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STATE OF MADHYA PRADESH AND ORS.

VISHNU PRASAD SHARMA AND ORS.

F'ebruary 9, 1966

(A. K. SARKAR, K. N. WANCHOO AND J. R. MUDHOLKAR JJ.J

Land Acquisition Act (1 of 189'4), ss. 4, 5-A, 6, 17, 48 and 49- Notification under s. 4-lf could be followed by more than one notification under s. 6.

After the issue of a notification under s. 4 (1) of the Land Acquisition Act, 1894, by which it was declared that lands in certain \illages were likely to be needed for a public purpose, a number of notifications, in respect of different items of land specified in the notification under s. 4(1), were successively issued under s. 6.

The validity of the last of them was challenged by the respondents, by a writ petition in the High Court.

The High Court allowed the petition holding that a notification under s. 4(1) could be followed only by one notification under s. 6, and therefore it was not open to the Government to issue sucoessive notifications with respect to different parts of land comprised in one notification under s. 4.

In appeal to this Court, by the State, HELD : The High Court was right in holding that there can be Dll successive notifications under s. 6 with respect to land in a locality speci fled in one notification under s. 4(1). [572 C-DJ

Per Sarkar, J. Sections 4, 5-A and 6 of the Act read together indicateo that the Act contemplates only, a single declaration under s. 6 in respect of a notification under s. 4. There is nothing in ss. 17 and 49(2)(3) to lead to a contrary view.

There is nothing in the Act to support the view that it is only a withdrawal under s. 48 that puts a notification under s. 4 completely out of the way. [560 G; 561 C; 561 BJ

Per Wanchoo and Muclholkar, JJ. Sections 4, 5-A and 6 are integrally 11 conne.cted and without the notifications under ss. 4 and 6 no acquisition can take place, because, they are the basis of all proceedings which follow.

The notification under s. 4(1) specifies the locality in which the land is to be acquired and under s. 4(2) survey is made to decide what particular land in the locality specified in the notification is to be acquired.

Another purpose of the notification under s. 4(1) is to give opportuni!} to persons owning land in the locality to make objections under s. SA.

Section S-A specifically provides that the Collector shall hear all objections G made before him and then make only one report to the Government containing his recommendations on the objections.

When such a report is received by the Government, it must give a decision on all the objections at one stage and decide once for all what particular land out of the locality notified under s. 4(1) it wishes to acquire and then issue a declaration under s. 6. At the stage of s. 4, the land is not particularised but only the locality is mentioned; at the stage of s. 6 the land in the H locality is particularised and thereafter the notification under s. 4(1) having served its purpose exhausts itself. The sequence of events from a notification of the intention to acquire nnder s. 4 to the declaration under s. 6, leads to the conclusion that once a declaration under s. 6 particularil ing the area ia issued, the remaining non-particularised area in the nofl.

MllSup.C.I./66-4

ication under s. 4(1) stands automatically released. The intention of Ibo

legislature was that one notification under s. 4( I) should be followed by survey under s. 4(2), objections under s. 5-A heard, and thereafter, ono

declaration under •. 6 issued. U the Government requirm more land in that locality, there is nothing to prevent it from issuing another n0<i4cation under •- 4(1) making a further survey if necessary, hearing objections and then making another declaration under s_ 6, whereas Ibero Is likely to be prejudice to the owner of the land if there is great delay between tho notifications under s. 4( I) and s. 6.

Even if it were poasible to issue two notifications under s. 6 in the special ci.rcumstanci:s arisiag out of the application of s. 17 ( 4), all that is possible is, to issue one notification relating to l"nd to which s. 17(1) applies and another notifiaction relating to land to which s. 17 (I) cannot apply, and that is because of the special provisions contained in s. 17 (I) and s. 17 ( 4) ""d

not becauSe of the provisions of ss. 4, 5-A and 6. tion 48 (I) only confers a special power on Government of withdrawal from •C'!uisition without cancelling the notifications under ss. 4 and 6, provided, po&'iCllSion of the land covered by the notification under s. 6 was not taken.

It cannot be said that tho only way in which the notification under s. 4( I) can come to an end is by withdrdwal under s. 48( I) and that unless action is tak.m under that section the notiJication under s. 4 (I) would

remain alive.

Section 49(2) and (3) also provide for a special case.

The order of the Government under s. 49(2), ordering the •C'!uisition of the whole of the land, C\'CD though under a. 6 only part of the land may have beai declared, may be taken to serve the purposo of the notification under s. 4(1) in such a special case; but it does not follow that successive notifications under •- 6 can be i!oued with rospeot to land in the locality specified in the notiftcation under t. 4( I). [566 D-567 B; 567 P.

H; 569 B, C; 570 A-B, C; 571 F, 0)

0VIL APPELLATF. ]URJSDicnON : Civil Appeal No. 1018 of 1963.

Appeal from the judgment and order dated February 21, 1962, of the Madhya Pradesh High Court in Misc. Pe!ition No. 275 of

1961.

C. K.

Daphtary, Attorney-General, M. Adhikari, Advocate General, Madhya Pradesh, H. L. Khaskalam and /. N. Shroff, for the appellants.

S. V. Gupte, Solici10r-Ge11ernl and J. B. Dadachanji, for the respondents.

S. N. Kacker and J. P. Goyal, for the intervener.

SARKAR, J. delivered a separate opinion. The Judgment of WANC!IOO and MUDHOLKAR, JJ. was delivered by WANCHOO, J.

Sarkar, J.-My learned brother Wanchoo has set out the facts fully in his judgment and that relieves me of the necessity of stating them again.

The question that has arisen is whether a number of declarations under s. 6 of the Land Acquisition Act, 1894 can be issued su=ively in respect of different pieces of lands included within the locality specified in a notification issued under s. 4 of the Act. My learned brother has said that ss. 4, 5A and 6 of the Act have to be read together and so read, the conclusion is clear that the Act contem-

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M. P. STATE V. v. P. SHAllMA (Sarkar, J.) 55~

plates only a single declaration under s. 6 in respect of a notification under s. 4. I so entirely agree with his reasonings for this view that I find it unnecessary to add anything to them. But it was said that there are other considerations which indicate that our reading of these sections is unsound. In this judgment I propose to deal only with these considerations.

It was said that the Govermnent may have difficulty in making the plan of its project complete at a time, particularly where the project is large and, therefore, it is necessary that it should have power to make a number of declarations under s. 6. I am wholly unable to accept this argument. First, I do not think that a supposed difficulty would provide any justification for accepting an interpretation of a statute against the ordinary meaning of the language used in it. General considerations of the kind suggested cannot authorise a departure from the plain meaning of words. Secondly" I cannot imagine a Government, which has vast resources, not being able to make a complete plan of its project at a time. Indeed, I think when a plan is made, it is a complete plan. I should suppose that before the Government starts acquisition proceedings by the issue of a notification under s. 4, it has made its plan for otherwise it cannot state in the notification, as it has to do, that the land is. likely to be needed. Even if it had not then completed its plan, it would have enough time before the making of a declaration under s. 6 to do so. I think, therefore, that the difficulty of the Government, even if there is one, does not lead to the conclusion that the Act contemplates the making of a number of declarations under s. 6. I would like to observe here to avoid confusion that we are not concerned now with extension of a completely planned project conceived later. The present contention is not based on any difficulty arising out of such a ease. It was said that if the Government has not finalised its plan when it makes a declaratio11 under s. 6, it would have to start fresh acquisition proceedingt! beginning with a notification under s. 4 to provide for the complete plan if it could not make any more declarations and in such a case, in conceivable circumstances, it may have to pay more for the land that it then sought to acquire. This argument concedes that even if the Government has no• been able to make its plan when making

a declaration under s. 6, the result is not that it cannot acquire any more land later when the plan is completed. The real point, therefore, of the present argument is that the Act should be so interpreted that the Government should not be put to extra cost when it has been u'nable to complete its plan at a time. This seems to me to be a strange argument. First, there is no reason why the Act s)J.ould provide for the Government's failure to complete the plan. Secondly, the argument is hypothetical for one does not know for sure whether a later acquisition will cost more or lessr Arguments on hypothetical considerations can have little weight' in interpreting statutes. But even otherwise, this view of the matte ..

does not support the argument. After the issue of a notification under s. 4, an owner of land in the locality notified cannot have full beneficial enjoyment of his property; he cannot, for example, build on his land for if he does so and the land is acquired, he will get no compensation for the building put up and will lose the costs incurred for it. If it is a justification for saying that a number of declarations can be made under s. 6 because otherwise the Government may have to pay more, it seems to me that it is at least an equal justification for saying that such declarations cannot have been contemplated by the Act because that would mean an avoidable deprivation of the owners of their beneficial enjoyment of lands till such time as the Government is able to make its plan. As the Act is an expropriatory Act, that interpretation of it should be accepted which puts the least burden on the expropriated owner.

The Government could, of course, always make a complete plan at a time and I am unable to hold that the Act contemplated that it need not do so and go on making declarations from time to time as its plan goes on taking shape even though the result might be to

i11crease the hardship of persons whose lands are taken away.

Reference was then made to subss. (1) and (4) of s. 17. These give the Government the power to take possession of waste and arable lands included in the notification under s. 4 on the expiry of fifteen days from the publication of the notice mentioned in s. 9 and before the making of the award, without holding the enquiry contemplated by s. 5. It was said that if a notification under s. 4 included both arable and waste lands as also lands of other descriptions, it will be necessary to issue two separate declarations under s. 6 in respect of the different kinds of lands. It was also said that the vesting in respect of the two kinds of lands in the Government would also be by stages. All this, it was contended, would support the view that more than one declaration under s. 6 was contemplated in such a case. I do not feel called upon to express any opinion whether in such a case a number of declarations under s. 6 is contemplated. It is enough to say that it is not contended that this is a case of that kind. Therefore, it cannot be said that the disputed declaration under s. 6 was in this case justified under s. 17. On the contrary, if the contention thats. 17 contemplates more declarations than one under s. 6 be correct, that would be because the statute specifically so provided for a particular case. It must follow that without a special provision, more than one declaration under s. 6 was not contemplated.

