GURDlT SINGH v.

MST. ANGREZ KAUR alias GEJ KAUR alias MALAN

AND OTHERS

April 25, 1967

[K. N. WANCHOO, C.J., V. BHARGAVA AND G. K. MITTER, JJ.J

Custom-Divorce among lats of Jullundur District-Value of Rattigan' s Digest and Riwaj-i-Am in this regard-Custom in surrounding districts can be basis of determining existence of custom in Jullundur District.

S married A after the latter had been divorced by her husband T.

The parties were Jats of Jullundur District in the Punjab. After the death of S a collateral of bis got l'he lands of S mutated in bis favour.

A then filed a suit claiming the land as widow of S. Her marriage to S

was challenged on the ground that there was no custom among the Jats of I ullundur District permitting a divorced woman to remarry in the life-time of her first husband. The entries in the Rattigan'• digest and the Riwaj-i-am of Jullundur District came up for consideration.

HELD : Rattigan'• digest was 'not of help in arriving at a conclusion about the eitistence of such a custom of divorce among the J ats in Jullundur District. The Riwaj-i-Am of Jullundur District was unreliable

as it had been so held by courts. [792 F-0; 795 A-C]

On the basis of the existence of a custom of divorce amon11 the Jats of districts surrounding Jullundur District and on the baslS of oral evidence adduced in the case, the High Court rightly held that a custom of divorce existed among the Jats of Jullundur District, and the custom permits the divorced women to marry in the life-time of her first husband. The divorce of A by T being valid her subsequent marriage to S was also valid, and accordingly she was entitled to succeed to S's property. [797 B-C]

Basant Singh v. Kunwar Brij Raj Saran Singh, 62 I.A. 180, Vaishnoo Dill v. Rame.rhri, ( 1928) L.R. 55 I.A. 407, Mahant S<e/ig Ram v. Musammat Maya Devi [1955] 1 S.C.R. 1191, Qamar-ud-din v. Mt. Fateh Bano,

(1943) I.L.R. 26 Lab. 110, Muhammad Khalil v.

Mohammad Baksh.

A.l.R. (36) 1949 E. Pb. 252, Zakar Hussain v. Ghulam Faima, A.I.R.

(14) 1927 Lah. 261, Ghulam Mohammad v. Balli, A.I.R.

(18) 1931 Lah. 641 and Ml. Fatima v. Sharaf Din, A.i.R. (33) 1946 Lah. 426, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 852 of 1964.

Appeal by special leave from the judgment and decree dated August 24, 1962 of the Punjab High Court in Regular Second Appeal No. 843 of 1956.

If Bishan Narain and A. G. Ratnaparkhl, for the appellant.

K. C. Nayyar and Mohan Behar/ Lal, for respondent No. 1. "ro'! : r ~, :7 •

The Judgment of the Court was delivered by

Bhargava, .J.

This appeal has come up as a result of a dispute relating to succession to the property of one Sunder Singh.

Sunder Singh, on 4th November, 1950, executed a will in respect of his property in favour of his niece, Udham Kaur. Subsequently, on 27th October, 1951, one Tarlok Singh executed a document divorcing his wife, Mst. Angrez Kaur, respondent No. 1 in this appeal, on the ground that she frequently went away from his house without his consent and whenever he made enquiries from her, she became furious with him.

In the document, he recited that Mst. Angrez Kaur was no longer his wife and that she had gone to live with Sunder Singh.

According to respondent No. 1 on this divorce being granted to her by her first husband, Tarlok Singh, she was married to Sunder Singh by a custom, known as 'Chadar Andazi'.

On 7th June, 1952, Sunder Singh revoked his previous will and, in that document, acknowledged Mst. Ang' rez Kaur as his wife and left the property to her.

Sunder Singh died in 1953.

Thereafter, the appellant, Gurdit Singh, who was a collateral of Sunder Singh in the third degree, applied for mutation.

On 12th December, 1954, mutation of the property left by Sunder Singh was sanctioned in favour of Gurdit Singh by the authorities.

Thereupon, Mst. Angrez Kaur filed a suit on 17th March, 1955. claiming the property as widow of Sunder Singh.

The trial Court decreed the suit, holding that respondent No. 1 had married Sunder Singh by 'Chadar Andazi' and the marriage was valid.

On appeal, th~ Additional District Judge set aside the decree of the trial Court and held that the marriage of Mst. Angrez Kaur with Sunder Singh during the life-'time of her first husband, Tarlok Singh, was invalid and was not justified by any custom and, consequently, she could not be treated, as the widow of Sunder Singh.

Respondent No. 1, thereupon, appealed to the High Court of Punjab and the learned Judge, who heard the appeal, felt that the question of custom ha.ct not properly tried by the trial Court and the first appellate Court.

Conse, quently he framed the following issue :-

"Is there any custom amongst the tribes of the parties according to which the divorce given by Tarlok Singh 'to Mst. Angrez Kaur is recognised enabling her to enter into a valid manfage by Chadar Andazi with Sunder Singh ?" This issue was remitted to the trial Court for recording a finding after giving the parties an opportunity to lead further evidence. Further evidence was led in the trial Court which answered this issue in the negative and against respondent No. 1.

The District J ]!dge, in his report, endorsed the view of the trial Court. The High Court, however, held that the

I • A

GURDIT SINGH v. ANGRf.Z KAUR (Bhargava, l.) 79!

custom was proved under which Mst. Angrez Kaur could validly marry Sunder Singh, even though her first husband, Tar!ok Singh, was alive, and, consequently decreed the suit.

Gurdit Singh appellant has now come up to this Court against this decree of the High Court by special leave.

As is clear from the facts nanated above, the only issue that arose in this case was whether respondent No. 1, Mst. Angrez Kaur, had succeeded in proving the existence of a custom in the community to which she belonged, according to which Tar!ok Singh, her first husband, could divorce her, whereupon she was at liberty to enter into a valid marriage by Chadar Andazi with Sunder Singh, whose property is now under dispute. The parties are residents of the District of J ullundur where, according to Gurdit Singh appellant, no such custom, as claimed by respondent No. 1 exists amongst the Jats, which is the caste to which the parties belong. To urge this point, learned counsel for the appellant relied before us on 'The Digest of Customary Law' by Sir W. H. Rattigan, and on the 'Riwaj-i-am' recorded at the time of the settlement in 1885 and 1914-15. It was argued that Rattigan's Digest of Customary Law in the Punjab had always been treated as an authoritative exposition of the customs pre- 1 vailing in the Punjab and had been accepted as such by the Privy Council as well as other Courts in India. Reliance was placed on para 72 at page 471 of the 14th Edition of Rattigan's 'Digest of Customary Law', where it is stated that "amongst Muhammadans of all classes a man may divorce a wife without assigning

any reason; but this power, in the absence of a special custom, is not allowed to Hindus, nor to females of any class". In paragraph 7 4, he proceeds to lay down that "until the former marriage is validly set aside, a woman cannot marry a second husband in the life-time of her first husband;" and in paragraph 75, it is staled that "A 'Karewa' marriage with the brother or some other male relative of the deceased husband reqi.; ires no religious cer,~ monies, and confers all the rights of a valid marriage."

The arriage climed by resp?ndent No. 1 with Sunder Singh ":as desc_nbed as karewa mamage. On the basis of the principles laid down m the above paragraphs; it was urged that it should be held that respondent No. 1 could not have entered into a valid marriage with Sunder Singh, while her first husband Tarlok Singh, was alive.

It is, however, to be noted that in' paragraph 72, attigan himself mkes an exception to the general ru k and recogmses the fact that. 1f there be a special custom divorce can be resorted to even by Hindus. '

. fn earlier paragraphs of his book, Rattigan has dealt with

x1stence of special customs in the Punjab and, in dealing with l 0S1rn r1 ; f..i 7

the Jats, he expressed the view that, as regards Jats, and specially Sikh Jats who hold very liberal views on questions relating to marriage and whose notions of sexual morality are lax, it will be difficult to enunciate any general principles as Ille opposed to public policy.

Then, he goes on to say that custom in the Punjab is primarily tribal and not local, though the custom of a particular tribe may and often does differ in particular localities. Rattigon's

conqusion is expressed by saying that it seems to be clear that there is no uniform custom applicable to the whole of the Punjab.

Custom varies from time to time and from place io place.

It is in this background that we have to consider fu(ther remarks recorded by Rattigan in paragraph 72 mentioned above. where he says that, in one case, it was doubted whether, in Jullundur District, a Hindu Jat can divorce his wife.

He also noticed a number of decisions relating 'to divorce in the surrounding districts in which it was held that the custom of divorce prevailed in almost identical terms in those districts. This custom according to him, is that the husband is entitled to turn out his wife and, if he does so, she is entitled to re-marry.

It was on the basis of these observations of Rattigan that it was urged before us that the High Court conunrtted an error in relying on the circumstance that, in a number of surrounding districts, it was found that the custom of divorce amongst the Hindu Jats so prevalent could lead to an inference that a similar custom prevailed in the district of Jullundur also.

In Rattigan's book, by itself, we are unable to find any proposition laying down that, in the district of Julhmdur, there is any custom among Hindu Jats permitting divorce as claimed by respondent No. 1.

