. JO of the Act. It is common ground in this case that the ; eserves which were added to the balance of profits were not expenditure.

Accordingly, agreeing with the H; gh Court, we answer the. second question in the affirmative.

In the result, the appeals are accepted in part. Parties will bear their own costs in this Court.

Appeals partly allowed.

April 2, 1965

K. SUBBA RAO, J.

C. SHAH

Indian Income Tax Act 1922

s. 2(6C)

Sable under the Indian Income-tax Act

Insurance Act

Insurance Act

[1965] 1 S.C.R. 367

s. 10

Calcutta High Court

D Niren De

Ganapathy Iyer

R. N. Sachthey

Sampat Iyengar

B.R.L. Iyengar

D. N. Gupta

Sikri

s. 66(A)(2)

Indian Income Tax Act, 1922

Section 2(6C)

Calcutta

December 31, 1948

December 31, 1949

December 31, 1950

December 31, 1951

December 31, 1952

31st December, 1949

Bombay High Court

s. 2(6C)

S 8

Insurance Act, 1938

Section 10

s. 2(6C)

section 3

Sampat Ayyangar

s. 2(6C)

Sikfi

s. 31

Finance Act, 1933

Macmillan

Section 31

s. 31

Finance Act, 1933

Section 31(1)

Schedule D

Parliament

Insurance Act

s. 3

Bombay

s. 2(6C)

s. 10

Insurance Act

Insurance Act


GURBINDER SINGH AND ANOTHER v.

LAL SINGH AND AN01BER February 12, 1965 (K. SOBBA R.Ao, R.AGHUBAR DAYAL, J. R. MUDHOLKAR,

R. S. BACHAWAT AND V. RAMASWAMI, JJ.]

Indian. Limitation Act (9 of 1908), s. 2(4) and Arts. 142 and 144- Scope of.

One Mst. Raj Kaur was holding certain lands on different tenures under the Raja of Faridkot. She had two daughters. She adopted the son of one of them and put him in possession of all C the lands: He transferred a part of the lands to the second respondent who was son of the other daughter of Raj Kaur. After Raj Kaur's deaJth the Raja filed suits for possession of the land, and in execution of the decree he obtained in those suits, took possession of the entire land, in October, 1938. He then transferred the land, but the transferee was dispossessed by the appellants in June

1950, in execution of a decree they obtained, in a suit for pre- D emption filed by them against the transferee. The second respondent's mother had died in 1938 and her sons the first and seco11d respondents filed a suit for possession of the entire land in February 1950, as heirs of Raj Kaur, but it was decreed only to the extent of their ha!£ share, and the decree was affirmed by the High Court.

In the appeal to this Court it was contended that the suit was E governed either by Art. 142 or Art. 144 of the Indian Limitation Act,

1908, and on either basis, was barred by time.

HELD: (i) Article 142 would not be attracted to the suit.

In order thalt the article may be attracted the plaintiff must initially have been in possession of the property and should have been dispossessed by the defendantor some one through whom the defendant claims or alternatively, the plaintiff should have discontinued possession. It was no one's cae it.hat the first respondent was ever in possession of the property. As regards the second respondent's possession at 011e time of a part of the property, it was by reason of a transfer by the adopted son. The claim in the instant case, however, was by succession, under a different title altogether, and so it must be held that the plaintiffs-respondents, as heirs of Raj K;!ur, were never in possession of the land. [65H] G.

(ii) Article 144 was applicable to the suit, but the suit was

not barred by time.

Adverse possession against the respondents started in October. 1938, when the Raja took possession of the land. To that adverse possession could be added that of his transferee and that of the appeliants who had pre-empted the lands under the decree obtained by them against the transferee. Bult, the sum total of the adverse possession of all those persons at the date of the respondent's suit would be less than 12 years. The adverse possession of the adopted son could not be tacked on to the adverse possession of the Raja and those who claim through him, because, in a suit to which Art 144 is attracted,_ the burden is on the defendant to establish that he was in adverse possession for 12 years before the date of suit, and for computation of that period, he can avail himself of the adverse possession of any person or persons through whom he claims but not the adverse possession of independent trespassers. Th7 starting point of limitation in Art. 144 is the date when A the possession of the defendant becomes adverse to the plaintiff The

ist of te definition .of the word "defendant" in s. 2(4) of th~ Act

is the ex1ste.nce of a JUra_l relationship between the different persons referred to m. the defimt10n, and there can be no jural relationship between two mdependent trespassers. [66 F-H; 68C; 70B].

Ramayya v. Kotamma, (1921) I.L.R. 45 Mad. 370, explained.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 431of1963.

B Appeal from the judgment and decree dated May 21 1958 of the Punjab High Court in Civil Regular Second Appeal No. 263-P of 1952.

Tarachand Brijmohanlal, for the appellants.

B. R. L. Iyengar, S. K. Mehta and K. L. Mehta, for the resa pondents.

The Judgment of the Court was delivered by Mudholkar, 1. The only question for consideration in this appeal by certificate from the High Court of Punjab is whether the suit for possession instituted by the respondents Lal Singh and D Pratap Singh is within time. According to the appellants the suit is governed not by art. 1_41 of the Limitation Act, 1908 (9 of 1908) as held by the High Court but either by art. 142 or by art. 144 and is on that basis barred by time. While it is conceded on behalf of the respondents that the suit is not governed by art. 141 it is contended that it is governed by art. 144 and not by art. 142 and is l!l within time. In order to appreciate the contentions it is necessary to set out the relevant facts which are no longer in dispute.

Mst. Raj Kaur was in possession of 851 kanals 18 marlas of land situate in village Dhaipai in the former State of Faridkot. Out of this.land 481 kanals .7 marlas was in her possession as occupancy F tenant, the landlord being the Raja of Faridkot while the remaining land was held by Smt. Raj Kaur as Adna Malik, the Aala malik again being the said Raja of Faridkot. In Samvat 1953 (A.D.

~896) Smt. Raj Kaur who had two daughters Prem Kaur and Mahan Kaur, adopted the farmer's son Bakshi Singh and put him in possession of the whole of the land. Bakshi Singh transferred G part of the land to Pratap Singh, second son of Mahan Kaur, who is respondent No. 2 in the appeal. Mahan Kaur had one more son Lal Singh and he is respondent No. 1 in this appeal.

In the year 1915 the Raja of Faridkot filed a suit against Bakshi Singh and Raj Kaur in the court of Sub-Judge, Faridkot for a declaration that the adoption of Bakshi Singh was invalid. B This suit was decreed on February 9, 1916. Raj Kaur died on .Aug, ust 14, 193'0. On February 19, 1934 the Raja filed two suits against Bakshi Singh and Pratap Singh for possession of the aforementioned lands, one pertaining to the land of which Raj Kaur was occupancy tenant and the other for that of the land of which she was Adna malik. These suits were decreed on March 12, 1938 and in execution of the decrees obtained in these suits the Raja

GUBBINDER "· LAL SINGH (Mudholkar, J.) 65

A took possession of the entire land in October 1938. On April 7, 1948 he sold the entire land along with some other land to one Kehar Singh for Rs. 84,357-5-0. Thereupon Gurbinder Singh and l:lalbinder Singh, who are the appellants before us, filed a suit for pre-emption of the land against Kehar Singh and obtained a decree m their favour. In execution of that decree they got possession of B the land on June 22, 1950.

On October 20, 1948 Mst. Prem Kaur instituted a suit for possession of the entire land on the ground that she was the legal heir of Raj Kaur against Kehar Singh and the Raja of Faridkot.

Later she impleaded the appellants as defendants to that suit and c discharged the Raja of Faridkot. On February 17, 1950, Lal Singh, respondent No. 1, filed a suit for possession of the entire land against the Raja of Faridkot and Kehar Singh. To that suit he joined Prem Kaur and Pratap Singh as defendants. Later, however, Pratap Singh was transposed as a plaintiff. Both the suits were consolidated and were tried together. The suit of Prem Kaur was dis- D m 'ssed by the trial court but that of the respondents was decreed to the extent of half share in the property. Prem Kaur and the appellants preferred appeals before the District Court but that court dismissed both the appeals. A second appeal was taken by the appellants as well as by Prem Kaur to the High Court and cross-objections were preferred by the respondents. The High E Court dismissed these appeals as well as the cross-objections.