The next contention was that s. 48 which gives the Government power of withdrawal from acquisition before taking possession implies that a notification under s. 4 remains in force for all purpose till such withdrawal, and if it so remains in force, successive declarations under s. 6 must be permissible for otherwise it would be useless to keep the notification under s. 4 in force. The substance

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of this argument is that the only way to get rid of a notification under s. 4 is by a withdrawal of the acquisition proceedings under s. 48; if the proceedings are not withdrawn, the notification remains and then there may be successive declarations. This argument seems to me clearly ill founded. Now a notification under s. 4 will be exhausted if a declaration is made under it in respect of the entire area covered by it. Likewise, it seems to me that if the correct interpretation is that only one declaration can be made under s. 6, that also would exhaust the notification under s. 4; that notification would no longer remain in force to justify successive declarations under s. 6 in respect of different areas included in it. There is nothing in the'Act to support the view that it is only a withdrawal under s. 48 that puts a notification under s. 4 completely out of the way. The effect of s. 48 is to withdraw the acquisition proceedings, including the notification under s. 4 with which it started. We are concerned not with a withdrawal but with the force of a notification under s. 4 having become exhausted. That is a different case and has nothing to do with a withdrawal.

Lastly, we were referred to sub-ss. (2) and (3) of s. 49. These sub-sections state that where a claim for compensation is made on the ground of severance of the land acquired from the remaining land of the owner for which provision is made under s. 23, if the Government thinks that the claim is unreasonable it may, before the making of the award, order the acquisition of the whole land and in such a case no fresh declaration under s. 6 will be necessary. It is contended that these provisions support the view that successive declarations under s. 6 were contemplated. I do not think they do so. In any case, even if they did, then that would be because in a particular case the statute specially provided for successive declarations under s. 6. The present is not that special case.

Furthermore, as I have said in connection with the argument based on s. 17, the fact that a special provision was necessary to enable successive declarations under s. 6 to be made would go to support the view that without a special provision there is no power given by the Act to issue successive declarations under s. 6.

I would for these reasons dismiss the appeal with costs.

Wanchoo, J.-The only question raised in this appeal on a certificate granted by the Madhya Pradesh High Court is whether it is open to the appropriate government to issue successive notifications under s. 6 of the Land Acquisition Act, No. 1 of 1894, (hereinafter referred to as the Act) with respect to land comprised within one notification under s. 4(1) of the Act. The question arises in this way.

On May 16, 1949, a notification was issued under s. 4 (1} of the Act by which it was declared that lands in eleven villages including village Chhawani was likely to be needed for a public

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[1966] 3 S.C.R.

purpose, i.e., the erection of an iron and steel plant. It appears that thereafter notifications were issued under s. 6 with respect to the villages notified in the notification under s. 4(1) and it is not in dispute that a number of such notifications under s. 6 were i•ued with respect to village Chhawani and some land in that village was acquired under those notifications, the last of such acquisitions being in the year 1956. Thereafter on August 12,

1960, another notification under s. 6 of the Act was issued by the appropriate government proposing to acquire 486 17 acres of land in village Chhawani and the area which was proposed to be acquired was demarcated on a map kept in the office of the Collector of Durg for inspection. The notification also stated that the provisions of s. 5-A of theAct shall not apply thereto. Thereupon the respondents who are interested in some of the land notified filed a writ petition in the High Court challenging the validity of the notification under s. 6. The principal contention raised on their beluJf was that the notification under s. 6 of the Act was void as it had not been preceded by a fresh notification under s. 4(1) and the notification under s. 4(1) issued in 1949 had exhausted itself when notifications under s. 6 with respect to this village had been issued previously and could not support the issue of another notification under s. 6. In substance the contention of the respondents in their petition was that a notification under s. 4( I) could be followed only by one notification under s. 6 and that there could be no successive notifications under s. 6 with respect to lands comprised in one notification under s. 4(1).

The petition was opposed on behalf of the appellant, and it was contended that it was open to the appropriate government to issue as many notifications as it deemed fit under s. 6 of the Act with respect to lands comprised in one notification under s. 4( I) and that it was not correct that the notification under s. 4(1) was exhausted as soon as one notification under s. 6 was issued with respect to a part of the land comprised in the notification under s. 4(1), and that it was always open to the appropriate government to issue successive notifications under s. 6 so long as these notifications were with respect to land comprised within the notification under s. 4(1).

The High Court has accepted the contention of the respondents and has held that a notification under s. 4 (I) can only be followed by one notification under s. 6 and that it is not open to the appropriate government to issue successive notifications with respect to parts of the land comprised in one notification under s. 4 and that as soon as one notification is issued under s. 6, whether it be with respect to part of the land comprised in the notification under s. 4(1) or with respect to the whole of it, the notific_atiol! under s. 4(1) is exhausted and cannot support any further nohficauon under s. 6 of the Act with respect to parts of land comprised in the notifi-

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A cation under s. 6. In consequence the petition was allowed and the notification dated August 12, 1960 quashed. The appellant then applied to the High Court for a certificate which was granted; and that is how the matter has come up before us .

The question whether only one notification under s. 6 can be issued with respect to land comprised in the notification under s. 4(1) and thereafter the notification under s. 4(1) exhausts itself and cannot support any further notification under s. 6 with respect to such laud depends upon the construction of ss. 4, 5-A and 6 of the Act and on the connection between these provisions. Before however we deal with these provisions we may briefly refer to the scheme of the Act and the background in which these provisions have to be interpreted.

The Act provides for the exercise of the power of emineni domain and authorises the appropriate government to acquire lands thereunder for public purpose or for purposes of a company. The proceedings begin with a notification under s. 4 (1). After such a notification it is permissible under s. 4(2) for any officer of government, his servants and workmen to enter upon and survey the land in such locality, to dig or bore into the subsoil, to do all other acts necessary to ascertain whether the land is adapted for the purpose for which it was needed, to set out the boundaries of the land proposed to be taken and the intended line of the work proposed to be made thereon, to mark boundaries etc. by placing marks and fences and where otherwise the survey cannot be completed to cut down and clear away any part of any standing crop, fence or jungle. While the survey is being done under s. 4 (2), it is open to any person interested in the land notified under s. 4 (I) to object under s. 5-A before the Collector within thirty days after the issue of the notification to the acquisition of the land or of any land in the locality. The Collector is authorised to hear the objections and is required after hearing all such objections and after making such further enquiry as he thinks necessary to submit the case for the decision of the appropriate government together with the record of the proceedings held by him and a report containing his recommendations on the objections. Thereafter the appropriate government decides the objections and such decision is final.

If the appropriate government is satisfied after considering the report that any particular land is needed for a public purpose or for a company it has to make a declaration to that effect. After such a declaration has been made under s. 6 the appropriate government directs the Collector under s. 7 to take order for the acquisition of the land. Sections 8 to 15 provide for the proceedings before the Collector. Section 16 authorises the Collector to take possession after he has made the award under s. 11 anil thereupon the land vests absolutely in the government free from all encumbrances.

Section 17 provides for special powers in cases of urgency. If a

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person is not satisfied with the award of the Collector, ss. 18 to 28 provide for proceedings on a reference to court. Sections 31 to 34 provide for payment of compensation. Sections 38 to 44 make special provisions for acquisition of land for companies.

Section 48 gives power to government to withdraw from the acquisition of any land of which possession has not been taken. Section 49 provides for special powers with respect to acquisition of house, building or manufaclory and of land severed from other land.

It will be seen from this brief review of the provisions with respect to acquisition of land that ss. 4 and 6 are the basis of all the proceedings which follow and without the notifications required under ss. 4 and 6 no acquisition can take place. The importance of a notification under s. 4 is that on the issue of such notification the land in the locality to which the notification applies is in a sense freezed. This freezing talccs place in two ways. firstly the market value of the land to be acquired has to be determined on the date of the notification under s. 4(1) : [see s. 23(1) firstly].

Secondly, any outlay or improvements on or disposal of the land acquired commenced, made or effected without the sanction of the Collector after the date of the publication of the notification under s. 4(1) cannot be taken into consideration at all in determining compensation : (see s. 24, seventhly).

It is in this background that we have to consider the question raised before us. Two things are plain when we come to consider the construction of ss. 4, SA and 6. The first is that the Act provides for acquisition of land of persons without their consent, though compensation is paid for such acquisition; the fact however remains that land is acquired without the consent of the owner thereof and that is a circumstance which must be borne in mind when we come to consider the question raised before us.

In such a case the provisions of the statute must be strictly construed as it deprives a person of his land without his consent. Secondly, in interpreting these provisions the court must keep in view on the one hand the public interest which compels such acquisition and on the other the interest of the person who is being deprived of his land without his consent. It is not in dispute that it is open to the appropriate government to issue as many notifications as it deems fit under s. 4(1) even with respect to the same locality followed by a proper notification under s. 6 so that the power of the appropriate government to acquire land in any locality is not exhausted by the issue of one notification under s. 4(1) with respect to that locality. On the other hand as the compensation has to be determined with reference to the date of the notification under s. 4(1) the person whose land is to be acquired may stand to lose if there is a great delay between the notification under s. 4(1) and the notification under s. 6 in case prices have risen in the meantime. This delay is likely to be greater if successive notifications under s. 6 can be

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M. P. STATE v. v. p, SHARMA (Wane/zoo, J.) 565

issued with respect to land comprised in the notification under s. 4 with greater consequential loss to the person whose land is being acquired if prices have risen in the meantime. It is however urged that prices may fall and in that case the person whose land is being acquired will stand to gain. But as it is open to the appropriate government to issue another notification under s. 4 with respect to the same locality after one such notification is exhausted by the issue of a notification under s. 6, it may proceed to do so where it feels that prices have fallen and more land in that locality is needed and thus take advantage of the fall in prices in the matter of acquisition. So it is clear that there is likely to be prejudice to the owner of the land if the interpretation urged on behalf of the appellant is accepted while there will be no prtjudice to the government if it is rejected for it can always issue a fresh notification under s. 4(1) after the previous one is exhausted in case prices have fallen. It is in this background that we have to consider the question raised before us.

