SHAHDARA (DELHI) SAHARANPUR LIGHT RAILWAY

CO. LTD.

THE MUNICIPAL BOARD, SAHARANPUR

March 21, 1967

[M. HIDAYATULLAH, S. M. SIKRI AND C. A. VAID!ALINGAM, JJ.]

Indian Tramways Act, 1886 (11 of 1886) and Indian Railways Act, 1890 (I of 1890)-N"r!'ow-gauge railway between Shchdara and Saharanpur----Originally registered as a Tramway under the 1886 Act-Railways Act made applicable to it in 1901-Company whether a 'railway' or a 'tramway' for the purpose of exemption from terminal tax levied by Saharanpur municipality under item 2 of Schedule B to the rules undtr

the U.P. Municipalities Act I of 1918.

The appellant company ran a narrow-gauge railway between Shahdara and Saharanpur. As it operated partly within the Municipal area of Saharanpur the Municipal Board of that place sought to subject railway stores and materials brought within the municial area to terminal tax as provided by the Rules framed under the Untied Provinces Municipalities Act, 1916, as amended by Act I of 1918. The exemption from terminal tax given to railway stores and materials by item 2 to Schedule B of the said rules was denied to the appellant company on the ground that it was a 'tramway' and not a 'railway'. The company had been originally registered in 1905 under the Indian Tramways Act, 1886, (Act 11 of 1886); in 1907 the whole of the Indian Railways Act, 1890, (Act I of 1890) with the exception of s. 135 bad been extended to the company by the Governor-General-in-Council. The Company's claim that it was a 'railway' entitled to the exemption under item 2 of Schedule B aforesaid, was rejected by the Municipal authorities as well as in appeal, by the Additional District Magistrate. The company therefore filed a writ petition before the High Court which was rejected.

By special leave appeal was filed to this Court.

It was cntended on behalf of the appellant that : (i) in the absence

f "'!Y spcc1~ definition contained in the provisions granting the exemption 1n quesllon, the expression 'railway' occurring in item 2 of Schedule B of the ;!'erm}nal Tax Rules must bear the commonly understood meaning of a cr;1ag~ of passenger and goods, on iron rails"; (ii) by virtue of the defiml!on m s. 311(2) of the Gcvermnent of India Act 1935 and the provts1on corresponding to it in the Constitution viz Art 366(20) the ppellan!'.~ system though registered under the Traway; ~~· wa\ a ra1lwa~, (111) the mere fact that s. 135 of the Railways Act . not h een applied to the appellant's system was not a deci, ive factor against t e appella; it a. assumed by the High Court.

It was not in dispute that appellants system had all the features of a railway.

HELJ? : Neit~r the Municipal Act nor the Terminal Tax Rules give i? secial defimt1on of the expression 'railway' and there is nothing in t e said Ac! or Rules to indicate that the word 'railway' in item 2 of H Schedule B " usd. only to refer to a 'railway' registered under the Rail- as Ac~ or t~ hm1t the generality of the expre'lsion 'railway' in any way. n er t osc c1rcumstances, if the appe1lant was a 'railway• in fact_ a~ commnly .understood-there did not appear to be any controversy on the pomt-11 would be a railway notwithstanding the fact that it was re- L5Sup. C.1./67---3

gistered as a 'tramway' under the Tramways Act. The legislature itself had applied the 11rovisions of the Railway Act to the appellant, and the appellant also satisfied the definition of a 'railway' under the Government of India Act, 1935 and the Constitution. [254B-D]

If the appellant was a 'railway' otherwise, the mere fact that the provisions of s. 135 of the Railways Act had not been applied to it, was of no consequence.

[251H]

Blackpool and Fleetwood Tramroad Company

v. Thornton Urban Council, L.R. [1907] 1 K.B.D. 568, Thornton Urban Council v. Blackpool and Fleetwood Tramroad Company, L.R. [1909] AC. 264 and Tort£nham

Urban Council v. Metropolitan Electric Tramways, Ltd.,

L.R. [1913] A.C. 702, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1323 of 1966.

Appeal by special leave from the judgment and order dated September 10, 1965 of the Allahabad High Court in Civil Miscellaneous Writ No. 3567 of 1965.

Niren De, Addi. Solicitor-General and N. H. Hingoranl, for D the appellant.

R. K. Garg, D. K. Agarwala and M. V. Goswami, for respondent No. 1.

The Judgment of the Court was delivered by Vaidialingam, 1. In this appeal, by special leave, the short question, that arises for consideration, is as to whether the appellant railway is entitled to claim exemption from payment of terminal tax, under item 2, of Schedule B, of the rules framed by the Municipal Board cif Saharanpur. The appellant will be so entitled, if it is held to be 'a railway', as contended, on behalf of the appellant.

The High Court of Allahabad, in its order and judgment, under appeal, has held that the appellant is not a railway, but only a tramway and, as such, not eligible for exemption, from the tax, in question. The short facts, leading to this appeal, may now be briefly set out. The appellant is a limited liability company; and it runs a railway, between Shahdara, in Delhi, and Saharanpur, in the State of Uttar Pradesh-a distance of about 95 miles or 148.865 kilo meters. The appellant company also operates within the municipal area of Saharanpur. The company was, originally, registered as a tramway, under the Indian Tramways Act, 1886 (Act XI of 1886) (hereinafter called the Tramways Act), on November 20, 1905.

By Notification, No. 5752, dated July 5, 1-907, the Governor General in Council extended to the appellant company, the whole of the Indian Railways Act, 1890 (Act I of

1890) (hereinafter called the Railways Act), excepting the provisions of Section 135.

The Municipal Board of Saharanpur, th.e.first respondent~ in, imposes a terminal tax, under the provmons of s. 128(1)(x111) of the United Provinces Municipalities Act, 1916, as amended by Act I of 1918. Under the said Act, the first respondent has prohibited the importation of goods, within the local limits of the Saharanpur Municipality, by rail, until the tax leviable thereon, or in respect thereof, has been paid, in accordance with the provisions of the Act and the Rules. The Board has also framed rules for the assessment and collection of Terminal Tax, as authorized by the Government Notification No. 856/XI-D.T. 3, dated May l,

1919. The rules have been amended, as per another notification, No. 5965/XI-D.T. 3, dated September 21, 1939.

Item 2, of Schedule B, of. these rules, provides for a list of articles being exempted from payment of Terminal Tax. The said item is as follows :

"Railway stores and materials, which are required for use on Railways, whether in construction, maintaining or working the same and which are not removed outside the Railway land boundaries but r.ot stores imported into Municipal limits for purchase and consumption by Railway employees nor stores with which Railway Cooperative Stores are stocked for sale to Member."

It is the claim of the appellant that, till 1961, the first respondent has •ever imposed any terminal tax, on 'railway stores and materials' required for use on the railway of the appellant company, for the purposes mentioned in item 2 of Schedule B. But, for the first time, in January 1962, according to the appellant, the first respondent i!llposcd tax on such stores and attempted to make the appellant liable.

The a_Ppellnt comany protested against this levy, on the

groud tat, 1t bemg rilway, was entitled to the exemption provided m respect of ra!lway stores and materials which are required for use on railway'.

But, the first respondent, by its order,

dted October 11, 1962, over-ruled the appellant's objections in this !:gard. .~ appeal~ taken by the appellant company, to the Add1, tt?n~ .District Magistrate, Saharanpur, under s. 160 of the Muruc1paht1es Act, read with the relevant Rules did not meet with success, as the said Magistrate rejected the appeal by his order dated May 25, 1965. '

The appellant pany filed Civil Miscellaneous Writ No. 3567 H of 1 ?65, m the High Court of Allahabad, challenging the levy of termmal tax an~ claimed exemption, under item 2, of Schedule B, referred to earlier.

The learned Judges of the Allahabad High Court, by their judgment, dated September 10, 1965, dismissed

the writ petition.

They were of the view that the appellant company was not 'a railway', but 'a tramway' constructed under the Tramways Act.

In this connection, the learned Judges adverted to the Railways Act, which defines both the terms 'tramway' and 'railway'. It is their view that when a tramway and a railway, are both separately defined in an Act, a tramway cannot also be a railway.

The learned Judges, of the High Court, then referred to the fact that so far as the appellant company was concerned, the Central Government had not applied s. 135 of the Railways Act, though all the other provisions of that Act had been applied.

They further held that a mere application of the Railways Act, in whole or in part, to a tramway, will not convert the tramway into a railway and that, in order to be a railway, it has to be opened, in accordance with the provisions contained in Chapter IV, of the Railways Act. So, they concluded that, inasmuch as the appellant railway was not opened, in accordance with the provisions of the Railways Act, it had been, from its inception, and it continued to be, not a railway, but only a tramway. On this line of reasoning, the High Court further held that in the rules framed by the Municipal Board, the expression 'railway' must be intended to refer only to 'railways' coming under the Railways Act, and could not include a 'tramway', like the appellant, opened under the Tramways Act. In consequence, the claim of the appellant, for exemption, was, according to the High Court, rightly rejected by the authorities.

The result was the dismissal of. the appellant's writ petition, by the High Court.

We shall now refer to the main features of the appellant company. The appellant railway is worked by steam, or other mechanical power, and is not wholly within a Municipal area. The railway line comprises narrow gauge track of 2' 6" gauge, and consists of main line, transportation sidings and commercial sidings.

The line passes through four districts viz. Saharanpur, Muzaffarnagar, Meerut and Delhi, within the provinces of Uttar Pradesh and Delhi. The system has about 155 level crossings, comprising of Special Class, A-class, B-class and C-class. Some of the level crossings are provided with signalling and interlocking arrangements and the system takes in 406 bridges, and 26 railway stations, in all.

The bridges and culverts are maintained, in accordance with the instructions contained in 'Way and Works Manual' of the Indian Railways, and the railway stations are fitted with Morse speakers and instruments, for working trains, as per general rules applicable to all railways. There is annual inspection of the railway line, by the Additional Commissioner of Railways Safety, appointed by the Government, to inspect Indian Railways. There are arrangements for through booking of goods and passengers. From

SHAHDARA RLY. co. v. MUNICIPAL BOARD (Vazdialingam, J.) 247

what is stated above, it will be seen that the appellant company is a 'railway', as commonly understood, and described in ordinary parlance. ·

The Tramways Act was an Act passed to facilitate the con, struction and to regulate the working of Tramways. Section 3(5} defines 'tramway' as follows :-

" 'tramway' means a tramway having one, two or more rails, and includes-

(a) any part of a tramway, or any siding, turnout, connection, line or track belonging to a tramway;

(b) any electrical equipment of a tramway; and

(c) any electric supply-line transmitting power from a generating station or sub-station to a tramway or from a generating station to a sub-station from which power is transmitted to a tramway." The expression 'order', under s. 3(6), means an order authorizing the construction of a tramway under the Act, and includes a further order substituted for, or amending, extending or varying, that order. There are various other provisions in this Act relating to the construction and maintenance of tramways, orders authorizing the construction of tramways, and other incidental matters.

