NIRMALA BALA GllOSE Al'cl> ANOTHER

BALAI CHAND GHQSE AND ORS.

March 29, 1965 (K. SuoBA RAO, J. C. SHAH AND R. S. BACl!AWAT, JJ.I Relig'ous Endowment-Dcl>utter-Construction of deed of sottle112ent-Endowment whether partial or complete--Tests f<Yf deciding-Provision for maintenance of sh~':t•Us irheth9r 1nak:>s endowment partial-Effect of inva.iditu of ccrta n provisions of deed- E.rpanding income and static eXJJcnses-lnfcrcnce from-Right of joont sheba"it to appeal if deities represented by guardian ad !item.

Code of Civil Procedure (5 of 1908)--0rder 41 r. 33-Applicability of-When decree can be amended in appeal in favour of non--0ppeal- 1ng party.

HELD: (i) The question whether a deed of dedication creates an abosulte or part'al dedication must be settled by a conspectus of all the provisions of the deed. If the property is wholly dedicated to the worship of the idol and no beneficial interest is reserved to the settlor. his descendants or other persons, the ded; cation Ls CC'ffip:ete: if by the deed it is intended to create a charge :n favour of the deity and the residue vest• in the settlor, the dedicat'on i• partial.

(ii) A reasonable provision for remuneration rna:ntenance and residence of the Shebaits does not make an endowment bad, for even when property is ded'cated absolutely to .an idol, and no beneficial interest is reserved to the settlor, the property is held by the deity in an ideal sense. The possession and management of the property must, in the very nature of things, be entrusted to Shebait or manc:ger and nomination of the settler himself and his heirs with

reaonablc rC'muncraton 0 11t of the cndo\ved property \vith right of residence in the property will not invalidate the endowment. [556E-GJ

(i'i) A provision for the benefit of perscns other than :he Shebait may not be valid, if !t infringes the rule against pcrpetJitics er accumulat1ons, or rules agains: impermiss:bic res<rict; ons, but that does not affect the validity of the endowm<mt. The bcnefic; al interest in the provison found ; nvalid reverts to the deity or the settlor according as the endo\vmr.nt is absoutc er partial. lf the endo\\mcnt

:s absolute and a che:rgc crcatrd !n favour •)f other persons is invalid, the benefit will enure to the d1•ity, and will not revert to the settlor or his he'rs. (556G-ll]

(iv) There is n:> rule that \vhen the incumP is expanding and the expenses arc statc. leav:ng a substantial residue, it must be presumed, not\\'; ths:anding the comprrhcnsive and unrcstric'.ted nature c-f the dispos'.tion. that the> scttor intended to create only a charge in fvour of the City. The quest.on is alwavs one of intention of the settler to be determined from a rcv:r.·, i; of all the dispositions under the deed of settlement. r560G]

Surendrakeshrw Roy v. Doorgasundar< Dassee and A11r. L. R. 19 I.A !08. explained.

Sri Sri ls1cari BhubanPshtcari Thalcurani v. Brojonth Dev and Ors. L.R. 64 I.A. ~03 and Sree Sree /shu:ar Sridhar Jew v. Sushi!a Bala Desi and Ors. [ 1954] S.C.R. 407. rel!ed on.

...

NIRMAL.\ V. ll,\LAC CHANJl (Shah, J.) 551

A Per Subba Rao rnd Shah, JJ.--When the guardian of the deitie, did not appeal against the finding of the tr:al com;! that there was a partial ded'cation, it was not open to a joint Shebait who was not a guardian, to appeal against the decree and contend that the dedication was absolute.

When a party allows a decree of the court of First Instance to become final, by not appealing against the decree, it would not be B open to another party to the lit'gation, whose rights are otherwise not affected by tho decree, to invoke the powers of the appellate court under o. 41 r. 33 to pass a decree in favour of the party not'

appealing so as to give the latter a benefit wh'.ch he has not claimed ..

[564D]

Per Bachawat, J. (Partially dissenting)---When the trial court decrees that the endowment in favour of the deities was not abso- C lute, and the guardian ad !item of the deities o!ces not appeal, it is open to a jo'nt shebait even when he is not a guardian to assail the decree in appeal. [56.5A]

Maharaja Jagadindra Nath Roy Baha"dur v. Rani Hemanta Kumari Debi, (1904) L. R. 31 I. A. 203, relied on.

Shebaiti right is a right to property. This right is affected by a declaration that the dedica)ion in favour of the deities is partial and not absolute. The shebaiti right in an absolute debutter is different from the shebaiti right in a partial debutter. The joint shebait is entitled to defend his right even when the guardian of the deities doe• not appeal. [565E, HJ The Commissioner of Hindu Religious Endowments, Madras v.

Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, [1954] S.C.R. 1005, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 966 to 968 of 1964.

Appeals from the judgment and decree dated September 23, 1959, of the Calcutta High Court in Appeals from Original Decrees Nos. 268 to 270 of 1957.

S. V. Guptc, Solicitor-Genera/, A. K. Sen, and D. N. Mukherji, for the appellants (in all the appeals).

A. V. Viswanatha Sastri and S. C. Majumdar, for respondent No. I.

The Judgment of SUB BA RAo and SHAH JJ. was delivered by SHAH, J. BACHAWAT, J. partially dissented.

Shah, J. This group of appeals arises out of suits Nos. 79 and 80 of 1954 and 67 of 1955 filed by the first respondent Balai Chand Ghose (who will hereinafter be called "Balai") in the Court of the Eighth Subordinate Judge, Alipore, District 24-Parganas, West Bengal. In Suits Nos. 79 and 80 of 1954 Balai prayed that he be declared owner of the properties described in the schedules annexed to the respective plaints. In su.it No. 67 of 1955 he claimed that it be declared that his wife Nirmala, is a benamidar for him and that the .deed of dedication dated Septmber 15, 1944 did not amol'nt to an absolute dedic3tion of the properties in suit to the deities Sri Satyanarayan Jiu & Sri Lakshminarayan Jiu and that the plaintiff is the sole Shebait of the two deities. The Trial

Ofi2 [1965] 3 s:c.R.

Court decreed suits Nos. 79 & 80 of 1954 holding that the plaintiff A was the owner of the disputed properties and the deed of endowmer.t Ext. 11 (a) executed on March 8, 'J 939 by Nirmala was "sham and colourable". In suit No. 6} of 1955 the Subordinate Judge dedared that Nirmala was a benamidar of Balai of the properties in suit and the deed of endowment dated September 15, 1944, Ext. l l. -did not amou<lt to absolute dedication of the properties to the B deities Sri Satyanarayan Jiu and sri Lakshminarayan Jiu.

The High--Court of Judicature at lcutta, in exercise of its appellate jurisdiy(ion,-ipodified the decrees passed by the Trial Court. The High Court held that the deed Ext. 11 (a) was not sham, but it am;)l111ted to a partial dedication in favour o~ the deity Sri c Gopal Jiu i.e. it created a charne on the 'properties endowed for the purposes of the deity mentioned in the deed. The decree pasod in suit No. 67 of 1955 from ;.vhl.clu1ppeal No. 269 of 1957 arose was dismissed subject to the "clarification or darific'ations" that it creqted only a charge in favour of the deity or deities for the purposes recited therein arid thai subject to the D charge, the rroperties belonged to Balai. With certificates of fitness granted by the .High Court. these three appeals have been preferred.

[After stating the facts which gave rise to the appeals His Lordship proceeded] E

We may briefly set out the terms of the deed Ext. I l(a). It isdescribed , as a deed of dedication iii respect of immovable properties valued at Rs. 20,000 for the Seba of the deity. After describing the. properties it is recited that the sett!or was in possession and erijoyment of the properties and that she dedicated the properties for Deb-Seba. The deed then recites that the settlor had been -carrying on the Seba of Sri" Gopal Jiu installed by her husband, and that the properties dedicated by her husband were not sufficient for satisfactorily carrying on the Seba of Sri Gopal Jiu for ever and for perpetuating the names of her father-in-law and mother-in-law and for carrying on the work of worship of the deity of Sri Gopal Jiu regularly for ever, the provisions then set out were made. 'The deed pr_oceeds to state:

~I dedicate the abovementioned two properties more fully described in the schedule below in order that the daily and periodichl Seba etc. of the said Sri Sri Gopal Thakur installed by n; iy husband may go on regularly.

