SHEODAN SINGH

I'.

SMT. DARYAO KUNWAR

January 14, 1966

[P. B. GAJENDRAGADKAR, C. J., K. N. WANCHOO, Y. RA~SWAMI

AND P. SATYANARAYANA RAJU, JJ.)

Code of civil Procedure (Act 5 of 1908). s. I I-Appeals diomissed tU time ba"ed, failure to print records-If res judicata in conMcted appeal6.

The appellant filed two suits in the Court of lhe Civil Judge, one for declaration of his title to the suit property and lhc second for other reliefs.

While these suits were pending the respondent instituted two suits in the Munsif"s court against the appellant claiming joint ownership to the sail proP."rty and other n:lieh. The four suits were tried together by the Qvil Judge.

Some of the i>lues were common to all the suits and one of tho common i>.iues rolating to the title of the parties were found in favour of the respondeoL The Civil Judge dismi...oo the appellant's title suit, decreed his other suit partly, and decreed the two suits of the rcsponden I. The appellant filed appeak against the decree in each suit. The High Coull dismissed the two appeals arising out of tho respondent"• suits,

one as time barn:d, and the other for failure to apply for translation and printing of the record.

As the 1ille of the respondent to the suit property bad become final on account of such dismissal, the respondent prayed for the dismissal o[ the other lwo appeals also, as the main question involved therein, was the samo.

The High Court agreed that tho appeals were barred by res iudicata and dismissed them. Against these orders of dis

~. the appellant filed appeals to this Court, and condcd that (i) the title to lhc property was not directly and >ubstantially in issue in the respondent's suits; (ii) The Munsifs Court could not try the titlo suit filed by the appellant; (iii) it could not bo said that appeals arising out of the respondent"< suits were Conner suits and "" such the dtcismn therein would bo res ; udicata and (iv) the two appeals dismisscd--0no on the ground of limitation, and lhe other on lhe gr011J1d of not printinii the

reconls, could not be said to be heard and finally decided. y

HELD : The appeals must be dismissed. (il '!be contention that tho issue as to title was not directly and •ubs 1an1ially in issue in the respondent's suits must be rejected.

The judg ment of the Civil Judge showed that this issue was raised in the respon dent's suits, that it was directly and substantially in issue in those suits also, and did arise out of the pleading'< of the parties. [306 CJ

(ii) It is the court which decides the fonner suit whose jurisdiction to try tho subsequent suit has to be considered, and not the court in which the former suit may have been filed.

Though the n:spondent"s sulla may line beeo iled in the Munsif's court, they wore ttanaferred to tho court of the Civil Judge and were decided by him.

Therefore, the contention that the Munsif before whom the n:spondeot's suits were filed, could not try the subsequent title suit of the appell:int had no force. [306 El

(iii) The High Court's decision in tho two apls arising from tho JlOIPOndent's suits were undoubtedly earlier and tben:foro the condition that there should have been a decision in a former suit 10 give rise to ru ; udic:ata in a subsequent suit was satisfied in the present case. [307 CJ

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A Nahari v. Shanker, [1950) S.C.R. 754, distinguished.

(iv) Where the trial coun has decided two suits having common issues on the merits and there are two appeals therefrom and one of them is

ilismissed on some preliminary ground, like limitation or default in printing. with tho result that the trial court's decision stands confirmed, the decision or the appeal court will be res judicata and the appeal court must be deemed to have heard and finally decided the matter. In such a caoc the result of the decision of the appeal coun is to confirm the decision of the trial court given on merits, and if that is so, the decision of the appeal court will be res judicata whatever may be the reason to~ the disrnisssl. It would be a different matter, however, where the declSion of the appeal court does not result in the confirmation of tho decision of the trial court given on the merits, as for example, where the appeal court hold that tho trial court had no jurisdiction and dismisses the appeal, even though the trial court might have dismis.sed the suit on the

mecits. [308 D, G; 309 A]

Sha1tkar Sahai v. Bhagwat. Sahai, A.I.R. 1946 Oudh 33 and Obedur Rahman v. Darbari Lal, A.l.R. 1927 Lah. I, overruled.

Caso law discussed.

OVIL APPELLATE JurusDICTJON : Civil Appeal Nos. 802 and 803 of 1963.

Appeals by special leave from the judgment and decree dated November 30, 1962 of the Allahabad High Court in First Appeals Nos. 365 and 366 of 1951.

M. V. Goswami and B. C. Misra, for the appellant.

Prayag Das and /. P. Goyal, for the respondent.

The Judgment of the Court was delivered by

Wanchoo. J. These are connected appeals by special leave against the judgment of the High Court of Allahabad, and the only question raised herein is one of res judicata. They will be dealt with together. The appellant's father brought suit No. 37 of 1950

against the respondent, Smt. Daryao Kunwar, for a declaration that he was the owner of the properties in suit and for possession in the alternative. The appellant was also a party to the suit as a proforma defendant. Since his father is dead, he has been substituted in his place. The case put forward in the plaint was that Harnam Singh was the uncle of the appellant's father.

Ram Kishan was the adopted son of Harnam Singh, and the respondent is his widow.

The appellant and his father were living jointly with Harnam Singh and his adopted son Ram Kishan and on the death of Harnam Singh and his adopted son, the appellant and his father became owners of the joint properties by survivorship; but the names of the widows of Harnam Singh and Ram Kishan were entered in revenue papers for their consolation, though they had no right or title to any part of the property in dispute. There were other allegations in the plaint with which we are however not concerned in the present appeals.

Shortly afterwards the appellant's father filed another suit No. 42 of 1950 against the respondent and one other person claiming the price of the crops which stood on certain sir and khudkaskat plots in two villages on the allegation that the respondent had cut and misappropriated the crops standing on these plots without having any right, title or interest therein. The respondent Smt.

Daryao Kunwar contested both the suits.

Her main defence was that there had been complete partition in the family as a result of which Harnam Singh and after him his adopted son Ram Kishan were the sole owners of their separated shares. After the death of Rm Kishan, the respondent inherited his entire property as his widow.

Both these suits had been filed in the court of the C'ivil Judge.

While these suits were pending, the respondent instituted two suits of her own, Nos. 77 and 91of1950, against the appellant and his father.

Suit No. 77 was for recovery of the price of her share of the crop grown on certain sir and khudkashat plots which had been cut and misappropriated by the appellant and his father. Suit No. 9lwas also for a similar relief in respect of the respondent's share of crops grown on certain sir and khudkashat plots in another village which had also been cut and misappropriated by the appellant and his father.

Her case was thatthe plots in question in both the villages belonged to the parties jointly and the crop was jointly sown by them and she was entitled to half of the said crops. Further in suit No. 77 of 1950 she also claimed the relief of permanent injunction restraining the appellant and his father from letting out the said plots without her consent. These two suits were filed in the court of the Munsif while suits filed by the appellant's father had been instituted in the court of the Civil Judge. Subsequently by an order of the District Judge, the two suits filed by the respondent were transferred to the court of the Civil Judge. Thereafter all the four suits were consolidated and tried together by the Civil Judge with the consent of the parties. All these suits were disposed of by a common judgment but separate decrees were prepared in each suit. In all these suits five issues were common. In addition there were other issues in each case respecting the particular merits thereof. One of the common issues related to respective rights of the parties to the suit properly. The finding of the Civil Judge on this issue was that Smt. Daryao Kunwar was entitled to the properties claimed hy the appellant's father in his suit No. 37 of

1950. The Civil Judge therefore dismissed that suit. Further in view of the finding on the question of title in suit No. 37 of 1950, . suit No. 91 of 1950 wns decreed in favour of the respondent. Further suit No. 42 by the appellant's father was on the same finding decreed to the extent of half only; suit No. 77 of 1950 was decreed also to the extent of half and a permanent injunction was granted

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A in favour of the respondent Smt. Daryao Kunwar as prayed by her in that suit.