The Railways Act was an Act to consolidate, amend and add .to the law relating to Railways in India. Section 3 ( 1) defines 'tramway' as meaning a tramway constructed under the Tramways Act, or any special Act relating to tramways.

Section 3(4) defines 'railways' and is as follows :

" 'railway' means a railway, or any portion of a railway, for the public carriage of passengers, animals or goods, and includes-

(a) all land within the fences or other bountlarymars indicating the limits of the land appurtenant to a railway; ·

(b) all lines of rails, sidings or branches worked over for the purposes of, or in connection with, a railway;

(c) all stations, offices, warehouses wharves workshops, manufactorics, fixed plant and' machinery and

othe~ wors constructed for the purposes of, or in connection with, a railway; and

~ d) all ferries, ships, boats and rafts which are used on mland waters for the purposes of the traffic of a rail- ay and. ~Ion~ to or are hired or worked by the authority adm1mstermg the railway."

This Act also contains various provisions relating to the opening of railways, inspection of railways, construction and maintenance of works, working of railways and i; everal other incidental matters.

Section 135, occurring in Chapter X, containing supplemental provisions, relates to taxation of railways by local authorities. That section reads : . "135. Notwithstanding anything to the contrary in any enactment, or in any agreement or award based on any enactment, the following rules shall regulate the levy of taxes in respect of railways and from railway administrations in aid of the funds of local authorities, namely :-

(1) A railway administration shall not be liable to pay any tax in aid of the funds of any local authority unless the Central Government has, by notification in the Official Gazette, declared the railway administration to be liable to pay the tax. r. (2), While a notification of the Central Governinent under clause (1) of this section is in force, the railway administration shall be liable to pay to the local authority either the tax mentioned in the notification or, in lieu thereof, such sum, .if any, as an officer appointed in this behalf by the Central Government may, having regard to all the circumstances of the case, from time to time determine to be fair and reasonable.

(3) The Central Government may at any time revoke or vary a notification under clause (1) of this section.

(4) Nothing in this section is to be construed as debarring any railway administration from entering into a contract with any local authority for the supply of water or light, or for the scavenging of railway premises, or for any other service which the local authority may be rendering or be prepared to render within any part of the local area under its control.

(5) 'Local authority' in this section means a local authority as defined in the General Clauses Act, 1887, and includes any authority legally entitled to or entrusted with the control or management of any fund fot the maintenance of watchmen or for the conservancy of a river." • The point to be noted, in this provision, is that unless a notification has been issued by the Central Government, under sub-s. (1) of s. 135, declaring a railway administration to be liable to pay a tax, a railway administration shall not be liable to pay any tax in

aid of the funds of any local authority. Section 146, giving power to the Government to extend the Railways Act to certain tramways, is as follows :

"146. (1) This Act or any portion thereof may be extended by notification in the Official Gaz.ette :-

(a) to any tramway which is wholly within a municipal area or which is declared not to be a railway under clause (20) of article 366 of the Constitution, by the State Government; and

(b) to any other tramway, by the Central Government.

(2) This section does not apply to any tramway not worked by steam or other mechanical power."

We have already pointed out that all the provisions of the Railways Act, except s. 135, have been extended to the appellant company.

The next enactment to be referred to is the Indian Railway Companies Act, 1895 (Act X of 1895), which provided for the payment, by railway companies, registered under the Indian Companies Act, 1882, of interest out of capital during construction.

Section 2(1) defines 'railway' as meaning a railway as defined in s. 3, cl. ( 4) of the Railways Act. Section 3 provided for a railway company paying interest on its paid-up share capital, out of capital, for the period, and subject to the conditions and restrictions contained in that section.

There are other consequential provisions, in this Act.

The Indian Tramways Act, 1902 (Act IV of 1902) was one to apply the provisions of the Indian Railway Companies Act, 1895, to certain tramway companies. The preamble to this Act IV of 1902, stated that it was expedient to apply the provisions of the Indian Railway Companies Act, 1895, to companies formed for the construction of tramways 'not differing in structure and working from light railways'.

This preamble will clearly show that, even as early as 1902, the Legislature considered that though certain systems were called 'tramways', substantially they did not differ, in structure and working, from light railways.

The expression 'railway' is defined, in s. 311 (2) of the Government of India Act, 1935, as follows :-

" 'railway' includes a tramway not wholly within a municipal area."

It is to be noted that if a system, though a tramway, is wholly not within a municipal area, that system will be a 'railway'. Entry

58, of List I (Federal List) of the Seventh Schedule to the 1935 Act, was: . ·~Terminal taxes on goods or passengers carried by railway or air; taxes on railway fares and freights." . It is, again, .to be noted, that under this Entry, in respect of a

trway, which is not wholly within a municipal area and which will, therefore, be a 'railway', under s. 311 (2), the levy of terminal tax on goods or passengers carried by such a system, will be within the competence of the Federal Legislature.

Under Art. 366(20) of the Constitution, the expression 'rail way' is dealt with, as follows :

" 'railway' does not include-

(a) a tramway wholly within a municipal area, or

(b) any other line of communication wholly situate in one State and declared by Parliament by law not to be a railway." It may be noted here that the appellant's system does not come within the exclusions mentioned in els. (a) or (b) of this definition.

Entry 89 of List I (Union List), of the Seventh Schedule to the Constitution, is as follows :

"Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freights." It may be noted that the competent legislative body to levy terminal taxes on goods or passengers, carried by the appellant's system, which will be a 'railway', under Art. 366(20), is the Parliament.

The only other Act to be referred to is the Railways (Local Authorities' Taxation) Act, 1941(ActXXVof1941), which was an Act to regulate the extent to which railway -property shall be liable to taxation imposed by an authority.

Section 3(1) of that Act provided that a railway administration shall be liable to pay any tax in aid of the funds of any local authority, if the Central Government, by notification in the Official Gazette, declared it to be so liable. Section 4 provided for the Central Government, by notification in the Official Gazette, revoking or varying any notification issued under s. 135(1) of the Railways Act.

The learned Additional Solicitor-General, appearing for the appellant, pointed out that the expression 'railway' had not been defined in the United Provinces Municipalities Act, or in the Terminal Tax .Rules. In the absence of any special definition contained in the provisions, granting the exemption, in question, the expression 'railway', occurring in item 2, of Schedule B, of the Terminal Tax Rules, must bear the commonly understood meaning of 'a carriage of passenger and goods, on iron rails'. By virtue of the definition, ins. 311(2) of the 1935 Act, and the provision,

11'

corresponding to it, in the Constitution, viz., Art. 366(20), the appellant's system, though registered under the Tramways Act, was a railway. The mere fact that s. 135, of the Railways Act, had not been applied to the appellant's system, is not a decisive factor against the appellant, as had been assumed by the High Court. In view of the various features of the appellant's system, and pointed out by us earlier, it is argued that the appellant's system is a 'railway', both in law and in fact. It satisfies all the ingredients of a railway and, if that is so, the appellants are entitled to the exemption provided for, under item 2 of Schedule B, of the Terminal Tax Rules.

On the other hand, Mr. Garg, learned counsel appearing for the respondent Board, pressed before us for acceptance the various reasons, given by the High Court, for holding that the appellant is not entitled to claim the exemption. In particular, counsel pointed out that there were two different enactments, one dealing with 'tramways' and the other with 'railways', being the Tramways Act and the Railways Act, respectively. Therefore, there were two different systems, under two different names, namely 'tramways' a11d 'railways', which was clearly known to the authorities concerned at the time when the Terminal Tax Rules were framed, and so when the expression 'railway' was used in the exemption clause, it must have been the intention of the framers of the Rules to bring, within its ambit, only the 'railways' constructed under the Railways Act. The appellant's system, though called a 'railway' and though it might have all the features of a railway, it is pointed out, nevertheless, that inasmuch as it has been constructed under a different enactment, viz., the Tramways Act, it cannot be treated as a 'railway' for the purposes of the exemption. Counsel also stressed that s. 135 of the Railways Act had not been applied te> the appellant.

. We are not impressed with the approach made by the learned Judges of the High Court, for negativing the claim for exemption, made by the appellant. It must be borne in mind that the expression 'railway' has not been defined either in the concerned Municipalities Act, or the Rules; if such is the case, the definition must hold the field.

Going by the definition of the expression 'railway', co111ained in s. 311 (2) of the Government of India Act, 1935, and the corresponding provision in Art. 366(20) of the Constitution, the appellant's system is a 'railway'.

All the provisions of the Railways Act have been extended to the appellant, excepting s. 135. In our opinion, if the appellant is a 'ra!lway', otherwise, the mere fact that the provisions of s. 135, of the Railways Act, have not been applied, is of no consequence. We have already referred to the fact, which is not in dispute, that the appellant's railway passes through four districts in U.P. and

252 SUPREME COURT llEPOllTS

[1967] 3 S.C.R.

Delhi,. and that it has got all the features of a.railway, as ordinarily understood.

In this connection, we may refer to certain English decisions, where the claim, made on behalf of a system, for being taxed at a concessional rate, had come up for consideration.

In Blackpool and Fleetwood Tramroad Company v. Thornton Urban Council('), the Court of Appeal had to consider as to how far the Blackpool & Fleetwood Tramroad Company, the appellant before them, was entitled to the assessment, at a lower

rate under s. 2ll(l)(b), of the Public Health Act, 1875 (38 & 39 Viet. c. 55). The material portion of that section was :

"the occupier of any land . . . used only as a canal . . . or as a railway, constructed under the powers of any Act of Parliament, for public conveyance, shall be assessed in respect of the same in the proportion of one-fourth. part only of the net annual value thereof." The question was as to whether the appellant, in that case, was a 'railway', to whom the said provision would apply.

The appellant company had constructed and maintained a tramroad connecting two systems of tramways, under the local Acts of 1896 and 1898. Various provisions of the Railways Clauses Consolidation Act, 1845, had been applied to the tramroad.