From this day the said two properties become the pebuttar properties of the said deity Sri Sri Gopal Jiu Thakur and they vest in it in a state absolutely free from encumbrances and defects. The saitl deity Sri Sri

Gopal Jiu becomes the full owner of the said two properties. As to this neither I nor any of my heirs and legal representatives in succession shall raise .0r be

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NIRMALA V. BALA! CHAND (Shah, J.) 553

entitled to lay any claim or demand at any time and even if it be done it shall be wholly void and rejected"

Then the deed directs that "one good temple and ornaments worth approximately Rs. 500/- for Sri Gopal Jiu Thakur will be made out of the income of the Debuttar properties of Sri Gopal Jiu Thakur and on the temple being constructed, the deity will be installed and established therein and the expenses for worship etc. and entertaining Brahmins and other expenses in connection with the ceremony shall be met out of the income of the Debuttar properties of Sri Gopal Jiu Thakur". To meet the expenses for the worship of the deity the properties described in the schedule, it was directed, will be let out on rent and all the exp6nses of the deity will be defrayed out of the rents, that the Shebait shall maintain proper accounts of the income and expenditure and deposit in the deity's fund any surplus, repair the houses yearly, pay municipal taxes etc., and out of the accumulations from the surplus income purchase immovable properties in the name of the deity and with the income erect a house at 153, Beliaghata Main Road and deposit the rent from that house in the Debuttar fund. The deed gives detailed directions with regard to succession to the Shebaitship.

By the deed Nirmala and her husband Balai were constituted joint Shebaits and it was directed that after Nirmala's death Balai shall be the Shebait, am! after his death his two sons Paresh and Naresh will become Shebaits of the deity. The settlor expressed the hope that the two Shebaits and their lineal descendants will live in tlie same mess as members of the family and directed that any one who separated in mess will not be entitled to be a Shebait of the deity, but if they separated in mess for want of accommodation "out of their own accord and being unanimous", and all the properties remain joint, they shall be entitled to remain Shebaits. On the death of the two sons, Paresh and Naresh, their sons will become Shebaits in accordance with the shares of their respective fathers in the Shebaitship, and if any of the sons have more than one son then all such sons will together get their father's turn of worship and will act in accordance with the terms of the deed and carry on the worship of the deity and that in the absence of sons' sons, the settlor's great grandsons will be appointed Shebaits, and they will protect the Debuttar property. The deed then directs that the daily Seba will be carried on in the same manner prescribed in the deed of dedication relating to the Debuttar created by Balai and the daily and periodical expenses for the worship of the deity will be met out of the Debuttar properties dedicated by Balai. Provision was then made that on the occasion of each of the festivals of Janmastami, Rasjatra and of Sri Gopal Jiu Thakur a sum of Rs. 101 /- will be spent by the Shebaits for entertaining Brahmins and the poor. A monthly remuneration of Rs. 25 /- is provided for the person who acts as a Shebait and it is directed that so long as the sons shall remain Shebaits in joint mess. they will get, for the

SUPREME L'OURT REPJ tT~ (1965] 3 l.C.R.

expenses of their common family expenses four maunds of rice. two ma'tinds of flour per month and Rs. 2 /- per day "for daily .expenses". An additional amount of Rs. 101per month is directed to

be spent on the Sankranti day i.e. on the last day of each month and Rs. 51 /-on the occasion of Sivaratri out of the Debittrar estate. All these expnscs, if is directed, are to be met out of the house rents and the monthly Ticca rent of the lands of the Bmtee of the Debuttar properties. but the Shebaits arc not entilled to let out the house or land in permanent rights 10 any one nor are they entitled 10 mortgage, make a gift of. sell. encumber or transfer the S•lil:e in any other manner. and if there be no tenant in the house or the rent of the B11stee be not realised. the expenses of the deities will be reduced and the Silebaits will get reduced remuneration proportionately.

Provision is made for the devolution of the office of Shebait. Descendants in the female line are excluded from Shebaitship, until the entire male line is extinct. Provision is also made for application of the compensation received for Debuttar property: it is directed that out of the amount of compensation immovable properties will be purchased by the Shbaits in the name of the deity or the amount will be invested in Government paper in the name of the deity, and out of the interest thereof disbursements directed in the deed will be made. The deed then directs that the surplus amount remaining after meeting the cost of worship will be acumulated. The Slzebaits are prohibited from residing in or otherwise using the houses appertaining to the Debuttar estate and it is directed that if any one resides or uses it. he will remain bound to pay proper rent. Paragraph 12 of the deed then provides:

"II in future the Shebaits be in want of rooms for their residence then each of them will take three Cottahs of i' land within the Bustee No. 153, Beliaghata Main Road beginning from the southern extremity and after erecting houses thereon at his own expense will continue to enjoy and possess the same down to his sons, sons' sons and other heirs in succession on payment of a rent of Rs. 2 /- per Cottah per month to the Debuttar O estate and will pay for. taxes. rent~ and repairs etc. of the said house from their respective funds".

In the event of any Slzebait dying sonless after constructing a house, his widow will be entitled during her lifetime to reside in the house and will also be entitled to get food and Rs 5 /- pcr H month as expenses. The deed then again states:

"Be it stated that no one will at any time be entitled to make gift, sale or transfer in respect of the house built in the said Bustee. The said house will form a part of the De/mttar estate and the Shebait will only remain in possession of the same".

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N!RMALA <'. nALAI CHAND (Shah, J.) 555

Finally, the deed states that to the effect stated in the deed the settlor gives to Sri Iswar Gopal Jiu Thakur installed by her husband "the properties etc. mentioned in the schedule below".

In the preamble as well as in the operative part of the deed, it is stated that the settlor has dedicated the properties described in the schedule to the deed for the purpose of carrying on the worship of Sri Gopal Jiu Thakur. The deed expressly recites that the properties have, by the deed of dedication, bec.ome the properties of the deity and they vest in the deity absolutely free from all encumbrances, and that no other person has any right therein. The deed undoubtedly contains some inconsistent directions, but the predominant theme of the dedication is that the estate belongs to the deity Sri Gopal Jiu and that no one else has any beneficial interest therein.

The plea raised by Balai in the two suits was that the deed of dedication Ext. l l(a) was "a mere colourable one and was never acted upon" and that by the deed a cloud was "cast on" his title.

The Trial Court accepted the plea. The High Court held that the deed was valid, but thereby only a partial dedication was intended.

That there is a genuine endowment in favour of the deity Sri Gopal Jiu is now no longer in dispute. The only question canvassed at the Bar is whether the dedication is partial 9r complete. Balai contends that it is partial: the deity represented by Nirmala contends that it is absolute. Where there is a C:eed of dedication, the question whether it creates an absolute or partial dedication must be settled by a conspectus of all the provisions of the deed. If the property is wholly dedicated to the worship of the idol and no beneficial interest is reserved to the settlor, his descendants or other persons, the dedication is complete: if by the deed what is intended to create is a charge in favour of the deity and the residue vests in the settlor, the dedication is partial. Counsel for Balai contends that notwithstanding the repeated assertions in the deed of dedication that the property was endowed in favour of Sri Gopal Jiu and that it was of the ownership of the idol, the deed contained diverse directions which indicated that the dedication was intended to be partial. Counsel relied upon the following indications in the deed in support of the contention:

(!) A hereditary right was granted to the lineal descendants of ti)e settlor in the male line to act as Shebaits, and provision was made for their residence, maintenance and expenses. This was not restricted to the Shebaits only, but enured for the benefit of the members of the Shebaits' families.

(2) The income of the endowed property was In excess of the amounts required for the expenses of the deity.

Expenses of the deity were, it was contended, static, whereas the iohme was expanding, leaving a large

556 IUPllUlll COUllT &HPORTi [1~~5] 3 s.c.a ..

surplus undisposcd of. Proviion was made for reducing the expensei of the deity in the event of the income of the property contractini:.