The appellant's father was aggrieved by these decrees.

Consequently he filed two first appeals in the High Court. Appeal No. 365 of 1951 was against the dismissal of suit No. 37 while appeal No. 366 of 1951 was against the dismissal of suit No. 42. The appellant's father also filed two appeals in the court of the District Judge against the judgments and decrees in the suit filed by the respondent, Smt. Daryao Kunwar. Appeal No. 452 of 1951 was against the decree in suit No. 77 while appeal No. 453 of 1951 was against the decree in suit No. 91. By an order of the High Court, the two appeals pending in the court of the District Judge were transferred to the High Court. Thereafter appeal No. 453 of 1951 arising out of suit No. 91 was dismissed by the High Court on October 9, 1953 as being time-barred while appeal No. 452 of 1951 arising out of suit No. 77 was dismissed by the High Court on October 7, 1955 on the ground of failure of the appellant's father to apply for translation and printing of the record as required by the rules of the High Court.

It may be mentioned that appeals Nos. 452 and 453 were given different numbers on transfer to the High Court; but it is unnecessary to refer to those number for present purposes.

After appeals Nos. 452 and 453 had been dismissed, an application was made on behalf of the respondent, Smt. Daryao Kun war, praying that first appeals Nos. 365 and 366 of 1951 be dismissed, as the main question involved therein, namely, title of Smt. Daryao Kunwar to the suit property, had become final on account of the dismissal of the appeals arising out of suits Nos. 77 and 91of1950.

When this question came up for hearing before a learned Single Judge, the following question, namely-"whether the appeal is barred by section 11 of the Code of Civil Procedure or by the general principles of res judicata as the appeals against the decisions in suits Nos. 77 and 91 of 1951 were rejected and dismissed by this Court and those decisions have become final and binding between the parties" was referred to a Full Bench for decision in view of some conflict between two Division Benches of that court.

The Full Bench came to the conclusion that two matters were directly and substantially in issue in all the four suits, namely-

(i) whether Harnam Singh and his adopted son Ram Kishan died in a state of jointness with the appellant and his father, and (ii) whether the property in suit was joint family property of Ram Kishan and the appellant's father. The decision of the Civil Judge on both these issues was against the appellant and his father and in favour of Smt. Daryao Kunwar. The Full Bench held that though there were four appeals originally before the High Court, two of them had been dismissed and the very same issues which arose in

first oppeals Nos. 365 and 366 had also arisen in those two appeals which had been dismissed. The Full Bench found further that the terms of s. 11 of the Code of Civil Procedure were fully appliCTJble and therefore the two first appeals Nos. 365 and 366 were barred by res j11dicata to the extent of the decision of the five issues which were common in four connected appeals.

In the result the Full Bench returned that answer to the question referred to it.

After this decision of the Full Bench, the matter went back to the learned Single Judge for decision, who thereupon dismissed the appeals as barred by s. 11 of the Code of Civil Procedure. The appellant then obtained special leave from this court; and that is how the matter has come up before us.

We may at the out set refer to the relevant provisions of s. 11 of the Code of Civil Procedure insofar as they are material for present purposes. They read thus :

"No Court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a Court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such Court.

"Explanation I-The expression 'former suit' shall denote a suit which has been decided prior to the suit in question whether or not it was instituted prior thereto.

lt is not necessary to refer to the other Explanations.

A plain reading of s. 11 shows that to constitute a matter res j11dicata, the following conditions must be satisfied, namely-

(i) The matter directly and substantially in issue in the subsequent suit or issue must be the same matter which was directly and .substantially in issue in the former suit;

(ii) The former suit must have been a suit between the same parties or between. parties under whom they or any of them claim;

(iii) The parties must have litigated under the same title in the former suit;

(fr) The court which decided the former suit must be a court competent to try the subsequent suit or the suit in which such issue is subsequently raised; and

(v) The matter directly and substantially in issue in the subsequent suit must have been heard and finally decided

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SHEODAN SINGH v. DARYAO (Warlchoo, I.) 305

by the Court in the first suit. Further Explanation I shows that it is not the date on which the suit is filed that matters but the date on which the suit is decided, so that even if a suit was filed later, it will be a former suit if it has been decided earlier. In order therefore that the decision in the earlier two appeals dismissed by the High Court operates as res judicata it will have to be seen whether all the five conditions mentioned above have been satisfied.

Four contentions have been urged on behalf of the appellant in this connection. They are-

(i) that title to property was not directly and substantially in issue in suits Nos. 77 and 91;

(ii) that the court of the Munsif could not try the title suit No. 37 of 1950;

(iii) that it cannot be said that appeals arising out of suits Nos. 77 and 91 were former suits and as such the decision therein would be res judicata;

(iv) that it cannot be said that the two appeals from suits Nos. 77 and 91 which were dismissed by the High Court, one on the ground of limitation and the other on the ground of not printing the records, were heard and finally decided.

So it is contended that the conditions necessary for res judicata to arise under s. 11 have not been satisfied and the High Court was in error in holding that its dismissal of the two appeals arising from suits Nos. 77 and 91 amounted to res judicata so far as appeals Nos. 365 and 366 were concerned.

Re. (i).

The judgment of the Additional Civil Judge shows that there were five issues common to all the four suits, and the main point raised in these common issues was whether Harnam Singh and his adopted son Ram Kishan were joint with the appellant ahd his father and whether Ram Kishan died in a state of jointness with them. This main question was decided against the appellant and his father and it was held by the Additional Civil Judge that Harnam Singh and Ram Kishan were separate from the appellant and his father and that Ram Kishan did not die in a state of jointness with them. On this view of the matter, the Additional Civil Judge held that the respondent, Smt. Daryao Kunwar, succeeded to Ram Kishan on his death and was entitled to the separated share of Ram Kishan and the appellant and his father had no right to the property by survivorship. In the face of the judgment of the Additional Civil Judge which shows that there were five common issues in all the four suits, the appellant cannot be heard to say that these

issues were not directly and substantially in issue in suits Nos. 77 and 91 also.

Further this contention was not raised in the High Court and the appellant cannot be permitted to raise it for the first

ime in this .court. Besides the question whether these common issues were directly and substantially in issue in suits Nos. 77 and 91 can only be decided af!er a perual of the pleadings of the parties.

In the pai:cr book as ongmally printed, the appellant did not include the plea.din~ at all. L1ter he filed copies of the plaints only with an apphcatwn .. Ev.en now we have not got copies of written-state ments and rephcal!ons, if any, of suits Nos. 77 and 91. In the

circ~tanccs. 'Ye must accept from the fact that the judgment of the Additwnal Civil Judge shows that these five issues were raised !n uits N.os. 77 and ~I, that they were directly and substantially m issue m those smts also and did arise out of the pleadings

of the parties. We therefore reject the contention that issues as to title were not directly and substantially in issue in suits Nos. 77 and 91.

Rt. (ii).

There is no substance in the contention that the Munsif before whom suits Nos. 77 and 91 were filed could not try the title suit No. 37 and therefore, there can be no question of res judicata, as the title suit No. 37, assuming it to be a subsequent suit, could not be tried by the Munsif's court which tried the former suit. It is true that suits Nos. 77 and 91 were filed in the Munsif's court; but they were transferred to the court of the Additional Civil Judge and in actual fact were tried by the Additional Civil Judge. It is the court which decides the former suit whose jurisdiction to try the subsequent suit has to be considered and not the court in which the former &uit may have been filed.

Therefore, though suits Nos. 77 and 91 may have been filed in the Munsif's court, they were transferred to the court of the Additional Civil Judge and were decided by him.