The tramroad, in that case, was on r11ils laid on sleepers, fenced off from adjoining land, excepting at the level crossings of roads.

The Divisional Court had rejected the claim of the appellant; but the Court of Appeal held that the tramroad was land 'used only as a railway constructed under the power of an Act of Parliament for public conveyance', within the meaning of s. 211(1)(b) of the Public Health Act, 1875, and that the company was, consequent ly, entitled to be assessed, in respect of the said 'railway', at onefourth of its net annual value. The appellants contended that the tramroad was and could only be worked as a railway and was, in fact and in law, used as a railway, and, in consequence, they urged that the tramroad, maintained by them, is 'land' used only as a railway. The Court of Appeal noted that the rails were raised ai;:td laid on sleepers, just as a railway is laid, and that was the main distinction between the appellant's system, and a tramway, which ran along public streets and in grooved rails.

No doubt, it was pointed out for the Urban Council, that the appellant company had been incorporated under the Tramways Act and the very fact that certain provisioru of the bilway Clauses Consolidation Act were applied to the appellant's system showed that the appellant was not a railway.

The Court of Appeal held that it was impossible to distinguish the piece of tramroad, owned by the

(I) L. R. (1907] I K.B.ri. S68.

SHAHDARA llLY. co. v. MUNICIPAL BOARD (Vazdialingam, /.) 253

appellants, from a railway and that the exemption provided for in the Public Health Act applied to the trarnroad of the appellants as it would, to any ordinary railroad passing through parts where it was not deriving the full benefit from the district rates in those parts. The Court of Appeal also rejected the contention of the

Urban Council that the tramroad, owned by the appellants could be treated as a 'railway' only for particular purposes, and not for the purpose of claiming the exemption under the Public Health Act; because, according to the Court of Appe~. a reading of s. 211 ( 1) (b) of the Public Health Act, showed that it applied to land used as a railway, i.e., constructed as a railway in fact.

This decision was taken up in further appeal, before the House of Lords, whose decision is reported as Thornton Urban Council v. Blackpool and Fleetwood Tramroad Compan, y('), and the decision of the Court of Appeal was confirmed. In the course of the judgment, after referring to s. 211 of the Public Health Act, Lord Macnaghten observed, at p. 267 :

"Now it cannot be denied that the rails on which the tramcars run, with the embankment or foundation on which they rest, and everything that supports them, do form a road or way, and that that road or way was constructed under parliamentary powers for public conveyance. Is it 'a railway' ? There is nothing in the Public Health Act, 1875, or in the earlier Acts, in which the same provision is found, to confine the word 'railway' as used in those Acts to a particular kind of railway, or to limit the generality of the expression in any way."

His Lordship, further observed at p. 268 :

"It seems to me that if it is a railway in fact, not differing from other railways in any material particular, it is nonetheless a railways because the promoters in their special Act chose to call it a 'tramroad' -a very convenient term to use for the title of their Act and the name under which they sought incorporation. Nor is it the less a railway because some only of the sections of the Railways Clauses Consolidation Act are incorporated in the special Act, or because, if one did not know what the thing really was, the language used for the purpose of applying the sections which are incorporated might seem to import that it was not, properly speaking, a railway at all. You must look at the special Act to see that it confers the appropriate powers of construction. Everything else in the Act is, I think, beside the question which this House has now to determine."

(1) L.R. [1909] A.C. 264.

In our opinion, the observations of the House of Lords, extracted above,. are apposite, to the case on hand.

We have. already pointed out that neither the Municipal Act, nor the TeriJlinal Tax Rules give any special 'definition of the expression 'railway', and, so far as we could see, there is. nothing in the said Apt or the Rules to indicate that the word 'railway', in item 2 of Schedule B, is used only to refer to a 'railway' registered under the Railways Act or to limit the generality of the expression 'railway' in any way, Under those circumstances, if the appellant is a 'railway' in fact,' as commonly understood-there does not appear to be any serious controversy on that point-it will be a 'railway', notwithstanding the fact that it is registered as a 'tramway', under the Tramways Act.

The legislature itself has applied the various provisions of the Railways Act to the appellant, and the appellant also satisfies the definition of a 'railway' under the Government of India Act, 1935, and the Constitution. The provisions of the Indian Railway Companies Act, 1895, have also been applied to the tramways constructed, under the Tramways Act, by the Indian Tramway Act of 1902. The second preamble to the last mentioned Act, clearly shows that the tramways, to which the Indian Railway Companies Act was made applicable, 'do not differ in structure and working from railways'.

The object underlying the exemption under item' 2, of Schedule B, to the Terminal Tax Rules, is also not far to seek. The railways pass through areas where it is not deriving the full benefit of all the amenities provided by the Municipal Boards. Therefore, in our opinion, the appellant satisfies the definition of a 'railway', so as to be entitled to the exemption provided under item 2 of Schedule B.

Before we close the discussion, we will also refer to the decision of the House of Lords in Tottenham Urban Council v. Metropolitan Electric Tramways, Ltd. ( 1). The same question regarding the eligibilty of a 'tramway' for exemption, under s. 21l(l)(b) of the Public Health Act, 1875, came up for consideration in that case. From the judgment, it will be seen that the company were working, as a connected system, a tramway and a light railway, which were constructed in and along certain public streets and roads, in the district of the urban Council. The 'tramway' was constructed under'the Tramway Acts and Orders and the 'railway,' under the Light Railways Act, 1896. Both were iden'tical as to the mode of construction and materials used.

The claim of the company in respect of the 'railway', as such, for assessment at a lower rate, was accepted; but, so far as the 'tramway' was concerned, the House of Lords held that it is not a 'railway', within the meaning of s. 21 l(l)(b), of the Public Health Act, 1875. The

(ll L. R. [1913) A. C. 712.

&HAHDARA RLY. co. v. MUNICIPAL BOARD (Vaidialingam, 1.) 255

reason given by the House of Lords, for not accepting the claim of the tramway, was that in the great bulk of public legislation, relating to railways, the legislation has universally been understood and interpreted by Courts as applying only to that which is popularly known as a 'railway', and not to that which is popularly known as a 'tramway'. And special emphasis is laid by the House of Lords that the legislature has used the word 'railways' and not 'railways and tramways', in s. 211 of the Public Health Act, 1875.

We are only adverting to this decision to show that, on the basis of an interpretation placed by the Courts, the House of Lords held that the word 'railways', in the Public Health Act, 1875, will not take in 'tramways'. But, no such circumstances, as pointed out by the House of Lords, in the said decision, exist in the present case before us. On the other hand, the position is exactly tbe opposite, as will be seen from the Government of India Act, 1935, and the Constitution. Even applying the popular test, adopted by the House of Lords, in this case, the appellant is undoubtedly a 'railway'.

In our opinion, the principles laid down by the House of Lords in Thornton Urban Council v. Blackpool and Fleetwood Tramroad Company('), apply to the particular matter on hand and, we hold that the appellant, being a 'railway', is entitled to the exemption under item 2, of Schedule B, to the Terminal Tax Rules, in question.

We, accordingly, allow the appeal and set aside the judgment of the High Court, and further direct that a writ will issue, as prayed for by the appellant. The appellant will be entitled. to its costs, from the first respondent, both in this Court and in the High Court.

G. C.

Appeal allowed.

(I) L. R. [1909) A. C. 264.

THE MUNICIPAL BOARD, SAHARANPUR

March 21, 1967

M. HIDAYATULLAH

S. M. SIKRI

Indian Tramways Act, 1886

Indian Railways Act, 1890

Shchdara

Railways Act

Municipalities Act I of 1918

Shahdara

Saharanpur

Indian Tramways Act, 1886

Indian Railways Act, 1890

s. 135

s. 311(2)

Gcvermnent of India Act 1935

Art 366(20)

s. 135

Railways Act

Government of India Act, 1935

s. 135

Railways Act

Allahabad High Court

Niren De

N. H. Hingoranl

R. K. Garg

D. K. Agarwala

M. V. Goswami

Vaidialingam

High Court of Allahabad

Delhi

Uttar Pradesh

Indian Tramways Act, 1886

November 20, 1905

July 5, 1-907

Indian Railways Act, 1890

Railways Act

Section 135

Municipal Board of Saharanpur

s. 128(1)(x111)

Saharanpur Municipality

May l,

1919

September 21, 1939

s. 160

Judges adverted to the Railways Act

Central Government

s. 135

Railways Act

Railways Act

Railways Act

Railways Act

Muzaffarnagar

Meerut

Indian Railways

s. 3(6)

Railways Act

India

Section 3

Section 3(4)

Section 135

Central Governinent

General Clauses Act, 1887

s. 135

Section 146

Railways Act

article 366

s. 135

Indian Companies Act, 1882

Section 2(1)

s. 3

Railways Act

Section 3

Indian Tramways Act, 1902

Indian Railway Companies Act, 1895

Indian Railway Companies Act, 1895

s. 311

Government of India Act, 1935

Seventh Schedule

s. 311

Art. 366(20)

Parliament

Seventh Schedule

Art. 366(20)

Section 3(1)

Section 4

s. 135(1)

Railways Act

Art. 366(20)

s. 135

Railways Act

Garg

Railways Act

Railways Act

s. 135

Railways Act

s. 311

Government of India Act, 1935

Art. 366(20)

All the provisions of the Railways Act

s. 135

s. 135

Railways Act

U.P.

Blackpool & Fleetwood Tramroad Company

s. 2

Public Health Act, 1875

s. 211(1)(b)

Public Health Act, 1875

s. 211

s. 211

Macnaghten

Railways Act

Railways Act

Government of India Act, 1935

Companies Act

Tottenham

s. 21

Public Health Act, 1875

Light Railways Act, 1896

s. 21

Public Health Act, 1875

s. 211

Public Health Act, 1875

Public Health Act, 1875

Government of India Act, 1935


JAGIR SINGH

STATE OF PUNJAB

March 21, 1967 [R. $. BACHAWAT AND J. M. SHELAT, JJ.j

Indian Penal Code, 1860 (Act 45 of 1860). s. 34-Two convicted, other accused acquitted-Applicability.

The two appellants and four other named persons were charged for murder. The Sessions Judge acquitted the four persons but sentenced

the two appellants under ss. 302 and 201 read with s. 149 I.P.C. The High Court altered the convictions to those under ss. 302 and 201 read c with s. 34. In appeal to this Court,

HELD : The appeal. must be dismissed.