(3) The deed was supplementary to another deed executed by Balai for the benefit of the deity, and the expenses of the deity were primarily to come out of the property endowed under that deed.

(4) Direction for accumulation of income of the property endowed, and other properties which may be acquired, without any provision for disposal of the accumulation disclosed an intention on the part of the scttlor to tic up the property in perpetuity for the benefit of the male descendants subject to a fixed charge in favour of the deity.

We do not propose to express any opinion on the validity or otherwise of the directions. under which provision for accumulation of income is made or benefit is given to persons other than the Shebaits arc concerned. This enquiry is ol)ly directed to the question whether on the assumption that the directions are valid. they indicate an intention on the part of the scttlor to create merely a charge on the estate endowed, reserving the beneficial interest in the scttlor or her heirs.

A reasonable provision for remuneration. maintenance and residence of the Shebaits does not make an endowment bad, for even when property is dedicated absolutely to an idol. and no beneficial interest is reserved to the senior. the property is held by the deity in an ideal sense. The possession and management of the property must. in the very nature of things. be entrusted to a Shebair or manager. and nomination of the settlor himself and his heirs with reasonable remuneration out of the endowed property with right of residence in the property will not invalidate the endowment. A provision for the benefit of persons other than the Shcbait may not be valid. if it infringes the rule against perpetuities or accumulations. or rules against impermissible restrictions. but that docs no, affect the validity of the endowment. The beneficial interest in the provision found invalid reverts to the deity or the settlor according as the endowment is ahsolute or partial. If the endowment is absolute, and a charge creat< d in favour of other persons is invalid the benefit will enure to the deity. and not revert to the settlor or his heirs.

Evidence about the income of the endowment in 'avour of Sri Gopal Jiu is somewhat vague and indefinite. The deed of endowment executed by Rdai for the deity to which the present deed Ext. 11 fa) is supplementary is not before the Court, and there is on the n:cord no evidence about the income from that endowment and the directions made thereunder.

The defect in the record is directly traceable to the nature of the plea raised by Balai in the

NmMALA V. BALA.I CHAND (Shah, J.)

Court of First Instance. He had pleaded that the endowment Ext. l l(a) made by his wife Nirmala was a "sham transaction" and was not intended to create any interest in the deity: it was not the case of Balai that the endowment though valid was partial and created a mere charge upon the property in favour of the deity.

Suits Nos. 79 & 80 of 1954 were tried with suit No. 67 bf 1955 and the question whether the endowment in favour of Sri Gopal Jiu was partial or absolute appears to have been raised without any pleading in the former suits. There is, however, some evidence on this part of the case, to which our attention has been invited, and on which the argument to support the decree passed by the High Court is founded by counsel for Balai. Under the deed of dedication Ext. 11 (a) "one good temple and ornaments worth approximately Rs. 500" are to be provided for out of the property endowed. Janamashtami, Rasjatra and other festivals are to be annually celebrated and in respect of each of these festivals Rs. 101 I are to be expended. The Shebait's remuneration is fixed at Rs. 25 I per month and for the benefit of the family of the Size. bait four maunds of rice, two maunds .of Atta and a sum of Rs. 21

per day for the daily expenses are provided. For performing the Seba of Sri Satyanarayan Jiu on Sankranti day every montF Rs. 10/- have to be spent, and Rs. 51 I have to be spent on the Sivaratri day. Provision has been made for paying Rs. 2/· per month to a pious widow of the family for helping in the Puja and to a widow bf a Shebait expenses at the rate of Rs. 5 I. per month have to be paid. In the aggregate, these would amount to Rs. 2,4001

per annum at the rates prevailing in 1939.

Income at the date of the endowment from the Bustee land F 153/ 1 was estimated by Nirmala to be Rs. 501 per month, and income from the house Nos. 155 & 15412 was estimated at Rs. 200 I. There is no clear evidence about the Municipal br other taxes, rent collection expenses and repairs. But on the materials found on the record, the plea that the income of the properties was largely in excess of the total expenses to be incurred cannot be G accepted. The settlor had provided that if a Shebait is unable to reside in the hbuse, he will be entitled to get a plot of land out of premises No. 153 at the rate of Rs. 21 per month: whether this rent was nominal or real, need not be investigated. If provision for residence of the Shebait can be made under a deed of endowment without affecting its validity, a provision whereby the Shebait will H be entitled to use the land belonging to the deity at specially lbw rates may not by itself amount to an impermissible reservation by the settlor. The plea that this was a simulate endowment has been abandoned by Balai. Assuming therefore that the charge for rent to be levied from the Shebaits as monthly rental was nominal, the validity of the deed of dedication will not on that ground be affected. Use of land in future by the Shebaits for erecting houses will undoubtedly reduce the land available for letting out at market LjP(N4SCI-9

558 St; PREME COURT REPORTS

(1965) 3 B.O.R.

rates. If the annual income of the deity was Rs. 3,000/- per annum, and some income under the deed of endowment executed by Balai, and the outgoing were Rs. 2,400/- beside taxes, collection charges for rents and the expenses for repairs, it would be reasonable to hold that there was not much disparity between the total income which the deity received in 1939 and the estimated outgoings. The fact that on account of the pressure on land increasing in the town of Calcutta, the rentals of immovable property may have gone up later, will be irrelevant in decidin~ whether a substantial residue was not disposed of by the deed. The direction in paragraph 6 of the deed that in the event of the rent not being realised, the expenses of the deity will be proportionately reduced and there will be proportionate reduction in the remuneration to be paid to the Shebaits also acquires significance.

Whether the provision for accumulation of income of the endowment is valid, does not call for determination in this case.

If there is an absolute dedication. but the direction for accumulation is invalid, the benefit of the income will enure for the benefit of the deity without restriction: the Income will not revert to the set ti or.

The High Court observed that the deed commenced with what purported to be an absolute dedication to the deity, but it was clear that the expenses for the Seba-Puja and other expenses of the deities under the deed were not of an expanding character, there being specific recitals in the deed which indicated that the dedication was merely supplementary to the earlier deed of endowment by Balai for the Seba-Puja etc. of the deity. The High Court observed:

"As a matter of fact there was specific recital in the deed itself, which indicated that it was merely to be supplementary to the earlier Debuttar deed of the husband Balai Chand Ghose, for the purpose of enabling the said Sheba Puja etc. to be carried on regularly and in a satisfactory manner. The epenses are practically all mentioned in the deed itself and however elaborate they may be, having regard to the nature of the properties and the estimate of the income, as appearing in the evidence before us, it is difficult to hold that any large part of said income would be spent on those expenses. This. undoubtedly, is a strong test in favour of holding that what was merely the creation of a charge for those expenses out of the properties, mentioned in the Schedule to the deed. Moreover under this deed (Ext. 11 (a)) (Vide clause 3) so far as the daily and periodical Shebas were concerned their expenses. or at least, the daily Sheba expenses, both fixed : 1d occasional, . . . were to be met out or the husband's <Balai Chand's) earlier Debuttar

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NIRMALA v. BALAICHAND (8!1a!1, J.) 559

thus leaving practically not much pressure upon the properties covered by this deed, Ext. I !(a). It is true that in several places of this deed (Ext.

I Ha), reference has been made to the income of the Debuttar tate or advantages to the Debuttar estate or investment, in the Debuttar estate, but they all, in the context. can be read as referring to the Debuttar estate, which was created by the dedication in question, namely, the partial Debuttar or the charge which was created in favour of the particular deity. Where a charge is created and a dedication is made, it will not be inappropriate to refer to the dedicated properties as Debuttar, though only for the limited purpose of providing for that charge. That, indeed, is the meaning of partial dedication, as understood in Hindu Law.

The mere use of the word 'Debuttar' would not necessarily constitute a particular endowment an absolute Debuttar. On the same principle and in sam(lo. context, the payment of rent by the Shebaits, occupying particular portion of the dedicated properties for purposes of their residence, may also be explained. As a matter of fact on a reading Of the entire deed, in the light of the circumstances of this case and upon a full consideration of the same, we are inclined to hold this deed, Ext. l l(a). upon its true construction, did not create an absolute Debuttar, but created only a charge in favour of the deity Sri Sri Gopal Jiu, named therein, for the various services and other necessities, referred to in several paragraphs of the said deed, Ext. 11 (a)".

