NAGPUR ELECTRIC LIGHT & POWER CO., LTD.

A. v.

REGIONAL DIRECTOR EMPLOYEES STATE INSURANCE

CORPORATION, ETC.

March 2, 1967

(K. N. WANCHOO, R. S. BACHAWAT AND V. BHARGAVA, JJ.]

Employees State Insurance Act (34 of 1948), ss. 2(9) and 2(12)- Factory, area comprised in-Company trari'sferring and transmitting electricity-Workers doing non-manual work whether 'employees' within the meaning of s. 2(9),

The appellant company carried on the work of transforming and transmitting electrical energy. There was dispute between the company and the respondent whether certain employees of the col1)pany like engineers, draughtsmen, clerks, accountants, ete. mentioned in Appendices 111, IV and V of the company's petition before the Employees' Insurance Court, were 'Employees' or not wi'hin the meaning of s. 2(9) of the Employees Insurance Ac', 1948. The Employees Insurance Court held the said workers to be employees under s. 2(9) and this finding was confirmed by the Single Judge as well as the Division Bench of the High Court. The company appealed to this Court by special leave.

HELD : (i) The pre.mises of the company were a factory within the meaning of the Employees St.ate Imurance Act but the High Court was wrong in laying down the proposition that every inch of the area over which the transmission lines were spread was a factory w'.thin the meaning of s. 2(12). The company's factory had a fixed s te and was located within the compound wall of its premises. (96 E, HJ

(ii) All the employees of the disputed categories clerks or otherwisewere employed in connection with the work of the factory, that is to 'Say, in connectio11 with the work of transforming and tranmitting electrical power.

Some of the employees were not engaged in manual labour.

But a person doing: non-manual work can be an employee within the meaning of s. 2(9) (i) if he is employed in connection with the work of the factory.

The duties of the adm; nis•rn•ive staff are directly connected within the work of the factory. (99 C, OJ

Even those employees who worked outside the factory but whose duties were connected with the work of the .- factory were employees within the meaning of s. 2(9)(i). Among such employees were to be included those attnding to sub-stations of the factory. (100 Al

Ardeshir H. Bhiwaniwala v. The State of Bomhay, [1961] 3 S.C.R. 542, State of Uttm Pradesh v. M. P. Sinh, [19601 2 S.C.R. 605 and Employee<' State ln.rurance Corporation, Bombay v. Raman, [19571 1 L.L.J. 26.7. referrd to.

CIVIL APPELLATE JuRISDICTIOK: Civil Appeals Nos. 491 and 492 of 1965.

Appeals by special leave from the orders dated September 17, 1963 of the Bombay High Court Nagpur Bench in Letters Patent Appeals Nos. 14 and 15 of 1963.

A S. V. Gupte, Solicitor-General and I. N. Shroff, for the appel !ant (in C.A. No. 491 of 1965).

A. G. Ratnaparkhi, for the appellants (in C.A. No. 492 of 1965).

Bishan Narain, M. L. Kapur and I. S. Saw/mey, for the res- B pondents Nos.I and 2 (in C.As. Nos. 491 and 492 of 1965).

I. N .. Shrofj, for respondent No. 1 (in C.A. No. 492 of 1965).

The Judgment of the Court was delivered by

l>achawat, J.

The question in issue in these appeals is whether certain ernpio)'ces of che Nagpur Elcc; ric Light & Power Co. Ltd .. arc employees within the meaning of s. 2( 9) of the Employee," State h; ur.111cc Act, ! 9-~3 ( 34 o: 19+8). 'lhc company a11d the employee; I.led two s~_parate applications before the Employees' Insurance Court unuer s. i5 of the Act for , he determination of the que1tion.

Their ca'.:e i> that out of the five categ,1ries of staff menLoncJ ia appendices 1 to 5 to the company's petition, th'"" connectcJ wit\1 the receiving stution and workshop ( appenuice<

I and 2 l were employees "ithin the meaning o[ s. 2 ( 9). but \hos~ connccteJ \Vith th~ engineering, sore.s anJ outJoor \\ork. n1cter. con:-1u111ers. and ,1llncation d..; parn1enls and <.1Jn1initralion ( appendices 3, 4 and 5) 11erc not such employees.

The Regiunal Director, Employees State l nsurancc Corparation contested the applica tions. but he uJmitte'.l lhat the wmkcrs of the categories mentiond in items 5 _to 14 of arpcndix 4 and items I. 7 ai1u 8 of appendix 5 were not employees within the me:rning oi s. 2(9).

The Employees ln:; urancc Court found that those workers and also the

worker, mentioned in ite1n 12 of appendix 5 were not >.uch empk1yees.

The correctness of this finding is not in issue in the., c appeals and we express no opinion on it.

The categories of workers mentioned in appendix llI. items 1-4 in appendix IV and items 2-6 and 9-11 of appendix V arc as follows :-

"Appendix 111

Mains Senior : (l) assist.mt engineers, ( 2) super visors, (3) electricians, ( 4) overseers.

Mains junior: (1) cable jointers. (2) mistries. ( 3) sub-mistries, ( 4) lineman-H.T.O.H. mains. ( 5) mains coolies, (6) mains coolies temporary, (7) wireman temporary, ( 8) sub-mis tries, ( 9) sub-station attendants.

Clerical staff: (I) clerk to asstt. engineers, (2) draughtsman, (3) mains office peons.

Stores department : (I) storekeeper, (2) asstt. storekeeper, ( 3) clerks, ( 4) coolies.

Motor car staff : (1) motor drivers, (2) motor clearners.

Mason.

Appendix IV Meter senior & junior : (I) deputy meter superintendent, (2) senior meter mechanic, (3) junior meter mechanic, ( 4) meter testers.

Appendix V ( 2) accounts rlepartment : accountant, chief cashier, asstt. accountant, account clerks, clerks.

( 3) Time-keeping department : group head, clerks. ( 4) Filing department : group head, clerks.

(5) Typing department: steno-typists, typists. ( 6) Telephone operators.

(9) Record-keeper and daftari. ( 9a) Station clerk. ( 10) Motor car staff: mechanic, drivers, cleaners. ( 11 ) Menial staff : peons, garden malies, chowlcidars, sweepers, rejas tempQrary." The Employees Insurance Court held that the aforesaid workers were employees within the meaning of s. 2(9) of the Act The company and the employees filed two separate appeals from this decision to the High Court of Bombay (Nagpur Bench)

unde~ s. 82 of the Act.

Abhayankar, J. affirmed the finding of the Employees Insurance Court and dismissed the appeals. Letters Patent appeals from his orders were summarily dismissed by a Bench of the High Court.

The company and the employees have now preferred two separate appeals to this Court by special leave.

The Nagpur Electric Light & Power Co., Ltd., occupies certain premises at Kamptee Road, Nagpur where it carries on the work. of transforming and transmitting electrical energy.

The premises are located within a compound wall.

Inside the premises .there are several buildings, yards and open spaces.

The receiving station, the workshop, the rneter testing department, the engineers' quarters, the general office, and stores are in different buildings inside the premises.

The company does not generate electricity. It maintains a receiving station inside the preurises where it receives electrical energy in bulk from the generating station of the Maharashtra Electricity Board at Khapparkheda.

The energy when received is of 11,000 volts.

From the receiving station, the' energy is either carried through electric supply lines to a transformer and is stepped.down to 3,300 volts and is then carried to the sub-stations in the city where it is again stepped

down to 400 volts by other transformers, or is carried from the receiving station to sub-stations where it is stepped down directly

from 11,000 to 400 volts. From the sub-stations, the energy is transmitted by electric supply lines and distributed to consumers.

The first question is whether the company maintains a factory and if so, where its factory is located.

The Employees' State Insurance Act, 1948 applies in the first instance to all factories other than seasonal factories [ s.1 ( 4)] and may be extended to any other establishment or class of establishments, industrial, commercial, agricultural or otherwise [s.1 (S)J.

Sec. 2(12) defines a factory.

The relevant part of that section reads:

"Sec.2 ( I 2) : " 'factory' means any premises including the precincts thereof whereon twenty or more persons are working or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily so carried on but does not include a mine subject to the operation of the Indian Mines Act, 1923 or -a railway running shed;

The expressions 'manufacturing process' and 'power' shall have the meanings respectively assigned to them in the Factories Act, 1948." Any premises including the precincts tbe!reof (excepting a. mine and a railway running shed) constitute a factory if ( 1) 20 or more persons are working or were working thereon on any day of the preceding 12 months, and (2) in any part thereof a manufacturing process is being carried on with the aid of power. If these two conditions are satisfied, the entire premises including the precincts thereof constitute a factory, though the manufacturing process is carried on in only a part of the premises. The premises constituting a factory may be a building or open land or both, see Ardeshir H. Bhiwaniwala v. The State of Bombay(').

Inside the same compound wall, there may be two or more premises; the premi~ used in connection with manufacturing processes may constttute a factory, and the other premises within the same. compound wall may be used for the purposes unconnected with any manufacturing process and may form no part of the factory.

Sections 2(g) and (k) of the Factories Act 1948, define power and manufacturing process.

They are in these terms : 2(g). "'power' means electrical energy, or any other form of energy which is mechanically transmitted and is not generated by human or animal agency;"

(I) (1961) 3 S.C.R. 542.

SUPREME COURT

R-PORTS

[1967] 3 11.C.R.

2(k). for-

" 'manufacturing process' means any process

(i) making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal, or

(ii) pumping oil, water/or sewage, or

(iii) generating, transforming or transmitting power; or

(iv) composing types for printing, printing by letter c press, lithography, photogravure or other similar process or book binding;

( v) constructing, reconstructing, repairing, refitting, finishing or breaking up ships or vessels."

In view of s. 2(k)(iii), the process of transforming electrical energy from a high to a low potential and the process of transmitting the energy through supply lines are both manufacturing processes.

In a part of the premises occupied by the company, the two processes are carried on with the aid of power by means of electrical gadgets and other devices.

On the premises more than twenty persons were and are working.

No part of the premises is used for purposes unconnected with the manufacturing processes.

The premises therefore constitute a factory within the meaning of s. 2 (I 2) of the Employees State Insurance Act, 1948.

The High Court said :

"This manufacturing process is carried on by the Company not only in the building called the workshop or the receiving station but over the whole area over which the process of transmission is carried on including the sub-stations where electricity is stored and supplied to the consumers by further transmission lines.

Thus every part over which this process is carried on will be a factory within the meaning of the Employees' State Insurance Act."

