MOOSA S. MADHA & AZAM S. MADHA v.

COMMISSIONER OF INCOME-TAX, WEST BENGAL,

CALCUTTA Febuary 6, 1973

[K. S. HEGOE, P. ]AGANMOHAN REOOY AND H. R. KHANNA, JJ.J

Income-tax A.ct, 1922, •· 4A(a)(iil)-A.ssessee held to be 'resident' but 'not ordinarily resident'-Burd, en of proving that his visit to India in relevant period war occasional and cG:Sual war on assessee-Burden not discha1gecl by mere assertion that he had no business in India-Question

whethe~ ren1lttance of Jnco1ne was from accrued profits/Burden Of provJ'ng that it was not from accrued profits-was on assessee-Quertion tlint TrihuMl did not consider photos/at copies of aceounts produced before rt not raised in application under s. 66(1 )-High Court rightly refused to take such copies into account.

In respect of the assessment year I948-49 the Income-tax Officer'• finding that the assessee was 'resident but not ordinarily resident' in that year in India was confirmed by the Appellate A'!Sistant Commissioner and the Tribunal. It was also held that a sum of Rs. 2 lakhs remitted by the assessee to India from Burma during the relevant period fornied part of the assessee's accrued profits. The High Court answered both the questions in favour of the Revenue. The assessee appealed with certiR ficate.

HELD : ( i) For the finding that the assessee was 'rident' but •, .Jt ordinarily resident' in the year in question the authorities under the Act as well as the High Court had relied on the fact that the assessec had failed to prove his visit to India in 1947 was casual or occasional. This was essentially a finding of fact.

[501B-CJ The burden of proving that the assessee's visit to India in 1947 wa'> occasional or casual was on the assessee.

In the affidavit filed by him before the Department he merely stated that he visited India for a period elf two months in 1947 but did not state the reason for visiting India nor c!4d he state his visit was occasional or casual.

In the faee of this affidavit it was idle for the assessee to contend that the Tribunal came to an erroneous conclusion in holding that he did not discharge the burden of proving that his visit to India in 1947 was occasional or casual. The fact that the assessce had no business in India during the period of stay of two months did not discharge the onus.

[500 F-G; SOIC-E] Con11nissioner of lnconu.i-tax, West Bengal v. B. K. Dhote, 66 J_T.R. 457, referred to.

(ii) The assessee had also failed to prove that the sum of Rs .. 2 Iakhs remitted by him to India did not represent his business income.

Even though the Income-tax Officer gav.e him several opportunities to produce his account books to establish his case he failed to produce the account books .. [SOIH]

The complaint that the Tribunal ignored the photostat copie.• of the account books without good reasons did not appear to have been made in the application filed by the asscssee under s. 66( 1), The statement of ca"' submitted by the Tribunal does not refer to that fact. Admittedly the /assess":" did not take up any question regarding these documents. Hence the High Court was fully justified in not considering those documents.

[502A-DJ CIVIL APPELLATE JURISOICTION ; Civil Appeal No. 491 of 1970.

Appeal ; by certificate from tho judgment and order dated June 3, 1961) of the Calcutta High Court in Income-tax Reference No. 72 of 1966.

N. N. Goswami and S. N. Mukherjee, for the appell.ant H. C . .Bhandare, S. P. Nayar, J. Ramamurthy and R. N. Sachthey, for XCipondeDt.

The Judgment of the Court was delivered by

HEGDE, J. This is an appeal by certificate. It arises from the decision of the High Court of Calcutta in a reference under section 66 ( 1 ) of the Income Tux Act 1922 (to be hereinafter referred to as the Act). It relates to the assessee's income tax assessment fOr the assessment year 1948-49, the relevant accounting year being the calendar year 194 7.

The material facts as could be gathered from the statement of case submitted by the Tribunal are as follows :

The assessee, one S. C. Madha (since deceased) appears to have migrated with his father to Burma in about the year 1901.

They were originally the residents of the village Variav in the erstwhile State of Baroda.

In Burma the assessee carried on business in soap and umbrella. It is seen that he was a successful businessman.

The assessee's father. died in 1936 and thereafter the business was carried on by a partnership consisting of the assessee and his sons. The assessee had ancestral property in Variav. He purchased a plot of land in Bombay in 1942. After the bombing of Burma in 1942 the assessee came over to India and remained in India till 1946. He returned to Burma in February 1946. Under instructions from the partnership firm, the firm's bankers, the National Bank of India Limited, Rangoon, remitted to Calcutta in the year 1946 a sum of Rs. 5 lakhs, and the same was credited to assessee's account. Again on October 26, 1947 a further sum of Rs. 2 lakhs was transferred by the bankers of the partnership to the National Bank of India Ltd., Calcutta and credited in the name of the assessee. Out of the total amount of Rs. 7 Iakhs remitted from Rangoon, Rs. 5 lakhs was utilised by the assessee for the purchase of two properties in Calcutta; one in the year 1948 and the other in the year 1949. On April 8, 1953, the assessee filed a voluntary disclosure petition before the Income

Tax Department at Calcutta and followed up the same with nine voluntary returns for the assessment years 1944-45 to 1952-53, disclosing certain incc:.; nes from the properties in India as well as from his business in Btlrma during those assessment years. As those returns were not filed within time the Income Tax Officer H k proceedings under section 34(i)(a) of the Act for the assessment years 1947-48 and 1948-49. The Income Tax Officer assessed the assessee in the status of a. 'resident' but 'not ordinarily

rdent' on a total income of Rs. 6,24,47S for the assessment year 1947-4& and Rs. 3,55,214 for the assessment year 194S-49.

In determining the assessee's residential status in these two asse&Smcnt years the Income Tax Officer relied on the facts stated by the assessee in his voluntary disclosure statements as well as on the affidavit filed by him. He also took into consideration the fact that the assessee had purchased a property in Bombay in the year 1942 and the further fact that in the years 194S and 1949 he had purchased two premises in Calcutta.

Aggrieved by the order of the Income Tax Officer the assessee went up in appeal to the Assistant Appellate Commissioner. The Assistant Appellate Commissioner remanded the case back to the Income Tax Officer for the reason that on the materials collected by the Income Tax Officer, he was unable to co.me to any firm conclusion. Thereafter the Income Tax Officer held further enquiries and reached the very conclusion which he had reached earlier. On appeal the Assistant Appellate Commissioner confirmed the order of the Income Tax Officer. On a further appeal, the Tribunal came to the conclusion that the assessment of the assessee for the

assessment year 1947-4& was unsustainable and it accordingly set aside that order but it affirmed the assessee's assessment for the assessment year 1948-49.

The Tribunal came to the conclusion that the assessee was a 'resident' but 'not ordinarily resident' in India during the calendar year 1947. It further came to the conclusion that the amounts remitted from Rangoon to Calcutta were remitted by the assessec for his use in India. It also held that the amounts remitted formed part of the assessee's accrued profits.

Aggrieved by the decision of the Tribunal the assessee moved the Tribunal to submit two questions of law to the High Court of Calcutta under s. 66 (1). The Tribunal accepted that prayer and submitted the following two questions to the High Court of Calcutta: ( i) On the facts and in the circumstances of the case, was there any material or evidence for the Tribuna I to hold that the assessee was a resident but not ordinarily resident in the taxable territories for the assessment year 194S-49 ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 2 lakhs had been remitted to the taxable territories by the assessee during the accounting year out of his accrued profits of earlier years ?

The High Court answered both 'those 4uestions in favour of the Revenue. Hence this appeal. ·

For deciding the question whether the assessee was a 'resident' in India but 'not ordinarily resident' in India in the calendar year 1947, we must first examine the scope of section 4A(a) (iii). That section reads :

"For the purposes of this Act- ( a) any individual is resident in the taxable territories in any year if he--

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

(ii) . " . " ........ ..

(iii) having within the four years preceding that year been in the taxable territories for a period of or for periods amounting in all to three hundred and sixty-five days or more, is in the taxable territories for any time in that year otherwise than on an occasional or casual visit; (iv) ,.

To determine whether this provision applies to the facts of the present case we must find ont :- ( 1) Whether during the first of January 1943 to 31st of December 1946 the assessee was in India for a period of three hundred and sixty five days or more;

(2) Whether the assessee was in India at any time between the !st January 1947 to 31st D, ecember, 1947; and

( 3) Whether the presence of the assessee in India in 194 7 was not an occasional or casual visit.

So far as the first two ingredients are, concerned there is no dispute. It is admitted thAt the assessee was in India during the years 1943-46 for a period of more than three hundred and sixtyfive days. It is also admitted that he was in India for a period of two months in the year 1947. Therefore, the only question that requires to be decided is whether his visit to India in 1947 was occasional or casual. The burden of proving this point is undoubtedly on thcYassessee.

The Department cannot be expected to prove a negative. The assessee knows best why he stayed in India for a period of two months in 194 7. This question is no more res integra. In Commissioner of Income Tax, West Bengal

v. B. K. Dhote('1), this court ruled that in order that the assessee may be treated as resident in British India under Section 4A-

(a) (iii) of the Act the onus of proving that the assessee was in British India during the four years preceding the previous year

(I) 66 l.T.R. 4S7.

A for a period of or for periods amounting in all to three hundred and sixty-five days and in the relevant previous year at any time, lies upon the Department.

But if these two conditions are established or admitted, the onus lies upon the assessee to prove that his visits in the previous year were occasional or casual. In the . present case it may be noted that the Income Tax Officer, the B Assistant Appellate Commissioner, the Tribunal as well as the High Court have come to the conclusion that the assessee failed to prove that his visit to India in 194 7 was casual or occasional.

This is essentially a finding of fact. Hence the only point that calls for decision is whether the finding reached by the Tribunal

is unsupported by any vidence. We have earlier stated the legal position. The burden of proving that the assessee's visit to India in 1947 was occasional or casual is on the assessee. According to the Tribunal the assessee had not discharged that burden. The assessee had produced no evidence whatsoever to prove that his visit during the year in question was an occasional or casual.

Werst still is, in the affidavit filed by .him before the Department he merely stated that he visited India for a period of two months in 1947 but did not state the reason for visiting India nor did he state that his visit was occasional or casual. In the face of this affidavit it is idle for the assessee to contend that the Tribunal cani.e to an erroneous conclusion in holding that he did not discharge the burden of proving that his visit to India in 194 7 was occasional or casual.

The sole circumstance on which Mr. Goswami, the learned counsel for the appellant, relied on was that the assessee had no business in India. The fact that the assessee had no business in India during the period of his stay of iwo months in India does not discharge the onus which is placed on the assessee to show that his visit to India was occasional or casual.