The High Court opined that because the income of the endowed properties was large and was capable of continuous expansion, and the expenses for the purposes of the dmty were fixed, it may be inferred that the settlor intended to create a mere charge and not an absolute dedication in favour of the deity. In support of this pr<> position, the High Court placed strong reliance upon the judgment of the Judicial Committee in Surendrakeshav Roy v. Doorgasundari

Dassee and Another('). In that case Rajah Bijoykeshav Roy bequeathed by his will property to a Thakur, to secure proper performanGe of the Sheba and other ceremtmies and directed his two widows each to adopt a son, both of such sons being appointed Shebaits, subject to the control of the widows during their minority, with monthly allowance from the surplus income. The residue was not disposed of. Before the Judicial Committee it was urged that all the property had been devised under the will of the Raja to the deity and the heirs of the settlor had become Sheba its and were merely entitled to manage the property in the usual way.

In dealing with that contention the Judicial Committee observed atp.127:

r> L.R. 19 I.A. 108.

SUPREME COUaT RF.PORTS

(11165) 3 B.C.B.

"It is true that by 'the first sentence of the will all is given to the Thakoor; and though in the plaint the question is mooted whether the gift is made bona fide (and of course such gifts may be a mere scheme for making the family property inalienable~ it has not been really disputed.

Nor indeed could it well be disputed in this case. For the last part of the will shews clearlY. enough that the income was to be applied first in performing the sheba of the Thakoor who is mentioned as the object of the gift, and of other family Thakoors. and in meeting the prescribed monthly allowances, and in performing the daily and fixed rites and ceremonies 'as they are now performed and met'.

The testator must have been well aware that after all these charges had been met there would be a very large surplus. In fact he directs that out of the surplus each adopted son shall receive Rs. 1,000/- monthly; but of the residue after that he says nothing.

There is no indication that the testator intended any extension of the worship of the family Thakoors. He does not. as is sometime> done, admit others to the benefit of the worship. He docs not direct any additional ceremonies. He shews no intention save that which may be reasonably attributed to a devout Hindu gentleman, viz .. to secure that this family worship shall be conducted in the accustomed way. hy giving his property to one of the Thakoors whom he venerates most. But the effect of that, when the estate is large, is to leave some beneficial interest undisposed of. and that interest must be subject to the legal incidents of property".

But the judgment does not lay down any rule that where the income is expanding and the expenses are static, leaving a substantial residue, it must be presumed, notwithstanding the comprehensive and unrestricted nature of the disposition. that the settlor intended to create only a charge in favour of the deity. The question is always one of intention of the settlor to be determined from

~ review of all the dispositions under the deed of settlement.

In Sri Sri /swari Bhubaneshwari Thakurani v. Brojnnath Dey and Others(') certain properties were dedicated by two brothers to a domestic deity and it was directed that the right of Shebait should go to their male heirs by primogeniture. In dealing with a dispute whether under the deed of settlement. there was an absolute dedication to the deity, the Judicial Committee observed at p. 211:

"The dedication is not invalidated bv reason of the fact that members of the settlor's family are nominated as

r> L.R. ~I !. \. 203.

NIRMALA v. BALA! 'CHAND (Shah, J.) 561

Shebaits and given reasonable remuneration out of the endowment and also rights of residence in the dedicated property. In view of the privileges attached to dedicated property it has not infrequently happened, as the Law Reports show, that simulate dedications have been made,.and a close scrutiny of any challenged deed of dedication is necessary in order to ascertain whether there has been a genuine divestiture by the settler in favour of the idol. The dedication, moreover, may be either absolute or partial. The property may be given out and out to the idol, or it may be subjected to a charge in favour of the idol. 'The question whether the idol itself shall be considered the true beneficiary, subject to a charge in favour of the heirs or specified relatives, of the testator for their upkeep, or that, on the other hand, these heirs shall be considered the true beneficiaries of the property, subject to a charge for the upkeep, worship and expenses of the idol, is a question which can only be settled by a conspectus of the entire provisions of the will', Pande Har Narayan v. Surja Kanwari (L.R. 43 I. A.' 143). It is also of importance to consider the extent of the property alleged to be dedicated in relation to the expense to be incurred and the ceremonies to be observed in the worship of the idol. The purposes of the dedication may be directed to expand as the income increases, or the purposes may be prescribed in limiting terms so that if the inc., me increases beyond what is required for the fulfilment of these purposes it may not be protected by the dedication".

In a recent judgment of this Court in Sree Sree lshwar Sridhar Jew v. Sushi/a Bala Dasi and Others(') it was observed that the question whether the idol itself is the true beneficiary subject to a charge in favour of the heirs of the testator, or the heirs are the true beneficiaries subject to a charge for the upkeep, worship and expenses of the idol, has to be determined by a conspectus of the entire deed or will by which the properties are dedicated and that a provision giving a right to the Shebaits to reside in the premises dedicated to the idol for the purpose of carrying on the daily and periodical worship and festivals does not detract from the absolute character of a dedication to the idol.

I: is inexpedient to construe the terms of one deed by reference to the terms of another, or to lay down general rules appli cable to the construction of settlements varying. in terms. In construing a deed, the Court has to ascertain the intention of the settlor, and for that purpose to take into consideration all the

(') [195*) S.C.R. 4-07.

ii~2 8Ul'JU~:.MJ.: COURT REPORTI'

(1965] :I B.O.R.

terms thereof. If, on a review of all the terms, it appears that after endowing property in favour of a religious institution or a deity, the surplus is either expressly or by implication retained with the settlor or given to his heirs, a partial dedication may readily be inferred, apparently comprehensive words of the disposition in favour of the religious endowment notwithstanding.

The terms of Ext. 11 (a) however disclose a clear intention that the entire property was to belong lo the deity and no one else had beneficial interest or title thereto. The Shebaits and their descendants are given a certain interest in the property, but that direction does not cut down the absolute interest conveyed to the deity, nor can it be interpreted as reserving a beneficial interest in favour of the settlor or his heirs. The direction operates to create> a charge upon the estate of the deity, and not to reduce the eslale itself to a charge.

To recapitulate, therefore, the property is dedicated absolutely for the deb-seba of the deity: no beneficial interest is reserved to the settlor or his heirs: and the direction for accumulation of the income does not affect the validity of that dedication. Provision for maintenance and residence of the Shebaits being an ordinary incident of such a dedication cannot be interpreted as restrictive of the estate of the deity. It is unnecessary to decide whether the

directions for appropriation of a part of the income for persons other than the Shebaits may be valid; if it be invalid, the interest will revert to the deity and not to the seltlor. It must, therefore, be held that ExL 11 (a) creates an endowment for the benefit of the deity absolutely, subject to certain charges in favour of the Shebaits

and tlJe descendants of the settlor.

It is unnecessary, in view of the course which the proceedings in suit No. 67 of 1955 have taken, to set ou\ the terms of Ext. 11

execuea by Balai and Nirmala on September 15, 1944. Suit No. 67 of 1955 was filed originally by Balai against the two deities Sri Satya11arayan Jiu and Sri Lakshminarayan Jiu and Nirmala, and Balai sought to represent the two deities. On an objection raised to the constitution of the action by Nirmala, Sunil Sekhitr Bhattacharjce was appointed guardian of the two deities for the action.

Bhattacharjee tiled a writcen statement denying the claim made by Balai and submitted that th~ deJication in tavour of the deity was absolute. An issue was raised about the nature of the endowment and the Trial Court declared that the endowment was partial and the beneficial interest remained vested in Balai. The Trial Court had rejected the case of the deities that there was an absolute dedication, and the guardian for the suit did not challenge that decree on behalf of the two deities. Nirmala appealed and contended that there was an absolute dedication in favour of the deity, but she did not represent the deities and could not raise that claim, unless she got herself formally appointed guardian of the deity by order of the Court. The High Court confirmed the decree passed

NIRMALA u. BALA! CHAND (Shah, J.) 563

by the Trial Court, subject to certain modifications which are not material.

