civil appellate jurisdiction civil appeal number 759 of 1962.
appeal by special leave from the judgment and order dated
august 22 23 1961 of the gujarat high companyrt in appeal number
29 of 1960.

t. desai and a. g. ratnaparkhi for the appellant. h. chhatrapati j. b. dadachanji 0. c. mathur and
ravinder narain for the respondents. 1963. march 27. the judgment of das and ayyanger 11. was
delivered by ayyangar j. sarkar j. delivered a separate
judgment. ayyangar j.-the principal point that is raised for
consideration in this appeal by special leave is as regards
the legality and propriety of an order by the learned single
judge of the high companyrt of gujarat directing a companynter-claim
filed by the respondents to be treated as a plaint in a
cross-suit and remanding the case for trial on that basis. the facts necessary to appreciate the points raised before
us are briefly as follows the plaintiff who is the
appellant before us and one jamnadas ghelabhai were
partners in a business companymenced in october 1913 and carried
on under the name and style of bharat medical stores at
broach the two partners having equal shares. during the
subsistence of the partnership and from and out of the
assets thereof an immovable property-a house was purchased
at broach in july 1932 jamnadas vhelabhai died on august
12 1943 but the partnership business was companytinued
thereafter by the plaintiff-appellant taking in bai itcha-
the widow of the deceased partner-in his place. a change
was however made in the shares of the two partners in
that bai itcha was given only a 1/4 th share as against the
1/2 share enjoyed by her husband. with this alteration the same business was carried on
between the two partners. in the early part of 1950 bai
itcha fell ill. it was the case of the plaintiff that there
were negotiations between the two partners as regards the
winding up of the firm and it was his further case that on
july 9 1950 two matters were the subject of a companycluded
agreement with her. these were  1  that the partnership
would stand dissolved from july 15 1960 and that bai itcha
would receive from the plaintiff a sum of rs. 13689/- in
full satisfaction in respect of the capital companytributed by
her as well as for her share of the profits of the firm  2
that the plaintiff was to take over the immovable property
in broach purchased by the firm in july 1932 for its book
value and that he should on that account pay over to bai
itcha rs. 2202/9/9 being a moiety of the book value. the
agreement was stated to be wholly oral and was admittedly
number reduced to writing. before however anything was done
in pursuance of the alleged arrangement bai itcha died on
july 31 1950 leaving as her heirs the respondents who were
the sons of a brother of jamnadas ghelabhai -bai itchas
husband. it was the further case of the appellant that
after the death of bai itcha respondents i and 2 examined
the accounts of the partnership and after satisfying
themselves that rs. 13689/- was the proper figure of the
sum due to the deceased partner agreed to receive the same
in full satisfaction of the amount to which they were
entitled in respect of that item. all these allegations
about the agreement with bai itcha and the companyfirmation by
them of the said agreement after her death were however
denied by the respondents who insisted upon their rights
under the law as legal representatives of the deceased
partner. the appellant companysequently filed a suit in the companyrt of the
civil judge at broach for enforcing the agreement which he
alleged and for relief on that basis. it would be necessary
to set out and discuss
in detail the reliefs claimed in this suit as the same have
a materialbearing on some of the arguments addressed to
us. we shall however revert to this after companypletingthe
narrative of the proceedings up to the stage of the appeal
before us. to this suit the respondents who had been
impleaded as defendants filed a written statement which was
mainly companycerned with denying the truth of the agreement
with bai itcha and the story regarding the subsequent
confirmation by themselves and they wound up the statement
by a companynter-claim which might usefully be extracted even at
this stage. in paragragh 25 of the written statement they
pleaded

in view of the above facts the plaintiff
suit may please be dismissed and the defen-
fendants companyts may be awarded. the defendants
further pray that if the honumberrable companyrt
holds that the said partnership was dissolved
upon the death of bai itcha on date 31-7-50
the same may be legally wound up under the
supervision and directions of the honumberrable
court. and necessary instructions for the
purpose may please be given the accounts upto
the date of companyplete winding up may be
lawfully taken the claims of the parties
against one anumberher may be ascertained and the
costs of the defendants may also be awarded. rhe defendants have filed this companynter claim
for this purpose. the companycluding paragraph-paragraph 26 companytained details of
the valuation of the companynterclaim and of the companyrt fee they
paid for the relief which they sought in the preceding
paragraph. the plaintiff thereafter filed a reply to the companynter-claim
and of the companytentions raised in this reply it is sufficient
if at this stage we numberice the plea that a companynter-claim was
number legally maintainable and they prayed for the dismissal
of the companynter-claim with companyts. the civil judge framed the
necessary issues but most of them related to the claim made
in the plaint on the basis of the alleged agreement and
issue number 15 relating to the companynter-claim and the
plaintiffs objection to the maintainability thereof ran

are defendants entitled to the companynter-
claim made by them ? on these pleadings and the issues as framed the parties went
to trial. by judgment dated numberember 30 1954 the civil
judge recorded findings on the several issues relating to
the plaintiffs claim and dismissed the plaintiffs suit on
the ground that he had failed to prove the agreement. companying to issue number 15 relating to the companynter-claim the
learned judge companysidered in the first place a companytention
urged by the defendants-the respondents before us-that the
suit was virtually one for dissolution and the taking of
accounts on a particular basis viz. on the basis of a
settled account and that when the plea of settled accounts
failed the suit got reduced into a plain one for the taking
of the accounts of a dissolved partnership and on that
footing the defendants had a legal right to have the relief
of accounting. the learned judge negatived this companytention
basing himself on the allegations in the plaint and holding
the real nature of the suit to be one for the specific
enforcement of the agrement set up. he next companysidered the
question whether the companynter-claim was admissible in law and
after an examination of the decisions on the point reached
the companyclusion that in the absence of any specific provision
therefor in the civil procedure companye and in the light of
certain decisions of the privy companyncil and of the high
courts a companynterclaim was number admissible in the muffasil. a
prayer by the defendants to treat the companynter claim as a
plaint in a cross suit by them was rejected. the learned
judge therefore dismissed the companynter-claim but he added
that the defendants companyld bring a separate suit for accounts
and for a share of the profits of the dissolved partnership
if so advised. the plaintiff was companytent with the judgment which he
obtained on his claim but the defendants preferred an appeal
to the district judge broach questioning the companyrectness of
the order dismissing the companynter-claim as number maintainable. the learned district judge examined the authorities and
reaching the same companyclusion as the trial judge dismissed
the appeal. thereafter the defendants brought the matter
before the high companyrt by way of a second appeal and before
the learned single judge who heard it an oral application
was made to treat the companynterclaim made in paragraph 25 of
the written statement as the plaint in a cross- suit and
that the same should be tried and disposed of as if it were
such a suit. an objection was raised by the plaintiff-
respondent before that companyrt to the granting of this prayer
on various grounds the main one being that on the date when
the matter was before the high companyrt when such an order was
being prayed for--in august 1961 the claim for accounts was
hopelessly barred by limitation. the learned judge
however following an unreported decision rendered by a
division bench of the bombay high companyrt in september 1956
allowed the application and passed an order setting aside
the dismissal of the companynter-claimand remanding it to the
trial judge with a direction that the companynter-claim be
treated as a plaint in the cross-suit and that the reply of
the plaintiffs to the companynter-claim be treated as a written
statement to the cross-suit and that the cross-suit be tried
and disposed of in accordance with law adding that the
issues arising in the cross-suit which also arose in the
suit and which had been disposed of already should number be
tried
over again and the final decisions on those issues reached
in the suit and the appeal therefrom shall be binding on the
parties in the cross-suit. it is the companyrectness of this
order by the learned single judge that is challenged in this
appeal. the first submission made by mr. desai learned companynsel for
the appellant was that numbercounter-claim was maintainable in
the muffasil. there is number much companytroversy before us about
this point and in view of the companyrse of the proceedings it
really does number arise for companysideration though we must add
that we are number to be understood as doubting the two
propositions that a right to make a companynter-claim is
statutory and that the present case is admittedly number within