In the absence of any appeal by Prem Kaur against the decision of the H'gh Court confirming the dismissal of her suit we have only to consider the claim of the respondents to half the property left by Raj Kaur. Their claim was resisted by the appellants on several grounds in the courts below. Before us, however, only F one grqund is pressed and that is, the suit is barred by limitation.

As already stated, according to the appellants, the suit is governed either by art. 142 or by art. 144 of the Limitation Act and not by art. 141. Mr. Iyengar for the.respondents, does not rely upon art. 141 at all. He also contends that art. 142 has no applicat'on and that the suit is governed by art. 144 only. Mr.

Tarachand G Brijmohanlal for the appellants also relied on art. 144 in the alter

native.

In order that art. 142 is attracted the plaintiff must initially have been in possession of the property and should have been dispossessed by the defendant or someone through whom the defen B dants claim or alternatively the plaintiff should have discontinued possession. It is no one's case that Lal Singh ever was in possession of the property. It is true that Pratap Singh was in possession of part of the property-which particular part we do not know-by reason of a transfer thereof in his favour .by Bakshi Singh. In the present suit both Lal Singh and Pratap Singh assert their claim to property by success'on in accordance wit11 the rules contained in the dastur ul amal whereas the possession of Pratap Singh for some

time was under a different title altogether. So far as the present A suit is concerned it must, therefore, be said that the plaintiffsrespondents were never in possession as he'rs of Raj Kaur and consequently art. 142 would not be attracted to their suit.

It is in these circumstances that we have to consider whether under art. 144 the suit is barred by time. The starting point of limitation set out in col. 3 of art. 144 is as follows: B "When the possession of the defendant becomes adverse to the plaintiff".

To recapitulate the events, Raj Kaur died on August 14, 1930 whereup;:m under dastur-u/-ama/ her daughters Prem Kaur and Mahan Kaur became entitled to the possession of the land. Accord- C ing to the appellants the daughters succeeding their mother took an absolute estate. Assuming th3t that is so, what would be the

posit'on? As already stated. Bakshi Singh and Pratap Si11gh were in possession. of the entire land belonging to Raj Kaur.. Ignoring for the time being their relationship with Raj Kaur, what can be said is that they were adversely 'n possession to the true owners, D that is, Prem Kaur and Mahan Kaur, daughters of Raj Kaur as from August 14, 1930. Before, however, they could perfect their title against Prem Kaur and Mahan Kaur the Raja instituted a suit for possession, obtained a decree thereunder and actually entered into possession to the entire land in October, 1938. Though E the Raja obtained possession under a decree of the coµrt he was in the eye of law nothing but a trespasser in so far as the heirs of Raj Kaur, her daughters Prem Kaur and .Mahan Kaur were concerned. Mahan Kaur had in fact died.on July 13, 1938, i.e. before the Raja obtained possession. Therefore, it is more accurate to say ihat the possession of the Raja became adverse to Prem Kaur and to the respondents Lal Singh and Pratap Singh as from October, F

1938. Kehar Singh who was a transferee from the Raja stood in the Raja's position and got the benefit of the Raja's adverse possession. Similarly the appellants who had pre-empted these lands tinder the decree obtained against Kehar Singh got advantage not only of the Raja's adverse possession but also of Kehar Singh's.

The sum total of the adverse possession of these three persons at 11 the date of the respondent's suit would, however, be less than 12 years and so the respondents' suit could not be said to be barred by art. 144 if the starting point of limitation is taken to be some day in October, 1938.

Mr. Tarachand Brijmohanlal, however, advanced an interest- B ing argument to the effect that if persons entitled to immediate possession of land are somehow kept . out of possession-may be by different trespa.ssers-for a period of 12 years or over, their suit will be barred by time. He points out that as from the death of Raj Kaur her daughters, through one of whom the respondents claim, were kept out of possession by trespassers and that from the date of Raj Kaur's death right up to the date of the respondentS'

GURBINDER v. LAL SINGH (Mudholkai, J.) 67

A suit, that is, for a peri?d o~ nearly 20 years trespassers were in possession of Mahan Kaur's, and after her death, the respondents' share in the land, their suit must therefore be regarded as barred by time. In other words the learned counsel wants to tack on the adverse possession of Bakshi Singh and Pratap Singh to the adverse possession of the Raja and those who claim through him. In sup- B port of the contention reliance is placed by learned counsel on the decision in Ramayya v. Kotamma('). In order to , appreciate what was decided in that case a brief resume of the facts of that case is necessary. Malla battudu, the last male holder of the properties to which the suit related, died in the year 1889 leaving two daughters Ramamma and Govindamma. The former died in 1914. The latter C surrendered her estate to her two sons. The plaintiff who was a transferee from the sons of Govindamma instituted a suit for rer covery . ., f possession of Mallabattudu's property against Punnayya, the son of Ramamma to whom Mallabattudu had made an oral gift of his properties two years before his death. Punnayya was minor at the date of gift and his elder brother Subbarayudu D was managing the property on his behalf. Punnayya, however, died in 1894 while still a minor and thereafter his brothers Subbarayudu and two others were in possession of the property. It would seem that the other brothers died and Subbarayudu was the last surviving member of Punnayya's family.

Upon Subbarayudu's death the properties were sold by his l!l daughters to the third defendant. The plaintiffs-appellants' suit failed on the ground of limitation. It was argued on his behalf in the second appeal before the High Court that as the gift to Punnayya was oral it was invalid, that consequently F'unnayya was in possession as trespasser, .hat on Punnayya's death his heir would be his mother, that as Subbarayudu continued in possession Subbarayudu's I' possession was also that of a trespasser, .that as neither Subbarayudu nor Punnayya completed possession for 12 years they could not tack on one to the other and that the plaintiff claiming through the nearest reversioner is not barred. The contention for the respondents was that there was no break in possession so as to revest the properties in the original owners, that Punnayya and Subbarayudu cannot G be treated as successive trespassers and that in any event the real owner having been out of possession for over 12 years the suit was barred by limitation. The High Court following the decision of Mookerjee J. in Mohendra Nath v. Shamsunnessa(') held that time begins to run against the last full owner if he himself was dispossessed and the operation of the law of limitation would not B 1be arrested by the fact that on his death he was succeeded by his widow, daughter or mother, as the cause of action cannot be prolonged by the mere transfer of title. It may be mentioned that as Mallabattudu had given up possess; on to Punnayya under an inyalid gift art. 142 of the Limitation Act was clearly attracted. The

(') (\921) I.L.R. 45 Marl. 370.

(') ('941) 21C.L.J.157, 164.

sons of Govindamma from whom the appellant had purchased the A suit properties claimed through Mallabattudu and since time began to run against him from 1887 when he discontinued possession it did not cease to run by the mere fact of his death. In a suit to which that article applies the plaintiff has to prove his possession within 12 years of h; s suit. Therefore, so long as the total period of the plaintiff's exclusion from posses&ion is, at the date of the plaintiff's B suit, for a period of 12 years or over, the fact that this exclusion was by different trespassers will not help the plaintiff provided there was a continuity in the period of exclusion.· That decisi9n is not applicable to the facts of the case before us. This is a su; t to which art. 144 is attracted and the burden is on the defendant to establish that he was in adverse possession for 12 years before the date C of suit and for computation of this period he can avail of the adverse possession of any person or persons through whom he claims --b.ut not the adverse possession of independent trespassers.

In so far as the adverse possession of Bakshi Singh and Pratap Singh is concerned it began upon the death of Raj Kaur and not during her life time. That being so, art. 142 cannot possibly be D attracted whereas the Madras decision turns upon a case to which art. 142 applied. No doubt, there, on behalf of the plaintiff-appellant it was argued on the authority of Agency Co. v. Short(') that in cases of successive trespassers limitation ceases to run against the lawful owner of the land after an intruder has relinquished his possession; that on the death of Punnayya it must be taken that E there was an interruption in the possession and that there \Vas an interval between PUnnayya's death and Subbarayudu's raking possession in his own r; ght however minute the interval may _be and that except in the case of succession or devolution all other cases would fall within the principle enunciated in Agency Co's F , case('). The learned Judges did not accept the contention but relying upon the decision in Willis v. Earl Howe(') and a passage in Dart on Vendors and Purchasers, Vol. I 7th ed. p. 474 held that the suit was barred by time. It may be pointed out that on Punnayya 's death h's mother would be the h.eir and that it was established in that case that she was living with his brother S'ubbarayudu and his G other brothers: Subbarayudu would,. therefore, be a presumptive reversioner on the death of hismother and there was evidence to show that she was a consenting party to Subbaryudu's enjoying the properties after Punnayya's death. It is under these circum• starices that the H; gh Court found it difficult to hold .that there was a fresh trespass by Subbarayudu after the death of Punnayya.

