PUSHALAL MANSINGHKA (P) LTD.

COMMISSIONER OF INCOME-TAX, DELHI,

RAJASTHAN & M.P.

May 5, 1967

(J. C. SHAH, S. M. SIKRI AND V. RAMASWAMI, JJJ

Income-Tax Act 1922 s. 4(1) (a)-Exporter in Part 'B' State selling goods to pwchasers in Part 'A" and Part 'C' States-Sending 'selves' rail1vay receipts through local bank 'lo be given to purchaser on payment of price-Bank discounting some bills locally-whether property in goods passing and income accruing, outside Part

1B' State.-Whether exen1ption 1jro1n tax available under Part 'B' States (Taxation. Concessions) Order, 1950,

The appellant carried> on mining business at Bhilwara whioh was, during the relevant period. in a Part 'B' State and exPorted mica t.o Kodarma and Giridih situated in Part 'A' and Part 'C' States respectively.

The appellant entered into contracts with purchasers whereby the consignments would be sent to Kodarma and Giridih by railway and the railway receipts would be sent through the bank.

The goods were consigned to "self" and the railway receipts along with the Bills of Exchange were presented by the appellant to its bank in Bhilwara for collection after endorsing the railway receipts in favour of the bank.

The bank, in its turn, endorsed the railway receipts in favour of its branches in Part 'A' and Part 'C' States and the goods were delivered to the buyers only when they paid the price to the bank's branches and obtained the raihvay receipts.

In the course of the appellant's assessment to income-tax for the years 1950-51 and 1951-52, the appellant claimed that it was entitled to the benefit of rebate under the Part 'B' States (Taxation Concessions} Order. 1950 in regard to profits from sales made by it and thats. 4(1) (a) of the Income-tax Act, 1922 was not applicable to its transactions. The Income-tax Officer held that the sales took place in Part 'A' and Part 'C' States and the entire profits from those sales accrued and were received by the appellant in those States and therefore no rebate was admissible under the Order.

He also rejected the appellant's claim that in regard to some of the sales, Bills were discounted by the local bank and hence payment to that extent should be treated as having been received at Bh1lwara in a Part 'B' State.

Appeals made to the Appellate Assistant Commissioner and the Tribunal were dismissed and, the High Court, upon a reference, also decided against the appellant.

In the appeal to this Court it was also contended on behaif of the appellant that as the mica was extracted, processed, sorted and packed at B'.dlwara in Part 'B' State, there was accrual of a part of the mcome at Bhilwara and the ap!"'llant was, in any case, entitled to claim apportionment of the profits accrued.

HELD : ( i) The appellant became entitled to the purchase money only on the pa.sing of title to the purchasers at Kodarma and Giridih in Part 'A' and Part 'C' States and the income therefore accrued. to the appellant

Jn those Stales. The appellant was not therefore entitled to exemption

.under the Part 'B' States (Taxation Concessions) Order, 1950. [970BJ

When the seller draws a hundi or a bill of exchange on the pur <:haser and delivers the hundi or the bill of exchange with a relative railway receipt to his own banker fo'. the purpose of delivry of the railway receipt to the purchaser on hiS honourmg the hund~, the pro pcrty in the goods cannot be held to pass to the purchaser till he pays B the price and takes delivery of the railway receipt from the banker.

,[968 DJ : Income may accrue to an assessee without actual receipt of the same.

If the assessee acquires a right to receive the income, the income can be

said to accrue to him though it may be received later on its being ascer- ¢ained.

The basic conception is that he must have acquired a right to receive the income. [966 BJ

(ii) When the local bank discounted the bills, the payments could not be re$arded as income accruing in a Part 'B' State. When the bank :gave credit of part of the amount of some of the bills to the appellant, it was apparent from the conditions specified in the discount form of -the bank that the responsibility of the appellant did not cease till the bank realised payments from the purchasers.

When the appellant negotiated the documents with the bank, the latter did so only as part of its banking business. The discounting by the bank of the Bills could not mean that there was a sale of the goods to the bankers. Therefore if any money was paid by the bank to the appellant as price for the hundi, h was not the sale price of the goods in any sense and the bank was not 'acting as the agent of the buyer. [969C.HJ

Co/quhuun v. Brooks, [1888] 21 Q.B.D. 52 at 59; E. D. Sassoon & Company Ltd. v. C.I.T. Bombay City, 26 I.T.R. 27, 51; C.I.T. Bombay Presidency & Aden v. Chuni/a/ B. Mehta 6 l.T.R. 521; Mirabita v. Imperial Ottoman Bank, [1878] 3 Ex.D.164, 172 and Prinz Ada/bert, [19!7J A.C. 586, 589; referred to.

The contention that the profits earned should be apportioned as there was accrual of part of the income in a Part 'B' State could not be considered as it was not raised before the Tribunal. [970E-F]

C.I.T. Bombay v, Alunedbhai Umarbhai & Co., 18 I.T.R. 472; The Anglo-French Textile Co. Ltd, v. C.I.T. Madras, 25 I.T.R. 27 and C.l.T.

Bombay v. Scindia Steam Navigation Co. L.td., 42 J.T.R. 589, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 557 and 558 of 1966.

Appeals by special leave from the judgment and order dated April 29, 1964 of the Rajasthan High Court in Income-tax Reference No. 2 of 1963.

K. D. Karkhanis, Ganpat Rai, E. C. Agarwala. for P. C. Agarwa/a, for the appellant (in both the appeals).

S. T. Desai, S. K. Aiyar and R. N. Sachthey, for the respondent (in both the appeals).

' ...

A The Judgment of the Court was delivered by

Ramaswaml, J.

These appeals are brought, by special leave. from the judgment of the Rajasthan High Court dated April 29, 1964 in Income-tax Reference No. 2 of 1963.

The appellant is a private limited company having its mines, factory and Head Office at Bhilwara in Rajasthan which was at the relevant periods in a Part 'B' State.

The appellant carried on mining business at Bhilwara and was engaged in the cutting, processing, sorting and packing of mica which was exported by it to Kodamia and Giridih which were situated in Part 'A' and Part 'C' States and sold there to purchasers.

The mica was sent almost entirely by railway from Bhilwara to Kodarma and Giridih.

The appellant followed the mercantile method of accounting and the as.sessment years in question are 1950-51 and 1951-52, the corresponding previous years being the years from Novtmber 2, 1948 to October 21, 1949, and October 22, 1949 to November 9, 1950 respectively.

The total sale proceeds of the appellant during the two assessment years amounted to Rs. 19,77,544/-.

The appellant tendered bills to the local branch of the Bank of Rajasthan to the extent of Rs .. 15,64,475/- and received pay~ ment of that amount at Bhilwara.

The appellant claimed that it was entitled to the benefit of rebate in regard to profits from these sales under the Part 'B' States (Taxation Concessions) Order, 1950 and thats. 4(1)(a) of the Income-tax Act, 1922 (hereinafter called the 'Act') was not applicable to its transactions.

By his orders dated March 24, 1955 and May 31, 1954 the Incometax Officer held that the sales took place in Part 'A' and Part 'C' States and the entire profits from those sales accrued and were !received by the appellant in Part 'A' and Part 'C' States an<l therefore no rebate was admissible under the Part 'B' States (Taxation Concessions) Order, 1950.

The Income-tax Officer also rejected the claim of the appellant that in regard to some of the sales bills were discounted by the Rajas'han Bank and payment to that extent should be treated as having been received at Bhilwara in the Part 'B' State. It was held by the Income-tax Officer :

(1) that the letter for discounting was forged, (2) that even assuming that the appellant tendered some of its bills for discounting, the responsibility of the appellant under the conditions stipulated by the Bank in its form did not cease till the Bank realised payment from the purchaser and hence there was no discounting of the bills which were merely handed to the Bank for collection.

On appeal, the Appellate Assistant Commissioner by his order dated September 20, 1957 held that the. Income-tax Officer was justified in holding that the appellant was not entitled to any rebate under the Part 'B' States (Taxation Concessions) Order, 1950. On further appeal, the Appellate Tribunal held by its order dated August 18, 1958 that the appellant received the

sale proceeds in regard to the goods consigned to the purchasers in Part 'A' and Part 'C' States and not in Part 'B' State and therefore the appellant was not entitled to the rebate claimed liy it.

The Appellate Tribunal thereafter .stated case under s. 66 ( 1) of the Act and referred the followmg question of law for the opinion of the High Court :

"Whether on the facts and in the circumstances of the case, the assessee was entitled to any rebate under the Part 'B' States (Taxation Concessions) Order .in respect of income from the mining business for the assessment years 1950-51 and 1951-52 ?"

By its judgment dated April 29, 1964, the High Court answered the question in the negative and against the appellant.

The method of the appellant in making sales was as follows : The representatives of the buyers from Kodanna and Giridih used to visit Bhilwara, inspect the various qualities of mica which tbe

appellant had for sale and entered into written contracts for pur- .chase.

The aforesaid contracts are marked as Annexure 'A' to the statement of the case and it is admitted by the parties that they represent all the contracts with which we are concerned in these appeals.

These contracts plainly show that the buyers purchased specified qualities of mica, "Bhilwara godown delivery" on the condition that the consignments would be sent to Kodarma or Giridih as the case may be and the railway receipts would be sent "through bank".

There is the further stipulation that 25 per cent of the price would be sent by way of an advance, within a 'Week's time, that the packing expenses would be payable by the buyers and that after the consigmnents left the godown at Bhilwara, they would be entirely at the buyer's risk.

Apart from these written terms and conditions of the contract, the Income-tax Appellate Tribunal has recorded the further finding of fact that the appellant. consigned the goods to "self" and that the railway receipts alongwith the bills of exchange were presented by the appellant to the Rajasthan Bank, Bhilwara for collection after endorsing the railway receipts in favour of the Bank. It has also been found that the Raja.than Bank in its turn endorsed the railway receipts in favour of its branches in Part 'A' and Part 'C' States and that the goods were delivered to the buyers only when they paid the price to the Bank and obtained the railway receipt>.