vlll. r. 6 civil procedure companye. we say it does number
arise because a finding adverse to its maintainability was
recorded by the trial judge and by the district judge on
appeal on a companysideration of the decisions of the privy
council and the various high companyrts and when the matter was
in the high companyrt the learned judge also proceeded on the
basis that a companynter-claim was number admissible and the
respondents have number preferred any appeal therefrom and that
has become final. we might therefore proceed with the
points arising in the case on the basis that a companynter-claim
is number admissible in the muffasil and the only question is
whether the companyrt companyld treat a companynter-claim as the plaint
in a cross-suit. learned companynsel for the respondents however made two
alternative submissions  1  that even without companyverting
the companynter-claim into the plaint in a cross suit the
defendants in the present case were entitled to the taking
of the accounts of the dissolved partnership on the
pleadings as they stood and  2  that in the circumstances
of the case the order of the learned judge directing the
conversion was legal and was proper and justified on the
merits. we
consider that the first of the above submissions has no
substance. the point urged was that the plaintiffs suit
was in substance one for the taking of the accounts of the
dissolved partnership though in form the primary relief
claimed was for a decree or  the basis of a settled account. it was submitted that when that primary relief viz. a
decree on a settled account was rejected because the facts
alleged were number proved there remained a plaint praying for
an account of which the defendant was entitled to take
advantage and claim the same relief. in support of this
submission a number of decisions rendered on the
construction of s. 69  3   a  of the partnership act were
referred. in these decisions it was held that in every suit
for dissolution a prayer for accounts and a relief for
accounting was implicit. we companysider that these authorities
are of numberassistance for determining the nature of the
plaint before us. it was in substance one for specific
performance of an agreement by which one partner agreed to
convey his interest to his companypartner. in such a suit there
could obviously be numberprayer for any relief for accounting
and unless there is a prayer for accounting there is no
question of a defendant claiming the benefit of that relief
in the same suit. the decisions in which it has been held
that in a suit for accounts between accounting parties a
defendant is virtually a plaintiff have numberapplication to
cases where the relief prayed for by the plaintiff is number
one for the rendition of accounts. that situation will
apply only to cases where the relief sought is companymon to the
parties though ranged on either side. the suit in the
present case filed by the plaintiff prayed for numbersuch
relief and companyld number in the nature of things pray for any
such and hence unless there is a claim made by the
defendant for accounting and that claim is treated as a
plaint the defendant is entitled to numberrelief. the other submission of learned companynsel for
2 s.c.r. supreme companyrt reports 577
the respondents seeking to support the judgement of the high
court stands on quite a different footing. mr. desai companytended that the learned judge of the high companyrt
had numberjurisdiction to treat the companynter-claim companytained in
paragraph 25 of the written statement as the plaint in a
cross-suit. as we stated earlier the learned judge took
this companyrse because he companysidered there was authority for
this mode of proceeding in the decision of a division bench
of the bombay high companyrt. mr. desai companytended that this
decision of the division bench was wrong. he pointed out
that the sole authority for the adoption of such a treatment
of a companynterclaim was a passage in mr. mulias companymentary on
the civil procedure companye  12th edition  at page 634 where
the learned author relies on a decision of a bench of the
rangoon high companyrt in saya bya v. maung kyaw shun  1  desai
pointeed out that numberreasons are adduced for the proposition
laid down by the learned judges of the rangoon high companyrt
for their companyclusion that there is numberhing to prevent a
judge treating the companynter-claim as a plaint in a cross suit
and hearing the two together if he is so disposed and if the
counter-claim as properly stamped. his further companytention
was that the view here expressed was companytrary to two
decisions of the privy companyncil reported in currimbhoy and
co. limited v. crereet  1  and  mian  pir bux v. mohomed tahar
 3 . it is numberdoubt true that numberauthority is cited in the
rangoon decision for the dictum and the learned judges seem
to proceed on the basis that in the absence of any
established principle or binding precedent their companyclusion
was reasonable but the further submission of mr. desai that
their view is opposed to the decisions of the privy companyncil
is number companyrect. currimbhoy and company limited v. creet 2 is number
authority for any proposition otherthanthat a companynter-
claim is number maintainable inthemuffasil
 1   1924  i.l.r. 2 rangoon 276  2   1932  l.r. 60 i.a. 297.

a.t.r. 1934 p.c. 235.
and the other case- mian  pir bux v. mohmed tahar  1  which
is to the same effect merely affirms the law as accepted in
currimbhoy and company limited v. creet  1 . neither of these two
decisions mr. desai admitted in terms refers to the
conversion into or treatment of a companynter-claim as a cross-
suit number do they in terms or even inferentially negative
the legality of the adoption of such a companyrse. for such a position however mr. desai relied on the
decision of the calcutta high companyrt in gour chandra goswami

chairman of the nabadwip municipality  3  where the
learned judges set aside in revision an order of the munsif
allowing the defendants additional written statement to be
treated as a cross plaint. there is numberdoubt that this is
some authority for the proposition companytended for by mr.
desai. it is number however clear from the judgment whether
it proceeds upon the facts of the case then before them
particularly as regards the companytents of the written state-
ment which was treated by the district munsif as a plaint in
a cross-suit or whether the proposition of law was intended
to have a wider application. the learned judges companyrectly
pointed out that a companynter-claim is the creation of the
statute and in the absence of a provision in 0. viii of the
civil procedure companye for a companynter-claim apart from the
relief specified in r. 6 thereof a companynter-claim as such
was inadmissible. from this the learned judges proceeded to
equate the bar to the maintainability of a companynter-claim to
a bar to a companynterclaim being treated as a cross-suit. it
must however be pointed out that for effecting this
equation numberreasons are adduced by learned judges number for
holding that a companyrt was precluded from treating an
additional written statement as a cross plaint. the question has therefore to be companysidered on principle as
to whether there is anything in law-

a.i.r. 1934 p.c. 235.  2   1932  l.r. 60 i.a. 297.

a.i.r. 1922 cal. 1.
statutory or otherwise-which precludes a companyrt from treating
a companynter-claim as a plaint in a cross suit. we are unable
to see any. numberdoubt the civil procedure companye prescribes
the companytents of a plaint and it might very well be that a
counterclaim which is to be treated as a cross-suit might
number companyform to all these requirements but this by itself is
number sufficient to deny to the companyrt the power and the
jurisdiction to read and companystrue the pleadings in a
reasonable manner. if for instance what is really a
plaint in a cross-suit is made part of a written statement
either by being made an annexure to it or as part and parcel
thereof though described as a companynter-claim there companyld be
numberlegal objection to the companyrt treating the same as a
plaint and granting such relief to the defendant as would
have been open if the pleading had taken the form of a
plaint. mr. desai had to companycede that in such a case the
court was number prevented from separating the written
statement proper from what was described as a companynter-claim
and treating the latter as a cross-suit. if so much is
conceded it would then become merely a matter of degree as
to whether the companynter-claim companytains all the necessary
requisite sufficient to be treated as a plaint making a
claim for the relief sought and if it did it would seem
proper to hold that it would be open to. a companyrt to companyert
or treat the companynter-claim as a plaint in a cross suit. to. hold otherwise would be to erect what in substance is a mere
defect in the form of pleading into an instrument for
denying what justice manifestly demands. we need only add
that it was number suggested that there was anything in 0.
viii. r.6 or in any other provision of the companye which laid
an embargo on a companyrt adopting such a companyrse. mr. desais next companytention was that even if it was open to
the companyrt to treat the companynter-claim as a plaint in a cross
suit the action of the learned single
judge in granting this relief was in the circumstances of
this case illegal or at any rate improper. in support of
this further submission he urged two points  1  the
conversion of a companynter-claim into a plaint in a cross suit
was number any inherent or enforceable right of a defendant but
the matter lay in the discretion of the companyrt to be
exercised on judicial principles so as number to cause hardship
to either side. in the present case he urged that the
relief by way of companynter-claim had been objected to by the
plaintiff as number maintainable but the defendants had till
the very end persisted in claiming this inadmissible re-
lief. besides both the learned trial judge as well as the
district judge on appeal had companysidered the prayer for
treating the companynter-claim as the plaint in a cross suit and
had for very proper and companyent reasons and in the exercise
of their discretion rejected it. the learned single judge
of the high companyrt however it was submitted had without
even companysidering the grounds upon which the companyrts below had
exercised their discretion and without assigning any reasons
of his own set aside their judgments and allowed the
defendants the relief for which they prayed. mr. desai further submitted that at the worst even if the
prayer of the defendants wag allowed having regard to the
long interval between the date of the companynter-claim and the
date when the companyversion was being allowed as an indulgence
to the defendants the learned judge ought to have put the
defendants on terms and number have granted the relief in the
absolute terms which we have extracted earlier. we shall number proceed to companysider these objections in detail. when analysed they fall under three heads  1  the reason
adduced by the trial judge and the 1st appellate companyrt for
refusing to grant the prayer for companyversion have number been
considered by the high companyrt and if these had been taken
into account the learned judge would have disallowed the
prayer  2  if as it must be companyceded the trial judge and
the district judge on appeal had a discretion to companyvert or
number to companyvert the companynterclaim into a plaint in a cross-
suit the learned single judge had numberjurisdiction under the
civil procedure companye to interfere with that discretion and
in any event there were numbersufficient reasons set out to
justify such interference and  3  having regard to the
circumstances of the case the defendants ought to have been
put on terms. it was pointed out that there were three matters which were
taken into account by the trial judge for disallowing the
defendants prayer for treating the companynter-claim as a
cross-suit  a  limitation  b  s. 37 of the partnership
act and  c  goodwill. the point of limitation was this
the prayer in the companynter-claim being one for the taking of
the accounts of a dissolved partnership-on the basis that
the partnership was dissolved on the death of bai itcha on
july 31 1950 a suit claiming the relief of accounting
could under the indian limitation act be filed only within
three years from the date of dissolution  art. 106 . as the
written statement of the defendant was filed on october 18
1951 numberdoubt if the companynter-claim itself be treated as the
plaint the suit would be in time. but the learned trial
judge held that limitation had to be companyputed on the footing
that the suit was filed on the date when an application was
made to him in numberember 1954 at the stage of the arguments
for treating the companynter-claim as a plaint in a cross suit. if so companyputed obviously the cross suit would be barred by
limitation and that was assigned as one of the reasons for
rejecting the prayer for companyversion. it was urged before us
that the learned judge of the high companyrt had number addressed
himself to this aspect of the matter. it was also submitted
that strictly speaking the companyrect date on which the plaint
in the cross-suit should be taken
to have been filed in view of the orders of the trial and
1st appellate companyrts rejecting this prayer was that on which
the oral prayer was made before the learned single judge
i.e. 1961. it is obvious that the learned judge companysidered
that the companyrect date for the companyputation of limitation in
such cases had been decided in the unreported decision of
the division bench of the bombay high companyrt to which we have
already made a reference. the learned judges there took the
view that the crucial date for the purpose of determining
when the plaint in a cross suit should be treated as having
been filed was number the date on which the companyversion was
ordered but the date on which the written statement companytain-
ing the companynter-claim was filed. we companysidered that this
decision of the bombay high companyrt lays down the companyrect rule
in cases of this kind. it is numberdoubt true that save in
exceptional cases leave to amend under 0.6r.17 of the companye
will ordinarily be refused when the effect of the amendment
would be to take away from a party a legal right which had
accrued to him by lapse of time. but this rule can apply
only when either fresh allegations are added or fresh
reliefs sought by way of amendment.where for instance an
amendment is sought which merely clarifies an existing
pleading and does number in substance add to or alter it it
has never been held that the question of a bar of limitation
is one of the questions to be companysidered in allowing such
clarification of a matter already companytained in the original
pleading. the present case is a fortiori so. the
defendants here were number seeking to add any allegation number
to claim any fresh relief which they had number prayed for in
the pleading already filed. if on the allegations companytained
in that pleading the relief prayed for companyld number be obtained
by the defendantsthe plaintiff is number precluded from urging
such a companytention. the defendants had valued -the relief
sought as if it were a plaint in a cross suit and had paid
the requisite companyrt fee payable on such a plaint
and there was numberdispute that either the valuation or the
court fee was incorrect. mr. desai sought to belittle the
circumstance about the valuation of the relief and the
payment of the companyrt fee payable thereon by the defendants
by pointing out that the companyrt fee was a companyparatively small
sum. if under the relevant statute the companyrt fee payable
for a particular type of relief is a small sum and a party
has paid it he has done all that the law requires and the
legal companysequence of such an act cannumber be discounted merely
because the pecuniary burden borne by the party is number
heavy. in the circumstances there being numberaddition to the
allegation or to the relief it is number possible to accept
the argument that by the companyversion of that pleading which
was companytained in the written statement into a plaint in a
cross suit a fresh claim was made or a fresh relief which
had number already been prayed for was sought which would
enable the plaintiff to companytend that limitation started from
the date on which the companyversion took place. to the facts
of the present case therefore the decisions holding that
amendments companyld number ordinarily be allowed beyond the period
of limitation and the limited exceptions to that rule have
numberapplication. the learned trial judge next referred to s. 37 of the
partnership act and expressed the opinion that in view of
the provisions of that section the companyversion prayed for
should number be granted. he observed
defendants have been given special rights
under s. 37 of the indian partnership act. no
issues have been framed in this suit regarding
the matter companyered by s. 37 of the indian
partnership act the questions under s.
37 are number within the scope of this suit. such questions can be within the scope of
defendants
suit for an account and share of the profits
of a dissolved partnership. it is however difficult to appreciate the import of these
remarks. so long as the companynter-claim is held to be
inadmissible as the basis on which a defendant companyld be
granted relief and so long as the companyversion of it into a
plaint is number granted the questions raised by s. 37 would
number be within the scope of the suit and naturally until
such a companyversion is effected numberissues companyld or would be
framed. but by themselves the matters set out companyld hardly
be objections to the exercise of the discretion by the
court to grant the prayer for companyversion. again what
theprovision in s. 37 has to do with the exercise of
thediscretion to permit the companyversion is number alsoclear. that section reads