For the reasons mentioned above we agree with the, High Coun in the answer given to the first question.

Now turning to the second question, admittedly the assessee had no business in India. He had not explained why in the year 1947.

Rs. two lakhs were remitred from Burma to India. It is seen from the evidence on record that the assessee did purchase a house in Calcutta in 1948. The assessee contended before the Tribunal as well as before the High Court that the money transferred from Burma to India was his capital asset and not income earned from business in Bunna. This was a matter which the assessee had toprove. He has failed to prove the same. Even though the Income Tax Officer gave him several opportunities to produce his Account Books to establish his case that the money remitted to India did not represent his business income, he failed to produce his Account Books. It was contended by Mr. Goswami that he produced certified photostat copies of his accounts before the Tribunal and the Tribunal erred in not considering those documents.

In the first place it must be noted that the assessee has no satisfactory eXplanation for not producing his account books before the Income Tax Officer as well as the Assistant Appellate Commissioner. Photostat copies have very little evidentiary value. Further it is seen from the order of the Tribunal that there is no reference to the photostat copies in that order. It does not appear from that order that any reliance was placed on those documents before the Tribunal.

The complaint that the Tribunal ignored those documents without good reasons does not appear to have been made in the application filed by the assessee under section 66 ( 1). The statement of the case submitted by the Tribunal does not refer to that fact.· Admittedly the assessee did not take up any question regarding those documents. Hence the High Court is fully justified in not considering those documents. In our opinion the Tribunal was rig11t in its conclusion that the remittance of Rs. 2 lakhs from Bunna .to India during the year 1947 is not proved to be the capital asset of the assessec. Hence. there is no reason to interfere with that finding of the Tribunal. In this respect also we are fully in agreement with the High Court. For the reasons mentioned above this appeal foils mid the same is dismissed with costs.

G.C.

Appeal dismissed.

MOOSA S. MADHA & AZAM S. MADHA

H. R. KHANNA, JJ

s. 66(1 )

India

Burma

s. 66( 1)

Calcutta High Court

N. N. Goswami

S. N. Mukherjee

H. C . .Bhandare

S. P. Nayar

J. Ramamurthy

R. N. Sachthey

HEGDE

High Court of Calcutta

section 66

Income Tux Act 1922

S. C. Madha

Variav

Baroda

Bombay

National Bank of India Limited

Rangoon

Calcutta

October 26, 1947

National Bank of India Ltd., Calcutta

April 8, 1953

Income

Tax Department at Calcutta

Btlrma

section 34(i)(a)

s. 66

section 4A(a)

31st D, ecember, 1947

British India

Section 4A

Goswami

Bunna

section 66


KALIAMMA v.

JANARDHANAN PILLAI & ORS ..

February 8, 1973

[A. ALAGIRISWAMI, I. D. DUA AND C. A. VAIDIALINGAM, JJ.J

Hindu Law-Special custom-Proof of-Reliance on pr(or decisions. when permissible.

The appellant was the daughter of a member of the Krisbnawakll.

Community by one of bis two wives, and the first respondent was h19 son by the other wife.

The appellant filed the suit claiming half share of her father's property on the basis of a custom of special kind of Patnibhag"111. The special kind of Patiiibhagam pleaded by the appellant was tllat even a daughter was entiUed to a share. On her behalf, reliance was placed on certain earlier decisions regarding the prevalence of Ibo CUl!olll!

in !he community. The trial court dismissed the suit, but the first appelkle court held in favour of the appellant. In second appeal, tho High Court toolt the view that the decisions relied on by the first appellate court could. not be said to have established the existence of the special custOl)I.

Dismissing the appeal to this Court,

HELD : (I J A custom which has been recognised and affirmed in a, series of decisions each of which was based on evidence adduced in tM

p"1ticular case may become incorporated in tho rneral Jaw, and proof of it then becomes unnecessary under s. 57(1) o the Evidence Act.

[5050-HJ

Rama Rao v. Rajah of Pittapur, [1918) I.L.R. 41 (Madras), 778 at 785, Pramra; v. Chand Kunwar, [1947) 11 M.L.J. 516 and Uiagar Singh v ..

Mat. Ito, [1959) 2 S.C.R. (Suppl.), 781 followed ..

(2) Among the decisions cited only one decision recognised the special kind of patnibbagarn pleaded by the appellant.

But even that decision did not proceed on the basis of -the evidence in the case but relied upon the observations of the learned judges who decided Ramaswami Sadaaivan

v. Thanu Gouri. But those observations were JKJt based on a discussion of the evidence and were not necessary for the decision of that case.

[50 DJ

Avikutti Bhagavathi & Anr, v. Chithambaratham Mathevan, reported m 8 T.L.R. 51, Ramaswami Sulusivan v. Thanu Gouri reported in Kol•ppa Pillai's unreported important cases, p. 179 and Hagaru Pillaf Saraswathi Amma v. Thanu Pillai Thanu Pillai, reported in 1944 T.L.R. 710 referred to.

(3) While it is true that the community is a very amall community found in a small local area and cases reaching courts may not be many, the court cannot, on that ground, ignore the well established principle bef'?"' a ctom elm be held.~· having been proved on the basis of earlier dects1ons.

Those dec1S1ons should have been based on evidence. adduced in those cases. But in the present case, neither of the two decisions which refer to the special kind of patiiibhagarn pleaded by the appellant was based on the evidence in the case. (508 F-H; 509 A-BJ

C1vn. APPELLATE JURISDICTION : Civil Appeal No. 1251 0£ 1967. .

50JI

SUPREME COURT REPOR'I fl 973) 3 s.c.R.

Appeal by special leave from the judgment and order dated A September 29, 1966 of the Madras High Coutt in S.A. No. 1670 -Of 1963.

K. T. Harindranath, S. N. Sudhakaran, P. Kesava Pillai and M. R. Krishna Pillai, for the appellant.

Lily Thomas and A. Sreedhara11 Nambiar, for respondent B No. 1.

The Judgment of the Court was delivered by

ALAGIRISWAMI, J. This is an appeal by special leave against the judgment of the High Court of Madras in Second Appeal. c

The appellant is the daughter of one Ayyappan Mathevan Pillai, who died on 17th January, 1949, by one of his wives, the second respondent.

The first respondent is his son by another wife. The parties belong to the .Krishnanvaka Community found mainly in the Kanyakumari district of Tamil Nadu. During the appellant's minority her mother and the first respondent entered into a deed of partition under which _the appellant was given 9 out of 79 items belonging to her father.

She filed the suit out of which this appeal arises for partition and possession of a half share in all her father's properties. Her claim was based on the allegation that in the community to which the parties belong there was a custom of a special kind of pathnibhagam. While under the ordinary pathnibhagam a man's sons by different wives get :i;: their shares on the basis that whatever their numbe~ the property is divided according to the number of wives he had, rather than , on a per capita basis, the special kind of pathnibhagam pleaded by the plaintiff was that even a daughter was entitled to share on the same basis.

She pleaded that as Mathevan Pillai had two wives and she was the daughter by one wife and the 1st defendant the son by the other wife each of them was entitled to a half share.

The learned Subordinate Judge who tried the suit, on a con- sideration of the evidence in the case, as also various earlier decisions regarding this custom held against the plaintiff.

On appeal the District Judge of Kanyakumari without going into the G evidence but on the basis of some earlier decisions allowed the appeal. In the Second Appeal before the High Court the learned Single Judge took the view that the decisions relied on by the District Judge cannot be said to have established the existence of the special custom pleaded by the plaintiff. The 1st defendant also sought to sustain the partition deed on the basis that it wu H the result of a family arrangement. But the learned 1 udge did not think it necessary to go into that question in the view he took -regarding the custom pleaded by the plaintiff.

The question that arises for decision i~ ,{his case is whether the custom pleaded by the appellant has be:K'stablished. On behalf of the appellant reliance was not placed on the evidence in the case to establish the custom.

The argument was simply based on certain earlier decisions regarding the prevalence of the custom of pathnibhagam among the community to which the parties belong. The legal position regarding the place of customary law among the Hindus is now well established. In The Collector of Madura v. Moottoo Ramalinga Sethupathy(') it was observed by the Privy Council :

"Under the Hindu system of law clear proof of usage will outweigh the written text of the law." In Rama Rao v. Rajah of Pittapur(') the Privy Council observed:

"When a custom or usage, whether in regard to a tenure or a contract or a family right, is repeatedly brought to the notice of the Courts of a country, the Courts may hold that custom or usage to be introduced into the law without the necessity of proof in each individual case. It becomes in the end truly a matter of process and pleading."

In Premraj v. Chand Kanwar(') the Privy Council observed :

"It is not doubtful that the ordinary rule is that a party relying on a custom .......... which is at variance with the ordinary Hindu law must allege and prove it. But it is equally beyond doubt that a custom which has been recognised and affirmed in a series of decisions, each of them based on evidence adduced in the particular case. may become incorporated in the general law. with the result that the onus of proof no longer lies on those who assert it but upon those who assert an exception to it."

The latest decision iS' that of this Court in Ujagar Singh v. Mst.

Jeo(') wherein after referring to the statement of law in Rama Rao v. Rajah of Pittapur, earlier referred to, this Court pointed out that 'when a custom has been so recognised by the courts, it passes into the law of the land and the proof of it then becomes unnecessary under s. 57 (I) of the Evidence Act.' In the particular circumstances of that case this Court pointed out that there was a formidable array of authorities in support of either view, and, therefore, went into the evidence and held that the respon-

(I) (1868) 12 .M.I.A., 397, 436.

(3) (1947) II M.L.J. 516 (P.C.)

(2) (1918) I.L.R. 41 (Madras), 778 at 785.

(4) (1959) 2 S.C.R. (Suppl.), 781.

SUPREME COURT REPORTS [1973j 3 s.c.1..

dent therein had proved a custom whereby a sister was entitled A to succeed in preference to the collateral relations of her brother.

Now let us. see whether in the community to which the parties belong the rule of pathnibhagam with the special modification of that rule pleaded by the plaintiff is prevalent. That the rule of pathnibhagam is prevalent in various parts of the coun~ there is no doubt.

In Palaniappa Chetti'ar v. Alagan Chetti( ) the PriyY Council referred to the statement of law by Mayne in his Hindu Law (Edn. 7), para. 473 to the following effect:

"In some families, however, a custom called patnibhaga prevails of dividing aCCording to mothers, so that if A had two sons by his wife B and three sons by C, the property would be divided into moieties, one going to the sons by B, and the other to the sons by C, Somrun Singh v. Khedun Singh. This practice prevails locally in Oudh, as evidenced by numerous W ajib ularz, which I have seen in cases under appeal to the Privy Council."

