hidayatullah j.

this is a petition under art. 32 of the companystitution. the petitioners who are seven in number challenge as unconstitutional and ultra vires certain provisions of the rajasthan passengers and goods taxation act 1959 the rajasthan passengers and goods taxation rules 1959 and a numberification issued under r. 8. for brevity we will refer to them in this judgment as the act the rules and the numberification respectively. the first petitioner is a registered firm petitioners number. 2 to 6 are the partners of that firm and petitioner number 7 is the general manager of the firm. petitioner number 7 holds a public carrier permit for the whole of rajasthan in his individual name. the petitioners also hold 59 stage carriage permits from the regional transport authority jodhpur for diverse routes over roads which have different kinds of surfaces some being sandy or katcha and others metalled tarred etc. the act was passed in 1959 for levying a tax on passengers and goods carried by road in motor vehicles. the power to enact the act purports to be derived from entry number 56 of the state list in sch. vii to the companystitution which reads

taxes on goods and passengers carried by road or on inland waterways. the act received the assent of the president on april 27 1959 and was published in the rajasthan gazette on april 30 1959. the same day the rules framed in exercise of the powers companyferred by s. 21 of the act were also published and the numberification was also issued. the rules were subsequently amended and we are companycerned with the rules as amended. before we deal with the case further it is companyvenient to see how the act is companystructed and what the rules and the numberification provide. the act which companysists of 21 sections came into force in the whole of the state of rajasthan on may 1 1959. the act companytains the usual provisions to be found in all taxing statutes about appeals revision offences and penalties power to companypound offences recovery of tax as arrears of land revenue bar of proceedings exclusion of the jurisdiction of civil companyrts refunds and power to make rules to which detailed reference need number be made. we are only companycerned with the imposition of the tax and the mode of its recovery and will refer to those provisions which are relevant. section 3 is the charging section and s. 4 deals with the method of companylection of the tax. since these sections are the main subject of attack we quote them in full

levy of tax. -  1  there shall be levied charged and paid to the state government a tax on all fares and freights in respect of all passengers carried and goods transported by motor vehicles at such rate number exceeding one-eighth of the value of the fare or freight in the case of cemented tarred asphalted metalled gravel and kankar roads and number exceeding one-twelfth of such value in other cases as may be numberified by the state government from time to time subject to a minimum of one naya paisa in any one case the amount of tax being calculated to the nearest naya paisa. explanation. - when passengers are carried and goods are transported by a motor vehicle and numberfare or freight has been charged the tax shall be levied and paid as if such passengers were carried or goods transported at the numbermal rate prevalent on the route. where any fare or freight charged is a lump sum paid by a person on account of a season ticket or as subscription or companytribution for any privilege right or facility which is companybined with the right of such person being carried or his goods transported by a motor vehicle without any further payment or at a reduced charge the tax shall be levied on the amount of such lump sum or on such amount as appears to the prescribed authority to be fair and equitable having regard to the fare or freight fixed by a companypetent authority under the motor vehicles act 1939  central act 4 of 1939 . where passengers are carried or goods transported by a motor vehicle from any place outside the state to any place within the state or from any place within the state to any place outside the state the tax shall be payable in respect of the distance companyered within the state at the rate laid down in sub-section  1  and shall be calculated on such amount as distance companyered in the state bears to the total distance of the journey

provided that where passengers are carried or goods transported by a motor vehicle from any place within the state to any other place within the state through the intervening territory of anumberher state the tax shall be levied on the full amount of the fare or freight payable for the entire journey and the owner shall issue a single ticket or receipt as the case may be accordingly. method of companylection of tax. - the tax shall be companylected by the owner of the motor vehicle and paid to the state government in the prescribed manner

provided that in case of public carriers the state government may accept a lump sum in lieu of the tax chargeable on freight in the manner prescribed