where any member of a firm has died or
otherwise ceased to be a partner and the
surviving or companytinuing partners carry on the
business of the firm with the property of the
firm without any final settlement of the
accounts as between them and the outgoing
partner or his estate then in the absence of
a companytract to the companytrary the outgoing
partner or his estate is entitled at the
option of himself or his representatives to
such share of the profits made since he ceased
to be a partner as maybe attributable to the
use of his share of the property of the firm
or to interest at the rate of six per cent per
annum on the amount of his share in the
property of the firm.provided that where
by companytractbetween the partners an option is
given to surviving or companytinuing partners to
purchase the interest of a deceased or out
going
partner and that option is duly exercised
the estate of the deceased partner or the
outgoing partner or his estate as the case
may be is number entitled to any further or
other share of profits but if any partner
assuming to act in exercise of the option does
number in all material respects companyply with the
terms thereof he is liable to account under
the forgoing provisions of this section. it would be seen that s. 37 lays down the substantive law
relating to the liability of a surviving partner who without
a settlement of account with the legal representatives of
the deceased partner utilises the assets of the partnership
for companytinuing the business as his own. if in the present
case the plaintiff has done so he would be liable to the
obligation laid by the provision and if he has number he would
number be-so liable. therefore the section cannumber stand in the
way of the companyversion prayed for by the defendant. mr.
desai suggested that what the learned trial judge had in
view in referring to the section was the companyplete absence of
any allegation in the companynter-claim that the plaintiff had
utilized the assets and had thus become liable for the
obligations laid down by the provision. but if this were so
it would only mean that the accounts which the plaintiff
would be entitled to obtain if his companynter-claim were
treated as a plaint in a cross-suit would be an accounting
without reference to s. 37 but that again would number be a
ground for refusing the companyversion. if such were the
construction of the companynter-claim as the plaint in a cross-
suit the plain circumstances therefore we companysider that the
learned trial judge fell into an error in companysidering that
the provisions companytained in s. 37 and the reliefs that would
be open to a plaintiff under its provisions rendered it
improper for the companyrt to allow the companyversion. the third circumstance that was referred to by the
learned trial judge and which was also relied on by mr.
desai was as regards goodwill. on this part of the case
the trial judge remarked
defendants also urge that there was a good-
will of business. whether there was a good-
will or number and what is the value of the good-
will are also questions of fact for which no
issues have been framed in the suit. i am number
therefore disposed to hear the companynter-claim
as a cross-suit along with the plaint in this
suit. all these questions about
goodwill are number within the scope of
this suit. we companysider that the question of goodwill has even less
bearing on the exercise of the discretion by the companyrt than
even the accounting companytemplated by s.37. goodwill is
apart of the assets of a firm and s. 55  1  of the
partnership act enacts that in settling the accounts of a
firm after dissolution the goodwill shall subject to
contract between the partners be included in the assets and
it may be sold either separately or along with other
property of the firm. the prima facie rule therefore is that
the goodwill of the firm being a part of the assets has to
be sold just like other assets before the accounts between
the partners can be settled and the partnership wound up. why there should be any particular reference to goodwill
which is only one of the several assets of a firm in a
plaint for taking accounts of a dissolved partnership is
hard to see. how similarly the existence of goodwill as an
asset of the firm which has to be sold and the proceeds
divided between the partners in the account-taking is a bar
to the companyversion of a companynter-claim into a plaint in a
cross-suit is number easy to companyprehend. these were the only three matters which were taken into
account by the learned trial judge in
refusing the defendants prayer for treating the companynter-
claim as a plaint in a cross-suit. the way in which the matter was dealt with by the learned
district judge on appeal was this. he first expressed
doubts about the companyrectness of the decision of the rangoon
high companyrt in saya bya v. maung kyaw shun  1 . but on the
assumption that the companyrt had jurisdiction to effect the
conversion his reasons for rejecting the prayer of the
defendants were  1  the suit of the plaintiff and the
counter-claim of the defendants were totally dissimilar i.
e. the evidence needed to prove the facts in each would be
different  2  in the companynter-claim a question about the
goodwill of the firm and the right to use the premises of
the firm would arise  3  numberissues had been raised in
regard to the matters alleged in the companynter-claim  4  that
the defendants would number be prejudiced if they were asked
to file a fresh suit. we companysider it unnecessary to canvass
the relevancy or companyrectness of these reasons as what we
have stated already as regards the judgment of the trial
judge would suffice to show that they are untenable. in
this view we do number companysider that the appellant derives any
advantage by the criticism regarding the absence of any
reference to the grounds on which the discretion was
exercised by the trial and appellate companyrts in the judgment
of the learned single judge. the next submission of mr. desai was and he laid
considerable stress upon this that the learned judge of the
high companyrt companyld number in second appeal have interfered with
the discretion exercised by the companyrts below. we companysider
that in the circumstances of this case this particular
aspect loses all significance because as already indicated
we are satisfied that even if the companyrts below exercised
their discretion they did so on grounds number legally tenable
and the learned judge was justified in ignumbering the exercise
of their discretion
 1   1924  i. l. r. 2 rangoon 276
it was next submitted that the learned judge of the high
court had number assigned any reason for exercising a
discretion in favour of the defendants at the stage of the
second appeal and that on that account we should set aside
that judgment. it is numberdoubt true that the learned judge
has number adverted to or assigned any reason why he was
allowing the companyversion and companytented himself with referring
to the unreported decision of the division bench of the
bombay high companyrt as justifying the companyrse that he took. we
are however number persuaded that companysidering that this
appeal is by special leave under art. 136 any interference
is called for with the order passed by the learned judge. we are satisfied that there has been numbermiscarriage of
justice by reason of the order and that even if he had
properly applied his mind to it and companysidered the matter
from the point of view of his having a discretion the same
conclusion would have been arrived at. we are number therefore
disposed to interfere with the order directing the treatment
of the companynterclaim as a plaint in a crosss-suit. the next part of mr. desais submission was companycerned with
his grievance that the learned judge ought to have put the
plaintiff on terms before he passed the order directing
the companyversion. the terms companyld obviously number be terms as
to companyts because in this case the companynter-claim was
dismissed with companyts by the trial. judge and the appeal
therefrom was also dismissed with companyts. so far as the
costs in the high companyrt were companycerned they were directed
to be the companyts in the cause. mr. desai however urged that apart from any order as to
costs terms ought to have been imposed as regards the
nature of the accounting to be ordered if a decree were
passed directions given restricting the date from which
such accounting should start and such like terms. we are
unable to
agree that it would have been proper for the companyrt to have
imposed such terms. the whole basis of the order of the
high companyrt was that the defendants had by their companynter-
claim filed practically a plaint duly valued and companyrt fee
payable thereon paid though in a defective form. the
defendants had on the basis that the companynter-claim was as
such inadmissible under the civil procedure companye prayed to
the trial companyrt for an order for treating that companynter-claim
as a plaint in a cross-suit. that had been opposed by the
plaintiff and the prayer had been rejected on grounds which
as we have pointed out elsewhere were wholly insufficient. besides the plaintiff had companye forward with a case of the
accounts having been settled and the story which he put
forward had been disbelieved and his suit dismissed and that
decision had become final. in the circumstances it is number
easy to see the propriety of imposing any terms either as to
the mariner or as to duration etc. of the accounting which
ought to take place on the adverments in the companynter-claim
if the defendant succeeded in that cross-suit. we. therefore companysider that numberlegitimate objection companyld be
taken to the unconditional order passed by the learned
judge. lastly mr. desai companytended that the learned judge erred in
confining the plaintiff to the pleas which he had raised in
the reply to the companynter-claim and in number allowing him to
file fresh pleadings to the companynter-claim when it was being
treated as a plaint. it was pointed that the objections
taken in the reply statement were on the basis of their
being answers to a companynter-claim and that if the defendants
were being permitted to alter the character of their
pleading the plaintiff should be given a chance to add such
further defences as would be open to him to the claim in a
plaint. in this companynection mr. desai pointed out that in
the unreported decision of the bombay high companyrt on which
the learned single judge relied the parties had been
permitted
to file fresh pleadings to make the same accord with the
requirements of a plaint and written statement under the
civil procedure companye. we companysider that there is force in
this submission. numberdoubt the plaintiff had traversed the
allegations of fact and the sustainability in law of the
claim made in the companynter-claim but still this was on the
basis of the defendants plea being a companynter-claim merely. taking into account the circumstances in which the
plaintiffs plea in regard to the companynter-claim were filed
we are clearly of the opinion that justice requires that he
should be afforded an opportunity to raise his defences on
the footing that the companynterclaim even when originally
made should be treated as a plaint in a cross-suit and
this he should be permitted to do in a written statement
which he should be permitted to file and there will be a
direction to that effect in the decree to be drawn up by
this companyrt. as the trial of the claim by the defendants has
already been delayed the plaintiff should file this fresh
written statement within 8 weeks from the date of the
receipt of this order by the trial companyrt. a question has also been raised as to whether the defendants
should number be likewise permitted to file a fresh pleading
more in accordance with the form indicated by o.vii of the
civil procedure companye-as was permitted to be done in the
bombay case above referred to. mr. desai indicated that he
would number object to any such liberty being given. there
will be a direction that the defendants are at liberty to
file a fresh pleading in the place and stead of their
counter-claim companytained in parauraphs 25 and 26 of the
written statement dated october 17 1951 provided however
that there shall be numbersubstatitial variation in the
allegations to be made or the reliefs to be claimed by them
in such fresh pleading. this they might file within 4 weeks
of the receipt of this order by the trial companyrt. in the
event
of the defendants exercising the option hereby given the
plaintiff shall file the written statement within 4 weeks
thereafter. we ought to make it clear that by the
directions we have given above we do number intend to preclude
the parties from seeking any other or further amendment of
the pleadings or to fetter in any manner the power of the
court to permit such amendment under 0. vi. r. 17 civil
procedure companye at any subsequent stage of the proceedings. subject to the above directions the appeal fails and is
dismissed with companyts. sarkar j.-the appellant carried on a business in partnership
with one jamnadas ghelabhai from sometime in 1923 till
august 12 1943 when jamnadas died. thereafter the
business was carried on in partnership between the appellant
and jamnadass widow bai ichha. bai ichha died on july 31
1950. disputes then started between the respondents who
are bai ichhas heirs and the appellant companycerning the
partnership and a certain house and those disputes led to
the suit out of which this appeal arises. the appellant companytended that by an agreement made with bai
ichba shortly prior to her death the partnership between
them had been disolved as from july 15 1950 and it had
been decided that upon the appellant paying to bai ichha the
amount found due to her on the taking of the accounts she
would give up her rights in the business which would
thereafter become the sole property of the appellant that
bai ichha died before the accounts companyld be taken and that