They also referred to the prevalence of the custom in many parts of Southern India, as referred to by Mr. Ellis, on page 357 of Vol. II of Strange, and at page 167 of that work to the following effect :

"The division of estates, in case of one person having several families by ditlerent women, among the families in equal shares without reference to the num-. ber of persons in each."

Their Lordships, therefore, approached the evidence in that case with a knowledge that such a custom does exist, and was not an improbable one in the particular case, and after examining the F evidence came to the conclusion that the custom of Patnibhaga was proved.

We may now refer to the decisions that were cited before the Courts below and, were relied upon before this Court. The earliest ono is a decision of the year 1890, in Avikutti Bhagavathi &: Anr.

v. Chithambarathanu Mathevan, reported in 8 T.L.R. 51 where the effect of the evide.nce was stated as follows :

"From the evidence on both sides, it is clear to us that Krishnavakakkar to which the parties belong, follow the Hindu Jaw with one or two points of divergence from it, viz. the widow cohabiting with the brother of her deceased husband and the existence of Pathni

Bhagam."

(I) (1921) I.LR. 44 (Madras), 7'40,

7--

XALIAMMA v. J; PILLAI (Alagiriswami, /.) 507

A Tue next decision is of the year 1904, in Rama.swami Sadasivan

v. Thanu Gouri, reported in Ko!appa Pillai's unreported important cases, p. 179. Here again on a consideration of the evidence it was held that the preponderance of evidence as a whole was in favour of Pathni Bhagorn. But one of the learned Justice

observed :

"The Pathni Bhagon which prevails in this community seems to go even beyond the usual custom known as Pathni BJiaiom. . . . that it is not only sons of different mothers that take per stirpes (according to the nwnber of mothers) but when one mother has got onlr female issue and . another a male issue the female 1ssqe get a half share in their father's properties and the male issue by the other wife of the father takes the other half." It is upon this decision that the plaintiff based her whole case.

It must be pointed out, however, that the learned Judge did not D go into the evidence regarding the particular type of pathnibhagam which was stated to be prevalent among this community.

Nor was it necessary to decide that question for the purpose of that case. It was a mere passing observation and this is a solitary case in which such a special custom is mentioned.

We then come to another dcclsian oi. the year 1944, in E Nagaru Pillai SaraswaJhi Amma v. Thanu Pillai Thanu Pillai,

reported in 1944 ]'.L.R. 710. In that case also the special custom pleaded by the plaintiff did not arise for decision. What was urged was the right of absolute ownership for a widow of a member of a Krishnanvaka community. Tue argument was that the existence of Pathnibhagam in the community implied the F principle that on the death of the husband of a Krishnavakakar woman, in the absence of his children, she was entitled to inherit her husband's property absolutely. This contention was rejected but the decision proceeded on the basis that the custom of Pathnibhagam "".as prevalent in this community.

There is a decision of the District Court of N agercoil in 0 .S.

G No. 109 of 1096 M.B., dated 22nd December. 1923, marked Ex A-6 .• wherein it was observed:

"But it has been held in Kolappa Pillay, page 179 that in the community Krishnavakakars to which the parties belong that when a man dies leaving two wives even though one wife might have only female issues such females issue are entitled to a half share as the Pathnibhagam to thir mother. It appears to me therefore that under the ruling in Kolappa Pillay's Select Decisions cited before in which 8 T.L.R. 51 and I.LR. 17-L796Sup.C. I. /73

SUPREME COURT REPORTS (1973] 3 S.C.ll•

l6, Calcutta 759 have been cited and followed, plaintilfs are also entitled to a half share in the assets of Kunchan."

There 1s another decision of the District Munsiff's Court of Kuzhithurai in 0.S. No. 18 of 1959, dated 2nd January, 1960, wherein it was observed:

"Ex. B. 26 judgment proc~ on the basis that as the parties belonged to Krishnan Vakakkar commu- , nity per capita division among them is not allowable.

'That community does not follow Hindu Mithakshara Law.

There is authority for the possession that this community follows the system known as Patnibhagam under which property of the deceased is inherited according to the number of widows he had irrespective of the existence of the children to the deceased."

This decision recognised the existence of Pathnibhagam but not the special custom pleaded by the plaintiff.

It is thus seen that most of the decisions either expressly or implicitly recognised the existence of custom of Pathnibhagam in this community, but the decision found in Ext. A-6 is the only one on the special kind of pathnibhagam pleaded by the plaintiff and is directly in. point. But even this decision did not proceed on the basis of the evidence in the case. It relied on the observation of the learned Chief Justice in the decision already referred to, in Ramaswami Sadasivan v. Thanu Gouri. This observation was not, however, based on a disc11Ssion of the evidence and was not necessary for the decision . in that case, as already pointed out.

While it is true that this comlhllll.ity is a very small community found within a small local area and the cases that are likely to arise in that community, which will reach the courts may not be many, we cannot merely on that ground ignore the well established principie that before a custom can be held as having been proved merely on the basis of earlier decisions, those decisions should have been based on evidence adduced in respect of the cases. That test is not satisfied in this case. Neither of the two decisions which refer to the special kind of pathnibhagam pleaded by the plaintiff was based on the evidence in the case.

Thus while the existence of the custom of pathnibhagam in the

cominunity may be said to have been established, the special , kind of pathnibhagam pleaded by the plaintiff cannot be said to have been established and the appellant cannot succeed unless she establishes the latter. In this view it is unnecessary to go into the question of family arrangement.

The appeal is_ dismissed with costs of the. 1st respondent to be paid by the appellant.

V.P.S.

Appeal dismissed •

KALIAMMA

JANARDHANAN PILLAI & ORS

February 8, 1973

A. ALAGIRISWAMI

I. D. DUA

s. 57(1)

Avikutti Bhagavathi

Kol•ppa Pillai

K. T. Harindranath

S. N. Sudhakaran

P. Kesava Pillai

M. R. Krishna Pillai

Lily Thomas

A. Sreedhara11 Nambiar

ALAGIRISWAMI

High Court of Madras

Ayyappan Mathevan Pillai

Mathevan Pillai

District Judge of Kanyakumari

s. 57

Mayne

Oudh

Southern India

Ellis

Patnibhaga

Krishnavakakkar

Ko!appa Pillai

Pathni Bhagorn

District Court of N agercoil

22nd December. 1923

Kolappa Pillay

Kunchan

District Munsiff's Court of Kuzhithurai

2nd January, 1960


51()

'liHE COMMISSIONER OF INCOME-TAX, WEST BENGAL,

II CALCUITA v.

M/S. NAGA HILLS TEA CO. LTD.

February 8, 1973

[K. S. I!EGDE, P., JAGANMOHAN REDDY AND H. R. KHANNA, JJ.l

Finnnce Act, 1959, First Schedule, Part 11, Paragl'aph D--Carry over of unabsorbed rebate--Scope of.

For the assessment year 1959-60 the total income of the assessee. company was utilised and a rebate was allowed, on the corporation tax payable by it, under the provisions of Finance Act, 1959. Thereafter, that reb-ate was wiardrawn on the ground that there was an unabsorbed reduction of rebate in the assessment year 1957-58. For the assessment year 1958-59 the assessee's assessment disclosed a loss and no corporation tax was legal for that year.

It was contended by the assessee that the unabrbed reduction in rebate for the year 1957-58 could only be carried forward and set off against the rebate for the assessment year 1958·1959 under the provisions of Finance Act, 1958, and as there was no rebate available for the assessment year 1958-59 the unabsorbed reduo

tion in rebate exhausted itself and could not be further set off against the rebate available in the assessment year 1959-60.

The contention was rejected by the Income-tax Officer and the Appellate Assistant Commi~ sioner. The Tribunal and the High Court in reference, however, held in favour of the assessee.

Dismissing the appeal to this Court,

HELD : It is a cTear from paragraph D of Part II of the First Schedule to the Finance Act, 1959, that it does not provide for carry over of any unabsorbed rebate from year to year. All that the provision provides for is that if there is any unabsorbed reduction of rebate in the assessment year 1958-59, then that can be taken into consideration while allowing rebate in the assessment year 1959-60. A power in favour of the revenue to tatce mto consideration any unabsorbed reduction in rebate for any year prior to 1958-59 cannot be read into the provision.

At any rate, the view taken by the High Court appears to be a reasonable one, and, it a provision of taxing statute can be reasonably interpreted in two ways, that interpretation which is favourable to the assessee must be accepted.

[513F-H; 5140-E]

CIVIL APPELLATE JURISDICTION: Civil Appeal No.--496 of 1970.

Appeal bv Certificate from the Judgment and order dated August 13, 1964 of the Calcutta High Court at Calcutta in Income tax Reference No. 148 ot 1966.

T. A. Ramachandran, S. P. Nayar and R. N. Sachthey, for the appellant. H

B. Sen, Lellu Seth, 0. P. Kizaitan and B. P. Maheshwari, for the respondent.

C.I.1'. v. NAGA HILLS TEA CO. LTD. (Hegde, J.) 511

A The Judgment of the Court was delivered by

HBGDE, J. This appeal biY certificate arises from the decision of the Calcutta High Court in a reference under section 66 ( 1) of the Indian Income-taX. Act 1922 (to be hereinafter referred to as the 'Act') . The question referred to the High Court for its

8 its opinion reads : ·

"Whether, on the facts and in the c;; ircwnstances of the case, the Tribunal was right in boldiJJ& that the assessee, having not been assessed to super-tax fot the assessment year 1958-59, the unabSorbed reduction in rebate under clause (i)(a) of the second proviso to Paragraph D of Part II of the First Schedule to the Finance Act, 1957, could not be set oft against the rebate available to the assessee under the Finance Act,

1959, and that accordingly the Income-tax Officer was not justified in reducing the rebate of Rs. 16,114/- available to the assessee for the assesment year 1959-

60?"

Followig its earlier decision in Commissioner of Income Tax, West Bengal-I v. Deoria Sugar Mills Ltd.,(l) the High Court answered that question in favour of the assessee. Aggrieved by that decision the Commissioner of Income Tax for West Bengal has brought this appeal.