We cannot accept this line of reasoning. It seems to us a startling proposition that every inch of the wide area over which the transmission lines are spread is a factory within the meaning of s. 2(12). "A factory must occupy a fixed site", see Halsbury's Laws of England, 3rd ed., Vol. 17, art. 15, p. 15. The company's factory has a fixed site. It is located inside the Kamptee Road

I '

premises and its boundaries are fixed by the compound wall of the premises.

The next question is whether the members of the staff of the categories mentioned in appendix III, items 1-4 of appendix N

and items 2-6 and 9-11 of appendix V to the company's petition are employees within the meaning of s. 2(9) of the Employees' State Insurance Act.

It is common case that these workers are employed on remuneration which in the aggregate does not exceed four hundred rupees a month. Section 2 ( 9) is in these terms :-·

" 'employee' means any person employed for wages in or in. connection with the work of a factory or establishment to which this Act applies and-

(i) who is directly employed by the principal employer on any work of, or incidental or preliminary to or connected with the work of, the factory or establishment, whether such work is done by the employee in the factory or esta blishment or elsewhere; or

(ii)

(iii)

who is employed by or through an immediate employer on the premises of the factory or establishment or under the supervision of the principal employer or his agent on work which is ordinarily part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the purpose of the factory or establishment; or

whose services are temporarily lent or let on hire to the principal employer by the person with whom the person whose services are so lent or let on hire has entered into a contract of service;

but does not include-

(a) any member of the Indian naval, military or air forces or;

(b) any person employed on a remuneration which in the aggregate exceeds four hundreds rupees a month;"

The definition of employee in s. 2( 9) may be contrasted with that of a worker ins. 2(1) of the Factories Act 1948, which is in these terms:

" 'worker' means a person employed, directly or through any agency; whether for wages or not, in any manufacturing process, or in cleaning any part of the machinery or premises used for a manufacturing process, or in any other kind of work incidental to, or connected with, the manufacturing process, or the subject of the manufacturing process;"

It is to be seen that the definition of an employee in the Employees'

State Insurance Act is wider than that of a worker in the Factories Act.

The object of the Factories Act is to secure the health, safety, welfare, proper working hours, leave and other benefits for workers employed in factories.

The benefit of this Act does not extend to field workers working outside the factory, see the State of Uttar Pradesh v. M. P. Singh('). The object of the Employees' State Insurance Act is to secure sickness, maternity, disablement and medical benefits to employees of factories and establishments and dependents' benefits to their dependants.

The benefit of this Act extends inter alia to the employees mentioned in s. 2(9) (i} whether working inside the factory or establishment or elsewhere.

The definition of "employee" ins. 2(9) deals with three classes of employees.

We are concerned with the class . of employees mentioned in s. 2(9)(i). The courts below concurrently found and in our opinion, rightly, that all the workers of the disputed categories are persons employed for wages in or in connection with work of thx company's factory and are directly employed by the company on work of or incidental to or connected with the work of the factory.

Some of them do the work in the factory and some work elsewhere, but they are all employees within the meaning of s. 2(9)(i). Take the case of the workers mentioned in appendix III. The assistant engineers, supervisors, electricians, and overseers are engaged in the erection and maintenance of the electricity supply lines connected with transmission of power. The cable jointer, mistries, linemen, coolies and wiremen are employed for inspection of the supply lines, digging pits, erecting poles for laying distribution mains and service lines.

The masons attend to the masonary work of the buildings.

The attendants in-charge of the sub-stations look after the transformation and transmission of power. The motor drivers and cleaners are employed for carry-. ing materials and tower ladders in trucks for maintenance of the supply lines.

The clerks, draughtsmen and main office peons help the assistant engineers. The store keepers and clerks with the assistance of coolies issue stores to all the departments and keep accounts relating to stock.

The deputy meter superintendent, meter mechanics and meter testers mentioned in items 1 10

4 of appendix IV attend to the testfug caliberation and repairs of

(I) (196V]2 S.C.R. 60S.

the meters. Let us now take the case of the staff mentioned in items 2 to 6 and 9 to 11 of appendix V.

The clerks in the accounts, time-keeping and filing departments are employed to maintain accounts, attendance registers, muster rolls, pay-sheets, typing,. filing and despatching documents required in connection with all the departments including the receivmg station and the workshop.

The telephone operators attend to the telephone calls for all the departments.

The menial staff is required to do miscellaneous work including the cleaning of the office compound.

The motor car staff is employed to look after the cars employed in the administration section. All these employees, clerical or otherwise, are employed in connection with the work of the factory, that is to say, in connection with the work of transforming and transmitting electrical power.

Some of the employees are clerks; they are not engaged in manual labour. But a person doing non-manual work can be an employee within the meaning of s. 2(9) (i) if he is employed in connection with work of the factory.

The duties of the administrative staff are directly con. nected with the work of the factory. The case of the Empluyeel D State Insurance Corporation, Bombay v. Raman(') is distinguishable.

In that case a company had a factory and an administrative office.

The office was situated in a building which was situated within the same compound in which the factory wa.s located.

The entire compound was surrounded by one compound wall. It was found that the work of the factory began with the collection of raw materials and ended with the production of finished articles and thework of selling the pro- E

ducts was not connected with the work of the factory.

The administrative office handled sales of the products manufactured in the factory as well as goods imported from abroad. The factory and the administrative office maintained separate muster and wage rolls and separate accounts. In these circumstances, it was held that the clerks employed in the administrative office, whose work consisted mainly of taking down dictations from the manaser and other officers and typing out letters, were not employees within the meaning of s. 2 ( 9). The facts of the present case are entirely different. The company maintains one establishment for its factory.

The factory does the work of transforming G and transmitting electrical energy. All the workers in question

including the clerks and the administrative staff are engaged in connection with this work.

None of them is employed in any separate establishment unconnected with the work of the factory.

Some of the employees work outside the factory, but their H duties are connected with the work of the factory.

They are therefore employees within the meaning of s. 2(9) (i). Some are

(2) [19S7) I L.L.1. 267.

SUPREME COURT REPORTS

(1967] 3 S.C.R.

employed in the sub-stations.

It is common case that the substations are not independent factories.

The sub-stations attendants attend to work which is directly connected with the work of the factory at the main station.

They are therefore employees within the meaning of s. 2 ( 9) (i) .

In the resuli, the appeals are dismissed with costs.

One hear- B ing fee.

G.C.

Appeals dismissed.

NAGPUR ELECTRIC LIGHT & POWER CO.

March 2, 1967

K. N. WANCHOO

R. S. BACHAWAT

V. BHARGAVA, JJ.

Employees State Insurance Act

ss. 2(9) and 2(12)

s. 2(9)

s. 2(9)

s. 2(9)

s. 2(12)

s. 2(9)

s. 2(9)(i)

[1961] 3 S.C.R. 542

CIVIL APPELLATE JuRISDICTIOK

A S. V. Gupte

I. N. Shroff

A. G. Ratnaparkhi

Bishan Narain

M. L. Kapur

I. S. Saw

I. N .. Shrofj

l>achawat

s. 2( 9)

s. 2

s. 2(9)

s. 2(9)

High Court of Bombay (Nagpur Bench)

s. 82

Abhayankar

Nagpur Electric Light & Power Co., Ltd.

Nagpur

Maharashtra Electricity Board

Khapparkheda

State Insurance Act, 1948

Sec. 2(12)

Indian Mines Act, 1923

Factories Act, 1948

Sections 2(g)

Factories Act 1948

(1961) 3 S.C.R. 542

s. 2(k)(iii)

s. 2

Employees State Insurance Act, 1948

State Insurance Act

s. 2(12)

England

art. 15

s. 2(9)

State Insurance Act

Section 2

s. 2( 9)

Factories Act 1948

Factories Act

State Insurance Act

s. 2(9)

s. 2(9)(i)

s. 2(9)(i)

s. 2(9)

s. 2

s. 2(9)

s. 2


GUMMANNA SHETTY & ORS.

NAGA VENIAMMA

May 4, 1967

IR. S. BACHAWAT, J, M. SHELAT AND V. BHARGAVA, JJ.] B

Madras Aliyasanthana Act (9 of 1949), s. 3(6)-Scope of.

By a registered deed dated September 4, 1900, a group of 19 perons forming a joint family with community of property governed by 1he Aliyasanthana law of inheritance, formed themselves into two branches not according to natural Kavarus, but into artificial branches and <livided the family prol?erties.

In 1953, the members of one of these C two artificial branches xnstitutecl a suit against the sole surviving mem~ ber of the other branch who was a 11issanthathi kavaru, for partition of all the properties comprised in the deed of 1900, allegation that tho deed only effected a division for convenience of enjoyment and not an outright partition.

On the question whether under s. 36(6) of the Madras Aliyasanthana Act, 1949, the deed of 1900 should be deemed to have effected a parti- D tion of the properties,

HELD : The deed on its true construction, did not zffect an out-right partition nor could it be deemed to be a deed of partition under s. 36(6) of the Act, because, the kutumba was split into two artificial groups and not according to the kavarus.

[937C-DJ

One of the four conditions necessary as a pre-requisite for the appli E cation of the section is that the distribution of properties is among all the kavarus of the kutumba for their separate and absolute enjoyment in perpetuity.

That is, the sub-section applies to a family settlement .under which the ku111mba is split up according to kavarus as defined in s. 3(b) of the Act, and the kutumba properties distributed among such kal'arus.

[936F-G; 937B-C']

CIVIL APPELLATE JuRrsmcnoN: Civil Appeal No. 910 of F 1964.

Appeal from the judgment and order dated February 28, 1961 of the Mysore High Court in Regular Appeal No. (M) 70 o( 1956.

V. K. Krishna Menon, M. Veerappa, Sreedharan Nambiar, G D .. P. Singh and H. K. Puri, for the appellants.

S. T. Desai, R. Thiagarajan and R. Ganapathy Iyer, for thi? respondent.

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

By a registered deed dated September 4, 1900.

H a group of 19 persons forming a joint family with community of property governed by the Aliyasanthana Law of inheritance, formed themselves into two branches and divided the famiiy pro

perties.

The second branch consisted of the descendants of Sarasamma and Brahmi and some descendants of Nemakka-in all

IO persons.

The first branch consisted of Nemakka and the

rst of her descendants and her sister Sivadevi-in all 9 persons. t In 1953, Darnamma was the sole surviving member of the second ' branch.

She was a nissanthathi kavaru, 70 years old having no descendants. In 1953, the members of the first branch instituted a suit against Darnamma for partition of all the properties comprised in the deed dated September 4, 1900, alleging that the deed effected a division for convenience of enjoyment and maintenance only and was not an absolute or out-right partition The defence of Darnamma was that the deed effected an outright partition.