In fact, Rattigan leaves the question open by saying that it has been doubted whether such a custom exists in the Jullundur District.

He also mentions the Riwaj-i-am of Jullundur District, but does not attach much importance to it on the ground of its being unreliable.

Rattigan's book on 'Customary Law', in these Circumstances, appears to us to be of little help in arriving at a conclusi"n about the PXistenN of a custom on divorce amongst the Jats in Jullundur District.

The only other document relating to Jullundur District avail- G able wa5 the Riwaj-i-am of that district and learned counsel for the appellant placed great reliance on it.

He drew our attention to the decision of their Lordships of the Privy Council in Kunwar Basant Singh v. Kunwar Brij Raj Saran Singh(') where their Lordships held :

"The value of the riwaj-i-am as evidence of customary law is II well established before this Board; the most recent decision is

I) 62 I. A. 180.

*"

GURD!T SINGH v. ANGREZ KAUR (Bhargava, I.) 793

Valshno Dltti v. Rameshri('), in which the judgment of the Board was delivered by Sir John Wallis, who states :

"It has been held by this Board that the riwaj-i-am is a public record prepared by a public officer in discharge of his duties and under Government rules; that it is clearly admissible in evidence to prove the facts entered thereon subject to rebuttal; and that the statements therein may be accepted even if unsupported by instances."

Reliance wa~ also placed upon the principle laid down by this Court in Mahant Salig Ram v. Musammat Maya Devi('), where this Court held :

"There is no doubt or dispute as to the value of the entries in the Riwaj-i-am. It is well-settled that though they are entitled to an initial presumption in favour of their correctness irrespective of the question whether or not the custom, as recorded, is in accord with the general custom, the quantum of evidence necessary to rebut that presumption will, however, vary with the facts and circumstances of each case." The Court also approved of the principle laid down by the Lahore High Court, indicating the circumstances in which Riwaj-i-am can be held to prove a custom, and in that connection said :

"It has been held in Qamar-ud-Din v. Mt. Fateh Bano( 8 ) that if the Riwaj-i-am, 011 which reliance is placed, is a reliable and trustworthy document, has been carefully prepared, does not contain within its four corners contradictory statements of custom, and in the opinion of the Settlement Officer is not a record of the wishes of the persons appearing before him as to what the custom should be, in those circumstances the Riwaj-i-am would be a presumptive piece of evidence in proof of the special custom set up therein. If, on the other hand. the Riwaj-i-am is not a document of the kind indicated above, then such a Riwaj-i-am would have no value at all as a presumptive piece of evidence."

It is in the light of these principles that we have to examine the value to be attached to the Riwai-i-am in Jul!undur District which has been relied upon by learned counsel for the appellant.

1'.he Riwaj-i-am of Jullundur District appears in the form of questmns and answers and an extract of it has been placed before

u~. Jn answe~ to the questions about the grounds on which a wife may be divorced. whether change of religion is a sufficier.t cause and whether a husband may divorce his wife without

(I) [1928] L. R. 55 l.A. 4ry7, 421.

(2) [1955] l. S. C.R. 1191.

(3) [1943] I. L. R. 26 Lah. 11n.

assigning any cause, the record states that among all Muhammadans except Rajputs-the Muhammadan Law is .followed; and a

husban<~ can divorce his wife without ass!_.\lning any reason.

Among the Muhammadan Rajputs and all Hindus-no divorce is recognised.

But an exception is me!l(ioned that the Kambohs of the Nakodar Tahsil also divorce their wives.

They are not required to assign any cause. In answer to the question as to what are the formalities which must be observed to constitute a revocable or an irrevocable divorce. is \vas stated that among Hindus there is no divorce except among Kam boils of the N akodar Tahsil who give 'talaq' by executing written deed.

Reliance is placed on the entry in the Riwaj-i-am that the custom of divorce among Hindus does not exist in the Jullundur District to urge that the High Court wrongly held that respondent No. 1 could be divorced by her first husband, Tarlok Singh, and could validly marry Sunder Singh by Chadar Andazi.

It, however, appears that the Riwaj-i-am of Jullundur District is

unreliable, and, according to the principle lai!l down by this Court in the case of Mahant, Salig Ram (1), such a Riwaj-i-am cannot be . held to prove that there was no custom of divorce among Hindus in this district. It does. not appear necessary to refer to the various decisions of the Lahore High Court on the question of unreliability of the Riwaj-i-am of Jullundur District.

It is enough to quote the latest decision of the East Punjab High Court in Mohammad Khalil and Another v. Mohammad Bakhsh(2). In that case, Bhandari, J., delivering the judgme11t of the Bench, reproduced the principle laid down by the Lahore High Court in Qamar-ud-Din & Others(•), which was later a11proved by this Court in the case of Mahant Salig Ram(1). and then proceedecl to hold :-

"Unfortuna'tely, the. Riwaj-i-am of the Jullundur District cannot be regarded as a reliable or trustworthy document, for, it has been held in a number of decided cases, such as Zakar Hussain v. Ghu/am Fatima('), Ghulam Mohammad v. lJal11(•), and Mt. Fatima v.

Shara! Din(6 ), that it has not been prepare4 with care and attention.

It seems to me, therefore, that it is impossible to accept the statements appearing therein at their face value."

Learned counsel for the appellant, however, urged before us that all these cases, in which the Riwaj-i-am of Jullundur District was held to be unreliable, related either to the custom about the right of succession to property of a daughter against collaterals,

(I} (1955) I. S. C. R.1191.

(2) I.LR. 26 Lah. 110.

(3) A. I. R. (36) 1949 E.Pb. 252.

(4) A. I. R. (18) 1931 Lah. 641.

(5) A. I. R. (14) 1927 Lah. 261.

(6) A. I. R. (33) 1946 Lah. 426.

or about the right to execute wills and gifts.

None of these cases related to the custom of divorce and at least, insofar as it records that there is no custom of divorce amongst Hindus in this dilltrict, the Riwaj-i-am should be accepted.

There are two reasons why we must reject this contention.

The first is that the Riwaj-i-am having been found unreliable in respect of two customs, the inference clearly follows that it was not drawn up carefully and correctly and,. consequently it would not be safe to rely even on other aspects of the Riwaj-i-am.

The second, and which is the more important reason, is that, in this particular case which is before us, the evidence tendered by both the parties shows that this Riwaj-i-am has incorrectly recorded the custom about the right of a Hindu husband of this district to divorce his wife.

Respondent No. 1, in order to prove her case as to the existence of the custom, has primarily relied on two pieces of evidence.

The first piece of evidence consisted of the Riwaj-i-am of the neighbouring districts where there was a clear record that the custom of divorce among Hindu Jats existed.

The existence of such a custom in the neighbouring district, which surround the Jullundur District all around, is certainly a relevant consideration for an inference that such a custom may be prevalent in the Jullundur District also, particularly in view of Rattigan's opinion that the custom is primarily tribal though also local. If the custom existed among the tribes of Hindu Jats in all the districts surrounding the district of Jullundur, it is probable that a similar custom exists in the district of Jullundur also. The other piece of evidence relied upon was the statements of a number of witnesses examined to prove that not only such a custom existed, but also that instances were available showing that there had been divorces in recent times.

Respondent No. 1 has examined nine witnesses in this behalf. The learned District Judge, in his report, did not place full reliance on the testimony of these witnesses, but their evidence has been accepted by the High Court. On behalf of the appellant also, a number of witnesses were examined to prove the non-existence of a custom of divorce. It, however, appears that the appellanfs own witnesses belied his case. Several of those witnesses clearly admitted that in this district a custom did exist permitting a husband to divorce his wife. Three of the witnesses, Bhag Singh, Karam Singh and Kartar Singh, who were examined on behalf of the appellant, in their examination-in-chief . itself, mentioned a custom under which a Zamindar could divorce his wife, though they added that, if the husband divorces his wife the wife cannot contract Chadar Andazi during the life-time of her husband.

Ujagar Singh, another witness, in his cross-examination clearly admitted that the husband can divorce his wife but a wife cannot divorce her husband.

He can divorce her both verbally as well as in writing.

Similarly, Niranjan Singh, another

witness, stated that a husband can divorce his wife, but a wife cannot divorce her husband.

Gurdit Singh, in his examinationin-chief, mentioned that a husband and wife could live separate from each other and, in such a case, the wife could not contract Chadar Andazi during the life-time of her first husband, and added that,. if she contracted Chadar Andazi, she could not inherit the property of her second husband.

In cross-examination, he stated that "there is no custom among us for divorcing the wives with mutual consent". Ali these witnesses examined on behalf of the appellant himself thus proved the existence of a custom under which a Hindu Jat in the district of Jullundur could divorce his wife, though all of them added a qualification that, in case a wife is divorced by a Hindu husband, she is nob entitled to a second marriage during the life-time of her first husband. They all admit that a custom permitting a Hindu J at to divorce his wife does actually exists in the district of Jullundur.