The facts material for the purpose of deciding question as could be gathered from the case stated by the Tribunal may now be set out. The assessment year y.rith which we are con- . cemed in this case is 1959-60; the relevant accounting year being the calendar year 1958. The -assessee is a Tea Company. For the assessment year 1959-60 it was assessed to a total income of F Rs. 55,257/ -. The Corporation tax payable by the assessee on that amount was computed at Rs. 26,357 I-. On that a rebate of Rs. 16,114/ - was allowed under the provisions of the Fmance Act

1959. Thereafter that rebate was withdrawn by the Income Tax Officer on the ground that there wu an unabsorbed reduction of rebate amounting to Rs. 27,144/· in the assessment year 1957 G

58. While making assessment for the assessment year 1959-60 the. Income Tax Officer reduced the rebate to nil by taking into consideration the unabsorbed reduction of rebate in the assessment year 1957-58. At this stage it may be noted that in the

asses8ee's assessment for the assessmeat year 1958-59 the loss of Rs. 73,920/- was determined and no corporation tax was levied

H for that year.

It was contended before the Income-tax Officer that the unabsorbed reduction in rebate for the .year 19S7-S8 could only be

(1) 80 L T.ll. 408.

SUPREME COURT REPORTS [197.3] 3 s.c.R.

carried forward and set off against the rebate for the assessment 4 year 1958-59 under the provision of he Finance Act, 1958, and as there was no rebate available for the assessment year 1958-59, -the unabsorbed reduction in rebate exhausted itself and could not be further set off against the rebate available for the assessment year 1959-60. This contention was rejected by the Income-tax Officer.

In appeal, the Appellate Assistant Commisisoner con- & firmed the decision of the Income-tax Officer but on a further appeal being taken to the Tribunal, the Tribunal accepted the contention of the assessee and thereafter, at the instance of the Commissioner, the question formulated above was referred to the High Court. As mentioned earlier, the High Court has answered that question in favour of the assessee.

We may now read the relevant provisions of the Finance Act,

1959. They are found in Paragraph D ot Part IT of the First Schedule to the Finance ACt, 1959 and are as under:

"In the case of the Life Insurance Corporation of India established under the_ Life Insurance Corporation Act, 1956 (XXXI of 1956),-

RATE OF SUPER-TAX On the whole of its profits and gains

from life insurance business.

In the case of every other company,-

RATE OF SUPER-TAX

On the whole of the total income Provided that,-

11%

50%

(i) a rebate at the rate of 40 per cent on so much of the total income as consists of dividends from a subsidiary Indian company and a rebate at the rate of 35 per cent on the balance of the total jncome shaH be a11owed in the case of any company which- ( a) in respect of its profits liable to tax under the Income-tax Act for the year ending on the 31st day of March, 1960, has made the prescribed arrangements for the declaration and payment within India of the dividends payable out of such profits and for the deduction of super-tax from dividends in accordance with the provisions of sub-section (3D) of section 18 of that Act; and

(b) is such a company as is referred to in subsection (9) of-section-23A of. the IncOme-tax Act with a total income not exceeding Rs. 25,000;

C.I.T, v. NAGA lULLS TEA CO, LTD, (Hegde, /.) 513

(ii) a rebate at the rate of 40 per cent on so much of the total income as COD$ists of dividends from a sub- 6idiary Indian company and a rebate at the rate of 30% on the balance of the toW income shall be allowed in the case of any company which satisfied condition (a) but not condition (b) of the preceding clause;

(iii) , a rebate at the rate of 40% on so much of the total income as consists of dividends from a subsidiary Indian company and a rebate at the rate of 20% on the balance of the total income shall be allowed in the case of my company not entitled to a rebate under either of the preceding clauses : Provided further that,-

(i) the amount of the rebate under clause (i) or clause (ii) shall be reduced by the Sl!ffi_, if any, eal to the amount or_ the aggregate of the amounts, as the case may be, computed as hereunder :-

(a) on tat part of the . aggregate of the sums arrived at in accordance with clause (i) of the second proviso to paragraph D of Part II of the First Schedule to the Finance Act, 1958 (XI of 1958), as has not been deemed to have been taken into account, in accordance with cfause (ii) of the said -proviso, for the purpose of reducing the rebate mentioned in clause (i) of the said proviso t<> nil;

(b) ..................•. "

At the outset we may mention that the provision of law is extremely confusing. It required more than one reading on our part to understand what it means. One thing is clear from the provision, namely, it does not provjde for carryover of any unabsorbed rebate from year to year. Mr. Ramachandran contended that when the Finance Act says "on that paq of the aggregate of the sums arrived at in accordance with clause ( i) of the second proviso to Paragraph D of Part II of the First Schedule to the Finance Act 1958 (Act XI of 1958) as has not been deemed to have been taken into acc6unt, in accordance with clause (ii) of the said proviso, for the purpose of reducing the rebate mentioned in clause ( i) of the said proviso to nil", it means that the unabsorbed deduction of rebate can be carried forward untill it is reduced to nil. We are' unable to accept this contention as correct. In our opinion, all that provision provides for is that if there is any unabsorbed reduction of rebate in the assessment year 1958-59, then that c~ be taken into considera tion while allowing rebate in the assessment year 1959-60. We

SUPREME COURT REPORTS [1973] 3 s .c.a.

are unable to rea~ into th~ pro-...:ision in question a power to Revenue to take mto _cns1derat10n any unasorbed reductione rebate for any year pnor to 1958-59. That 1s the view tak m the Calcutta High Cour~ in t?e case mentioned earlier. eti~ Calcutta High Court opmed m that case that the second P . • to Paragraph D of Part II of the First Schedule to the Ffu 0 150 Act, 1959 providt;~ that the amount ?f rebate to be allowed u~~~ clauses (i) and (u) of the first proviso thereto has to be reduced a to the sum,..if any, equal to the amoun~ or the aggregate of th: amount, as the case may be, computed m the manner set out in the second proviso. It further observed :

"Now, clause (i) (a) of the second proviso refers to th, aggregate of the sums arrived at in accordance with clause (i) c{ c the second proviso to Paragraph D of Part II of the First Schedu~ to the Finance Act of 1958." The aforesaid proviso in 195~ Act, therefore, can apply only when there was a total income in terms of 1958 Act and certain reduction from that total incom~ remained unabsorbed in 1958. If a particular assessee baJ suffered loss in 1958, there was no income to which a rate ci I} super-tax prescribed in the 1958 Act could be applied and if n0 rate of super-tax was applicable, there was no question of rebat! or reduction in rebate to be allowed under the 1958 Act." We are in entire agreement with the view expressed therein. At any rate the view taken by the High Court appears to be a reasonable view. 1i a provision of a Taxing Statute can be reasonably inter £ preted in two ways, that interpretation whkh is favourable :o the assessee, has got to be accepted. This is a well accepted Vlew of b~ . .

In the result this appeal fails and the same is dismissed with costs.

V.P.S.

THE COMMISSIONER OF INCOME-TAX, WEST BENGAL, II CALCUTTA

M/S. NAGA HILLS TEA CO. LTD

February 8, 1973

JAGANMOHAN REDDY

H. R. KHANNA, JJ

Finnnce Act, 1959

First Schedule

Finance Act, 1959

Finance Act, 1958

T. A. Ramachandran

S. P. Nayar

R. N. Sachthey

H

B. Sen

Lellu Seth

. P. Kizaitan

B. P. Maheshwari

Hegde

HBGDE

section 66

Finance Act

Fmance Act

Finance Act, 1958

Assistant Commisisoner

First Schedule

Life Insurance Corporation Act, 1956

Income-tax Act

31st day of March, 1960

India

section 18

IncOme-tax Act

Calcutta High Court

First Schedule


~ .. [ '

515.

. ..

G. MURUGESAN & BROS . v.

I .

. '

C.I.T., MADRAS February 8, 1973

[KS JlEGDE, P: J~G~NMOHAN REDDY AND H. R. KHANNA, JJ.]

Jncome-ta.~-Assocwtton.

1 of. Pcrdsns'- 1 What constitutes-Volition on

I ,

f members an essentm mgre tentn case of realisation of divlpar~ 0 there is no' act of management-The statement of members that ~I ad s/arted tfrawing dividends Separately must be accepted in abse11ce

~~acts. to the conrrt~'-Tircy must be asses.red as 'Individuals.'

Fr the years 1957-58, to 19.62~63 the assessee, s were assescd by the.

Jocometax Officer as an Association of Persons. They bad filed their returns for the first two of these years as 'Association of persons' but jn !959-60 they claimed that they had diidcd their interest in the shares

held by hem and therefore in respect of them they should be thereafter assessed as 'Individuals' •. The Appellate Assistant Commissioner upheld the order of the Income-tax Officer. The Tribunal however held that the assessecss should be assessed as 'Individuals' and not as Association of Persons'. The Hjgh Court in reference answered in favour of the Revenue.

D ln appeal by c'ertificate it was urged on behalf of the assessees appcllant3

that the facts that a joint gift of shares was made in favour of more than ooo pcrsor. or those shares were registered jointly in their names or even the fact that the clividcnG was realised together did not go to show tlut the stmrc-hoklcr' or the beneficiaries did act as an 'Association of Perr.ons.'

HELD: (i) For forming on 'Assoc'iation of Persons' the rnembers of the association must join together for the purpose of producing teome. ~- ·ssociation of Per..ons' can be formed only when two or mor.:

md!tduls voluntarily combine together for a certain purpose. Hence

oiJllo~ on the. part of the members of the association is an essential lngrcdtcnt.

{519FG]

~~ the case of receiving diviJ.::nd~ from shares where there is no r ueshon of any management it is difticult to draw an inference that J0 or more shareholders funt ioned 11s un 'Association of Persons', from cef mere fc~ that they jointly own one or more shares and jointly reve the dtvH!eods declared. These circ'Umstances do not by themselves go 10 Lhow that they acted liS an 'Association of Persons'. [5l9GH1

i!. (ii) For the years 1957·58 and 1958-59 the usscssccs were rigtly

\\bsed as an 'Association of Persons' because of their own admisston G fc~. was an import.ant piece of cvid.:nce. [519H; 5:!0A-BJ tn}1") For the years 1959-60 and 1962-63 they ha.J s~:citk':llly s!at.:d the they were no more functioning a! an 'Asociation of rcrsons • In to ~~'>e of an •Association ol Persons' It is always open to rts embers l thdraw from the same No one' can b., compcl!t:d to co!"ll!lue a.s P<tti her of an association.

For withdrawing from an assocratao:n no •'\! ilr form n<.'(!d be obsrved. (520C-D] 11 Ir ~~~ ti~.Pesent C'ase the question rdatd. only hto rea!isa:lisf ti:/~&~:

<lends as r.vr~l member.s of the assocratton c oose_. ion The assese~· arr lndJ\rJual!l there is an cnJ of the as.o~.:ta • : • I 'tv

rernai~~ tat tbbey had realised their iviJcnJd~ inothcefhlrdicli~~ Nd'nclof

unrc ul!ed. There was notlung to tspr v ·

t. .