As we have said already, the process of acquisition always begins with a notification under s. 4(1). That provision authorises the appropriate government to notify that land in any locality is needed or is likely to be needed for any public purpose. It will be noticed that in this notification the land needed is not particularised but only the locality where the land is situate is mentioned. As was observed by this Court in Babu Barkya Thakur v. The State of Bombay,(1) a notification under s. 4 of the Act envisages a preliminary investigation and it is only under s. 6 that the government makes a firm declaration. The purpose of the notification under s. 4(1) clearly is to enable the government to take action under s. 4(2) in the matter of survey of land to decide what particular land in the locality specified in the notification under s. 4(1) it will decide to acquire. Another purpose of the notification under s. 4(1) is to give opportunity to persons owning land in that locality to make objections under s. 5-A. These objections are considered by the Collector and after considering all objections he makes a report containing his recommendation on the objections to the appropriate government whose decision on the objections is final. Section 5-A obviously contemplates consideration of all objections made to the notification under s. 4(1) and one report thereafter by the Collector to the government with respect to those objections. The government then finally decides those objections and thereafter proceeds to make a declaration under s. 6. There is nothing in s. 5-A to suggest that the Collector can make a number of reports dealing with the objections piecemeal. On the other hand s. 5-A specifically provides that the Collector shall hear all objections made before him and then make a report i.e. only a single report to the government containing his recommendation on the objections.

(1 [1961] I S.C.R. 128).

It 5eems to us clear that when such a report is received from the Collector by the government it must give a decision on all the objections at one stage and decide once for all what particular land out of the locality notified under s. 4(1) it wishes to acquire.

It has to be satisfied under s. 6 after considering the report made under s. 5-A that a particular land is needed for a public purpose or for a company and it then makes a declaration to that elTcct under s. 6.

Reading ss. 4, 5-A and 6 together it seems to us clear that the notification under s. 4(1) specifies merely the locality in which the land is to be acquired and then under s. 4(2) survey is made and it is considered whether the land or part of it is adapted to the purpose for which it is required and maps are prepared of the land proposed to be taken. Then after objections under s. 5-A have been disposed of the government has to decide what particular land out of the locality specified in the notification under s. 4( I) it will acquire. It then makes a declaration under s. 6 specifying the particular land that is needed.

Sections 4, 5-A and 6 in our opinion are integrally connected.

Section 4 specifies the locality in which the land is acquired and provides for survey to decide what particular land out of the locality would be needed.

Section 5-A provides for hearing of objections to the acquisition and after these objections are decided the government has to make up its mind and declare what particular land out of the locality it will acquire. When it has so made up its mind it makes a declaration as to the particular land out of the locality notified ins. 4(1) which it will acquire. It is clear from this intimate connection between ss. 4, 5-A and 6 that as soon as the government has made up its mind what particular land out of the locality it requires, it has to issue a declaration under s. 6 to that elTect. The purpose of the notification under s. 4(1) is at this stage over and it may be said that it is exhausted after the notification under s. 6. If the government requires more land in that locality besides that notified under s. 6, there is nothing to prevent it from issuing another notification under s. 4( I) making a further survey if necessary, hearing objections and then making another declaration under s. 6. The notification under s. 4(1) thus infonns the public that land is required or would be required in a parti

cular locality and thereafter the members of the public owning land in that locality have to make objections under s. 5-A; the government then makes up its mind as to what particular land in that locality is required and makes a declaration under s. 6. It seems to us clear that once a declaration under s. 6 is made, the notification under s. 4(1) must be exhausted, for it has served its purpose. There is nothing in ss. 4, 5-A and 6 to suggest that s. 4 (I) is a kind of reservoir from which the go".ernmen~ may from llm.c to time draw out land and make declarations with respect to It successively. If that was the intention behind sections 4, 5-A and

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6 we would have found some indication of it in the language used therein. But as we read these three sections together we can only find that the scheme is that s. 4 specifies the locality, then there may be survey and drawing of maps of the land and the consideration whether the land is adapted for the purpose for which it has to be acquired, followed by objections and making up of its mind by the government what particular land out of that locality it needs.

This is followed by a declaration under s. 6 specifying the particular land needed and that in our opinion completes the process and the notification under s. 4(1) cannot be further used thereafter. At the stage of s. 4 the land is not particularised but only the locality is mentioned; at the stage of s. 6 the land in the locality is particularised and thereafter it seems to us that the notification under s. 4(!) having served its purpose exhausts itself. The sequence of events from a notification of the intention to acquire (s. 4(1)) to the declaration under s. 6 unmistakably leads one to the reasonable conclusion that when once a declaration under s. 6 particularising the area out of the area in the locality specified in the notification under s. 4(1) is issued, the remaining non-particularised area stands automatically released.

In effect the 5Cheme of these three sections is that there should be first a notification under s. 4(1) followed by one notification under s. 6 after the government has made up its mind which land out of, the locality it requires.

It is urged however that where the land is required for a small project and the area is not large the government may be able to make up its mind once for all what land it needs, but where as in the present case land is required for a large project requiring a large area of land government may not be able to make up its mind all at once. Even if it be so there is nothing to prevent the government from issuing another notification under s. 4 followed by a notification under s. 6. As we have said before, the government's power to acquire land in a particular locality is not exhausted by issuing one notification under s. 4(!) followed by a notification under s. 6. The interpretation which has commended itself to us therefore does not deprive the government of the power to acquire more land from the same locality if later on it thinks that more land than what has been declared under s. 6 is needed. It can proceed to do so by a fresh notification under s. 4(1) and a fresh declaration under s. 6. Such a procedure would in our opinion be fair to all concerned; it will be fair to government where the prices have fallen and it will be fair to those whose land is being acquired where the prices have risen. Therefore as we read these three sections we are of opinion that they are integrally and intimately connected and the intention of legislature was that one notification under s. 4(1) should be followed by survey under s. 4

(2) and objections under s. 5-A and thereafter one declaration

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under s. 6.

There is nothing in ss. 4, 5-A and 6 which supports the construction urged on behalf of the appellant and in any case it seems to us that the construction which commends itself to us and which has been accepted by the High Court is a fair construction keeping in view the background to which we have referred.

Even if two constructions were possible, which we think is not so, we would be inclined to the construction which has .commended itself to us because that construction does not restrict the power of the government to acquire land at any time it deems fit to do and at the same time works fairly towards persons whose land is to be acquired compulsorily.

It now remains to consider certain other provisions of the Act to which reference has been made on behalf of the appellant to show that successive notifications under s. 6 are contemplated with respect to land in a locality specified in the notification under s. 4(1). The first provision is contained in s. 17(4). Section 17(1) gives power to government in cases of urgency to direct that the Collector should take possession of the land before the award is made and such possession can be taken on expiration of fifteen days from the publication of the notice under s. 9(1).

Further such possession can only be taken of waste or arable land and on such possession being taken such land vests absolutely in the government free from all encumbrances. To carry out the purposes of s. 17(1), s. 17(4) provides that the appropriate government may direct that the provisions of s. 5-A shall not apply in cases ofurgency and if it so directs, a declaration under s. 6 may be made in respect of the land at any time after the publication of the notification under s. 4(1). It is urged that this shows that where the land notified under s. 4(1) includes land of the kind mentioned ins. 17 (I) and also land which is not of that kind it would be open to government to make a declaration under s. 6 with respect to the land mentioned in s. 17( I) immediately after the notification under s. 4(1) while notification with respect to the land which is not of the kind mentioned in s. l 7( I) can follow later after the enquiry under s. 5-A is over and objections have been disposed of. So it is urged that more than one declaration is contemplated under s. 6 after one notification under s. 4(1).

There arc two answers to this argument.

In the first place where the land 10 be acquired is of the kind mentioned in s. 17( l) and also of the kind not included in s. 17( I) there is nothing to prevent the government from issuing two notifications under s. 4(1) one relating to land which comes within s. 17(1) and the other relating to land which cannot come within s. 17(1). Thereafter the government may issue a notification under s. 6 followng the notification under s. 4(1) with respect to the land to which s. 17(1) applies while another notification under s. 6 with respect to land to which s. 17(1) does not apply can follow after the enquiry under s. 5-A.

So section 17(4) does not necessarily mean that

A . ' ~

c -

there can be two notifications under s. 6 where the provisions of that section are to be utilised, for, the government can from the beginning issue two notifications under s. 4 and follow them up by two declarations under s. 6. But even assuming that it is possible to make two declarations under s. 6 (though in view of what we have said above this is not necessary and we express no final opinion about it) where the land to be acquired is both of the kind mentioned ins. 17(1) and also of the kind not comprised therein, all that the government can do in those circumstances after one notification under s. 4 (l) comprising both lands is to issue one notification under s. 6 comprising lands coming within s. 17(1) and another notification under s. 6 with respect to land not coming within s. 17(1) sometime later after the enquiry under s. 5-A is finished. This however follows from the special provisions contained ins. 17(1) and (4) and in a sense negatives the contention of the appellant based only on ss. 4, 5-A and 6. It may be added that that is not the position in the present case. Therefore even if it were possible to issue two notifications under G. 6 in the special circumstances arising out of the application of s. 17( 4), all that is possible is to issue one notification relating to land to which s. 17( 1) applies and another notification relating to land to which s. 17(1) cannot apply. Further if both these kinds of land are included in the notification under s. 4(1), the issue of two notifications under s. 6 follows from the special provisions contained ins. 17(1) ands. 17(4) and not from the porvisions of ss. 4, 5-A and 6. The present is not a case of this kind, for the notification under s. 4(1) in this case issued in May 1949 did not contain any direction relevant to s. 17(4). It is true that the declaration under s. 6 dated August 12, 1960 contains a direction under s. 17(4), but the effect of that merely is to allow the government to take possession of the land within 15 days after the issue of notice under s. 9(1).

This is on the assumption that a direction under s. 17(4) can be issued along with the notification under s. 6 as to which we express no opinion. We are therefore of opinion that the provisions in s. 17( 4) do not lead to the conclusion that section 6 contemplates successive notifications following one notification under s. 4(1 ).

As we interpret ss. 4, 5-A and 6 that is not the intention in a normal case. Even in a case of urgency there can at the most be only two notifications under s. 6 following one notification under s. 4(1), one relating to land which is covered bys. 17(1) and the other relating to land which is not covered by s. 17(1), provided both kinds of land are notified by one notification under s. 4(1). As we have said even that is not necessary for we are of opinion that in such a case the government can issue two notifications under s. 4(1), one relating to land to which s. 17(1) applies and the other relating to land to which s. 17(1) does not apply and thereafter there will be two notifications under s; 6 each following its own predecessor under s. 4(1).

570 SUPREME couar REPOll.TS

[1966) 3 S.C.R.