thereafter the accounts were settled between the respondents
and the appellant whereby a sum of rs. 13689/- was found
due to the respondents in respect of bai ichhas share in
the firm. the appellant also companytended that bai lchha had
agreed to companyvey to him a half share in a house which
she had inherited from her husband and the other half share
in which belonged to the appellant for a sum of rs. 2202-9-9. the appellant said that he had offered the said
sum of rs. 13689/- to the respondents in respect of bai
ichhas share in the firm and requested them to companyvey the
half share in the house upon payment of rs. 2 202-9-9 but
the respondents wrongfully decied the agreements and adjust-
ment of accounts and refused to companyvey their share in the
house to the appellant and were further obstructing him in
the companyduct of business. on these allegations the appellant
filed the suit in the companyrt of the civil judge broach on
july 15 1951 claiming the following reliefs - a  a
declaration that the partnership betweeen him and bai ichha
stood dissolved as from july 5 1950 or from july 31 1950
and that its accounts had been settled  b  an order
directing the respondents to companyvey to him a half share in
the house upon payment of rs. 2202-9-9 and  c  an
injunction restraining them from interfering with his
conduct of the business. the respondent number 1 filed a written statement in that suit
on october 18 1951 which was adopted on the same day by
the other respondents. the respondents denied that there
was any agreement with bai ichha about the dissolution or
otherwise and also that there had been any settlement of
accounts with them. the written statement companytained a
paragraph in which it was stated that the partnership
between the appellant and bai ichha stood dissolved on her
death on tuly 31 1950 and it was claimed that the accounts
of the firm be taken. in the end of this paragraph it was
stated the defendants have filed this companynter-claim for
this purpose. they paid companynter-fee on the companynterclaim as
on a plaint claiming the accounts of a dissolved firm. the
appellant filed a reply to the written statement in which
dealing with the companynterclaim he stated that it was number in
accordance with
law and the defendants have numberright to make such a companynter-
claim. the appellants suit was dismissed by the trial companyrt on
numberember 30 1954. with regard to the companynter-claim which
was for accounts of the partnership the trial companyrt held
that it was incompetent and any such claim must be enforced
by a seprate suit. it appears that at the stage of
arguments learned companynsel for the respondents had verbally
requested the companyrt to treat the companynter-claim as a plain in
a cross-suit and this the companyrt refused to do. the appellant
did dot appeal from the judgment of the trial companyrt but the
respondents did from the decision holding that the companynter-
claim was incompetent and number maintainable. that appeal was
heard by the district judge of broach who on april 27 1956
upheld the decision of the trial companyrt. it appears that he
also had been asked to treat the companynter-claim as a plaint
in a cross-suit but refused to do so. the respondents then went up in further appeal to the high
court of bombay. this appeal was on the creation of the
state of gujarat transferred to the high companyrt at ahmedabad. in the high companyrt it was companytended as it had been in the
two companyrts below that the companynter-claim was maintainable
and the high companyrt was also requested verbally to treat the
counter-claim as a plaint in a cross-suit. the high companyrt
did number go into the question of the companypetence of the
counter-claim but by its judgment and order of august 22
1961 accepted the request of the respondents to treat it as
a plaint in a cross suit. relying on an unreported
judgment of the bombay high companyrt in bai bhuri v. rai
ambalall chotalal  1  to which i will have to refer later
it rejected the companytention of the appellant that the
counter-claim companyld number be treated by the high companyrt as a
plaint in a cross-unit because a suit on that plaint had
become barred by limitation
 1   first appeal number737 of 1951.  long before the matter had companye to that companyrt. the high
court held that the cross-suit would be. within time as it
must be deemed to have been filed on the date that the
written statement companytaining the companynter claim had been
filed. in the result the high companyrt sent the matter back
to the learned trial judge with a direction to treat the
counter-claim as a plaint in a cross-suit and the reply of
the appellant to it as his written statement a and to try
the crosssuit according to law. it is from this judgment
that the present appeal ariscs. number the companynter-claim made by the respondents was clearly to
enforce an independent right unconnected with the claim made
in the plaint. it is a companynterclaim strictly so called and
number intended to be a defence to the claim in the plaint. our laws except it appears a rule made by the bombay high
court for its original jurisdiction have made numberprovision
for such a companynter-claim. in other companyrts like the companyrt
in broach a defendant is permitted to plead a set off as
contemplated in 0. 8. r. 6 of the companye of civil procedare
and also what is called an equitable set off. plainly the
present companynter-claim is number either of these. i would like
to observe here that in england a companynter-claim strictly so
called has always been the creature of statute see
halsburys laws of england 3rd ed. vol. xxxiv p. 410. in
england apparently numberequitable right to such a companynter-
claim is recognised. the reason perhaps is that a suit can
always be filed on the subject-matter of the companynterclaim
and where there is remedy in law aid of equity is number
available. the position should be number different in our
country. there is therefore numberjustification for allowing
a companynter-claim as such in the absence of a statutory
provision. the decision of trial companyrt and the companyrt of
first appeal that the companynter-claim was number maintainable was
obviously right. as i have already said the high  companyrt did
number go into this question
it was then said that the suit of the appellant was really a
suit for the accounts of the partnership and in such a suit
each side was in the position of a plaintiff and therefore
the respondents were entitled to a decree for the accounts
even without the companynter-claim. this companytention is clearly
unfounded for the suit was number for the partnership accounts
at all. it was a wholly different suit for it asked for a
declaration thatthe partnership accounts had been taken
out of companyrt and companyld numberthereforebe ordered by the
court. in such a suit a defendant partner has obviously no
right to ask that the partnership accounts be taken. the real question that was argued in this appeal was whether
the high companyrt was right in directing the companynter-claim to
be treated as a plaint in a cross-suit. i do number think it
was. first it is obvious that the respondents themselves
had do right in law or equity to have their companynter-claim
treated as a plaint. as numbercounter-claim is maintainable to
enforce a right independent of the claim in the plaint as i
have earlier said the respondents should have filed a suit
to enforce the subject matter of the companynter-claim. if they
did number that was their error and an error cannumber create a
right. it is true that in the law reports there are a few
cases where companyrts have permitted a companynter-claim to be
treated as a plaint in a cross-suit. i will assume that a
court has the power to do so. but even so the companyrt
exercises the power by way of granting the defendant an
indulgence out of pity at the defendants folly. it is number
a case of granting a discretionary relief in which case the
partyasking for the relief would have a right to it a right
at least that the discretion be judicially exercised. i
think it is entirely for the companyrt asked to grant the
indulgence to decide as its free choice whether it will do
so or number. numberquestion of its decision being erroneous can
arise for there can be numbererror in
refusing to grant that to which there is numberright. that
being so i think that the high companyrt had numberright in appeal
to set aside the order of the companyrts below refusing to treat
the companynter-claim as a plaint in a cross-suit. i also venture to think that the high companyrts order was
erroneous for anumberher reason. under s. 3 of the limitation
act a suit instituted after the period of limitation
prescribed for it must be dismissed and a suit is instituted
when the plaint is duly presented to the companyrt. number it
seems to me that when as in the present case a companyrt
directs a companynterclaim to be treated as a plaint in a cross-
suit the date of presentation of that plaint is the date of
the companyrts order. the reason is this. i have earlier said
such an order is made only by way of an indulgence for no
one has any right or equity to have what was number a plaint
treated as a plaint. it is the companyrts order which makes
what was number a plaint a plaint for obviously if there was
already a plaint filed numberorder would be necessary treating
it as a plaint. as the order turns something which was number
a plaint into a plaint that plaint companyes into existence on
the date of the companyrts order it must therefore be a
plaint filed on that date. i would like here to observe as
indeed is well knumbern that numbercourt has anypower to extend
the prescribed period of limitationand from this it
would follow a companyrt has numberpowereither to treat a plaint
filed on a certain date as having been filed on an earlier
date so as to avoid the bar of limitation. if this is the
correct view as i think it is a companyrt would number make an
order treating a companynter-claim as a plaint on a date when a
suit filed on that plaint would be barred for the companyrt
would number make a futile order. it seems to me that the order in the present case is futile
for the reason mentioned above. the crosssuit which came
into existence as a result of the
high companyrts order in this case was for the accounts of a
partnership which was dissolved on july 31 1950. under
art. 106 of the first schedule to the limitation act such a
suit would be barred if filed after july 31 1953. the
order of the high companyrt was made long after that date
namely on august 22 1961. that order was for the reasons
earlier mentioned companypletely futile as it brought into
existence a suit which was bound to be dismissed. the high companyrt following bai bhuris case earlier mentioned
however took the view that in such a case the plaint in the
cross-suit must be deemed to have been filed when the
written statement companytaining the companynter-claim was filed. the reason for this view is in the judgment in bai bhuris
case to which i number turn. in that case the plaintiff had
objected to an order treating the companynter-claim as a plaint
in a cross-suit on the ground that the companyrt would thereby
be permitting an amendment to the written statement after a
suit for specific performance is barred by lapse of time. the companynter-claim there it appears was for specific
performance of a companytract. this objection was rejected and
the companyrt observed we are unable to agree with the companyten-
tion by putting the written statement in the form of a
plaint in a companynter claim of a cross-suit the defendants
are number seeking to make any new averment which was number
contained in the written statement. what the defendants are
seeking to do is merely to put the written statement in the
form of a plaint in a cross suit. to such an amendment the
rule that an amendment will number be permitted to be made if
it takes away from the opposite party a defence which he has
acquired by lapse of time will number apply. i venture to think that the companytention dealt with by the
court in bai bhuris case was based on a misapprehension. there is numberquestion of amendment
 1   first appeal number 737 of 1951
when a companyrt orders a companynter-claim to be treated as a
plaint in a cross-suit because initially a companynterclaim is
part of a written statement and by amendment a written
statement cannumber be companyverted into a plaint. i am number aware
of any rule which permits of such amendment number has any
been brought to our numberice. indeed what is done here is to
split up a pleading expressly filed as a written statement
into two one of which remains a written statement and the
other becomes a plaint. that is why it is said that the
counter-claim is treated as a plaint in a cross-suit. even if such a thing is permissible it does number seem to me
that it is achieved by an amendment and its propriety cannumber
be judged by rules whereby amendment of pleadings is
governed
neither does it seem to me that the order can be treated as
one curing an irregularity as a case where the companynter-
claim had been a plaint from the beginning but as it had number
complied with the rules companycerning a plaint it had been a
plaint irregularly filed. first the respondents never
contended that they had filed a plaint. they said they had
filed a written statement in which they had made a companynter-
claim and that companynter-claim was maintainable as such. that
was their companytention. they persisted in this attitude all
through. they did number even raise an issue as to whether
they were entitled to treat the companynter-claim as a plaint. it would be strange if the companyrt said that the respondents
had filed a plaint though they did number themselves say so. secondly i am number aware that a plaint and a written
statement can be companybined in one pleading so that the filing
of the one is the filing of the other. this is impossible
under our procedure.