- ~· ,

SUPREME COURT REPORTS

(1973] 3S.C.R.

the facts proved could be said to be inconsistent with the claim made by them.

[5200-EJ

The answer, therefore, in respect of the years 1959-60 to t962-63 must be i, h favour of the assessees. [521CDJ

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 685 to 690 of 1970.

Appeals by certificate from the judgment and order dated 27th June 1968 by the Madras High Court at Madras in Tax case No. 308 of 1964.

M. C. Setalvad and T. A. Ramachandran, for the appellant.

N, D. Karkhanis, S; P. Nayar and R, N. Sachthey, for the res- C pondents.

The Judgment of the Court was. delivered by

HEGDE, J.

These are connected appeals by certificate.

They are directed against the decision of the High Court of Madras in a \{eference under Section 66 ( 1) of the Indian Income-Tax Act, D

1921. (to be hereinafter referred to as the Act) .

The question of law referred for ascertaining the opinion of the High <::ourt was : . .

"Whether on the facts and in the circumstances of the case, the Department was justified in assessing the assessee in the status of an Association of Persons?"-

In this case we are concerned with the assessment of the assessee for 1h_e assessment years 1957-1958 to 1962-63. In all these years tfie .assessees were assessed as an 'Association of the persons'. The contention of the assessees is that in the years, in question, they should have been assessed as 'individuals' and not as an 'Association of Persons'. Therefot:e, the only question that calls for decision is as to the status of the assessee during the relevant assessment yea~.

For deciding the question formulated above, it is necessary to divide the assessment years into two groups. For th~ assessment years 1957-58 and 1958-59 the assessees themselvessubmitted their return in the status of 'Association of Persons', but for the later years, they submitted their retUrns as 'individuals'. In their returns for the assessment years 1959-60, they staled that they have divided their interest in the shares and therefore they should pe thereafter assessed as 'individuals'. It is necessary mentio~

one other circumstance before we proceed to set ourthe relevant facts. The income in which we are concerned in this case arises under two heads. Part of the income arises from house propertY

G. MURUGESAN v. C.I.T. (Hegde, ].) 517

A and the remaining income arises from dividends from shares. ~

fr as the income from house property is concerned, the High Court has answered the question in favour of the assessee; the Revenue. has not appealed against that decision. Hence we nee~

nc't go into that aspect. . All that we have to decide in the present esse is whether the dividend income which i$ the subject-matter B cf these appeals should be assessed in the hands of the appellant$

<1~ an 'Association of Persons' or as 'individuals'.

Now, we shall refer to the material facts as could be athered from the case stated by that Tribunal. One Simiamam Nadar

(who will be hereinafter referred to as 'N adar') and his son Ganesan partitioned their family properties on December 4, 1940.

Thereafter, Nadar started a firm of his own on June 27, 1955.

Later Nadar executed a settlement deed in favour of his four grandsons,_ namely, .G. Murugesan, G. Kathiresan, G. Raja Shankar and G. Vettrivel. The property covered by the said settlement deed included a house property, which had been let out. Under this settlement deed, the donees are to enjoy during the life time the properties gifted and thereafter the same was to devolve on their children. Sometime thereafter Nadar purchased a number of shares iri Joint Stock Companies in the name of 'G.

Murugesan & Brothers'.

For each of such purcbase, a debit entry was made in the books of the firm. The share applic:; ations (lddressed to the companies for the transfer of the shares from the prior owners , to the name of G. Murugesan and Brothers were s.igned by Padamavathy Ammal, the mother of donees as their guardian.

The donees were minors at the time most of these transactions; took place. Murugesan became a major on March 3, 1955.

After 1959, Murugesan himself signed all transfer applications both on his behalf as well as on behalf of his brothers.

The youngest of the brothers became a major on 15th December,

1962. The income from the house property and the dividend income from shares were credited to an account called "G. Murugesan & Brothers" in the books of Nadar's Firm. In those books. there are separate accounts for G. Murugesan; G. Kathiresan, G.

Raja Shankar and G. Vetrivel. Private income and expenses of these persons were credited or debited to these individual accounts. At the end of each year the balance in the account of G. Murugesan & Brothers is transferred in equal proportion to the individmi.l accounts of the four persons mentioned above. There was a partition between Ganesan and his sons on 3rd February 1958, but that does not include the house property or the shares g, ifted by Nadar to his grandsons. As mentioned ear!ier for the

assessment years 1957-58 and 1958-59, the assessees submitted their returns in the status of 'Association of Persons' and thereafter they submitted their returns as individuals.

....

(1973) 3 S.C.R.

On the basis of the above facts, the Income Tax Officer assessed the assessee durin:g all the years mentioned earlier in the status of 'Association of Persons'. His orders were confirmed by the Appellate Assistant Commissioner.

But on a further appeal

t~ the Appellate Tribu1,1al, the Tribunal held that the assessee should be assessed as 'individuls' and not as 'Association of Persons'. At the instance of the Commissioner, the question set out earlier was referred to the High Court. TheJJigh Court answered that question in the affirmative and in favour of the Revenue.

The High Court was of the opinion that because of the fact that the shares were purchased jointly in the name of G. Murugesan & Brothers, the transfer applications were filed by Padmavathy acting as guardian of all the assessees, and further, after Murugesan became major, he collected the dividends jointly on behalf of the assessees, the assessees should be considered to have acted as an 'Association of Persons'. That conclusion is challenged before us by Mr. Setalvad, appearing on behalf of the assessees.

Counsel urges that the facts that a joint gift of shares was made in favour of more than one persons or those shares were registered jointly in their names or even the fact that the dividend wa~

realised together do not go to show that the shareholders or the beneficiaries did act as an 'Association of Persons'.

On the other hand, it is contended on behalf of the Revenue by Mr.

Karkhanis that the facts proved in this case clearly establish that the assessee functioned as an 'Association of Persons'.

The expression 'Association of Persons' is not a term of art.

That expression has come up for coniideration before this Court in more than one case.

In Commissioner of Income-tax, Bombay, North, Kutch and Saurashtra v. lndra Balkrishna (39 I.T.R. 546), this Court after referring to the various judgments, observed thus :

"It is enough for our purpose to refer to three decisions : ln re. B. S. EUas (1935) 3 I.T.R. 408; Commissioner of Incometax v. Laxmidas Devidar (1937) 5

I.T.R. 548; and In re: Dwarkanath Harishchandra Pitale (1937) 5 I.T.R. 716.

In re:

B. N. Elias Derbyshire, C.J., rightly pointed out that the word G "associate" means, according to the Oxford Dictionary, "to joiR in common purpose, or to join in an action. Therefore, an association of persons, must be one in which two o_r more persons join in a common purpose or cominon action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, . profits or H gains.

This was the view expressed by Beaumont, C.J., in Com-·

missior of Income-tax v. JAbhmdas Devidas, at page 589

(1937) 5 I.T.R., an(! also ln re: Dwarkanath. Harishchandrli

G, MURUGESAN v. C.I.T. (Hegde, J.) 519

Pita/e. In re : B. N. Elias, Costello; J., put the test in more forceful language. He said : "It may well be that the intention of the Legislature was to hit combinations of individuals who were

engaged together i~ same joint enterprise but did not in law constitute partnerships . . . . when we find, . . . . . . . . . . . . that there is a combination of persons formed for the promotion of a jcint enterprise . . . . . . . . then I think no difficulty arises whatever in the way of saying that . . . . these persons did coll!titute an association. . . . . . . . . .. /'.

We think that the aforesaid decision correctly lay down the

cr:.dal test for determing what is an 'Association persons within the meaning of section 3 of the Income-tax Act, and they have

bc, n accepted and followed in a number of later decisions of

dHferent High Courts to all of which it is unnecessary to call intention .. It is, however, necessary to add some words of caution here.

There is no formula of universal application as to what facts, bow many of them and of what nature, are necessary to come to a conClusion that there is an association of persons within the meaning of section 3; it must depend on the particular facts and circum stances of each case as to whether the conclusion can be drawn or not,"

Tn the course of that judgment, this Court also observed :

"With regard to the shares, dividend3, and interest on deposits there was no finding of any act of joint management. Indeed, the main item consists of the dividends and it is difficult to understand what act of management the windows performed in respect thereof which produced or helped to produce income.'' For forming an 'Association of Persons', the members of the association must join together for the purpose of producing an iricome.

An Association of Persons' can be formed only when two or more individuals voluntarily combine together for a certain purpose.

Hence volition on the part of the .member of the association is an r.ssential ingredient. It is true that even a m!nor can join an 'Association of Persons' if his lawful guardian gives his consent.

In the case of receiving dividends from shares, where there is no question of any management, it is difficult to draw an inference that two more shareholders functioned as an 'Association .of Perns' from the mere fact that they jointly own one or more sharr.s. and jointly receive the dividends d.eclared. Those circumstances

do not by themselves go to show that they acted as an 'Association of Persons'.

But unfortunately for the assessee for the assessment years 1957-58 and 1958-59, they themselves had submitted their retums in the status of 'Association of Persons'. Those returns were

s2o SUPREME COURT REPORrS

[1973) 3 S.C.R.

niether withdrawn nor did they file fresh returns as 'individuals'.

Itwas fonhe first time in the appeal, it was argued on their behalf 1hat they should not have been assessed as 'Association of Persons'.

The question whether the assessees functiond as on 'Association of _Persons' during those years was best known to them. Their

rui.mission in that regard is an important piece of evidence. They have made no attempt to show that the said admission was made under erroneous impression 'of law or is otherwise vitiated. Hence for those years they were rightly assessed as _an 'Association of Persons'. But so far as the other assessment years are concerned,

the same result does not follow. They themselves have specifically c stated that they are no more functioning as 'Association of Perons•: In the case of 'association of persons' it is always open to its members o withdraw from the same. No one can be compelled to continue as a member of an association. For withdrawing from an association there is no particular form need be observed.

As seen earlier, herei.D. we are concerned only with the realisation D of dividends. If the individ11al members of the association choose to realise their dividends as inili; viduals, there is an end of the association. The assessee's assertion that they haye realised their -dividends in their individual capacity remains unrebutted. There

is nothing to disprove that claim. Nope of the facts proved can be said to be inconsistent with the claim made by them .