Paragraph 4 ( 1 )(iii) of the Part 'B' States (Taxation Concessions) Order, 1950 is to the following effect :

"4. Scope of_ the main concessions-( 1) The provisions of paragraphs 5, 6, sub-paragraph (1) of para- H graphs 11, 12 and 13 of this Order shall apply- ............................... , ........ .

(iii) in the case of any other assessee who is not resident in the previous year in the taxable territories or in the taxable territories other than Part B States, to so much of the income, profits and gains included in his total income as accrue or arise in any Part B State and are not deemed to accrue or arise, or are not received or deemed to be received within the meaning of clause (a) of sub-section (I) of section 4 of the Act, in the taxable territories other than the Part B States."

Section 4(1){a) of the Act reads:

"4. Application of Act.-(1) Subject to the provi- C sions of this Act, the total income of any previous year of any person includes all income, profit and gains from whatever source derived which-

(a) are received or are deemed to be received in the taxable territories in such year by or on behalf of such person, or"

The question to be considered in this case is :-Where did the income or the right to receive the payment under the contracts of sale accrue or arise ? According to the Oxford English Dictionary the meaning of the word "accr.ue" is "to fall as a natural growth or increment; to come as an accession or advantage". The word "arise" is defined as "to spring up, to come into existence".

The word "receive" is not used in the same sense as "accrue" and "arise" in para 4(1)(iii) of Part B States (Taxation Concession) Order. The words "accrue" and "arise" do not mean actual receipt of the profits or gains.

Both these words are used in contra-distinction to the word "receive" and indicate a right to receive.

In Colquhoun v. Brooks(') Lord Justice Fry had to construe the expression "profits or gains, arising or accruing" in 16 and 17 Victoria Chapter 34, Section 2, Schedule 'D' and observed in that connection as follows :

"In the first place, I would observe that the tax is in respect of 'profits or gains arising or accruing'.

I cannot read those words as meaning 'received by'. If the enactment were limited to profits and gains 'received by' the person to be charged, that limitation would apply as much to all Her Majesty's subjects as to foreigners residing in this country.

The result would be that no income-tax would be payable upon profits which accrued but which were not actually received, although profits might have been earned in the kingdom and might have accrued in the kingdom.

I think,

(1)[1888]21Q.B.D.52 at 59.

therefore, that the words 'arising or accruing' are general words descriptive of a right to receive profits." It is clear, therefore, that the income may accrue to an assessee without actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to accrue to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income.-(See E. D. Sassoon & Company Ltd. v. C.l.T.

Bombay City)(').

As pointed out by the Judicial Committee in C.l.T. Bombay Presidency & Aden v. Chunilal B. Mehta( 2 ), it is impossible to lay down any general test to determine the place where the profits of the business accrue. In some cases it may be the place of the formation of the contract, but other matters-for instance the place where the contract is carried out or acts are done under the contract-may be decisive in certain circumstances. When the business consists of buying and selling goods, profits accrue as a general rule at the place where the contract of sale is made or where sales are effected.

But the question depends very much upon the facts and circumstances of each particular case.

At page 533 of the Report the Judicial Committee observed as follows:

"Their Lordships are not laying down any rule of general application to all classes of foreign transactions, or even with respect to the sale of goods.

To do so would be nearly impossible and wholly unwise-to use the language of Lord Esher in Erichsen v. Last(8 ).

They are not saying that the place of formation of the contract prevails against everything else.

In some circumstances it may be so, but other matters--acts done under the contract, for example--cannot be ruled out a priori. In the case before the Board the contracts were neither framed nor carried out in British India; the High Court's conclusion that the profits accrued or arose outside British India is well-founded."

OCn the context of the facts found in this case we are of the opinion that profits accrued to the appellant at the place where the sales were effected; in other words, where the property in the goods passed to the purchasers.

The problem in the present case therefore is to determine whether the property in the goods passed to the purchasers at Bhilwara, as claimed by the appellant, or at Kodarma or Giridih, as claimed by the respondent. In the case of a contract for sale of unascertained goods the property does not pass to the purchaser unless there is unconditional appropriation, of the goods in a deliverable state to the contract.

(!) 26. T.R. 27, 51.

(3) [1881) 8 Q.B.D.414,

(2) 6 1.T.R. 521

' G I

i'USHALAL LTD. v. C.l.T. (Ra11ws111t1111i, J.j 961

A Section 23 of the Indian Sale of Goods Act (Act 3 of 1930) states :

.. ( l) Where there is a contract for the. sa.le of unascertained or future goods by descnpuon and goods of that description and in a deliverable state are unconditionally appropriated to the contract either by the seller with the assent of the buyer or by

1 the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer.

Such assent'may be express, or implied and may be given either before or after the appropriation is made.

( 2) Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract."

Section 25 provides as follows :

"(! ) Where the1; e is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions arc fulfilled.

In such case, notwithstanding the delivery of the goods to a buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer umi! the conditions imposed by the seller are fulfilled.

( 2) Where goods are shipped and by the bill of lading the goods are deliverable to the order of the seller or his agent, the seller is prima fac:e deemed to reserve the right of disposal. ,, ................................. ' ..

In the present case, the appellant has reserved the right of disposal over the goods at the time of despatch. The consignment was sent "self", the railway receipt was taken in the name of the appe:Iant and the railway receipt along with the bill of exchange was presented by the appellant to the Rajasthan Bank for. collection after endorsing the railway receipt in favour of the Ra1asthan Bak. The. goods were delivered to the buyers only when they paid the pnce to the bank and obtained the railway receipts .endorsed in their favour.

The fact that the goods are by the bill of lading, made deliverable to the order of the selle; or his agent is a prima facie reservation of the right of disposal so as to prevent the property from passing to the purchaser. If

L9Sup. or Cl 67

SUPREME COURT RllPORTS l1967] 3 S,<.,.K,

tile seller deals with, or claims to retain, the bill of lading, in order to secure the contract price, as when he sends forward the bill of lading with a bill of exchange attached, with directions that the bi!! of lading is not to be delivered to the purchaser till acceptance or payment of the bill of exchange the appropriation is •not absolute, but until acceptance of the draft,. or payment 01 tender of the price, is conditional only, and until such acceptance or payment or tender, the property in the goods does not pass to the purchaser.-(Mirabita v.

Imperial Ottoman Bank)('). lf the seller discounts a draft upon the buyer with a bank, and authorises the bank to hand to the buyer a bill of lading w th~ order of the seller and endorsed in blank by him upon his acceptance of the draft, the intention to be inferred, according lO general mercantile understanding, is that the. seller intend; to transfer the ownership when the draft is accepted, but intends also to remain the owner until this has been done.

So, when the seller draws a hundi or a bill of exchange on the purchaser and delivers the hundi or the bill of exchange with a relative railway receipt to his own banker for the purpose of delivery of the railway receipt to the purchaser on his honouring the hulidi, the property in the goods cannot be held to pass to the purchaser till he pays the price and takes delivery of the railway receipt from the banker.

The matter is very clearly put by Lord Smnner in Prinz A dalbert (") as fol!ows :

"When a shipper takes his draft not as yet accepted but accompanied by a bill of lading, endorsed in this way, and discounts it with a banker, he makes himself liable on 'the instrument as drawer, and he further makes the goods, which the bill of Jading represents, security for its payment.

If, in turn, the discounting banker surrenders the bill of lading to the acceptor against his acceptance the inference is that he is satisfied to part with his secritv in consideration of getting this further party's liability

o~ te bill, and that in so doing he acts with the per- 1111ss1on and by the mandate of 'the shipper and drawer.

Possession of the i.ndorsed bill of lading enables the acceptor to get possession of the goods on the ship's arrival. If the shipper, being then owner of the goods. authorises and directs the banker, to whom he is himself liable and whose interest it is to continue to hold the bill of lading till the draft is accepted, to surrender

!h~ bill of lading against the acceptance of the draft, 1t 1s natural to infer that he intends to transfer the ownershir when this is done. but intends also to remain the owner until this ha• been done ........ The genera! -(0[i87813 Ex~ D~-164,172-.

(2) [19l7]A.C. ; s6.589.

.,:

Jaw infers under these circumstances that the ownership in the goods is 'transferred when the draft drawn against them is accepted."

It was argued on behalf of the appellant that after the railway receipts had been endorsed in favour of the bank and the appellant got the consideration by discount of the railway receipts the title in the goods had passed from the appellant to the Bank of Rajasthan which became thereafter the agent of the purchilser.

We do not think there is any substance in this argument.

Before the Appellate Tribunal the case of the appellant was that the railway receipt and the bills were sent by it to the bank for collection from the purchasers from Part 'A' and Part 'C' States.

It was held by the Appellate Tribunal that the letter dated July 8, 1948 alleged to have been written by the appellant was a faked document and no instructions were given to the Rajasthan Bank for discounting the appellant's bills.

Even assuming that the bank gave credit of part of the amount of some of the bills to the appellant, it is apparent from the conditions specified in the discount form of the bank that the responsibility of the appellant did not cease till the bank realised payments from th~ purchaser.

The discount form of the bank provided :

"The bank is sending the goods at the risk of the

consigno~ ........ In case the bill is dishonoured by the purchaser ........ the responsibility will be that of the consignor and the bank will have the right to recover the amount from him ........ In case the amount is not recovered from the purchaser, the bank has the right to debit the same. amount to the account of the consignor."

Jr i~ clear therefore that when the appellant negotiated the hnndi with the banker, the latter did so only as a part of its banking business.

Even if there was a purchase of the hundi by the banker it cannot mean that. there was a sale of the goods to the banker. In the first place, there was no agreement between the banker and the seller for the sale of the goods.

Secondly, the banker had only a security over the goods till the price was paid by th~ buyer.

To hold otherwise wou1d mean that the seller committed a breach of contract with the buyer and sold the ooods to the banker. 1:hat is, howeer, not the case.

The app~Jlant only performed h1~ contrat with the buyer in accordance wilh the usual commercial pracUce.

Therefore if any money was paid by the ban.k to the appellant as price for the hundi it was not the. sale pnce of the goods in any sense and the ba.nk wa; not actmg as 'the aget of the buyer.