There is no dispute that the court which decided the former suits, namely suits Nos. 77 and 91 (assuming them to be former suits) had jurisdiction to try the title suit No. 37. The contention that the Munsif before whom suits Nos. 77 and 91 were filed, could not try the subsequent suit No. 37 has therefore no force in the circumstances of the present litigation.

Re. (iii).

Then it is urged that all the four suits were consolidated and decided on the same day by the same judgment and there can therefore be no question that suits Nos. 77 and 91 were former suits and thi:s the decision as to title in those suits became res judicata. It is not in dispute that the High Court's decision in t.he ai:ipcals aris!ng from suits Nos. 77 and 91 was earlier.

Reliance m this connection is placed on the decision of this Court in Nahari v. Shankar (1).

I. [1950] S.C.R. 754.

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That case howe:ver has no application to the facts of the present case because there the suit was only one which was followed by two apals. The appeals were heard together and disposed of by the same judgment though separate decrees were prepred. An appel was taken against one of the decrees.

In those cucumstances this Court held that as there was only one suit, it was not necessary to file two separate appeals and the fact that one of the appeals was time-barred did hot affect the maintainability of the other appeal and the question of res judicata did not at all arise. In the present case there were different suits from which different appeals had to be filed. The High Court's decision in the two appeals arising from suits Nos. 77 and 91 was undoubtedly earlier and therefore the condition that there should have been a decision in a former suit to give rise to res judicata in a subsequent suit was satisfied in the present case. The contention that there was no former suit in the present case must therefore fail.

Re. (iv).

This brings us to the main point that has been urged in these appeals, namely, that the High Court had not heard and finally decided the appeals arising out of suits Nos. 77 and 91. One of the appeals was dismissed on the ground that it was filed beyond the period of limitation while the other appeal was dismissed on the ground that the appellant therein had not taken steps to print the records. It is therefore urged that the two appeals arising out of suits Nos. 77 and 91 had not been heard and finally decided by the High Court, and so the condition that the former suit must have been heard and finally decided was not satisfied in the present case. Reliance in this connection is placed on the well-settled principle that in order that a matter may be said to have been heard and finally decided, the decision in the former suit must have been on the merits. Where, for example, the former suit was dismissed by the trial court for want of jurisdiction, or for default of plaintiff's appearance, or on the ground of non-joinder of parties or misjoinder of parties or multifariousness, or on the ground that the suit was badly framed, or on the ground of a technical mistake, or for failure on the part of the plaintiff to produce probate or letters of administration or succession certificate when the same is required by law to entitle the plaintiff to a decree, or for failure to furnish security for costs, or on the ground of improper valuation or for failure to pay additional court fee on a plaint which was undervalued or for want of cause of action or on the ground that it is premature and the dimissal is confirmed in appeal (if any), the decision not

H. being on the merits would not be res judicata in a subsequent suit.

But none of these considerations apply in the present case, for the Additional Civil Judge decided all the four suits on the merits and decided the issue as to title on merits against the appellant and his father.

It is true that the High Court dismissed the appeals arising

308 SUPllEUB COUllT R.EPOll.TS [1966] 3 s.c.a.

out of suits Nos. 77 and 91 either on the ground that it was barred by limitation or on the ground that steps had not been taken for printing the records. Even so the fact remains that the result of the dismissal of the two appeals arising from suits Nos. 77 and 91 by the High Court on these grounds was that the decrees of the Additional Civil Judge who decided the issue as to title on merits stood confirmed by the order of the High Court. In such a case, even though the order of the High Court may it•elf not be on the merit the result of the High Court's decision is to confirm the decision on the issue of title which had been given on themcritshytheAdditional Civil Judge and thus in effect the High Court confirmed the decree of the trial court on the merits, whatever may he the reason for the dismissal of the appeals arising from suits Nos. 77 and 91. In these circumstances though the order of the High Court itself may not be on the merits, the decision of the High Court dismissing the appeals arising out of suits Nos. 77 and 91 was to uphold the decision on the merits as to issue of title and therefore it must be held that by dismissing the appeals arising out of suits Nos. 77 and 91 the High Court heard and finally decided the matter for it confirmed the judgment of the trial court on the issue of title arising between the parties and the decision of the trial court being on the merits the High Court's decision confirming that decision must also be deemed to be on the merits. To hold otherwise would make res judicala impossible in cases where the trial court decides the matter on merits but the appeal court dismisses the appeal on some preliminary ground thus confirming the decision of the trial court on the merits. It is well-settled that where a decree on the merits is appealed from, the decision of the trial court loses its character of finality and what was once res judicala again becomes res sub judice and it is the decree of the appeal court which will then be res judicala. But if the contention of the appellant were to be accepted and it is held that if the appeal court dismisses the appeal on any preliminary ground, like limitation or default in printing, thus confirming in 1010 the trial court's decision given on merits, the appeal court's decree cannot be re.rjudicata, the result wouldbethateven though the deciiion of the trial court given on the merits is confirmed by the dismissal of the appeal on a preliminary ground there can never he res judicata. We cannot therefore accc:pt the contention that evn

though the trial court may have decided the matter on the ments there can be no res judicala if the appeal court dismisses the appeal on a preliminary ground without going into the merits, even though the result of the dismissal of the appeal by the appeal court 1s confirmation of the decision of the trial court given on the merits.

Aceeptance of such a proposition will mean that all that the losing party has to do to destroy the effect of a decision given by te tial court on the merits is to file an appeal and let that appeal be d1sm1sslld on some preliminary ground, with' the result that the ecision

given on the merits also becomes useless as between the parties. We

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SHEODAN SINGH v. DARYAO (Wartchoo, /.) 309

A are therefore of opinion that where a decision is given on the merits by the trial court and the matter is taken in appeal and the appeal is dismissed on some preliminary ground, like limitation or default in printing, it must be held that such dismissal when it confirms the decision of the trial court on the merits itself amounts to the appeal being heard and finally decided on the merits whatever may B be the ground for dismissal of the appeal.

It now remains to refer to certain decisions which were cited at the bar in this connection. The first decision on which reliance is placed on behalf of the appellant is Sheosagar Singh v. Sitaram.(1) In that case there was a suit for a declaration that the defendant was not the son of a particular person. It appeared that in a former suit between the same parties, the issue so raised had been decided against the plaintiffs by the trial court. In appeal the only thing finally decided was that in a suit constituted as the former suit was, no decision ought to have been pronounced on the merits. In those circumstances the Privy Council held that the issue had not been heard and finally decided in the former suit. These facts would show that that case has no application to the present case. In that case the finality of the judgment of the trial court in the former suit had been destroyed by the appeal taken therefrom and the appeal court decided that no decision ought to have been pronounced on the merits in the former suit constituted as it was. It was in those circumstances that the Privy Council held that the issue had not been heard and finally decided in the former suit. The facts in that case therefore were very different from the facts in the present case, for the very decision of the appeal court showed that nothing had been decided in that case and the decree of the trial court on the merits was not confirmed. In the case before us though the decision of the High Court was on a preliminary point the decision, on the merits, of the trial court was confirmed and that makes the decision of the High Court res judicata.

The next case to which reference has been made is Ashgar Ali Khan v. Ganesh Das.(2) In that case the appellant in pursuance of a deed of dissolution of partnership, executed a bond for the payment of some money to the respondent. He sued to set aside the bond on the ground of fraudulent misrepresentation as to the amount due. The trial court and on appeal the District Judge held that the alleged fraud was not established, and dismissed the suit. Upon a further appeal to the Judicial Commissioner it was held without entering into the merits, that the appellant could not avoid the bond as he did not claim to avoid the deed. The final court of appeal th us refused to determine the issue of fraud and dismissed the suit on another ground. In a subsequent suit by the respondent upon the bond, the appellant raised as a defence the same case of

(I) L.R. (1896) 24 I. A. SO.