. . For the reasons mentioned above, we are unable to agree with the High Court that during the assessment years 1959-60 to 1962- 63, the assessees should be. held, as having functioned as an F "association of persons'. Mr. Karkhanis in support of the contention of Revenue relied on the decision of the Bombay High Court iD. S. C. Gambatta v. Commissioner of Income-tax, Bombay (14 I.T.R. 748). Therein, the only question was whether when an action is taken by an Income-tax Officer under Section 23A, should the dividend deemed to have been declar~ to the shareholders must be considered has been taken by a husband and wife who were the joint holders of a share as an 'Association of Persons'' or by the husband alone who under the Articles ofAssociation was

to act on behalf of the joint holders. The contention of the Revenue was that the husband alone was the shareholder. On the B other hand the contention of the assessee was that they were an •Ass<><:iation of Persons' and that contention was accepted by the

G, MURUGESAN V. C.l.T, (Hegde, J.) 521

Court. The ratio of that decision has no bearing on the point in. issueJn the present case. We are also not able to agr~ with Mr.

K.arkhanis that the decision of this Court inN. V. Shanmugham &:

Co. v. Commissioner of Income-Tax, Madras (81 I.T.R. 310)

lends any support for the contention of the Revenue. On the other hand, therein this Court relied upon the deeision of this Court in Commissioner of Incomi-tax, Bombay North, Kutch& Saurashtra v. Indra Balkrishna (39 I.T.R. 546):

In the result, Civil-Appeals Nos. 685 & 686 of 1970 are dis missed with no order as to oo; ts. Civil Appeals Nos. 687-690 of 1970 are allowed with costs-<>ne bearing fee. Consequently the answer given by the High Court in those four appeals is discharged and in its plac~, we answer the question, in the negative and in favour of the assessee.

G.C.

G. MURUGESAN & BROS

G~NMOHAN REDDY

H. R. KHANNA, JJ.

M. C. Setalvad

T. A. Ramachandran

D. Karkhanis

P. Nayar

R, N. Sachthey

HEGDE

High Court of Madras

Section 66

Income-Tax Act

Simiamam Nadar

Ganesan

Nadar

June 27, 1955

.G. Murugesan

G. Kathiresan

G. Raja Shankar

G. Vettrivel

G.

Murugesan

G. Murugesan

Padamavathy Ammal

Murugesan

March 3, 1955

15th December,

1962

G. Murugesan & Brothers

G.

Raja Shankar

G. Vetrivel

3rd February 1958

Padmavathy

Setalvad

Karkhanis

B. N. Elias Derbyshire

Beaumont

B. N. Elias

Costello

section 3

Income-tax Act

section 3

Bombay High Court

Section 23A

K.arkhanis

inN. V. Shanmugham


C.I.T. BIHAR & ORISSA, PATNA

MAHARAJ KUMAR KAML SINGH

February 13, 1973

[K. S. HEGDE, P. JAGANMOHAN REDDY AND H. R. KHANNA, JJ.]

Indian Income-Tax Act, 1922, ss. 16(3)(a) (a)(iii), 9(4)(a)-Hol4er of impartible estate, transferring properties of estate to his wife-fnc()me

from properties whether liable to be included in i11come of assessee- Fiction created by s. 9 ( 4 )(a) re11ders assessee liable under s. 16( 3) (a)(iii).

The assessee-respondent is the bolder of an impartible estate. By an iodonture dated 23rd November, 1963, he granted to his wife two premises fer life by way of supplementary maintenance grant. If was a direct transfer which was admittedly not effected for any consideration or in connec- . ticiQ with the agreement to live apart.

During the assessment yean 1957-58 to 196G-61, the income from these house properties was included in the total income of the assessee under section 16(3) (a) (iii) o'f the Act At the instance of the assessee the matter was referred to the High Court.

Two questions fell for consideration before the High Court, namely, (i) whether the Tribunal was justified in holding that the provisions of s. 16(3) (1) (iii) applied to the income arising from the property; and

(ii) whether the Tribunal was right in holding that the income under the said provisions was to be included in the total income for the purpose oi computing the net annual value of the residential house. under the first proviso of s. 9(2). The High Court answered the first of the two questions in favour of the assessee and. therefore, did nc; t think it necessary to go into the other question.. On appeal by certificate to this Court, the material question was whether thl! income from the house properties transferred by the assessee was liable to be included the income of the assessee.

HELD : (i) The incident of impartible estate have been well settled by the decisions of the Courts i11 this country as well. as by the decisions of the judicial committee.

The holder of an impartible estate has uncontrolled power of enjoyment and disposal of the impartible estate as well as

the income arising therefrom; yet the estate belongs to the Hindu joint family of which the holuer is a member.

Subject to any custom to the contrary, on the death of the holder of an impartible estate, the estate devolves by survivorship.

[524G-H]

Baijnath Prasad Singh and Ors. v. Tej Bali, L.R. 48 I.A. 195, Shiba Prcsad Singh v. Rani Prayad Kumari Devi & Ors., L.R. 59 I. A. 331 and Commissioner of /ncome-ll/Jc, Punjab. North-West Frontier and Delhi Provinces, Lahore v. Dewan Bahadur Dewan Krishna Kishore, Rrds, Lahore. 68 I.A. 155, referred to.

Cii) After s. 9 was amended by incorporating s. 9( 4). the income of house property owned by the ho1der of an impartible estate has to be considered as his individual income.

From this it follows that had the assessee not transferred the ?remises in question in favour of his wife, the income from those premises would have been considered as his individual income under section 9.

The contention that s. 9(4) (a)' raises a legal fiction which is limited for the purpose of s. 9 is fallacious. Section deals with onlv one head of income. Section 9(4)(a) speaks for th~ purpose of this Secticn'' whkh really mea:ns for the purpose of deter-

C.I.T. v. M. K. K. SINGH (Hegde, }.) 523

mining tho! taxable income of the assessee.

An assessee is not epara1el_y taxed under each Jlead of income. Hence when a source of lDCOmc 11 transferred from assessee to his wife excepting for the two purposes men• tioned in s. 16(3) (a) (ii), income from that purpose has to be considered as the income of the assessee because of asset of the assessee stand~ trans

Jerred to his wife.

Such. a conclusion docs not amount to cxtendmg the fiction cr.:ated under s. 9 beyond the purpose for which it is created. It

merely gives etl"ect tc that fiction. It is true that a legal fiction may not he extended beyond the purpose for which it is created but that does not mean that the Court should not give effect to that fiction. [S26H to

527D] Section 27(ii) of the Income-tax Act, 1961 which has taken place of s. 9(4) of the Act makes explicit that was implicit in the provision, es it originally stood.

[527D-E)

(iii) lt follows as necessary corollary that the annual value of the

asessee's residential house has to be computed at 10% of the total income of the assessee which i.ncome includes the income from the house prop_erthis transferred to his wife as required by the first proviso to s. 9(2).

[527~G]

CiVIL APPELLATE JURISDrcnoN : Civil Appeals Nos. 297 to 300 of 1970.

Appeal by Certificate from the Judgment and order dated August 9, 1966 of the Pa'tna High Court in Misc. Judicial Cases Nos. 480 to 483 of 1964.

V. S. Desai, I. R. Murthy, S. P. Nayar and R. N. Sachthey, for the appellant.

N. D. Karkhanis, Santokh Singh a.nd U. P. Singh, for the respondent.

The Judgment of the Court was delivered by

HBGDE, J. These are appeals by certificate. They arise from a common judgment delivered by the High Court of Patna.

The assessee respondent is the holder of an impartible estate.

By an indenture dated November 23, 1950, he granted to his wife two premises at Camac Street, Calcutta for life by way of. supplementary Khorposh (maintenance) grant. During the assessment years with which we .are concerned viz. 1957-58 to 1960-61 the

mcot.1e from those house properties was included in the totai in- G come of the assessee under s. 16(3) (a) (iii) of the Indian Jncomotax .Act, 1922 (to be hereinafter referred to as the Act). The assessee challenged the validity of that inclusion firstly on the ground that s. 16(3)(a) (iii) of the Act is ultra vires Art. 14 of the Constitution and secondly on the ground that the income m

qestion .cannot be consded a5 his income for the purpose of the H said section. These objections were ove~Ied by the authorities under the Act. Thereafter at the instance-'of the asseuee the following three questions were referred to the High Court of Pama

unde:r s. 661 ) of the Act. · 18-L796SupCl/73

5~4 Sul'REME COURT REPORTS [1973] 3 s.c.a.

" ( l ) Whether the provisions of s. 16 ( 3) (a) (iii) of the Indian Income-tax Act, 1922 are ultra vires the Constitution of India ?

( 2) Whether in the facts and circumstances of the case the Tribunal was justified iri holding that the provisions of section 16(3)(a)(iii) applied to the income arising from a property transferred by the holder of an impartible estate to his wife for her maintenance ?

(3) Whether in the facts and circumstances the Triw

bunal was right in holding that the income under section 16(3) (a) (Hi) was to be included in the total income for the purpose of computing the net annual value of the residential house at 10%

of the total income under the 1st Proviso to section 9 ( 2) ?"

Before the High Court CoWlSel for the assessee did not press for any answer on the first question .evidently in view of the deci sion of this Court in Balaji v. lncomewTax Officer, Speciallnvestiw gat ion Circle, A kola and ors. (1) The second question was answered in favour of the assessee and in view of the decision of the High Court on that question, the High Court did not think it necessary

to go into the third question. The answer to the third question

ueccs.arily depends on the answer to the second question. If we come to the conclusion that the second question was not corresctly answered then it follows that the income from the properties in question has to be included in the total income of the assessee and the income frolll! the residential house of the assessee will have to be computed at 10% of his total income under the 1st proviso to s. 9(2) of the Act. Hence the material question to be decided is whether the income from the properties in Calcutta is liable to be included in the income of the assessee. ·

The assessee is assessed as an individual. As mentioned earw iiel', he is the holder of an impartible estate. The incidenis of im~ -partible estate have been well settled by the decisions of courts in this country as well as by the decisions of the Judicial Committee.

The holder of an impartible estate has uncontrolled power Of enw joyment and disposal over the impartible estate as well as over the income arising theref. '; but, yet the estate belongs to the Hindu joint fami1y of which the lanlder i& a member. Subject to any cusw tom to the contrary, ori the • 1"!-ath of the holder of an impartible estate, the estate devolves by survivorshiee Baljnath Pra.rhad Singh and ors. v. Tej Bali Sinh(2) ailCS: Shlba Prasad Singh v.

(1) 43, I.T.R. 393.

(2) L.R.. 48 I A. 195.