Then reliance is placed on s. 48 which pro\ides for withdrawal from acquisition. The argument is that s. 48 is the only provision in the Act which deals with withdrawal from acquisition and that is the only way in which government can withdraw from the acquisition and unless action is taken under s. 48(1) the notification under s. 4{1) would remain (presumably for ever). It is urged that the only way in which the notification under s. 4(1) can come to an end is by withdrawal under s. 48(1). We are not impressed by this argument. In the first place, under s. 21 of the General Oauses Act, (No. JO of 1897), the power to issue a notification includes the power to rescind it. Therefore it is always open to government to rescind a notification under s. 4 or under s. 6, and withdrawal under s. 48(1) is not the only way in which a notification under s. 4 ors. 6 can he brought to an end. Section 48(1) confers a special power on government of withdrawal from acquisition without cancelling the notifications under ss. 4 and 6, provided it has not taken possession of the land covered by the notification under s. 6. In such circumstances the government has to give compensation under s. 48(2).

This compensation is for the damage suffered by the owner in consequence of the notice under s. 9 or of any proceedings thereafter and includes costs reasonably incurred by him in the prosecution of the proceedings under the Act relating to the said land.

The notice mentioned in sub-s. (2) obviously refers to the notice under s. 9(1) to persons interested.

It seems that s. 48 refers to the stage after the Collector has been asked to take order for acquisition under s. 7 and has issued notice under s. 9(1). It does not refer to the stage prior to the issue of the declaration under s. 6. Section 5 says that the officer taking action under s. 4(2) shall pay or tender payment for all necessary damage done by his acting under s. 4(2). Therefore the damage, if any, caused after the notification under s. 4(1) is provided in section 5. Section 48(2) provides for compensation after notice has been issued under s. 9( I) and the Collector has taken proceedings for acquisition of the land by virtue of the direction under s. 7. Section 48(1) thus gives power to government to withdraw from the acquisition without cancelling the notifications under ss. 4 and 6 after notice under s. 9(1) has been issued and before possession is taken. This power can be exercised even after the Collector has made the award under s. 11 but before he takes possession under s. 15. Section 48(2) provides for compensation in such a case.

The argument thats. 48(1) is the only method in which the government can withdraw from the acquisition has therefore no force because the government can always cancel the notifications under ss. 4 and 6 by virtue of its power under s. 21 of the General Qauscs Act and this power can be exercised before the government directs the Collector to take action under s. 7. Section 48(1) is a special provision for those cases where proceedings for acquisition have gone beyond the stage of the issue of notice under s. 9(1) and

' • -<

,. -,1 ,,

it provides for payment of compensation under s. 48(2) read with s. 48(3). We cannot therefore accept the argument that without an order under s. 48(1) the notification under s. 4 must remain outstanding. It can be cancelled at any time by government under s. 21 of the General Clauses Act and what s. 48(1) shows is that once government has taken possession it cannot withdraw frorn the acquisition. Before that it may cancel the notifications under ss. 4 and 6 or it may withdraw from the acquisition under s. 48(1).

If no notice has been issued under s. 9(1) all that the government has to do is to pay for the damage caused as provided in s. 5; if on the other hand a notice has been issued under s. 9(1 ), damage has also to be paid in accordance with the provisions of s. 48(2) and (3). Section 48(1) therefore is of no assistance to the appellant for showing that successive declarations under s. 6 can be made with respect to land in the locality specified in the notification under s. 4(1).

Then reference is made to s. 49(2) and (3). These sub-sections lay down a special provision applicable in certain circumstances.

Among the factors to be taken into consideration in fixing the compensation is the damage if any sustained by the person interested at the time of the Collector's taking possession of the land by reason of severing such land from his other land. Section 49(2) provides. that if a person is claiming an unreasonable and excessive compensation for this kind of damage, the government can order the acquisition of the whole of the land even though under s. 6 only part of the land may have been declared. Sub-section (3) provides that in such a case no action under s. 6 to s. 10 would be necessary and that all that the Collector is to do is to give an award under s. 11. The argument is that s. 49(3) does not mention s. 4 and therefore it follows that successive notifications under s. 6 can be issued with respect to land in the locality specified in the notifica-· tion under s. 4(1). We have not been able to understand how this follows from the fact thats. 4(1) is not mentioned ins. 49(3).

As we have said already s. 49(2) and (3) provide for a very special case and the order of government under s. 49(2) may in a sense be taken to serve the purpose of s. 4(1) in such a special case. Thereafter all that s. 49(3) provides is that the Collector may proceed straight off to determine compensation under s. 11, the reason for this being that all the other steps necessary for determining compensation under s. 11 have already been taken in the presence of the parties.

Lastly it is urged that vesting is also contemplated in two stages and that shows that successive notifications can be issued under s. 6 following one notification unde& s. 4(1). Section 16 provides for taking possession and vesting after the award bas been made. Section 17 provides for taking possession and conaequent vesting before the award is made in case of urgency. We

fail to see how these provisions as to vesting can make any difference to the interpretation of ss. 4, 5-A and 6.

Section 16 deals with a normal case where possession is taken after the award is made while s. 17(1) deals with a special case where possession is taken fifteen days after the notice under s. 9(1). Vesting always follows taking of possession and there can be vesting either under s. 16 or under s. 17(1) depending upon whether the case is a normal one or an urgent one. What we have said with respect to s. 17(1) .and s. 17( 4) would apply in this matter of vesting also and if the matter is of urgency the government can always issue two notifi- -cations under s. 4, one relating to land urgently required and covered bys; 17(1) and the other relating to land not covered bys. 17(1).

The argument based on these provisions in s. 16 and s. 17 can have no effect on the interpretation of ss. 4, 5-A and 6 for reasons which we have given when dealing with ss. 17(1) and 17(4). We are therefore of opinion that the High Court was right in holding that there can be no successive notifications under s. 6 with respect to land in a locality specified in one notification under s. 4(1).

As it is not in dispute in this case that there have been a number , of notifications under s. 6 with respect to this village based on the notification under s. 4(1) dated May 16, 1949, the High Court was right in quashing the notification under s. 6 issued on August 12, 1960 based on the same notification under s. 4(1).

The petition had also raised a ground that the notification under s. 6 was vague. However, in view of our decision on the main point raised in the case we express no opinion on this aspect -0f the matter.

The appeal therefore fails and is hereby dismissed with costs

Appeal dismissed.

STATE OF MADHYA PRADESH AND ORS

VISHNU PRASAD SHARMA AND ORS

F'ebruary 9, 1966

A. K. SARKAR

K. N. WANCHOO

R. MUDHOLKAR JJ

Land Acquisition Act

ss. 4, 5

s. 4

s. 6

s. 4

Land Acquisition Act, 1894

s. 4(1)

s. 6

s. 4(1)

s. 6

s. 4

s. 6

s. 4(1)

Sections 4, 5

s. 6

s. 4

ss. 17 and 49(2)(3)

s. 48

s. 4

Wanchoo

Muclholkar

Sections 4, 5

ss. 4 and 6

s. 4(1)

s. 4(2)

s. 4(1)

s. 4(1)

s. 6

s. 4

s. 6

s. 4(1)

s. 4

s. 6

s. 6

s. 4(1)

s. 4( I)

s. 4(2)

s. 5

s. 4( I)

s. 6

s. 6

s. 17

s. 17(1)

s. 17

s. 17

s. 17

ss. 4, 5

ss. 4 and 6

s. 6

s. 4( I)

s. 48( I)

s. 4

Section 49(2)

s. 49(2)

s. 4(1)

0VIL APPELLATF. ]URJSDicnON

C. K.

Daphtary

M. Adhikari

H. L. Khaskalam

N. Shroff

S. V. Gupte

J. B. Dadachanji

S. N. Kacker

J. P. Goyal

SARKAR

WANC!IOO

MUDHOLKAR

WANCHOO

Sarkar

s. 6

Land Acquisition Act, 1894

s. 4

ss. 4, 5A and 6

s. 6

s. 4

s. 6

s. 4

s. 6

s. 6

s. 6

s. 4

s. 6

s. 4

s. 6

s. 17

s. 4

s. 9

s. 5

s. 4

s. 6

s. 6

s. 6

s. 6

s. 17

s. 6

s. 6

s. 48

s. 4

s. 6

s. 4

s. 4

s. 48

s. 4

s. 6

s. 4

s. 6

s. 48

s. 4

s. 48

s. 4

s. 4

s. 49

s. 23

s. 6

s. 6

s. 6

s. 17

s. 6

s. 6

Madhya Pradesh High Court

s. 6

s. 4(1)

May 16, 1949

s. 4

Chhawani

s. 6

s. 4(1)

s. 6

August 12,

1960

s. 6

Durg

s. 5

s. 6

s. 6

s. 4(1)

s. 4(1)

s. 6

s. 6

s. 4( I)

s. 6

s. 6

s. 4(1)

s. 6

s. 4( I)

s. 4(1)

s. 6

s. 4(1)

s. 6

s. 4(1)

s. 4

s. 6

s. 4

s. 6

s. 4(1)

s. 4(1)

s. 6

s. 6

August 12, 1960

s. 6

s. 4(1)

s. 4(1)

s. 6

ss. 4, 5

s. 4

s. 4(2)

s. 4

s. 4

s. 5

s. 6

s. 7

Sections 8 to 15

Section 16

s. 11

Section 17

ss. 18 to 28

Sections 31 to 34

Sections 38 to 44

Section 48

Section 49

ss. 4 and 6

ss. 4 and 6

s. 4

s. 4(1)

s. 23(1)

s. 4(1)

s. 24

ss. 4

s. 4(1)

s. 6

s. 4(1)

s. 4(1)

s. 4(1)

s. 6

s. 6

s. 4

s. 4

s. 6

s. 4(1)

s. 4(1)

s. 4

s. 6

s. 4(1)

s. 4(2)

s. 4(1)

s. 4(1)

s. 5

Section 5

s. 4(1)

s. 6

s. 5

s. 5

s. 4(1)

s. 6

s. 5

s. 6

ss. 4, 5

s. 4(1)

s. 4(2)

s. 5

s. 4( I)

s. 6

Sections 4, 5

Section 4

Section 5

ss. 4, 5

s. 6

s. 4(1)

s. 6

s. 6

s. 4( I)

s. 6

s. 4(1)

s. 5

s. 6

s. 6

s. 4(1)

ss. 4, 5

s. 4

sections 4, 5

s. 4

s. 6

s. 4(1)

s. 4

s. 6

s. 4(!)

s. 4(1)

s. 6

s. 6

s. 4(1)

s. 4(1)

s. 6

s. 4

s. 6

s. 4(!)