(2) L.R. (1917) 44 I.A. 213.

fraud. It was held that the issue raised by the defence was not res judicata since the matter had not been finally decided by the final court of appeal. That case also has no application to the facts of the present case, for in that case the final court of appeal did not decide the question of fraud and dismissed the suit on another ground.

In such a case it is well-settled that there can be no res judicata where the final appeal court confirms the decision of the courts below on a different ground or on one out of several grounds and docs not decide the other ground. The reason for this is that it is the decision of the final court which is res judicata and if the final court does not decide an issue it cannot be said that that issue has been heard and finally decided. In the present case, however, the result of the decision of the High Court in dismissing the appeals arising from suits Nos. 77 and 91 is to confirm the judgment of the trial court on all the issues which were common and thus it must be held that the High Court's decision does amount to the appeals being heard and finally decided.

Then strong reliance has been placed on behalf of the appellant on Shankar Sahai v. Bhagwat Sahai(1). In that case it was held that where two suits between the same parties involving common issues were disposed of by one judgment but two decrees, and an appeal was preferred against the decree in one but it wa~ either not preferred in the other or was rejected as incompetent, the matter decided by the latter decree did not become res judicata and it could be reopened in appeal against the former. This case certainly supports the view urged on behalf of the appellant. This case also over-ruled an earlier view of the Oudh Chief Court in Bhagauti Din

v. Bhagwat(Z). The reason given for the main proposition in this decision is that the court must look at the substance of the matter and not be guided by technical considerations. In view of what we have said above, we cannot agree with the view taken in that cai.e, and must hold that it was wrongly decided insofar as it holds that even where the appeal from one decree is dismissed, there will be no res judicata.

The next case to which reference may be made is Obedur Rahman v. Darbari Lal('). In that case there were five appeals before the High Court, three of which had abated. There was a common issue in all the five appeals, namely, whether a certain lease had expired or not and it was urged that in view of the abatement of the three other appeals, the decision of that issue had become res judicata. The contention was over-ruled by the observation that

"where there has been an appeal, the matter is no longer res judicata but res sub judice and where an appeal is not finally heard and decided any matters therein cannot possibly be said to be res judicata".

This view in our opinion is incorrect. We may in this connection

(I) A.J.R. t946 Oudh 33.

(2) A.1.R. 1933 Oudh 531.

(3) A.1.R. 19Z7 Lah. I.

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SHEODAN SINGH v. DAllYAO (Wanchoo, J.) 311

refer to Syed Ahmad Ali Khan Alaii v. Hinga Lal(1) where it was held that where the appeal was struck off as having abated, the decision would operate as res judicata. If the view taken by the Lahore High Court is correct, the result would be that there may be inconsistent decisions on the same issue with respect to the point involved in that case, namely, whether a certain lease had expired or not and the very object of res judicata is to avoid inconsistent decision. Where therefore the result of the dismissal or abatement of an appeal is to confirm the decision of the trial court on the merits such dismissal must amount to the appeal being heard and finally decided and would operate as res judicata.

The next case to which reference has been made is Ghansham Singh v. Bhola Singh(2). In that case there was a suit for sale on a mortgage and the trial court gave a decree in favour of the plaintiff but awarded no costs. The plaintiff appealed against the decree insofar as it disallowed costs. The defendant also appealed as to the amount of interest allowed to the plaintiff. Both the appeals were heard together and decided by one judgment, and both the appeals were allowed. The plaintiff appealed to the High Court against the decree in the defendant's appeal below but did not appeal against the decree which was in his favour with respect to costs. It was held that the fact that the plaintiff had not appealed against the decision in his appeal was no bar to the hearing of the appeal against the decree passed in the defendant's appeal below. We do not see how this case can help the appellant. The matters in the two appeals were different, one relating to costs and the other relating to interest; the rest of the judgment of the trial court was not disputed and had become final. In such a case there was no question of the plaintiff appealing from a decision in his own favour as to costs and there could be no question of the decision as to costs being res judicata in the matter of interest. The facts of that case were therefore entirely different and do not help the appellant. It may also be added that that was a case of one suit from which two appeals had arisen and not of two suits.

The next case to which reference has been made is Manohar Vinayak v. Laxman Anandrao('). In that case two suits were consolidated by consent of the parties and there were certain common issues. Appeal was taken from the decision in one suit and not from the decision in the other, and it was urged in the High Court that the decision in the other suit had become final. The High Court applied the principle that res judicata could not apply in the same proceeding in which the decision was given and added that by a parity of reasoning it could not apply to suits which were consolidated. We may indicate that a contrary view has been taken in

(I) l.L.R. (1946) 21 Luck. 586.

(2) I.L.R. (1923) 45 All. 506.

l 0 Sup CI/66-7

(3) A.l.R. 1947 Naa. 248.

Mrs. Gertrude Oates v. Mrs. Millicent D'Silva(') and Zaharia v.

Dtbia.(2) We need not consider the correctness of these rival views as they raise the question as to whether one decision or the other can be said to be former where the two suits were decided by the same judgment on the same date. This question does not fall to be decided before us and we do not propose to express any opinion thereon.

But the Nagpur decision is of no help to the appellant, for in the present case res judicata arises because of earlier decision of the High Court in appeals arising from suits Nos. 77 and 91.

Panchanada Ve/an v. Vaithlnatha Sastria/(3) and Mst. Lachhmi v.

Bhulli(•) are similar to the Nagpur case and we need express no opinion as to their correctness.

The next case to which reference has been made is Khetramohan Baral v. Rasananda Misra(S). In thatcase six suits were heard together mainly because an important common issue was involved even though the parties were not the same and the properties in dispute were also different. The decision in one of the suits was not challenged in appeal while appeals were taken from other suits. The High Court held that in such circumstances the decision in one suit from D which no appeal was taken would not be res judicata in other suits from which appeals were taken. In these cases the parties and properties were different and we do not think it necessary to express any opinion about the correctness of this decision. The facts in the present case are clearly different for the parties are the same and the title to the properties in dispute also depended upon one common E question relating to jointness or separation.

A consideration of the cases cited on behalf of the appellant therefore shows that most of them are not exactly in point so far as the facts of the present case are concerned. Our conclusion on the question of res judicata raised in the present appeals is this. (Where the trial court has decided two suits having common issues on the merits and there are two appeals therefrom and one of them is dismissed on some preliminary ground, like limitation or default in printing, with the result that the trial court's decision stands confirmed, the decision of the appeal court will be res judicata and the appeal court must be deemed to have heard and finally decided the matter. In such a case the result of the decision of the appeal court is to confirm the decision of the trial court given on merits, aRd if that is so, the decision of the appeal court will be res judicata whatever may be the reason for the dismissal. It would be a different matter, however, where the decision of the appeal court does not result in the confirmation of the decision of the trial court

(I) A.I.R. 1933 Pat. 78.

(2) l.L.R. (1911) 33 AU. 51.

(3) 1.L.R. (1906) 29 Mad. 333.

(4) I.L.R. [1927] Lah. 384.

(5) A.l.R. 1962 Orissa 141.

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. \

given on the merits, as for example, where the appeal court holds that the trial court had no jurisdiction and dismisses the appeal even though the trial court might have dismissed the suit on the merits.) In this view of the matter, the appeals must fail, for the trial court had in the present case decided all the four suits on the merits including the decision on the common issues as to title. The reault of the dismissal on a preliminary ground of the two appeals arising out of suits Nos. 77 and.91 was that the decision of the trial court was confirmed with respect to the common issues as to title by the High Court. In consequence the decision on those issues became res judicata so far as appeals Nos. 365 and 366 are concerned and s. 11 of the Code of Civil Procedure would bar the hearing of those common issues over again. It is not in dispute that if the decision on the common issues in suits Nos. 77 and 91 has become res judicata, appeals Nos. 365 and 366 must fail.