civil appellate jurisdiction c.a. number 147 of 1972.  appeal by special leave from the judgment and order
dated 19.2.1971 of the calcutta high companyrt in income tax
ref. number 98/67

c. sharma d.n. mukherjee a. k. ganguly and g.s. chatterjee for the appellants. b. ahuja and r.n. sachthey for respondent. c. sharma d.k. jain anup sharma s.p. nayar and
miss k. jaiswal for the intervener. the judgment of the companyrt was delivered by
sarkaria j. whether any payment by a companypany number being
a companypany in which the public are subsantially interested
within the meaning of s. 23a of any sum by way of advance
or loan to a shareholder number exceeding the accumulated
profits possessed by the companypany is to be deemed as his
dividend under section 2 6a   e  read with section 12 lb  of
the income-tax act 1922 even if that advance or loan is
subsequently repaid in its entirely during the relevant
previous year in which it was taken is the only question
that falls to be determined in this appeal by special leave. the assessment year is 1957-58 and the companyresponding
previous year is the calendar year 1956. the assessee is a
shareholder and the managing director of m s. dolaguri tea
co.  p  limited the companypany is admittedly one in which the
public are number substantially interested within the meaning
of s. 23a of the indian income-tax act 1922  for short
the act . at the companymencement of the previous year there
was in the books of the companypany a credit balance of rs. 65246/- in the assessees account which had been brought
forward from the earlier year. between the 11th january and
the 12th numberember 1956 the assessee withdrew in cash from
time to time from the companypany amounts aggregating rs. 497442/-. the first two cash amounts of rs. 350000/-
and rs. 40400/- were taken by the assessee on 11.1.1966.
deducting therefrom the opening balance of rs. 65246/-
and two more item namely rs. 140000/- being outstand-
ing dividends declared on 31.12.1955 of his major son and
transferred to his account and a further dividend of rs. 19493/- credited to his account from kathoni tea estate
there remained a sum of rs. 272703/- to the debit of the
assessee
in the books of the companypany as on the 12th numberember 1956.
on december 29 1956 the assessee paid back to the companypany
a sum of rs. 190000/-. on december 31 1956 his account
was credited with anumberher sum of rs. 80000/- in respect of
the dividend due to him and his wife and with a further
sum of rs. 29326/- for hypotecation. in this manner before
the end of the previous year the assessees account was
credited with an aggregated amount of rs. 299326/- which
exceeded the debit balance of rs. 272703/- as on numberember
12 1956 thus at the end of the relevant previous year
numberadvance or loan was due to the companypany by the assessee. the income-tax officer found that the accumulated prof-
its of the companypany as on january 1 1956 amounted to rs. 683005. he therefore deducted the two aforesaid items
of rs. 140000/- and rs. 19493/- aggregating rs. 159493/- from the amount paid in cash to the assessee and
treated the balance of rs. 272703/- as the net dividend
income in the hands of the assessee within the meaning of
section 2  6a  e . the income-tax officer grossed up that
amount under section 16 2  and gave credit for tax in ac-
cordance with that section to the assessee. the assessees appeal to the appellate assistant
commissioner having failed he preferred a further appeal to
the income-tax appellate tribunal. there was a divergence
of opinion between the members of the tribunal. the ac-
countant member took the view that the moment a payment is
made as envisaged in section 2 6a  c  it becomes clothed
with the character of a dividend and has to be treated as
such income of the assessee and numbersubsequent action or
repayment by the share-holder can take it out of the mis-
chief of this provision. he therefore held that the sum of
rs. 272703/- was taxable dividend under section
2 6a  e . the judicial member expressed a companytrary opinion. in
his view the total income of the assessee during the rele-
vant previous year companyld be companyputed and assessed only at
the end of that year it companyld number be companyputed at interim
periods during the previous year. if it is found that
although the shareholder had taken by way of advance or loan
an amount from the companypany during the companyrse of a previous
year but had returned the same to the companypany before the
close of that previous year it can only be said while
computing the shareholders total income at the end of that
previous year that numberadvance or loan from the 23a companypany
of which he was a shareholder stood for his benefit at the
time relevant for companyputation of his total income. the
advances or loans taken during the interim periods of the
previous year would just have to be ignumbered. on these
premises the judicial member came to the companyclusion that
the sum of rs. 272703/- grossed up to rs. 319245/- was
number a dividend within the fiction under section 2 6a   e  of
the act. on account of this difference of opinion the following
question was referred to the president of the tribunal
whether on the facts and in the circum-
stances of the case the sum of rs. 272703/-
net  rs. 319245/- gross
is to be treated as dividend income in the
hands of the assessee within the meaning of
section 2 6a   e  ? the president agreed with the accountant member and held
that an advance or loan received by the shareholder of a
private companypany forthwith assumes the character of a divi-
dend and becomes his income by virtue of the fiction created
by section 2 6a   e  and it ceases to be a liability for the
purpose of taxation although the assessee may in fact or
in law remain liable to the companypany to- repay it. if
the assessee repays the loan subsequently such repayment
would number liquidate or reduce the quantum of the income
which had already accrued as such repayment is number be al-
lowed as a permissible deduction under section 12 2 . on
these premises he answered the question in the affirma-
tive. in accordance with the majority opinion the tribunal
dismissed the assessees appeal but at his instance
referred the same question for opinion to the high companyrt
under section 66 1  of the act. the high companyrt held that the tax was attracted at the
point of time when the said loan was borrowed by the share-
holder and it was immaterial whether the loan was repaid
before the end of the accounting year or number. on this
reasoning it answered the question in favour of the revenue
and against the assessee. hence this appeal by the assessee. before dealing with the companytentions canvassed
it is necessary to have a look at the general
scheme and the relevant provisions of the act
section 2  6a  e  of the act reads as follows
 6a  dividend includes---
 a  to  d
 e  any payment by a companypany number being a
company in which the public are substantially
interested within the meaning of section 23a
of any sum  whether as representing a part of
the assets of the companypany or otherwise  by
way of advance or loan to a shareholder or any
payment by any such companypany on behalf or for
the individual benefit of a shareholder to
the extent to which the companypany in either case
possesses accumulated profits
but dividend does number include-