In this appeal, the two deities are also impleaded as pai:tyrespondents, but the deities have not taken part in the proceedmg before this Court, as they did not in the High Court. The decree against the two deities has become final, no appeal having been preferred to the High Court by the deities. It is not open to Nirmala to challenge the decree insofar as it is against the deities, because she does not represent the deities. The rights conferred by the deed. Ext. 11 upon Nirmala are not affected by the decree of the Trial Court. She is not seeking in this appeal to claim a more exalted right under the deed for herself, which may require reexamination even incidentally of the correctness of the decision of the Trial Court and the High Court insofar as it relates to the title of the deities. It was urged, however, that apart from the claim which Nirmala has made for herself, the Court has power and is indeed bound under 0. 41 r. 33 Code of Civil Procedure to pass a decree, if on a consideration of the relevant provisions of the deed, this Court comes to the conclusion that the deed operates as an absolute dedication in favour of the two deities. Order 41 r. 33, insofar as it is material, provides:

"The Appellate Court shall have power to pass any decree and make any order which ought to have been passed or made and to pass or make such further or other decree or order as the case may require, and this power may be exercised by the Court notwithstanding that the appeal is as to part only of the decree and may be exercised in favour of all or any of the respondents or parties although such respondents or parties may not have filed any appeal or objection: "

The rule is undoubtedly expressed in terms which are wide, but it has to be applied with discretion, and to cases where interference in favour of the appellant necessitates interference also with a decree which has by acceptance or acquiescence become final so as to enable the Court to ad just the rights of the parties. Where in an appeal the Court reaches a conclusion which is inconsistent with the opinion of the Court appealed from and in adjusting the right claimed by the appellant it is necessary to grant relief to a person who has not appealed, the power conferred by 0. 41 r. 33 may properly be invoked. The rule however does not confer an unrestricted right to re-open decrees which have become final merely because the appellate Court does not agree with the opinion of the Court appealed from.

The two claims made against Nirmala and the deities in suit No. 67 of 1955, though capable of being joined in a single action were dist.inct. Aginst th~ deites it was claed that the property was partially dedicated m therr favour; agamst Nirmala it was

8UPRDIE COURT REPORTS (1960] s a.c.a.

claimed that she was merely a benamidar for the settlor Balai and that she was not a Shebait under the deed of settlement. The High Court has passed a decree declaring that dedication in favour of the deities is partial and has further held, while affirming her right to be a Shebait that Nirmala was merely a benamidar in respect of the properties settled by the deed. There was no inconsistency between the two parts of the decree, and neither in the High Court nor in this Court did Nirmala claim a right for herself which was larger than the right awarded to her by the decree of the Trial Court. In considering the personal rights claimed by Nirmala under the deed Ext. 11, it is not necessary, even incidentally, to consider whether the deities were given an absolute interest. There were therefore two sets of defendant~ in the suits and in substance two decrees though related were passed.

One of the decrees can stand apart from the other. When a party allows a decree of the Court of First Instance to become final, by not appealing against the decree. it would not be open to another party to the litigation. whose rights are otherwise not affected by the decree. to invoke the powers of the appellate Court under 0. 41 r. 33, to pas! a decree in favour of the party nut appealing so as to give the latter a benefit which he has not claimed. Order 41 r. 33 is primarily intended to confor power upon the appellate Court to do justice by granting relief to a party who has not appealed. when refusing to do so. would result in makin~ inconsistent, contradictory or unworkabk orders. We do not think that power under 0. 41 r. 33 of the Cod~ of Civil Procedure can be exercised in this case in favour of the deities.

Appeals Nos. 966 and 968 of 1964 must therefore be allowed with costs throughout. It is declared that the properties in deed Ext. 11 (aJ were absolutely dedicated in favour of the deity Sri Gopal Jiu. Suits Nos. 79 & 80 of 1954 will therefore stand dismissed. This will. however, be without prejudice to the concession made on behalf of Nirmala that she was a benamidar of her hus band Balai in respect of the properties settled bv the deed Ext. 11 (aJ. Appeal No. 967 of 1964 will stand dismissed with costs in favour of Balai.

Bacbawat, J. I agree entirely with what has fallen from IBY learned brother, Shah. J. with regard lo the deed. Ext. I ](a). and I agree that the deed creates an endowment for the benefit of the deity absolutely. subject to certain charges in favour of the Shebaits and the descendants of the elllor.

With regard to Ex. 11, my learned brother has held that it is not open to Nirmala Bala to challenge the decree passed in Suit No. 67 of 1955. With the greatest respect for my learned brotlicr, I am unable to agree with this conclusion. The trial Court decreed that the dedication under Ex. 11 is partial and not absolute, and I think it was open to Nirmala Bala to challenge the decree. in the

NDUW.A V. Bilil OlWID (Bac/ialllat, J.)

High Court, and on the appeal to the High Court being dismissed, it is open to her to challenge the decree of both. the Courts by an appeal to this Court It is true that the deities were represented by independent guardians ad /item for the purposes of this litigation.

But Ninnala Bala is one cf the joint Shebaits of the deity, and as such, she has a right to assail the decree.

Iu Maharaja Jagadindra Nath Roy Bahadur v. Rani Hemanta Kumari Debi('), Sir Arthur Wilson observed:

"But assuming the religious dedication to have been of the strictest character, it shall remain that the possession and management of the dedicated property belong to the shebait. And this carries with it the right to bring whatever suits are necessary for the protection of the property. Every such right of suit is vested in the shebait, not in the idol''.

As a joint Shebait of the deity, Nirmala Bala has the right to file this appeal against the decree which declares that the dedication is partial and not absolute. Such an appeal is necessary for the protection of the property of the deity. The other Shebait and the deities are parties to the appeal, and I am unable to hold that the appeal is not maintainable at the instance of Nirmala Bala.

Moreover, it is well-settled that a Shebaiti right is a right of property. In Th~ Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt('), B. K. Mukherjea, J. observed:

"It was held by a Full Bench of the Calcutta High Court [Monahai v. Bhupendra(')], that Shebaitship itself is property, and this decision was approved of by the Judicial Committee in Ganesh v. Lal Behary('), and again in Bhabatarini v. Ashalata('). The effect of the first two decisions, as the Privy Council pointed out in the last case, was to emphasise the proprietary element in .the Shebaiti right and to show that though in some respects an anomaly, it was an anomaly to be accepted as having been admitted into Hindu Law from an early date. This view was adopted in l!B entirety by this Court in Angurbala v. Debabrata(')" It follows that the shebaiti right of Nirmala B!)la under the deed, Ex. 11 (a) is a right of property. This right is affected by the declaration that the deed, Ex. 11 (a) created a partial and not absolute debuttar. The shebaiti right is an absolute debuttar is certainly different from the shebaiti right in a partial debuttar. The decree

(') [1904.] L.R. 31 I.A. 203, 210

(') 60 Col. 4112.

(') 70 I.A. 67.

(') [19M) S.C.R. 1006, 1018.

(') 63 I.A. 448.

(') [1961) S.C.R. 11!0.

SVPREllE COL"RT REPORTS

(1965] 3 S.C.R.

under appeal therefore affects the shebaiti right of Nirmala Bala.

She is aggrieved by the decree. and is entitled to challenge it in appeal.

In this view of the matter, I hold that the appeal by Ninnala Bala from the decree in Suit No. 67 of 1955 is maintainable. I would, therefore, have examined the contention of the appellant with regard lo Ex. 11 on the merits, and then disposed of the appeal. But as the majority view is that the appeal is not maintainable, no useful purpose will be served by an examination of the merits of the appellant's case with regard to Ex. 11.

ORDER

Following the judgment of the majority, Appeals Nos. 966 and 968 of 1964 are allowed with costs throughout. It is declared that the propt:rties in deed Ext. 11 (a) were absolutely dedicated in favour of the deity Sri Gopal Jiu. Suits Nos. 79 & 80 of I 954 will therefore stand dismissed. This will, however. be without prejudice

to the concession made on behalf of Ninnala that she was benami- D dar of her husband Balai in respect of the properties scllied by the deed Ext. I l(a). Appeal No. 967 of 1964 is dismissed with costs in favour of Balai.