We therefore dismiss the appeals with costs, one set of hearing fee.

Appeals dimissed .

SHEODAN SINGH

DARYAO KUNWAR

January 14, 1966

P. B. GAJENDRAGADKAR

K. N. WANCHOO

P. SATYANARAYANA RAJU, JJ.

Code of civil Procedure

OVIL APPELLATE

M. V. Goswami

B. C. Misra

Prayag Das

P. Goyal

Wanchoo

Daryao Kunwar

Harnam Singh

Ram Kishan

Rm Kishan

Daryao Kunwar

October 9, 1953

October 7, 1955

Daryao Kun

section 11

the Code of Civil Procedure

s. 11

the Code of Civil Procedure

s. 11

the Code of Civil Procedure

s. 11

the Code of Civil Procedure

s. 11

s. 11

Oudh Chief Court

Lahore High Court

Nagpur

s. 11

the Code of Civil Procedure


GODAWARI S. PARULEKAR AND ORS.

v. .-

STATE OF MAHARASHTRA

January 17, 1966

[P.B. GAJENDRAGADKAR, C.J., J.C. SHAH, S.M. SIKRI,

V. RAMASWAMI AND P. SATAYANARAYANA RAJU, JJ]

Defence of India Rules, 1962, r. 30---Stare Government whether can ezerclse authority to order detention delegated by It to Disrrlct Magistrat~ D1tmtion order passed during pend1ncy o/ habeas corpus proceedings

whether vitiated by malice In law.

The appellant was detained from November 1962 onwards under various detention orders. She was released on February 4, 1964 but as soon

u she came out of the prison gates, she was served with a fresh order of detention dated February 3, 1963 issued by the State Oavernmcnt under r. 30 of the Defence of India Rules, 1962.

She was detained with a view to prevent her from acting in a manner prejudicial to the defence

of India, the public safety and maintenance of public order.

A petition filed by the appellant under Art. 226 of the Constitution against her detention under the said order was dismissed by the High Coun. The D appellant came to this Court by special leave.

It was contended on behalf Of the appellant : (I) The State Govmunent having delegated its powers under r. 30 to District Magistrate by a notification dated 9th November 1962, it was not competent to pass an order of detention under r. 30.

(2) The order of detention was bad because two ministers cannot legally jomtly pass an order of detention. (3) The Order of detention was vitiated by malice in law. (4) The High Coun E should have insisted on an affidavit from the Ministers.

(5) There was no material to show that there was an apprehension that maintenance of public order would be prejudicially affected.

HELD : There was no infirmity in the order under which the petitioner was detained.

(i) By delegating its power under r. 30 to District Magistrates the State Government was not itself denuded of the power to act under r. 30. (317 HJ Huth v. Clarke, 25 Q.B.D. 391, relied on.

King Emperor v. Slhnat/1 Banerje, 72 I.A, 241, distinguished and explained.

(ii) There is no difficulty in two Ministers successively being satisfied

that it is necessary to detain a person for different reasons and then their G decision being carried out by one order of detention duly authenticated.

(318 DJ >·• Godavarl Sarnrao Parulekar v. State of Maharashtra, (1964) 6 S.C.R. 446, referred to.

...

(iii) The mere fact that the detention order is passed during the \. pendency of habeas copus. l'roceedings c.annt by itself lead to the con clusion that the order is v1llated by mahce m law. If the Government H considers an order of detention, which is the subject-matter of challenge, to be invalid, there is no reason why it should not pass a valid order. (319 BDl

A Naranjan Singh Nathawan "· State of Punja/J, [19521 S.C.R. 395, relied on . .-..

(iv) Whether an affidavit by the Ministers concerned waa necessary or not was for the High Court to consider. t •

(v) The Court could not go into to the question whether the material before the detaining authority was sufficient or not.

...

B CRIMINAL APPELLATE JURISDICTION: Criminal Appeal Nos.

142-149. and 225-227 of 1964.

Appeals from the judgment and orders dated April 13, 1964 of the Bombay High Court in Criminal Applications Nos. 180-182,. 189, 190, 191, 193 and 194 and 195 to 197of1964 respectively.

R. K. Garg, for appellant (in Cr. A. No. 142/1964).

The appellants appeared in person.

N. S. Bindra and B. R. G. K. Achar, for the respondents . .

Sikrl, J. These appeals by certificate granted by the Bombay High Court are directed against its judgment dated April 13, 1964 in applications filed by the applicants under art. 226 of the Constitution, and s. 491 of the Criminal Procedure Code. Criminal Appeal No. 143 of 1964 has become infructuous because the appellant, S. V. Parulekar, has died.

Mr. R. K. Garg appears on behalf of the appellanUn Criminal Appeal No. 142 of 1964. It is common ground that the points arising in all the appeals are common, and in order to appreciate the points, it would be sufficient if the facts in Criminal Appeal No. 142 of 1964, relevant to the arguments addressed to us, are only given. The relevant facts given in paragraphs 2 and 3 of the affidavit filed by the Under Secretary to the Government a of Maharashtra are as follows:

':Di "2. With reference to paragraph 1 of the said Petition I say that the petitioner was detained under order dated the 7th November 1962 issued by the District Magistrate, Thana, under the Preventive Detention Act 1950. On 10th November, 1962, the Government of Maharashtra revoked the order of detention dated the 7th November 1962 issued by the District Magistrate, Thana, and the revocation order was served on the petitioner on the 11th November 1962. Thereafter the petitioner was served with another order of detention dated the 10th November 1962 issued by the Government of Maharashtra under Rule 30 of the Defence of India Rules, 1962. Further by its order dated the 25th September 1963, the Government of Maharashtra cancelled the said order of detention dated the 10th November 1962 and in pursuance of the said cancellation order the petitioner was released from detention on 27th September 1963. After she actually came out of the Yeravda Central Prison gates and was a free woman, the fresh orders of detention and committal dated the 25th September 1963 issued by the Government of Maharashtra were served on her and she was again detained in the Y eravda Central Prison, Yeravda Poona. Thereafter, by its order dated the 3rd February, 1964, the Government of Maharashtra cancelled its order of detention dated the 25th September 1963 and the petitioner was again released on the 4th February 1964. After she actually came out of the Arthur Road District Prison gates and was a free woman, she was served with a fresh order of detention dated the 3rd February 1964 issued by the Government of Maharashtra under rule 30 of the Defence of India Rules 1962 and redetained with a view to prevent her from acting in a manner prejudicial to the defence of India, the public safety and maintenance of public order. The last two orders of cancellation and detention dated the 3rd February 1964 are attached to the said petition as Annexures A and B, respectively.

3. With reference to paragraph 2 of the said petition I say that what is stated therein is generally correct. I further say that the petitioner is a Communist belonging to the Ranadive Group, which maintains that China has not committed any aggression on India and which actively propagates that view."

The High Court of Bombay held that the detention of the appellant from May 1963 to February 1964 was illegal but the order of detention passed on February 3, 1964 was legal, and accordingly the appellant could not be ordered to be released. It is this order of February 3, 1964, which is now the subject matter of F challenge.

Mr. Garg for the appellant raised the following points before us:

(I) That the State Government having delegated its powers conferred upon it under r. 30 of the Defence of India Rules, 1962, by Notification "Home Department (Special) No. S.B. III/DOR.1162-1, dated the 9th November, 1962" G to all District Magistrates within the limit~ of their jurisdiction subject to the conditions mentioned in the Notification, the State Government was not competent to pass an order of detention under r. 30.