On the other hand, the nu~: chase of the hund1 by the bank was onlv a convenient arrangement between the bank and its own customer, the appellant to L9S•.1p.Cf'67 19 '

avoid freezing of credit of the latter and it was done in the course of its usual banking transactions. It follows therefore that the price of the goods sold can be held to be accrued only when the purchaser pays th~ price or enters into an arrangement with the bank which is the endorsee of the hundi; for, till then, the latter will have a right of recourse against the appellant in case the hundi is dishonoured.

In the present case, the appellant became entitled to the purchase money only on the passing of title to the purchasers at Kodarma and Giridih in Part 'A' and Part 'C' States and it must therefore be held that the income accrued to the appellant in Part 'A' and Part 'C' States.

We proceed to consider the next contention of the appellant. namely, that mica was extracted, processed, sorted, packed and

despathed at Bhilwara in Part 'B' State and there was accrual of a part of the income at Bhilwara and the appellant was, in any case, entitled to claim apportionment of the profits accrued.

Counsel on behalf of the appellant placed reliance upon the decisions of this Court in C.l.T., Bombay v. Ahmedbhai Umarbhai & Co. (1) and in The Anglo-French Textile Co. Ltd. v. C.1.T ..

Madras( 2 ), where it was pointed out that in the case of a composite business, for instance where a person carries on a manufacturing and selling business it was not possible to say that the only place where the profits accrue to him is the place of sale.

The profits are received by him firstly for his business as a manufacturer and secondly for his trading operations and profit and loss has to be apportioned between these business according to the principles of accountancy.

But it is not possible for us to accept this argument in this case, because the appellant did not raise the question of apportionment of profits before the Appellate Tribunal, nor was it considered and decided by it.

In C.l.T.

Bombay v. Scindia Steam Navigation Co. Ltd. (8 ) it was pointed out by this Court that when a question of law is neither raised before the Tribunal nor considered by it it will not be a question arising out of the order of the Tribunal and the High Court will be acting beyond its jurisdiction in dealing with any such question.

We accordingly hold that Mr. Karkhanis is unable to make good his argument on this aspect of the case.

For these reasons we hold that these appeals must be dismissed with costs--one hearing fee.

R.K.P.S.

---·---.---·---

(1) 18 1.T.R. 472.

(2) 25 J.T.R. 27.

(3) 42 l.T.R. 589.

Appeals dismi.isetf.

PUSHALAL MANSINGHKA (P) LTD

C. SHAH

S. M. SIKRI

V. RAMASWAMI

Income-Tax Act 1922

s. 4(1)

Bhilwara

Kodarma

Giridih

Income-tax Act, 1922

K. D. Karkhanis

Ganpat Rai

E. C. Agarwala

P. C. Agarwa

S. T. Desai

S. K. Aiyar

R. N. Sachthey

Ramaswaml

Rajasthan High Court

Rajasthan

Kodamia

November 9, 1950

Bank of Rajasthan

Income-tax Act, 1922

March 24, 1955

May 31, 1954

Rajas'han Bank

September 20, 1957

August 18, 1958

s. 66

April 29, 1964

Kodanna

Giridih

Rajasthan Bank, Bhilwara

Raja.than Bank

section 4

Section 4(1)

Fry

Section 2

Esher

British India

Section 23

Sale of Goods Act

Section 25

Rajasthan Bank

Cl 67

SUPREME COURT RllPORTS l1967] 3 S,<.,.K

Smnner

July 8, 1948

Karkhanis


M/S. KILLICK NIXON & COMPANY v.

COMMISSIONER OF INCOME TAX, BOMBAY

May 5, 1967

[J. C. SHAH, S. M. SIKRI AND V. RAMASWAMI, JJ.]

Indian Income-tax Act (11 of 1922), ss. 12B (2), 3rd provilo, and L5(3) and 32(4)-Tribunal disposing of apper.1-Duty to consider evl dence-Scope of s. 12B (2) 3rd proviso and s. 25(3).

The assessee-firm sold its assets to two companies and discontinued its business with effect from !st February 1948. For t'he assessment year 1949-50 the income-tax department sought to assess, under s. 12B of the Indian Income-tax Act, 1922, the capital gains made by the ' lSessee.

Capital gains under the section are computed, in a case (a) where there is no dispute about the market value of the asset on the date of transfer and (b) where the assessee has exercised the option under tbe third proviso to the section to adopt the value of the asset on !st January 1939 as its actual cost, by deducting from the market value of the asset on the date of transfer the value of the asset on January !, !!139. In the present case the department ac:epted the market value of the assets on February I, 1948, the date of transfer, and estimated tbe value of the assets on !st January 1939, at a certain figure and brought to tax the difference between the two, rejecting the assessee's claim under s. 25(3) to the be,1efit of exempt:on from taxability arising from discontinuance of the business.

The Appellate Tribunal confirmed the order.

It rejected the contention of the assessee that the evidence on the record showed that the market value of some of the assets on !st January 1939 exceeded the value as estimated by the department and that therefore the capital gains to be taxed would be much le'.\S, by merely recording a bare conclusion that the value of the assets on !st January 1939 could not be more than the estimated value without considomng the evidence.

The High Court, on reference, (I) held against the assessee that it was not entitled to the benefit under s. 25(3), and (2) held against the department that the Tribunal misdirected itiielf in not considering the evidence produced before the Income-tax Authorities regarding the valu ation on !st January 1939. The assessee and the Commissioner of Income-tax appealed to this Court.

HELD : (I) It is only income earned by carrying on business that is entitled to exemption under s. 25 (3). Capital gains, though by the

dfinition in s. 2(6C) are income and liable to tax by virtue of s. 6 read w1tb s. 12B, not being income which arises from a trading activity are not entiiled to such ex-•mption. [980B-C] '

Commissioner of Income-tax, Bombay City I v. Chugandas & Co. [1964)"1! S.C.R. 332 and Commissioner of Income-tax, Madras v. Express Newspapers Ltd. [1964) 8 S.C.R, 189, referred to.

[Whether an .assessee was entitled to exemption under s. 25 ( 3) in respect of a receipt, such as capital gains, which was not chargeable as income under the Income-tax Act 7 of 1918, not decided.) [979E)

(2) Under the. scheme of the Income-tax Act, the Appellate Tribunal " the final authority on questions of fact. While the onus lies upon the

SUPREME COURT REPORTS

[1967] 3 <; C.R.

assessee to prove the mrrrket value of the assets on January 1, ~939 the Tribunal, in disposing of the appeal under s. 33(4) of the Act, is bound to hear the parties and consider the entire evidence produced .before the Income-tax Authorities. In the present case, therefore, the Tribunal had to determine, on a consideration of all the evidence, the value of the assets of the assessee on !st January 1939. [977E-G]

C1v1L APPELLATE Jumso1cnoN : Civil Appeals Nos. 1919- 1920 of 1966.

Appeals from the judgment and order dated October 12, 13, 1962 of the Bombay High Court in Income-tax Reference No. 2.1 of 1959.

S. T. Desai, O. P. Malhotra, and 0. C. Mathur, for the appel

!ant (in C.A. No. 1919 of 1966) and the respondent (in C.A.

C No. 1920 of 1966).

D. Narsaraju and R. N. Sachthe, v, for the appellant (in C.A.

No. 1920 of 1966) and the respondent (in C.A. No. 1919 of 1966.

The Judgment of the Court was delivered by Shah, J.

These are cross appeals from the order passed by the High Court of Bombay recording answers to que5tions submitted in a reference under s. 66 of the Indian Income-tax Act.

J 922.

Messrs Killick Nixon & Co.-hereinafter called "the assessee" -was a firm which carried on diverse trading activities in Bombay.

The assessee agreed to sell on November 28, 1947 to a Company called "Ki!lick Industries Ltd.;', the benefit of managing agency contracts held by it, shares of limited Company (including 240 shares of the Cement Agencies Ltd.) and debentures, and book and other debts in consideration of 79 ,993 shares of the face value of.Rs. 100/- each of Killick fndustries Ltd. and Rs. 700/- in cash. By another agreement dated January 29, 1948 the assessee agreed to sell to "Killick Nixon & Co. Ltd." goodwill of the business of the assessee freehold and leasehold hereditaments, plant and machinery, stock. in trade and book debts, Government securities and shares and full benefit of all shippiniz and general agencies, distributorships etc. in consideration of 9 .. 996 shares in the Vendce Company of the face value of Rs. 100/- each and Rs. 400/- in cash., The assessee was dissolved and it'• business was dhcontinued with effect from February I, 1948.

Tn a proceeding for assessment to tax payable by the assessee for the year 1949-50 (the relevant previous year being the year ending June 30, 1948) the Income-tax Officer assessed the capital gains made by th~ assessee, on the transfer of its capital assets to the two Companies. at Rs. 32,01,747/-. Tn appeal, the Appeal-

KILLICK NIXON & CO. V. C.I.T. (Shah, J.) 97;1

late Assistant Commissioner modified the order.

He was of the view that the assessee had made capital gains amounting to Rs. 25,40,737 /- by sale of shares to the two com11anies and other assets transferred to Killick Nixon & Co. Ltd. and had suffered a capital loss of Rs. 4,00,530/-, being the difference between the market value of the managing agencies, 240 shares of the Cement Agencies Ltd. and the goodwill on January l, 1939 estimated at Rs. 5 J ,40,802/- and the market value of those assets on February 1, 1948 estimated at Rs. 47,40,272-/.

Debiting the loss against th~ capital gains made by sale of shares, the Appellate Assistant Commissioner brought to tax an amount of Rs. 21,06,455/-. The Appellate Assistant Commissioner re.iected the claim of the assessee to the benefit of s. 25 (3) & ( 4) of the Income-tax Act, 1922. The Appellate Tribunal confirmed the order passed by the Appellate Assistant Commissioner.