NIRMALA BALA GllOSE Al'cl> ANOTHER

BALAI CHAND GHQSE AND ORS

1965 (K. SuoBA RAO, J.

C. SHAH

Code of Civil Procedure

Sree Sree

Per Subba Rao

Bachawat

(1904) L. R. 31 I. A. 203

CIVIL APPELLATE JURISDICTION

Calcutta High Court

S. V. Guptc

A. K. Sen

D. N. Mukherji

A. V. Viswanatha Sastri

S. C. Majumdar

BA RAo

SHAH

BACHAWAT

Shah

Balai

Nirmala

Septmber 15, 1944

Satyanarayan Jiu

Lakshminarayan Jiu

Satyanarayan Jiu

High--Court of Judicature at lcutta

c Gopal Jiu

Gopal Jiu

Gopal Thakur

Gopal Jiu Thakur

Gopal Jiu

Gopal Jiu Thakur

Paresh

Naresh

Janmastami

Rasjatra

Slzebait

N!RMALA

nALAI CHAND

Iswar Gopal Jiu Thakur

Rdai

NmMALA V. BALA.I CHAND

Janamashtami

Calcutta

Balai Chand Ghose

clause 3

Balai Chand

Rajah Bijoykeshav Roy

L.R. 19 I.A. 108

September 15, 1944

Satya11arayan Jiu

Lakshminarayan Jiu

Sunil Sekhitr Bhattacharjce

Bhattacharjee

NIRMALA u. BALA! CHAND

Code of Civil Procedure

Bacbawat

Shah

Shebaits

Nirmala Bala

NDUW.A V. Bilil OlWID

Ninnala Bala

Arthur Wilson

B. K. Mukherjea

Nirmala B!)la

L.R. 31 I.A. 203

SVPREllE

Ninnala


ALAPATIVENKATARAMIAU v.

COMMISSIONER OF INCOME '!'AX HYDERABAD March 29, 1965 [K. SUBBA RAO, J. c. SHAH .AND S.M. Sucru, JJ.) Indian Income-tax Act, 1922 (11 of 1922), s. 12B-Capital Gains-- Passing of Title-What constitutes-Date of sale or transfer -What is.

On 17th March 1948, the assessee entered into an agreement to sell his factory to a company, and on the very same day possession of all the assets of the factory was handed over to the company. A few days later an entry was made in the company's account showing that a sum of Rs. 2,00,000/- had be€n paid to the assessee and there were corresponding entries in the assessee's accounts also. In fact only a lakh and odd was paid to the asS<Ossee and even that amount was paid only in Ma:ch 1949. ; n November 1948 a sale deed was executed and registered and in March 1949 the Board of Directors of the Company ratified the sale. For the assessment year 1948-49, the assessee had included in his return, the sum of Rs. 2 lakhs as capital gains. The Income-tax Officer held that the assessee realised an excess of Rs. 79,494/- over and above the original cost, as capital gains assessable under s. 12B of the Income-tax Act, 1922. The Appellate Assistant Commissioner, and the Tribunal confirmed the order. In reference, the High Court held that it was immaterial as to when the money was actually paid because the transfer had already been made to the company by possession, that for the purpose of the section the assessee should have the right to receive the profits and not that he should have in fact received it, that entire property was transferred by giving possession to the company in the year of account, and that the income had arisen to the assessee in the year of account. In appeal to this Court, it was contended that as the sale took place only in March 1949, when the Directors ratified the agreement of sale, no sale or transfer took place before 1st April 1948, as required by s. 12B, and hence the amount was not liable to tax.

HELD: Title to the assets could not pass to the company till the conv:eyance was executed and registered and consequently no sale, in the mstant case, took place of the assets before 1st April 1948 as required by s. 12B. [574B] Commissioner of Incometa.x v. Bhuranoya Coal Co. 34 I.T.R 802, referred to.

Before s. 12B can be attracted, title must pass to the company by any of the modes mentioned in s. 12B i.e., sale, exchange or transfer.

It is true that the word 'transfer' is used in addition to the word 'sale' but even sO, in the context, transfer must mean effective conveyance of the capital asset to the transferee. Delivery of possession of immovable property cannot by itself be treated as equivalent to conveyance of the immovable property. [574E] The date of sale or transfer according to s. 12B is the date when the sale or transfer takes place, and the entries in the account books are irrelevant for the purpose of determining such a date. (574F-G] In the present case. machinery. electrical fittings, buildings and site were not sold or transferred in the relevant year of account; only

l'.J•Uf::)IF, COt:H1' RF.ro1rrs [Ioo:i] 3 8.C.R.

one asset, namely, furniture was transferred on 17th Ma.-ch 1948 as title to furniture can pass by delivery. Capital gains, if any, made by the transfer of furniture accrued on that date. The position of goodwill is ho\revcr ditlcrent_ It is an intangible asset and it ordinarily passes along \\'ith the tn1nsference of the v..•hole business and so it was not transferred before !st April !948. f575A-E]

Ov11. APPELLATE kRISDICTION: Civil Appeal No. 5 of 1964.

Appeal by special leave from the judgment and order dated December I. 1961 of the Andhra Pradesh High Court in Case Referred No. 21 of 1960.

A. V. Viswanatha Sa11ri, K. Jayaram and R. Va.mdeva Pillai for the appellant.

K. N. Rajagopa/ Sastri and R. N. Sacl11hey, for the respondent.

The Judgment of the '-ourt was delivered by Sikri, J. This appeal by special leave is directed against the judgment of the High Court of Andhra Pradesh an, wer; ng the question referred to it under s. 66 of the Income Tax Act. 1922. against the appellant. The que>tion referred to was "whether on the facts and in the circumstances of the case a sum of Rs. 79.494!- is assessable as capital gains in the assessment year 1948-49."

The facts relevant to the question are as follows. The assessment year in question is 1948-49 and the accounting year is the official year l'J47-48. The appellant, here'naftcr referred to as the assessee, Alapati Vcnkataramaiah. was the proprietor of Mohan Tile .E Works. engaged in the manufacture of tib and bricks and owned the factory buildings, plant and machinery. The assessee entered into an agreement dated March 17, 1948. with one Shri Manthena Venkata Raju agreeing to sell to the Mohan Industries Limited. hereinafter called the Company, the aforesaid factory, plant, machinery, forniture. stocks and goodwill for a sum of Rs. 2,00,000/-.

The agreement recited that the assessee bad been carrying on business under the name and style of Mohan Tile Works at Tenali and that the company to be called the Mohan Industries Limited is to be formd under the Imlian C<imp<rnies Act, having for its object among other th'ngs the acqui>ition and the working of the said busine, s. It appears that this agreement was drafted before the Comp.i:iy was incorporated and the recital clause was not modified when the agreement Wus actually executed. It is common ground that the Company was incorporated on July 5. 194.7. before the date of the agreement. Since the answer to the question turns in part on the construction of the agreement it would be convenient to set out the relevant clauses. which arc as follows:

"I. The vendor shall sell and the company shall purchase: First the Goodwill of the said business (with the exclusive right to represent the company as carrying on such

busincs5 in continuation of the Vendor or in succession thereto).

VENKATARAMIAH l'. C, I. 'f, (Sikl'1:, J.)

Secondly all the immovable properties specified m Schedule hereto; Thirdly all the plant, machinery, offices furniture. licences. livestocks, carts, implements and utensils to which the vendor is entitled in connection with the said business specified in the Second Schedule hereto; Fourthly all materials and semi-processed materials in stock described in the third schedule.

2. The consideration for the said sale shall be the sum of Rs. 2,00,000.00 which shall be paid and satisfied by payment in cash soon after the capital Rs. 3,00,000.00 has. been raised or in any other manner agreed upon between the Directors of the Company and Vendor.

6. The purchase shall be completed by Seventeenth day of March, 1948 at Tenali when possession of the premises shall as far as practicable be given to the company and the consideration aforesaid shall be paid and satisfied subject to the provisions of the agreement and thereupon the Vendor and all other necessary parties, if any, shall at the expense of the company execute and do all the assurances and things for vesting the said prem'.ses in the company and giving to it the full benefit of this Agreement as shall be reasonably required.