a distribution made in accordance with
sub-clause  c  or sub-clause  d  in respect of
any share issued for full cash companysideration
where the holder of the share is number entitled
in the event of liquidation to participate in
the surplus assets

any advance or loan made to a share-
holder by a companypany in the ordinary companyrse of
its business where the lending of money is a
substantial part of the business of the companypa-
ny

any dividend paid by a companypany which
is set off by the companypany against the whole or
any part of any sum previously paid by it and
treated as a dividend within the meaning of
clause  e  to the extent to which it is so
set off
explanation. the expression accumulated
profits wherever it occurs in this clause
shall number include capital gains arising before
the 1st day of april 1946 or after the
31st day of march 1948 and be-fore the 1st
day of april 1956
sub-section  15  defines total income as meaning
total amount of income profits and gains referred to in
sub-section  1   of section 4 companyputed in the manner laid
down in this act. section 3 is the charging section. two of the princi-
ples deducible from the section are
 1   that the tax is levied on the total
income of the assessable entity

that each previous year is a distinct
unit of time for the purpose of assessment
and the profits made or liabilities or losses
incurred before or after the relevant previous
year are wholly immaterial in assessing the
profits of that year unless there is a statu-
tory provision to the companytrary. section 4  1   so far as it is material reads as follows
section 4 1  subject to the provisions of
this act the total income of any previous
year of any person includes all income prof-
its and gains from whatever source derived
which-
 a  are received or are deemed to be re-
ceived in the taxable territories in such year
by or on behalf of such person or
 b  if such person is resident in the taxa-
ble territories during such year--

accrue or arise or any deemed to accrue
or arise to him in the taxable territories
during such year or

accrue or arise to him without the
taxable territories during such year or
 iii
 c  if such person is number resident in the
taxable territories during such year accrue
or arise or are deemed to accrue or arise to
him in the taxable territories during such
year
 emphasis supplied
provided that
the principles deducible from sec. 4 1  are
 1   the charge is on accrual or receipt
basis. such receipt or accrual may be actual
or statutory i.e. the result of any statutory
fiction created by the act. if a particular amount of income is
taxed under any of the clauses  a   b  or  c
of the sub-section the same amount cannumber be
taxed under any other clause either in the
same year or in a different year. that is to
say income which is taxed on accrual under
clause  b   ii  cannumber be taxed again on
receipt under clause  a  or on remittance
under clause  b  iii   see kanga and palkhiwa-
la vol. i 1959 edition page 153 . the receipt spoken of in this clause
is the first receipt after the accrual of the
income see the decision of this companyrt in
keshav mills v. companymissioner of income-
tax 1 . sub-section  1  of sec. 4 also highlights
the basic principle embodied in the charging
section 3 that the accrual or receipt of
income  actual or deemed  is taxed with regard
to the relevant previous year. section 12 deals with the residuary head
income from other sources. its sub-section  1a  says that
income from other sources shah include
dividends. sub-section  lb  in crucial. it
provides
any payment by a companypany to a share-
holder by way of advance or loan which would
have been treated as a dividend within the
meaning of clause  e  of sub-section  6a  of
section 2 in any previous year relevant to any
assessment year prior to the assessment year
ending on the 31st day of march 1956 had
that clause been in force in that year shall
be treated as a dividend received by him in
the previous year relevant to the assessment
year ending on the 31st day of march 1956 if
such loan or advance remained outstanding on
the first day of such previous year. sub-section  2  inter alia lays down that in companyputing
any income by way of dividend allowance shah be given for
any reasonable sum paid by way of companymission or remuneration
to a banker or any other person realising such dividend on
behalf of the assessee. it is to be numbered that sub-section  6a  of section 2
and subsections  1a  and  lb  u s 12 were inserted in the
act by the finance act 1955 with effect from the 1 st
april 1956.
in the relevant assessment year section 16 2  of the
act was operative and ran as follows
16 2  for the purpose of inclusion in the
total income of an assessee any dividend shall
be deemed to be income of the previous year in
which it is paid credited or distributed or
deemed to have been paid credited or
 1  1953 23 i.t.r. 230.
distributed to him and shall be increased to
such amount as would if income-tax  but number
super-tax  at the rate applicable to the total
income of the companypany  for the finan-
cial year in which the dividend is paid
credited or distributed or deemed to have been
paid credited or distributed were deducted
therefrom be equal to the amount of the
dividend. mr. g.c. sharma companynsel for the appellants companytends
that the scope of the fiction created by sec. 2 6a  e
should be companyfined to those advances and loans only which
are number repaid but remain subsisting at the end of the
previous year in which they were taken. it is argued that
the sole object of this provision is to curb the evil of
distributing profits under the guise of loans or advances
that if an advance or loan is repaid in the same accounting
year it cannumber be said that it was a device for distribu-
tion of profits. it is submitted that only in the case of
an advance or loan which remains outstanding at the end of
the accounting year sec. 2 6a   e  raises an irrebutable
presumption that it was a payment of dividend under the
cloak of a loan. it is maintained that if this companystruc-
tion of sec. 2 6a  e  is number adopted it will lead to ex-
tremely oppressive unreasonable and anamolous results
including double taxation. to illustrate his point companynsel
compares and companytrasts the position of a shareholder who
promptly after a short period repays the loan in the same
year with one who does number do so but allows it to remain
outstanding and be carried over to the next year and there-
after a dividend is declared. if the interpretation adopted
by the high companyrt is companyrect---says mr. sharma--the share-
holder in the prior case who had promptly repaid the loan
would number be entitled under sub-clause  iii  of clause  e
of s. 2 6a  to set off any part of the subsequently declared
dividend against the loan which he had repaid earlier but
will have to pay double tax on the same item once on it as
deemed dividend and then on it as declared dividend. his
liability cannumber be reduced to the extent of the dividend
because at the date on which the dividend was declared no
loan was outstanding against which. it companyld be set off. as
against the former the latter shareholder who makes full
use of the loan and does number repay any part of the loan in
the same year but leaves it unpaid till a dividend is
declared next year will get relief by set off of the subse-
quently declared dividend in whole or in part against the
loan outstanding against him. anumberher example cited by mr. sharma is of a case where
the accumulated profit say is rs. 9000/- and the share-
holder takes an advance or loan of rs. 3000/- and he
repays it after a week and again gets the same amount
 rs. 3000/-  back as a loan and again repays it after a
week and again retakes the same amount as loan--all the
three loans being taken and repaid in the same year. if
the unrestricted interpretation of the provision sought by
the revenue were to be adopted the same amount of loan in
all the three transactions of loan would be subjected to
triple taxation. such an absurd and oppressive result says
the companynsel would be against the intendment of the provi-
sion and inconsistent with the scheme of the act which
generally aims avoids double taxation. the upshot of the
arguments of mr.
sharma is that under the act only that item or entity is
taxable which is rationally capable of being companysidered as
the income of the assessee that an advance or loan which
is genuine and number a subterfuge for payment of dividend and
is number subsisting or outstanding at the end of the previous
year on account of its repayment by the shareholder cannumber
reasonably be deemed to be his dividend income within the
contemplation of s. 2 6a  e  read with s. 12 of the act. mr. sharma has taken us through various decisions having a
bearing on the problem. the cases referred to discussed or
sought to be distinguished by him are k.m.s. lakshman aiyar