The Tribunal drew up a statement of the case and referred two questioru; numbered (I) & (2) below to the High Court of Judicature at Bombay. Two more questions numbered (3) & ( 4) were submitted pursuant to the order made by the High Court 1mder s. 66(2) of the Act. The questions were :

• ( 1 ) Whether on the facts and circumstances of the case, the assessee firm is entitled to the benefit contained under s. 25 ( 3) in respect of capital gains assessed to tax under s. 12B of the Incomo-tax Act?

( 2) Whether on the facts and in the circumstances of the case, the asses.see firm is liable to pay capital gains in respect of profits and gains arising from the sale of its assets to the limited companies ?

( 3) Whether s. 12B of the Indian Income-tax Act, 1922, at all applied to the applicant's case ?

( 4) Whether on the facts and in the circumstances of the case, the Tribunal misdirected itself in law and or acted without evidence or in disregard of the most material evidence on record in making the valuation of the applicant's assets on first day of January one thousand nine hundred and thirtynine ?"

The High Court answered the first question in the negative, and the second, the third and the fourth questions in the affirmative.

The assessee has appealed against the answers recorded on the first three questions; against the order recording the answer on the fourth question, the Commissioner has appealed.

The appeal filed by the Commissioner may first be considered.

The assessee contended before the Tribunal, relying upon the evidence on record, that the value of the managing agencies, 240

[ 1967] 3 S.C.R.

shares of the Cement Agencies Ltd. and the goodwill on January l, 1939 considerably exceeded Rs. 51,40,802/·. The Tribunal observed in paragraph-IO of its judgment: A

 "We do not think it is necessary to deal with in detail the evidence produced before the Income-tax authorities in respect of the valuation as on 1-1-1939.

The stand taken by the assessee, in our opinion, is incomistent.

A unifom1 method must be adopted both as on the date of the transfer and as on 1-1-1939. It is B not open to the assessee to value an asset by applying one method on 1-2-1948 and another on 1-1-1939."

The Tribunal then observed that since the assets were transferred

to a company in which the partners of the assessee were interested, and the transfer was made for a consideration which was less than the market value, it was not open to the assessee to contend C that the market value of the assets on January 1, 1939 should be taken into account; that the assessee was not entitled to reduce the capital gain by adopting the valuation of those assets which had a market quotation and in respect of assets which had no market quotation by adopting the sale price; and that "if the goodwill of the business on January 1, 1939 was worth Rs. 8 lakhs D its value on February l, 1948 should be higher." The Tribunal recorded its conclusion that :

"For the purpose of this appeal, it is enough to say that if the value . of the assets in question was Rs. 46,40,279/- on 1-2-1948, it could not be higher than Rs. 51,40,802/- as on 1-1-1939. Speaking for our- E selves, we think, the Income-tax authorities by allowing the Joss of Rs. 4 lakhs have taken a liberal view of the whole question."

The Tribunal also observed :

"The valuation placed by the Department, in our F opinion, is reasonable.

Even if the business was to be valued as a whole, it could not affect the assessment made.

The valuation has to be done on the same basis both on 1-1-1939 and J-2,194R"

The High Court in dealing with the questions referred observed

that under the third proviSo to s. 12B(2), of the Income-tax Act. 1922 the assessee was entitled to substitute the fair market value of the assets as on January 1, 1939, if the capital assets had been held by the assessee before January 1, 1939 in place of the cost of the assets for the purpose of detennining the capital gain, and that it was conunon ground that the full value of the consideration for which the assets were transferred was Rs. 1,16,75,108/-.

The High Court then observed :

K!Ll, ICK NIXON & co. v. c.r.T. (Shah, J.) 975

"ft is clear beyond any doubt that the assessee was entitled to take the fair market value of the three assets, viz. the managing agencies, 240 shares of the Cement Agencies Limited and the goodwill of its business as 011 1-1-1939 for the purpose of the computation of the capital gains and the said capital gains, if any, had to be detennined by deducting the said v; iluation as on 1-1-1939 from the full value of the consideration, which the assessee had received and which, it was common ground between the parties, was Rs. 1,16,75,108/-.

The Appellate Assistant Commissioner had proceeded to determine the value of its assets as on 1-1-1939. As t1gainst the said valuation arrived at by the Appellate Assistant Commissioner, the asscssee has raisd ob.iections before the Tribunal which ob.iections the Tribunal had to consider on their merits.

In so far as the Tribunal has failed to do so and has proceeded on the erroneous view, which it has taken that it was not necessary to deal in detail with the evidence produced before the Income-tax authorities, the Tribunal has clearly misdirected itself and had also not applied its mind properly to the material on record."

Section 128 which was introduced in the Indian Income-tax Act, 1922 with effect from the 31st day of March, 1947, omitting parts not material reads as follows :

"(l) The tax shall be payable by an assessee under the head 'Capital gains' in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset effei:ted after the 31st day of March 1946; and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange or transfer took place : ..

( 2) The amount of a capital gain shall be computed after making the following deductions from the full value of the consideration for which the sale, exchange or transfer of the capital as<et is 1iiade, namely;

( i) expenditure incurred solely in connection with such sale, exchange or transfer;

(ii) the .actual cost to.the assessee of the capital

sset, mcludmg any expnditure of a capital nature

mcurrd and borne by bun in making any additions or alterat10ns th:reto, but excluding any expenditure in

respe.c~ of which _any allowance is admissible under anv

prov1s10n of sections 8, 9, 10 and 12.

976 SUPREME COURT .RRl'ORTS

[1967] 3 S.C.R

Provided that where a person who acquires a capital asset from the assessee, whether by sale, exchange or transfer, is a person with whom the assessee is directly or indirectly connected, and the Income-tax Officer has reason to believe that the sale, exchange. or transfer was effected with the object of avoidance or reduction of the liability of the assessee under this section, the full value qf the consideration for which. the sale, exchange or transfer is made shall, with the prior approval of the Inspecting Assistant Commissioner of Income-tax, be tliken to be the fair market value of the capital asset on the date on Which the sale, exchange or transfer took place: Provided further . . . . .

Provided further that where the capital asset became tl)e property of the assessee before the 1st day of January 1939, he may, on proof' of the fair market value thereof on the said date to the satisfaction of the Income-tax Officer, substitute for the actual cost such fair market value which shall be deemed to be the actual cost to him of the asset, and which shall be reduced by the amount of depreciation, if any, allowed to the assessee after the said date and increased or diminished, as the. case may be, by any adjustment made under clause (vii) of sub-section (2) of section 10;" Computation of the capital gains tinder s. 12B is to be made by deducting from the market value of the consideration of the sale,

exchange or transfer, expenditure incurred in connection with such sale, exchange or transfer and the actual cost to the assessee of the capital asset or at his option, where the capital asset became the property of the assessee before January l, 1939, the fair market value of the asset on January l, 1939. It is open t<> the Incom&"tax Officer, if it appears to him, that with the object of avoiding ot reducing of the liability of the assessee to pay tax, the full value of the consideration for which the sale, exchange or transfer is made is understated and the person acquiring the capital asset is a person with whom the assessee is directly or indirectly connected, to determine the fair market value of the capital aset on the date on which the sale, exchange or transfer took place.

The difference between proviso one and proviso three may be noticed .. By virtue of the first proviso the Incometax Officer is, in the conditions set . out therein, entitled to determine the fair market value of the asset at the date of the sale. exchange or transfer. Under the third proviso, t!ie asseSjiee when he has exercised the option to adopt the value on January 1, 1939 is, for computation of the actual cost to him of an aset

KlLLiCK NIXON &: co. v. C.I.T. (Shah, I.) 977

transferred, required to prove the fair markeb value of the asset on January 1, 1939, when the asset transferred belonged to him before that date.

There was no dispute in the present case about the market value at the date of the transfer of the assets conveyed.

The first proviso therefore did not come into play.

The dispute related to the value to the assessee on January 1, 1939 of three assets, viz., the managing agencies, 240 shares of the Cement Agencies Ltd. and the goodwill. The capital gain or loss had to be determined by deducting from the market value of the asset on February 1, 1948 the fair market value of those assets on January l, 1939, proved by the assessee to the satisfaction of the Income-true Officer.

The Appellate Assistant Commissioner estimated the value of the three assets on January l, 1939 at Rs. 51,40,802/-. The assessee contended that the evidence on the record showed that the market value exceeded the estimated value. It is true that the onus lay upon the assessee to prove the fair market value of the assets on January 1, 1939 to .the satisfaction of the Income-tax Officer and therefore of the Tribunal. The Tribunal did not consider the evidence and disposed of the claim of the assessee after observing that the value of the assets could not exceed the amount at which it was estimated by the Appellate Assistant Commissioner.

U oder the scheme of the Income-true Act, the Tribunal is the final authority on questions of fact.

The Tribunal in deciding an appeal is bound to consider all the evidence, and the arguments raised before it by the parties.

The Tribunal apparently did not consider the evidence : it merely recorded a bare conclusion without setting out any reasons in. upport thereof.

It' is

threfore not possible to say whether the Tribunal considered the evidence and the contentions raised by the assessee :it cannot be assumed merely because a conclusion is recorded that the Tribunal

onsidere? the evidence.

The High Court was, therefore right m r7cordmg an answer in the affirmative on the fourth qustion It ~l(~)e the duty of the Tribunal in disposing of the appeal unde~

s. . of the Income-true Act to hear the parti d d mme on a consideration of the evidence the vale af t~ threterassets on January 1 1939 i th J'gh f e ee s. 12B(2). • n e 1 to the third proviso to

In the appeal filed by the has not challen ed h fi d' assessee, counsel for the assessee

(3) and th. g t e n mg recorded on questions Nos (2) & no mg more need be d • Counsel claimed that by virtue ~;~ ~~ (~Pt fuf ~°J~ qestions.

a:icctth I~ ssessee is exempted from paying t:X n

1:e ;:~[;; e usmess was closed.

Reliance is placed upon s. 25 (3)

978 SUPREME COURT o&EPOllT~

[1967] 3 S.C.R

of the Jndiun Income-tax Act.