The trial court accepted the plaintiff's contention and passed a preliminary decree for partition. Darnamma filed an appeal in the Mysore High Court. During the pendency of the appeal she died and one Nagaveniamma claiming under her will was substituted in her place as her legal reprt15entative.

The High Court held that the deed dated September 4, 1900, effected an out-right partition. On this finding, the High Court allowed the appeal, set aside the decree passed by the trial court and dismissed the suit.

From this decree the present appeal has been filed under a certificate granted by the High Court.

The joint family properties were formerly managed by its yajaman, one Manjappa.

Upon his death, the parties to the deed dated September 4, 1900, apprehended disputes.

The object of the deed was to prevent such disputes, and consequential wastage of property and to preserve the dignity of the family.

The family properties were divided into two parts, and a portion was allotted to each branch.

The deed provided that the properties allotted to the first branch would be enjoyed by its members and would be mutated in Nemakka's name, and Siddappa, a member of this branch, would manage the properties, pay the tirve and cesses, and conduct the maintenaI1ce of its members.

The properties allotted to the second branch would be enjoyed by its members and would be mutated in the name of Nagu, a member of that branch, and

Chdayia, anothr member of the branch, would manage the properties, pay the tirve and cesses, and conduct the maintenance of its members.

Parts of items 2 and 5 of the properties were allotted to the two branches, but the entire tirve, and cesses for the two items would be paid: by the first branch and the arrears of the _tirve, if any, would form a charge on ' the properties allotted to the first branch.

The deed provided that "as regards the properties enjoyed as mentioned above by the members of the first branch, the members of the said branch and the descendants that shall be born to them in future should enjoy the same and as regards the properties en.joyed by the members of the second branch, the members of the said branch and the descendants that shall be born to them in future should enjoy the same

and in this manner, they should enjoy the properties separately.

Further, after the lifetime of the member of the respective branches who obtains the kudathale of the properties allotted to the respective branches, the kudathale should be got entered successively in the name of the senior-most male or female member of the respective branches." The common debt of the family was apportioned between the two branches, and each branch would discharge its share of the debt and interest thereon as quickly as possible. If the manager of any branch allowed the interest to fall in arrears, the members of the branch would appoint another manager in his place.

Each branch would have the power to execute documents creating a security over the properties allotted to it for payment of its share of the common debt. No member of the family would have the right to incur other debts. The deed provided that : "If any debt is borrowed, the very person who borrows the debt should discharge it with his personal liability; and further, the movable and immovable properties of this family or the members of the family should not become liable for such debt." Another clause provided that : "These immovable properties or any portion thereof and the right of maintenance of any individual should not be alienated in any manner by way of mortgage, sale, gift, mulageni, artha mulageni and vaide geni.

Contrary to this term, if alienation is made, such alienation should not be valid." The deed also provided : "If there are no descendants at all completely in the first branch, the members belonging to the second branch shall be entitled to the entire movable and immovable properties of the said first branch; and if there are no descendants at all completely in the second branch, the members of the first branch .shall be entitled to the entire movable and immovable properties of the said second branch."

The sole question arising in this appeal is whether the deed dated September 4, 1900, effected a disruption of the joint family or whether it made a division for convenience of enjoyment and maintenance only.

In 1900, when this deed was executed, one or more members of a joint family governed by the Aliyasanthana law of inheritance had no right to claim a partition of the joint family properties, but by a family arrangement entered into with the consent of all its members, the properties could be divided and separately enjoyed. In such families, an arrangement for separate possession and enjoyment without actual disruption of the family was common.

An arrangement for separate enjoyment did not effect a disruption of the family, unless it completely extinguished the community of interest in the family properties.

The character of the deed dated September 4, 1900, must be judged in this background.

The respondent relies on several features of the deed as indicative of an out-right partition. The properties were divided

A t ' '

into two shares.

Each branch was to enjoy its share in perpetuity from generation to generation without any interference from the other branch.

There would be separate mutations and separate pattas in respect of the properties allott.ed to -each branch. The assessments were to be paid separately. Each branch would have a separate manager.

The share of the common debt allotted to each branch and the interest thereon would be paid separately.

All these.features coupled with other circumstances may indicate a complete disruption of the family.

See Su/aiman v. Biyathumma('). But there are other features of the deed which indicate that it did not effect an out-right partition. The object of the deed was to prevent disputes and wastage of properties and to presene the dignity of the family. In terms, the deed did not declare that there was a complete disruption of the family. In case of a partition, a Kutumba governed by the Aliyasanthana Jaw is usually split up according to natural kavarus but under this; deed, the Kutumba was split up into two artificial branches. The members of the two branches were restrained from incurring debts binding on the family properties and from alienating the' properties or y portion thereof and granting any leases except in the ordinary course of management. These restrictions were obviously placed for the purpose of preserving the family properties intact for the benefit of both branches. The High Court said that as the deed effected an out-right partition, the conditions restraining alienations were void under Sec. 10 of the Transfer of Property Act.

But the point in issue is whether the deed effected' an out-right partition.

The restrictions on alienation rather indicate that the parties did not intend to effect an out-right partition, and they wanted a division for convenience of enjoyment on the footing that neither branch had the right to alienate. If the

family arrangement took effect as a division for convenience or enjoyment only, and not as an out-right partition, the restrictions on alienations were not hit by Sec. I 0 of the Transfer of Property A ct.

Moreover, the deed provided that if any branch would become nissanthathi, its properties would pass to the members of the other branch.

This clause indicates that on one branch becoming extinct, the properties allotted to it would pass by survivorshi~ to the other branch.

Had there been an out-right partition, the sole surviving kavaru would be entitled to dispose of her separate property by a will under the provisions of the Malabar Wills Act 1898.

The absence of such a right indicates that the deed did not effect a complete disruption of the joint family.

On a consideration of the deed as a whole in all its parts, we are constrained to hold that the deed on its true construction did not effect an out-right partition of the joint family. We may add that in a compromise dated August 10, 1909 in O.S. No. 10 of 1909 to

(I) 32 M.U. 137 P.C. 9Sur. Cf/67-16

which the members of the second branch were parties, Darnamma solemnly admitted and declared that the deed was not a partition deed, but was a family arrangement for the convenient enjoyment of the properties by the members of the family so that the properties may be increased and not wasted.

Counsel for the respondent contended that the deed should be deemed to have effected a partition of the joint family properties under section 36(6) of the Madras Aliyasantana Act,

1949. This contention was repelled by the trial court and was not pressed in the High Court.

Section 36(6) reads : "A registered family settlement (by whatever name called) or an award, to which all the major members of a kutumba are parties and under which the wh, ole of the kutumba properties have been or were intended to be distributed, or purport to have been distributed, among all . the kavarus of the kutumba for their sepa-

. lei) 'and absolute enjoyment in perpetuity' shall be ,:'; deemed to be a partition of the kutumba properties

'limtwithstanding any terms to the contra~ in such settlement or award."

As was pointed out by Ramaswami J. in Kaveri v. Ganga Ratna('), the following four conditions are the necessary prerequisites for the application of Sec. 36(6) : '(l) there is a registered family settlement or award;

(2) all the major members of the kutumba are parties to it;

( 3) the whole of the kutumba properties have been or were intended or purport to have been distributed undei: it; and

( 4) the distribution is among all the kavarus of the kutumb:i for their separate and absolute enjoyment in perpetmty.

Tb.e onus is upon the respondent to prove that the deed dated .September 4, 1900, satisfies all these four conditions. The plea

!hat the eed satisfies the conditions of. s. 36(6), was not tabn m the wntten statement, nor was any ISSUe raised on the point The materials on the record do not show that the deed satisfie~

all the conditions of S. 36(6). The trial court found that though Damamma, a member of the kutumba, was a major ori September 4, 1900, she did not execute the. deed. The deed described her H as a minor under the 'Wiardianship of Padmaraja.

From the

(I) [1956] I.M.L.J. 98, 106.

materials on the record it is not possible to say definitely that the whole of the kutumba properties was distributed under the deed: Moreover, S. 36(6) can apply only if the distribution was "among all the kavarus of the kUtumba".

S. 3 (b) defines kavaru. Used in relation to a female, it means the group of persons consistin~ of that female, her children and all her descendants in the female line, and used in relation to a male, it means the kavaru of the mother of that male. Having regard to the scheme of S. 36, we think that S. 36(6) applies to a family settlement under which the kutumba is split up according to kavarus as defined in S. 3 (b) and the kutumba properties are distributed among such kavarus. Section 36(6) cannot apply to the deed dated September 4, 1900, under which the kutumba was split up into two artificial groups, one consisting of the descendants of Sarasamma and Brahmi and some descendants of Nemakka, and the other consisting of Nemakka, the rest of her descendants and Sivadevi, and the properties were divided between these two artificial group&.

It follows that the deed dated September 4, 1900, on its true construction, did not effect an out-right partition nor can it be deemed to be a deed of partition under S. 36(6) of the Madras Aliyasantana Act, 1949.

In the result, the appeal is allowed without costs, the judgment and decree passed by the High Court is set aside, and the decree of the trial court is restored. V.l.S.

Appeal allowed.

GUMMANNA SHETTY & ORS

NAGA VENIAMMA

May 4, 1967

IR. S. BACHAWAT, J

M. SHELAT

V. BHARGAVA, JJ.

Madras Aliyasanthana Act

s. 3(6)

September 4, 1900

s. 36(6)

Madras Aliyasanthana Act, 1949

s. 36(6)

s. 3(b)

Mysore High Court

V. K. Krishna Menon

M. Veerappa

Sreedharan Nambiar

G D .. P. Singh

H. K. Puri

S. T. Desai

R. Thiagarajan

R. Ganapathy Iyer

Bachawat

Nemakka

Sivadevi

Darnamma

Nagaveniamma

Manjappa

Siddappa

Nagu

Chdayia

Sec. 10

Transfer of Property Act

Malabar Wills Act 1898

August 10, 1909

section 36(6)

Madras Aliyasantana Act

Section 36(6)

Ramaswami

Sec. 36(6)

s. 36(6)

S. 36(6)

Damamma

S. 36(6)

S. 3

S. 36

S. 36(6)

S. 3

Section 36(6)

Sarasamma

Brahmi

S. 36(6)

Madras Aliyasantana Act, 1949

V.l

S.


STATE OF BOMBAY (NOW GUJARAT)

MEMON MAHOMED HAJI HASAM

May 5, 1967

[R. S. BACHAWAT, J. M. SHELAT AND V. BHARGAVA, JJ.]