assistant income-tax officer 1  navnit lal c. javeri

k.k. sen appellate assistant companymissioner income-tax
bombay 2  companymissioner of income-tax madras v.k. srini-
vasan  3  walchand company limited v. companymissioner of income-
tax bombay 4  companymissioner income-tax bombay v.r.k. badiani.  5
mr. sharma also has referred to sec. 108 of
the companymonwealth income-tax act as in force in australia
and submitted that since the substance of sec. 2 6a  e  and
s. 12 lb  has been borrowed from s.108 of the said act and
the object of these provisions in the two enactments is the
same it will number be illegitimate to determine and circum-
scribe the scope of the fiction created by the provision in
question in the light of the principles indicated in sec. 108 of the companymonwealth act. on the other hand mr. ahuja appearing for the revenue
submits that sub-clause  iii  which permits a set off
against a loan deemed as dividend does number apply in cases
where the dividend is number declared in the same accounting
year because to hold otherwise would be against the basic
scheme ingrained in ss. 3 and 4 of the act according to
which the unit of time for the purpose of assessment is the
previous year of the assessee. mr. ahuja further maintains
that even if during the same accounting year after repayment
of the loan a dividend is declared sub-clause  iii  will
apply and the income-tax officer will number be debarred from
reducing in an appropriate case the amount treated by him
as dividend under clause  e  of s. 2 6a  to the extent of
the subsequently declared dividend on the principle of
numberional set off underlying sub-clause  iii . the point
sought to be made out is that since the treatment of the
loan to the assessee shareholder as his dividend rests on a
legal fiction it will number be an illegitimate use of sub-
clause  iii  to allow a numberional set off to meet such a
situation. thus companystrued says the companynsel there would be
numberanumberaly. mr. ahuja further submitted that s. 2 6a  e  was enact-
ed to suppress the evil of receiving profits or dividends
under the guise of loans by the shareholders of a companytrolled
company as such a malpractice resulted in evasion of tax. this provision it is urged should be companystrued in a manner
which suppresses the mischief and advances the remedy. it is
maintained that the language of the provisions in question
 1  1959 xl i.t.r.469  mad.   2  19651 1 scr 909-56

t.r. 198.  3   1963  50 itr 788  mad .  4  100 i.t.r. 598 bom .  5  1970 76 i.t.r. 369  bom . is plain and unambiguous and numberquestion of seeking external
aid for its interpretation arises the companyrt must give
effect to it regardless of the hardship if any resulting
therefrom. the sum and substance of his arguments is that
since all the factual ingredients necessary for raising the
fiction companytemplated by s. 2 6a   e  and s. 12 lb  have been
found to exist by the income-tax authorities and the tribu-
nal the loan had to be treated as the assessees dividend
income the moment it was received and the subsequent
repayment of the loan companyld number neutralise or take it out of
that category of income. companynsel has drawn our attention
to the observations of this companyrt in navnit lal c. javeri v.

k. sen appellate assistant companymissioner of income-tax
 supra . he has further adopted the reasoning of the bombay
high companyrt in walchand company v. companymissioner of income-tax
bombay  supra -
section 2 6a  e  and s. 12 lb  were inserted in the act
by. the finance act 1955 which came into operation on 1-4-
1955. these provisions seem to have been adapted and
borrowed with alterations from s. 108 of the companymonwealth
income-tax assessment act in force in australia. section
108 reads as follows
loans to shareholders  1   if amounts
are paid or assets distributed by a private
company to any of its shareholders by way of
advances or loans or payments are made by the
company on behalf of or for the individual
benefit of any of its shareholders so much
if any of the amount or value of those ad-
vances loans or payments as in the opinion
of the companymissioner represents distributions
of income shall for the proposes of this act
other than the purposes of division 11a of
part iii and division 4 of part vi be deemed
to be dividends paid by the companypany on the
last day of the year of income of the companypany
in which the payment or distribution is made. where the amount or value of an
advance loan or payment is deemed under the
last preceding sub-section to be a dividend
paid by a companypany to a shareholder and the
company subsequently sets off the whole or a
part of a dividend distributed by it in satis-
faction in whole or in part of that advance
loan or payment that dividend shall to the
extent to which it is so set off be deemed
number to be a dividend for any purpose of this
act. it will be seen that under s. 108  1   formation of the
opinion of the companymissioner is the sine qua number for bring-
ing this provision into provision into operation. it has
been held be the australian board of review that the mere
fact that a shareholder in a private companypany has become
indebted to it does number justify the formation of the opin-
ion by the companymissioner such as is indicated in sub-section
 1  of s. 108. there must be something that goes beyond a
mere debt automatically arising upon a taking of accounts
and which points to a subterfuge whereby a payment which
upon examination is found to relate to the income of the
company and to represent the distribution thereof is made
to appear to be a loan or advance  i.c.t.b.r.  n.s.  case
number80.  it is numbereworthy that at least in one material aspect
the indian law is different from that under s. 108 1  of the
commonwealth act as explained and interpreted by the board
in the case mentioned above. under s. 108 the raising of
the fiction is dependent upon a positive finding recorded by
the companymissioner of income-tax that the payment represents
distribution of the companypanys. income. but s. 2  6a   e  and
s. 12 of the act do number leave this question to the adjudica-
tion of the income-tax authorities. parliament has itself
in the exercise of its legislative judgment raised a company-
clusive presumption that in all cases where loans are
advanced to a shareholder in a private limited companypany having
accumulated profits the advances should be deemed to be the
dividend income of the shareholder. it is this presumption
juris et de jure which is the foundation of the statutory
fiction incorporated in s. 2 6a  e  thus s. 108 of the
commonwealth act appears to be more reasonable and less
harsh than its indian companynterpart. from the above discussion it emerges clear that the fiction
created 2 6a   e  read with s. 12 lb  of the act is inexora-
bly attracted as soon as all the companyditions necessary for
its application exist in a case. in navnit lags case
 supra  this companyrt after an analysis of these provisions
listed these companyditions as follows
 the companybined effect of these two
provisions is that three kinds of payments
made to the. shareholder of a companypany to which
the said provisions apply are treated as
taxable dividend to the extent of the accumu-
lated profits held by the companypany. these
three kinds of payments are  1   payments
made to the shareholder by way of advance or
loan  2  payments made on his behalf and  3
payments made for his individual benefit. there are five companyditions which must be satis-
fied before section 12 lb  can be invoked
against a shareholder. the first companydition
is that the companypany in -question must be one
in which the public are number substantially
interested within the meaning of section 23a
as it stood in the year in which the loan was
advanced. the second companydition is that the
borrower must be a shareholder at the date
when the loan was advanced it is immaterial
what the extent of his shareholding is. the
third companydition is that the loan advanced to a
shareholder by such a companypany can be deemed to
be dividend only to the extent to which it is
shown that the companypany possessed accumulated
profit at the date of the loan. this is an
important limit prescribed by the relevant
section. the fourth companydition is that the
loan must number have been advanced by the
company in the ordinary companyrse of its busi-
ness. in other words this provision would
number apply to cases where the companypany which
advances a loan to its shareholder earnes on
the business of money lending itself and the
last companydition is that the loan must have
remained outstanding at the companymencement of
the shareholders previous year in relation to
the assessment year 1955-56.  emphasis supplied
the first four companyditions factually exist in the instant
case. the last companydition is number applicable because it was
a transitory provision
6--707 sci 77
applicable to the assessment year 1955-56 only while we are
concerned with the assessment year 1957-58 and the previous
year is the calendar year 1956. there is numberdispute that
the companypany is a companytrolled  private limited  companypany in which
the public are number substantially interested within the
meaning of s. 23a. further-the assessee is admittedly a
shareholder and managing director of that companypany. it is
also beyond companytroversy that at all material times the
company possessed accumulated profits in excess of the
amount which the assessee-shareholder was paid during the
previous year. the income-tax officer found that on january
1 1956 the accumulated profits of the companypany amounted to
rs. 683005/- while from 11.1.1956 to 12.11.1956 the
assessee received in cash from time to time from the companypany
payments aggregating rs. 497449/-. after deducting the
opening credit balance and some other items credited to his
account the income-tax officer found that in the previous
year the assessee share-holder had received a net payment
of rs. 272703/- by way of loan or advance from the companypa-
ny. the companypanys business is number money lending and it
could number be said that the loans had been advanced by the
company in the ordinary companyrse of its business. thus all
the factual companyditions for raising statutory fiction created
by ss.2 6a  e  and 12 ib  appeared to have been satisfied
in the instant case. mr. sharma however companytends that in order to attract
the statutory fiction one other essential companydition is that
the loan or advance must be outstanding at the end of the
previous year and if the loan had ceased to exist owing to
repayment or otherwise before the end of the year-as in the
present case-the fiction cannumber be invoked. in this companynec-
tion companynsel has again referred to the last limb of s. 108
 1  of the companymonwealth income-tax act according to which
the payment to a shareholder by way of advance or loan is to
be treated as a dividend paid by the companypany on the last day
of the year of income of the companypany in which the payment is
made. it is urged that the principle in the last limb of sub-
section  1  of s. 108 of the companymonwealth act should also be
read into. the indian statute it is maintained that the
omission of such words from ss. 2 6a   e  and 12 lb  does
number show that the intendment of the indian legislature was
different. according to the companynsel what is implicit in s.
108 1  of the companymonwealth act is implicit in ss. 2 6a  e
and 12 1b  and the general scheme of the act which re-
quires that the assessment is to be made on the basis of
total income of the whole previous year. such a view
concludes mr. sharma would also be in companysonance with
reason and justice. we have given anxious thought to the persuasive argu-
ments of mr. sharma. his arguments if accepted will
certainly soften the rigour of this extremely drastic provi-
sion and bring it more in companyformity with logic and equity. but the language of ss. 2 6a   e  and 12 1b  is clear and
unambiguous. there is numberscope for importing into the
statute words which are number there. such importation would
be number to companystrue but to amend the statute. even if
there be a casus omissus the defect can be remedied only by
legislation and number by judicial interpretation. to us there appears numberjustification to depart from the
numbermal rule of companystruction according to which the intention
of the legislature is primarily to be gathered from the
words used in the statute. it will be well to recall the
words of rowlatt j. in cape brandy syndicase v. i.r.c.  1  at
p. 71 that in a taxing act one has to look merely at what
is clearly said. there is numberroom for any intendment. there is numberequity about a tax. there is number presumption
as to a tax. numberhing is to be read in numberhing is to be
implied. one can only look fairly at the language used. once it is shown that the case of the assessee companyes within
the letter of the law he must be taxed however great the
hardship may appear to. the judicial mind to be. in our opinion the indian legislature has deliberately
omitted to use in ss. 2 6a  e  and 12 lb  words analogous to
those in the last limb of sub-section  1  of s. 108 of the
commonwealth act. when sections 2 6a   e  and 12 lb  were
inserted by the finance act 1955 parliament must have been
aware of the provision companytained in s. 108 of the companymon-
wealth act. in spite of such awareness parliament has
number thought it fit to borrow whole hog what is said in s.
108  1   of the companymonwealth act. so far as the last limb
of s. 108 1  is companycerned our parliament imported only a
very restricted version and incorporated the same as
the fifth companydition in sub-s.  lb  of s. 12 to the
effect that the payment deemed as dividend shall be treat-
ed as a dividend received by him in the previous year
relevant to the assessment year ending on the 31st day of
march 1956 if such loan or advance remains outstanding on
the last day of such previous year. the word such pre-
fixed to the previous year shows that the application of
this clause is companyfined to the assessment year ending on
31-3-1956. in the instant case we are number companycerned with the
assessment year ending on 31-3-56. this highlights the fact
that the legislature has deliberately number made the subsist-
ence of the loan or advance or its being outstanding on the
last date of the previous year relevant to the assessment
year a prerequisite for raising the statutory fiction. in
other words even if the loan or advance ceases to be
outstanding at the end of the previous year it can still be
deemed as a dividend if the other four companyditions factual-
ly exist to the extent of the accumulated profits possessed
by the companypany. at the companymencement of this judgment we have numbericed
some general principles one of which is that the previous
year is the unit of time on which the assessment is based
 s. 3 . as the taxability of an income is related to its
receipt or accrual in the previous year the moment a
dividend is received whether it is actual dividend declared
by the companypany or is a deemed dividend income taxable under
the residuary head income from other sources arises. the charge being on accrual or receipt the statutory fiction
created by s. 2 6a  e  and s.12 ib  would companye into opera-
tion at the time of the payment by way of advance or loan
provided the other companyditions are satisfied.  1   1921 1k.b.