It provides. insofar as it 1,

marial :

"Where any business, profession or vocation on which u1x was at any time charged under the provisions of the ll\dhm Income-tax Act. 1918. (VI! of 1918), b discontinued, then, unless there has been a succession by virtue of which the provisions of sub-section ( 4) have been rendered applicable, no tax shall be payable in respect of the income, profits and gains of the period between the end of the previous year and the date of such discontinuance . . . . " rt b common ground that the assessee was assessed to tax in respect of the income from business under the Indian Income-tax Act 7 of 1918 and the case is not one of succession by virtue of which the provisions of sub-s. ( 4) of s. 25 are rendered applicable.

Prima facie, the assessee was entitled to the benefit

o~ s. 25 (3) i.e. it was exempted from payment of tax in respect of the income, profits and gains earned by carrying on business for the period between the end of the previous year and the date of discontinuance of the business.

This Court observed in Commissioner of fllcome-tax, Bombay City I v. Chugantlas anti Co. ( 1 ) that the exe111ption under s. 25 ( 3) is not restricted only to income on which tax was payable under the head "Profits and gains of business. profession or vocation" under the Act of 1918.

Counsel for the assessee contended that even though under the Act of 1918 capital gain was not charged to tax under the Income-tax Act, 1922, as amended i11 1947, si11ce capital gains ea.med by the assessee form part of the income of the assess~

a~ defined in s. 2 ( 6C) of the Act, and are on that account exigible to tax as income of the business, the assessee is .entitled to the benefit of exemption prescribed by s. 25 ( 3) of the Act.

Counsel for the Commissioner contended that on income earned from business which is discontinued, the assessee is entitled to exemption from payment of tax for the period during -which the business was carried on in the year in which the business was discontinued.

He conceded that income which qualifies for exemption is income earned by carrying on business and not merely income computed for purposes of tax under s. 10 of the Act, but he contended that the exemption does not apply to receipts which are not earned by carrying on the business. and are only fictionally deemed. income for th~ purp?sc of the Tncom7tax Act.

He said that in any even~ cap1t11l gams cannot be said to be income resulting from the activity styled "business", and on that account capital gains are not admissible to exemption under s. 25 (3) of the Act.

(t)[!964J 8S.CR. 33~~SSLl.R. 17

KIL!.ICK NIXON & CO. v. C.I.T. (Shah, J.1 9;9

Clwgandas & Company's case(') has, in our judgment, no application to the present case.

In that case the assessee firm was charged to tax on its income from business under the Indian Income-tax Act, 1918.

The assessee firm discontinued iLs business on June 30, 1947, and in respect of interest on securitic' which formed part of the assessee's business income, exemption was claimed under s. 25 ( 3). This Court accepted the contention of the assessee. It was observed at p. 338 :

"When, therefore, section 25 ( 3) enacts that tax was charged at any time on any business, it is intended that the tax was at any time charged on the owner or any business.

If that condition be fulfilled in respect of the income of the business under the Act of 1918. the owner or his successor-in-interest qua the business, will be entitled to get the benefit of the exemption under it if the business is discontinued.

The section in terms refers to tax charged on any business, i.e., tax charged on any person in respect of income earned by carrying on the business.

Undoubtedly, it is not all income earned by a person who conducted any business. which is exempt under sub-section (3) of section 25 : non-business income will certainly not qualify for the privileges.''

It is not necessary for the purpose of these appeals to decide whether an assessee is entitled to exemption under s. 25(3) in respect of a receipt which was not chargeable as inco.me under the Act of 1918, for, in our view, capital gains though they arr income within the meaning of s. 2(6C) as incorporated by Act 7 of 1939, and modified by Act XXII of 1947, are not income earned from trading activity carried on by an assessee, and therr fore cannot be admitted to exemption under s. 25(3).

In Commissioner of lncometax, Madms v. Express Nell's papers Ltd. (') this Court expounded the true nature of capital

gaias at p. 202 : ·

"Under that section ( s. 128) the tax shall be payable by the assessee under the head 'capital gains' in

respet of any profits or gains arising from the sale of a capital asset effected during the prescribed period. lt says frther that such profits or gains shall be deemed to be mcome of the previous year in which the sale etc., took J?lace. This deeming clause does not lift the capital gams from the sixth head in section 6 and place it ___ under the fourth head. lt only introduces a limited

tli 11964] 8S.C.R. 332: s51.r.R. 17 (2i[l964]8S.C. R.189:53 l.T.R.250

!180 SUPRBMB COURT RBPOllT~

[1967) 3 .S.C R

fiction, namely, that capital gains "accrued will be deemed to be income of the previous year in which the sale was effected.

This fiction does not make them the profits or gains of the buSines.~." Ca pita! gaim by the definition under s. 2 ( 6C) are income, and they are liable to tax by virtue of s. 6 read withs. 12B; and if they are not income arising from a trading activity, the benefit of exemption from taxability arising from the discontinuance of the business will not, in our judgment, be available in respect of that

head of income.

It is only income which is earned by carrying on business which is entitled to exemption under s. 25 (3) and capital gains not being income which arise from trading activity, they are not entitled to exemption.

Both the appeals therefore fail and are dismissed with costs.

V .P .S.

A ppea/s dismissed.

M/S. KILLICK NIXON & COMPANY

COMMISSIONER OF INCOME TAX, BOMBAY

May 5, 1967

C. SHAH

S. M. SIKRI

V. RAMASWAMI, JJ.

Indian Income-tax Act

ss. 12B

s. 12B

s. 25(3)

s. 12B

Indian Income-tax Act, 1922

s. 25(3)

s. 25(3)

s. 25

s. 2(6C)

s. 6

s. 12B

s. 25

Income-tax Act

Income-tax Act

s. 33(4)

S. T. Desai

O. P. Malhotra

0. C. Mathur

D. Narsaraju

R. N. Sachthe

Shah

s. 66

Income-tax Act

Killick Nixon & Co.-hereinafter

Bombay

November 28, 1947

Ki!lick Industries Ltd.

Cement Agencies Ltd.

Killick fndustries Ltd.

January 29, 1948

Killick Nixon & Co. Ltd.

February I, 1948

January l, 1939

February 1, 1948

s. 25

Income-tax Act, 1922

High Court of Judicature at Bombay

s. 66(2)

s. 25

s. 12B

s. 12B

Indian Income-tax Act, 1922

January 1, 1939

February l, 1948

s. 12B(2)

Income-tax Act

Cement Agencies Limited

Section 128

Indian Income-tax Act, 1922

31st day of March, 1947

31st day of March 1946

sections 8, 9, 10 and 12

1st day of January 1939

section 10

s. 12B

s. 12B(2)

s. 25

Income-tax Act

Income-tax Act

Income-tax Act

s. 25

s. 25

s. 25

Income-tax Act, 1922

s. 2

s. 25

s. 10

s. 25

Clwgandas & Company

Income-tax Act

June 30, 1947

s. 25

section 25

section 25

s. 25(3)

s. 2(6C)

s. 25(3)

s. 128

section 6

s. 2

s. 6

s. 25


JAi CHARAN LAL

STATE OF U.P. & ORS.

May 5, 1967

[M. HIDAYATULLAH AND C. A. VAIDIALINGAl\I Jn

U.P. Municipalities Act (2 of 1916), s. 81-A-(3) and (5)-"'Nor earlier than 30 days", meaning of-"'Send by registered post not less than 7 clear aays" Scope. of-"Adjourn'", meaning of.

Under ' 87A(3) of the Uttar Pradesh Municipalities Act.

J9i6. when a notice of intention to make a motion of non-confidence in the President of a Municipality is <lelivereil by tho requisite number of members of the Municipal Board, to the District Magistrate, the District Magistrate shall convene a meeting on a date not earlier tlzan thirty, and not later than thirty-five days from the date on which the notice was delivered to him.

He shall send by registered post, not Jess than seven clear days nefore the date of the meeting, notice• of the date and time of the meeting to all members.

Under s. 87A(4) he shall arrange with the District Judge for a judicial officer to preside at the meeting.

If the presiding judicial officer doc!i not attend the meeting, it stands automaticall} adjourned to a date and time to be appointed by h:m later. and, i.nder s. 87A(5), if the judicial officer is unable to preside at the meeting, he may, after recording his reasons, adjourn the meeting to such other date and time as he may appoint.

In the present case, the notice by the members \\'US delivered to the District Magistrate on October. 26, 1966.

He issued registered notices on November 17, 1966, fixing November 25, 1966 as the date of the me-zting.

The District Judge had nominated the Additional Civil Judge to preside at the meeting, but the latter made an order on November 22, 1966 intimating that he would be unable to preside on the 25th and adjourning the meeting to December 5, 1966.

The appellant, who wa' the President of the Municipal Board and against whom the notice of non-confidence was directed, filed a writ petition in the High Court for stay of the meeting but before it was heard the resolution of non-confidence was passed unanimously by the members on December 5, 1966.

The appellant prayed that the High Court may quash the resolution, but the High Court declined to exercise its discretionary powers as the resolution had already been pa; sed by the necessary majority.

Jn appeal to this Court it was contended that,

(!) there was a breach of s. 87-A(3), because, (a) : excluding November 18, 1966, the presumable date of receipt of the registered notice issued by the District Magistrate, and November 25, 1966, the date of the meeting, seven clear days did not intervene as required by the section, and (b) : the expression "not earlier than thirty days" means

"not less than thirty days and on that basis, excluding both the terminal days, namely October 26, 1966 and November 25, 1966 thirty clear days, as required by the section, did not intervene; and (2) there was also a breach of s. 87-A(S), becall<e, the presiding judicial officer was not empowered to adjourn the meeting in advance but could only do so on the date of the meeting if he was unable to preside.

SUPRBM!i COURT REPORTS

[1%7] 3 S.C.R.

HELD: ( 11 There was no hreach or s. 87-A(3)

(a) Since the expression in the section is "hall send lhc notice" the critical <late is the date of dc:-.pittch of the notice nnd not the date of its receipt.

As the notice \Va'i sent on the 17th and the n1ceting wa' called on the :!5th. excluding the l\.i./o dates, seven clear days did intervene.

!9X5A-BJ

(b) Tht: cxprcs'iions ,; not earlier than 30 Jays"' ind ·not Jc"ls than 30 days" c.111not he euuatc<l.