(2) That the order of detention is bad because two Ministers cannot legally jointly pass an order of detention.

(3) That the order of detention is vitiated by malice in law.

. }

l •

( 4) That on the facts of this case the High Court should have insisted on an affidavit being filed by the Ministers.

(5) That there was no material to show that there was any apprehension that maintenance of public order would be prejudicially affected.

Relying on King Emperor v. Sibnath Banerje(') Mr. Garg argues that the State Government had divested itself of its powers to detain. The Privy Council observed at p. 265 as follows:

"It is for the same reasons that their Lordships are unable to accept the respondents' contention, also agreed to by the majority judges in the Federal Court, that the provision of sub-s. 5 of s. 2 of the Defence of India Act, provides the only means by which the Governor can relieve himself of a strictly personal function. Their Lordships would also add on this contention that sub-s. 5 of s. 2 provides a means of delegation in the strict sense of the word, namely, a transfer of the power or duty to the officer or authority defined in the sub-section, with a corresponding divestiture of the Governor of any responsibility in the matter, whereas under r. 49, sub-s.1, of the Act of 1935 the Governor remains responsible for the action of his subordinates taken in his name."

We are unable to agree with Mr. Garg that the Privy Council laid down that the Governor was divested of its power of passing an order when the above notification was issued. It seems to us that the Privy Council was thinking of and comparing the responsibility of the Governor for the orders passed by the delegate and by an officer acting under s. 49(1) of the Act of 1935. In the case of the delegate the Privy Council held that the Governor was not responsible, but that does not mean that the Governor could not have acted under r. 26 of the Defence of India Rules made under the Defence of India Act, 1939.

In Huth v. C/arke(2) Wills, J., observed at p. 395:

"Delegation, as the word is generally used, does not imply a parting with powers by the person who grants the delegation, but points rather to the conferring of an authority to do things which otherwise that person would have to do himself."

In our opinion, by issuing the aforesaid notification the State Government has not denuded itself of the power to act under r. 30.

Coming to the second point, namely, whether the two ministers can jointly pass an order of detention, it is necessary to give a

(1) 721.A. 241.

(2) 25 Q.B.D. 391.

few relevant facts.

In Godavari Shamrao Parulekar v. Stale of Maharashlra(I) this Court observed:

"The order, therefore, in the present case could only . be made by a Minister who was in-charge both of subjects allotted to the General Administration Department and subjects allotted to the Home Department (Special)."

Basing on this passage, Mr. Garg contends that it is only if a Minister is in charge of both the subjects that an order of detention can be passed. He further elaborates his point by saying that once one Minister is satisfied that it is necessary to detain a person under one head, say for the maintenance of public order, there is no question of another satisfaction by another Minister that it is necessary to detain that very person, say for the reason of preventing him from acting in a manner prejudicial to the defence of India.

He says that as soon as the first Minister is satisfied that it is necessary to detain a person for reasons of maintenance of public order, no power remains to consider other reasons. We are unable to accept the above line of reasoning. We do not see any difficulty in two Ministers successively being satisfied that it is necessary to detain a person for different reasons, and then their decision being carried out by one order of detention duly authenticated. We agree with the High Court that this Court did not mean to lay down an absolute proposition of law that unless all the relevant subjects in respect of which the orders of detention arc passed are concentrated in the hands of one Minister, valid orders of detention cannot be passed.

Regarding the next point, namely, whether the order of detention is vitiated by malice in law, Mr. Garg urges that no order of detention can be passed to defeat habeas corpus proceeding. We

are unable to agree with the proposition submitted by the learned counsel. The Court observed in Naranjan Singh Nathawan v.

F 11ze State of Punjab(2) as follows:

"Once it is conceded that in habeas corpus proceedings the court is to have regard to the legality or otherwise of the detention at the time of the return and not with reference to the date of the institution of the proceeding, it is difficult to hold, in the absence of proof of bad faith, that the detaining authority cannot supersede an earlier order of detention challenged as illegal and make a fresh order wherever possible which is free from defects and duly complies with the requirements of the law in that behalf." This Court observed further at p. 400, as follows:

"If at any time before the court directs the release of the detenu, a valid order directing his detention is pro-

<ll (1904[ 6 S.C.R. 446, alp. 458.

(2) (1952[ S.C.R. 395.

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-- 4

duced, the court cannot direct his release merely on the ground that at some prior stage there was no valid cause for detention. The question is not whether the later order validates the earlier detention but whether in the face of the later order the court can direct the release of the petitioner."

The mere fact that the detention order is passed during the pendency of habeas corpus proceedings cannot by itself lead to the conclusion that the order is vitiated by malice in law. It depends on the circumstances of the case. The detenu would have to prove not only that the detention order has been passed during the pendency of habeas corpus proceedings but also that there are other facts showing malice. Mr. Garg has not been able to point out any other facts in this case. If the Government considers an order of detention, which is the subject matter of challenge, to be invalid, there is no reason why it should not pass a valid order. Mr. Garg says that there was no fresh consideration of the facts and the Minis ters acted on pre-conceived notions and passed the new order dated February 3, 1964, without any fresh consideration. We are unable D to accept this argument because it is quite clear from the affidavit filed-by the Under Secretary to the Government of Maharashtra,.

Home Department and General Administration Department, that before the order was passed the Minister of Home and the Chief Minister were satisfied in accordance with the rules of business made under art. 166 of the Constitution.

E We may at this stage deal with the question whether the High

Court should have insisted on the Ministers filing the affidavit. It is for the High Court to consider in each case whether it is satisfied with the affidavit filed in the case. In this case it does not appear from the judgment of the High Court that this point was raised before the High Court.

The only point that remains is whether there was any material for detaining the appellant for the maintenance of public order. It has been consistently held by this Court that it is for the detaining authority to be satisfied whether on the material before it, it is necessary to detain a person under r. 30, and that this question is not justiciable. There is no force in this point.

Accordingly we hold that there is no infirmity in the order of detention dated February 3, 1964.

In Criminal Appeal No. 144of1964, the appellant P.P. Sanzgiri, adopted the arguments of Mr. Garg and further urged that he had been validly detained by order of the District Magistrate dated November 11, 1962, and there had been no proper cancellation of this order. But he says that this order was bad because there was no confirmation of it. As pointed out above, we are not concerned with the previous orders of detention because the appellant is detain.

SUPREMB COURT REPORTS

[1966] 3 S.C.R.

cd now under the order dated February 3, 1964, and we need not A go into the point.

We may mention that in three appeals, Criminal Appeal No. 215/64, Criminal Appeal No. 226/64 and Criminal Appeal No. 227/64, the orders of detention are dated February 14, 1964, but nothing turns on this difference in the dates of detention.

In the result the appeals fail and are dismissed.

Appeals dismisstd . .

B -

• •

GODAWARI S. PARULEKAR AND ORS

STATE OF MAHARASHTRA

January 17, 1966

P.B. GAJENDRAGADKAR, C.J.

C. SHAH

S.M. SIKRI

V. RAMASWAMI

P. SATAYANARAYANA RAJU, JJ

Defence of India Rules, 1962

February 3, 1963

Defence of India Rules, 1962

Art. 226

9th November 1962

(1964) 6 S.C.R. 446

A Naranjan Singh Nathawan

R. K. Garg

N. S. Bindra

B. R. G. K. Achar

Sikrl

art. 226

s. 491

S. V. Parulekar

Preventive Detention Act 1950

Government of Maharashtra

Defence of India Rules, 1962

Defence of India Rules 1962

India

China

High Court of Bombay

February 3, 1964

Garg

Defence of India Rules, 1962

s. 5

s. 2

s. 5

s. 2

s. 49(1)

Wills

art. 166

P.P. Sanzgiri

November 11, 1962

SUPREMB COURT REPORTS

[1966] 3 S.C.R.