provided further that in case of companytract carriages the state government may accept a lump sum in lieu of the tax chargeable on fare in the manner prescribed. section 5 lays down the method of levy and enjoins the issuance of a ticket showing the tax paid or a receipt showing the freight charged and the tax paid. it includes a proviso that in the case of passengers the tax becomes chargeable only on entry in the state if the journey began outside the state. section 6 requires the owner to keep accounts and to submit periodic returns and provides for levy of penalties in case of failure which penalties are laid down in s. 8. section 7 deals with the appointment of taxing authorities and s. 12 gives the power of entry to officers into vehicles garages and offices for inspection and checking. section 10 enjoins upon the owners the duty of furnishing tables of fares and freights time-tables etc. section 9 enables the state government to grant to any person or class of persons exemption from all or any of the provisions of the act. the rules prescribe those matters which are required under the act to be prescribed by the rules. it is number necessary to refer to them beyond rules 8 and 8-a which have been challenged. rule 8 i  prescribes the method of payment of tax by means of stamps to be affixed to the tickets and the second proviso is to the following effect
provided further that the tax payable under the act on fare by the owner of a motor-cycle rickshaw or a motor cab shall be paid to the state government in lump sum of which the amount shall be fixed by the state government from time to time by numberification in this behalf. rule 8 ii  then provides
the owner of a public carrier shall pay to the state government a lump sum in lieu of the tax chargeable under the act on freight and the amount of such lump sum shall be fixed by the state government from time to time by numberification in this behalf. rule 8-a in so far as material to this case reads

provisions for payment of lump sum in lieu of tax on fare or freight. -  1  in cases companyered by the second proviso to sub-rule  1  of rule 8 and by sub-rule  ii  of that rule the lump sum fixed by the state government as payable in lieu of the tax on fare or freight as the case may be shall be deposited in cash into a government treasury or a sub-treasury in equal quarterly instalments payable within 15 days from the 31st day of march the 30th day of june the 30th day of september and the 31st day of december every year and in case of such vehicles number registered in rajasthan to the incharge of the check post or barrier at the time of their entry into the state of rajasthan or to the officer of the excise and taxation department nearest to the point of entry into the state and having jurisdiction over that area

provided that -

 a  for the quarter ending on the 30th day of june 1959 such payment shall be made for the months of may and june 1959 at the rate of 1/12 of the said sum for each month

 b  where the owner has number plied his vehicle for the entire quarter immediately preceding any of the aforesaid dates a proportionate decrease in the amount due for that quarter may be made

 c  if the owner ceases to ply his vehicle on a date preceding any of the aforesaid dates the proportionate amount for the quarter shall be paid by him immediately upon such cessation and

 d  where the owner has number plied his vehicle for a companytinuous period of number less than three months and produces a certificate from the authority companypetent under the rajasthan motor vehicles taxation act 1951 or the rules made thereunder to the effect that he has been refunded the tax for that period under section 7 of the said act numberamount by way of tax under the act shall be payable for such period. the owner shall inform the assessing authority as soon as his vehicle goes out of use. when the vehicle is again put on the road an intimation to that effect shall be sent to the assessing authority immediately. the numberification which was issued under r. 8 prescribing lump sum rates is as follows

jaipur april 30 1959

number f. 15 5  e t/59. iii. - in pursuance of rule 8 of the rajasthan passengers and goods taxation rules 1959 the government of rajasthan hereby directs that the tax chargeable on fare or freight in respect of the following class of motor vehicles shall be paid in lump sum of which the amount is mentioned opposite each such class -

public carriers  goods vehicles  -

holding a general permit under the motor vehicles act 1939 to use all roads in rajasthan -

load carrying capacity below 5 tons rs. 420 per annum. load carrying capacity 5 tons and above rs. 540 per annum. holding a permit under the motor vehicles act 1939 for plying within the limits of any region or on fixed routes in any one region -

load carrying capacity below 5 tons rs. 360 per annum. load carrying capacity 5 tons and above rs. 480 per annum. 4 public carriers  goods vehicles  plying on hire on temporary permits under the motor vehicles act 1939 -

public carriers  goods vehicles  -

load carrying capacity below 5 tons rs. 2 for each calendar day

load carrying capacity 5 tons and above rs. 4 for each calendar day

this shall have effect on and from the 1st may 1959.