Juncgarh Sta Customs Act II of S. Y. 1998-Seizure under said Act of some vehicles belonging to respondent-After being kept for some years outside a police station vehicles sold by order obtained under 1. 523 Cr. Pc C. as unclaimed propertr-Revenue Tribunal In appeal ordering return of vehicles lo relf{londent-Suit by rellpondent to recover value of veliicles-Liability of State.

Two trucks and a station wagon belonging to the respondent were seized by tht customs authorities of the State of Junagarh under the provisions of the Juliagarh State Sea Customs Act of S.Y. 1998. The Junagrah State was merged into the. United States of Saurashtra and after furth<r changes became part of the present Gujarat State.

The respondent's appeal against the aforesaid seizure of his goods succeeded before the Revenue Tribunal which ordered the return of the said vehicles to the respondent.

When however he applied for the return of the vehicles he was informed that .tl\ey had been disposed. of under an order of a Magistrate under s. SZ3 of. the Code of Criminal Proeedure, and that the sale proceeds had been paid to a creditor of the respondent under an attachment order. The respondent .thereupon filed a s.uit for the recovery of ti)e value of the vehicles. ·: ..

' ; i.'' ........ ' ' . ' .

It appeareiilff~'. \he evidence that the vehicles were kept for :, ev~~\· I: yearn in ar. open. 'place outside the poliee station at Veraval so that most'

of their parts were pilfered away and only the skeletons of the vehlclell : were left.

Finally on the report of the officer incharae of the aforesaid police tation they were sold at an auction as unclaimed )1l'Operty after' obtaining the order of a Magistrate.

The trial court on the above evi' dence, decreed th" respondent's suit and the Hil!h Court upheld the decree though partly reducing the amount.

The State appealed. to tbis Court.

It was contended on bohalf of the appellant that the sale was under a judicial order and therefo~ there was no liability to pay; at tile

most one or the other offiers of the Government could be held guilty of negligence. It was further contended on behalf of the State that it could not be treated as a bailee because a bailment could arise only under a ccntract.

HELD : (i) The State Government n9 doubt. seized the said vetiicles pursuant to the power under the Customs Act. But the power to seize and confiscate was dependant upon a customs. offence havtng been committeJ or a suspicion that such offence had been comniitted. The order of the Customs Officer was not final as it was subject to appeal aad if the oppollate authority found that there was no good ground for the excr: .. -i~·~ of that power the property could no longer be retained and h.:1d under the Act to be returned to the .owner. Thus there was a clear slatutC'r\ obligation to return th~ vehicle to the owner if the appeal went in h's i;, vour. [944EJ

There was also an implie, d leg-al. obligation to presetve the property intact and to take reasonable care of it so as to enable it to be returned

in the same condition in which it was seized. The position of the State Government until the order became final was therefore that of a bailee.

There can be bailment and the relationship of a bailor and bailee in respect of specific property without there being an enforceable contract.

Nor is consent indispensable for such a relationship to arise.

Even a finder of goods of anotr becomes a bailee in certain circumstar.ces. [Y4°1A-D; F-Hl The High Court was right in confirmin~ the decree passed by the trial court on the basis that there was an obbgation on the State Goyernment either to return the said vehicles or in the alternative to pay their value. f 945 EJ

State of Rajasthan v. Mst. Vidhyawati, f1962l Supp. 2 S.C.R. 989' and Kasturilal lain v. State of U.P. [1965] I S.C.R. 375, held inapplic- 1ble.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 215 of 1961.

Appeal by special leave from the judgment and decree dated January 22, 1958 of the Bombay High Court at Rajkot in Civil First Appeal No. 93 of 1956.

R. H. Dhebar, for the appellant.

H. K. Puri and Bishamber Lal, for the respondents No5. 4-7.

The Judgment of the Court was delivered by Shelat, J. Jn 1947 and prior thereto the respondent carried on business as an' exporter of fish in the State of Junagadh ~, the name and style of Ayub Iqbal and Company.

In 1947 the Customs authorities of the State of Junagadh seized two motor trucks, a station wagon and other goods belonging to the respondent on the grounds, (a) that the respondent had not paid import duties on the said trucks, (b) that they were used for smuggling goods in the State and ( c) that some of the goods were smuggled goods.

The action was taken under the Junagadh State Sea Customs Act, II of S.Y. 1998 then in vogue in the State. The respondent filed an appeal against 'this order to the Home Member of the State as provided in the said Act.

Pending the appeal, the State of Junagadh merged in the United States of Saurashtra which ultimately was converted into the State of Saurashtra. The State of Saurashtra thereafter merged with the former State of Bombav and on bifurcation of the Bonibay State became part of the State of Gujarat In the meantime the appeal was transferred to the Revenue Tribunal which was constituted by the State of Saurashtra and which was the competent forum to hear such appeals.

On February 6, 1952, the Revenue Tribunal set aside the s:fr:I order of confiscation of the Customs authority and directed ti1e return of the said vehicles to the respondent.

On March 13, 1952, th~ respondent applied for the return of the said vehicfos but was mformed that they had been disposed of under an order of a Magistrate passed under s. 523 of the Code of Criminal Procedure and tha~ the sale proceeds viz., Rs. 2213/8/- were hanctd

over to a creditor of the respondent under an attachment ord.:r passed in his favour.

On February 5, 1954, the respondent filed

SUPREME COURT REPORTS [1967j 3 S.C.&.

the present suit for the return of the said vehicles or in the alternative for their value viz., Rs. 31786/8/- on the ground that pursuant to the said order of the Tribunal, which in the absence of any proceedings against it had become final, the State Government was bound to hand over the said vehicles. In its written statement the State Government denied the respondent's claim 'and took up diverse pleas.

It is not necessary to go into the details of these pleas except to say that the State Government did not raise any contention therein that it was not liable for any tortious act committed in respect of the said goods and vehicles by any one of its servants. On these pleadings the trial court raised various issues.

No issue with regard to the absence of liability for the tortious act of any servant of the Government was or could be raised in the aforesaid state of pleadings.

The evidence led by the State and in particular of the police officer Trambaklal Naranji showed {a) that the said vehicles were seized in 194 7 by the Customs Officer of the State of . Junagadh, ( b) that somehow they were kept in an open space opposite to the police station at Veraval, ( c) that they remained totally uncared for .from 1947 to October, 1951 with the result that the greater part of the machinery of the vehicles, tyres and even some wheels were pilfered away leaving only the skeletons of the vehicles, ( d) that no entries were made in any of the registe~ maintained at the police station to show as to how these vehicles came to be kept in the said open space or whether the customs authority had handed over the said vehicles to the police for safe custody, ( e) that in October, 1951, witness Trambaklal who was then incharge of the police station reported to his superior officers the fact of these vehicles lying in the said open space as uncared and unclaimed vehicles, (f) that on October 3, 1951, directions were given to him to apply to the Magistrate for disposal of the said vehicles as unclaimed property under s. 523,

(g) that on October 21, 1951, the police recorded a Panchanan1a as regards the condition of the said vehicles, and (h) that on October 29, 1951 pursuant to the said directions; the police officer made an application which mentioned the fact that these vehicles were seized by the Port Commissioner in 194 7 from Memon Mahomed Haji Hasam of Veraval, the respondent. It is clear that in spite of the police authorities being aware that the said vehicles were seized from the respondent, his name having been mentioned in the said application, no notice was served upon him of the said application which, as aforesaid, was made on the footing that the said vehicles were unclaimed property. The only notice which was issued by the Magistrate was a public notice which wa' ordered to be pasted at a public place. Clearly, the respondent was right when he said that he was not aware of the said proceedings or the order passed by the Magistrate therein.

It appears from the Rojkam of the Magistrate's court that on February

5, 1952, the said vehicles were auctioned in the condition in which they were and only Rs. 2,000 and odd were realised from that auction.

The trial court found that the customs officer was competent to seize the said vehicles on a suspicion that a, custom offence under the said Act had been committed. It held, however, that after the Tribunal had set aside his order and directed the return of the said property to the respondent it was the duty of the State Government to return the said property and on failure to do so the respondent had a cause of action and the suit was maintainable, On these findings, the trial court passed a decree against the State Government for Rs. 26797/8/-.

The State Government thereupon filed an appeal in the High Court of Bombay at Rajkol taking a number of grounds in its memorandum of appeal.

In,, the memorandum of appeal the State Government inter aliri raised the following grounds :

"The learned Civil Judge ought to have decided tht the State is not liable for any acts tortious or otherwise of its servants and of the customs or the police auth<>'- rities".

The High Court held that no such plea having been taken in its written statement nor any issue having been raised in tlie trial court, the State Government was not entitled to raise the contention for the first time in the appeal.

The High Court confirmed the said decree except for a slight reduction in the decretal amount from Rs. 26797/8/- to Rs. 25532/10/-. The High Court found ( 1) that the said vehicles were sold on February 5, 1952 while the appeal before the Revenue Tribupal was still pending, ( 2) that the said vehicles were sold at the instance of the police officer under s. 523 on the footing that they were unclaimed property, (3) that such an assumption was wrong as the vehicles were lying with the authorities while the appeal was still pending and when the issue, whether the said vehicles were liable to confiscation, was not finally decided;,:{ 4) that the said vehicles could not be sold by auction because they were liable to be returned in the event of the Tribunal holding that' the said seizure and confiscation were illegal and directing the vehicles to be returned to the owner.

The High Court held (a) that the Junagadh Cust"?ms Act which apJ?lied to the instant case provided an appeal agamt. an order of seizure and confiscation, (b) that there bemg a P, rov1s1on for appeal in the said Act there was a statutory duty ?n the .State to see that the property which was seized was

ept. mtact .till .the appeal was disposed of, ( c) that there was an uphed bllgation to see that the said property was not tampered with dui; mg the pendency of the appeal in which the order of consc~!Ion was under scrutiny, (d) that the breach of the said obligation gave a cause of action to the respondent, and ( e) that

942 SUPREME COURT :1lEPORTS

(1967] 3 S.C.R.

the cause of action on which the said suit was grounded was the A respondent's right to the return of the said property and that the relief claimed on that cause of action was the return of the said property or in the alternative the value thereof and not damages for any negligence either of the State Government or of any of its servants.

It is against this judgment and decree of the High Court that this appeal by special leave is directed.

It is clear. that both the trial court and the High Court concurrently found that the said vehicles wereseizedby the customs authority, that 'between 1947 and October, 1951 when they were disposed off they were lying uncared for in an open space, that they were disposed of at the instance of the Police as unclaimed property, that when they were sold most of the valuable C parts were missinJ:( and lastly that they were sold while the appeal against the order of seizure and confiscation was still pending.