H On the other hand, according to them, there was a continuity of p:JSsession because the person w, ho continued to hold possession

W'.lS the presumptive heir of the deceased. From the facts of the case it will be clear that what was tacked on was not the possession of independent passers at all. In the case before us what

(1) [1888] 13 A.C. 793.

(1) [1893] 2 Ch. 546.

GURBINDER v. LAL SINGH (Mwlhalkar, J.) 69

is be'ng sought to be tacked on to the possession of the Raja and those who claim through him_ is the possession of Bakshi Singh and Pratap Singh. The Raja in his suit against Bakshi Singh challenged the right of Bakshi Singh and Pratap Singh to possession on the ground that they were trespassers. As it has turned out, the posession of the Raja, though obtained under the decree of a civil court, was in itself a trespass on the rights of the persons who were in law entitled to possession of property. Thus this is a case of one trespasser trespassing against another trespasser. There is no connection between the two and, therefore, in Jaw their possession cannot be tacked on to one another. As pointed out by Varadachariar J., in Rajagopala Naidu v. Ramasubramania Ayyar(').

"Further the doctrine of independent trespassers will come in only when the scond man trespasses upon the possession of the first or the first man abandons possession."

Where it applies the pr'nciple laid down in Agency Co's(') casewould apply and preclude the tacking of possession of successive trespassers. The following observations of Lord Macnaghten in that case are pertinent and run thus:

"They are of opinion that if a person enters upon the land of another and holds possession for a time, and then, without having acquired title under the statute, abandons possession. the rightful owner, on the abandonment, is in the same position in all respects as he was before the in trusion took place. There is no one against whom he can bring an action. He cannot make any entry upon himself.

There is no positive enactment, nor is there any principle of law, which requires him to do any act, to issue any notice or to perform any ceremony in order to rehabilitate himself. No new departure is necessary. The possession of the intruder, ineffectual for the purpose or transferring t'tle, ceases upon its abandonment to be effectual for any purpose. It does not leave behind it any cloud on the title of the rightful owner, or any secret process at work for the possible benefit in time to come of some casual interloper or lucky vagrant. There is not, in their Lo.rd~ ships' opin'on, any analogy between the case supposed and the case of successive disabilities mentioned in the statute. There the statute 'continues to run' because there is a person in possession in whose favour it is running."

This view has not been departed from in any case. At any rate none was brought to our notice where it has not been followed. Apart from that what we are concerned with is the language used by the legislature in the third column of art. 144. The starting point of limitation there stated is the date when the possession of

(') A.I.R. [1935] Mad. 449.

the defendant becomes adverse to the plaintiff. The word "de- A fendant" is defined in s. 2(4) of the Limitation Act thus:

" 'defendant' includes any person from or through whom a defendant derives his lial:dity to be used".

No doubt. this is an inclusive definit'on but the gist of it is the existence of a jural relationship between different persons. There B can be no jural recationship between two independent trespassers.

Therefore, where a defendant in possession of property is sued by a person who has title to it but is out of possession what he has to show in defence is that he or anyone through whom he claims has been in pssession for more than the statutory period. An independent trespasser not being such a person the defendant is not c entitled to tack on the previous possession of that person to his own possession. In our opinion. therefore, the respondents' suit is within time and has been rightly decreed by the courts below. We dismiss this appeal with costs.

Appeal dismissed.

GURBINDER SINGH AND ANOTHER v

February 12, 1965

R.AGHUBAR DAYAL, J.

R. MUDHOLKAR

R. S. BACHAWAT

V. RAMASWAMI, JJ.

Limitation Act

s. 2(4)

Arts. 142 and 144

Raj Kaur

Art. 142

Art. 144

Indian Limitation Act

Article 142

Raj K;!ur

Article 144

Raja

Art 144

Art. 144

s. 2(4)

Tarachand Brijmohanlal

B. R. L. Iyengar

S. K. Mehta

K. L. Mehta

Mudholkar

High Court of Punjab

Lal Singh

D Pratap Singh

art. 1

Limitation Act, 1908

art. 142

art. 144

art. 141

art. 144

art. 142

Raj Kaur

Dhaipai

Faridkot

Prem Kaur

Mahan Kaur

Bakshi Singh

Pratap Singh

Mahan Kaur

Lal Singh

Sub-Judge, Faridkot

February 9, 1916

February 19, 1934

March 12, 1938

Raja

GUBBINDER

LAL SINGH

April 7, 1948

Kehar Singh

Gurbinder Singh

lalbinder Singh

June 22, 1950

October 20, 1948

Prem Kaur

February 17, 1950

Kehar Singh

art. 142

art. 144

Limitation Act

art. 141

Iyengar

art. 141

art. 142

art. 144

Tarachand G Brijmohanlal

art. 144

art. 142

art. 142

art. 144

art. 144

August 14, 1930

Pratap Si11gh

.Mahan Kaur

July 13, 1938

Pratap Singh

art. 144

Tarachand Brijmohanlal

Malla battudu

Ramamma

Govindamma

Mallabattudu

Punnayya

Subbarayudu D

Subbarayudu

F'unnayya

Mookerjee

Punnayya

art. 142

Limitation Act

art. 144

art. 142

Madras

art. 142

PUnnayya

S'ubbarayudu

Subbaryudu

Varadachariar

Macnaghten

art. 144

s. 2(4)

Limitation Act


KALOORAM GOVINDRAM

COMMISSIONER OF INCOMETAX, MADHYA PRADESH,

NAGPUR

Ap; il 5, 1965

[K. SUBBA RAo, J. c. SHAH AND s. M. SIKRI, JJ.]

Indian Income-tax Act, 1922 (11 of 1922), s. 10(2! '.'i-P""1titioo, of Hindu joint fami!y-Asset auctioned between dividing brances -Value on which depre(!iation to be allowed-Whether on auction price or on original cost to the erstwroile larger family.

On partition being effected through a suit, a Hindu joint family who has only an interest in the entire joint family property_ ae>- family. The preliminary decree passed by the Court determmed 10/16 as the share of the appellant family and 6/16 as that of the other branch. Those assets of the erstwhile larger joint family which could not be physka!ly divided were auctioned between the two branches and in this manner a sugar mill was purchased for 34 lacs by the appellant family. In Income-tax proceedings depreciation under s. 10(2) (vi) of the Indian Income-tax Act, 1922 was claimed on the above valuation Qf 34 lacs. The claim was rejected by the Income-tax Officer as well as the Appellate Assistant Commissioner. on the ground that the value for th, e purpose of depreciation was not the price determined at the family auction, but the original cost to erstwhile larger joint family. The Tribunal held that the 6/16 share of the other branch was purchased at the auction and its value had to be taken as the basis of the price determined at the auction, but the appellant family's own share of 10/16 was not purchased at the auction and therefore had to be valued at the original cost to the larger joint family. In reference, the High Court held that the distinction made by the Tribunal was wrong and that the shares cxf both branches had to be valued on the basis of the original cost to the

l<trger family. Appeal was filed before this Court with certificate.

HELD: Per Subba Rao and Sikri, JJ. It may be that in strict legal theory partition may not involve a transfer, but the substance of the transaction is that an erstwhile member of a joint Hindu family who has only an interest in the entire joint family property acquires an absolute title to a specific property. The cost of the property to the member at the date of partition would be the value given to it for the purpose of allotment, provided it was real, or the price at which he purchased it in auction, or the value of it ascertained otherwise. [64'7A-C]

In the case of assessees acquiring a property by purchase, gift, bequest, or succession, courts have held that the cost of the property to the assessee was not the original cost of it to his predecessor bu1 its actual cost to him at the time of the purchase, gift, bequest or succession. In substance there is no difference in the matter of ascertaining the cost of an asset to an asses.see whether he is a donee, pur ... chaser, legatee, successor, or a divided member of" a joint Hindu family. [646D; 647A]

Gil

6-12 SUPH.F.ME COUR'r

REPORTS [1965] 3 s.c.n.