Where six named accused persons are charged under s. 302 read with s. 34 of the Indian Penal Code for committing murder and the evidence is directed to establish that the said six persons have taken part in the murd<jr and it is not known who gave the fatal blow, on the acquittal of four persons the remaining two accused can be convicted of the offence under s. 302 read with s. 34.

Even if it was not known which particular person Or persons gave the fatal blows, once it was found that the murilers were committed in furtherance of the common intention of all, each one of all such persons was liable as though the murders had been committed by him alone.

Section 34 is intended to meet a case where members of a party acted in furtherance of the common intention of all but it was difficult to prove exactly the part played by each of them.

The principle which the section embodies is the participation in some action with the intention of committing a crime; once such participation is established, s. 34 is at once attracted. [260B; 260H-261B]

Bharwad Mepa Dana & Anr. v. State of Bombay,

(1960] 2 S.C.R.

I 72, applied .

. Prabhu Babaii Novle v. State of Bombay, A.J.R. 1956 S.C. SI, dis- F tinguished.

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 210 of 1966.

Appeal by special leave from the judgment and order dated March 22, 1966 of the Punjab High Court in Criminal Appeal G No. 26 of 1966 and Murder Reference No. 2 of 1966.

Jai Gopal Sethi, C. L. Saretn .and R, L. Kohli, for the appellants,

Hans Raj Khanna and R. N. Sachthey, for the respondent.

The Judgment of the Court was delivered by Bachawat, J. Six persons including the two appellants were tried for offences under s. 148, s. 302 read with s. 149 ands. 201

JAGIR SINGH v. STATE (Bachawal, !.) 251

read with s. 149 of the Indian Penal Code in connection with the murder of Tarlok Singh son of Amar Singh of Purana Pind. .The six accused were ( l) J agir Singh of Purana Pind, (2) Tarlok Smgh of Udhoke, (3) Wassan Singh of Purana Pind, (4) Jagir Singh of Bhumbli, (5) Dyal Singh of Dalla and (6) Pritam Singh of Dalla.

Tarlok Singh deceased was brutally attacked on the threshing floor

of Amar Singh at a distance of eighty feet from his Haveli near the outskirt of village Purana Pind on April 27, 1965 at about 4 p.m. The prosecution case was that all the six accused came to the spot with the object of killing Tar!ok Singh, accused 5 was riding a white mare and carrying a spear, and the remaining five accused were on foot and were armed with kirpans or swords.

Accused 5 shouted a challenge saying that Tarlok Singh must not be spared, uccused 4 gave two kirpan blows on his feet, accused

I gave a sword blow on his neck and the other accused caused injuries to him with their swords. When the victim was almost dead, he was placed on the mare in front of accused 5 and all the six accused proceeded towards village Manoharpura. At a distance of about a mile near the canal minor, the body of the victim was thrown on the ground and accused 2 chopped the head from his body. Accused 2 and 5 rode away on the mare with the severed head wrapped in the chaddar and turban of the victim and the other accused followed on foot.

The motive for the attack was that Munsha Singh father of accused 1 was murdered in July, 1964.

Amar Singh, Tarlok Singh deceased and one Sawan Singh were tried for the murder but they were convicted of a lesser offence for which they were sentenced to three months rigorous imprisonment.

They served out their sentences and returned to village Purana Pind about two months before April 27, 1965. The first information report of the murder of Tarlok Singh was lodged on April 27, 1965 at 5.30 p.m. The investigating officer reached the spot at about 6.30 p.m.

The trunk of the dead body was recovered at a place about a mile distant from village Purana Pind near the canal mmor. '!he he'.ld was nver recovered. The identity of the

tunk was satIfat?nl.Y estabhshed.

The post-mortem examination revealed six m1unes. In the opinion of the medical witness the death resulted from the cutting of the neck, caused with som~ sharp-ged heavy weapon. The first information report stated that the assailants of Tarlok Singh were accused 1 3 s 6 on H b Singh d J 1 s • • • , e ar ans an one . arnai mg who were then said to have played th parts later. ascribed to ncusd 2 and 4. All the six accused an~ Hr?ans Sm¥h and J.arna1I Smgh were charge-sheeted. The comm1ttmg mg1stratc d.1scharged Harbans Singh and Jarnail Sin h and com1111.tted the six acused to the Sessions Court for trial Te fo11r eye:w!tnesses. exanmed at the trial were Amar Singh, father of the victim, Jogmder Smgh son of Amar Singh Bachan s h son-in-law of Amar Singh and Chhinda whose aternal u~~~·: daughter was betrothed to the victim.

Amar Singh was injured

by one of the culprits when he tried to intervene in the attack on his son.

He made contradictory statements with regard to the identity of the culprit who had ; injured him and the six culprits who had participated in the attack on his son.

The Sessions Judge acquitted accused 2, 3, 4 and 6. He was not satisfied that the witnesses had correctly identified accused 2, 4 and 6. He gave accused 3 the benefit of doubt 'as the evidence of the witnesses regarding his presence was not corroborated by other evidence.

The courts below found that there could be no mistake about the identity of accused 1 and 5.

With regard to their identity, the veracity of Amar Singh was not shaken and the evidence of the three other eye-witnesses was consistent positive and unimpeachable. Accused 1 made a disclosure statement and pointed out a place near the bank of the canal about a mile or a mile and a half from the place where the trunk of the dead body had been found.

Four pieces of teeth, one piece of skull bone and hair recovered from the place pointed out by accused 1 were found to be of human origin. There is reason to believe that the severed head of the victim was cut to pieces at the spot.

A kirpan was also recovered in consequence of the disclosure statement made by accused l, but the High Cou'rt placed no reliance on this discovery as it was not•known to whom the place of recovery belonged.

A chaddar was recovered from accused 1 at the time of his arrest.

The chaddar had been washed but on examination by the chemical examiner and seriologist it was found that it had stains of human blood. Both accused 1 and 5 had a strong motive for the murder.

Though the courts below discarded a part of the prosecution story and gave the benefit of doubt to four accused, they were justified in accepting the prosecution case regarding the participation of accused 1 and 5 in the attack on the victim.

The Sessions Judge convicted accused 1 and 5 of the offences under ss. 302 and 201 read with s. 149 of the Indian Penal Code and sentenced them to death and five years rigorous imprisonment.

The High Court altered the convictions to those under ss. 302 and 201 read with s. 34 of the Indian Penal Code and confirmed the sentences.

Accused 1 and 5 have now filed this appeal to this Court.

The High Court recorded the following finding :

"The finding, therefore, in concurrence with that of the learned trial Judge, is that six persons, of whom appellant Dyal Singh of D.alla was armed with a spear and was riding on a mare and the five others were armed with H Kirpans, including appellant J agir Singh of Purana Pind, arrived at the threshing floor of Amar Singh P.W. 1, that there Tarlok Singh deceased received injuries at their

JAGIR SINGH v. STATE (Bachawat, J.) 259

hands, a particular injury in the head region having been caused by appellant Jagir Singh of Purana Pind, that when Tarlok Singh deceased was almost ded or near death, his dead body was placed on te mare .m fyont of appellant Dyal Singh of Dalla, and six cull?nts, including the two appellants, then left the threshmg floor towards the nearby canal minor, and that at a distance of about one mile from the village on the bank of the canal minor the body of Tarlok Singh deceased was thrown on the ground, the head was cut off, and '; Vhile aP.pellant Dyal Singh of Dalla and another culprit earned the head on the mare, the remaining four culprits accompanied them, and thus all the six culprits, including the two appellants, escaped. So the six culprits, including the two appellants came together armed, committed the murder of Tarlok Singh deceased, were together when his head was cut off and then departed together with the head of Tarlok Singh deceased being carried by appeµant J?yal Singh of Dalla and another on a mare. It 1s obvious that what was done by all the six persons, including the two appellants, was done in furtherance of their common intention to murder Tarlok Singh deceased, which common intention was carried out with determination and it is a case of gruesome murder. It is a clear case to which sec. 34 applied ...... Taking into consideration the manner and method of murder of Tarlok Singh deceased by the appellants and their four companions as a whole from start to the end, the appellants, about whose identity there is no manner of doubt whatsoever, cannot escape the consequences of the act of all the six persons merely because in the case of three of those who have been acquitted the learned Judge has not been satisfied as to their identity and the fourth he has acquitted on a consideration that as no corroboration is available as to him of the witnesses he may be given the benefit of doubt.

The matter might have been different if the learned Judge had disbelieved the witnesses with regard to those four persons, but this he has not done."

The charge against the six accused including the two appellants was that they were members of an unlawful assembly whose common object was to commit the murder of Tarlok Singh deceased and thatthey in prosecution of this common object committed the murder. The materials on the record show clearly that the murder was committed by six culprits including the two appellants in furtherance of the common intention of all. ifl the circumstances, though the appellants were charged of an offence under ss. 302/ 149, they could be convicted under ss. 302/34. No prejudice was LSSup. Cl/67-4

caused to the appellants by the alteration of the charge from an offence under ss. 302/ 149 to one under s. 302/34.

The contention of the appellants is that in a case where six named accused persons, A, B, C, D, E and F are charged under s. 302 read with s. 34 of the Indian Penal Code for committing the murder of G and the evidence is directed to establish that the said six persons have taken part in the murder and it is not known who gave the fatal olow, on the acquittal of C, D, E and F the remaining two accused A and B cannot be convicted of the offence under s. 302 read with s. 34. We are unable to agree with this contention. As it is not known that A or B gave the fatal blow they cannot be convicted under s. 302. Nor is it possible to find that A and B together with C, D, E and F jointly committed the murder. Since C, D, E and F have been acquitted of the charge they could not have participated iD the murder. Unless the court can find that other unidentified assailants together with A and B took f)art in the murder, A and B must be acquitted of the offence under s. 302 read with s. 34. But if the court can, on a proper appraisal of the evidence find that there were six assailants, the witnesses were mistaken as to the identity of C, D, E and F, and four unknown culprits together with A and B took part in the murder in furtherance of the common intention of all, the court can convict A and B of the offence under s. 302 read with s. 34.

Though it is not known who gave the fatal blow, each of the assailants including A and B is responsibl~ for the murder as if it was committed by him alone.