. H

C.l.!. V. M. K. K. SINGH (Hcglie, J.) 525

Rani Prayad Kumari Debi apd ors. ( ').

In Commissioner of Income-tax, Punjab, North-West Frontier and Delhi Provinces, Lahore v.

Dewan Bahadur Dewan Krishna Kishore, Rais, Lahore ( ~), the Judicial Committee held that the income of a ouse

propeny which is a part ot an impartible estate cannot be considered as the individual income of an ru.sessee under s. 9 of the Act as it stood then. Therein the Judicial Committee observed :

"Since the decision of the Board in Baijnath Prashad Singh v. Tej Bali Singh (supra), it has been settled law that property, though impartible, may be t~ ancestral property of a joint family, and that in such cases the successor falls to be de, signated according to the ordinary rule of Mitakshra. The concluding words of the judgment, delivered on behalf of the Board by Lord Dunedin , in Baijnath's case (supra) are to that effect, and in that case, as welt as n Shiba Prasad Singh v. Prayag Kumari Devi (supra) which followed jt, "the keynote of the whole position" is-not that property which is not joint property devolves by virtue of custom as though it had been joint-but that the gep.erallaw regulates all beyond the custom, that the custom of impartibility does not touch the succession since the right of survivorship is not inconsistent with the custom; hence the estate retains the character of join family property and devolves by the general law upon that person who, being in fact and in law joint in respect of the estate, is also the senior member in the senior line."

On tlie basis of the above reasoning their Lordships held "for the purpose of sect.ion 9 of the Act" the income in question is not the individual income of the holder of the estate. After that deci~ sion was endered s. 9 of the Act was amended by incorporating 5•

9 ( 4) whtch reads :

"For the purpose of this section-

( a) the holder of at1 impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate. (b) X X

X".

Hence, it is clear that after s. 9 was amended, the income of house property owned by a holder of an impartible estable has to be constdered as his individual income. From this it follows that had _the _assessee not transferred the premises in question in favour of hts wrfe, the income from those premises would have been considered as his individual income under s. 9. Now we have to see

whethe~ because of the transfer of the premises in favour of hii • 01 L.R. 591 .An---- (21 liS I.A. p. 155. 19-L796sup.c. 1.173

5~6

SUPREME COURT REPORTS ['1973] 3 s.c.R.

wife, the said income cannot be considered as the income of the assessee under s. 16(3)(a)(iii). Section 16(3)(a)(iii) reads:

"In computing the total income of any individual for the purpose of assessment, there shaH be included- ( a) so much of the income of a wife or minor child of such individual as arises directly or indirectly-

(i) (ii) (iii)

X X X

X X.

X from assets transferred directly or indirectly to the wife by the husband otherwise than for adt:~ quate consideration or in connection with dll

agreement to live apart; or (iv) x X

X (b) X

There is no dispute that the transfe-r with which we are concerned is a direct transfer. Further it is dmitted that the transfer in question was not effected for any consideration adequate or otherwise, nor was it effected in connection with an agreement to live

apart. But th_e assessee's contention was, which l:Ontention was accepted by the High Court that s. 9 ( 4) (a) on! y deems the income of a house property included in an impartible estate as the indivi- , d\ml income of the holder and that only for the purpose of s. 9

and not for any other purpose. In other wprds; it was urged that section raises a legal fiction and that legal fi'ction is limited for the purpose of s. 9. It was further urged that a legal fiction cannot be extended beyond the purpose for it was created. Counsel for the

assesse:e urged that the fiction incorporated ¥t s. 9 ( 4) (a) can be taken .into consideration only for the purpose of s. 9 and not for the purpose of s. 16 ( 3) .

This contention appears to us to be fallacious.

Section 6 of the Act sets out the various heads of income, profits and gains chargeable to income-tax. They are (i) salaries;

(ii) interest on securities; (iii) Income from property; (iv) Profits and Gains of business, profession or vocation~ (v) Income from othpr sources (vi) Capital gains. Section 3 read with s. 4 brings to tax the total income, profits and gains of an assessee from whatever source it might have been received or accrued. The total income is defined in s. 2 ( xv) as meaning total amount of income, profits and gains referred to in sub-s. ( 1 ) of s. 4 computed in the manner laid down in the Act.

Section 9 deals with only one head of income.

Prior 'l:o the .- transfer by the assessee, he, in law would have ben. cons_idred as . th~ owner of those premises for purposes of. ascertammg hts mcome

c.I.T. V. M. K. K. SINGH (/legdc, J.) 527

111 house proper!Y nn? that irycome would have been taken into

.A f~ount in comptmg his total mcomc. In other words, in ascer-

~. nu the total mcome of the assessee for the purpose of assesstatnlt f11at income also would have entered into the calculatio

":ce when s. 9 ( 4 )(a) speaks "for the .Prpose of this sectio~; it really means for the purpose of determmmg the _ _taxable-income of the assessee. It must be rcmemered that an assessee is not

B. separately t?xed under each head of mcome. Hence when a source of income Js transferrc.d by t_he assessee to his wife, exceptino for the two purposes men~1oned m s. I?(3)(a)(iii), income from"tbat source has to be considered as the mcome of the assessee because . an asset of the assessee stands transferred to his wife. Such a con- , c clusion docs not amount to extending the fiction created under s~

9 beyond he purp?sc for which it is creted. It merely gives effect to that fict1on. It IS true that a legal fict1011 should not be extended beyond the purpose for which it is created; but that docs not mean that the court should not give effect to t11at fiction. Section 27(ii) of the Income-tax Act. 1961 which-has taken o the place of s. 9 ( 4) of the Act docs not begin by saying "for the

purpose of this section". On the other hand, it says that "the holder of an impartible estate shalt be deemed to be the individual owner of all the properties comprised in the estate... It was contended on behalf of the a.-; sessee that this is a change in the Jaw and on that basis we were asked to accept the assessee's construe- [ tionofs. 9(4)(a). Weare unable toacccptthiscontention.- We

do not think t!:_lat there is any change in the law. Section 27 (ii) of the Income-tax Act, 1961 makes explicit what was implicit in the provbion as it originally stood.

Jn view of our conclusion that the income of the house property !n question should be in~Judcd in the total income of the assessee, f 1t follows as a nccessar;' corol!nry that the annual value of the

ssessce's residential house has to be computeu at 10% of the total

ncomc to the assessee which income as alreaJv held included.the mcome from the house nroncrtics transfarcd to his wife as reqUired by the 1st proviso to s. 9(2). c For the reasons mentioned above, thcs'! pFe:t'~ ; r~. allo"e1; tltc answer l!ivcn by the High Court to quest1on No. - .'s vacatt; d and in its nlace we amwcr that qucstilm in the atl1rn; attv.e and 1.n favour of the Revcnw!. Our anwcr to the third qul'~~~-:n

1~.~ 1

1 0 ; n 11h1e affirmative and in favour o~ the .Revenue. Th~ as:>H~:h ori. 1 c <:ots of the Revenue both 1n this Court and 10 t e " .

s.n.w

.. -- ·. _.,_.....-:: .. - :'

. ,·

I.T. BIHAR & ORISSA, PATNA

MAHARAJ KUMAR KAML SINGH

February 13, 1973

K. S. HEGDE

P. JAGANMOHAN REDDY

H. R. KHANNA, JJ.

Indian Income-Tax Act, 1922

ss. 16(3)(a)

s. 9

s. 16( 3)

section 16(3)

s. 16(3)

s. 9(2)

L.R. 48 I.A. 195

L.R. 59 I. A. 331

s. 9

s. 9( 4)

section 9

s. 9(4)

s. 9

Section 9(4)(a)

s. 16(3)

s. 9

S26H to

527D

Section 27(ii)

Income-tax Act, 1961

s. 9(4)

s. 9(2)

CiVIL APPELLATE JURISDrcnoN

V. S. Desai

I. R. Murthy

S. P. Nayar

R. N. Sachthey

N. D. Karkhanis

Santokh Singh

U. P. Singh

HBGDE

Calcutta

s. 16(3)

s. 16(3)(a)

Art. 14

High Court of Pama

s. 661

s. 16

Indian Income-tax Act, 1922

Constitution of India

section 16(3)(a)(iii)

section 16(3)

section 9

s. 9(2)

s. 9

Mitakshra

Dunedin

Baijnath

s. 9

s. 9

s. 9

s. 16(3)(a)(iii)

Section 16(3)(a)(iii)

s. 9

s. 9

s. 9

s. 9

s. 9

s. 16

Section 6

Section 3

s. 4

s. 2

s. 4

Section 9

V. M. K. K. SINGH

s. 9

Section 27(ii)

Income-tax Act

s. 9

Section 27

Income-tax Act, 1961

s. 9(2)


RAJA JAGDISH PRATAP SAHi

STATE OF UTTAR PRADESH

February 13, 1973

[K. S. HEGDE, P. )AGANMOHAN REDDY AND H. R. KHANNA, JJ.]

U.P. Agricultural Income-tax Act (3 of 1948), s. 32-Suit for recovery of tax assessed-Maintainability.

The appellant was assessed to Agricultural income-tax under the U.P.

Agricultural Income-tax Act, 1948, and was directed to pay it in four instalments. The appellant defaulted and, when summary proceedi:ogs to recover the amounts as arrears of land revenue were taken under s. 32 of the Act, it was found that two of the instalments had become time barred under s. 32(2). In a suit by the respondent State for recovery of those amounts, the appellant contended that the only remedy open to the respondent was under s. 32 and that the suit was not maintainable. The trial court dismissed the suit, but the High Court in appeal decreed the suit.

Dismissing the appeal to this Court,

HELD : Where a taxing statute provides for a summary mode of recovery and is not exhaustive, it will be open to the State to have recourse to any other mode open to it under the general law. [5320]

Once a notice of den1and is served on the assessee for payment of tax due under the Act, and the assessee makes a default _after the date for payment specified therein has expired, a debt is created in favour of the State; and the State has the right to recover it by any of the modes open to it under the general law, unless, as a matter of policy only a specific mode to the exclusion of any other is prescribed by the law.

No such prohibition is enacted in s. 32 of the Act. [531C-EJ

Manlckam Chetiar v. Income-tax Officer. Madurai, [1938] VI l.T.R. 180, lnder Chand v. Secretary of State, A.LR. [1942] Patna 81 and Cha ganti Raghava Reddy v. State of Andhra Pradesh, A.l.R. [1959] A.P. 631 applied.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1192 of 1970.

Appeal by Certifica1e from the Judgment and order dated May 20, 1966 of the Allahabad High Court in First Appeal No. 161 Of 1960.