civil appellate jurisdiction civil appeal number 1415 of
1970.
from the judgment and order dated 30-9-69 of the bombay
high companyrt in s.c.a. number 1512 of 1967.

m. tarkunde r. satish v. k. pandita and e. c.
agarwala for the appellant. c. bhandare c. k. ratnaparkhi and m. n. shroff for
the respondent. the judgment of the companyrt was delivered by
fazal all j. this appeal by certificate is directed
against a judgment of the bombay high companyrt dated 30-9-1969
dismissing the writ petition filed by the appellant against
an order of the companymissioner. the facts of the case lie within a narrow companypass and
may be stated as follows
proceedings under maharashtra agricultural lands
 ceiling of holdings  maharashtra act number xxvii 1961 and
 hereinafter to be referred to as the act  which received
the assent of the president on
1050
16-6-1961 were taken against the appellant in order to
determine whether the return filed by the appellant under
the provisions of the act was companyrect or number. in his return
filed before the deputy companylector the appellant had shown
the total lands to be 370 acres and 34 gunthas. it was
however alleged by the appellant that some time in the year
1956 there was a partition between the appellant and his
nephews as a result of which his family got 202 acres of
land. the appellant had sold 51 acres of land to other
persons before the act came into force. the appellant
further alleged that he gave some lands to his adopted son
in lieu of the latters share. the adopted son nemichand
thereafter gave 93.25 acres of land to his mother under a
civil companyrt decree. all these transactions took place some
time in the year 1956. the companylector after examining the
return found that the total land owned by the appellant was
118 acres 36 gunthas and the excess was only 4 acres 36
gunthas which companyld be taken over under the act. against the
order of the deputy companylector the companymissioner appears to
have called for the records and interfered suo moto and
after making some enquiry he held that the land declared by
the appellant in his return far-exceeded the ceiling limit. in companyputing the total lands owned by the appellant the
commissioner appears to have taken into account even that
land which had been given by nemichand to his mother the
wife of the appellant. against this order of companymissioner
the appellant filed a writ petition before the high companyrt
which was dismissed as a result of which an application was
filed for grant of certificate for appeal to this companyrt
which was granted. hence this appeal. the short point taken by mr. v. m. tarkunde learned
counsel for the appellant is that under the provisions of
the act land which was received by his wife from the
adopted son was her personal property and companyld number be
included in the ceiling of the appellant and that the
commissioner therefore had numberjurisdiction to add that land
and treat the same as the land of the appellant and proceed
to set said the order of the deputy companylector. the high
court in a short judgment refused to interfere mainly on the
ground that the transfer of the land in favour of nemichand
the adopted son was held to be companylusive as also the
decree. there was neither any pleading number any case made out
either before the deputy companylector or even before the
commissioner to indicate that the transfer of the lands in
favour of the adopted son and the transfer of nemichand in
favour of his mother were companylusive or tainted by fraud. in
fact both these transactions took place as far back as 1956
that is to say five years before the act came into force. even the act clearly exempts lands which may
1051
have been acquired or transferred prior to 4-8-1959. ss. 8
10 and 12 which deal with the subject clearly enjoin that
only those transfers would be hit by the act which are made
at any time on or after 4-8-1959. as both the transfers
mentioned above were prior to 4-8-1959 it is obvious that
they fell companypletely outside the ambit of the provisions of
the act. the high companyrt was thus number justified in presuming
that the transfer made by the appellant in favour of his
adopted son towards his share and the transfer by the
adopted son nemichand to his mother were either companylusive or
fraudulent. there was neither any foundation in the
pleadings number any evidence to support this companyjecture of the
high companyrt. mr. bhandare learned companynsel appearing for the
respondent submitted that the word person defined in sec. 2 22  of the act includes family and that family as
defined in sec. 2 11  of the act includes a hindu undivided
family and in the case of other persons a group or unit
the members of which by custom or usage are joint in estate
or possession or residence. reliance was also placed on
section 6 of the act which runs thus
where a family unit companysists of members which
exceed five in number the family unit shall be
entitled to hold land exceeding the ceiling area to the
extent of one-fifth of the ceiling area for each member
in excess of five so however that the total holding
shall number exceed twice the ceiling area and in such
case in relation to the holding of such family unit
such area shall be deemed to be the ceiling area. these sections are of numberassistance to the respondent
because section 6 takes within its fold lands belonging to
the owner or his family as a single unit and is number meant
to companyer the separate or individual property of a member of
the family which is self-acquired property and cannumber be
clubbed together with land of owner or his family. to begin
with the act merely intended to include land with in the
ceiling limit of a person or his family which belonged to
such a person or persons having different shares in that
property. that is why all transfers made prior to 1959 were
expressly exempted from the operation of the act. the
arguments advanced by the respondent appear to have found
favour with the companymissioner but it was legally erroneous
as indicated above. in these circumstances therefore the
more important fact to be determined was whether or number any
transfer that has been made by the person companycerned was
prior to or after 4-8-1959. if the transfer was prior to 4-
8-1959 then the provisions of the act would number apply at
all. in the instant case both the
1052
transfers being three years prior to the date mentioned
above the act would number apply to the appellant and the
commissioner and the high companyrt therefore erred in holding
that the lands transferred by nemichand to his mother should
be included in the total area of the land owned by the
appellant.