Some of them, at some stages of their evidence, tried to distinguish the right of a .husband by saying that he could desert his wife or that there

COl)ld be separation between the husband and the wife, but, at other stages, they admitted in clear words that the custom recognised included the right of the husband to divorce his wife. Thus. the record in the Riwaj-i-am that there is no such custom of divorce among the Hindus of the Jullundur District, is proved to be incorrect not only by the evidence of the witnesses examined on behalf of respondent No. 1, but even from the evidence given by the witnesses of the appellant.

In these circumstances, we hold that there is no force at all in the submission of the learned counsel that this Riwaj-i-am could be held to be reliable insofar as it records the absence of the custom; on the mere ground that in earlier cases the unreliability of this Riwaj-i-am was found in regard to record of customs relating to other matters.

There is no doubt that the witnesses examined on behalf of the ajlpellant, while admitting the existence of a custom permitting a Hindu husband to divorce his wife, have added a qualification that, if such a divorce is br(, ui; ht into effect by a husband the wife cannot legally contract a second marriage during his lifetime.

This limited custom sought to be proved by these witnesses does not find support from the Riwaj-i-am, nor is it in line with the principles laid down by Rattigan in his book on 'Customary Law'.

All that he stated in paragraph 74 of his book was that "until the former marriage is validly set aside, a woman cannot marry a second husband in the life-time of her first husband." We have already held that, even according to the witnesses examined by the appellant, a custom exists which permits a valid divorce by a husband of bis wife and that would dissolve the marriage. On the dissolution of such a marriage, there seems to be no reason why the divorced wife cannot marry a second

husband in the life-time of her first husband. It also appears to us incongruous to accept the proposition put forward on behalf of the appellant that, though a wife can be divorced by her husband, she is not at liberty to enter into a second marriage and thus secure for herself means f9r proper living. In these circumstances, the High Court comn !tee no error in accepting the evidence given by witnesses exam ned on behalf of respondent No. 1 who stated that the custom as prevailing in the Jullundur District not only permitted divorce, but also recognised the validity of second marriage of the divorced wife een in the life-time of her first husband. The Hth C.:oml was further right in relying on the instances proved by the evidence of these witnesses of respondent No. 1 showing that a number of divorced wives had actually contracted second marriages in the life-time of their husbands and these marriages were recognised as valid marriages by the members of their community.

The appeal, consequently, fails and is dismissed with costs.

D G.C.

Appeal dismissed.

GURDlT SINGH

April 25, 1967

K. N. WANCHOO, C.J.

V. BHARGAVA

G. K. MITTER, JJ

Jullundur District

L.R. 55 I.A. 407

[1955] 1 S.C.R. 1191

Bishan Narain

A. G. Ratnaparkhl

K. C. Nayyar

Mohan Behar/ Lal

Bhargava

Sunder Singh

Sunder Singh

4th November, 1950

Udham Kaur

27th October, 1951

Tarlok Singh

Angrez Kaur

Angrez Kaur

7th June, 1952

Gurdit Singh

12th December, 1954

Gurdit Singh

17th March, 1955

High Court of Punjab

Chadar Andazi

Tar!ok Singh

J ullundur

W. H. Rattigan

Rattigan

Punjab

India

Rattigon

Jullundur

Julhmdur

John Wallis

Lahore High Court

Jul!undur District

Mahant

Salig Ram

East Punjab High Court

Bhandari

Mahant Salig Ram(1

Bhag Singh

Karam Singh

Kartar Singh

Ujagar Singh

Niranjan Singh

Gurdit Singh


SUNDARAM & COMPANY (P,) LTD. MADURAI A

COMMISSIONER OF INCOMETAX, MADRAS

April 25, 1967

(J. C. SHAH AND V. RAMASWAMI, JJ.]

Income-tax Act, 1922 (11 of 1922), ss. 34(1) (b), 66-Finance Act, 1956, proviso 2, Paragraph D-Notlce to reopen assessment on the ground of "excessive relief' but reduction of rebale on super tax on the ground "assessed at too low a rate" -Duty to enquire whether proceedings validly initlated-"Rate" in s. 34( 1) if means fraction of total income-Reference-.:..Duty to decide all aspects of the question of law

referred even though not specifically argued before the Tribunal.

The Income-tax Officer jssued a notice to the assessee far reopening the assessment for the year 1956-57 on the ground that "excessive relief" within the meaning of s. 34(1) (b) of the Income-tax Act, 1922 had been granted to the assessee. Rejecting the contention of the assessee that the income had not been the subject of "excessive relief" and therefore the proceedinJ!!' were unauthorised and that the amount deemed to have been distributed under orders under s. 23A could not be taken into consideration for the purpose of reducing the rebate of super-tax admissible under proviso 2 to paragraph D of the Finance Act, 1956, the Incometax Officer ordered that the rebate of super-tax granted be reduced. The Appellate As.istant Commissioner held that only a part of the amount of dividend deemed to have been declared by the assessee could be taken into consideration in withdrawing the rebate of super-tax.

On appeal by the Commissioner, the Tribunal held that the case of the asses..ee did -not fall within any of the situations contemplated by s. 34(1)(b), but confirmed the order of the Appellant Assistant Commissioner.

On the question "whether the setting aside of the assessment under s. 34(1)(bJ was correct in law" the High Court was of the opinion that the claim of the department to initiate proceedings under s. 34(1) (b) on the grotmd that excessive relief was allowed could not be sustained, but held that the proceedings under the section could be initiated on the ground that the income profits and gains of the assessee were "assessed at too low a rate". The High Court did not record. its decision on the plea of the assessec that in a proceeding to re-assess income initiated on a notice that income had been subject to "excessive relief", the Income-tax Officer was incompetent to re-assess income on the footing that income was assessed at too low a rate. In appeal to this Court the assessee contended that (i) the High Court was in error in enlarging the scope of the enquiry and entering upon a question never mooted before the Tribunal an<l (ii) by. the use of the expression "assessed at too Jow a rate" it was intended that the jurisdiction of the Income-tax Officer would be attracted only when the wrong fraction had been applied in the determination of super-tax 3nd not when the computation of tax depended on other factors.

HELD : (i) The case must be remanded to the High Court to determine whether the proceedings were validly initiated on the notice issued

aainst the a.sessee. [807B]

The scope of the enquiry arising out -0f lhe arguments before the Tribunal was not whether the assessment was proper, but, whether the Income-tax Officer was in the circumstances of the case competent to initiate the proceeding under s. 34(1) (b) of the Income-tax Act for bringing to tax the excessive rebate granted to the assessee. The question referred to the High Court had to be reframed accordingly.

The 4 uestion, as framed by the Tribunal, though defective, included that enquiry. The High Court was,. therefore, bound to decide all aspects of that question and it was wrong in making the assumption that because a pa:rticular aspect of the question of law raised was not ecifi cally argued before the Tribunal the High Court could not deal with it. [8020-E; 806F-H; 807A-Bl

P. S. Subramanyan, Income-tax. Officer, Companies Circle I (1) and Anr. v. Simplex Mills Ltd, 48 l.T.R. 182 (S.C.), referred to.

(ii) The High Court was right in holding that the rebate of tax and the reduction of such rebate were essentially matters of measure or standards of -rate. The expression rate in s. 34( I) does not mean a fraction of total income; it is often used in the sense of standard or measurer Provided the tax is computable by the application of a prescribed stan dard or measure, though not di'rectly related to taxable income, it may D be said that the tax is computed at a certain rate. The aim and object •of the Finance Act, 1956, is to prescribe the standard or measure of income-tax or super-tax, and an assessee escaping some of its provisions and failing to pay the full measure of tax is "assessed at too low a rate''.

[806B-C]

C1v1L APPELLATE JuR1so1cnoN : Civil Appeal No. 2453 of 1966.

Appeal from the judgment and order dated August 9 1963 of the Madras High Court in T.C. No. 152 of 1961. '

R. Venkatram and R. Ganapathy Iyer, for the appellant.

B. Sen and R. N. Sachthey, for the respondent.

The Judgment of the Court was delivered by

Shah, J. In Sundaram & Company (Private) Ltd.-hereinafter called. "he Compa1.1y''-the public are not substantially interested within the i; iiean11!-g of s. 23A of the Indian Income-tax Act, 1922. In deahng with the assessment of income of the Company for the assessment years 1946-47 to 1951-52 the Income-tax Officer, Central Circle, Madras, passed orders 'under

~· 23A of the Income-tax Act, 1922, and direct.ed that the total mcome of the Company as detennined in the years of assessment less tax payable be deemed to have been distributed amongst the shareholders of. the Company as on the relevant dates of the General ody Meetings.

The following table sets out the relevant details :

.soo

Assessment year.

1946-47 1947-48 1948-49 1949-50 I95u-51 1951-52

Amount of dividend deemed to have ben declared.

46,563 43,959 47,829 97,875 92,591 25,899

3,54,716

[1967] 3 S.C.R

Date of order passed under s. 23A deeming dividend to have been declared.

March 18, 1952 -do- -do- -do- -do- March 30, 1955

-On July 7, 1955 the Company in a general° ineeting resolved tha\ the amount of Rs. 3,54,716/- which was under the orders of the Income-tax Officer deemed to have been distributed as dividend amongst the shareholders pursuant to orders under s. 23A of the. Income-tax Act, be distributed as dividend to the shareholders, and in pursuance of that resolution proportionate part of the dividend due to each shareholder was credited to his account.