7. If from any cause whatever other than the wilful default of the vendor the purchase shall not be completed by the said 17th day of March, 1948 the company shall pay interest on the said sum of Rs. 2,00,000.00 (Two lakhs) cash at the rate of ..... , ... p.c. per annum.

8. Upon the adopt'on of this agreement by the company in such manners as to render the same binding on the company the said Manthena shall be discharged from all liability in respect thereof.

9. Unless before the day the company shall have becorne entitled to commence business either of the parties hereto may by notice. in writing to the other, determine this agreement and after adopting this agreement the company shall stand in the place of the said vendor for the purpose of this clause. I 0. If this agreement shall not be adopted by the company in the manner aforesaid before and day next, either of the parties may by notice in writing to the other determine the same." The assessee was appointed managing agents of the company on July 15, 1947. and on March II, 1948. he wrote a letter on behalf of the company to the Director of Industries and Commerce, Madras, furnishing a detailed list of land, building and machinery comprising the assets of the company together with their value, in

mo SUPREllE COURT REPOllTS

(!965) 3 !.C.R.

connection with the g, rant of loan by Goverr.ment. On March 20,

1948, the assessee was credited with the price of Rs.200000 /- in the books of the company. On November 22. 1948, sale deed in respect of land was executed in favour of the company. On December 9, 1948, the company mortgaged the land with all its buildings and structures thereon and the machinery. plant and other property for Rs. 1.00.000ito the State of Madras. On March 16, 1949. the Board of Directors, by resolution No. 22 approved the agreement dated March 17, 1948, and on April IO. 1949, the agreement was approved at the annual general meeting of the company. In the first annual report dated March 22, 1949. it was stated as follows:

"The company was registered on 5th July 1947. The Memorandum of Association and Articles alonwith the prospectus of the company were published and the shareholders and the public arc well aware of the objects and the prospectus of this industry in Andhra. To achieve their

object~ the directors entered into an agreement called vendor's agreement. with Sri Alapati Venkatramiah, Proprietor of Mohan Tile Works on 17-3-1948." It appears that the assessee had returned this income as capital gains in his return and the Income Tax Officer, without any discussion, held that the assessee realised an excess of Rs.79,494/- over and above the original rnst and this was capital gains assess able under s. 12B of the Act.

The assessee appealed to the Appellate Assistant Commissioner and in the grounds of appeal stated that "the Income Tax Officer erred in determining the excess over the original cost in respect of the building at Rs. 79,494/- as attracting tax to capital gains. As a matter of fact the building was sold at Rs. J.69,950, but a sum of one lakh alone was received and the balance is yet to be received. The transaction therefore cannot be said to be complete nor can it be said that the profits had been realised. Therefore. the sum of Rs. 79,494/- as attracting capital gains is absolutely unjustified." The Appellate Assistant Commissioner observed that the fact that a part of the sale amount had not been realised was irrelevant.

Then he said that "at one stac it was contended that there was no legal transfer of the buildings, machinery, etc. to the lim'ted c(}mpany. There is no substance in this contention also. The limited company is said to have obtained a loan of more than a lakh of rupees from the Madras Government on the bJsis that they were the owners of the bu; i<lings. machinery. etc. which they had purchased from the appellnt. The statement therefore that there was no legal transfer cannot be true. I am satisfied that the sum of Rs. 79,4941a5 returned bv the appellant under the head capital gains was rightly included in the asse.ssment."

The assessee then appealed to the Appellate Tribunal. The Tribunal, by its order dated November 24, 1955. held that "there

VENKATARAM!AH V. C. I. T. (Sikri, J.) 171

was in fact no sale, much less legal transfer of lands, buildings, machinery etc., to the lim; ted liability company which was promoted to take over the tiles business. There was only an agreement to sell. [n fact, the assessee did not receive a single pie during the year of account or even during the period when the capital gains was in force. l; le received in all Rs. I lakh in several instalments beginning from 25-3-1949, which is beycmd the year of account. The point that the assessee himself returned the sum of Rs. 79,494/- under the capital gains leads us nowhere. He might have done it under the advice of some "income-tax expert". The assessee cannot be tied down to an inadvisably made wrong statement. In the circumstances, we delete the addition."

It appears that the Commissioner of Income tax filed an application under s. 35 of the Act for the correction of the Tribunal's. order on the ground that the Tribunal had not mentioned in the order certain documents which, if they had been considered, would perhaps support a conclusion different from the one arrived at by the Tribunal. The Tribunal thereupon came to the conclusion that its earlier decision deleting the amount from taxation was based on non-consideration of various materials on record and it proceeded to rectify this order as a mistake apparent from the record. Accordingly it deleted para 4 in its order dated November 24, 1955, and substituted its order dated March 8, 1957. The Tribunal held that in pursuance of cl. 6 of the agreement dated March 17, 1948, the possession of the entire factory was immediately handed over to Mohan Industries and that the sale deed dated November 22, !948 was executed for consideration of Rs. 4,500/- only and refers . only to the land on which the factory is situated, and did not refer to the factory, machinery and plant, etc. which had been taken possession of by Mohan Industries on March 17, 1948. Further it held that the entries in the account books of Mohan Industries under date March 20, 1948, showed that a sum of Rs. 2;00,000/- was credited in favour of the assessee and the asset accounts were debited as follows:

Plant & Machinery a./c

L.P. 27 Rs. 15,989 0 0

Furniture: account ... 29 18,806 0 0

ElectriC' gooda "

31 l,2sg 10 0

Site & Construction ae(ount 33 1,26,470 0 0

Stock account " 34 30,050 0 0

Goodwill a.erount 40 7,396 6 0

Tot&!

Ro. 2,00,000 0 0

1172 SUP&Elll.E CQUIIT lll'ORT8 [I fl6/i] 3 s.c.a.

Further it noticed that the assessee also made corresponding entriea A in the books on March 20, 1948, by debiting Rs. 2,00,000/· to Mohan Industries and crediting the various accounts in the same way. The Tribunal also relied on the letter dated March II, 1948, from Mohan Industries to the Director of Industries. and the first annual report dated March 22, 1949. As stated above, the Tribu

nal referred the question set out above.

The High Court came to the conclusion (!) that in the circwn stances of the case it is immaterial as to when the money was actually paid because the transfer had already been made by putting the company in possession; (2) that the words used in s. 128 are sale, exchange, relinquishment or transfer. If transfer is equivalent .to sale, in that it should only be by a registered instrument, the o Legislature would not have used two different words for that pur pose. All that is required for the purpose of this sect; on is that the assessee should have a right to receive the profits !lid not that he should have in fact received it. The assessce, in their view. had a right lo receive the two lakh of rupees under the agreement immediately and in fact he treated it as having been received; (3) the D entire movable and immovable property was transferred by giving possession to the company in the year of account and in order to perfect the title the only thing that is required was a registered conveyance in respect of land wh; eh wa• done subsequently; and (4) that it is apparent from the entire transaction and the method of accounting adopted both by the assessee and the company that the E income had arisen to the assessee in the year of account and there is no justification even for the contention that atlcast immovable assets should be deemed to have been transferred only in the year in which the actual sale deed was executed. Accordingly, it answered the question in the affirmative.

Mr. A.V. Vishwanatha Sastri. the learned counsel for the F assessee contends that under s. 128 of the Income Tax Aci, as it stood at the relevant time. profits and gains arc deemed to be the income of the previous year in which the sale. exchange or transfer took place. He says that the sale took place when on March

16. 1949, the Board of Directors ratified the agreement dated March 17. 1948; till then there was only an agreement to sell and G that an agreement to sell is neither a sale nor a transfer of a capital asset. The relevant part of s. 128 was in the following terms:

"128. Capital gains-(!) The tax shall be payable by an assessee.under the head "Capital gains" in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset effected after the 31st day of March 1946 and before the 1st day of April 1948; and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange or transfer took place ... "

VENKATARAMIAH V. c. I. T. (Sikri, J.) 573

The word "capital asset" was defined to mean "property of any kind held by the assessee whether or not connected with his business, profession or vocation but does not include (i) any stock-intrade, consumable stores or raw materials held for the purpose of his business, profession or vocation."