In Bharwad Mepa Dana and another v. State of Bombay(') 12 named persons including the two appellants were charged with offences under s. 302 read with ss. 149 and 34 of the Indian Penal Code. The Sessions Judge acquitted seven of the accused but convicted five under s. 302 read -with s: 149 and s. 302 read with s. 34. On appeal, the High Court acquitted one of the five convicted persons but maintained the conviction and sentence of the appellants and the two others. The High Court held that there were ten to thirteen persons in the unlawful assembly though the identity of all the persons except four had not been established, all these persons had the common object and the common intention of killing the victims and the killing was done in prosecution of the common object of the unlawful as'embly and in furtherance of the common intention of all. This Court affirmed the convictio!IS and sentences. It held that there was no difficulty in the application of s. 34 of the Indian Penal Code as the number of the convicted persons was four and there was a clear finding that they shared the common intention with some others whose identity was not established. Even if it was not known which parti-

(1)(196012 S.C.R. 172

G - H

.JAGIA SINGH v. STATE (Bachawat, ],) 261

cular person or persons gave the fatal blows, once it was found that the murders were committed in furtherance of the common intention of all, each one of all such persons was liable as though the murders had been committed by him alone.

Section 34 is intended to meet a case where members of a party acted in furtherance of the common intention of all but it was difficult to prove exactly the part played by each of them. The principle which the section embodies is the participation in some action with the intention of committing a crime; once such participation is established, s. 34 is at once attracted.

The case of Prabhu Babaji Navle v. State of Bombay(') is distinguishable.

There the appellant was charged under s. 302 read with s. 34 with four named persons. The four others were acquitted. This Court held that the appellant alone could not be convicted of the offence under s. 302 read with s. 34. On the facts of that case, it was not possible to reach a conclusion that the appellant shared a common intention with other unknown person or persons. The case of KriJhna Govind Patil v. State of Maharashtra( 2) is also distinguishable. There, four accused persons were charged under s. 302 read with s. 34. The High Court acquitted accused l, 3 and 4 on the ground that it was doubtful whether any one of them participated in the commission of the offence and yet convicted accused 2 on the ground that one or more of them might have participated in the offence. The finding recorded by the High Court was legally impossible. Having found that accused 1, 3 and 4 did not take part in the offence, the High Court could not find that one or more of them might have participated in the offence with accused 2.

There was not a single observation in the judgment of the High Court to indicate that any person or persons other than the named accused participated in the offence. In there circumstances, this Court set aside the conviction of accused 2.

In the present case, the Courts below have recorded the clear finding that accused 1 and 5 participated in the offence with four

ot?er unknown culprits. Though six named persons were charged with the offence, there was a mistake in the identity of three of the accused and with regard to another accused, the benefit of doubt was given as no independent corroboration was available. But it admits of no doubt that Tarlok Singh was attacked and brutally murdered on April 27, 1965 by six culprits.

Accused 1 and 5 were two of the six culprits who participate<il in the attack. The

urder was committed by six culprits including accused 1 and 5

m furtherance of the common intention of all. Accused 1 and 5

bar~ the common intention with the four other culpl'its whose identity has not been established. Though it is not known which

C" A.l.R. !956 S.C. SI.

(2) [196411 S.C.R. 678.

particular person or persons gave the fatal blow it is clear that the murder was committed by six culprits including accused 1 and 5 in furtherance of the common intention of all and each of them is liable for the murder as though it had been committed by him alone.

Accused 1 and 5 were rightly convicted of the offence under s. 302 read with s. 34 of the Indian Penal Code. The murder was ruthless and cold-blooded. There are no extenuating circumstances.

They were rightly sentenced to death. They were also rightly convicted and sentenced for the offence under s. 201 read with s. 34 of the Indian Penal Code.

The appeal is dismissed.

Y.P.

Appeal dismissed.

JAGIR SINGH

STATE OF PUNJAB

March 21, 1967

R. $. BACHAWAT

M. SHELAT, JJ

Indian Penal Code, 1860

s. 34

ss. 302 and 201

s. 149

I.P.C

ss. 302 and 201

s. 34

s. 302

s. 34

Indian Penal Code

s. 302

s. 34

Section 34

s. 34

Jai Gopal Sethi

C. L. Saretn

L. Kohli

Raj Khanna

R. N. Sachthey

Bachawat

s. 148

s. 302

s. 149

s. 149

Indian Penal Code

Tarlok Singh

J agir Singh

Tarlok Smgh

Wassan Singh

Jagir Singh

Dyal Singh

Pritam Singh

Dalla

Amar Singh

Purana Pind

April 27, 1965

Tar!ok Singh

Manoharpura

Munsha Singh

Sawan Singh

s 6

Harbans Singh

Jarnail Sin

Amar Singh Bachan

Chhinda

Amar Singh

ss. 302 and 201

s. 149

Indian Penal Code

ss. 302 and 201

s. 34

Indian Penal Code

Dyal Singh

D.alla

Amar Singh

J?yal Singh

sec. 34

ss. 302

ss. 302

ss. 302

s. 302

s. 302

s. 34

Indian Penal Code

s. 302

s. 34

s. 302

s. 302

s. 34

s. 302

s. 34

s. 302

ss. 149 and 34

Indian Penal Code

s. 302

s. 302

s. 34

s. 34

Indian Penal Code

Section 34

s. 34

s. 302

s. 34

s. 302

s. 34

s. 302

s. 34

s. 302

s. 34

Indian Penal Code

s. 201

s. 34

Indian Penal Code


A COMl\llSSIONER OF INCOME-TAX CENTRAL, CALCUTTA

&ANR.

AMALGAMATED DEVELOPMENT, LTD.

March 23, 1967

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

Income-tax Act,. 1922-s. 10(2)(xv)-company purchasing assets and liabilities of firm-liabilities including obligation to complete deve

lopment work 011 plots sold by firm-Whether expenditure on such developmem deductible expenditure.

Jnco1nssessee conzpany selling plots for part cash and balance secured by mortgage-whether balance tantamount to loan to purcliasertherefore whether liable to be regarded as constructive receipt of income.

Under a sale deed executed on July 7, 1948, the respondent company purchased the assets and liabilities of a firm,. M & Co. At the time the firm had sold a number of plots for which part of the consideration money had been realized and for the balance mortgage bonds had been executed by the purchasers. Thereafter, the respondent company itself sold some plots on similar terms. In respect of these plots, there was an undertaking to lay out roads, etc., and to complete certain development work and as the respondent company had taken over the debts as well as the liabilities of the firm, it was required to complete 'Such work also in respect of the plots previously sold by the firm.

For its assessment to Income-tax for the years 1950-'51 and 1951-'52 alth"Ough the respondent company claimed to be treated on the basis that it maintained its accounts on the cash system, the Income-tax Officer computed the income on the mercantile basis.

Furthermore, he allowed only the expenses incurred in respect of the lands sold by the company itself but disallowed the expenditure in connection with the land previously sold by the firm.

He also held that although only a part of the sale price of the plots sol~ was realised in cash by the company and the balance was left outstandmg and secured by a mortgage on the plots the entire amount of the sale i;>rice was to. b~ credited as income.

I~ the appeal to the Appellate Asststant CommtsSIOner and the Tribunal, the view taken by the Income-tax Officer on both the points was substantially ipheld However, upon a reference, the High Court held in favour of tl1e res: pondent company.

1 I~ the appeal to this Court it was contended on behalf of the Income ax epartment that (i) the expenditure incur d · - development of plots previously sold b th fi re m connectio". with the s. J0(2)(xv) as the lands already sd b [h' ws not deductible under trade of the respondent com an . d Y e rm w.ere not. stock-1nthc price paid by the rcspnd~· tan that furthermore, It was hkely that dated July 7 1948 to the fi n company under the contract of sale of the firm had been fixed e{ 0; aakm~ over the assets and liabilities the development of such lots th mg mto acount the obligation for these obligation must therefore •be e tt ~pt"'des incurred . in discharge of the respondent company's b . a n e to the capital structure of

oligation incurred in connecti~nlth ah could . not be considered an

(n) part of the consideration e car'l'.mg ?n of its business; who had bought the plots money not received m cash from those was treated as a loan to the purchaser for

SUPREME COURT REPORTS

(1967] 3 S.C.RI

which the plot sold was mortgaged in favour of the respondent company and as such should be treated as a constructive receipt liable to be in cluded in the profits of the respondent company derived during the respective accounting years.

HELD: Dismissing the appeal,

(i) It is not a right approach to examine the question as if all reve nue expenditure must be equated with expenditure in connection with B stock-in-trade.

In the present case, the sale deed dated July 7, 1948 showed that the respondent company purchased from the firm a whole running business with all its goodwill and stock-in-trade and including its liabilities. It could not be said that the respondent company had nothing to do with the lands already sold which did not form part of its stock-in-trade. The development of the entire land sold in plots was an integrated process and could not be sub-divided into water-tight com partment or related to any !?articular piece of land. Furthermore, the

C entire expenditure was required to be incurred as a matter of commercial expediency.. [269A-EJ

Eastern Investments Ltd. v.

C.l.T. 20 l.T.R. I; Cooke (H.M. Inspector of Taxes) v. Quick Shoe Repair Service, 30 T.C. 460; referred to.

There was nothing to show that the obligation under the sale deed D to complete the development work on the plots sold by the firm was quantified and formed part of the total consideration paid by the res pondent company. [2700)

Royal Insurance Company v. Watson (Surveyor of Taxes) 3 T.C. 500 distinguished.

Con1n1issioner of lncon1e-tax (Central), Calcutta. v.

Mugneera1n 1t Bangur & Co. (Land Department) 51 l.T.R. 299; referred to.

(ii) The execution of the mortgage deeds by the purchasers of plots in respect of the balance of the consideration money could not be treated as equivalent to payment of cash. It cannot be said that the mere giving of security for the debt by the purchaser was tantamount to payment. The amount of consideration not received and which the purchasers agreed to pay in future for which plots were mortgaged in F favour. of the respondent company, could not therefore be considered to be taxable income for the assessment periods in question. [271DFl

Co1n1nis.fioner of Jnco1ne-tax, Bi/Jar & Orissa v.

Maharojadhiraja of Darbhanga, 60 I.A. 146; referred to.

CIVIL AP PELLA TE JURISDICTION : Civil Appeals Nos. 169 and 170 of 1966.

Appeal from the judgment and order dated December 4, 1962 of the Calcutta High Court in Income-tax Reference No. 57 of 1958.