The Income-tax Officer completed the assessment of • the Company for the year 1956-57 and determined Rs. 5,69,396/· as its total income. The Income-tax Officer computed the supertax payable by the Company under the Finance Act, 1956, at the rate of six annas and nine pies in the rupee of the total income and granted a rebate at the rate of four annas in the rupee in accordance with the provisions of Cl. D proviso ( i) ( b) & (ii) of the Schedule to that Act. Sometime thereafter the Income tax Officer being of the opinion that excessive relief had been granted to the Company within the meaning of s. 34 ( 1 )(b) of the Income-tax Act, issued a notice on January :n, 1959 for reopening the assessment for the year 1956-57. The Company filed its return, of income in compliance with the notice and contended that the proceedings commencd by the Income-tax Officer were unauthorised, because the income of the Company had not been the subject of "excessive relief" within the meaning of s. 34(1)(b), and that actual distribution of dividends already deemed to have been distributed in accordance with the orders passed under s. 23A cannot be taken into consideration for the purpose of reducing the rebate of .super-tax admissible under the proviso 2 to Paragraph D of the Finance Act, 19S6. The Income-tax Officer rejected the contentions and on; lered that the rebate of super-tax to the extent of Rs. 80,978/ be withdrawn.

In appeal to the Appellate Assistant Commissioner it was held -that in the circumstances of the case, assessment could be reopened under s. 34(1)(b) on the ground that the income had been made the subject of "excessive relief", but only Rs. 77,600/-

and not the whole amount of Rs. 3,54,716/- which was deemed to -be distributed under orders under s. 23A could be taken into

consideration as dividend distributed by the Company during the previous year relevant to the assessment year 1956-57.

The Commissioner of Income-tax appealed to the Income-tax Appellate Tribunal.

He contended that in. the circumstance~ .of the case the amount of Rs. 3,54,716/- was liable to be taken mto consideration for the purpose of Withdrawing the rebat.e of supertax admissible under the Finance Act, 1956.

The Tribunal held that the case of the Company "did not fall within any of the situations contemplated by s. 34( 1 )(b)" and the Company's income had not been the subject of excessive relief as th, e rebate of super -tax originally granted was out of 'the tax otherwise, computable and not from the assessed income.

But the Tnbunal continued the order of the Appellate Assistant Commissioner directing that Rs. 77,600/- be taken into account in withdrawing rebate Of super-tax.

The Tribunal then referred three questions to the High Court . of Judicature at Madras ·

"1. Whether the Tribunal was justified in disposing of 'the appeal as it did ?

2. Whether the Tribunal was right in law in entertaining the assessee's. contention relating to the applicability of s. 34(1) (b) under Rule 27 of the Appellate

Tribunal Rules ?

3. Whether the setting aside of the assessment under s. 34( 1) (b) was correct in law?"

The High Court decided in favour of the Company on the first two questions.

In considering the third question the High Court observed that the plea of the Company that re-assessment proceedings under s. 34 ( 1 )(b). on the ground of "excessive relief cannot be initiated, must be accepted.

The Court then proceeded to consider whether allowance of rebate to which the assessee was not entitled, did not amount to assessing income at too low a rate, and observed that "there can be no question that the rebate of tax rate and a reduction of such rebate is essentially the arithmetic ot rate.

Reading however the provisions of the Finance Act, I 9,'6, as a :whole in the pespective that its chief aim and object is to prescnbe the rate of mcome-tax and super-tax, it seems to us that an assessee escaping some of its provisions and failing to py the full measure of tax is assessed at too low a rate". The High urt accordingly held that proceedings under s. 34 (1 )(b) c&uld l:!e initiated when rebate in the payment of super-tax was granted to the assessee without reducing it in the circumstances set out in the second proviso to Part n of the First Schedule Paragraph Din the Finance Act, 1956, on the ground that the income, profits and gains Of the Company were assessed to tax

at too low a rate.

The High Court answered the third question in favour of the Commissioner. Against the order passed by the High Court on the third question, thi; appeal is preferred by the Company. The Commissioner of Income-tax has not challenged the correctness of the decisions on Questions 1 & 2.

We are unable to agree with counsel for the assessee that the first question raised an enquiry not only as to the correctness of the procedure followed by the Tribunal,. bub also to the right of the Income-tax Officer to initiate a proceeding under s. 34(1) (b) to bring to tax rebate which was not reduced.

In . terms, the first question relates to a matter of procedure : an.d in the answer recorded to that question it is not implied that the Income-tax Officer had no power to initiate the proceeding under s. 34 (1) (b).

The third question raised by the Tribunal was defective. The true scope of the enquiry arising out of the argument before the Tribunal was not whether the order of assessment was proper, but whether the proceeding for re-assessment was properly initiated under s. 34(1)(b). That is how the High Court also understood the question.

We therefore re-frame the question as follows:

"Whether the Income-tax Officer was in the circumstances of the case competent to initiate the proceeding under s. 34 (1 )(b) of the Indian Income-true Act for bringing to tax the excessive rebate granted to the assessee ?"

Section 34( 1) (b) of the Indian Income-tax Act, as it stood at the relevant time, provided :

"If-

( a)

(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act or that excessive loss or depreciation has been computed,

he may in cases falling under clause (a) a~ any e and in cases falling under clause (b) at any time w1thm four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer

thereof, a notice containing all or any of the requirements which may be included in a notice under subsection (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the B notice were a notice issued under that sub-section :

" It was held by the High Court df Bombay in P. S. Subramanyan, Income-tax Officer, Companies Circle I ( 1) Bombay and Another v. Simplex Mills Ltd.(') that "the relief referred to in s. 34(1)(b) of the Income-tax Act, 1922, can only be such relief as is granted to the assessee by reason of hi~ income, profits and gains being chargeable to tax. It is, therefore, referable to the various kinds of relief afforded to the assessee under the Act in respect of his income, profits and gains, such, for instance, as arc granted under ss. 15A, 15C, 49A, 49B, 49C, 490 and 60 of the

Act." This Court affirmed the judgment of the Bombay High Court in P. S .. Subramanyan, Income-tax Officer, Companies Circle I ( 1) and Another v. Simplex Mills Ltd.('). In Simplex Mills'(2 ) case advance tax paid by the asssee for the assessment year 1952-53 was found refundable and the Income-tax Officer allowed interest on the tax paid under s. 1 SA ( 5) of the Incometax Act, 1922, as it then stood.

The Act was amended by the Income-tax (Amendment) Act, 1953, with retrospective effect from April 1, 1952, and it was found that interest allowed to the Company was excessive.

The Income-tax Officer then initiated a proceeding under s. 34(1 )(b) to reassess the tax on the ground that income for that year had been under-assessed and had been made the subject of excessive relief. The Bombay High Court rejected the claim of the Income-tax Officer, and this Court held that the original assessment could not be reopened under s. 3'4, because it could not be said either that there was under-assessment of the income, or that excessive relief was granted.

In the light of that judgment, the High Court opined that the claim of the Department to initiate a proceeding under s. 34 (1 ) (b) on the ground that excessive relief was allowed could not be sustained.

But the High Court held that a proceediitg for reassessment could be initiated on the ground that income had been assessed at too low a rate.

Counsel for the Company contends that the High Court was in error in proceeding to enlarge the scope of the enquiry and in entering upon a question which was never mooted before the Tribunal.

Section 2 of the Finance Act, 1956, provides insofar as it is material, that :

(I) 48 l.T.R. 980.

(2) 48 1.T.R. 182 (S. C.)

"Subject to the provisions of sub-sections (2), (3), ( 4) and ( 5), for the year beginning on the 1st day of April, 19S6,- ( a) income-tax shall be charged at the rates specified in Part I of the First Schedule . . • • •

(b) rates of super-tax shall, for the purposes of section SS of the Indian Income-tax Act, 1922 (XI of 1922) . . . , be those specified in Part II of the First Schedule ............... "

Part II of the First Schedule specifies the rates of super-tax.

C Clause D provides :

"In the case of every companyon the whole of total income Rate

Provided that-

(i)

Six annas and nine pies in the rupee.

(ii) a rebate at the rate of four annas per rupee of the total income shall be allowed in the case of E any company which satisfies condition (a), but not condition (b) of the preceding clause; and

(iii)

Provided further that-

(i) the amount of the rebate under clause (i) or

clause (ii), as the case may be, of the preceding proviso shall be reduced by the sum, if any, equal to the amount or the aggregate of the amounts, as the case may be, computed as here under:-

(a) on the amount representing the face value of any bonus shares or the amount of any bonus issued to its share-holders during the previous year with a view to increasing the paid-up capital, except to the extent to which such bonus shares or bonus have been issued out of premiums received in cash on the issue of its shares; and

at the rate of two annas per rupee.

(b)

in addition, in the case of a Company referred to in clause (ii) of the preceding proviso which has distributed to its shareholders during the previous year dividends in excess of six per cent of its paid-up capital, not being dividends payable at a fixed rateon that part of the said dividends which exceeds 6 per cent. but does not exceed 10 per cent. of the paid-up capital;

on that part of the said dividends which exceeds 10 per cent of the paid-up capital;

80$

.. at the rate of two annas per rupee.