February 14, 1964


• • >

TRAVANCORE TITANIUM PRODUCTS LTD.

COMMISSIONER OF INCOME-TAX, KERALA

January 17, 1966

[K. SUBBA RAo, J.C. SHAH AND S.M. Snoo JJ.]

B Income Tax Act, 1922 (11 of 1922), s. 10(2) (xv)-Wea/th-tax paid

on assets owned for purpose of business-Whether a pennissib/e deduction.

In computing the total earned income of the appellant company for the calendar year 1959, the Income Tax Officer disallowed a claim for deduction of Rs. 80,255 in respect of liability for payment of tax under the Wealth Tax Act, 27 of 1957 incurred by the company. Tho order of the Income Tax Officer was confirmed in appeal by the Appellate Assistant Commissioner, the Tribunal and, on a reference, by the High Court.

It was contended by the appellant company that since the company held the assets on which tax was levied for the purpose of its business and profits were earned by the use of those assets, tax paid in respect of those assets was expenditure laid out wholly and exclusively for the purpose of the business and on that account was a permissible allowance under s. 10(2) (xv) of the Income-tax Act, 1922.

HELD : The amount of tax paid on the net wealth of an as.50SSCO under the Wealth Tax Act is not a permissible deduction under o. 10(2) (xv) of the Income-tax Act, for tax i• imposed under the Wealth Tax Act on the owner of the assets and not on any commercial activity, The charge of tax is the same, whether the asset are part of or used in the trading organization of the owner or are merely owned by him. [326 G-HJ

For expenditure to be regarded as being for the purpose of the assessee's business within the meaning of s. 10(2)(xv), the nature of the expenditure of outgoing must be adjudged in the light of accepted commercial practice and trading principles. The expenditure must be incidental to the business and must be necessitated or justified by commercial expediency. It must be directly and intimately connected with the business and be laid out by the tax payer in his character as a trader. To be a permissible deduction, there must be a direct and intimate connection between the expenditure and the business i.e. between the expenditure and the character of the assessce as a trader. and not as owner of assets, even if they are assets of the business. [326 F]

Case law discussed.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 235 of 1963 ~" -"""--" ~""""~--~--------c~--- Appeal by special leave from the judgment and order dated August 26, 1963 of the Kerala High Court in Income-tax Referred Case No. 29 of 1962.

G. B. Pai, T. A. Ramachandran and 0.C. Mathur, for the appellant.

A. V. Viswanatha Sastri, N. D. Karkhanis, R. H. Dhebar and R. N. Sachthey, for the respondent.

3Z2

SUPREME COURT

REPORTS

(1966) 3 S.C.R.

The Judgment of the Court was delivered by

Shah, J. In computing the total earned income of the appellant Company for the calendar year 1959, the Income-tax Officer, Trivandrum, disallowed a claim for deduction of Rs. 80,255/- in respect of liability for payment of tax under the Wealth Tax Act 27 of 1957 incurred by the Company for the calendar years 1957 and

1958. The order was confirmed by the Appellate Assistant Commissioner and by the Appellate Tribunal. On the following question referred by the Wealth Tax Appellate Tribunal,

"Whether on the facts and circumstances of the case, the assesscc Company is entitled to a deduction of Rs. 12,873/- being the wealth tax paid during the account year ended 29-2-1960 against the profits and gains of its business for the assessment year 1960-61 under Sec. 10 (2)(xv) of the Indian Income-tax Act ?" the High Court of Kerala recorded an answer in the negative. The Company has appealed to this Court with special leave.

The Company claims that wealth-tax paid by it represented expenditure laid out wholly and exclusively for the purpose of its business, and on that account is a permissible allowance under s. 10(2)(xv) of the Income-tax Act. In determining the admissibility of this claim, it is necessary to ascertain the true character of the liability for payment of tax under the Wealth Tax Act. Tax is charged under s. 3 of the Wealth Tax Act, 1957, for every financial year in respect of the net wealth of every individual, Hindu undivided family and Company at the rate or rates specified in the Schedule to the Act; and 'net wealth' under the Act means the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets belonging to the assessee on the valuation date is in excess of the aggregate value of all the debts owed by the assessee on that date other than the debts specified. The tax under the Act is payable by all individuals, Hindu undivided families and Companies on the value of taxable assets belonging to the taxpayer: it is charged on the net value of the assets, and not on the business or trading activity carried on by the taxpayer. The rates of tax for companies as well as individuals and Hindu undivided families are prescribed by the Second Schedule. The slabs on which the rate of tax is nil are not uniform in the case of different taxable entities and a special exemption is given to a Company which has incurred in any year loss computed in accordance with 1s. 8, 9, IO and 12 of the Income-tax Act without referring to depreciation allowances and development" rebates and without taking into account the losses brought forward from the earlier years, and which has not declared any dividend on its equity capital in respect of that year. It is also provided by r. 5 of the Schedule that where the profits of a company in respect of any year, before. deducting any

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TRAY. TITANIUM LTD. v. C.!.T. (Shah, /,) 323

of the allowances referred to in the second paragraph of Part II, are less than the amount of wealth-tax payable by it in respect of the relevant assessment year, the wealth-tax payable by the company for such assessment year shall be limited to the amount of such profits provided that the company has not declared any dividend on its equity capital in respect of that year. But by relating the quantum of liability of a company to wealth-tax in these special cases to the profits earned, the character of the tax is not altered.

It is and remains a tax charged upon the net wealth, and it is not made a tax related to or incidental to the carrying on of a business.

The rules in the Schedule merely extend the exemption which is

primarily declared in favour of a Company of which the net wealth does not exceed Rs. 5 lakhs, to a company which has in the previous year made a loss, and grant a partial exemption if the company has made profits which are inadequate to meet the wealth-tax liability at the prescribed rate.

In computing the profits or gains of an assessee who carried on business, certain allowances are permitted under s. 10(2) from the business profits, and one such head is:

"(xv) any expenditure not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure for personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of such business, profession or vocation."

An allowance permissible under cl. (xv) in the computation of taxable income is therefore expenditure incurred in the year of account in respect of a business carried on by the assessee: the expenditure must not be in the nature of capital expenditure or personal expenses of the assessee and it must have been laid out or expended wholly and exclusively for the purpose of the business.

The argument for the Company in this case turns upon the meaning of the expressio~ "for the purpose of such business." On behalf of the Company it is urged that for the purpose of its business, it holds assets and by the use of those assets profits are earned and therefore tax paid in respect of those assets is expenditure laid out for the purpose of the business. Whether an item of expenditure falls within that description has of necessity to be determined having regard to the nature of the business, the nature of the expenditure and the relation between the business and the expenditure. In adjudicating upon the claim that an outgoing is a permissible deduction under s. 10(2)(xv) of the Income-tax Act, the primary question is whether in the light of accepted commercial practice, trading principles and the relation between the business and the outgoing, the outgoing can be said to arise out of the carrying on of the business and to be incidental to that business. In the context of a variety of

SUPREME COURT ltEPOllTS

[1966] 3 S.C.R.

trading transactions and the relation between the transactions and the expenditure claimed as a permissible deduction, in the decisions of the courts under the Indian Income-tax Act and of the courts in the United Kingdom under the English taxing statutes, different tests arc suggested. Those tests, though adequate for the specific problem under discussion, cannot be regarded as exhaustive or necessarily applicable to other problems. When Rowlatt, J., in The Commissioners of Inland Revenue v. The Anglo Brewing Company Ltd.(') said that the expression "for the purpose of the trade" meant for the purpose of keeping the trade going, and of making it pay, he was making that statement in relation to the facts of the case, and he did not intend to suggest a universal test. Similarly when because of the special nature of the business, expenditure incurred for payment of rates, taxes and duties was held a permissible allowance in the computation of taxable income, it was not intended and could not be intended to be laid down that expenditure incurred for payment of rates, taxes or duties in respect of another business would be regarded necessarily as a permissible allowance. Illustrations of this class are to be found in Smith v. Lion Brewerv Company Ltd.(2) Usher's Wiltshire Brewery Ltd. v. Bruce(l) and Harrods (Buenos A.ires) Ltd. v. Taylor-Gooby.(•) In the Lion Brewery Company's case(2) a Brewery Company who were owners or lessees of licensed premises acquired as part of their business as brewer' and as a necessary incident to profitable exploitation were held entitled to the allowance in the computation of their income under Sch. D of Compensation Fund Charges imposed under the Licensing Act upon their tenants and which the tenants after paying recouped themselves by deduction from the rents payable to the Company.