Mr. Dhebar's contention was that since they were seized by " competent officer the seizure was lawful and that the utmost that could be alleged in the circumstances was that one or the other servants of the State Government was guilty of negligence.

He D contended that the State Government was not liable for any tortious act of any of its servants.

Before we proceed to consider this contention it is necessar\· to examine some of the provisions of the said Act which both the parties conceded was the relevant law applicable to the present case.

Section 150 lays down various offences under the Act mid E the respective penalties therefor. Clause (8) of s. 150 provides that if any goods, the importation or exportation of which is for the time being prohibited or restricted by or under Chapter IV of this Act, be imported into or exported from the Junagadh State contrary to such prohibition or restriction, or if any attempt is made so to import or export any such goods, or if any such 11 goods are found in any package produced to any officer of Customs as containing no such goods etc., such goods shall be liable to confiscation and any person concerned in any such offence shall be liable to a penalty as set out therein.

Section 160 provides that a thing liable to confiscation under this Act may be seized in any place by an officer of Customs or other person duly employed for the prevention of smuggling.

Section 163 provides that when G a thing is seired the officer making such seizure shall on demand of the person in charge of the goods so seized give him a statement in writing of the reasons for such seizure. Section 166 provides for adjudkation of confiscation and penalties.

Section 17'2 provides for an appeal from a subordinate Customs officer to the Chief Customs authoritv and s. 175 provides a revision by the H Ruler of the Junagadh State. The power of revision under s. 175 includes the power to revere or mod!fy the dision flr. or?e~· in the exercise of His Highness s extraordmary rev1S1onal .1unsd1ction.

BOMBAYV.HAJI HASAM ( Shelat, J.) 943

It would appear from these provisions that the seizure of the said vehicles was carried out with jurisdiction and the order of confiscation was also made, apart from the question as to its merits, by a competent officer with jurisdiction. It is also possible to contend that as the said vehicles were sold pursuant to a judicial order no liability can be attached on the State Government for their disposal by public auction.

But between their seizure and the auction there was a duty implicit from the provisions of the Act to take reasonable care of the property seized.

This is so because the order of confiscation was not final and was subject to an appeal and a revision before the Home Member and later on before the Revenue Tribunal after Junagadh merged in the State of Saurashtra in 1948-49. The appellant-State was aware that the order of seizure and confiscation was not final being subject to an appeal and was liable to be set aside either in appeal or in revision. It was also aware that if the said order was &et aside, the property would have .to be returned to the owner thereof in the same state in which it was seized except as to nonnal depreciation.

In spite of this clear position, while the appeal was still pending before the Revenue Tribunal and without waiting for its disposal, it allowed its police authorities to have it disposed of as unclaimed property.

The State Government was fully aware, firstly, by reason of the pendency of the appeal and secondly because the application under s. 523 expressly mentioned the person from whom the said vehicles were seized, that the vehicles were and could not be said to be unclaimed property. In the circumstances, the State Government was during the pendency of the appeal under a statutory duty to take reasonable care of the &aid vehicles which on the said appeal being decided against it were liable to be returned to their owner.

The contention that the order of disposal was a judicial order or that the respondent could have filed a revision application against th.at order and have it set aside would be be>i<lc the point.

There being a statutory obligation under the Act to return the property once the order of seizure and confiscation was held to be. wrong, the respondent could rely on that obligation and chum the return .of the said vehicles.

On behalf of the respondent, the contentmn urged was that though the seizure might bn lawful and under the. authority of the Statute, the Stale Govern: ment "'.~ from the time that the said goods were &eized until the dec1S1on of the appeal, in a position of a bailee and was therefore, bound to take reasonable care of the said vehicles' That no such reasonable care was taken and the vehicles remain: ed totally uncared fo~ is not in dispute. Mr. Dhebar's ; eply was that there was no bailment nor can such bailment be inferred as s. 148 of the Contract Act requires that a bailment can arise only

unde~ a contrac.t between the parties.

That conte11L10n is not sustamable.

Ba1lment is dealt with by the Contract Act only

SUPREME COURT REPORTS [1967] 3 S.C.lt.

in cases where it arises from a contract but it is not correct to say that there cannot be a bailment without an enforceable contract.

As stated in "Possession in the Common Law" by Pollock and Wright, p. 163, "Upon the whole, it is conceived that in general any person is to be considered as a bailee who otherwise than as a servant either receives possession of a thing from another or consents to receive or hold possession of a thing for another upon an understanding with the other person either to keep and return or deliver tv him the specific thing or to (convey and) apply the specific thing according to the directions antecedent or future of the other person". 'Bailment is a relationship rui gtr.eris and unless it is sought to increase or diminish the burdens imposed upon the bailee by the very fact of the bailment, it i~ not necesary to incorporate it into the law of contract and to prove a consideration"(').

There can, therefore, be bailment and the relationship of a bailee in respect of specific property without there being an

enforceable contract. Nor is consent indispensable for such a ,. relationship to arise.

A finder of goods of another has been D held to be a bailee in certain circumstances.

On the facts of the present case, the State Government no doubt seized• the said vehicles pursuant to the power under the Customs Act. But the power to seize and confiscate was dependent upon a customs offence having been commiHed or a suspi cion that such offence had been committed. The order of the Customs Officer was not final as it was subject to an appeal and if the appellate authority found that there was no good ground for the exercise of that power, the property could no longer be 11"etained and had under the Act to be returned to the owner.

That being the position and the property being liable to be returned there was not only a statutory obligation to return but until the order of confiscation became final an implied obligation to preserve the property intact and for that purpose to take such care of it as a reasonable person in like circumstances is expected to take.

Just as a finder of property has to return it when its owner is found and demands it, so the State Government was bound to return the said vehicles once it was found that the seizure and confiscation were not sustainable.

There being thus a legal obligation to preserve the property intact and also the ohligation to take reasonable care otit so as to enable the Government to return it in the same condition in which it was seized, the position of the State Government .until the order ~e final would be that of a bailee. If that 1s the correct pos1t10n once the Revenue Tribunal set aside the order of the Customs Officer and the Government became liable to return the goods the owner

(1) "Law of constrnct" by Chesire and Fifoot, p p./73,74.

BOMBAY v. HAJl HASAM (Shelat, /.) 945

had the right either to demand the property seized or its/ value, if, in the meantime the State Government had precluded itself from .returning the property either by its own act or that of its agents or servants. This was precisely the cause .of action on which the respondent's suit was grounded.

The fact that an order for its disposal was passed by a Magistrate would not in any way interfere with or wipe away the right of the owner to demand the return of the property or the obligation of the Government to return it.

The order of disposal in any eve11-t was obtained on a false representation that the property was an unclaimed property.

Even if the Government cannot be said to be in the position of a bailee, it was in any case bound to return the said property by reason of its statutory obligation or to pay its value if it had disabled itself from returning it either by its own act or by any act of its agents and servants. In these circumstances, it is diijicult to apperciate how the contention that the State Government is not liable for any tortious act of its servants can possibly arise.

The decisions in State of Raji:zsthan v. Mst. Vidhyawati(') and Kasturilal Jain v. The State of U.P.(2) to which Mr. Dhebar drew our attention have no relevance in view of the pleadings of the parties and the cause of action on which the respondent's suit was based.

In our view, the High Court was right in confirming the decree passed by the trial court on the basis. that there was an obligation on the State Government either to return the said vehicles or in the alternative to pay their value.

The appeal is dismissed with costs.

G.C.

(I) (1962] Suppl. 2 S.C.R. 989.

(2) [1965] I S.C.R. 375.

Appeal dismissed.

STATE OF BOMBAY (NOW GUJARAT

MEMON MAHOMED HAJI HASAM

May 5, 1967

R. S. BACHAWAT, J.

M. SHELAT

V. BHARGAVA, JJ.

Juncgarh Sta Customs Act

Customs Act

United States

Saurashtra

Veraval

Customs Act

R. H. Dhebar

H. K. Puri

Bishamber Lal

Shelat

Junagadh

Ayub Iqbal and Company

Customs Act

State of Junagadh

State of Saurashtra

Bombav

Bonibay

Gujarat

February 6, 1952

March 13, 1952

s. 523

Code of Criminal Procedure

February 5, 1954

SUPREME COURT REPORTS [1967j 3 S.C.

Trambaklal Naranji

Trambaklal

October 3, 1951

s. 523

October 21, 1951

October 29, 1951

February

5, 1952

High Court of Bombay at Rajkol

February 5, 1952

s. 523

Dhebar

Section 150

s. 150

Chapter IV of this Act

Section 160

Section 163

Section 166

Section 17

s. 175

Junagadh State

s. 175

BOMBAYV.HAJI HASAM

s. 523

s. 148

SUPREME COURT REPORTS [1967] 3 S.C.lt

Pollock

Wright

Customs Act

Chesire

Fifoot


COMMISSIONER OF INCOME TAX, GUJARAT v.

JAYANTILAL AMRA, TLAL, AHMEDABAD

May 5, 1961

(J. C. SHAH, S. M. S!KRI AND V. RAMASWAMI, JJ.] B

Indian Income-tax "Act, 1922, s. 16(1) (c), proviso l-S1ttlor making charitable trust and registering it under s. 35- Bombay Public Trusts A ct, 1950-S. 16(1) ( c) proviso 1 whether can be applied to income of trust on presumption +that sett/or may derive benefit contravening the Bombay Act-Facts justifying applicability of s. 16(l){c) proviso 1.

J executed a trust deed wmreby he created a charitable trust. The <ieccl was registered with the Charity Commissioner under the Bombay

Public Trust Act, 1950. For the year 1958-59 the Income-tax Officer held that since the settlor had reserved to himself wide powers for his own benefit and had also utilised those PoWers to his benefit, the case was covered by s. 16(1) {c) of the Income-tax Act, 1922.

Accordingly the Income-tax Officer taxed the income of the trust in the hands of the settlor. A similar order was passed for the year 1959-60. In his appeal before the Appellate Assistant Commissioner the settlor relied on s. 35 of the Bombay Public Trusts Act, 1950 to show that he was thereby precluded from utilising the funds for his own benefit but his plea was not accepted.

The Appellate Tribunal, however, relying on the terms of the deed itself decided in favour of the settlor and the High Court in reference did the same. The revenue appealed.

HELD : (i) There was no doubt that under the Trust Deed the settlor had very wide p<>wers and could direct the Trustees to grant loan to him.

The Trustees could even grant a loan to a firm , in which he was interested.

But this would be contrary to the provisions of s. 35 the Bombay Trust Act. The said Act to the extent it operates must override provisions in the Trust Deed.