S. K. Mitra, S. K. Aiyar, S. P. Nayyar for R. N. Sachthey, for the appetlants (in both the appeals).

A. K. Sen and B. P. Maheshwari, for the respondents (in both the appeals).

The Judgment of the Court was delivered by Ramaswami, J. These appeals are brought, by certificate, from the judgment of the Calcutta High Court dated December 4, 1962 in Income-Tax Reference No. 57 of 195 8.

The respondent company purchased the assets and liabilities of the firm, Mugneeram Bangur & Co., (Land Department), hereinafter referred to as the 'firm', on July 7, 1948 for a consideration of Rs. 34,99,300/-. The consideration was paid by the issue of shares to the vendor or its nominees in the share capital of the respondent company.

The assets included land at cost, Rs. 12,68,268/- as also goodwill and certain other assets subject to certain liabilities incurred by the firm. By the time the respondent company took over the land, the firm had sold a number of plots in respect of which part of the consideration money had been realised and for the balance Mortgage Bonds had been executed by the purchaser. In respect of those plots there was an undertaking to Jay out roads, etc. The respondent company took over the debts as well as the liabilities. After the purchase, the respondent company itself sold certain other plots. The purchaser paid a percentage of the price in cash and undertook to pay the balance with interest at a specified rate in annual instalments which was secured by creating a charge on the land purchased. The sales made by the respondent company were in all material respects similar to the sales made by the firm.

A specimen copy of the sale deeds executed by the firm of the respondent company is Annexure 'A• to the Statement of the Case. The relevant provisions of the sale deed are as follows :

" .... And whereas the said Vendor hath agreed with the Purchaser to sell him the said land .... hereunder written at the rate of price or sum of Rs. 3,000/- per cotta free from all encumbrances. And Whereas the total amount of price payable in respect of the said plot .... at the rate aforesaid amounts to Rs. 8,708-5-6. And Whereas at the treaty for sale it was agreed by and between the parties hereto that one-third or thereabout of the total, price will be paid at the time of execution of these presents and the payment of the balance will be secured in the manner hereinafter appearing. Now This Indenture Witnesseth that in pursuance of the said Agreement and in consideration of the sum of Rs. 8, 708-5-6 whereof the sum of Rs. 2,908-5-6 of lawful money of India to the said Vendor in hand well and truly paid by the Purchaser at or before the execution of these presents (the receipt whereof the said Vendor doth hereby as well as by receipt hereunder written admit and acknowledge) and the payment of the balance namely the

sum of Rs. 5,800/- being secured under a security deed of even date with these presents and executed by the Purchaser in favour of the Vendor creating First Charge upon the said land .... ";

" ... And the said Vendor shall at all costs complete the construction of the said twenty-five feet wide road on the North of the said plot No. 35A and will also lay out the said surface drains by the side of the said road within a year from the date hereof and will maintain the said road and drains in proper state or repairs and shall arrange for lighting the said roads with electric light till the same are taken over by Tollygunge Municipality ...... "; and,

" Memo of Consideration By amount paid as earnest. money on 5th August, 1948

By Cheque (pari) No. 6985706

on The Bank of India Ltd., on 30th January, 1949.

By amount secured under Security Deed of even date being these presents and executed by the Purchaser in favour of Vendor.

Rs. 501.0.0

Rs. 2,407.5.6

Rs. 5,800.0.0

Rs. 8,708.5.6"

A specimen copy of the mortgage deeds is Annexure 'B' to the Statement of the Case. The relevant provisions of the said F Mortgage Deed are to the following effect :-

" ... and by the said Indenture of Conveyance it was provided that the payment of the balance of the consideration money, namely, the sum of Rs. 5,800/- owing by the said mortgagor to the said mortgagee should be secured by an Indenture of Security Deed of even date G being these presents to be executed by the said mortgagor in favour of the said mortgagee immediately after the execution of Conveyance now in recital. Now this Indenture Witnesseth and declares as follows :-(!) In consideration of the said premises the said mortgagor doth hereby covenant with the said mortgagee that the H said mortgagor will pay to the said mortgagee the said sum of Rs. 5,800/- within ten years to be computed from the date of these presents together with interest thereon

A at the rate of 8 % per annum calculated from the date of these presents upto the date of payment payable monthly .... "

We are concerned in this case with the assessment of the respondent company for two periods.

The first period is the accounting year ending June 30, 1949 corresponding to the assessment year 1950-51 and the second period is the accounting year ending June 30, 1950 corresponding to assessment year 1951-52.

For the assessment year 1950-51, the respondent company was maintaining its accounts in the mercantile system. According to this system, the value of the land sold was credited at Rs. 373,375/- against which the unpaid balance was debited in the debtors' account and shown under the heading "book debts considered good-secured against mortgage of land". Against this sale, there was an item of expenses aggregating to Rs. 2,77,047 /- of which the actual expenses paid out in cash was Rs. 1,12,577 /- and the estimated expenses against future development was Rs. 1,44,470/-.

Out of the actual expenses paid out in cash amounting to Rs. 1,12,577/-, a sum of Rs. 48,238/- was expended for lands sold by the respondent company and a sum of Rs. 64,340/- for expenses incurred by the respondent company on account of land already sold by the vendor.

As already stated, the accounts were kept in the account books of the respondent company on a mercantile system, for this period.

Later on, the respondent company adjusted its accounts on a cash system and submitted a revised return showing a loss of Rs. 11,583/-. The Income-tax Officer, in assessing the income for the assessment year 1950-51, originally accepted the cash basis and computed the income. On appeal, the assessment was set aside and the case was remitted to the Income-tax Officer for a fresh assessment. In this fresh assessment, the Income-tax Officer adopted the mercantile basis on which the books of the respondent company had actually been kept.

Thereafter, the Income-tax Officer allowed the sum of Rs. 48,238/- which was the expenses actually incurred by the respondent company in respect of the lands sold by it but disallowed the sum of Rs. 64,340/- which was the expenditure in respect of the lands which had already been sold by the firm before the respondent company's purchase.

With regard to the sale price of the plots, the Income-tax Officer held that the entire amount of consideration was to be treated as income, though only a portion of the consi deration was realised in cash and the other portion was left outstanding after taking a mortgage on the plots sold from the purchaser as security. With regard to the next assessment year, 1951-52, the respondent company kept its accounts on the cash system and not on mercantile system.

The Income-tax Officer however held that for this assessment year also the amount of unrealised purchase price for the plots sold should be treated as

income.

As regards expenses, the Income-taic Officer allowed a sum of Rs. 56,953/- being the expenditure in respect of the lands actually sold by the respondent company but disallowed the amount of Rs. 87,517/- being the expenses incurred in respect of the lands already sold by the firm when the respondent company took over. Against the orders of the Income-tax Officer the respondent company preferred appeals to the Appellate Assistant Commissioner who dismissed the appeals by a consolidated order dated November 7, 1956.

The respondent company thereafter took the matter in appeal before the Appellate Tribunal. The view taken by the Appellate Tribunal was .that the Income-tax Officer should have made the assessment on the basis of cash system for the year 1951-52 and for that year only the cash receipts and disbursements should be considered. With regard to the question of unrealised consideration-money, the Appella~ Tribunal held that for both the assessment years the unrealised consideration should be treated as income. With regard to expenses incurred, the Appellate Tribunal upheld the finding of the Income-tax Officer.

In other words, for both the assessment years it was held that the expenses incurred in respect of lands already sold before the respondent company took over should be disallowed. At the instance of the respondent company the Appellate Tribunal stated a case to the High Court on the following questions of law :

"1. Whether on the facts and circumstances of the case the entire sums of Rs. l, 12,577 /- and Rs. 3,43,155/- for the assessment years 1950-51 and 1951- 52 respectively spent in c; mying out the obligations subject to which lands were sold by the assessee were allowable in computing the assessee's profits from the land business.

2. Whether on the facts and circumstances of the case the assessee was liable to be taxed only on the actual realisation of sales in cash subject to the allowances admissible under the Indian Income-tax Act ?" By its judgment dated December 4, 1962 the High Court answered both the questions in favour of the respondent company.

With respect to the first question it was submitted by Mr.

G Mitra that only the expenditure incurred in the relevant accounting year in connection with the lands sold by the respondent company should have been allowed and not the expenditure incurred in connection with the lands sold by the vendor-firm previously. It was not disputed by Mr. Mitra that under the terms of the contract between the vendor-firm and the respondent company the latter was H bound to meet the obligations of the development of land previously sold by the firm, but the contention was that the lands already sold by the firm were not stock-in-trade of the respondent company. It

c.1.T. v. AMALGAMATED DEVELOPMENT LTD. (Ramaswaml, J.) 269'

was said that expenditure not incurred in connection with stock-in,- trade of the business of the respondent-company is not deductible; under s. 10(2)(xv) of the Income-tax Act. We are unable to ac-- cept this argument as correct. It is not, in our opinion, a right approach to examine the question as if all revenue expenditure must be equated with expenditure in connection with the stockin-trade. In the present case, the sale deed dated July 7, 1948 shows that the respondent-company purchased from the firm a whole running business with all its goodwill and stock-in-trade and including its liabilities. The respondent-company had taken over undeveloped land and the idea was to develop the same by making roads, installing a drainage system, street lighting, etc., and then selling the same in small plots at a profit. The principal inducement therefore for the purchasers was that the respondent-company would develop the land and the purchasers 'would be able to pay by instalments spread over a number of years. At the time the respondent-company took over the lands a portion thereof had already been sold by the firm but the development had not been completed and in the sale deeds entered into by the respondentcompany with the subsequent purchasers the respondent-company expressly undertook the liability to complete the development within a reasonable time. The argument that the respondent-company had nothing to do with the lands already sold which did not form part of its stock-in-trade is not correct. In the present case, the development of the entire land is an integrated process and cannot be sub-divided into water-tight compartments as the making of the roads and the provisions for drainage and street lighting, etc., cannot be related to any particular piece of land but the development has to be made as a whole as a complete and unified scheme. It is a case of commercial expediency and, as pointed out by this Court in Eastern Investments Ltd. v. C.l.T.( 1 ) :

"A sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of the trade." (approving the dictum of Viscount Cave, L.C. in Atherton v. British Insulated &: Helsby Cables Ltd. (10 T.C. 155, 191).

The same test has been applied in Cooke (H.M. Inspector of Taxes v. Quick Shoe Repair Service('), in which the agreement by which the respondent firm purchased a shoe repair business provided that the vendor should discharge all liabilities of the business outstanding at the date of sale. The vendor failed to do so, and the 1 espondcnts, in order to preserve the goodwill and to

(I) 20 I. T. R. 1.