s. 6

s. 6

s. 4(1)

s. 6

s. 4(1)

s. 4

s. 5

s. 6

ss. 4, 5

s. 6

s. 4(1)

s. 17(4)

Section 17(1)

s. 9(1)

s. 17(1)

s. 17(4)

s. 5

s. 6

s. 4(1)

s. 4(1)

s. 6

s. 17( I)

s. 4(1)

s. 5

s. 6

s. 4(1)

s. 17( l)

s. 17( I)

s. 4(1)

s. 17(1)

s. 17(1)

s. 6

s. 4(1)

s. 17(1)

s. 6

s. 17(1)

s. 5

section 17(4)

s. 6

s. 4

s. 6

s. 6

s. 4

s. 6

s. 17(1)

s. 6

s. 17(1)

s. 5

ss. 4, 5

s. 17( 4)

s. 17( 1)

s. 17(1)

s. 4(1)

s. 6

ss. 4, 5

s. 4(1)

s. 17(4)

s. 6

s. 17(4)

s. 9(1)

s. 17(4)

s. 6

s. 17( 4)

section 6

s. 4(1 )

ss. 4, 5

s. 6

s. 4(1)

s. 17(1)

s. 4(1)

s. 4(1)

s. 17(1)

s. 17(1)

s. 4(1)

s. 48

s. 48

s. 48(1)

s. 4

s. 4(1)

s. 48(1)

s. 21

s. 4

s. 6

s. 48(1)

s. 4

Section 48(1)

ss. 4 and 6

s. 6

s. 48(2)

s. 9

s. 9(1)

s. 48

s. 7

s. 9(1)

s. 6

Section 5

s. 4(2)

s. 4(2)

s. 4(1)

section 5

Section 48(2)

s. 9( I)

s. 7

Section 48(1)

ss. 4 and 6

s. 9(1)

s. 11

s. 15

Section 48(2)

ss. 4 and 6

s. 21

s. 7

Section 48(1)

s. 9(1)

s. 48(2)

s. 48(3)

s. 48(1)

s. 4

s. 21

General Clauses Act

s. 48(1)

ss. 4 and 6

s. 48(1)

s. 9(1)

s. 5

s. 9(1 )

s. 48(2)

Section 48(1)

s. 6

s. 4(1)

s. 49(2)

Section 49(2)

s. 6

s. 6

s. 10

s. 11

s. 49(3)

s. 4

s. 6

s. 4(1)

s. 49(2)

s. 49(2)

s. 4(1)

s. 49(3)

s. 11

s. 11

s. 6

s. 4(1)

Section 16

Section 17

ss. 4, 5

Section 16

s. 17(1)

s. 9(1)

s. 16

s. 17(1)

s. 17(1)

s. 17( 4)

s. 4

s. 16

s. 17

ss. 4, 5

ss. 17(1) and 17(4)

s. 6

s. 4(1)

s. 6

s. 4(1)

s. 6

s. 4(1)

s. 6


KISHANCHAND LUNIDASINGH BAJAJ

COMMISSIONER OF INCOME-TAX, MYSORE

February 10, 1966.

(P. B. GAJENDRAGADKAR, C. J., K. N. WANCHOO, J.C. SHAH,

S. M. SIKRI AND V. RAMASWAMI, JJ.J

Indian Income-tax Act, 1922 (11 of 1922), s. 16(2)-Rea/ owner mid registered owner of shares different-Tax liability on dividend on wh•m.

B and his sons constituted a Hindu undivided family which owned certain shares in public limited companies.

The family started busineu in money lending in the name of a tirm and in the books of account of the firm the shares which stood registered in the name of B with the companies were credited as the capital of the business. Two sons separated from the family, each receiving •urns in lieu of his share, and theJ formed a partne:sbip with the rest of themembers of the family for carrying business in the name of the same firm.

Under the partnership the two separated sons were entitled to their shares and the remaining shares were to belong to B as Karta of the farnilJ.

Dividends received in respect of the shares were credited to the profit and loss ac::ount of the firm.

In assessment proceedings, it was claim,..d that the shares which stood registered in the name of B belonged not to the Hindu undivided family but to the firm.

The claim was rejected. In appeal to this Court it was contended that where one taxable entity is the registered holder of shares in a company and the real owner of the shares is another taxable entity, the registered shareholder alone is liable to be ascessed to tax in respect of the dividend from these sharee,

and therefore B aione was liable to be taxed in respect of the divideond income from the shares, and not the Hindu undivided family.

HELD : The contention must fail.

Tax being charged by s. 3 of the Income-tax Act upon dividend in come and not being excludd under s. 4(3), such income would be chargeable to income-tax under the Act in the hands of the person to whom it accru .. or by whom it is received.

A company for its purpoaea does not recognize any trust or equitable ownership in shares; it merely recognizes the registered shareholder as the owner and pays the dividend to that shareholder.

But the shares may, because of a trust or other fiduciary relationship, belong to a person other than the registered shareholder and the dividend distributed by the company would for the pnrpose of tax be deemed to accrue or arise to the real owner of the shares. [576

A-CJ G Sub-section (2) of s. 16 does not operate .. an exemption from t.ba pale of either s. 3 or s. 4( I) of the Act nor does it provid<i that liabi lity to tax arises only when the person by whom dividend is received from the company is the real owner of the •hares. Sub-section (5) of s. 18 also does not lead to that result. Insofar as it deals with dividend which is "grossed up", sub-s. (5) of s. 18 forms a corollary to s. 16(2).

Therefore when tax is paid on behalf of a shareholder and dednctioo Is made from dividend, credit is giYen to the shareholder for the tax paid H in his final assessment. But the scheme of "grossing up" is not aua-- ceptible of the interpretation that the income from dividend is to be regarded as the income only of the registered shareholder and not of tho real owner of the share. [578 G-579 BJ Ml 1 Sup. CI/66-'

Income-tax Officer, North Satara \'. Arl"ind N. Ma/at/a/ & Ors .. 45 A l.T.R. 271 and Commirsioner of Income-tax, Bo:nbay City fl v. Shakunta/a and Ors., 43 l.T.R. 352, referred to.

Howrah TradinR Company I .. td,. v. Commissr'oner of lnco1ne-tax, Cmrral, Calcutra, 36 J.T.R. 215, explained.

C1v1L APPEi.i.ATE Jt•RISIDC'TION : CiYil Appeal No. 234 of 1965. n

Appeal by special leave from the judgment and order dated July 19, 1963 of the Mysore High Court in I. T. R. c. No. 6 of

1963.

K. Srinil'asan and R. Gopalakrislman, for the appellant.

C. K. Daphtary, Aflorney-General, R. Gmrapat/Jy Iyer, R. !/.

Dhebar and R. N. Sachthey, for the respondenl.

The Judgment of the Court was delivered by

Shah, J.

Kishanchand Bajaj and his seven sons formed a Hindu undivided family which owned shares exceeding Rs. 91,000 in value, in public limited companies. The family commenced business in money-lending and as commission agents on May 16, 1956 in the name of Messrs. Mangoomal Kishanchand and in the books of account of the firm the shares which stood registered in the name of Kishanchand with the companies were credited as capital of the business. On August 22, 1956 Shyam Sundar and Girdharlal, two of the sons of Kishanchand separated from the family, each receiving rupees two lakhs in lieu of his share.

On August 23, 1956 a partnership was formed between Kishanchand representing the Hindu undivided family of himself and his five sons and Shyam Sundar and Girdharlal, for carrying on the business of Messrs. Mangoomal Kishanchand. Under the deed of partnership, Shyam Sundar and Girdharlal were each entitled to a seventh share and the remaining five-evenths share was to belong to Kishanchand as karta of the Hindu undivided family.

Dividends received in respect of the shares were credited to the profit & loss account of the firm.

In procecdir.gs for assessment of the firm for the year 1959-60 it was claimed that ibe shares which stood registered in the name of Kishanchand belonged not to the Hindu undivided family but to the firm of Messrs. Mangoomal Kishanchand. The Income-tax Officer rejected that contention.

He held that the Hindu undivided family was "the real and legal owner of the shares", and that the shares \\ere at no time the property of the firm.

The order of the Income-tax Officer was confirmed in appeal l:>y the Appellate Assistant Commissioner. Jn second appeal to the Income-tax Appellate Tribunal, it was contended on behalf of the Hindu undivided family that the dividend from the shares

'I,

• _,

could be assessed only in the hands of the person who held ownr

ship "legal as well as equitable" in the shares, and as the fa~Ily had ceased to be the "equitable owner" of the shares, the Hmdu undivided family could not be assessed under the Income-tax Act, 1922 on the dividend. The Tribunal rejected the contention. The Tribunal then referred under s. 66 (I) of the Indian Jncorne-tax Act, 1922, the following question to the High Court of Mysore for opinion :

"Whether on the facts and circumstances of the case, the dividend income from shares standing in the name of Kishanchand Lunidasingh Bajaj and acquired with the funds of the Hindu undivided family of which the said C person was the karta was assessable in the hands of the

assessee family ?"

The High Court answered the question in the affirmative, and with special leave the Hindu undivided family has appealed to this Court.

Jn this appeal it was urged that where one taxable entity is the registered holder of shares in a company and the real owner of the shares is another taxable entity, the registered shareholder alone is liable to be assessed to tax in respect of the dividend from those shares, and therefore Kishanchand alone was liable to be taxed in respect of the dividend income from the phirres, and not the Hindu undivided family. Reliance in suprort of this contention was placed upon s. 16 (2) of the Indian Income-tax Act, 1922, and certain observations made by this Court in the judgment in Howrah Trading Company Ltd. v. Commissioner of Income-tax, Central, Calcutta.(')

In our judgment the contention is wholly without substance.

Under s. 3, total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of ths firm or the members of the association individually is charged to tax. By s. 4 the total income of any previous year of any person includes, subject to the provisions of the Act, all income, profits and gains from whatever source derived, which are received or deemed to be received in the taxable territories in such year hy or on behalf of such person, or if such person is resident in the taxable territories during such year the income which accrue or arise or is deemed to accrue or arise to him in the taxable territories during such year, or accrue or arise without the taxable territory during such year, or having accrued or arisen to him without the taxable territories .or brought in the taxable territories during such year, or if such person is not residinl': to the taxahle

SUPREME COUIT REPORTS

(1966) 3 S.C.R.

territories during such year, accrue or arise or are deemed to accrue or arise to him. By sub-s. (3) of s. 4 any income, prof.its or gains falling within the clauses (i) to (xxii) are not liable to be included in the total income of the person receiving them. Tax being charged bys. 3 upon dividend income and not being excluded under s. 4 (3), such income would be chargeable to income-tax under the Act in the hands of the person to whom it accrues or by whom it is received.