.. at the rate of three annas per rupee.

Paragraph-Dread withs. 2(b) of the Finance Act, 1956 fixes the rate of super-tax payable by Companies for the purpose of s. 55 of the Indian Income-tax Act.

From the super-tax declared payable, in certain conditions rebate is granted, and that rebate is also related to the total income of the assessee. By the second proviso, part of the rebate may be withdrawn, if the Company has in the previous year issued bonus shares or bonus or has distributed dividend in excess of six per cent. of its paid-up capital.

The super-tax and the rebate admissible are both related to the total income, whereas the reduction of rebate is related to the face value of the bonus shares or of the value of bonus or the amount of dividends distributed. Super-tax payable by a. Company is therefore determined as a fraction of the total income, reduced by a percentage of the value of the bonus shares or bonus or dividends distributed.

Counsel for the Company contends that the expression "too low a rate" used in s. 34 (I )(b) must, having regard to the context in which the expression is used and in the scheme of the Indian Income-tax Act, be regarded merely as the fraction which determines. ta~ .liability of the assessee, but when in computing super-tax hab1hty, the Income-tax Officer has after detenninin"

the amount by applying the fraction to reduce the resultant by reference to a factor unrelated to total income it cannot be said that. tax is charged at a certain rate.

Couns; I says that the Legislature has not used the expression "assessed at too low an amount" but the expression used is "assessed at too low a rate" : therefore says counsel for the Company the jurisdiction of the T ncome-tax Officer will be attracted only when the wrong fraction

has been applied in the determination of super-tax, and not when the computation of tax depends on other factors.

We are unable to accept this contention. '.!'he assumption that the expression "rate" has been used in s. 34(1) as meaning a fraction of total income is, in our judgment, not warranted. By the use of the expression "rate" in the context in which it occurs, undoubtedly a relation between the taxable income and the tax charged is intended, but the relation need not be of the nature of proportion or fraction.

The expression "rate" is often used in the sense of a standard or measure. Provided the tax is computable by the application of a prescribed standard, or measure, though not direc!ly related to taxable income, it may be called tax computed at a certain rate. We agree with the High Court that the rebate of tax and the reduction of such rebate are essen- . tially matters of measure or standards of rate.

The chief aim and object of the Finance Act, 1956, is to prescnbe the standard or 'measure of income-tax and super-tax and it seems that an assessee escaping some of its provisions, and failing to pay the full measure of tax is assessed at too low a rate.

But the view we have taken is not sufficient to dispose of the appeal. It may be reca!Jed that the question arising out of the order of the Tribunal was about the competence of the Income-tax Officer•to initiate proceedings under s. 34(1) (b). It is true that it was not argued before the Tribunal on behalf of the Company that on the notice served by the Income-tax Officer proceedings for reassessment could only be initiated 'on the ground that income had been. the subject of excessive relief, and not on any other ground.

But the Company did contend that the initiation of the reassessment proceeding was invalid, and the plea, that the initiation was invalid because the notice was defective was only an aspect of the plea raised by the Company. The question as originally raised by the Tn'bunal, and as reframed by us, includes that enquiry.

Counsel for the Company did argue before the High Court that in a proceeding to reassess income initiated on a notice that

incomt; has been subject to excessive relief, the Income-tax Officer was incompetent to reassess income on the footing that income was assessed at too low a rate, but the High Court did not record their decision on that plea : they merely suggested that it will be open to the Company. to raise the question when the matter is again taken up for consideration. If however the question arising out of the order of the Tribunal was, as correctly pointed out by the High Court, one about the "validity of initiation of proceeding under s. 34(1)(b)", the High Court was bound to decide all aspects of that question raised before them. before recording an answer : if they did not, the Tribunal would

be powerless to enter upon an enquiry of any other aspect of the question after answer to the question is recorded by the High Court. We are unable to agree with the assumption made by the High Court that because a particular aspect of the question of law raised was not specifically argued before the Tribunal, the High Court cannot deal with that aspect.

We are, in the state of the record before us, unable to record an answer to the question, and the case must be remanded to the High Court to determine whether the proceedings were validly initiated on the notice issued against the Company. The notice which was served upon the Company is not included in the paper book prepared for use in this Court. The notice must of necessity be part of the record of the Income-true Officer, even if it be not on the record of the Tribunal. It will be open to the High Court, in determining the contention raised by the Company, to call for a supplementary statement of the case relating to the form and contents of the notice and the validity thereof from the Tribunal. After receiving the supplementary statement, if any, the High Court will proceed to dispose of the third question in the light of the reasons set out by us in this judgment.

Costs of this appeal will be costs in the High Court.

Y.P.

Appeal remanded.

L9SupCl/67-8

SUNDARAM & COMPANY (P,) LTD. MADURAI

A

COMMISSIONER OF INCOMETAX, MADRAS

April 25, 1967

C. SHAH

V. RAMASWAMI, JJ.

Income-tax Act, 1922

ss. 34(1)

Finance Act, 1956

s. 34( 1)

s. 34(1)

Income-tax Act, 1922

s. 23A

Finance Act, 1956

s. 34(1)(b)

s. 34(1)

Income-tax Act

P. S. Subramanyan

s. 34( I)

Finance Act, 1956

R. Venkatram

R. Ganapathy Iyer

B. Sen

R. N. Sachthey

Shah

s. 23A

Indian Income-tax Act, 1922

Income-tax Act, 1922

s. 23A

s. 23A

Income-tax Act

s. 34

Income-tax Act

January :n, 1959

s. 34(1)(b)

s. 23A

Paragraph D of the Finance Act

s. 34(1)(b)

s. 23A

Finance Act, 1956

s. 34( 1 )(b)

High Court . of Judicature at Madras

s. 34(1)

s. 34( 1)

s. 34

s. 34

s. 34(1)

s. 34

s. 34(1)(b)

s. 34

Section 34( 1)

Income-tax Act

section 22

High Court df Bombay

P. S. Subramanyan

s. 34(1)(b)

Income-tax Act, 1922

ss. 15A, 15C, 49A, 49B, 49C, 490 and 60

Bombay High Court

P. S .. Subramanyan

Simplex Mills'(2 )

s. 1

Incometax Act, 1922

April 1, 1952

s. 34(1 )(b)

s. 3

s. 34

Section 2

Finance Act, 1956

First Schedule

SS of the Indian Income-tax Act, 1922

First Schedule

First Schedule

Finance Act, 1956

s. 55

Income-tax Act

s. 34

Income-tax Act

s. 34(1)

s. 34(1)

s. 34(1)(b)


STATE OF MAHARASHTRA

•. v.

JAMNABHAI PURSHOTTAM ASSAR

April 25, 1967

[M, HIDAYATULLAH AND C. A. VAIDIALINGAM, JJ.)

Factories Act, 1948, ss. 2(n), 85(1) (ii) and 93-0wner of premises giving on rent factory business and machinery to five firms of ex-workers-Having no interest in or control over affairs of the firms-Whether "occupier''-Therefore whether liable to obtain ficences under Rule 3A, Bombay Factory Rules, 1950.

The respondent had established a factory in Bombay which was closed in April 1957. In July 1957, the ex-workers of the factory combined together to form five pannerships and by agreements of leave and licence, the respondent gave in their use the factory premises and the machinery installed there. He himself did not join any of the five partnerships. The licensees were to pay a fixed sum for the use of the premises and the machines.

By a notification on September 29, 1960, the State. Government specified the premises where the five partnerships were working as a fac tory under s. 85 of the Factories Act, 1948, thus applying the provision of the Act to the premi,, es. On November 10, 1959 five separate com plaints were filed against the respondent, whereby it was alleged that he was the owner and therefore an occupier under the Act of the Faetory where the workmen were working under an agreement with him within the meaning of s. 85(1) (ii) and that he had failed to take out five licences under Rule 3A of the Bombay Factory Rule, 1950. The respon dent contended that the Act did not apply to him as he had no control over the five firms and he was not in a position to enforce the provisions of the Factories Act. The trial Court held that the respondent had become an occupier by reason of the notification of September 29, 1960 so that he was bound to obtain licences under Rule 3A, and he was fined for his failure to do so. The High Court however, allowed an appeal against th~ order of the trial Court.

On appeal to this Court,

HELD : The respondent was not an 'occupier' of a factory within the meaning the definition in s. 2(n) of the Act as he did not have ultimate control over the affairs of the five firms running the factory and the High Court had rightly held that s. 85(1) (ii) did not cover the present case. [81 ID-EJ G

The condition precedent for a notification under s. 85(1) (ii) is that the persons working in a factory (a) work with the permission of or (b) under an agreement with the owner.

The section does not 'con: temoJate a case where the owner hands over the factory on rent and the v.:orkers work .without his permiss.ion and not tmder an agreement with him.

The High Court had considered the agreements between the respondet and the workers and co!"e to the conclusion that the pa:rtnerships H were mdependent of the control of the owner and the workers could not be said to be working with his permission or under agreement with him they had formed themselves into partnerships. taken the factory premises 0~

MAHARASHTRA V. JAM'SABHAI (Hidayatullah, I.) 809

A leave and licence and started their own business.