Commissioner of Income-tax, Madras v. The Buckingham & Carnatic Company, Ltd., Madras (1935) 3 I.T.R. 384(P.C.), Jagata Coal Co. Ltd. v. Commissioner of Income-tax, West Bengal (1959) 36 I.T.R.

521 (S.C.), Indian fron & Steel Co. Ltd. v. Commissioner of Incometa.~. Bengal, (1943) 11 I.T.R. 328 (P.C.), Francis Vallabaravar v. Commissioner of Income-tax, Madras (1960) 40 I.T.R. 426 and Commissioner of Income-tax, Bombay v. Solomon & Sons (1933) 1.I.T.R.

B 324, referred to.

Commissioner of Income-tax, U.P. & C.P. v.

Seth Mathuradas Mohta, (1939)7 I.T.R. 160, disapproved.

In the present case the valuation given to the property was not notional but a real one; indeed the property was sold in the open auction between the members of the larger joint family and the value fetched thereunder entered into the scheme of partition.

[647 C-DJ Therefore, even in respect of the appellant's own share of 10/16, the valuation for the purposes of s. 10(2) (vi) had to be on the basis of the price which the appellant bid at the auction.

Per Shah, J. (dissenting). By the preliminary decree the appellant family became entitled to a 10/16th share in every item of the property of the larger joint family; the other branch tecame entitle to the remaining i.e. 6/16th share in each item. The appellant being already owner of 10/16th share could not purchase the same at the auction. In substance the appellant purchased, by beinii declared the highest bidder, the remaining 6/16th share belonging to the other branch. [650 C-E]

The asset in question, viz, the sugar factory, at all material times remained a business asset. Acquisition of 'the interest of the other branch by the appellant did not alter the character or use of the as.set; nor did it make any fundamental alteration in its value to the appellant so as wholly to displace its original value even in respect of its share which it continued to own. [654 B-D]

The '.l'ribunal therefore, had rightly held that in respect of the 6/16th share of the other branch, depreciation had to be allowed to the appellant on the basis Qf the auction price. The High Court wrongly interfered with this finding the Revenue not having appealed against it.

On the appellant's 10/16th share, which the appellant could not be said to have purchased, depreciation had to be calculated on the basis of original cost to the larger family. (654 E-G]

Case law discussed.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 41 of 1964.

Appeal from the judgment and order dated April 10, 1961 of the Madhya Pradesh High Court in Misc. Civil Case No. 154 of 1959.

N. D. Karkhanis, Rameshwar Nath, S. N. Andley and P. L.

Vohra, for the appellant.

C. K. Daphtary, Attorney-General, R. Ganapathy Iyer and R. N. Sachthey, for the respondent.

Mjs. KALOORAM v. C.I.T. (Subba .Rao, J.) 6~3

The Judgment of Subba Rao and Sikri, JJ. was delivered by Subba Rao, J. Shah, J. delivered a dissenting Opinion.

Subba Rao, J. The appellant is a Hindu undivided family carrying on business at Jaora. It was a branch of a larger joint B Hindu family composed of two branches-one was Govindram and the members of his family and the other was Bachhulal and the members of his family. In the year 1942 there was a partition suit between the said two branches and under the decree made therein each item of the property was put up for sale by competitive

c bidding. One of the items of the said property, the sugar factory at Jaora, was knocked down ii:! favour of" Govindram for a sum of Rs. 34 lakhs. After all the items of the property were sold to one or other of the parties, final adjustments were made by cash payment. After the said partition Govindram and the members of his branch of the family continued to run the factory. For the assessment year 1950-51 the Income-tax Officer, Ratlam, as- D sessed the appellant in respect of the income from the said factory. The appellant contended that it was entitled to depreciation as provided under s. I 0(2) (vi) of the Income-tax Act, 1922, hereinafter called the Act, on the said amount of Rs. 34 lakhs, being the amount for which it purchased the factory in the auction that was held pursuant to the partition decree. The Income-tax Officer E and, on appeal, the Appellate Assistant Commissioner rejected that contention and held that the value to be adopted for the purpose of depreciation would be the original cost of the said factory to the larger joint family. On a further appeal, the Incometax Appellate Tribunal held that so far as the 10 /16th share in

. H

the factory which belonged to the appellant was concerned the cost to the appellant was the original cost to the larger branch; and so far as the 6 / l 6th share of Bachhulal's branch in the said factory was concerned the original cost was the amount for which the appellant's branch purchased the 6/16th share of the other branch, i.e., Rs. 12,75,000/-. The following question was referred by the Tribunal to the High Court of Madhya Pradesh: ' "Whether on the facts and in the circumstances of this case, the assessee Hindu Undivided Family is entitled to claim depreciation in respect of the assets of the old Hindu Undivided Family on the basis of the original cost to the family or on the basis of the valuation at which the assessee took over the assets" . The High Court held that the depreciation allowance should be omputed on the basis of the original cost to the larger joint family and not on the basis of the valuation at which the assessee to?k over the assets. The assessee, by certificate granted by the High Court, has preferred the present appear to this Court against that order.

Te .only question that arises in this appeal is whether the deprectal!on allowance should be computed in respect of the

644 SUPREME COUB'l' BEPOR1'S [1965] 3 s.c.R.

10 / 16th share in the factory on the basis of the original cost to the larger joint family or on the basis of the valuatio~ at wh_ich the assessee took over the factory. The answer to this question turns upon the relevant provisions of the Act and they read: Section 10(2): Such profits or gains shall be computed after making the following allowances, namely: -

(vi) in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent, where the assets are ships other than ships ordinarily plying on inland waters, to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other case, to such percentage on the written down value thereof as may in any case or class of cases be prescribed :

Section 10(5) of the Act defines "written down value" thus:

"written down value" means-

(a) in the case of assets acquired in the previous year, the actual co; t to the assessee :

(b) in the case of assets acquired before the previous year the actual cost to the assessee less all • depreciation actually allowed to him under this Act or any Act repealed thereby, or unde~ executive orders issued when the Indian Income-tax Act, 1886 (II of 1886) was in

force".

F It is not disputed that no previous depreciation was allowed under any Act repealed by the Indian Income-tax Act, 1922, or under any executive order issued under the Indian Income-tax Act, 1886. Therefore, the appellant would be entitled to depreciation allowance on the original cost to it of the factory. What is the G original cost of the 10/ 16th share in the factory to ilie appellant?

Two expressions in cl. (vi) of sub-s. (2) of s. 10 give the clue to the answer, and they are, (i) "being the property of the assessee", and

(ii) "the original cost thereof". Therefore, depreciation is given in respect of property of an assessee on the original cost of the said property to him. The factory is the property of the assessee. What H was the original cost of the property to the assessee? Admittedly Govindram purchased it in the auction for Rs. 34 lakhs. Ordinarily that would be the cost of the factory to the assessee. It was conceded. that it would be so if a third party had purchased it. But as the auction was only a step in the partitioning of the property of the .larger family among the branches composing it, Govindram did not purchase it but only got it in the partition. lt was then

M,:s. KALOORAM v. c.1:r. (Subba Rao, J.) 641>

A contended that partition did not involve a1.'y c?nveyace or transfer. but it was only a procesdn and by which iomt enioyment was transformed into an enjoyment in severality and that, therefore, the appellant did not get any new title to the factory or at any rate to the 10/ 16th share therein, but its title was traceable to the ownership of the larger joint family. On the said reasoni1.'g. it was .argued JI that the original cost of the factory to te larger 1011.'t famil.Y. was the cost to the assessee within the meaning of the said prov1s10ns.

The entire argument is based on a misapprehension of the scope of partition under Hindu Law. Coparcenery is a creature of Hindu law. The concept involves "community of interest, unity of C possession and common enjoyment". Each coparcener's right ex-·

tends to the whole joint family property; though each one of them has interest in the whole family property, he has no definite share therein. Partitioning is the ascertainment of individual shares and it can be brought about by an unambiguous declaration of their intention to divide, ie., by a conscious alteration of their status.