A company for its purposes does not recognize any trust or equitable ownership in shares : it merely recognises the registered shareholder as the owner and pays the dividend to that shareholder.

But the shares may, because of a trust or other fiduciary relationship, belong to a person other than the registered shareholder, and the dividend distributed by the company would for the purpose of tax be deemed to accrue or arise to the real owner of the shares.

Section 16 of the Indian Income-tax Act deals with the exemptions and exclusions in determining the total income. The expression "total income" is defined in s. 2 (15): it means "total amount of income, profits and gains referred to in sub-section (I) of section 4, computed in the manner laid down in this Act''. Section 16, D insofar as it is relevant, provides :

"(I) In computing the total income of an asscsse~

(a) any sums exempted under the first proviso to sub-section (I) of section 7, the second and third provisos to section 8, sub-sections (2), (3), ( 4) and ( 5) of section 14, section 15, section I SB and section I 5C shall be included, and any sum exempted under section I 5A shall also be included except for the purpose of determining the rates at which income-tax (but not super-tax) is payable by the assessee to whom the exemption is given;

(b) when the assessee is a partner of a firm, then, whether the firm has made a profit or loss, his share (whether a net profit or a net loss) shall be taken to be any salary, interest, commission or other remuneration payable to him by the firm in respect of the previous year increased or decreased respecti\'ely by his share in the

balance of the profit or loss of the firm after the deduction of any interest, salary, commission or other remuneration payable to any partner in respect of the previoce year :

Provided

"(c) all income arising to any person by Yirtue of a settlement or disposition whether

• •

A revocable or not, and whether effected before or after the commencement of the Indian Income- _, tax (Amendment) Act, 1939 (VII of 1939), from \ assets remaining the property of the settlor or disponer, shall be deemed to be income of the settlor or disponer, and all income arising to any B person by virtue of a revocable transfer of assets shall be deemed to be income of the transferor;

Provided

(2) For the purposes of inclusion in the total income

of an assessee any dividend shall be deemed to be income of the previous year in which it is paid, credited or distributed or deemed to have been paid, credited or distri~ buted to him, and shall be increased to such amount as would, if income-tax (but not super-tax) at the rate applicable to the total income of the company without taking into account any rebate allowed or additional income-tax charged for the financial year in which the ' D dividend is paid, credited or distributed or deemed to have been paid, credited or distributed, were deducted therefrom, be equal to the amount of the dividend :

Provided

(3) In computing the total income of any individual

B for the purpose of assessment, there shall be included-

(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly-

(i) from the membership of the wife in a j firm of which her husband is a part-

F ner;

(ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner;

(iii) from assets transferred directly or indirectly to the wife by the husband

G otherwise than for adequate consideration or in connection with an agree-

_, ment to live apart; or '

(iv) from assets transferred directly or in- < directly to the minor child, not being

> a married daughter, by such individual otherwise than for adequate conside- H ration; and "(b) so much of the income of any person or association of persons as arises from assets

transfered otherwise than for adequate consideration to the person or association by such individual for the benefit of his wife or a minor child or both."

Under the Income-lax Act, 1922, certain items of income are exempt from liability to tax and do not enter into the computation of total income: there are other items of income, which though exempt from lax are liable lo be included in the total income of the assesscc for determining the rate applicable. Sub-sections (1) & (3) of s. 16 provide that certain income which does not accrue or arise to the asscssee or which is not received as income by him is deemed to be part of his total income. These sub-sections deal with inclusion of the specified classes of income in the computation of total income. The only difference between the two clauses is that sub-s. (1) applies to all assessces, whereas sub-; (3) applies to individuals only.

But sub-s. (2) does not direct the inclusion of any item of income in the computation of the total income of an assessee to whom it does not accrue or arise: it is only a processing clause applicable in respect of dividend income.

In terms it provides that for the purpose of inclusion of dividend in the total income of an assessec, dividend shall be deemed to be income of the previous year in which it is paid, credited or distributed, or deemed to be paid, credited or distributed, and further that the dividend shall be increased, or as it is sometimes called "grossed up" by adding thereto the income-tax deemed to have been paid by the company on behalf of the shareholder. The sub-section in the first instance designates the year in which the dividend income is to be included in the total income. Therefore dividend will be included in the income of the assessee in the year in which it is paid, credited or distributed, or be deemed lo be paid, credited or distributed. Since the same income cannot be taxed twice over, dividend income will be taxed in the hands of the real owner of the shares and in the year designated by s. 16(2). But by virtue of the second part of s. 16(2), dividend may be grossed up only if the registered shareholder is the real owner of the shares. If the registered holder is not the real owner of the shares i.e. he is a trustee or benamidar for the real owner, dividend income cannot be grossed up when including it in the total income of the real owner. But sub-s. (2) of s. 16 does not operate as an exemption from the pale of either s. 3 or s. 4(1) of the Act: nor does it provide that liability to tax arises only when the person by whom dividend is received from the company is the real owner of the shares. Sub-section (5) of s. 18 also docs not lead to that result. The clause provides that deduction made by a company and paid to the account of the Central Government in accordance with the provisions of s. 18 and any sum by which a dividend has been increased under sub-s. (2) of s. 16 shall

; •

be treated as payment of income-tax or super-tax on behalf of the person from whose income the deduction was made, and credit shall be given to him therefor. Insofar as it deals with dividend which is "grossed up", sub-s. (5) of s. 18 forms a corollary to s. 16(2).

Therefore when tax is paid on behalf of a shareholder and deduction is made from dividend, credit is given to him for the tax paid in his final assessment. But the scheme of "grossing up" is not susceptible of the interpretation that the income from dividend is to be regarded as the income only of the registered shareholder and not of the real owner of the shares.

The authorities of this Court which have interpreted s. 16 (2) may be reviewed. In Howrah Trading Company's case (1) it was held that a person who had purchased shares in a company under a blank transfer and in whose name the shares had not been registered in the books of the company is not a "shareholder" in respect of such shares within the meaning of s. 18(5) of the Income-tax Act, notwithstanding his equitable right to receive dividend on such shares. Such a person was therefore held not entitled to have the dividend income grossed up under s. 16(2) of the Act by the addition of the income-tax paid by the company in respect of those shares, and to claim credit for the tax deducted at source under s. 18(5) of the Act. In that case the only dispute which arose was with regard to "grossing up". The dividend income was included in the total income of the person who was the real owner of the shares, though the shares were not registered in his name. In Income-tax Officer, North Satara v. ArPind N. Mafatlal & Others (2) it was held, following the judgment in Howrah Trading Companys' case t'), that the registered shareholder alone is entitled to the benefit of the credit for tax paid by the company under s. 18(5) and the corresponding "grossing up" under s. 16(2). In that case shares belonging to a firm registered under the Income-tax Act were held in the names of three partners of the firm.

The Income-tax Officer sought to treat the dividend from the shares as income of the firm and to "gross up" the dividend by adding the income-tax paid.

This Court held that the only persons who were entitled to be treated as shareholders to whom the provisions of ss. 16(2) and 18(5) were attracted were the three partners. The judgment of this Court in Commissioner of Income-tax, Bombay City II v Shakuntala and Others (3) does not support any different rule. That was a case in which a Hindu undivided family held certain shares in a company in the names of different members of the family.

The Income-tax Officer applied the provisions of s. 23A of the Indian Income-tax Act, 1922, before it was amended in 1955, and ordered that the undistributed portion of the distributable income of the

(1) [1959] Supp. 2 S.C.R. 448.

(2) [1962] Supp. 3 S.C.R. 455: 45 1.T.R. 271.

(3) [1962] 2 S.C.R. 871 : 43 I.T.R. 352.

580 SUPRl!MI! COURT REPORTS

company shall be deemed to be distributed. In proceedings for assessment the amount of deemed income appropriate to the shares of the family was ordered by the Income-tax Officer to be included in the income of the family. It was held that the expression "shareholder", in s. 23A of the Indian Income-tax Act meant the shareholder registered in the books of the company. Therefore the amount appropriate to the shares had to be included in the income of the members of the family in whose names the shares stood in the register of the company, and as the Hindu undivided family was not a registered shareholder of the company, the amount deemed to he distributed could not be assessed as the income of the family under s. 23A. The Court in Shakuntala's case(') was dealing with notional income. The amounts which were no distributed by the company, but which by virtue of an order under s. 23A of the Act were deemed to be distributed were sought to be assessed and the Court held in the light of the express provisions of s. 23A that the undistributed portion of the distributable income of the company of the previous year as computed for income-tax purposes shall be deemed to be distributed as dividend among the shareholders. The decision of the Court was that for the purpose of s. 23A, the expression "shareholder" meant only the registered shareholder and not an equitable owner. The decision hM no bearing on the true interpretation of s. 16(2).

Reliance was placed by counsel for the appellant on the following observations made by Hidayatullah, J., in delivering the judgment of this Court in Howrah Trading Company's case (2) :

"The words of section 18(5) must accordingly be read in the light in which the word "shareholder" has been used in the subsequent sections, and read in that manner, the present assessee, notwithstanding the equitable right to the dividend, was not entitled to be regarded as a "shareholder" for the purpose of section 18(5) of the Act. That benefit can only go to the person who, both in law and in equity, is to be regarded as the owner of the shares and between whom and the company exists the bond of membership and ownership of a share in the share capital of the company." It was said by counsel for the appellants that by the use of the expression "benefit can only go to the person who, both in law and in equity, is to be regarded as the owner of the shares", it was laid down that dividend may be taxed only in the hands of a person who is "in law as well as in equity" the shareholder. But these observations are not susceptible of any such meaning.

Hidayatullah, J., in that case was seeking to explain that dividend income cannot be "grossed up" in the hands of the real owner of shares

• D

if the shares are registered in the name of another person. He did not say that the real owner of shares cannot be truced in respect of dividend received by him, if the shares are registered in the name of another person.

We are unable to accept the argument of counsel for the appellants that because the dividend income in respect of the shares cannot be "grossed up", and credit for tax paid cannot be obtained by the appellants, the appellants are not liable to be taxed in respect of dividend received by them. There is no provision in the Act which supports this plea, and the scheme of the Act lends no countenance to an expedient which may lead to gross evasion of tax.