(21 30 T.C. ~60.

ensure continuity of supplies of material, etc., paid certain sums in discharge of the vendor's liabilities.

I.t was held by Croom Johnson, J. that the sums so paid by the respondent firm were wholly and exclusively laid out for the purposes of its business and were not capital expenditure and were, therefore, allowable deductions for income-tax purposes.

It was also contended by Mr. Mitra that so far as the expenditure incurred in development of plots already sold by the firm is concerned, it was likely that the price paid by the respondent-company in the contract of sale dated July 7, 1948 to the firm for taking .over the assets and liabilities of the firm had been fixed after taking into account the obligation for the development of such plots. On this assumption it was submitted by Mr. Mitra that the discharge of this obligation must be attributed to the capital structure of the respondent-company's business and cannot be considered as an obligation incurred in connection with the carrying on of its business.

It was argued that such expenditure must be regarded as capital in character and not debitable to the revenue account of relevant accounting years. In support of this proposition Counsel relied upon the decision in.Royal Insurance Company v. Watson

(Surveyor of Taxes)(') in which it was held that the payment by the transferee-company of a sum of £55,846-8s.-5d. to the manager in commutation of his annual salary was capital expenditure since the payment formed part of the consideration for the transfer of the business and therefore could not be deducted. On behalf of the respondent-company Mr. Asoke Sen referred to the decision of this Court in Commissioner of Income-Tax (Central), Calcutta: v. Mugneeram Bangur & Co. (Land Department)(') and to the terms of the sale deed dated July 7, 1948 and . the Schedule thereto and argued that there was no quantification of the obligations taken over by the respondent-company under cl. 5 of the sale deed. It was stated by Mr. Asoke Sen that the obligations were not computed and did not form part of the consideration of Rs. 34 lakhs and odd• arrived at in the Schedule. In our opinion, there is justification in the argument put forward by Mr.

Asoke Sen and the principle of the decision in Royal Insurance Company v. Watson(') has no application to the present case.

There is nothing to show in the present case that the obligation incurred under cl. 5 of the sale deed was quantified and fom1ed part of the consideration amounting to Rs. 34 fakhs and odd mentioned in the sale deed as paid by the respo.ndent-company.

We accordingly reject the argument put forward by Mr. Mitra on behalf of the appellants on this aspect of the case.

We next proceed to consider the question whether the full price as recited in the sale deed should be regarded as having been rea-

(!) 3 T.C. lOO. (2l l7 l.T.R. 299.

lised by the respondent-company for the relevant accounting years and not merely the actual cash paid by the purchasers. The recital in the sale deed showed the consideration for the transfer of the property, that part of the consideration was paid in cash and the balance was secured by a mortgage executed by the purchasers on the same date. It was argued by Mr. Mitra that the amounts of the consideration money not received in cash but which were treated as a loan to the purchasers and for which the lands sold were mortgaged in favour of the respondent-company, should be treated as constructive receipt of the money by the respondentcompany and therefore liable to be included in the profits of the respondentcompany derived during the respective accounting years. We are unable to accept this argument as correct.

The Memo of Consideration in the sale deed reproduced above shows that there was cash payment of the earnest money on August 5, 1948 (Rs. 501/-) and a cheque was paid as part of the consideration on January 30, 1949 for a sum of Rs. 2,407 / 5 I 6 and the balance of the amount "secured under Security Deed of even date". It is therefore impossible to hold in this case that there was any cash payment by the purchasers to the respondent-company on the date of the execution of the sale deed and the execution of the mortgage deed on the same date by the purchasers cannot be treated as equivalent to payment of cash. In the circumstances found in the present case it cannot be said that the mere giving of security for the debt by the purchaser was tantamount to payment. We accordingly hold that, in the circumstances of this case, the amount of consideration not received and which the purchasers agreed to pay in future for which lands were mortgaged in favour of the respondent-company, cannot be considered to be taxable income for the assessment periods in question.

The view that we have expressed is borne out by the decision of the Judicial Committee in Commissioner of Income-Tax, Bihar & Orissa v. Maharajadhiraja of Darbhanga('). In that case, the Maharajadhiraja of Darbhanga lent to Kumar C?anesh ingh, about 32 lakhs of rupees. In the assessment year m question, the Kumar owed to Maharaja six lakhs of rupees a~ interest. This he did not pay in cash, but entered into an arrangement whereby the assessee took over various items of property in lieu of principal and interest.

One of the items so

aken over consisted of promissory notes executed by the Kumar !n favour o~ the Maharaja. The question was whether this was mcome received by the Maharaja. In the course of his judgment Lord Macmillan stated at page 161 of the Report as follows: '

" ...... but the seventh item .... consisting of the debtor's own promissory notes, was clearly not the equiva}ent of cash. A debtor who gives his creditor a promissory note for the sum he owes can in no sense be .

(1} 60 I.A. 146.

272 SUPIUIMB COUllT IUIPORTS [1967] 3 s.c.R.

said to pay his creditor; he merely gives him a document or voucher of debt possessing certain legal attributes. So far then as this item . . . . . . is concerned the assessee did not receive payment of any taxable income from his debtor or indeed any payment at all. In so holding their Lordships find themselves in agreement with the learned

judg~ of the High Court who differed on this point from the commissioner."

For the reasons already expressed, we hold that both the questions referred to the High Court have been rightly answered by it in favour of the assessee and these appeals are without merit and 11hould be dismissed with costs. One set of heariD.g fee.

R.K.P.S.

Appeals dismissed.

COMMISSIONER OF INCOME-TAX CENTRAL, CALCUTTA & ANR

March 23, 1967

C. SHAH

S. M. SIKRI

V. RAMASWAMI, JJ.

Income-tax Act

s. 10(2)(xv)

M & Co.

Asststant CommtsSIOner

July 7 1948

July 7, 1948

CIVIL AP PELLA TE JURISDICTION

Calcutta High Court

S. K. Mitra

S. K. Aiyar

S. P. Nayyar

N. Sachthey

A. K. Sen

B. P. Maheshwari

Ramaswami

Mugneeram Bangur & Co.

Tollygunge Municipality

November 7, 1956

Income-tax Act

December 4, 1962

G Mitra

Mitra

s. 10(2)(xv)

Income-tax Act

Viscount Cave, L.C.

Croom Johnson

Asoke Sen

cl. 5

cl. 5

August 5, 1948

January 30, 1949

Maharajadhiraja of Darbhanga

Kumar C?anesh ingh

Maharaja

Macmillan


PREM DULAR! v.

RAJ 1'.UMARI March 23, 1967 [K. SUBBA RAo, C.J., M. HIDAYATULLAH, R. S. BACHAWAT,

J. M. SHELAT AND C. A. VAIDIALINGAM, JJ.J

Th.e Right of Prior Purchase Act (J. & K. Act 11 of 1993), a . . 15 (fourthly)--Scope of-CIMuae If v.lolates Ari. 19(1) (/) of the Constllu 'tion.

The •econd respondent sold her houso to the appellant. Tho first respondent filed a suit for possession 0>! the house on the ground tat she !tad a right of prior purchase under s. IS (fourthly) o! th.e Right.of Prior Purchase Act 1993, because, her house and the house m question had a common outer entrance within the meaning o! that clause. The suit was decreed. In appeal to tllis Court it was contended that: (I) On a proper construion of the clause such an entrance would not give rise to a right o! pre-emption unless the owner claiming the right and the owner o! the house in question jointly owned the common outer entrance, and, (2) the clause as mterpreted by the Courts below violated Art. 19(1) (f) of the Constitution and was therefore ultra vlres.

HELD: (I) lbe clause provides that where the sale is of property hzving a common outer entrance with other properties, the right of prior purchase shall vest in the owners of such properties. There is nothing Ill the section to warrant the construction that such a right would vest only if the common outer entrance is jointly owned by the owners of such houses. [275H]

(2) In the case of properties having a common entrance, the owners of the buildings would stand more or less in the pooition of C<Hharers and the right of pre-emption is sustainable as a reasonable restriction.

[278E]

Bhau Ram v. Baiinath, [1962] Supp. 3 S.C.R. 724, followed.

Blshan Singh v. Khazan Singh, [1959] S.C.R. 878, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No 524 of 1%~ .

Appeal by special leave from the judgment and order dated mi;>er 2, 1964 of the Jammu and Kashmir High Court in C1vi1 First Appeal No. 7 of 1964.

B. C. Misra, S. K. Mehta and K. L. Mehta, for the appellant.

M. C. Setalvad and Mohan Behari Lal, for respondent No. 1.

The Judgment of the Court was delivered by .

She~~ ~· Respendent No. 1 filed a suit in the Court of AdditiOnal Distnct Judge, Jammu for possession of the house in dispute, owned by the second respondent and sold by her to the appellant .. The caue of action pleaded was that respondent No. 1 had a right of prior purchase under sectioa 1 S (fourthly) of the

- Right of Prior Purchase Act, 11 of 1993 as her house and the A house in question had a common-outer entrance within the meaning of that clause. The trial court and the High Court on evidence held that the two houses had a common outer entrance and decreed the suit on respondent No. 1 paying the sate price-of Rs. 13,000/-.

Hence this appeal by special leave.

On behalf of the appellant, the vendee, Mr. Misra raised two B questions (I) that on a proper construction of s. 15 (fourthly) this was not a case of the two houses having a common outer entrance as that clause requires that such an _entrance must be owned jointly by the owners of such two houses, and (2) that section 15 (fourthly) is ultra vires as it offends Art. 19 ( 1 )( f) and constitutes an unreasonable restriction on the appellant's right to property. c

The evidence shows that the entire property consisting of these two, together with other houses in the vicinity were owned at one time by witness Mohinder Nath and one Uttam Chand. Subsequently they sold some of them. To give to these houses access to the public road, called the Secretariat Road, they retained to themselves the ownership of the lane but granted a right of way D thereon to the said vendees. The lane ends as a blind alley where the two houses are situate.

The plan produced during the trial shows that there is first a common outer entrance through which one enters into this lane from the Secretariat Road and at a distance of about 10 yards there is another such entrance marked 'common entrance' in the plan through which one enters into the alley and E on which the doors of these and certain other houses open. During the course of the trial, the trial Judge madelocal inspection and recorded his inspection note which was admitted by the parties as correct. The inspection note is as follows :-

"On spot I find that there is a common outer entrance from the street to number of houses and then again about F 10 yards from the common outer entrance there is another common outer entrance of six houses and. there is a street which ends at the houses of the plaintiff and the suit house. At the end of the street the outer door of the plaiptiff and the suit house abut".