D Such a declaration brings about a division in status. At that stage the members of aii. erstwhile joint family become tenants-in-common. The next step is the division by metes and bounds whereunder separate properties are allotted towards the said definite

shares of the individuals. Whether the said process involves transfer or not within the meaning of the Tramfer of Property E Act, it certainly confers on a divided member an absolute title to a specified property, whereas before the partition he had only some interest in the entire joint family property. Though in one sense his interest in the property of the larger joint family has become crystallized into a specific property, in substance he acquires a title to a specific property. Even from a practical standpoint F the legal fiction of "pre-existing title" cannot be stretched too far.

Take the following illustration: A and B were members of a joint Hindu family in 1930 and continued to be so till 1960 when a partition was effected between them. They had 4 houses in 4 villages; and the original cost of each of the houses was Rs. 100/-.

If a partition had taken place in 1930 or thereabout, each one of G the two brothers would have got 2 houses each, and the partition would have been equitable and fair. But during these 3'0 years one village developed into a town and the value of the house therein had increased to Rs. 500 /-. There was no appreciable rise in price in regard to the other 3 houses and they together would fetch only Rs. 500/- in the market. In the result at the partition that was effec- R ted in 1960 the house in the town was given lo one of the brothers and the other three houses together were given to the other brother.

What would be the cost of the house in the town to the brother to

wo!fi it was allotted? Clearly it would be Rs. 500 /-, though the ongmal cost of the house at the time it was built or purchased was only Rs. !00 /-. Because of 'the uneven rise in prices of the different

ouses, instead of to houses he got only one house at the partition. The cost to him, therefore, would be the cost at which the

SlJPREJ4E COURT REPORTS

(1965] 3 S.C.I\.

property was valued at the partition or at which it was auctioned for the purpose of partition. Take another illustration: Instead of A partitioning the properties by evaluation thereof, the houses were sold to a third party. So far as the third party was concerned the .cost price would be the price at which he purchased them. If instead, the properties were sold by auction between the brothers and .the difference in prices was adjusted by cash payment, it would be B incongruous to say that in the former the cost of the houses would be the cost actually paid by the third party purchaser and in the latter the cost of the houses would not be the price for which they were auctioned but the nominal price they bore in a remote past.

Other illustrations may be visualized. Barring the cases of fraud, collusion and inflation and deflation of values for ulterior purposes, cost of an asset to a divided member must necessarily be its cost to him at the time of partition, wl)ether mentioned in the partition deed or ascertained aliunde.

Analogy drawn from comparable cases may also throw some light on the question. In the case of an assessee acquiring a property by purchase, gift, bequest or succession, courts have held D that the cost of the property to the assessee was not the original cost of it to his predecessor but its actual cost to him at the time of the purchase, gift, bequest or succession, as the case may be: see Commissioner of lncome-ta.t, Madras v. The Buckingham & Carnatic Company, Ltd .. Madrav ('), and Jagla Coal Co. Ltd. v Commissioner of Income-tax, West Benga/0-purchase; Indian E Iron & Steel Co. Ltd. v. Commissioner of Income-tax, Bengal('), and Francis Va/labarayar v. Commissioner of Income-tax, Madras(')-succession; and Commissioner of Income-tax, Burma v.

Solomon & Sons(')-bequest. A Division Bench of the Nagpur High Court in Commissioner of Income-tax, U. P. & C. P. v. Seth Mathuradas Mohta(') dealt with a. case of partition. Therein, it F held that the cost to the assessee, who was a divided member, of a property was the cost of it to the original joint Hindu family at the time it was acquired. The learned Judges gave various illustrations in support of their conclusion. It is true that, if'the valuation of the properties was given notionally as a mode of chposing properties, there will be some plausibility in the contention that there is no change in the valuation between the date the property was purchased and the date when it was allotted to one of the members of the family. But, if the valuation of a property was

not notional but was real and that was the basis for allocating properties to different shares, we do not see how the cost of a pro- B perty allocated to a member would be that at which it was purchased in the remote past. We cannot agree with the view expressed by the Nagpur High Court.

(') (1935) 3 I.T.R. 384 (P.C.)

(') (1959) 36 J.T.R. 521 (S.C.).

'.') 11943) 11 J.T.R. 328 (P.C.).

(') (1960) 4-0 J.T.R. '26.

(') (1933) 1 !.T.R. 324.

(') (1939) 7 I.T.R. 160.

MjS. KALOORAM V. C.I.T. (Shah, J.) 641

A In substance we do not see any difference in the matter of ascertaining the cost of an asset to an assessee whether he is a donee, purchaser, legatee, successor or a divided member of a joint Hindu family. It may be that in strict legal theory partwn may not involve transfer, but the substance of the transact10n 1s B that an erstwhile member of a joint Hindu family, who has only an interest in the entire joint family property acquires an absolute title to a specific property. The cost of the property to the member at the date of partition would be the value given to it for the purpose of allotment. provided it was real, or the price at which he purchased it in auction or the value of it ascertained otherwise. c

It is nobody's case in the present appeal that the valuation given to the property was notional and not a real one: indeed. the property was sold in open auction between the members of the larger joint family and the value fetched thereunder entered into the scheme of the partition.

We, therefore. answer the question as follows:

That depreciation allowance should be computed on the basis of the valuation at which the assessee took over the assets.

E In the result. the appeal is allowed with costs here and in the High Court.

Shah, J. A sugar factory in the forrncr lnd1:_u1 State of Jaora belonged to a Hindu undivided family of Govi,, dram and his nephew Bachhulal. In a suit filed by Bachhuial in 1942 in the Civil F Court at Jaora against Govindram for partition of the properties of the undivided family, Govindram was declared entitled to a 10 ! I 6th share in the property of the family and Bach hula! to the remaining 6/ 16th share. A Commissioner was appointed for dividing the properties. Certain properties of the family were incapable of division by metes and bounds. and by order of the Court in G which the suit was instituted those properties were put up for sale by "competitive bidding between the parties". A sugar factory at Jaora-cailed 'the Govindram Sugar Factory'-was put up for competitive bidding. and the bid of Govindram for Rs. 34 lakhs being accepted, the sugar factory was allotted to his share. Other assets H of the family were similarly allotted to Govindram or to Bachhulal according as he offered the higher bid. Account was then made between Govindram and Bachhulal of properties allotted on the basis of the bids accepted at the competitive bidding and Govindram was found liable to pay Rs. I 1,26,200/- after taking into account a debit item of Rs. 12,75.000/- being the value of the 6/16th share of Bachhulai in the sugar factory. Govindram died in 1943, and the appellant is the Hindu undivided family which represents the branch of Govindram.

SUl'REllE COURT REPORTS [1965] 3 s.c.11.

The Indian Income-tax Act 9 of 1922 was applied to Part A 'B' States hy the Finance Act 25 of 1950. In the assessment year

1950,51 which was the first year of assessment after the State of Jaora became part of the Indian Union, the appellant Hindu undivided family claimed depreciation allowance under s. 1-0(2) (vi) of the Indian Income-tax Act in respect of the sugar factory computed on a valuation of Rs. 34 lakhs. The Income-tax Officer re- B jected the claim of the appellant and allowed depreciation only on the actual cost to the Hindu family of Govindram and Bachhulal before it was divided. The order of the Income-tax Officer was <:onjirmed by the Appellate Assistant Commissioner in appeal.

The Income-tax Appellate Tribunal held that the value for purposes of depreciawon should be I0/16th share of the original cost C to the larger Hindu undivided family plus Rs. 12,75,000/- (paid by Govindram on behalf of the assessee to Bachhulal for the latter's 6 /16th share in the sugar factory). At the instance of the appellant, the Tribunal referred the following question to the High Court of Madhya Pradesh under s. 66(1) of the Income-tax D Act:

"Whether on the facts and in the circumstances of this case, the assessee Hindu Undivided Family is entitled to claim depreciation in respect of the assets of the old Hindu Undivide'd Family on the basis of the original cost to the family or on the basis of the valuation E at which the assessee took over the assets?" The High Court of Madhya Pradesh recorded the following answer:

"that the depreciation allowance should be computed on the basis of the original cost to the joint family and not F on the basis of the valuation at which the assessee took over the assets".