Just as '"not later than thirty-five days'' would not exclude the 35th day. "not earlier than 30 days" would not exclude the Jllth day. "Not earlier than 30 days" means that it should not he 29th day. hut there is nothing to show that the language excludes the 30th <lay fron1 computation.

If the provision were "not earlier than thiriy days and not later than thirty days" it is obvious that only the .10th day could he meant.

Therefore, in the present case, although October ~~ h"d lo he excluded. Novcniher 25. the date on which the 111l'cting Y•<ts to he called. ncc<l not he excluded and the date of the meeting cannot r., described "' earlier than 30 day•. 1985F-H; 986A-C]

If. H. Raia !1ari11d,,,. St'11g/i v . .\'. Kamat'/ St'11glt & Or.1'., A.J:R, 1957 S.C. 271. followed.

S111t. Hanulcl'i v. StC1te of Andhra anti Anr. A.l.R. 1957 A.P. 229.

o\crrulcd.

( 2) There wa' no hrc;1ch of s. 87-A ( 5).

'The judicial olliccr's power to adjourn the meeting to a later date could be excrci'icJ hy hin1 not only ;:it the meeting hut aho hefore, if he is in a position to ay that he would not he able I<> pre.ddc.

The word "adjourn" n1c;111r,; postpone, anJ the con!-.cqucncc of automatic .adjourn n1cnt under -.uh-'i. I 4) show'i th:it 1hc presiding officer could take action in a<lvancc ~{t)ll no ... tponc the meeting IO a subscquen1 date. r987A-D]

Krishna C'/1u11tlra Gupta v. l'rllyt1g .'Vllnlin & Ors., ( 1961) All. LJ. 22..6. overruled.

CIVIL APPELLATE JuRtsmcnoN: Civil Appeal No. 199 of 11967.

Appeal by special leave from the judment and order dated f' December 6. 1966 of the Allahabad High Court in Civil Misc.

Writ No. 4287 of 1966.

A. K. Se11, L. N. Math11r, 8. D11tta and 0. C. Math11r, for the appeJlant.

C. B. Aan•'"'" and 0. P. Rana, for respondent Nos. 1-3. (,.

S. P. Si11ha and M. I. Khawaja, for respondents Nos. 5-13.

The Judgment of the Court was delivered by

Hidayalullah, .I.

This is Hn apneal by special leave aaainst the judgment and order of the High Court of AJlahabad. December

6. 1966, in Civil MisceJlaneous Writ Petition No. 4287 of 1966.

The appellant, Jai Charan !.:al Anal was elected as a member of the Municipal Board, 'Sikandrao in December, 1964.

He w.; s

~ J

JAi CHARAN LAL v. U.P. (Hitlayatullah, J.)

9M~'

J;1ter elected as the President of the Board.

On October 26, 1966 a notice of intention to move a motion of non-confidence in thto appellant was presented by certain members of the Board to the District Magistrate, Aligarh.

The District Magistrate issued notices to the members on November 17, 1966 fixing November 25, 1966 as the date for the meeting of the Board to consider the non-confidence motion.

Thi> was done under s. 87-A of the IJttar Pradesh Municipalities Act, 1916. On November 22, 1966. the petitioner filed a petition under Art. 226 of the Constitution in the High Court of Allahabad asking that the meeting be stopped.

The case was listed before the High Court on Decemb<'r

I, I 966.

Before this date the meeting of the Board was aJiour11ed to December 5, 1966, under circumstances to which

J~.tailed reference will be made presently.

The High Court directed that the petition should be listed fm• December 6, l 96<i.

By that date the ad.journed meeting was held on December 5.

I 966. and the non-confidence motion was passed unan.mously I 0 out of 15 members who were present voted in its favour and none against it.

The appellant thereupon asked the High Coun to qua<; h the resolution of the Board.

The High Court by th~· order unde1 appeal declined to do so on the ground that even if there were some irregularities in calling the meeting, the reso Jution, having been passed by the necessary J)la.iority, the case was not fit for the exercise of its discretionary powers.

In this appeal the question has been raised that the meetin)! it-elf was contrary to the provisions of s. 87-A of the U.P. Municipalities Act and the resolution therefore being ultl'<I 1ire.v and illegal was void.

This argument is based upon the procedure which is laid down in s. 87-A of the Act.

We may now refer to those provisions.

Section 87-A deals with motion of non. confidence against the President.

It begins by stating that subicct to the provisions of the section such a motion shall only be

mad~ in accordance with the procedure, laid down in the section.

Suh-section ( 2) requires that a written notice of intention to make a motion of non-confidence on the Pre>ident must be signed bv 'uch number of members of the Board as constitute not less than one-half of the total strength of the Board and must he accompimied bv a copy of the motion which it is proposed to make and should be delivered in person by any two of the member., 'igning the not'ce to the District Magistrate. Tli's was done.

Sub-sections (3), (4), (5) and (6) then provide as follows:-

"(3) The District Magistrate shall then convene a meeting for the consideration of the motion to be held at the office of the Board. on the date and at the time appointed by him which shall not be earlier than thirty and not later than thirty-five days from the date on which the notice under sub-section (2) was delhered

to him.

He shall send by registered post not less than seven clear days before the date of the meeting a notice

of such meeting and of the date and time appointed therefore, to every member of the board at his place of residence and shall at the time cause such notice to be published in such manner as he may deem fit. Thereupon every member shall be deemed to have received the notice.

( 4) The District Magistrate shall arrange with the Di\trict Judge for a stipendiary civil judicial officer to preside at the meeting convened under this section, and no other person shall preside, thereat. If within half an hour from the time appointed for the meeting, the judicial officer is not present to preside at the meeting, the meeting sh:!ll stand adjourned to the date and the time to be appointed and notified to the members by that officer under sub-section ( 5).

( 5) If the judicial officer is unable to preside at the meeting, he may, after recording his reasons adjourn the meeting to such other date and time as he may appoint, but not later than fifteen days from the date appointed for the meeting under sub-section ( 3) He shalJ without delay communicate in writing to the Dhtrict Magistrate the adjournment of the meeting. It shall not be necessary to send notice of the date and the time of the adjourned meeting to the members individually, but the District Magistrate shall give notice of the date and the time of the adjourned meeting by publication in the manner provided in sub-section (3)

( 6) Save as provided in sub-section ( 4) and ( 5) a meeting convened for the purpose of considering a motion under this section shall not for any reason be

ad.iourned".

The contentions of the appellant are based upon the provisions of sub-ss. ( 3) and ( 5.) and it is contend.ed that there has been a breach of these provisions and therefore the resolution is void.

Three arguments in this connection have been raised before us and we shall mention them now.

The first contention is that the notice which was sent out by the District Magistrate by registered post did not allow seven clear days before the date -0f the meeting as required by the latter part of sub-section (3) Jn advancing this argument the learned counsel for the appellant contends that the critical date is not the date on which the notice is despatched but the date on which the notice is received. Since the notice was despatched on the 17th and presumably reached

JAI CHAP.AN LAL v. U.P. (Hidayatullah, !.) 985

the next day the learned counsel excludes the date of receipt ot the notice and the date of the meeting and says that seven days did not intervene.

In our judginent this is an erroneous reading of the sub-section.

The sub-section says that the District Magistrate shall send the notice not less than seven clear days before the date of the meeting and the word "send" shows that the critical date is the date of the despatch of the notice.

As the notice was sent on the 17th and the meeting was to be called on the 25th, it is obvious that seven clear days did intervene and there was no breach of this part of the section.

The next contention is that the District Magistrate had to convene the meeting for the consideration of the motion on a date which was not earlier than thirty days from the date on which the notice under sub-section (2) was delivered to him.

As the notice was delivered to the District Magistrate on October 26, the learned counsel contends that the date fixed for the meeting, namely, November 25 was earlier than thirty days because according to hiln the 30th day should be excluded in addition to the date on which the notice was handed. In other words, the learned coupsel wishes to exclude both the terminal days, i.e.. October .26 and November 25 and wants to count thirty clear days in lietween. . He contends that the expression "not earlier than thirty days" is equal to the expression "not less than thirty days" and, therefore, thirty clear days must intervene between the two terminal days.

In support of his contention the learned counsel relies , upon a ruling reported in Sm. Haradevi v.

State of A1ulhra and Another(') in which the expression "not

earlier than three days" was equated to the expression "not less than three days" that is to say, three clear days.

He also relies upon certain other rulings which deal with the expression "not less than so many days".

In our judginent the expression "not earlier than thirty days" is not to be equated to the expression "not less than thirty days". It is no doubt true that where the expression is "not less than so many days" both the terminal days have toi be excluded and the number of days mentioned must be clear days but the force of the words "not earlier than thirty days" is . not the same. "Not earlier than thirty days" means that it should not be the 29th day, but there is nothing to show that the language excludes the 30th day from computation. fn other words, although October 26 had to be excluded the date on which the meeting was to be called need not be excluded provided by doing so one did not go in breach of the expression "not earlier than thirty days.". The 25th of November was the 30th day counting from October 26 leaving out the initial day and therefore !t cannot be des7ribed as erlier than thirty days.

In other words, 11 was not earlier than thirty days from the date on which the

rll A.LR. 1957 A.P. 229

notice under sub-section (2) was delivered to the District Magistrate. This reading is also borne out by the o.ther expression 'not later than thirty-five days" which is <1sed in the section. In this Court(') the expression "not later than 14 days" as used in rule 119 under Representation of the 'People Act was held to mean the same thing as "within a period of fourteen days".

In that expression the number of days, it was held, should not exceed the number fourteen.

In the sub-section we are dealing with the number of days that should not exceed thirty-five days.

On a parity of reasoning not earlier than thirty days would include the 30th day but not the 29th day because 29th day must be regarded as earlier than thirty days. If the provision were "not earlier than thirty days and not later than thirty days" it is obvious that .only the 30th day could be meant.

This proves that the fixing of the date of the meeting was therefore in accordance with law.

We respectfully disapprove of the view taken in the Andhra Pradesh case.

The third point arises under the following circumstances.