In these circumstances, the condition> for the notification under s. 85(l)(ii) did not e'ist. [811F-

812AJ

The respondent was not liable as an owner under s. 93(3l(ii) of tho Act as the machinery and plant had b:en specifically entrusted to the custody or 11c of the five partnerships.

(812F]

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 234 of 1964.

Appeal by special leave from the judgment and order dated November 8, 1963 of the Bombay High Court in Criminal Appeal No. 1135 of 1962.

D. R. Prem, S. P. Nayyar for R. N. Sachthey, for the appellant.

P. A. Mehta .. V. I. Taraporcvala, P. C. Bhartari and 0. C.

Mathur, for the respondent.

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

The State of Maharashtra appeals against the .iudgment and order of the High Court of Bombay dated November 8, 1963 by which the High Court set aside the conviction of one Purshottamdas Ranchhoddas (since deceased and

reprented by his widow) and the fine imposed on him, under s. 92 of the Factories Act, 1948 read with r. 3-A of the Bombay Factories Rules, 1950.

Only one question arises in this appeal and it is the true construction of s. 85 of the Factories Act on which different views have been expressed by the High Court and the Court below.

Purshottamdas Ranchhoddas was a lessee from the Port Trust Bombay of an open plot of land.

He established a factory called the Sunderdas Saw Mills.

He closed down the factory on April 1.

1957. In July 1957, the ex-workers of the factory combined together to form five partnerships and by agreements of leave and licence, Purshottamdas Ranchhoddas gave in their use the premises of the factory and the machinery installed there. He himself did not join any of the five partnerships. The licensees were to pay a fixed sum for the use of the premises and the machines.

It appears that some of the workers who were not taken in as partners complained that the closure of the factory was a sham.

No action was taken on this complaint and there is no finding in this case that the closure of the factory. was unreal.

In the year 1959, a prosecution was started under s. 92 of the Factories Act on the charge that the original licensee of the factory had not given notice under s. 7 ( 1) of the start of the factory and had not renewed the licence under r. 4 of the Bombay Factories Rules, 1950.

This ended in an acquittal since Government had not declared these premises as a factory under s. 85 of the

Act, as. it could, if the workers (although not employed by the owner) were working with the permission of or under an agreement with the owner. After such notification the premises are deemed to be a factory and the owner of the premises is deemed to be an occupier.

On September 29, 1960, a notification was issued under s. 85.

That notification specified the places where the five partnerships were working as factory.

On November 10, 1959, five separate complaints were filed for failure to take out five licences. The charge was that Purshottamdas Ranchhoddas was the owner of the factory and hence an occupier and the workmen were working under an agreement with him. The owner defended himself by stating that he had no control over the five firms and he could not enforce the provisions of the Factories Act.

This defence was not accepted.

Purshottamdas Ranchhoddas was held to have become an occupier by reason of the notification and, therefore, to be compelled to take out a licence under r. 3-A of the Bombay Factories Rules.

He was fined Rs. 201/- for the first offence and Rs. 25 /- for the subsequent offences. Purushottamdas Ranchhoddas appealed but died during the pendency of the appeal.

As the sentence was one of fine the appeal was continued by his legal representative urtder s. 431 of the Codo of Criminal Procedure.

The Bombay High Court set aside the conviction and fine and now the present appeal has been filed by the State of Maharashtra on special leave granted by this Court.

Under r. 3 of the Bombay Factories Rules, 1950 an application has tQ be made for the approval of a factory. Under r. 3A . no occupier of a factory shall use any premises as a factory except

under a licence. obtained orrenewed in accordance with the provisions of the rules.

Section 85 grants power to the State Go\>ernment to apply the Factories Act to certain premises which would otherwise not come within its purview. The section reads :

S. 85 : "PtJwer to apply the Act to certain nremises ;-( 1) The State Government may, by notification in the Official Gazette, declare that all or any of the provisions of this Act shall apply to any place wherein a manufacturing process is carried on with or without the aid of power or is so ordinarily carried on notwithstanding that- ( i) the number of persons employed therein is less than ten, if working with the aid of power and less than twenty if working without the aid of power, or

(ii) the persons working therein are not employed by the owner thereof but are working with the permission of, or under agreement with, such owner:

MAHARASHTRA v. JAMNABHAl (Hidayatullah, J.) 811

Provided that the manufacturing process is not being carried on by the owner only with the aid of his family.

( 2) After a place is so declared, it shall be deemed to be a factory for the purposes of this Act, and the owner shall be deemed to be the occupier, and any person working therein, a worker.

Explanatio11.-For the purposes of this section, "owner" shall include a lessee or mortgagee with possession of the premises." The present matter is said to be governed by s. 85 ( 1 )(ii). It is contended that in as much as a notification had issued, the owner of the pemises (the present lessee of the premises namely Purshottamdas Ranchhoddas) became an occupier and thus liable for breach of the Factories Act and the Bombay Factories Rules since the premises were not licensed.

The High Court, differing from the Presidency Magistrate, Mazgaon, held that s. 85 (i)(ii) did not cover the present case.

We think the High Court was right. .

Under s. 2 ( n) of the Act an 'occupier' of a factory means the person who has the ultimate control over the affairs of the factory.

If one goes by this definition, Purshottamdas Ranchhoddas was not an occupier if he had not the ultimate control over the affairs of the five partnership firms running the factory.

But here the Factories Act gives special powers to the State Government under s. 85 quoted above.

The notification of Government makes applicable all or any of the provisions of the Act to a place of manufacture notwithstanding that the persons working therein are not employed by the owner of the place wherein the manufacture is carried on provided the workers work with the permission of or under agreement with the owner.

The condition precedent for the notification is that the persons working therein (a) work with permission of or (b) under agreement with the owner.

The section does not contemplate a case where the owner hands over the factory on rent and the workers work without his permission and not under agreement with him.

In other words, if there is no connection between the owner and the workmen in the sense that they work without his permission and without an agreement with him, there would be no question of the liability of the owner as an occupier. In the present case the agreements show that the premises were given over to partnership firms in return for a periodic payment. The agreements show that the licensees of the premises bound themselves to carry on the manufacturing process on their own and Purshottamdas Ranchhoddas had no control over them.

The High Court has considered the clauses and come to the conclusion that the partnerships were independent

of the control of the owner and the workers cannot be said to be A. working with his pennission or under agreement with him. They had formed themselves into partnerships, taken on leave and licence.the factory premises and started their own business. In these circumstances, the conditions for the notification hardly existed. ·

An attempt was made to prove from s. 93 that the definition Jl; of an occupier cannot apply to circumstances arising under s. 85 because s. 93 makes special provision for the responsibility of the ,. owner.

A glance at. the provisions of s. 93 however discloses the opposite.

It is not necessary to consider all the clauses, some of which may bind the owner but a clause like 93(3) (ii) clearly shows that the owner is liable only when he has control. The c clause reads :

" ( 3) Where in any premises, indep.endent or self. contained, floors or flats are leased to different occupiers for use as separate factories, the owner of the premises shall be liable as if he were the occupier or manager of a factory, of any contravention of the D provisions of this Act I.respect of-

( i) ......... .

(ii) fencing of machinery and plant belonging to the owner and not specifically entrusted to the custody or use of an occupier; ..

fhe difference between the owner of the premises and the occupier is at once visible.

The liability of the occupier is patent but the liability of owner arises only when the machinery and plant is not specifically entrusted to the custody or use of an occupier.

In the present case, for example, the machinery and plant has been so specifically entrusted to the custody or use of the various partnerships and the owner of the premises cannot be made liable.

As we said above the finding is not that the owner had indulg ed in a sham transaction. If the transactions are genuine and the five partnerships have taken over the factory to work independently, no question of the liability of the owner under s. 85(1)(ii) arises. It is possible that some obligations are still on the owner under s. 93 but that is another matter. Purshottamdas Ranchhoddas could not be made liable for not taking out the licence.

The matter has been correctly approached by the High Court und we see no reason to interfere.

The appeal fails and will be dismissed.

R.K.P.S.

Appeal dismissed.

STATE OF MAHARASHTRA

JAMNABHAI PURSHOTTAM ASSAR

April 25, 1967

HIDAYATULLAH

Factories Act, 1948

ss. 2(n), 85(1)

Bombay Factory Rules, 1950

September 29, 1960

s. 85

Factories Act, 1948

November 10, 1959

s. 85(1)

Bombay Factory Rule, 1950

Factories Act

s. 2(n)

s. 85(1)

s. 85(1)

MAHARASHTRA V. JAM'SABHAI

s. 85(l)(ii)

s. 93(3l(ii)

D. R. Prem

S. P. Nayyar

R. N. Sachthey

P. A. Mehta

V. I. Taraporcvala

P. C. Bhartari

0. C.

Mathur

Hidayatullah

State of Maharashtra

High Court of Bombay

Purshottamdas Ranchhoddas

s. 92

Factories Act, 1948

Bombay Factories Rules, 1950

s. 85

Factories Act

Purshottamdas Ranchhoddas

Sunderdas Saw Mills

April 1.

s. 92

Factories Act

s. 7

Bombay Factories Rules, 1950

s. 85

s. 85

Factories Act

Purushottamdas Ranchhoddas

s. 431

Bombay High Court

Maharashtra

Bombay Factories Rules, 1950

Section 85

Factories Act

S. 85

s. 85

Factories Act

Presidency Magistrate

s. 85

s. 2

here the Factories Act

s. 85

s. 93

s. 85

s. 93

s. 93

s. 85(1)(ii)

s. 93


COMMISSIONER Of<' INCOME-1AX, BOMBAY CITY-1,

BOMBAY

NATIONAL STORAGE PVT. LTD., BOMBAY

April 26, 1967

(J. C. SHAH, S. M. SIKRI AND V. RAMASWAM), JJ.J

/ndiGn Income-tax Act (11 of 1922), ss. 9 & 10-Assessce's premises hired out--Not an ordinary lease but , for purposes of its 01t.•n business- Assessment under which head.