In so answering the question, the High Court committed a dear error of law. The Commissioner had acquiesced in the order of the Tribunal and had nnt claimed that the original value to the larger Hindu Undivided Family was the only amount on which G depreciation allowance was to be computed. The Income-tax authorities had held that for the purpose of computing the depreciation allowance, the original cost to the joint family had to be the basis, but the Tribunal did not accept that view and held that the depreciation allowance in respect of the sugar factory was to be computed on the basis of I0/16th of the original value plus H Rs. 12,75,000/-. The Commissioner having acquiesced in the order of the Tribunal, the only question on which the High Court was called upon to advise was whether in respect of the I0/16th share which fell to the share of Govindram, depreciation al!owance may be computed on the basis of the original cost to the la~ undivided family or on the basis of Rs. 34 lakhs being the value of the factory offered at the auction. ·

Mjs. KALOORAM v. C.I.T. (fJ/lali, J.) 649

A In the computation of profits and gains of any business carried on by an assessee, under the head "Profits and gains of business" by s. 10 sub-s. (2) the assessee is entitled to an allowance for depreciation under cl. (vi). The material part of sub-s. (2) cl. \vi) pro, vides:

B "(2) Such profits or gains shall be computed after making the following allowances, nmely: -

(vi) in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent, where the assets are ships other than ships ordinarily plying on inland waters, to such per- C centage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other case, to such percentage on the written down value thereof as may in any case or class of cases be prescribed:

The assets in respect of which the depreciation allowance is claimed being a factory, a percentage on the written down value as may be prescribed in respect of the buildings, machinery, plant and furniture therein is admissible as allowance. Sub-section \5) of s.

E 10 defines "written down value''. It provided, insofar as it was material at the relevant time:

" 'written down value' meansfa) in the case of assets acquired in the previous year, the

 actual cost to the assessee: \

Provided

Provided further

(b) in the case of assets acquired before the previous year

the actual cost to the assessee less all depreciation G actually allowed to him under this _Act or any Act repealed thereby, or under executive orders issued when the Indian Income-tax Act, 1886 (II of 1886), was in

force:"

The depreciation allowance under s. 10(2)(vi) in respect of 11 B factory has to be allowed in the manner prescribed on the actual value to the assessee limited to the buildings, machinery, plant and furniture. No previous depreciation has been allowed.under any Act repealed by the Indian Income-tax Act, 1922 or under any executive order issued under the Indian Income-tax Act, 1886 and therefore the appellant is entitled to depreciation allowance under s. 10

(2) (vi) on the actual cost to the assessee of assets for which depreciation is admissible.

SUPREME COURT REPORTS

[1965) 3 S, C.R.

The factory originally belonged to a larger .Hindu undivided family. In the scheme of partition devised under the preliminary A decree the factory was allotted to Gbvindram, his bid of Rs. 34 lakhs having been accepted by the Court. The true effect of the scheme under which the properties were put up for competitive bidding under the order of the Court was that the interest of the other member was to be conveyed at a value based on the offer made by the higher bidder. In other words, each party was given B an option to purchase the share of the other, but the option was exercisable only by the person who offered the higher bid for the asset. By the preliminary decree, the share of Govindram was defined at 10/ 16th and he became 'entitled to that share in every item of property and Bachhulal became entitled tb the remaining 0 6 /16th share iri each such item. But some of the properties were found incapable of physical division and a scheme was devised under which one of the sharers was entitled to purchase the share of the other on a valuation based on the bid offered by him, provided it was the higher of the twe> bids. Value of the bid was however taken into account only for making up accqunts. In substance D the appellant purchased by being declared the higher bidder the 6/16th share belonging to Bachhu1al in the sugar factory for Rs. 12, 7 5,000 I-. He was, and remained the owner of the 10 /16th share, and that share was neither sold nor conveyed to him: he merely purchased the share of Bachhulal for Rs. 12,75,000/-. The Tribunal was therefore right in hblding that in respect of the 6 I E 16th share, Rs. 12,75,000/- paid by Govindram was the actual cost to him. On this part of the case apparently no dispute was or could be raised before the High Court. But the appellant contends that even for the purpose of th.e 10/ 16th share, the depreciation allowance sl\ould be computed bn the basis of a va1uation of Rs. 34 lakhs bid by Govin<lram for the factory.

Our attention was invited to a large number of authorities in support of the contention raised by the appellant that the price of the sugar factory on the basis of which the share bf Bachhulal was valued shquld be regarded as decisive of the value of the asset on which depreciation allowance is admissible. The argument in substance is that the actu.al cost of the sugar factory is Rs. 34 lakhs, that being the price at which the factory was acquired by Govindram.

An asset which is admissible to c'.epreciation allowance may

be bbtained by gift, inheritance or succession. In such a case the person who acquires an interest in the asset pays no price for it, H but on that account it cannot be said that he is not entitled to depreciation allowance. In respect of such an asset, in the absence of any statutory provision, depreciation would be Cbmputed on the market value on the date of acquisition of interest. An asset may be acquired by purchase, in which case in the absence of evidence to show that the valuation was unduly inflated, the value

M./B. KALOORAM. v. c.r.T. (Shah, J.) 651

A paid by the assessee is th~ actual cost to him, and not th~ valll:e

paid by his vendor for acquiring it. Again proper!~ .. which 1s owned jointly by more persons than one, by the acqms1tton o~ the interest of the other joint owners becomes the property of a smgle owner. , B In Francis Vallabarayar v. Commissioner of Income-tax, Madras(') a Division Bench of the Madras High Court held that an assessee is entitled in assessment of tax under s. 10 of the Incometax Act, to depreciation allowance in respect of machinery or plant, which he acquires by inheritance, on the market value of such property at the elate of inheritance. The same principle would I)' apply to cases of gift and succession. The Legislature has by adding cl. (c) in sub-s. (5) of s. 10 by s. 8 of the Indian Income-tax (Amendment) Act 25 of 1953, defined 'written-down value' in the case of assets acquired by the assessee by way of gift or inheritance as being the written-down value as in the case of previous owner . or the market value thereof whichever is less. In the case of pur- D chase, as we have already observed, in the absence of fraudulent over-valuation with a view to obtain an unfair advantage, the price paid by the purchaser would be regarded for the purpose of depreciation allowance as the actual cost to him, and not the original cost to the vendor: Commissioner of Income-tax v. The Buckingham Carnatic Company Ltd,('): Jogta Coal Company Ltd. v. Comf!i missioner of Income-tax, West Bengal (').. Cases in which full title to an asset, in respect of which depreciation is claimed, is obtained in consequence of partition of a Hindu undivided family introduce a complication, which is a peculiar product of the rules of Hindu law. Under the Mitakshara system the essence of a coparcenary is unity of ownership, and so long as the family remains F joint no individual member can claim that he !las a definite share in the joint property. Until partition takes place, there is community of interest and unity of possession between all the members: it is only on partitipn that the interest of each member becomes definite. "Partition .................. is really a process in and by which

G a joint. enjoyment is transferred into an enjoyment in severalty.

Each one of the sharers had an antecedent title and therefore no conveyance is involved in the process . . . . .. " Gutta Radhal:ristnayya v. Gutta Sarasamma(').

By the preliminary decree Govindram and Bachhulal acquired definite interest in the sugar factory proportionate to the shares H declared by the decree in the entirety of the estate, and the scheme by which Govindram became owner of the sugar factory was in truth one by which he purchased 6 /16th share of Bachhulal. He was by the decree, which recognised his pre-existing title, entitled to IQ/16th share and he purchased the remainder. The

(') 40 I.T.R. 426,

(') 3 I.T.R. 385.

(') 36 I.T.R. 521. (') I.L.R. [1951] Mad. 607.