The District Magistrate had arranged with the District Judge for .a stipendiary judicial officer to preside over the meeting to be convened on November 25.

The District Judge had nominated .one Mr. R. R. Agarwal, Additional Civil Judge, Aligarh for this purpose.

Mr. R. R. Agarwal made an order on November 22, 1966 intimating that he was unable to preide over the meeting on November 25 and that the meeting would be adjourned to December 5.

The District Magistrate sent out notices on the same day intimating the members of the change of date.

It is -contended that this action of the Addi. Civil Judge, Aligarh violated the provisions of the fifth sub-section. The reason advanced is that the judicial officer is not empowered to adjourn the meeting in advance but he can only do so if he is unable to preside at the meeting, that is to say, on the day on which the meeting is to be held.

In support of this contention a ruling of the Allahabad High Court reported in Krishna Chandra Guvta v.

Pra)'a~ Narain and others(') is cited where at page 229 a Divisional Bench said that the authority under sub-s. (5) to adjourn the meeting is exercisable only on the date on which the meeting is convened and if that occasion does not arise the ad.iournment is improper.

Here again we find it difficult to accept the view expressed in the Allahabad High Court.

Sub-section ( 4) provides that if the presiding judicial officer does not attend the meeting. the meeting stands automatically adjourned after half an hour to a date and time to be appointed later and notified to the mem 'be rs 'b~ that officer under sub-section ( 5). It seems pointless

(I) H. H. R'4a Hiriwl'r Singh v. S. Karil.'lil Singh (I/Id other.~

A.l.R. 1957 S.C. 271. (l\ 1%1 All. 1....1. 226.

' \

JAI CHARAN LAL v; U, P. (Hidayatul/ah, J.) 987

therefore to think that if the judicial officer knows in advance that he would not be able to attend the meeting that he had not the power to adjourn the meeting in advance.

No visible profit results from such a construction. In fact, tile words of sub-s.

(5) are that if the judicial officer is unable to preside at the meeting he may, after recording his reasons, ad.iourn the meeting to such other date and time as he may appoint.

This can happen not only at the meeting but also before the date of meeting if the judicial officer is in a position to say that he would be unabl~ to preside at the meeting. If this were not so some unforeseen event which requires the presiding officer to be absent would frustrate the entire non-confidence motion becau>e the judicial otlicer would be unable to adjourn it in advance.

That the consequences under sub-section ( 4) would automatically flow also show that it should be possible for the presiding officer to adjourn a meeting which under the law would in any event be adjourned under sub-s. ( 4).

Jn our opinion it is not necessary that the judicial officer should be present at the meeting and then adjourn it for purposes of sub-s. (5). He can take action in advance.

This will be convenient all round because it will save members from attendance on that day.

This was done in this case and in our opinion the action was correct.

We do n0! read the word "ad.iourn" as being in any way different from the word "postpone" which is some times used.

The won! "adjourn" means that the officer can postpone the meeting to a subsequent date.

The High Court did not exercise its powers under Art. 226 of the Constitution and we must not be intended to have meant that wher.~ the High Court has refused to exerc'se its discretion this Court would always interfere.

This case was admitted in this Court merely to clear a dispute about the law which seems to have evoked different interpretations in the High Courts.

On .a. consideratio~ of the whole matter we are of opinion that the pet1t10n ws dev01d of. merit and although it was dismissd

ecause the High Court did not choose to exercise its discrcuonary powers tle result would have been the same if the High Court had gone mto the matter elaborately and correctly The appeal must therefore be dismissed.

We order accordingly.

fee. The appeal shall stand dismissed with costs.

One hearing.

V.P.S.

A ppea/ dismissed.

LAL

STATE OF U.P. & ORS

May 5, 1967

M. HIDAYATULLAH

s. 81

s. 87A(4)

s. 87A(5)

October. 26, 1966

November 17, 1966

November 25, 1966

November 22, 1966

December 5, 1966

s. 87

s. 87

s. 87

H. Raia

s. 87

A. K. Se11

L. N. Math11r

C. Math11r

C. B. Aan•

P. Rana

S. P. Si11

M. I. Khawaja

Hidayalullah

High Court of AJlahabad

Jai Charan !.:al Anal

s. 87

IJttar Pradesh Municipalities Act, 1916

Art. 226

High Court of Allahabad

December 5.

s. 87

s. 87

Section 87

25th of November

Andhra Pradesh

R. R. Agarwal

Addi. Civil Judge, Aligarh

Allahabad High Court

Art. 226


LALA SHANTI SW ARUP

\',

MUNSHI SINGH & ORS.

January 3, 1967

[J.C. SHAH AND V. RAMASWAMI. JJ.)

Indian Limitation Act (9 of 1908), Arts. 83 and 116-Sale of mrn111bered prop.erty--Covnant by purchas.er to pay uff e11cu111rancc-:l;'dl ure by purchaser-Loss to Vf'11dor-Su1t ro recover /oss--Pcnod of lu111tation.

The respondents executed a simple mortgage for a sum of Rs. 12,000 in 1914. Later .. they wld half of the mortgaged property to the appellants. Out of the consideration a sum required to pay the amount (principal and interest) due to the mortgagees. was left with the appcil:rnL<.

The oppellants took possession of the property "onveyed, but did not make any payment to the mortgagees.

The mortgagees brought a suit for the recovery of the amount due to them and in 1937, a final decree was passed against the respondents. The respondents then applied under the U.P. Encumbered Estates Act, and the liability was apportioncJ between the appellants and respondents.

In 1943. the Collector took proceed!ngs under that . .\ct for the liquid~1ti0n of the t.lcbt anJ di'reclct.I the respondents to execute a self-liquidating inoneagc uf three-fourths of their half-share for a sum of about Rs. 20.8000.

The mortgage was executed on 25th February 1943.

As a result, the re; pon<lents had to Jehcr possession of the three-fourths share of their property to the mortg3gc~.

On 30th July 1943, they filed a suit for the recovery of 'bout Rs. 18 .. 000 and interest, representing the loss they sustained owing to the failure of the appellants to discharge the original mortgage of 1914.

On the question \Vhether the suit was time-barred,

HELD : When a conveyan.ce, contains a covenant by a purchaser lo pay off an encumbrance on the property sold it is nothing more than an in1plied contract of indemnity.

In such a case, in addition to the right to bring an action to have himself put in a position to meet the liability \Vhich the purchaser has failed to discharge, the vendor has also

a right to bring a suit on the contract of inden1nity if, as a resuh of the purchaser's failure, the vendor incurs a lo3s.

Under Art. 83 of the Limitation Act, 1908 which applies both to express ond implied contrJc1s of indemnity, the cause of action arises when the vendor was actually damnified.

Therefore, in the present case, as the sale deed in fav.:.ur of the appellants was a registered document, the respondents had six years under Art. 83 read with Art. 116, for brining the suit, ftom :'5ih Feb; uary, 1943, when they were oe'liJolly d"11Jnifid. qfl<l !'1 i!io Si!ifwas within time. The mere fact that a m<>tlJl~!Jll decrw was pqsscd q5qin$t' the rc.>pondent:> in 1937 was .not sufficient to start lirnftntiorl A3<t; ost. ; J?m as tin1e starts running on!y when there is actual dan111ification. [314 F, H;

315 D-E; 316 D-E, HJ

Case law referred to,

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 784 ,1f 1964.

Ar"~,,] frnm the judgment and decrc datd fanuar•; 23, 1959 of the Allainbad High Crnrt in First A;1; inl l\Jn. 139 of 1946.

A B. C. Misra and P. K. Ghose, for the appellant.

S. T. Desai, Sardar Bahadur and Arun B. Saharya, for respondents Nos. 1-9.

The Judgment of the Court was delivered by

Ramaswami, J. This appeal is brought, by certificate, from the judgment of the High Court of Allahabad dated January 23 1959 in First Appeal No. 139of1946.

Some of the plaintiff-respondents and the predecessor-ininterest of other plaintiff-respondents owned. lands in mahal Narain

Singh village Khetalpur Sahruiya. They executed a simple mortgage of this property on May 9, 1914 in favour of two persons Bansidhar and Khub Chand, for a sum of Rs. 12,000. Subsequently a sale deed of half of this property which had been mortgaged was executed by the owners (now represented by the plaintiff-responJents) on February 9, 1920, in favour of Shanti Saran, the first appellant aud three others, the remaining appellants. The consideration for the sale-deed was a sum of Rs. 16,000 out of which a sum of Rs.13,500 was left with the purchasers forpayr.ient of the amount due to the mortgagees on account of principal and interest under the mortgage dated May 9, 1914. The purchasers entered into possession of the property conveyed to them but neither they nor the appellants made any payment to the mortgagees who in due course brought a suit against the respondents for the recovery of the amount due to them under the mortgage. On February 4, li/37, a final mortgage decree was passed in their favour for a little over Rs. 26,000. Thereafter the respondents made an. appli:ation under the U.P. Encumbered E>tates Act, and by an order dated May 22, 1939, the Special Judge apportioned th liability for the mortgage debt between the respondents and the purchasers as owners of half the mortgage<:! property. As a result of tbis apportionment the respondenls and the appellants were each held to be liable for the sum of Rs. 14,307/9/6. It was further provided in this order that the rc>p::mdents would be Ibbie to pay interest at 6 percent per annum on the amount due by them from August !, 1933 uptil

September 28, 1936, and thereafter at 4! per cent per annum.

The Collector subsequently took proceding> fer liquidation of the debt and on January 30. 1943 the Collector directed the execution by the respondents of a self-liqmdating mortgage of threc-fourtl1s. of the half share of the property of which they were tt, e owners.