The assessee-Company was promoted because the Government of India promulgated the Cinematograph Rules, 1948, according to which distributars of films were required to store films in godowns constructed in conformity with the specifications laid down in the Rules. The assessee constructed vaults of special design with special doors and electrical fit tings as required and entered into agreements with several distributors who became vault-holders paying certain amounts for the use of the vaults. The key to each vault was retained by the vault-holder, but the kev to the entrance which permitted access to the vaults was kept in the exCiusive possession of the assessee. The assessee rendered valuable service to the vault-holders by installing a fire alarm, by opening Railway Booking Offices in the premises and by employing a regular staff, and incurred the necessary expenditure. The vaults were used for the specific purpose of storing films and other activities connected with the examination, cleaning. waxing and rewinding of the films.

On the question whether the assessee was to be asssed to incometax under s. 9 or s. 10 of the Income-tax Act, 1922,

HELD : The assessee \Vas carrying on business, that is, carrying on an adventure or concern in the nature of trade in the premises, and was 1herefore liable to be assessed under s. 10 and not under s. 9 of the Act.

The Act does not contemplate assessment of property under s. 9 in respect of the rental income and assessment under s. 10 in respect of the extra incon1e derived from the carrying on of an adventure o't concern in the nature of trade if the assessee is in occupation of the premises for the purpose of the business. The scheme of the Act is that the various heads of income. profits and gains enumerated in s. 6 are mutually eiclusive, each head being specific to cover the item arisin~ from a particular source, and whether an income falls under one head 'or another has to be decided according to common notions of practical men. In the present case, the agreements ar.e 1icences and not leases, the assessee being in occupation of a1l the premises for purposes of its own concern, namely, the hiring out of specially built vaults and providing services to the vault-holders, who were the licensees. The subject which was hired out was a complex one and the return received by the assessee Was not income derived from the exercise' of property rights, but was derived from c•rry'ng on an adventure or concern in the nature of trade. [81Se;

1'20C-F] '

The Governors of the Rotunda Hospital, Dublin v. Co1nan,

~, T.C. (H.L.) 517, applied.

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1048- 1051 of 1966.

Appeals from the judgment and order dated July 2, 3, 1962 A . of the Bombay High Court in Income-tax Reference No. 45 of

1960.

T. V. Viswanatha Iyer, A. N. Kirpal and R. N. Sachthey, for the appellant (in all the appeals).

S. T. Desai', F. N. Kaka, S. K. Dho/akia and 0. C. Mathur for B the respondent (in all the appeals).

The Judgment of the Court was delivered by Sikri, J. These appeals by certificate granted by the Bombay High Court under s. 66A(2) of the Indian Income-tax Act, 1922 -hereinafter referred to as the Act-are directed against its judgment in Income-tax Reference No. 45 of 1960 by which• it answered the first question of law referred to it by the Income-tax Appellate Tribunal in favour of the National Storage Ltd., Bombay, hereinafter referred to as the assessee. The following questions were referred to the High Court by the Appellate Tribunal at the instance of the Commissioner of Income-tax, Bombay City-I, Bombay :

"1. Whether on the facts and circumstances of the

ase, the vaults were used for the purposes of the business and income arising therefrom is assessable under Section 10 ?

2. If the answer to question I is in the negative, whether the income is assessable under Section . 9 or

Section 12 ?"

The relevant facts and circumstances are as follows :-The assessee was promoted because the Government of India promulgated the Cinematograph Film Rules, 1948, hereinafter referred to as the Film Rules according to. which the distributors were required to store films only in godowns constructed strictly in conformity with the specifications laid down in the Film Rules and in a place to be approved by the Chief Inspector of Explosives, Government of India. . A place at Mahim was approved and the assessee, after purchasing a plot of land there constructed 1 '3 units thereon, 12 units meant for the Members of the Indian Motion Picture Distributors' Association, who had floated the Company, and one unit for Foreign Film Distributors in Bombay, who were not members of the Association.

Each unit was divided into four vaults, having a ground floor for rewinding of films and an upper floor for storage of films.

These units were constructed in conformity with the requirements of and the specifications laid down in the Film Rules.

The walls and ceilings were of a particular width and automatic fire proof door was installed in one wall which would close immediately on the outbreak of

fire in the vault.

Other walls had no opening or window and one ventilation was provided in the ceiling.

The units were built

a~ a distance of 50 feet from one another.

The assessee entered into agreements with the film distributors. There were two types of agreements, one was classified as 'A' Licence and the other as 'B' Licence. The agreements were more or less in identical terms with minor variations here and there. One agreement has been annexed to the statement of the case as annexure 'A' and some of the relevant clauses are as under :

Clause 2 provides that the licensee shall not use the vault for any other purpose except for storing cinema films and shall use the ground floor (examination room) only for the purpose of examination,_ repairs, cleaning, waxing and rewinding of the films.

According to clause 9, the licensee could not transfer, assign, sublet, underlet or grant any licence in respect of or part with the possession of the vault or any part thereof without the written permission of the assessee.

According to clause 12, the assessee was entitled to revoke, determine and put an end to the licence by giving the licensee at any time seventy days previous notice in writing.

Further, the licensee was not entitled to terminate the licence for a period of five years except with the consent in writing of the assessee.

According to clause 13, the assessee was entitled to terminate the licence by giving two days' notice in writing to the licensee and allocate to the licensee alternative space in another vault of the said property. Clause 16 makes it clear that nothing contained in the agreement shall be construed to create any right other than the revocable permission granted by the assessee in favour of the licensee of the licensed vault nor as conferring any right to quiet enjoyment or other right except so far as the assessee has power to grant the same and the assessee may of its mere motion and absolutely retain possession of the licensed vault with all additions, fittings and fixtures thereto.

Apart from these conditions, the key to each vault was retained by the vault-holder, but the key to the entrance which permitted access to the vaults was kept in the exclusive possession of the assessee. . It is further stated in the statement of the case that the assessee also rendered other services to the vault-holders. A fire ala~ . w~ installed and an ar.mual amount was paid to the

mum~1palrty to"'.ards fire srvrces. The assessee opened in the premises two Railway Booking Offices free of charge for the convenience of the members for despatch and receipt of film parrels.

A canteen was also run in the premises for the benefit oi the

".ault-holde~ and a teleph ne had been provided for them.

'A' licensees paid Rs. 40/- per month while 'B' licensees paid Rs. 140/- per month. The Foreign Film Distributors were originally charged Rs. 300/ - per month but later on the charges were reduced to Rs. 100/-.

For the assessment years 1950-51, 1951-52 and 1952-53, assessments were made on the assessee under s. 10 of the Act, but for the assessment years 1953-54 and 1954-55 the Income-tax Officer took the view that the assessee should be assessed under s. 9 and not unde~ s. 10.

His. ew was confirmed on appeal by the Appellate Assistant Comnuss1oner, who also rejected the assessee's alternative submission that the income if not taxed under s. 10 should be taxed unde, r s. 12.

On further appeal to the Tribunal, there was a difference of opinion between the Judicial Member, who was th~ President, and the Accountant Member.

There being a difference of opinion, the following question was referred to a third Member :-

"Whether on the facts and circumstances of the case, the vaults were used for the purposes of the business and income arising therefrom is assessable under Section 10 or Section 9."

The third Member, agreeing with the President, held that the assessee was carryinl( on business in these premises and the business was of similar type as carried on by a bank in letting safe deposit vaults, and income was taxable under s. I 0. As already stated, the Appellate Tribunal, at the instance of the Commissioner referred the two questions which we have already set out above.

The High Court answered the first question in favour of the assessee. The High Court after reviewing several cases deduced seven propositions. The sixth and seventh propositions were these:

"6. In cases where the income received is not from the bare letting of the tenement or from tile letting accompanied by incidental services or facilities, but the subject hired out is a complex one and the income obtained is not so much because of the bare let.ting of the tenement but because of the facilities and services rendered, the operations involved in such letting of the property may be of the nature of business or trading operations and the income derived may be income not from exercise of property rights properly so-called so as to fall under Section 9 but income from operations of a trading nature falling under Section 10 of the Act.