LP(Dl5SCI-3

652 SUPllllllE COURT REPORTS [1965] 3 s.o.a.

scheme of "competitive bidding" was adopted only for the pur- A pose of valuing the interest of the other sharer at which the first sharer was to purchase it. The highest bidder took the entire asset and paid a share of the value bid by him equal to the share of the other sharer in the family estate. Govindram was the owner of IO /16th share: by offering the bid for Rs. 3.4 lakhs he did not purchase the I0/ 16th share. He merely purchased the 6/ 16th share B of Bach):mlal at a price based on total valuation of the sugar factory at Rs. 34 Iakhs.

The dicta to the contrary in Commissioner of Income-tax U.P. & C.P. v. Seth Mathuradas Mohta (') on which the High Court relied do not, in my judgment, lay down the correct rule. In that case C coparceners of a Hindu family consisting of two members owning a Ginning Factory which was originally purchased for Rs. 23 lakhs decided to separate, and as the Ginning Factory could not be divided it was put to auction and purchased by 'A' for Rs. 28 lakhs. 'A' was debited in taking account with half the amount-offered by him. Subsequently 'A' claimed depreciation allowance on the basis D of Rs. 28 lakhs which he had paid. alleging that that was the original cost to him. The Income-tax authorities rejected the claim, and adopted the original value to the joint family as the actual value to 'A' for computing depreciation allowance under s. 10(2)(vi). In dealing with a reference made by the Tribunal on the question whether the Income-tax Officer had the power to ignore the valua- E tion made by the parties in ascertaining the original cost of the roachinery and building to the aiisessee, the High Court observed : .. . . . the original cost is the cost of acquiring title. The cost of acquiring title is to be ascertained at the time when the property is acquired by the coparp cenary. Thereafter one is not concerned with cost strictly so called but one is concerned with a mode of partition. As a result of the partition each (fraud, overreaching and the like being put on one side) is to be regarded as having got half by the mode of division adopted whether that mode be through Court, arbitra- G tion, private auction or drawing lot~ or any other mode agreed upon. The original cost of the property is not increased though one side might in the result get what a third person would regard as less than half though what the person concerned (at least in the case of private auction) thought at the time was at least equal B to half; otherwise he would not have bid so much".

These observations were not necessary for the purpose of answering the question posed before the Court. The question posed before the High Court related not to what the true value for computing the allowance for depreciation was, but to the power of the -------·

(1) 7 I.T.R.!60. '

11/s. KALOORAM V. C, J.'I'. (Shah, J.) 653

A Income-tax Officer to ignore the valuation placed by the parties in the deed of partition in ascertaining the true value for the purpose of such computation.

Death or .birth of coparceners does not alter the identity. of the Hindu undivided family which utilizes an asset for earrung B income or profit. Death of a coparcener merely extinguishes an existing interest, but there is no devolution of tat interest. But where the joint family status is severed and the nghts of the parties are crystalised and a member acquires the interest of the other in any item of property though arbitration, agreement, decree of the Court or a private auction, there is a transfer of interest from C one to the other in that property and the value paid br taken into

account for acquisition of that interest would normally be regarded qua that share as the actual cost to the acquirer for the purpose of s. 10(2)(vi), but the value of his own share is determined by the actual cost to the family.

Counsel for the appellant piaced strong reliance upon Com- D missioner of Income-tax v. Bai Shirinbai K. Kooka (') which belongs to a different branch of the law of Income-tax. Where an assessee brings his investments into his business, the question arises whether in assessing income-tax payable on income earned by sale or disposition of such investment the original value at E which they were acquired or the market value as at the date on which they were brought into the business has to be taken into account. In Shirinbai's case(') the assessee who held by way of investment several shares in different companies commenced a business in shares by converting the shares into stock-in; trade of the business. The assessee subsequently sold those shares in the F course of the business at a profit. A majority of this Court held that the assessee's assessable profits on the sale of the shares was the difference between the sale price of the shares and the market price of the shares prevailing on the date when the shares were converted into stock-in-trade of the business, and not the difference between the sale price and the price at which the shares were origi- G nally purchased by the assessee. The Court in that case distinguished the earlier case decided by this Court Sir Kikabhai Premchand

v. Commissioner of Income-tax(') in which it was held that the assessee was entitled to value at cost price, certain business assets which were after withdrawal from the business settled upon trust.

But neither of these cases has a bearing on the computation bf de- H predation allowance which is qua building, machinery, plant (not being ships) or furniture to be a percentage of the written-down value. A person who transfers his investments which are not part of his business into the stream of his business may value the investments at the prevailing market rate on the date on which they are brought into the business. In Shirinbai's case(') the Court was

(') 46 I.T.R. 86.

(') 24 I.T.R. 506,

65-i SUPREME COURT RllPORTS [1965] 3 s.c.a.

\ called upon to ascertain commercial profits earned by sale of stock- A in-trade and in so doing regarded the ow11er as investor and as businessman as two different entities. S. K. Das. J., speaking for the majority observed that normally the commercial profits out of a transaction of sale of an article must be the difference between what the article cost the business and what it fetched on sale. But it is difficult to appreciate how that principle would apply in the B computation of depreciation allowance. The asset viz. the sugar factory at all material times remained a business asset. It was at one time owned by Govin<lram and Bachhulal, and if the. Incometax Act, 1922 had then applied, depreciation allowance would have been computed on the basis of the value to the family. Acquisition of the interest of Bachhulal by Govindram did not alter C the character or use of the asset: nor did it make any fundamental alteation in its value to the appellant so as wholly to displace its original value even in respect of the share which Govindram continued to own. Superficial analogies are often misleading and more so in taxation laws. In computing profits assets brought into the. business and subsequently sold may be regarded as inducted D at the prevailing market rates, for the taxing authority is concerned to deal with the business profits, arising out of a transaction of sale to the business. When depreciation allowance is to be computed, the taxing authorities have to consider what the original cost to the assessee was and valuation of a business asset adopted for the purpose of valuing the share of one of the owners from E whom his share was purchased cannot be regarded by any principle of commercial accounting as notionally altering the original cost of his own share in the asset to the acquirer. The assessee does not p1m:hase his own share at the valuation put by him at the private auction: he merely purchases the share of the other sharer at.a valuation mad.e on the bid offered by him. I am unable there- F fore to agree with counsel for the appellant that for the purpose of valuing I 0 / 16th share of Govindram the basis should be the valuation of Rs. 34 lakhs which was adopted for valuing Bachhu- Ia!'s share.

I therefore answer the question as follows: G That depreciation allowance should be computed on the basis of JO /16th share of the original cost to the joint family of the assets which are admissible to depreciation allowance plus an appropriate amount attributable to the assets admissible to depreciation allowance on the footing that the value of 6/16th share of Bachhulal B in the factory was Rs. 12,75,000/-.

The order passed by the High Court will accordingly be modified. There will be no order as to costs.

ORDER In accordance with the majority judgment. the appeal is allowed with costs here and in the High Court.

KALOORAM GOVINDRAM

K. SUBBA RAo, J.

c. SHAH

s. M. SIKRI, JJ.

Indian Income-tax Act, 1922

Indian Income-tax Act, 1922

Subba Rao

Sikri

s. 10(2)

Per Shah

s 10

CIVIL APPELLATE JURISDICTION

Madhya Pradesh High Court

N. D. Karkhanis

Rameshwar Nath

S. N. Andley

P. L.

Vohra

C. K. Daphtary

R. Ganapathy Iyer

R. N. Sachthey

J. Shah

Govindram

Bachhulal

Jaora

Ratlam

Income-tax Act, 1922

High Court of Madhya Pradesh

Section 10(2)

Section 10(5)

Indian Income-tax Act, 1886

Income-tax Act

Indian Income-tax Act, 1886

s. 10

Nagpur High Court

KALOORAM

Shah

State of Jaora

Bachhuial

Civil F Court at Jaora

Govindram Sugar Factory'-was

Bachhulai

Income-tax Act

States hy the Finance Act

State of Jaora

s. 1

Income-tax Act

s 6

s. 66(1)

s. 10

Indian Income-tax Act, 1886

s. 10(2)(vi)

Indian Income-tax Act, 1886

s. 10

Gbvindram

Govin

lram

Madras High Court

s. 10

s. 10

s. 8

s. 10(2)(vi)

s. 10(2)(vi)

Shirinbai

SUPREME COURT RllPORTS [1965]

S. K. Das

Govin<lram

Incometax Act, 1922

Bachhu- Ia

Bachhulal B


DEOKUER & ANR.