Yogeshwar Prasad, Hajii Iqbal Ahmed, S. K. Bagga a.nd S.

Bagga, for the appellant.

S. C. Manchanda and 0. P. Rana, for the respondent.

The Judgment of the Court was delivered by

JAGANMOHAN REDDY, J.

The State of Uttar Pradesh filed a suit against the appellant for the recovery of a sum of Rs. 26,548-62 being two instalments of the Agricultural Income-tax due from him

J. P. SAHi v. U.P. STATE (Jaganmohan Reddy, J.) 529

under the U.P. Agricultural Income-tax Act (III of 1948) hereinafter referred to as 'the Act'). The appellant was assessed to Agricultural Income-tax for the year 1359 Fasli, in a sum of Rs. 53,097-25 and was directed to pay the same in four instalments of Rs. 13,274-31 each payable on December 9, 1952, Februry 9, 1953, April 9, 1953 and June 9, 1953, and accordingly the first instalment was recovered from him with penalty. Notice to pay the second and third instalments by April 21,1953 was served on him but this amount was not paid. Instead, the appellant filed a Writ Petition in the Allahabad High Court and obtained a stay order which was subsequently vacated. Thereafter the State sought to recover the amout but the appellant filed a revision challenging the proceedings for recovery on the ground that they had become time-barred under s. 32(2) of the Act. The Board accepted the contention and held that no proceedings could be commenced for the recovery of third and fourth instalments which fell due on April 9, 1953 and June 9, 1953, but in respect cif the proceedings for the recovery of the second instalment it was held that those proceedings could be continued. An application to the Board for reference to the High Court was dismissed. The appellant then paid the second instalment.

In view of the decision of the Board, the State of Uttar Pradesh filed a suit for the recovery of the amounts aforesaid in which the

appellant pleaded that the only remedy open to the State was that permitted under s. 32(2) of the Act, and that no regular suit was maintainable. This plea was sustained, and the suit was dismissed as not maintainable. The High Court, however, in an appeal reversed the judgment of the Trial Court and decreed the suit.

Against that judgment, this appeal is by certificate.

It is contended before us that the only mode of recovery of arrears of tax or penalty due under the Act is under s. 32, and the State cannot recover any such amount by any other mode such as by s. suit. Section 32 is as follows :

"32. Recovery of penalties--(!) The Collector may, on the motion of assessing authority, recover any sum imposed by way of penalty under the provisions of section 17 or section 31, or, where an assessee is in default, the amount assessed as agricultural income-tax as if it were an arrear of land revenue. '

(2) No proceedings for the recovery of any sum

pyale under this Act shall be commenced after the expuauon of one year from the date on which the last instal!llet fixect under section 30 falls due or after the exp1rat10n f one year from the date on which. any appeal relatmg to such sum has been disposed of,"

Before we deal' with the n1ain contention, it may be stated that once a notice of demand is served on the assessee for payment of tax duel under the Act, and the assessee makes a default after the date for payment specified therein has expired, a debt is createa in favour of the State. This debt the State can recover by any of the modes open to it under the general Jaw. This is also the position under the Indian Income-tax Act, but it is contended that the analogous provisions of sub-s. (7) of s. 46 of the Indian Income-tax Act, 1922, or the corresponding provisions of s. 232 of the Incometax Act of 1961 cannot be relied upon for interpreting s. 32 of the Act inasmuch as there are special provisions in these Acts which enab'Ie the Revenue to file a suit for the recovery of arrears of tax due from the assessee. It is true thats. 232 of the Income-tax Act '05 1961 provides that the modes of recovery under that Act are not exhaustive, but this clarification, which it is, does not imply tliat it is only bv virtue of a soecific provision that the legislature has.conferred this right uoon the Revenue where it did not earlier possess. nder s. 46(2) of the Act of 1922, the Income-tax Officer may forward to the Collector a certificate under his signature soecifying the amount of arrears due from an assessee. and the Callee-·

tor. on receipt of such certificate, shall oroceed to recover from such assessee the amount soecified therein as if it were an arrear of land revenue. Sub-section (7) of the said section orescri6~ a period of limitation of one year from the last day of the Financial year in which anv demand is. made under the Act, and thereafter no proceedings for the recovery can be taken. This section was amended bv s. 21 of the Indian Income-tax (Amendment) Act, 1953, by which the following exolanation was added : . . . "Explanation.-A proceeding for the recovery of any sum shall be deemed to have commenced within the meaning of this section, if some action is taken to recover the whole or any part of the sum within the period hereinbefore referred to, and for the removal of doubts it is hereby declared that the several modes of recovery specified in this section are neither mutually exclusive, nor affect in' any way any other law for the time being in force relating to the recovery of debts due to Govern- . ment. and it shall be lawful for the Income-tax Officer. if

for any special reasons to be recorded he so thinks fit, to nave recourse to .'.!ny such mode of recovery notwith-· standing that the tax due is being recovered from an assessee by any other mode."

It is manifest that this eXplanation does not in any way confer a right on the Revenue to recover arrears of tax by any.mode ()!her 11 than those provided under that Act. That right which the State or thd Revenue has for reeovering arrears of tait which i~ a del; it due

'.,..

J. P. SAHi v. U.P. STATE (Jaganmoha11 Reddy, J.) 5:Jl

to it is a general right conferred on it under the law either by a suu 'or Dy some oma memod open to 1t.

Section 32, thougn H ctoes not nave an Expianauon analogous to s. 4o nonetneless uoes

not preclude either spec1ticatly or by necessary impllcauon a nghr to recover the arrears o! tax Clue by a suit. The melhoct prescnbecJ m tn1s section is one o! the modes of recovery which 1s a summary

rem~Jy. 1t is, however, open to the State to adopt any method availaDle to it for the recovery of tax in the same way as it would be open to it to .recover ordinary debt due to it. It can institute a suit and obtain a decree with costs against the assessee or other persons liable to pay. It could also probably, without obtammg a decree or attachment, apply to a Court for ll1e payment of dues 1f there are funds lying to' •me credit of the assessee in the Court,

ur it may perhaJ?.s demand payment in the hands of the receiver appointed in respect of any property pf the assessee, if due nonce to all the parties interested in the funds is given. On these aspects, however, we do not propose to express any views. As already observed, after an assessment is made upon the assessee quantifying the tax due from him and a demand for the payment thereof is issued within the period specified therein, it creates a debt payable by the assessee in favour of the State. It is well established that once a debt is creati; d, the State has the right to recover it by any of the modes open to it under the general law, unless as a matter of policy only specific mode to the exclusion of any other is presc.tiQed by the Jaw.

No such prohibition is enacted in s. 32 of the Act.

Even prior to the amendment of sub-s. ( 7) of s. 46 of the 1922 Act, several High Courts in this country had taken this view. In Manickam Chettier v. Income-tax Officer, Madurai('), a Full Bench of the Madras High Court was dealing with the right of the Crown to obtain payment of arrears of tax due from the assessees properties sold in execution of a. decree where the question were, firstly, whether the Government was entitled to claim a priority, and secondly, whether, as. a matter of procedure, the petition by the Income-tax Officer to the Civil Court for payment to him from the amounts to the credit of the assessee, was sustainable. It was contended before the .Full Bench, as it is contended before us, on the analogous provisions of section 32 of the Income-tax Act of 1922, that inasmuch as section 46 of that Act nrovides modes for the recovery of income-tax, the Crown is not entitled to adopt any different method. This cnntention was repelled.

Leach. C.J., observed at p. 185 :

"This section, h. •.vever, does not profess to be exhaustive and it cannot without express wordo, to that effect take away from tile Crown the right of enforcing 11av- _._n1ent_by any_cithe~_method open to it. Therefore, I do

(1) (1938) VJ l.T.R. 180.

not regard section 46 as imposing a bar to an application or the nature of the one we are now concerned with."

Varadachariar, J., had expressed a doubt as to the procedure for recovery,. but he had howevr no doubt that the Crown had a priority tor the recovery of debts due to it, and consequently agreed in favour of the view expressed by Leach, C.J. Mockett, J., also agreed with this view. This case was COl!Sidered by Harris; C.J., and Chatterjee, J., of the Patn:i High Court in lnder Chand v.

Secretary of State('). In this case the Patna High Court was confilering whether the Crown as a Creditor has th11 ordinary right of suit against the assessee. Following the Full Bel\ch judgment of the Madras High Court, it was held that a suit was maintainable.

The contention of Mr. P.R. Das, learned counsel for the appellant, that the only method by which income-tax may be recovered is that laid down in s. 46, was repelled by Chatterjee, J. In Chaganti Raghava Reddy v.

Stat_e of Andhra Pradesh('), the Andhra Pradesh High Court also took a similar view. On principle.as well as on the consistent view of the High Courts, it is beyond doubt that where a taxing statute provides for a summary mode of recovery and is not exhaustive, it will be open to the State to have recourse to any other mode open to it under the general law.

In this view, the judgment of the High Court is affirmed, and the appeal is dismissed with costs.

V.P.S.

A ppeat dismissed.

(I) A.l.R. 1942 Patna 87 .

(2) A.LR. 1959 A.P. 631.

LV96Sup, C.l./73-2500-30-8 74-GIPF.

RAJA JAGDISH PRATAP SAHi

STATE OF UTTAR PRADESH

February 13, 1973

K. S. HEGDE

P. )AGANMOHAN REDDY

H. R. KHANNA, JJ.

Agricultural Income-tax Act

s. 32

Agricultural Income-tax Act, 1948

s. 32

s. 32(2)

s. 32

s. 32

Yogeshwar Prasad

Hajii Iqbal Ahmed

S. K. Bagga

S.

Bagga

S. C. Manchanda

0. P. Rana

JAGANMOHAN REDDY

State of Uttar Pradesh

Jaganmohan Reddy

Agricultural Income-tax Act

December 9, 1952

Februry 9, 1953

April 9, 1953

June 9, 1953

April 21,1953 was

Allahabad High Court

s. 32(2)

s. 32(2)

s. 32

Section 32

section 17

section 31

section 30

Income-tax Act

s. 46

Indian Income-tax Act, 1922

s. 232

s. 32

Income-tax Act

s. 46(2)

s. 21

Jaganmoha11 Reddy

Section 32

s. 4

s. 32

s. 46

Madras High Court

section 32

Income-tax Act

section 46

Leach

section 46

Varadachariar

C.J. Mockett

Harris

Chatterjee

Patn:i High Court

Patna High Court

P.R. Das

s. 46

Andhra Pradesh High Court