7. In cases where the letting is only incidentdl and subservient to the main business of the assessee, the income derived from the letting will not be the income from property fallinl( under Section 9 and the exception to Section 9 may also come into operation in such cases. 0

Then the High Court after examining the facts and circumstances concluded :

"The income, which is obtained by the company in the present case, required considerable expenditure to be incurred by the company, which is ordinarily not incurred by a landlord who turns his house property to profitable account and which is also not taken into account in the deductions permissible under Section 9 In our opinion, therefore, the income which the com pany obtained from the licence-holders in the present case, could not be regarded as income from properly falling under Section 9 of the Indian Income-tax Act.

The activity of the company in earning that income was a business activity and the source of the income, which the company obtained from the Jicence-holdersr was not the ownership of the house property but its. business."

The Commissioner having obtained certificate of fitness from the High Court, the appeal is now before us.

The learned counsel for the appellant, Mr. T. V. Viswanatha Iyer, has put the following propositions before us :-

(1) The assessee is the owner of property and has to be assessed as such under s. 9 of the Act. Any incidental services rendered as owner do not alter the character of the relationship between the assessee and the users of the vaults, and there is no complexity as far as the services are concerned;

(2) In any event, assuming for a moment that certain ser-· vices are rendered, they are independent of and in addition to the ownership of the property;

( 3) The assessee is not carrying on any trade or business by way of letting or otherwise;

( 4) The assessee is not in occupation of these vaults for the purpose of is usiess, and if any room is occupied by its staff, that occupation 1s different from the occupation by the users;

( 5) There is no. pant or machinery which has been let t<> the users and the bmldm~ has been let as something inseparable from the plant and machmery, if any, which exists; and

. ( 6) Evei:iif the assessee is carrying on business insofar as it is an owner !t has to be taxed under s. 9; additional income has. to be dealt with under s. I 0.

Mr: S. T. e_sai, the learned counsel for the assessee formulated his propos1t10n. as follows :-Distinction has to b" drnwn between mcome derived by exercise of property rights properlv so call~ on the one hand, and on the other hand income derived from licensees who are allowed the use of any property, specially

constructed safe deposit vaults for securely storing hazardous or inflammable filrns, or similar goods, or safe deposit lockers ior securely keeping valuables and for which purpose special amenities are given; in the latter class of 'cases the object is a complex one and not merely letting of property and the activities amow1t to carrying on trade or business, property being the subjectmatter of business.

He further says that propositions sixth and seventh as formulated by the High Court are sound.

The answer to the question depends upon the interpretation of ss. 9 and 10 of the Act, and the ascertainment of the activities of the assessee.

It is not disputed that the scheme of the Indian Income-tax Act, 1922, is that the various heads of income, profits and gains enwnerated in section 6 are mutually exclusive, each head being specific to cover the item arising from a particular source.

Further "whether an income falls under one head or another has to be decided according to the common notions of practical men for the Act does not provide any guidance in the matter". [vide Sarkar J., in Nalinikant Amba/al Mody v.

Narayan Row(')].

The relevant portion of s. 9 reads as follows :-

"9. ( 1) The ta, x shall be payable by an assessee under the head 'Income from property' in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner, other than such portions of such property as he may occupy for the purposes of any business, profession or vocation carried on by hinl the profits of which are assessable to tax, subject to the following allowances, namely ...... " Section 10(1) reads :

"10. ( 1) The tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profit or gains of any business, profession or vocation carried on by hinJ.

The word "business" is defined in 2 ( 4) to include "any trade. commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture."

The question which really arises in the present case is whether the assessee is carrying on any business i.e., is it carrying on any adventure or concern in the nature of trade, commerce or manufacture ? If it is carrying on any adventure or concern in the nature of trade, then s. 9 specifically excludes the income derived !from property from computation m; ider s. 9, if the property is

(I) 61 l.T.R. 428 at p. 432.

occupied for the purpose of adventure or concern. Similar questions have arisen under the English Income-tax Act.

Though the scheme of the English Income-tax Act is different, some of the cases throw light on the question as to "what is adventure or concern in the nature of trade." In the Governors of the Rotunda Hospital, Dublin v. Coman('). the Governors of a maternity hospital established for charitable purposes were owners of a building which comprised rooms adapted for public entertainments, and which was connected with the hospital buildings proper by an internal passage.

The hospital derived a substantial income from letting the rooms for public entertainments, concerts, etc., for periods varying from one night to six months and applied the income to the general maintenance of the hospital.

The rooms were let upon terms which included the provision of seating, heating, and attendance, but an additional charge was made for gas and electricity consumed.

The House of Lords held that the profits derived from the letting of the rooms were assessable to Income Tax under Schedule D, either under Case I, as the profits of a trade or business, or under Case VI of that Schedule.

The learned counsel for the assessee strongly relies on this case.

It seems to us that the reasoning of the Law Lords in their speeches does assist the assessee.

The Lord Chancellor observed at p. 582:

"Profits are undoubtedly received in the present case which are applied to charitable purposes, but they are profits derived not merely from the letting of the tenement but from its being let properly equipped for entertaimnents, with seats, lighting, heating and attendance.

The subject which is hired out is a complex one.

The mere tenement as it stands, without furniture, etc., would be almost useless for entertainments. The business of the Governors in respect of those entertainments is to have the hall properly fitted and prepared for being hired out for such uses. The profits fall under Schedule D, a.nd o such profits the allowance in question has no apphcatton, as they cannot be properly described as ren!s or profits of lands, tenements, hereditaments or heritages.

They are the proceeds of a concern in the nature of. a tade wich is carried on by the Governors, and. consists m finding tenants and having the rooms so eqmpped as to be suitable for letting."

In our vi7w the High Court was right in holding that the assessee was carymg on an adventure or concern in the nature of trade.

The. assessee not only constructed vaults of special design and special doors and electric fittings, but it also rendered

(I) 17 T.C 517.

•Other services to the vault-holders.

It installed fire alarm and -was incurring expenditure for the maintenance of fire alarm by paying charges to te Municiplity. Two Railway Booking Offices were opened m the premises for the despatch and receipt Of film parcels.

This, it appears to us, is a valuable service. It .also maintained a regular staff consisting of a Secretary, a peon. a watchman and a sweeper, and apart from that it paid for the .entire staff of the Indian Motion Picture Distributors' Association an amount of Rs. 800/- per month for services rendered to the .licensees.

These vaults could only be used for the specific purpose .of storing of films and other activities connected with the examination, repairs, cleaning, waxing and rewinding of the films.

But the learned counsel for the Commissioner says that s. 9 .applies because the assessee cannot be said to be in occupation of the premises for the purpose of any concern of its own.

He .says that the licensees were in possession of the vaults as lessees and not merely as licensees.

But, in our opinion, the agreement> are licences and not leases.

The assessee kept the key of the entrance which permitted access to the vaults in its own exclusi'"c possession.

The assessee was thus in occupation of all the p1 emises for the purpose of its own concern, the concern being the hiring out of specially built vaults and providing special services to the licensees.

As observed by the Lord Chancellor in the Governors of the Rotunda Hospital, Dublin v. Coman('), "lhc

subject which is hired out is a complex one" and the return re- •ceived by the assessee is not the income derived from the exercise -0f property rights only but is derived from carrying on adventure or concern in the nature of trade.

There is no force in the sixth submission of the learned counsel for the appellant because the Indian Income-tax Act does not contemplate assessment of property under s. 9 in respect of the rental income and assessment under s. 10 in respect of the extra income derived from the carrying on of an adventure or concern in the nature of trade if the assessee is in occupation of the premises for the purposes of the business.

The scheme of the English Act is different and special statutory provisions exist in the English Income-tax Act (see Rule 5, Schedule D, English Income talC Act, 1918).

A number of other cases have been cited before us but it j, not necessary to deal with them because the answer to the question whether an activity is an adventure or concern in the na'tur~ of trade or business must depend upon the facts of each case.

Accordingly the appeals fail and are dismissed with costs.

-V.P.S Appeals dismissed.

(I) 7 T.C:. 517.

COMMISSIONER Of INCOME-TAX, BOMBAY CITY-1, BOMBAY

NATIONAL STORAGE PVT. LTD., BOMBAY

April 26, 1967

C. SHAH

S. M. SIKRI

Gn Income-tax Act

ss. 9 & 10

s. 9

s. 10

Income-tax Act, 1922

s. 10

s. 9

s. 9

s. 10

s. 6

T. V. Viswanatha Iyer

A. N. Kirpal

R. N. Sachthey

S. T. Desai

F. N. Kaka

S. K. Dho

. C. Mathur

Sikri

s. 66A(2)

Indian Income-tax Act, 1922

National Storage Ltd., Bombay

Section 10

Section 12

Mahim

Picture Distributors' Association

Bombay

Clause 2

clause 9

clause 12

clause 13

Clause 16

s. 10

s. 9

s. 10

s. 10

s. 12

Section 10

Section 9

Section 9

Section 10

Section 9

Section 9

Section 9

Section 9

Income-tax Act

T. V. Viswanatha Iyer

s. 9

s. 9

S. T. e_sai

ss. 9 and 10

section 6

vide Sarkar

s. 9

Section 10(1)

s. 9

s. 9

Schedule D

Schedule D

s. 9

Income-tax Act

s. 9

s. 10

Income-tax Act

Schedule D

English Income talC Act, 1918