[95JE-954A-BJ ·

The Legislature in proviso 1 to s. 16(1) ( c) is thinking of powers lawfully gi""1 and powers lawfully exercised. Any person can commit breach of trust and assume power over income or assets but for that reason the income of the trust cannot be treated as the income of the settlor under the proviso.

Conimissioner of lnco11ie-tax, West Bengal v. Sir S. M. Bose. 21 l.T.R. 135 and Commissiofler of Income-tax, Bombay Ncrth v. Mathura- <ias Manga/das Parekh, I.T. Ref. No. 4/ 54, Judgment by Bombay High Court dated August 26, 1954, referred to.

(ii) The words 're-assume power' give indication to the correct mean- G ing of s. 16(l){c) proviso 1.

The latter part of the proviso contemplates that the settlor should be able by virtue of something contained in the Tru; t Deed to take back the power he had over. the assets or income previous to the execution of the Trust Deed. A provision enabling the scttlor to give directions to trustees to emP!OY the assts or fu!lds of the tru; t in a particular manner or for a particular. charitable ob1ect contemplated by the trust cannot be said to confer a r1ght to re-a; sume H power within the first proviso.

Otherwise a settlor could nev.er name himself a sole trustee. _ The mere fact that the settlor can denve ';"";'• direct or indirect benefif under a trut deed would not brin& the deed within the first proviso. [9550-H; 966A-BJ

Chamberlain v. Inland Revenue Commissioner 25 T.C. 317, Tul.iidar K<Jlic/1and v. Commis.rioner of Income"tax, 42 I.T.R. 1, Wolfson v. Comn1issiorzers oj Inland Revenue, 31 T.C. 141, Saunders v. Commissioners of Inland Revenue, 37 T.C. 416, referred to.

Commissioner of Income-tax, Punjab '" S. Raghbir Singh, 57 I.T.R., 408, followed.

On an examination of terms of the Trust Deed the Court held lhut none of its clauses came within the purview of Proviso 1. [9S6C-F]

CIVIL APPELLATE Ju&ISDICTION : Civil Appeal Nos. 474-477 of 1966.

Appeals by special leave from the judgment and order dated September 5, 1963 of the Gujarat High Court in Income-tax Reference No. 19 of 1962. ·

S. T. Desai, A. N. Kirpa/, R. N. Sachthey and S. P. Nayyar for the appellant (in all the appeals). ·

R. J. Ko/ah, M. L. Bhakta and 0. C. Mathur, for the respondents (in all the appeals).

The Judgment of the Court was delivered by

Sikri, J. These four appeals by special leave are directed against the judgment of the Gujarat High Court in Income Tax Reference No. 19 of 1962, whereby the High Court answered the questions referred to it by the Income-tax Appellate Tribunal against the Commissioner of Income-tax, who is the appellant before us.

The reference was in respect of assessment years 1955-56 and 1956-57 in the case of Shri Jayantilal Amratlal (Individual) and in respect of assessments years 1958-59 and 1959-60 in the case of Jayantilal Amratlal Charitable Trust.

Ahmedabad.

The questions referred are :

( 1 ) Whether on the; facts 'and in the circumstances of the case, the Tribunal was right in holding that the income of Jayantilal Amratlal Charitable Trust was not assessable in the hands of the settlor Jayantilal Amratlal under the first proviso to Sec. 16(1)(c) of the Incometax Act for the assessment years 1955-56 and 1956-57?

( 2 r Whether. on the facts and in the circumstances of the case, the Tribunal was right in holding that the income of the Trust should be considered in the assessment of the trustees and that they were entitled to the benefits of the refunds attached to the dividends from the Trust properties for the assessment years 1958-59 and 1959-60?

The answer to these questions depends on the true. interpretation of s. 16 ( 1 )( c) of the Indian Income-tax Act, 1922, and the interpretation of the Trust Deed dated June 19, 1947, and

to appreciate the points fully it is necessary to give a few facts which are stated in the statement of the case.

Jayantilal Amratlal, individual, hereinafter referred to as the settlor, executed a trust deed whereby he settled 80 ordinary shares of M/s Iayantilal Amratlal Ltd., on trust and created a trust known as "Jayantilal Ainratlal Charitable Trust" to carry out the following various objects set out in the Trust Deed :

"For the relief of poor, for education, for medical relief, for advancement of religion, knowledge, commerce, health, safety or any other objects beneficial to mankind."

This Trust Deed was registered with the Charity Commissoiner under the Bombay Public Trust Act, 1950. The Department accepted this trust as a valid charitable trust and gave the necessary relief to the trustees in respect of the income of the Trust. till the assessment year 1957-58.

The Income-tax Officer, while dealing with the assessment of Jayantilal Amratlal Charitable Trust for the year 1958-59, wrote

a letter to the Trust to show cause why the income of the Trust should not be included in that of the settlor and why the case of the Trust should not be decided accordingly.

The Managing Trustee submitted his reply. The Income-tax Officer wrote a lengthy order holding that on the facts the case was covered by the first proviso to s. 16"(1 )( c). He was impressed both by the wide powers given to the settlor and the way in which the settlor had been utilising his powers under the various clauses of the Trust Deed.

He held :

"It is not necessary that there should be diversion of income or assets from charitable purposes to noncharitable purposes to constitute "retransfer of assets to or re-assumption of power over" the income or assets of the settlor. It is not even necssary for the purpose of 1st proviso to section 16(1)(c), especially its later part i.e. "give the settlor a right to reassume power r directly or indirectly over the income or assets" that income or assets should be used for personal ends. For diversion of such assets or income from one charitable purpose to another in accordance with the wishes of the settlor and the utilisation of income and investment of income or assets not in full confonnity with the desires of the trustees would be enough to drag the Trust property in the ambit of section 16 (1) ( c). In the instant case, the settlor is all in all, he is the managing trustee and in the event of a conflict of opinion amongst the trustees the settlor would exercise predominatin[

...

influence both as managing trustee as also in his capacity of an arbitrator and his decision would be binding on all.

The most important point which needs consideration is that all the inherent powers and discretion for the income and corpus of the Trust property remain with the settlor, in his capacity as settlor and not by way of his capacity of a trustee."

The Income-taic Officer accordingly held that the income of the Trust would not be computed in the hands of the trustees but would be computed in the hands of the settlor under s. 16(1) (c).

For the assessment year 1959-60 he passed a similar order on the same date.

On the same day he also dealt with the assessll).ents of J ayantilal Amratlal, individual, for .¢, e years 1955-56 and 1956-57.

Following his reasoning he included the relevant income of the Trust in the hands of J ayantilal Amratlal.

Four appeals were taken to the Appellate Assistant Commissioner who, by his two orders dated November 8, 1960, dismissed the appeals.

Before him the settlor relied on s. 35 of the Bombay Public Trust Act, 1950, but the Appellate Assistant Commissioner held that this did not assist the settlor because the Income-taic law did take into consideration income derived directly or indirectly by illegal means. He felt that the settlor "could

not be precluded from utilising funds of the trust directly or indirectly to his benefit sincei he had a right under the settlement to do so and the Bombay Public Trust Act did not hold any fear for him as the penalties leviable were not of a deterrent nature, compared to the advantages that he could gain directly or indirectly by. re-assuming control over the investments or its income".

On appeal, Income-tax Appellate Tribunal, however, reversed these orders. and held that the income from the Trust was not hit by the first proviso to s. 16(1) (c). The Tribunal ignored the factual position relied on by the Income-tax Officer and the Appellate Assistant Commissioner and confined itself only to the Trust Deed. Regarding the offending clauses 4, 10 and 21 of the Trust Deed, which we will presently refer to, the Appellate Tribunal held :

"We see nothing in these clauses which confer on the assessee the right to retransfer to the assessee directly or indirectly the income or the assets or to reassume power over them.

He has always to exercise these powers within the framework of the Trust. There is no doubt power in clause (10) to invest in any manner and thereby in the assessee's own companies, but this is overridden by clause 35 of the Bombay Trust

Act under which it is registered. If the Chiirity Commissioner 'bas chosen not to take action, it may also be that he has considered the matter and approved the action.

It is purely his responsibility. . The fact that the investment itself has not been made Ulegal under the Trust Act and that the assessee can offc.nd the provisions with impunity as the penalty is light are all matters extraneous to .this consideration which has to be confined only to the provisions in the deed." At the instance of the Commissioner of Income-tax the Appellate Tribunal stated the case and referred the questions which we have already reproduced above.

The High Court held:

"When a statute talks about a right to reassume, it must mean a lawful right which can be lawfully exercised .... a right to reassume must be given to the settlor independently of any third party and dependent upon his own volition. It is true that the Charity Commissioner may grant leave to the settlor, but he may or may not grant it.

A right to re; issume cannot rest dependent upon whether the Charity Commissioner may or may not grant sanction." Shelat, C.J., observed :

"Surely, it must be presumed that the Charity Commissioner would not grant his sanction to an investment which is bound to result in a conllict of duty and interest on the part of the settlor who is also a trustee.

Therefore, such a right, if it can be called a right, is not one of any substance and cannot, therefore, be construed as a right to reassume power over the trust assets or the income thereof, as contemplated by proviso 1 to section 16 ( 1 )( c) . "

"A loan, by the very nature of it, cannot be said to amount to an exercise of dominion or control over its subject matter. rt' is repayable and is given on conditions as to the time df repayment and interest, if any.

By taking a loan a settlor does not exercise over its subject matter power or dominion which, but for the trust. or the settlement, he would have been able to exercise." Section 16 ( 1 )( c) reads as follows :

"16. Exemptions and exclusions in determining the total income.-

(1) In computing the totalincome of an assessce-

(a) ......

(b) ' • " " ( c) all income arising to any person by virtue of a settlement or disposition whether revocable or not, and whether effected before or after the commencement of the Indian Income-tax (Amendment) Act, 1939 (VII of 1939), from assets remaining the property of the settlor or disponer, shall be deemed to be income of the settler or disponer, and all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be income of the transferor :

Provided that for the purposes of this clause a settlement, disposition or transfer shall be deemed to be revocable if it contains any provision for the retransfer directly or indirectly of the income or assets to the settlor, disponer or transferor, or in any way gives the settler, disponer or transferor a right to reassume power directly or indirectly over the income or assets;

Provided further that the expression "settlement or disposition" shall for the purposes of this clause include any disposition, trust, covenant, agreement, or arrangement, and the expression "settler or disponer" in relation to a settlement or disposition shall include any person by whom the settlement or disposition was made:

Provided further that this clause shall not apply to any income arising to any person by virtue of a settle: ment or disposition which is not revocable for a period exceeding six years or during the life-t:me of the person and from which income the settlor or disponer derives no direct or indirect benefit but that the settler shall be liable to be assessed on the said income as and when the power to revoke arises to him."