The question which arises is whether any sale or transfer took place before the first day of April, 1948. Upto that date, apart from the agreement to ell, three events had taken place. First, the assessee as managing agents had written on March 11, 1948, i.e., before the agreement wa9 signed, to the Government regarding loan. Secondly, on March 17, 1948"the possession of the land and the buildings and machinery had been given to the company,

Thirdly, on March 20, 1948, the assessee had been credited with the price of Rs. 2,00,000 I in the books of the company and he had also made appropriate entr'es in his own account books Turning now to the agreement dated March 17, 1948, it is urged that_ this is an agreement to sell artd not a sale deed. This !s evident from clause 1 of the ag.reement. Further it is contended that it is a condit; onal agreement to sell.· Reliance is placed on clauses 8 and 9 of the agreement. Clause 8 expressly contemplates adoption of the agreement by the company in such manner as to render the same binding on the company, and clause 9 contemplates that it is only after the adoption of the agreenient that the company shall stand in the place of the said Mantana Venkata Raju. It seems to us that it was a conditional agreement to sell and before it ct>uld ripen into a contract between the company and the assessee, it had ti:: be adopted by the company. We may mention that Mr. Rajagopala

Sastri urged that we should discard clauses 8 and 91because they were meant to operate if the agreement had been executed before the incorporation of the company. But we are unable to rewrite the agreement. Clauses 8 and 9 are appropriate in an agreement which is made by an agent subject to confirmation by a principal .and must be given effect to.

When was the agreement adopted by the company? We are relieved from addressing ourselves to this question because in the statement of the case, which was agreed to by the assessee and the Revenue, it is stated that "the said agreement was approved and accepted by a resolution of the Board of Directors of the Company on 16.3.1949 and in and by the said resolution the company agreed to pay purchase price in instalments commencing from 31.3.1949.

The agreement was subsequently approved by the general body of share holders at a meeting held on 10-4-1949 and on such approval, acceptance and adoption, the agreement became binding on the assessee and the company."

Even if the agreement was accepted by the company in 1949, the question still remains whether any sale or transfer of assets took" place before April 1948. Sale or transfer of an asset could take place, as it did in respect of the site, even before the agreement was

L/P(N)4SC!-IO

574 SUPREME COUllT REPORTS [1965] 3 s.c.n.

accepted. The assets comprised of two items of immovable property,

viz., Plant and machinery valued at Rs. 15,989 / and site and buildings valued at Rs. 1,26,470/-. It is clear that title to these assets could not pass to the company till the conveyance was e.ecuted and regi; tered. (See Commissioner of Income Tax v. Bhurangva Coal Co.(') No such conveyance was executed before April 1, 1948. It is only on November 22, 1948, that a sale deed was executed and registered in respect of the site. Therefore. it is clear that the title to these assets did not pass to the company till after April 1, 1948. and consequently nb sale took place of these assets before April 1, 1948.

Mr. Rajagopala Sastri however urges in the alternative that even if no sale took place before April I, 1948, the assets had been transferred to the company before that date. He says that 'transfer' is a wide word and had been used in s. I 2B to cover those cases where rights in assets have been transferred in such a manner as to give rise to capital gains. He further urges that in this case possession of the assets was transferred to the company on March 17. 1948, and the assessee could never get back possession of the immovable assets in view of s. 53A of the Transfer of Property Act.

In none of the cases cited before us has this point been considered.

We are unable to sustain this contention. Before s. 12B can be attracted, title must pass to the company by any of the modes mentioned in s. l 2B, i.e. sale, exchange or transfer. It is true that the word 'transfer' is used in addition to the word 'sale' but even so, in the context transfer must mean effective conveyance of the capital asset to the transferee. Delivery of possession of immovable property cannot by itself be treated as equivalent to conveyance of the immovable property. •

The High Court has relied on the entries made in the account books of the assessee and the company on March 20. 1948, but the date of sale or transfer according to s. l 2B is the date when the sale or transfer takes place, and it seems to us that the entries in the account books are irrelevant for the purpose of determining such a date.

Mr. Rajagopala Sastri contends that the assessee should not be allowed at this stage to draw a distinction between movable and immovable assets, but in the statement of the case, which was agreed to by the assessee and the' Revenue, a di, tinction is drawn thus:

"The building and site was valued at Rs. 1,26,470/-.

The machinery and electrical titting which were permanently embedded in the earth were respectively valued at !ls. 15,989/- and Rs. 1,298-10-0. The stocks were valued at Rs. 30,050/- and gootlwill at Rs. 7396-6-0." We are. therefore. unable to prevent the asscssee from relying upon the distinction between movable and immovable assets. In the

(') 34 1.T.R. 802.

VENKA'rARAMIAH v. c. I. T • . (Sikri, J,) 575

result, we hold that the following assets were not sold or transfer red before April I, 1948.

(i) Machinery valued at Rs. 15,989-0-0.

(ii) Electrical fittings valued at Rs. 1,289-10-0.

(iii) Buildings and site valued at Rs. 1,26,470-0-0.

Therefore, no capital gains in respect of these items arose in the previous year ending March 31, 1948.

This brings us to the movable assets. Stocks valued at Rs. 30,050 /- are expressly exempt from the definition of capital asset, and therefore we hold that no capital gain accrued in respect of their sale or transfer. This leaves furniture valued at Rs. 18,805/-, and goodwill valued at Rs. 7,396 / 6 /-. There is no doubt that possession of furniture was delivered on March 17, 1948, and as title to furniture can pass by delivery, capital gains, if any, accrued on that date. In the circumstances of the case, delivery must have been m:1de with the intention of passing title. The position regarding goodwill is however different. It is an intangible asset and it ordinarily passes alongwith the transference of the whole business. It cannot be said in the circumstances of this case that the goodwill was transferred before April I, 1948. Accordingly, we hold that only one asset, namely, furniture was transferred before April I,

1948. In the result, we answer the question referred to the High Court as follows:

"In the facts and circumstances of the case the sum of Rs. 79 ,494 /- is not assessable as capital gains in the assessment year 1948-49, but only such part of it, if any, as is attributable to the capital gain made by the transfer of furniture valued at Rs. 18,805 I. is assessable." The appeal is accordingly accepted and as the assessee has succeeded substantially he will have his costs here and in the High Court.

Appeal allowed.

ALAPATIVENKATARAMIAU

K. SUBBA RAO, J.

c. SHAH

Indian Income-tax Act, 1922

s. 12B

17th March 1948

s. 12B

Income-tax Act, 1922

1st April 1948

s. 12B

s. 12B

s. 12B

s. 12B

s. 12B

17th Ma.-ch 1948

A. V. Viswanatha Sa11ri

K. Jayaram

R. Va.mdeva Pillai

K. N. Rajagopa/

R. N. Sacl11hey

Sikri

High Court of Andhra Pradesh

s. 66

Alapati Vcnkataramaiah

Mohan Tile .E Works

March 17, 1948

Manthena Venkata Raju

Mohan Industries Limited

Mohan Tile Works

Tenali

July 5. 194.7

Second Schedule

Seventeenth day of March, 1948

17th day of March, 1948

July 15, 1947

March II, 1948

Madras

March 20,

1948

November 22. 1948

December 9, 1948

State of Madras

March 16, 1949

17, 1948

April IO. 1949

March 22, 1949

5th July 1947

Andhra

Alapati Venkatramiah

s. 12B

Madras Government

November 24, 1955

s. 35

March 8, 1957

cl. 6

Mohan Industries

November 22, !

s. 128

A.V. Vishwanatha Sastri

s. 128

March

16. 1949

March 17. 1948

s. 128

31st day of March 1946

1st day of April 1948

March 11, 1948

March 17, 1948"the

March 20, 1948

clause 1

Clause 8

clause 9

Mantana Venkata Raju

Rajagopala

Sastri

April 1, 1948

November 22, 1948

Rajagopala Sastri

April I, 1948

s. 53A

Transfer of Property Act

s. 12B

March 20.

March 31, 1948