I There is thus no rooin for dispute that the said passage leading to G the said Secretariat Road has two common entrances, one where it opens on to the said Road and the other at a distance of about 1 O yards therefrom. Apart from the inspection note, the parties led oral and documentary evidence on a consideration of which the trial Judge rcorded the following finding :-

"Both the parties !!gree with this note and they adm!t H that there is a common outer entrance from the Municipal Street to the plaintiff's house and the suit house.

The difference between the plaintiff's case and the defen-

PREM DULARI v. RAJ KUMAR.I (Shelat, /.) 27.f!

dant's case as made out by the counsel for the defendant is that the plaintiff's house and the defendant's huse both open into the blank alley (kucha sarbasta) and mto the same alley opens some more houses. The plaintiff has not shown that the alley was the private property. of the owners of the houses which abut on that. Accordmg to the statement of Pt. Mohinder Nath that alley belongs to him and Pt. Uttam Chand. The owners of the houses which abut in that alley are entitled to right of wa¥ over it. As they are not owners of the alley so accordmg to the counsel for defendant No. 1 the plaintiff is not entitled to right of prior purchase on the basis of their having a common outer entrance .... The words used in the subclause are that the property sold and the property on the basis of which the right is exercised must have a common outer entrance. It is not essential that the street which leads from outer entrance to the houses of the plaintiff and the defendant should be owned by them''.

The High Court also came to a similar finding and held that once it had been shown that the owners of the four houses abutting on that alley had exclusive right of way over it, it was enough to vest in them the right of pre-emption. The High Court also held that it was not necessary to prove that the common outer entrance wall" jointly owned by the owners of the houses. It is therefore clear that the question raised by the appellant was not that there was no common outer entrance to the two houses but that on a proper construction of s. 15 (fourthly), such a common outer entrance would not give rise to a right of prior purchase unless the owner claiming such a right and the owner of the house in question jointly own the common outer passage.

The construction urged before the trial court and the High Court and rejected by both of them was once again urged before us by Mr. Misra. The language of s. 1 S(fourthly) is plain. The section in unambiguous language provides that "the right of prior purchase .................... shall vest :- Fourthly : Where the sale is of property having a common outer entrance with other properties in the owners of such properties''.

The section clearly says that where the sale is of property having a common outer entance with other properties, the right of prior

purcase. shall vest .m the owners of such properties.

There is nothmg m the sectton to warrant the construction that such a right would vest only if the common outer entrance is jointly ?wned b¥ the owners of such houses. What the section requires 1s the existence of a common outer entrance which need not be owned by the person claiming the right of pre-emption. Whether

LSSup.Cl/67-5

SUPRBMB COURT REPORTS

[1967] 3 ~.C.R.

there is such a common outer entrance which would attract the A provisions of s. 15(fourthly) would, therefore, depend upon the facts proved in eayh case. In the present case, both the trial court as also the High Court came to the conclusion from the evidence led by the parties that there does exist a common outer entrance for both the houses. Nothing has been shown by Mr. Misra from the evidence which would justify our disagreeing with that con 8 clusion.

Let us now turn to the decisions relied upon by Mr. Misra.

In Naba and others v. Piara Mal and another('), the High Court of Punjab held that the entrance to the alley in question was not 'a common entrance from the st.reet' of the pre-emptor and the vendor within the meaning of s. J 3(1)(fifthly) of the Punjab Preemption Act, 1905. The decision, however, turned on the facts and the situation of the alley which was said to be the common entrance to the houses in question.

The High Court found that the evidence led by the plaintiff was insufficient to prove that the said alley was the private property of the owners of the houses opening on to it or that none except the owners thereof had free access to or right of way over it. Nor was it shown that the houses at one time constituted one building and were subsequently subdivided and that the privacy of those houses was ensured by the blind alley as it ordinarily would be by the existence of a common entrance. In Nanak Chand v. Tek Chand and others(2 ), the right of pre-emption was claimed on the ground that there was a step leading to a thara which formed part of the plaintiff's house and the house in question. The High Court held that the step could not be called either a 'staircase' or a common entrance from the street within the meaning of s. J 3(1)(fifthly) of the Punjab Preemption Act, 1905. In Asa Nand v. Mahmud('), the dispute was between two parties claiming the right of pre-emption and the High Court rejected the defendant's claim on the ground that he had not even the right of way over the compound and his use of it was only permissive.

In Ram Chand v. Ram Jowa, va('), the Punjab Chief Court held that a public street leading from the main road to two houses cannot be considered a common entrance from the street and that to bring a case withins. 13(1) (fifthly) it would not be sufficient to prove that the street into which the house sold and the house of the person claiming pre-emption opened was common to the two properties or that each had an entrance from that street. There must be an entrance from the street which is common to both properties.

None of these decisions, in our view, can assist, for, each turned on its own facts which determined whether there was in fact a common entran0P within the meaning of the Punjab Act.

(1) (1912) 44 P.R. 159.

(2) A.LR. 1920 Lah. 278.

(2) A.l.R. 1927 Lah. 96.

(4) [1912] I.C. 484.

PREM DULARI v. RAJ KUMARI (She/at, 1.) 277

In the instant case, there is the admitted evidence that the alley, at the blind end of which the two houses are situate, has a com mon entrance which opens into a passage of about 10 yards where there is again another common entrance opening on to the public road. It is also not in dispute that the entire passage is owned by the original owners of the houses opening into this passage and that at the time of the sales of some of these houses they had granted a right of way over this passage to them so that the said houses may have access from the public road. The said passage, therefore, is the private property of the said Mo hinder Nath and Uttam Chand and the right of way over it is enjoyed only by the owners of the houses opening on to it. The appellant did not raise any dispute with regard to these facts. Indeed, the only question raised by her was that in order to constitute a common outer en trance under s. 15(fourthly) such an entrance must be owned jointly by the owner of the house in question and the owner claiming pre-emption. As aforesaid, both the courts negatived the su~· gested construction and we think that they were right for. the plam words of the section do not justify such a construction.

The question next is whether s. 15(fourthly) providing for the right of prior purchase amounts to an unreasonable restriction.

There can be no doubt that such a provision amounts to a restric tion in the sense that a person purohasing such a property has to give way to the person claiming such a right. The nature of the E right is expressed in felicitous language by Mahmood J. in Gov ind Dayal v. lnczyatullah('). The right of pre-emption, he observed: "is simply a right of substitution, entitling the pre-emptor, by means of a legal incident to which sale itself was subject, to stand in the shoes of the vendee in respect of all the rights and obligations aris ing from the sale, under which he derived his title. It is, in effect, as if in a sale deed the vendee's name were rubbed out and pre emptor's name inserted in its place". This statement was approv ed by this Court in Bishan Singh v. Khazan Singh('), and the Court summarising the incidents of the right observed :

. '1'hat the rit of pre-emption is not a right to the thmg sold but a nght to the offer of a thing about to be sold. This right is called the primary or inherent right.

The pre-emptor has a secondary right or a remedial right to follow the thing sold. It is a right of substitution but not o! re-purchase, i.e., the pre-emptor takes the entire bargain and steps into the shoes of the original vendee".

That being the nature of the right, the next question is whether the restriction on the vendee's right of property created by s, IS

(fourthly) can be said to be an unreasonable restriction. A similar

• 'I) fli!8SJ I.LR. 7 All.175, 809.

(2) [19S9J S.C, R. 878.

question in regard to a similar provision in section 16 of the Punjab Pre-emption Act, 1913 arose in Babu Ram v. Baijnath ('). Section 16 of that Act provided for pre-emption on six grounds, the first, third, fourth and sixth grounds 'being in favour of co-sharers, owners of common staircases, owners of common entrance from a street and owners of contig'JOUs property. The Court held that the first, third and fourth grounds of pre-emption did not offend Articles 19(1)(£) and 14 and were valid. The Court observed that the Jaw under the first ground providing for pre-emption by co-sharers imposed reasonable restriction in the interest of the general public on the right under Art. 19(1)(£). If an outsider was introduced as a co-sharer in a }:lroperty it would make common management extremely difficult and destroy the benefits of ownership in common.

The advantage of excluding a stranger in the case of a. residential house was all the greater as it would avoid all .kinds of disputes.

The third ground which applied in a case where the property sold had a staircase common with other properties stood practically on the same footing as that of co-sharers. Regarding properties having a common entrance from the street with other properties, the Court held that that ground was similar to the first and the third grounds. At page 7 41 dealing with the fourth ground, the Court observed that the buildings were in a common compound and perhaps were originally put up by members of one family or one group v.; ith a common private passage from the public street. In such a case the owners of the buildings would stand more or less in the position of co-sharers, though actually there might be no co-sharership in the house sold. Such a case would approximate to cases of a common staircase and co-sharers and, therefore, the right of preemption in such a case was sustainable. The reasoning employed in upholding the validity of the fourth ground in s. 16 of the Punjab Act would apply with equal force to the provisions of s. 15(fourthly) before us.

Consequently, the contention that the impugned provision amounts to an unreasonable restriction cannot be sustained.

Both the contentions raised by Mr. Misra fail. The appeal is dismissed with costs.

V.P.S.

Appeal dismissed.

(1) [1962] 3 Supp. S.CR. 724.

PREM DULAR

K. SUBBA RAo, C.J.

M. HIDAYATULLAH

R. S. BACHAWAT,

J.

M. SHELAT

Right of Prior Purchase Act

Art. 19(1)

B. C. Misra

S. K. Mehta

K. L. Mehta

M. C. Setalvad

Mohan Behari Lal

AdditiOnal Distnct Judge, Jammu

Right of Prior Purchase Act

Misra

s. 15

section 15

Art. 19

Mohinder Nath

Uttam Chand

dant

Mohinder Nath

Uttam Chand

s. 15

s. 1

s. 15(fourthly)

High Court of Punjab

Punjab Preemption Act, 1905

Punjab Preemption Act, 1905

Punjab Chief Court

RAJ KUMARI

Mo hinder Nath

s. 15(fourthly)

s. 15(fourthly)

Mahmood

section 16

Punjab Pre-emption Act, 1913

Section 16

Articles 19(1)(£) and 14

Art. 19(1)(£)

s. 16

s. 15(fourthly)