The learned counsel for the appellant, Mr. S. T. Desai, has submitted three propositions before us : ( 1) The operation of the

rst proviso to s. 16(1) (c) depends only on the settlement and its term~ and not on any provision of the Bombay Public Trusts Act, which may oi;- may not be observed; (2) The absolute powers reserved over the mcome and corpus of the trust property remah vested in the settler in his capacity as the settler and not a

0s ti:ustee, and further they fall withJn the purview of the first proviso to s. 16(l)(c); and (3) It 1s a relevant consideration that as fo_un~ by the authorities, the settler has been deriving direct and mdtrect benefits from the trust properties.

He relies on clauses 4, 6, 8, 10, 11 and 21 of the Trust Deed to show that the Trust Deed gives the settler right to re-assume power directly 9 Sup. CI/67-17

or indirectly over the income or assets of the Trust within the first proviso to .s. 16(1) (c).

Let us now examine the Trust Deed.

This indenture was made .between Jayantilal Amratlal, hereinafter called the settlor, and Jayantilal Amratlal, Padmavati wife of the said Jayantilal Amratlal, Ramanlal Amratlal, Hariprasad Amratlal, Kasturlal Chandulal Parikh and Bhagubhai Chandulal, hereinafter called the Trustees.

Clausf! 1 vests the shares and the other trust properties and income in the trustees.

Clause 2 gives the name of the trust Clau•e 3 obliges the trustees to get and collect income of the trust properties and pay expenses, etc.

Clause 4 creates the trust for the relief of poor, and for education, medical relief, etc.

It further provides : "The Trustees shall at the direction of the Settlor during, his lifetime and after his death at their discretion set aside any portion of the income of the Trust Premises to provide cash, food and clothes for any temple or temples of the Pushti Marg Sampradaya. In applying the income of the Trust Premises for all or any of the objects hereinbefore specified the Trustees may considerthe claims of any needy or poor person belonging to the Visa Porwad Community." Clause 5 enables the settlor to give direction to the trustees to accept contributions or donations to the Trust from other persons.

Clause 6 provides as follows : "The Settlor may at any time or times by writing direct that any specific funds or investments or property forming part of the Trust Premises and/ or the income thereof shall be utilised and applied exclusively for any one more pf the aforesaid charitable objects and the Settlor may by writing at any time or times vary or revoke any such directions previously given by him and Trustees shall be bound to carry into effect all such directions given by the Settlor." Clause 7 enables the Trustee,· to utilise the whole or any portion of the Trust Premises for all or any of the charitable objects if the Settlor so directs.

Clause 8 may be set out in full :

"8. The Trustees shall from time to time at the direction of the settlor during his life time and after his death may at any time at their discretion deliver or hand over the income of the Trust Premises or any part of such income to any institution, association or society to be applied for all or any of the purposes of these presents without being bound to see to the application thereof or being liable for the loss or misapplication thereof."

Clause 9 enables the Trustees to invest the residue, etc., and to accumulate the same and apply towards the objects of the Trust.

Clause 10 inter alia empowers the Settlor to give directions regarding the investment of moneys "as are authorised by law for investment of trust premises or in ordinary or preference shares of joint stock companies, whether partly or fully paid, or in debentures or in giving Joans to any public company or Jinn of good standing and reputation or in the purchase or mortgage of any movable or immovable property with power to the Trustees with the like direction to vary or transpose the said investments into or for others of the same or of a like nature." Clause 11 inter alia enables the Settlor to direct the Trustees to vary the investments.

Out of the other clauses we need only mention clause 21 which reads as follows :

"All questions arising in the managemeµt and administration of the trusts or powers hereof and all differences of opinion amongst the Trustees shall be disposed of in accordance with the opinion of the Settlor during his lifetime and on and after the death of the settlor in accordance with the opinion of the majority of the Trustees in the case of their being equally divided the trustee senior most in age shall have a casting vote."

The learned counsel for the appellant says that these clauses read fairly would enable the Settlor to direct the Trustees to give a loan to him and he could give directions to the Trustees in such a way as to re-assume 'control over the assets.

He says tliat as a matter of fact the Income-tax Officer did find that the Settlor has been utilising these powers for his own benefit. There is no doubt that under the Tmst Deed the Settlor has very wide powers and the Settlor could direct the Trustees to grant loan to him.

The Trustees could even grant loan to a firm in which he was interested.

But this would be contrary to the provisions of the Bombay Public Trust Act.

Section 35 (1) of the Bombay Public Trust Act provides :

"35 ( 1) : Investment of Public Trust Money : Where the trust property consists of money and cannot be applied immediately or at an early date for the purposes of the public trusts the trustee shall be bound (notwithstanding any direction contained in the Instrument of the Trust) to deposit the money in any scheduled bank as defined in the Reserve Bank of India Act, 1934, in the Postal Savings Bank or in a Cooperative Bank approved by the State Government for the purpose or to invest it in Public security;

Provided ..... .

Provided further that the Charity Commissioner may by general or special order pennit the Truste of any public trust or classes of such trusts to invest the monev in any other manner."

SUPREME COURT REPORTS llllOIJ J ~·""'"

Mr. S. T. Desai submits that we cannot take into consideration the provisions of the Bombay Public Trust Act.

We are unable to accept thi:; submission.

The Bombay Public rrust Act must, to the extent it operates, override any provisions in the Tmsl Deed.

As Shelat, J ., observed, "when proviso 1 talks about a right to reassu!lle power, prima facie, that must mean tat there is such power lawfully given under the deed of trust.' It seems to us that the Legislature, in proviso 1 to s. 16 ( 1 )( c) is thinking of powers lawfully given and powers lawfully exercised.

Any person can commit breach of trust and assume power over the income or assets but for that reason the income of the trust cannot be treated as the income of the settlor under the proviso.

The Calcutta High Court in Commissioner of Income-tax, West Bengal v. Sir S. M. Bose(') observed:

"The first proviso to Section 16 (1) ( c) only contemplates cases where the settlor can lawfully reassume power over the income or the assets.

Unless that was so, the proviso would cover every trust where a settler has made himself trustee because a trustee acting dishonestly could always assume control over the income."

We agree with these observations.

Similarly, in an unreported judgment (Commissioner of Income-tax, Bomba.v North v. Mathuradas Mangaldas Parekh(") the Bombay High Court repelled a similar argument by observing :

"The first answer to this contention is that the trustees would be committing a breach of the law if they were to advance moneys to themselves.

There is a clear prohibition under Section 54 of the Trusts Act."

If we do not ignore the provisions of the Bombay Public Trust Act and the general principles applicable to public trusts, the question arises whether on a true interpretation of the first proviso to s. 16 ( 1) ( c) the powers reserved to the settler under the Trust Deed come within its mischief.

The learned counsel says that the words of the proviso are very wide.

He points out the reasons why Parliament has inserted this proviso.

He draws our attention to the following observations of Lord Macmillan in Chamberlain v. Inland Revenue Commissioners('), quoted in Tulsidas f!.ilachand v. Commissioner of Income-tax(') :

(I) 21 l.T.R. 135 at p. 141.

(2) 1.T. Ref. No. 4 of 1954, judgment dated August 26, 1954, reported in

"tJnrcported Income-tax Judgments of the Bombay High Court, Book One,

Published by Western India Regional Council of the Institute of Chartered Accountants of India, Dombay" p. 314 at p. 316.

(3) 25 T.C. 317, 329.

(4) 42 I.T.R. I, 4.

C.l.T. v. JAYANrILAL (Sikri, !.)

"This legislation .... (is) designed to overtake and circumvent a growinp; tendency on the part of taxpayers to endeavour to avoid or reduce tax liability by means of settlements.

Stated quite generally, the method consisted in the disposal by the taxpayer ofpart of his property in such a way that the income should no longer be receivable by him, while at the same time he retained certain powers over, or interests in, the property or its income.

The Legislature's counter was to declare that the income of which the taxpayer had thus sought to disembarrass himself should, notwithstanding, be treated as still his income and taxed in his hands accordingly."

95 5

This Court held in that case that these observations applied also to the section under consideration, and the Indian provision is enacted with the same intent and for the same purpose.

But even so, Lord Simonds observed while construing a similar provision in Wolfson v. Commissioners of Inland Revenue(') :

"It was urged that the construction that I favour leaves an easy loophole through which the evasive taxpayer may find escape.

That may be so; but I will repeat what has been said before.

It is not the function of a court of Jaw to give to words a strained and unnatural meaning because only thus will a tax.ing section apply to a transaction which, had the Legislature thought of it, would have been covered by appropriate words."

Viscount Simonds observed again in Saunders v. Commissioners of Inland Revenue(') in construing a similar provision occurring in the English Act ·

"I am assuredly not going to depart from the fair meaning of words in a taxing Section in order that tax may be exacted."

What then is the fair meaning of s. 16 (1 )( c) proviso I ? It seems to us that the words "reassume power" give indication to the correct meaning of the proviso.

The latter part of the proviso contemplated that the settlor should be able by virtue of something contained in the Trust Deed, to take back the power he had over the assets or income previous to the execution of the Trust Deed.

A provision enabling the settlor to give directions to trustees to employ the assets or funds of the trust in a particular manner or for a particular charitable obit contemplated bY, the trust cannot be said to confer a right to reassume power within the first proviso.

Otherwise a settlor could never name himself a sole trustee.

It seems to us that the latter part of the proviso contemplates a provision which would enable the settlor

(lJ 31 r. c. 141, 169.

12) 37 r.c. 416, 431.

to take the income or assets outside the provisions of the Trust Deed. Mr. Desai says that if a settlor can derive some direct or indirect benefit under a trust deed the trust would fall within first proviso.

But the first proviso does not use these words.

The words "direct or indirect benefit" occur only in the third proviso.

This Court held in Commissioner of Income-tax, Punjab v. S. Raghbir Singh(') that although the settlor in that case obtained' a benefit from the trust-payment of his debtsthe first proviso was not attracted.

Coming to the various clauses of the Trust Deed there is no doubt that the settlor has retained power to see that his wishes are carried out while he is alive.

But he can only direct the carrying out of his wishes within the terms of the Trust Deed.

What he can direct under clause 4 is the applic<ition of income to a particular charitable purpose.

Similarly under clause 6 he can nominate the charitable object and the fund or investment which should be utilised for that object.

This is in no sense a power to reassume control.

Clause 8 enables the settlor to delegate the carrying out of a particular charitable object.