The appeal therefore fails and is dismissed with costs.

Appeal dismissed .

KISHANCHAND LUNIDASINGH BAJAJ

COMMISSIONER OF INCOME-TAX, MYSORE

February 10, 1966

P. B. GAJENDRAGADKAR

K. N. WANCHOO, J

C. SHAH

S. M. SIKRI

V. RAMASWAMI, JJ

Indian Income-tax Act, 1922

s. 16(2)

s. 3

Income-tax Act

s. 4(3)

s. 16

s. 3

s. 4( I)

s. 18

s. 18

s. 16(2)

K. Srinil'asan

R. Gopalakrislman

C. K. Daphtary

R. N. Sachthey

Shah

Kishanchand Bajaj

May 16, 1956

Mangoomal Kishanchand

Kishanchand

August 22, 1956

Shyam Sundar

Girdharlal

August 23, 1956

s. 66

Indian Jncorne-tax Act, 1922

High Court of Mysore

Kishanchand Lunidasingh Bajaj

s. 16

Indian Income-tax Act, 1922

s. 3

s. 4

s. 4

s. 4

Section 16

Income-tax Act

s. 2

section 4

Section 16

section 7

section 8

section 14

section 15

Income-lax Act, 1922

s. 16

s. 16(2)

s. 16(2)

s. 16

s. 3

s. 4(1)

s. 18

Central Government

s. 18

s. 16

s. 18

s. 16(2)

s. 16

Howrah Trading Company

s. 18(5)

Income-tax Act

s. 16(2)

s. 18(5)

Howrah Trading Companys

s. 18(5)

s. 16(2)

Income-tax Act

ss. 16(2) and 18(5)

s. 23A

Indian Income-tax Act, 1922

[1962] 2 S.C.R. 871

s. 23A

Income-tax Act

s. 23A

Shakuntala

s. 23A

s. 23A

s. 23A

s. 16(2)

Hidayatullah

section 18(5)

section 18(5)


ST A TE OF KERA LA

RAMASWA'.\11 IYER & SONS

February I I, 1966

[P. n. GAJlNDRAGADKAR, C.J., K. N. WANCllOO, J. c.

SHAii, S. M. S!KRI ANU \I. RAMASWAMI, JJ.j

J'ravancore-Cochi11 Ger1.m1/ Sales Tax Act (11 of 1125 M.E.)- Suit to recover excesi tax paid-Jurisdiction of civil court if harrtd.

Pan of Sales-tax paid by the respondent was assessed upon the amount which it collected from its customers as &ales-tax and which was included

i.o its net tumoYer.

A suit by the respondent for refund of that part C of the sales-tax which was charged on the sales-tax collected by the respondent on the basis that it was not lawfully due under the Travancon:.

Cochin General Sale• Tax Act, 1950, was decreed hy the 1rial court and the decree was confirmed by the High Court.

In appeal to this Court, it \\'as contended that the civtl coun had no jurisdiction to try the suit.

HELD : By constituting appC\lpriatc authorities under 1hc Act and D creating a hierarchy of authorities to ()ea] with tho problem of levying tax as contemplated by the Act, the jurisdiction of the civil court to entertain the suit was excluded by necessary implication. (586 GJ Jurisdiction of the ci1il coun to try the suit was not barred by s. 2JA ousting tho jurisdiction of the civil court, beca11o; e that aection which was not retroipective in operation was inraled into the Act after the suit was filed.

But the jurisdiction of the c1vil court may bo e<cludcJ by expr°" E enactment or by necessary intendment arising from the scheme of tho

Act.

The Travancore-Cochin Sales Tax Act is a c0mplete code dealing \Vilh the levy, asessn1cnt, collection and refund of tax.

It authorises in- \estment of power in a hierarchy of authorities to adminio; tL'r the Act.

For tho purpose of making assessment of tax, the authorities have power

10 decide all questions ari•; ng before them, and the orders of the appellate authorities, subject to the exercise of revisional jurisdiction by the Board of Revenue, were declared final.

The liability to pay tax arose I' under and by virtue of the provisions of the Act and the quantum or liability was determined under the Act alone.

Further, at the material time. there was no cxpreso provision in the Act, which obliged the taxi"g authority to exclude from the computation of the taxable turnover the amount of sales-tax collected hy the dealer.

Hence, it could not be said that by ass-es'\in~ sales-tax on such amount, the taxing authority had infringed a prohibition imooscd by the statute upon him. There- G fore, the principle in Secretary of State for India v. Mask and Co. L.R. 67 I.A. 222, that civil court5 have jurisdiction to examine a case where the provision' of the statute have hccn infrin2ed did not apply in the instant case. [583 F; 584 C; 585 H-586 B; 589 B]

Pr'1Ylocla/ Govemme'lt of Madras '" J. S. Basappa, [1964] 5 S.C'.R. 517; 15 S.T.C. 144 (S.C.), overruled.

Kamala Mill.v v. State of Bombay, [1966) 1 S.C.R. 64, foJIO\\Cd.

H Georxe Oaks v. State of Madras, [1962[ 2 S.e.R. 570; A.LR. 1962 S.C. 1037 and K. S Venkataraman v. State of Madras, [1966] 2 S.C.R. 229. referred to.

.. i

.... - .. 1

A CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1104 of

1964.

Appeal by special leave from the judgment and decree dated the October 7, 1963 of the Kerala High Court in A.S. No. 190 of 1959 .

C. K. Daphtary, Attomey-General and A. G. Pudissery, for the appellant.

T. N. Subbramania Iyer and M. R. K. Pillai, for the respondent.

The Judgment of the Court was delivered by Shah, J. For the period August 16, 1950 to March 31, 1951 the respondents were assessed to sales-tax under the Travancore- Cochin General Sales-tax Act, 1950, by the assessing authority, Moovattupuzha, on a turnover of Rs. 14,04,732/7/6 which included Rs. 49,318/7/4 collected by the respondents from their constituents as tax on their sale transactions. The respondents paid the tax assessed and commenced an action in the Court of the District Judge, Parur, for a decree for Rs. 7,577/9/1 claiming that the amount was in excess of tax lawfully due from them under the Act. The Court of First Instance decreed the claim for Rs. 7,477/9/1 with interest and proportionate costs, and the High Court of Kerala confirmed that decree.

In this appeal with special leave, on behalf of the State of Kerala the principal ground which falls to be determined is whether the jurisdiction of the Civil Court to try the suit is excluded. Section 23-A of the Travancore-Cochin General Sales-tax Act 11 of 1125 M. E. provides that :

"No suit or other civil proceeding shall, except as expressly provided in this Act, be instituted in any court to set aside or modify any assessment made under this Act."

But this express bar on which counsel for the State relied did not exclude the jurisdiction of the civil court, for s. 23-A was incorporated in the Travancore-Cochin General Sales-tax Act by Act 18 of 1955 after the suit was instituted by the respondents, and by s. 23-A as incorporated the jurisdiction of the civil court to try a

it properly instituted before it was enacted is not ousted.

j Counsel for the respondents submitted that in the absence of an express provision in the Act excluding the jurisdiction of the civil court, the courts below were right in holding that the suit was maintainable, and in support of that contention, he relied upon the decision of this Court in The Provincial Government of Madras (Now Andhra Pradesh) v. J.S. Basappa (). In Basappa's case (1), the

(!) (1964] 5 S.C.R. 5I7: I5 S.T.C. 144.

aasessee who was taxed in respect of certain sales which took place outside the taxing State, sued the State for a decree for refund of the amounts paid by him on the plea that the transactions in respect of which the tax was levied were not taxable under the law.

This Court held that without a provision likes. 18-A of the Madras General Sales-tax Act, 1939, the jurisdiction to entertain the suit was not taken away, specially where the action of the authorities was "wholly outside the law". It was observed in that case that finality attached to orders passed in appeal by the Act was a finality for the purposes of the Act and "did not make valid an action which was not warranted by the Act, as for example, the levy of tax on a commodity which was not taxed at all or was exempt."

But the jurisdiction of the civil court may be excluded expressly or by clear implication arising from the scheme of the Act.

Where the Legislature sets up a special tribunal to determine questions relating to rights or liabilities which arc the creation of a statute, the jurisdiction of the civil court would be deemed excluded by implication. In Raleigh Investment Company Ltd. v. GoverMr-

General in Council(') the Judicial Committee in dealing with the question whether the jurisdiction of the civil court to entertain a suit for refund of income-tax may be deemed to be excluded, apart from the express exclusion prescribed by s. 67 of the Income-tax Act, by the scheme of the Income-tax Act, observed :

" ........••.. the scheme of the Act (the Incometax Act) is to set up a particular machinery by the use of which alone total income assessable for income-tax is to be ascertained. The income-tax exigible is determined by reference to the total income so ascertained, and only by reference to such total income. Under the Act (s.

45) there arises a duty to pay the amount of tax demanded on the basis of that assessment of total income. Jurisdiction to question the assessment otherwise than by use of the machinery expressly provided by the Act would appear to be inconsistent with the statutory obligation to pay arising by virtue of the assessment. The only doubt, indeed, in their Lordships' mind, is whether an express provision was necessary in order to exclude jurisdiction in a civil court to set aside or modify an assessment." In delivering the judgment of the majority in K.S. Venkataraman & Co. (P) Ltd. v. State of Madras(2), Subba Rao, J., observed :

"If a statute imposes a liability and creates an effective machinery for deciding questions of law or fact arising in regard to that liability, it may, by necessary implication, bar the maintainability of a civil suit in respect of the said liability. A statute may also confer exclusive jurisdic-

(I) L.R. 74 I.A. 50.

(2) (19661 1 s.c.R, 229.

..,

H -

tion on the authorities constituting the said machinery to decide finally a jurisdictional fact thereby excluding by necessary implication the jurisdiction of a civil court in that regard."

In a case recently decided by this Court Kamala Mills Ltd. v. State of Bombay(') exclusion of the jurisdiction of the civil court to entertain and decide suits for refund of tax paid fell to be determined.

In that case a dealer was assessed to tax under the Bombay Salestax Act 5 of 1946 in respect of "outside sales" which by virtue of the ban imposed by Art. 286 of the Constitution were not taxable.