That morlgai:e which was for the sum of Rg. 20,303/4/3 was ex~uted on February 25, 1943, and as a result the respondents had to deliver

possesion of this share of the property to the mortgagees. The respondents thercafcer filed the suit out of which this appeal arhes for the recovery of the sum of Rs. 18,500 and interest repre3cnting the loss they had sustained owing to the failure of the app31lant or

of his predecessors-in-interest to discharge the original mortgage of May 9, 1914. This suit was instituted on July 30, 1943. The case of the plaintiff-respondents was that they had actually suffered loss and injury as a result of the breach of trust by the defendantappellant on February 25, 1943 when they were compelled to execute the self-liquidating mortgage and to deliver possessionofthe property in the proceedings for liquidation of that debt which had been decreed by the Special Judge under the U.P. Encumbered Estates Act. On behalf of the defendant-appellant it was pleaded that the suit was time-barred. The contention was that the claim of the plaintiff-respondents was a claim for compensation for breach of contract which was entered into by a registered document, so that the period of limitation was six years from the date on which the breach of contract had been committed.

It was said that the breach of contract should be deemed to have been committed in the year 1920 when the defendant-appellant undertook to pay the money to the mortgagees and failed to do so within a reasonable time.

The trial court over-ruleq the objection of the defendant anct decreed the suit. The defendant appealed to the High Court. The Division Bench which heard the appeal in the first instance referred the question of limitation to a Full Bench of five Judges which held that the suit was gove1ned by Art. 83 read with Art. 116 of the Limitation Act and that time ran from February 25, 1943 which was the date upon which the respondents were compelled to execute a self-liquidating mortgage for the purpose of satisfying the mortgage debt. On receipt of the decision of the Full Bench, the Division Bench of the High Court dismissed the appeal and affirmed the judgment of the trial court.

The question to be considered iu this appeal is whether the High Court was right in taking the view that in the circumstances of the present case the suit is governed by Art. 83 read with Art. 116 of the Limitation Act and whether the terminus a quo for the limitation was February 25, 1943 which was the date upon which the respondents were compelled to execute a self-liquidating mortgage.

On behalf of the appellant Mr. B. C. Misra put forward the argument that a provision in a conveyance whereby the purchaser agrees to pay off an encumbrancer does not give rise to any contract of indemnity and that the appropriate article of Limitation Act was Art. 116 and not Art. 83 and time began to run from tho dato from which the covenant to pay off the encumbrancer is broken. We arc unable to accept this argument as correct. If a convcynace contains a covenant by a purchaser to pay off an encumbrance on the property sold the failure of the purchaser to do so may give rise to two different causes of action. In the first place, the failure of the purchaser to discharg~ the encumbrance within such time as is provided expressly or by implication entitles

B •

SHANTI SWARUP v. MUNS!Il SINGH (Ramaswami, /.) 315

the vendor to bring an action to have himself put in a position to meet the liability which the purchaser has failed to discharge.

In such a case, limitation will run under Arf. 116 of the Limitation Act (or under Art. 115 if' the sale deed is unregistered) from the date on which the purchaser ought to have paid off the mortgage. In the second place, it is also open to the vendor to bring a-suit on the contract of indemnity if as a result of the failure of the purchaser to discharge the encumbrance the vendor incurs a loss. It was contended on behalf of the appellant that there was no express contract of indemnity in the sale deed executed on February 9, 1920 in favour of the appellant. But the contract of indemnity is implicit in this case because of the covenant on the part of the purchaser to pay off the previous encumbrance on the property sold. Under s. 124 of the Indian Contact Act "a contract of indemnity" is a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person. Under t. 83 of the Limitation Act a suit based upon the contract of indemnity is required to be brought within three years from the time when the plaintiff was actually damnified. In the present case there is no express contract of indemnity. But, in our opinion, the provisions of Art. 83 are also applicable to a case where the contract of indemnity is implied and not express. It was observed by the Judicial Committee in Musammat lzzat-un-Niss:i Begam v. Kunwar Pertab Singh (1) that a contract of indemnity may be express or implied and if the purchaser covenants with the vendor to pay the encumbrances, there is nothing more than a contract of indemnity. At page 208 of the Report the Judicial Committee clearly expressed the proposition as follows:

"It seems to depend on a very simple rule. On the sale of property subject to incumbrances the vendor gets the price of his interest, whatever it may be, whether the price be settled by private bargain or determined by public competition, together with an indemni; y against the incumbrances aifecting the land. The contract of indemnity may be express or implied. If the purchaser covenants with the vendor to pay the incumbrances, it is still nothing more than a contract of indemnity. The purchaser takes the property subject to the burthen attached to it. If the. incumbrances turn out to the invalid, the vendor has nothing to complain of. He has got what he bargained for.

His indemnity is complete. He cannot pick up the burthen of which the land is relieved and seize it as his own property. The notion that after the completion of the purchase the purchaser is in some way a trustee for the veodor of the amount by which the existence,

(I) 36 I. A. 203.

or supposed existence, of incumbrances nas led to a diminution of the price, and liable, therefore, to account to the vendor for anvthing that rem:tins of that amount after the

incumbrares are satisfied or disposed of, is without foundation. After the purchase i< completed, the vendor has no cbim to participate in any benefi, which the purchaser may derive from his purchase. It would be pedantry to refer at length to authorities. But their Lordships, under the circµmstanccs, may perhaps be excused for mentioning Tweddel v. Tiveddel [(1787) 2 Bro C.C. 151)], Butler v.

Butler [(1800) 5 Yes. 534 e.)j, and Waring v. Ward[(l802) 7 Yes. 332)]."

This decision was followed by the Full Bench of the Allahabad Hig!1 Court in Tilak Ram v. Surat Singh(').

Jn our opinion, the rrinciplc applies to the pre>cn'. case and we accorrlingly hold that the covenant undertaken by the predcessor-in-interest of the appellant was not only one to purch:1sc the vendor's property but also one to relieve the vendor from ihc liability of the mortgage, and in that sense there was an im:ilied co•Hract of indemnity in favour of the vendor. It follows therefore that Art. 83 of the Lmil"ltion Act applies to this case and as the sale deed is a registered d0cument the plaintiff has six years for bringing the suit from the time when he is damniftd or actually suffers loss. The vie.v tlrnt we have expressed is borne out by a long catcna of authoritics.--Kumar Nath Bh•J/tacharjee v. Noho Kumar Bhuttacharjee,2 Ratan B:ii v. Gizasiram Gangabisan Wa11i(') lfarakclund Tarachand

v. S11111:11ilal Cl11111ila!(•) Gulabrao Vitlzoh:i v. Sha>nrao Jagoba,(') NainM Kliatzm v. Sardar Basant Sing/z.(6) RamBarai Sing/iv. Sheodeni Singh(?) and Venkatanarayanialz v. Subrama11ia lyer(8).

It was then contended by Mr. B. C. Misra that even if there was a contract of indemnity the cause of action for the pbintiff aroo.e on February 4, 1937 when the fin1l mor:g1ge de:ree was passed and not on February 25, 1943 whrn the plaintiff was dispossessed. It was argued that the suit must b~ held to be brought

byond the period of limitation and the pbi.ntiff wa; not entitled to succeed. Jt is not possible form to accept thi> argument as correct.

The vcndees, in the present c1se, covenanted to th~ veadors not only to purchase the property mentioned in the s1le deed but also to relieve the vendors from the liability of the m:irtgages and in tht sense there was an imolicd contract to indemnify the vendor,.

The c1use of action in such a case arises when th~ plaintiff-vendors are actually 1lamnified. The mere fact that a mJrt; pgc decree has been obtained ag1inst the plaintiff is not sufficient to put the statute ------ (!) l.L.R Jl938J All. SJO.

(3) t.L.R. SS Bom, S65.

(5) A.l.R. 19481'\SE. 4)1.

(7) 16 C.W.N. IQ4'J.

(2) l.L.R. 26 C1!, 241.

(4) 33 Born, L.R. 12.JO.

(6) 1.L.R. SE All. 766.

(8) 74 ln<lian Cases :IJ9.

in motion. In other words, the statute runs not when the event happens which caused the loss but on the actual damnification. "Where the covenant is to indemnify or save harmless, no action can be brought till some loss has arisen; so it is also where the covenant is to acquit from damage by reasons of a bond or some :iarticular thing; and in either case the proper plea is non damnificatus". (I Wms. Saund . .117, n. I;). In Collinge v.

Heywood (1) the plaintiff at the request of the defendant prosecuted an action, on receiving an undertaking to indemnify him from the said distres~, actions, costs, damages, and expenses, which are now, or may be hereafter, commenced or otherwise incurred by reason of the claim of the distraining party. The plaintiff incurred costs of the suit and his own attorney thereafter delivered him a bi.II on account of them. But it was held by the King's Bench that he was not :lamnified till he bad paid the bill.. In the present case, the damage occurred to the plaintiffs not on February 4, 1937 when, the final mortgage decree was passed in favour of the mortgagees but on February 25, 1943 when the Collector directed the execution by the plaintiffs of a self-liquidating mortgage of three-fourths of the half share of the property of which they were the. owners. We are therefore of the opinion that, in the present case; time runs under Art. 83 of the Limitation Act from February 25, 1943. when the plaintiffs were compelled to execute the self-liquidating mortgage for the purpose of satisfying the claim of the mortgagees.

For the reasons expressed we hold that there is no medt in

thi~ appeal which is accordingly dismissed with costs.

V.P.S.

Appeal dismissed:

(I) (1839), 9 A. & E.B. 633.

LALA SHANTI SW ARUP

MUNSHI SINGH & ORS

January 3, 1967

C. SHAH

V. RAMASWAMI

Indian Limitation Act

Arts. 83 and 116

Encumbered Estates Act

30th July 1943

Art. 83

Limitation Act, 1908

Art. 83

Art. 116

A B. C. Misra

P. K. Ghose

S. T. Desai

Sardar Bahadur

Arun B. Saharya

Ramaswami

Bansidhar

Khub Chand

February 9, 1920

Shanti Saran

May 9, 1914

February 4, li/37

May 22, 1939

September 28, 1936

January 30.

February 25, 1943

July 30, 1943

Encumbered Estates Act

Art. 83

Art. 116

Limitation Act

Art. 83

Art. 116

Limitation Act

B. C. Misra

Limitation Act

Art. 116

Art. 83

Limitation Act

Art. 115

s. 124

Limitation Act

Art. 83

Art. 83

RamBarai Sing

February 4, 1937

Art. 83

Limitation Act