SHEOPRASAD SINGH AND ORS.

April 8, 1965

[A. K. SARKAR, M. H!DAYATULLAH AND RAGHUBAR DAYAL, JJ.)

Specific Relief Act (Act 1 of 1887), s. 42-Declaratory suit-Property in .dis]iiute' attached under s. 146 Criminal Procedre Code- Omission to sue for relief of possession whether bars suit.

There was dispute about the property in suit between the appellants and the respondents. The property was attached by the Magistrate under s. 145 of the Criminal Procedure Code. Subsequently the appellants filed a suit for declaration of their title to the property but made no prayer for the consequential relief of possession. The suit ""S decreed by the trial court but the High Court set aside the decree o!i the ground that the suit was bad under s. 42 of the Specific Relief Act for failure to sue for possession. Appeal to this Court was filed with certificate of fitness.

HELD: In a suit for declaration of title to property, !\led when it stands attached under s. 145 of the Criminal Procedure Code, it is not necessary to ask for the further relief of delivery of possession. The fact, if it be so, that in the case of such an attachment the Magistrate holds possession on behalf of the party whom he ultimately finds to have been in possession, is irrelevant. [656H-657B]

Moreover the further relief contemplated by the proviso to s 42 of the Specific Relief Act is relief against the defendant only.

In the present case the Magistrate was in possession and he was not a party to the suit. [657C-DJ

Further it is not necessary to ask for possession when the property is in cv, stodia legis. There is no doubt that property under attachment undev s. 145 of the Code is in cv, stodia legis. [657E]

Sunder Singh Ma!!ah Singh Sanatan Dharam High School, Trust G v. Managing Committee, Sunder Singh-MaUah Singh Rajput High

School, (1937) L.R. 65 I.A. 106 and Nawab Humayim Begum v. NlbWab Shah Mohammad Khan, A.LR. 1943 P.C. 94, relied on.

K. Sundarama Iyer v. Sarvajana Sowkiabi! Virdhi Nidhi Ltd.

I.L.R. [1939) Mad. 986, approved.

Dukhan Ram v. Ram Nanda Singh, A.LR. 1961 Pat. 425, disapproyed.

OvIL APP ELLA TE JurusmcrmN: Civil Appeal No. 329 of 1962.

Appeal from the judgment and decree dated September 26, 1957 of the High Court in Appeal from Original Decree No. 253 of 1949.

Sarjoo Prasad and R.C. Prasad, for the appellants.

A. V. Viswanatha Sastri and D. Goburdhun, for respondents nos. 1 to 4 and 6.

The Judgment of the Court was delivered by Sarkar, J. This appeal arises out of a suit brought by the appellants in 1947 for a declaration that the defendants first party B

had acquired no right or title to a property under rtain deeds and that the deeds were inoperative and void. The suit was decreed by the trial Court but on appeal by the defendants first party to the High Court at Patna that decree was set aside. The High Court having granted a certificate of fitness, the appellants have 0. brought the present appeal. The defendants first party have alone contested the appeal and will be referred to as the respondents.

The High Court held that as the appellants were not in possession of the property at the date of the suit as found by the learned trial Judge and the respondents were, their suit must fail under the proviso to s.42 of the Specific Relief Act as the appell> lants had failed to ask for the further relief of recovery of possession from the respondents. In this view of the matter the High Court did not consider the merits of the case. The fact however v1as that at the date of the suit the property was under attachment by a magistrate under powers conferred by s. 145 of the Code of g Criminal Procedure and was not in the possession of any party.

This fact was not noticed by the High Court but the reason why it escaped the High Court's attention does not appear on the record.

The only point argued in this appeal was whether in view of the attachment, the appellants could have in their suit asked for P the relief for delivery of possession to them. If they could not, the suit would not be hit by the proviso to s. 42. The parties seem not to dispute that in the case of an attachment under s. 146 of the Code as it stood before its amendment in 1955, a suit for a simple declaration of title without a prayer for delivery of possession is competent. The respondents contend that the position in G the case of an attachment under s. 145 of the Code is different, and in such a case the magistrate holds possession for the party who is ultimately found by him to have been in possession when the first order under the section was made. It was said that a suit for declaration of title pending such an attachment is incompetent under the proviso to s. 42 unless recovery of possession is al!; o ll asked for. It appears that the attachmn! under s. 145 in t!te p~ sent case is still continuing and no dec1s1on has yet been given m the proceeding's resulting in the attachment.

In our view, in a suit for declaration of title to property filed when it stands attached under s. 145 of the Code, it is nC1t necessary to ask for the further relief of delivery of possession. The fact

DEOKUER v. SHEOPRASAD (Sarkar, J.)

65T

if it be so. that in the case of such an attachment, the magistrate holds possession on behalf of the party whom he ultimately finds to have been in possession is, in our opinion, irrelevant. On the question however whether the magistrate actualiy does so or not, it is unnecessary to express any opinion in the present case.

The authoritie's clearly show that where the defendant is not in possession and not in a positior1 to deliver possession to the plaintiff it is not necessary for the plaintiff in a suit for a declarat; on of title to property to claim possession: see Sunder Singh Mal/ah Singh Sanatan Dharm High School, Trust

v. Managing Committee, Sunder Singh-Mal!ah Singh Rajput High School.(')

Now it is obvious that in the present case, the responde1 . .ts were not in possession after the attachment 2nd were net in a position to deliver possession to the appellants. The magistrate was in possession, for whomsoever. it does not matter, and he was not of co11rse a party to the suit. It is pertinent to observe that in Nawab Humayun Begam v. Nawab Shah Mohammad Khan(') it has been held that the further refaf contemplated by the proviso to s. 42 of the Specific Relief Act is relief against the defendant only. We may add that in K. Sundaresa Iyer v. Sarvajana Sc, wkiabil Virdhi Nidhi Ltd.('), it was held that it was not necessary to ask for possession when property was in custodia legis. There is no doubt that property under attachment under s. 145 of the Code is in custodia legis. These cases clearly establish that it was not necessary for the appellants to have asked for possession.

In Dukkan Ram v. Ram Nanda Singh(') a contrary view appears to have been taken. The reason given for this view is that the declaratory decree in favour of the plaintiff would not be binding on the magistrate and he was free inspite of it to find that possession at the relevant time was with the defendant and deliver possession to him. With great respect to the learned Judge deciding that case, the question is not whether a declaratory decree would be binding on the magistrate or not. The fact that"it mav not be binding would not affect the competence of the suit. The G su; t for a declaration without a claim for the relief for possession would still be competent in the view taken in the cases earlier referred to, which is. that it is not necessary to ask for the relief of delivery of possession where the defendant is not in possession and is not able to deliver possession, which, it is not disputed, is ti e

H case when the property is under attachment uncler s. 145 of the Coc!e. We think that Dukkan Ram's(') case had not been correctly decided. We may add that no other case taking that view was brought to Ol!r notice. ·

( 1 ) (1937) LR. 66 I.A. 106.

(') A.l.R. 1943 P.C. 94 (') I.LR. (1939) Mad. 986. (') A.I.R. 1961 Pot. 4,26.

For these reasons, we hold that the suit out of which this A

ppeal has arisen was competent. We, therefore, allow the appeal but as the merits of the case had not been gone into by the High Court, the matter must go back to that Court for decision on the merits. The appellant will get the costs here and below.

Appeal allowed and case remanded.

.4---.

DEOKUER & ANR

SHEOPRASAD SINGH AND ORS

April 8, 1965

A. K. SARKAR

RAGHUBAR DAYAL, JJ.

Specific Relief Act

s. 42

s. 146

Criminal Procedre Code

s. 145

s. 42

Specific Relief Act

s. 145

s 42

Specific Relief Act

s. 145

(1937) L.R. 65 I.A. 106

OvIL APP ELLA TE JurusmcrmN

Sarjoo Prasad

R.C. Prasad

A. V. Viswanatha Sastri

D. Goburdhun

Sarkar

Specific Relief Act

s. 145

s. 42

s. 146

s. 145

s. 42

s. 145

s. 145

s. 42

Specific Relief Act

s. 145

s. 145

Dukkan Ram

(1937) LR. 66 I.A. 106