The dealer sued to recover the tax paid by him. This Court held that where the Sales-tax Officer by misconceiving the nature of the transactions brings to tax transactions in respect of which the State has no authority to legislate for levying tax because of the ban imposed by Art. 286 of the Constitution, the validity of the order of assessment of tax cannot be reopened in a suit for refund of tax paid. The Bombay Sales-tax Act 5 of 1946, it is true, contained s. 20 which in terms enacted that an assessment shall not be called in question in any civil court, but the court in Kamala Mills case(') held that the jurisdiction of the civil court to entertain a suit for tax assessed under the Act was excluded expressly, and by the clear implication of the Act as well.

The assessing authority invested with power under the Trav ancore-Cochin General Sales-tax Act is constituted by the Act a tribunal, which within the limits of its authority is competent to decide all questions of fact and law arising before him in the course of proceedings for assessment, and of his own jurisdiction as well. The Act sets up machinery for levy, assessment, and collection of tax. By s. 3 of the Act charge is imposed, subject to exemptions prescribed by ss. 4, 5 and 6 upon every dealer to pay tax on his total turnover of each year. Duty to pay the tax is imposed bys. 11(2) of the Act. Section 12 sets up the procedure of the assessing authority in making assessments and s. 13 deals with recovery of tax. A tax-payer aggrieved by an order of assessment may appeal under s. 14 against the order of assessment, and the decision of the appellate authority is by cl. ( 4) subject to the power of revision conferred by s. 15 expressly declared final.

Section 15 as it stood at the relevant time provided for the exercise of revisional jurisdiction by the Board of Revenue against the order of the taxing authorities-original as well as appellate. By s. 24 power is conferred upon the State Government to frame rules, setting up machinery for determination of the net chargeable turnover, for refund of tax collected in excess of true liability and for other incidental matters. The Act is therefore a complete code dealing with the levy, assessment and collection and refund of tax.

(l} [1966] I s.C.R. '4 : A.l.R. 196~ S.C. 1942.

It authorises investment of power in a hierarchy of authorities to administer the Act.

For the purpose of making assessment of tax, the authorities have power to decide all questions arising before them, and the orders of the appellate authorities subject to the exercise of revisional jurisdiction under s. 15 are declared final.

Liability to pay tax arises under and by virtue of the provisions of the Act, and the quantum of liability may be determined under the Act alone.

It is true that in Kamala Mills' case{') reliance was placed on behalf of the claimant upon Basappa's case('), and the following observations were made by the Court :

"In Prorincial Gorernmenl of Madras (Now Andhra Pradesh) v. J. S. Basappa it was held by this Court that the finality attached to orders passed in appeal by section 11(4) of the Madras General Sales-Tax Act (IX of 1939) was a finality for the purposes of the said Act and did not make valid an action which was not warranted by the Act, as for example, the levy of tax on a commodity which was not taxable at all or was exempt.

We ought to add that this decision was based on the fact that the said Act at the relevant time did not contain section 18A which came into force on May 15, 1951; and it was section 18A which was construed by this Court in Firm of ll/11ri Subbayya Chetty & Sons [(1964) I SCR 752]."

In Ba.wppa's case(') the taxpayer sought in an action for refund of tax paid, a decree on the plea that the transactions in rc>pect of which tax was levied were "outside sales", and it was held that in the absence of expres' exclusion of the jurisdiction of the civil court, the action for refund of tax was maintainable.

But the nature of the transactions taxed in the Kamala Mills' case(') was not different.

In the judgment in Kamala Mills' case(') it was pointed out that the jurisdiction of the civil court to entertain a suit for refund of tax paid in compliance with an order of assessment may be excluded either exprc; sly or by necessary im~Jieation, and as the scheme of the Bombay Sales Tax Act, 1946, indicated that a complete machinery was set up by constituting appropriate authorities under the Act, and creating a hierarchy of authorities to deal with the problem of levying tax as contem; ilated by the Act, jurisdiction of the civil court to entertain the suit was excluded by implication as well as by express enactment. That is clear from the following observations in the Kamala Mills' case('):

"Whether or not a return is correct; whether or not transactions which are not mentioned in the return, but about which the appropriate authority has knowledge, fall

(!) )1966] I S.C.R. 64.

...

• E

• ..,. .

J ...

, E

t H

within the mischief of the charging section; what is the true and real extent of the transactions which are assessable; all these and other allied questions have to be determined by the appropriate authorities themselves; and so; we find it impossible to accept Mr. Sastri's argument that the finding of the appropriate authority that a particular transaction is taxable under the provisions of the Act, is a finding on a collateral fact which gives the appropriate authority jurisdiction to take a further step and make the actual order of assessment."

The action of the taxing authority in Basappa's case(') in taxing transactions which he erroneously held were taxable was no more outside the Act, than the action of the taxing authority in Kamala Mills' case(2). If it be granted that the jurisdiction of the civil court may be excluded by express enactment or by necessary intendment arising from the scheme of the Act, Basappa's case(') must be regarded as wrongly decided.

It is true that even if the jurisdiction of the civil court is excluded, where the provisions of the statute have not been complied with or the statntory tribunal has not acted in conformity with the fundamental principles of judicial procedure, the civil courts have jurisdiction to examine those cases : Secretary of State for India

v. Mask & Company(Z). Counsel for the respondents urged that the case of the respondents fall withln that exception, since the Sales-tax Officer in imposing tax-liability acted in defiance of the mandatory provisions of the Act and in support of the argument he placed reliance upon r. 7 of the Rules framed under the Act and the definition of "turnover" under the Act. Under the Act sales-tax is charged for the year at the prescribed rates on the total turnover of the dealer. The Government of Travancore-Cochin promulgated rules in exercise of powers under s. 24 of the Travancore-Cochin General Sales Tax Act, and r. 7 dealt with computation of "net turnover". In r. 7(1) by els. (a) to (k) certain exemptions admissible in the computation of the net turnover were set out.

By notification No. SRI-1643-51-RD dated March 31, 1951 it was directed that with effect from April 1, 1951, the following clause shall be added :

"(!) all amounts of sales-tax collected by the dealer."

By this amendment in the computation of the taxable turnover, the amounts of sales tax collected by the dealer were not to be included. But this amendment was to have effect only from April I, 1951, and in the proceeding in this appeal tax-liability for the assessment period ending March 31, 1951 fell to be determined.

(1) [1964] 5 S. C.R. 517.

(2) (1966! IS. C.R. 64.

(3) L. R. 67 I. A. 222.

588 SUPllEME COURT REPORTS

[ 1966] 3 S.C.R.

The exemption was therefore inoperative in the computation of A taxable turnover for the assessment year in question.

Counsel for the respondents however contended that the effect of the amendment was merely to clarify what was implicit in the content of the expression "turnover". By s. 2(k) "turnover" means-insofar as the definition is relevant-"the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valuable consideration ....... " "Turnover" being the aggregate amount for which goods are bought or sold, and normally the aggregate amount would include such amount as the purchaser pays to the dealer for the goods, the expression "aggregate amount for which goods are .... sold" within the meaning of "turnover" in s. 2(k) would include the amount of sales-tax received hy the dealer. There is no provision in the Act which may hy implication suggest that from the connotation of the expression "turnover" the sales tax collected in the year of assessment ending March 31, 1951 was to be excluded. Exclusion prescribed by cl. (1) of r. 7(1) enacted with effect from April I, 1951 is not clarificatory, but prescribes an additional head in the computation of net turnover.

This Court in George Oaks (Private) Ltd. v. State of Madras(•) in dealing with the question whether sales tax charged by the dealer may be excluded within the meaning of the expression "turnover" as used in the Madras General Sales-Tax Act, 1939, observed:

"Under the definition of turnover the aggregate amount for which goods arc bought or sold is taxable.

This aggregate amount "includes the tax as part of the price paid by the buyer. The amount goes into the common till of the dealer till he pays the tax. It is money which he keeps using for his business till he pays it over to Government. Indeed, he may turn it over again and again till he finally hands it to Government. There is thus nothing anamolous in the Jaw treating it as part of the amount on which tax must be paid by him. This concep-· tion of a turnover is not new. It is found in England and America and there is no reason to think that when the legislatures in India defined 'turnover' to include ta11 also, they were striking out into something quite unknown and unheard of before."

Counsel for the respondents contended that these observations made in interpreting the terms of the Madras General Sales tax (Definition of Turnover and Validation of Assessments) Act, 1954, have no bearing on the interpretation of the expression "turnover" as used in the Travancore-Cochin General Sales tax Act.

But the

(I) [1962) 2 S.C.R. 570 : A. I. R. 19152 S. C. 1037.

observations made by the Court were not made in the context of any special statute.

There was in the Travancore-Cochin General Sales-tax Act at the material time no express provision which obliged the taxing authority to exclude from the computation of taxable turnover the amount of sales-tax collected by the dealer. The argument of counsel for the respondents that the taxing authority has infringed a prohibition imposed upon him has therefore no substance.

The appeal is therefore allowed and the suit is dismissed.

There will be no order as to costs throughout.

Appeal allowed.

Ml! Sup.C.J./66-6

ST A TE OF KERA

S. M. S!KRI ANU \I. RAMASWAMI, JJ

Sales Tax Act

Tax Act, 1950

s. 2J

L.R. 67 I.A. 222

[1966) 1 S.C.R. 64

[1966] 2 S.C.R. 229

C. K. Daphtary

A. G. Pudissery

T. N. Subbramania Iyer

M. R. K. Pillai

Shah

Moovattupuzha

District Judge, Parur

High Court of Kerala

Kerala

Section 23

s. 23

s. 23

Basappa

(1964] 5 S.C.R. 5

aasessee

Madras General Sales-tax Act, 1939

s. 67

Income-tax Act

Income-tax Act

s.

45

L.R. 74 I.A. 50

Art. 286

Art. 286

s. 20

Kamala Mills

s. 3

ss. 4, 5 and 6

Section 12

s. 13

s. 14

s. 15

Section 15

s. 24

s. 15

section 11(4)

section 18A

May 15, 1951

section 18A

Ba.wppa

Bombay Sales Tax Act, 1946

Sastri

Government of Travancore-Cochin

s. 24

April 1, 1951

March 31, 1951

[1964] 5 S. C.R. 517

L. R. 67 I. A. 222

s. 2(k)

s. 2(k)

April I, 1951

Madras General Sales-Tax Act, 1939

England

America

India

[1962) 2 S.C.R. 570