For instance, he could direct some contributions to be made to a hospital or a school without obliging the trustees to see that the hospital or the school does not misapply the funds.

Clauses I 0 and 11 which enable the settlor to give directions regarding the investtnent must be read subject to the provisions of the Bombay Public Trust Act and the general principles of law relating to trusts.

We have already said that h\: could not legally direct a loan to be made to himself. Further it is difficult to subscribe to thei proposition that a loan to a company in which the settlor is interested would give power to the settlor over the assets within the meaning of the first proviso.

Clause 21 only shows the wide powers which the settlor has reserved to himself. None of these clauses comes within the purview of Proviso I.

In the result we agree with the conclusions of the High Court.

The appeals accordingly fail and are dismissed with costs. One hearing fee.

G.C.

Appeals dismissed.

(I) 57 l.T.R. 408.

COMMISSIONER OF INCOME TAX, GUJARAT

JAYANTILAL AMRA, TLAL, AHMEDABAD

May 5, 1961

C. SHAH

V. RAMASWAMI, JJ.

s. 16(1)

s. 35

S. 16(1)

s. 16(l)

Public Trust Act, 1950

s. 16(1)

Income-tax Act, 1922

s. 35

Bombay Public Trusts Act, 1950

s. 35

s. 16(1)

August 26, 1954

s. 16(l)

Gujarat High Court

S. T. Desai

A. N. Kirpa/

R. N. Sachthey

S. P. Nayyar

M. L. Bhakta

Sikri

Jayantilal Amratlal

Jayantilal Amratlal Charitable Trust

Sec. 16(1)(c)

s. 16

Indian Income-tax Act, 1922

June 19, 1947

Jayantilal Amratlal

Iayantilal Amratlal Ltd.

Jayantilal Ainratlal Charitable Trust

s. 16

section 16(1)(c)

section 16

s. 16(1)

J ayantilal Amratlal

November 8, 1960

s. 35

Bombay Public Trust Act, 1950

s. 16(1)

clause 35

Shelat

section 16

Section 16

s. 16(1)

s. 16(l)(c)

s. 16(1)

Ramanlal Amratlal

Hariprasad Amratlal

Kasturlal Chandulal Parikh

Bhagubhai Chandulal

Clause 2

Clause 4

Clause 5

Clause 6

Clause 7

Clause 8

Clause 9

Clause 10

Clause 11

clause 21

Section 35

Reserve Bank of India Act, 1934

s. 16

Calcutta High Court

Section 16

Bombay High Court

Section 54

s. 16

Parliament

Macmillan

Simonds

Viscount Simonds

s. 16

Desai

clause 4

clause 6

Clause 8

Clause 21


COMMISSIONER OF INCOME-TAX, MADRAS

MAHALAKSHMI TEXTILE MILLS LTD.

May 5, 1967

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

Indian Income-tax Act, 1922 (Act JI of 1922) s. 33-P/ea not raised before department-If can be before Tribunal.

Expenditure on introducing the Casabalanca conversion system in the spinning plant of the assessee was not allowed as "development rebate" by the Income-tax Officer and the Appellate Commissioner, The Appellate Tribunal after inspecting the factory and considering the literature

an.I Gove, mment notifications, h, eld that the "xpenditu:re, though not admissible as development rebate, was admissible as an allowance for current repairs to the existing machinery under s. lO(i) XV of the Income-tax Act.

The High Court, on reference, accepted the Tribunal's finding and held that the Tribunal had jurisdiction to permit the asscssee to raise a new contention which was not raised before the departmental authorities. In appeal by the Commissioner. this Court,

HELD : The appeal must be dismissed.

Under sub-s. ( 4) of s. 33 of the Indian Income-tax Act, 1922. the Appellate Tribunal is competent to pass such orders on the appeal "as it thinks fit".

There js nothing in the Income-tax Act which restricts the Tribunal to the determination of ouestions raisd before the departmental authorities. All questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal.

If for rca.'i'ons recorded by the departmental authorities in rejecting a contention raised by the asscssee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty to grant that relief. The right of the asscssce to relief is no, t restricted to the plea raised by him. [959D-Fl

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 784 of 1966.

Appeal by special leave from the judgment and order dated March 12, 1964 of the Madras High Court in Tax Case No. 157 of 1961.

D. Narsaraju and R. N. Sachthey, for the appellant.

R. Gopalakrishnan an<;_! N. Srinivasan, for the respondent.

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

The respondent-hereinafter called 'the assessee'- carries on the business of manufacture and sale of cotton yam.

In the previous year relevant to the assessment year 1956-57. the assessee spent Rs. 93,215/- for introduction of "Casablanca conversion system" in its spinning plant.

Substantially this involved replacement of certain roller stands and fluted rollers fitted

~·,

with rubber aprons to the spinning machinery, rmoval of ring. frames from certain existing parts, introduction, inter a/ia, of ballbearing jockey-pulleys for converting the original band-drivers to tape-drivers and other additions and alterations in the drafting mechartism.

The Income-tax Officer disallowed the claim of the assessee for Rs. 93,215/- because it was not admissible as "development

rebate" since the introduction of Casablanca conversion system did not involve installation of "new machinery".

The Appellate Assistant Commissioner agr.eed with the Income-tax Officer. In appeal to the Appellate Tribunal, besides submitting the claim that expenditure was allowable as development rebate, the assessee urged that the amount laid out for introducing the Casablanca conversion system was in any event expenditure allowable under s. 10 ( 2) ( v) of the Indian Income-tax Act.

The Tribunal inspected the spinning factory of the assessee and studied the working of the machinery with the Casablanca conversion system in the process of spinning yarn. They also considered the liierature published by the manufacturers of Casablanca co_nversion system and the relevant notification issued by the Ministry of Commerce, Government of India, defining the import policy, and held that as a result of "the stress and strain of production over a long period" there was need for change in the plant and that the assessee had replaced old parts by introducing the Casablanca conversion system.

In the view of the Tribunal the expenditure incurred for introducing the Casablanca conversion system, though not admissible as development rebate, was admissible as an allowance under s. 10(2) (v) of the Indian Income-tax Act.

The Tribunal then referred the following two questions to the High Court of Judicature at Madras :

" ( 1) Whether on the facts and in the circumstances of the case, the Tribunal had jurisdiction to decide whether the sum of Rs. 93,215/- constituted an allowable item of expenditure under s. 10(2) (v) of the Act?

(2) Whether on the facts and in the circumstances of the case, the sum of Rs. 93,215/- or any portion thereof is allowable as an expenditure incurred for current repairs tinder s. 10(2) (v) of the Act?"

The High Court accepted the finding recorded by the Tribunal that by the introduction of the Casablanca conversion system no new machinery or plant was installed, but the introduction of the sysiemamounted :"to fitting of improved versions of certain minor parts" and expenditure in that behalf was of revenue nature.

The High Court also held that the Tribunal had jurisdiction to permit the assessee to raise a new contention which was not raised

C.l, T. V, MAHALAKSHMI MILLS (Shah, J.) 959

before the departmental authorities. The Commissioner has appealed to this Court, with special leave.

The Tribunal had evidence before it from which it could be concluded that by introducing the Casablanca conversion system the assessee made current repairs to the machinery and plant.

The High Court observed that certain moving parts of the machinery had because of "wea~ and tear" to be periodically replaced, and when it was found that the old type of replacement parts were not available in the market, the assessee introduced the Casablanca conversion system, but thereby there was merely replacement of certain parts which were a modified version of the older parts. Counsel for the Commissioner has not challenged these findings and the answer to the second question recorded in the affirmative by the High Court must be accepted.

By the first question the jurisdiction of the Tribunal to allow a plea inconsistent with the plea raised before the departmental authorities is canvassed.

Under sub-s. ( 4) of s. 33 of the Indian Income-tax Act, 1922, the Appellate Tribunal js competent to pass such orders on the appeal "as it thinks fit". There is nothin~ in the Income-tax Act which restricts the Tribunal to the determination of questions raised before the departmental authorities.

All questions whether of law or of fact which rela.te to the assessment of the assessee may be raised before the Tribunal. If for reasons recorded by the departmental authorities in rejecting a contention raised by the assessee, grant of relief to him on another ground is justified, it wol!ld be open to the departmental authorities and the Tribunal, and indeed they would be under a duty to grant that relief.

The right of the assessee to relief is not restricted to the plea raised oy him.

The Tribunal in the present case was of the opinion that in order to adjust the liability of the assessee, it was necessary to ascertain the true nature of the Casablanca conversion system.

The assessee had, it is true, contended that the introduction of the Casablanca conversion system was of the nature of machinery or plant which being new had been installed for the purpose of business within the meaning of s. 10(2)(vi-b) of the Indian Income-tax Act. The Tribunal rejected the claim of the assessee, but on that account the Tribunal was not bound to disallow thi claim of the assessee for allowance of the amount spent, if it wa! a pennissible allowance on another ground.

The Tribunal on investigation of the true nature of the alteratiO!!S made by the introduction of the. Casablanca conversion system came to the conclusion that it did not amount to installation of new machinery or plant, but it amounted in substance to current repairs to the existingmac)iinery.

The subject-matter of the appeal in the present case was the right of the assessee to claim allowance for Rs. 93;215/-. Whether the allowance was admissible under one head or the other of sub-s. (2) of s. 10, the subject-matter for the appeal remaiiied the same, and the Tribunal having held that the expenditure incurred fell within the tenns of s. 10(2)(v), though not under s. 10(2)(vi-b), it had jurisdiction to admit that expenditure as a permissible allowance in the computation of the taxable income of the assessee.

The High Court was, therefore, right in answering the first question in the affinnative.

The appeal fails and is dismissed with costs.

Y.P.

Appeal dismissed.

,. '

COMMISSIONER OF INCOME-TAX, MADRAS

MAHALAKSHMI TEXTILE MILLS LTD

May 5, 1967

C. SHAH

S. M. SIKRI

Indian Income-tax Act, 1922

s. 33

XV of the Income-tax Act

s. 33

Indian Income-tax Act, 1922

js nothing in the Income-tax Act

March 12, 1964

Madras High Court

D. Narsaraju

R. N. Sachthey

R. Gopalakrishnan

N. Srinivasan

Shah

Assistant Commissioner

s. 10

Income-tax Act

s. 10(2)

Income-tax Act

High Court of Judicature at Madras

s. 10(2)

s. 10(2)

s. 33

Indian Income-tax Act, 1922

Income-tax Act

s. 10(2)(vi-b)

Income-tax Act

s. 10

s. 10(2)(v)

s. 10(2)(vi-b)