In Usher's Wiltshire Brewery Ltd.'s case(3) the claim ofa Brewery Company as owners or lessees of licensed premises acquired in the course of and for the purpose of their business as brewers and as a necessary incident to the more profitable conduct of their business of certain expenses in connection with those licensed houses was allowed in the computation of their profits. In Harrod~ (Buenos Aires) Ltd's case(•)-Harrods (Buenos Aires)Ltd-a company incorporated in the United Kingdom-carried on business ofa retailstoreinArgentina and was liable to pay a ta:it known as "substitute tall" which was levied on joint stock companies incorporated in Argentina and on companies incorporated outside but which carried on business in Argentina through an "empresa esrab!e" (a "commercial establishment"). In proceedings for assessment of income-tax of the business the claim of the Company to deduct the "substitute tax" plid to the Argentina Government was accepted, for it was an expenditre without paying which the assessee Company could not carry on its business at all. In all the three cases the eltpenditure was directly related to the business organisation of the taxpayer.

(I) 12 T.C. &13.

(2) S T.C. 561.

(l) 6 T.C. 399.

(4) 4t T.C. 450.

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• B

D .. '

But every item of expenditure merely because it is connected with the trade may not necessarily be treated as a permissible deduction. A fairly reliable approach for determining what may be regarded normally as expenditure laid out or expended wholly and exclusively for the purpose of the business was suggested in Strong and Company of Romsey Ltd. v. Woodifie!d.(1) That was a case of a Brewery Company owning a licensed house in which it carried on the business of inn-keepers. The Company had to pay damages to a customer who was, when sleeping in the inn, injured by a falling chimney, the fall of the chimney being due to the negligence of the Company's servants. The Company was held disentitled to deduct the expenditure in computing its profits for income-tax purposes.

Lord Loreburne, L. C., observed, in disallowing the claim as a permissible expenditure under the head expenditure laid out wholly and exclusively for the purpose of the business:

"A deduction cannot be allowed on account ofloss not connected with or arising out of such trade. That is one indication. And no sum can be deducted unless it be money wholly and exclusively laid out or expended for the purposes of such trade. That is another indication .. . . . .it does not follow that if a loss is in any sense connected with the trade, it must always be allowed as a deduction: for it may be only remotely connected with the - trade or it may be connected with something else quite as much as or even more than with the trade. I think only such losses can be deducted as are connected with it in the sense that they are really incidental to the trade itself. They cannot be deducted if they are mainly incidental to some other vocation, or fall on the trader in some character other than that of trader." In the same case Lord Davey observed:

"These words ........ appear to me to mean for the purpose of enabling a person to carry on and earn profits m the trade, etc. I think the disbursements permitted are such as are made for that purpose. It is not enough that the disbursement is made in the course of, or arises out of, or is connected with, the trade or is made out of the profits of the trade." In_ Badridas Daga v. Commissioner of lncome-tax,(2) Venkatarama Aiyar, J., observed that whether the expenditure is admissible or not will depend upon whether it can be said to arise out of the carrying on of the business and be incidental to it, and this was reaffirmed by this Court in a later judgment in Commissioner of Income-tax, Bombay v. Abdul!abhai Abdulkadar.(')

(I) 5 T.C. 215

(2) [1959] S.C.R. 690=34 I.T.R. 10

(3) [1961] 2 S. C. R. 949=41 I. T.R. 545.

326 SUPllEMB COURT llEPORTS [1966] 3 S.C.Jt.

In a recent judgment of this Court Commissioner of Incometax, Kera/av. Malayalam Plantations l.td.(1)certain amountspaidas estate duty under s. 84 of the Estate Duty Act, 1953, by a resident company incorporated outside India on the death of shareholders not domiciled in India, were sought to be deducted under s. 10(2) (xv) as expenditure laid out or expended wholly and exclusively for the purposes of the business. Subba Rao, J., speaking for the Court -0bserved at p. 705:

"The expression "for the purpose of the business" is wider in scope than the expression "for the purpose of earning profits." Its range is wide: it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a precondition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business.

However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessce shall incur it in his capacity as a person carrying on the business."

The position may therefore be summarised thus: the nature of the expenditure or outgoing inust be adjudged in the light of accepted commercial practice and trading principles. The expenditure must be incidental to the business and must be necessitated or justified by commercial expediency. It must be directly and intimately connected with the business and be laid out by the taxpayer in his character as a trader. To be a permissible deduction, there must be a direct and intimate connection between the expenditure and the business i.e. between the expenditure and the character of the assessee as a trader, and not as owner of assets, even if they are assets of the business.

,. .

• 1

In the light of the principles the amount of tax paid on the net

- .. wealth of an asscssee under the Wealth Tax Act is not a permissible deduction under s. I0(2)(xv) of the Indian Income-tax Act in his assessment to income-tax, for tax is imposed under the Wealth Tax Act on the owner of assets and not on any commercial activity.

H The charge of the tax is the same, whether the assets are part of or

(t) (19641 7 S.C.R. 693-53 !.T.R. 140.

_L,

' i '

.. ·-

used in the trading organisation of the owner or are merely owned by him. The assets of the taxpayer-incorporated or not-become chargeable to tax because they are owned by him, and not because they are used by him in the business.

The appeal therefore fails and is dismissed with cost~.

Appeal dismissed .

10 Sup, C.I./66--8

TRAVANCORE TITANIUM PRODUCTS LTD

COMMISSIONER OF INCOME-TAX, KERALA

January 17, 1966

K. SUBBA RAo, J

C. SHAH

Income Tax Act, 1922

s. 10(2)

s. 10(2)

Income-tax Act, 1922

SSCO under the Wealth Tax Act

Income-tax Act

s. 10(2)(xv)

G. B. Pai

T. A. Ramachandran

0.C. Mathur

A. V. Viswanatha Sastri

N. D. Karkhanis

R. H. Dhebar

R. N. Sachthey

Shah

Trivandrum

Wealth Tax Appellate Tribunal

Sec. 10

Income-tax Act

High Court of Kerala

s. 10(2)(xv)

Income-tax Act

s. 3

Wealth Tax Act, 1957

Second Schedule

Income-tax Act

s. 10(2)

s. 10(2)(xv)

Income-tax Act

Income-tax Act

United Kingdom

Rowlatt

Lion Brewery Company

Usher's Wiltshire Brewery Ltd.

ofa Brewery Company

Harrod~ (Buenos Aires) Ltd

Buenos Aires)Ltd-

Argentina

Argentina Government

Loreburne

Davey

Venkatarama Aiyar

[1961] 2 S. C. R. 949

s. 84

Estate Duty Act, 1953

s. 10(2)

Subba Rao

Income-tax Act