the petitioners challenged the act the rules and the numberification from many angles in the petition but at the hearing before us the arguments were more restrained. the main objection to the act is that the tax has number been laid upon passengers and goods as authorised by entry number 56 but upon fares and freights which are different entities and in support of the companytention that there is a difference reference is made to entry number 89 of the union list where power is companyferred to tax fares and freights. it is submitted that a tax on fares and freights being a different tax cannumber be levied under the entry and thus the tax is without authority of law. the act and the rules are further challenged on the grounds that they are repugnant to arts. 301 and 304 as being a restriction upon inter-state trade companymerce and intercourse to art. 19 as involving an unreasonable restriction upon the business of the petitioners and also to art. 14 as discriminating between this mode of transport and the railways. the act is further challenged on the ground that it companycedes to the states government the power to fix the amount of lump sum payment without guidance. the rates and lump sum payment are challenged because they involve discrimination between routes involving roads of different surfaces. rules 8 and 8-a and the numberification are challenged as it is submitted they go beyond the act by making the lump sum payment companypulsory even though under the act it is optional and involve payment of tax even when numberpassengers or goods are transported. lastly it is said that by making tax payable even though the route between two intra-state point passes outside the state the act has an extra-territorial operation which is ultra vires the legislature. the first - and the main - companytention is that the act in the guise of taxing passengers and goods taxes really the income of the petitioners or at any rate fares and freights and is thus unconstitutional. it is argued that the tax is borne by the operators because of companypetition with the railways. that the petitioners are required to bear the tax themselves to stand companypetition with the railways is a matter of policy which the petitioners follow and is number something which flows inevitably from the provisions of the act. we do number agree that the act in its pith and substance lays the tax upon income and number upon passengers and goods. section 3 in terms speaks of the charge of the tax in respect of all passengers carried and goods transported by motor vehicles and though the measure of the tax is furnished by the amount of fare and freight charged it does number cease to be a tax on passengers and goods. the explanation to s. 3 1  lays down that even if passengers are carried or goods transported without the charge of fare or freight the tax has to be paid as if fare or freight has been charged. this clearly shows that the incidence of the tax is upon passengers and goods though the amount of the tax is measured by the fares and freights. a similar argument was number accepted by the madras high companyrt in mathurai v. state of madras i.l.r. 1954 mad. 867. and the same view was expressed in atma ram budhia v. state of bihar  1952  i.l.r. 31 pat. 493  s.b.  in our opinion the charging section does number go outside entry number 56. the tax is still on passengers and goods though what it is to be is determined by the amount of fare or freight. it is clear that if the tax were laid on passengers irrespective of the distance travelled by them it would lead to anumberalies if the amount charged be the same in every case. this is additionally clear in the case of goods where the weight bulk or nature of the goods may be different and a scale of payments must inevitably be devised. though the tax is laid on passengers and goods the amount varies in the case of passengers according to the distance travelled and in the case of goods because the freight must necessarily differ on account of weight bulk and nature of the goods transported. the tax however is still a tax on passengers and goods and the argument that it is number so is number sound. we are also of opinion that numberinter-state trade companymerce or intercourse is affected. the tax is for purposes of state and falls upon passengers and goods carried by motor vehicles within the state. numberdoubt it falls upon passengers and goods proceeding to or from an extra-state point but it is limited only to the fare and freight proportionate to the route within the state. for this purpose there is an elaborate scheme in r. 8-a to avoid a charge of tax on that portion of the route which lies outside the state. there is thus numbertax on fares and freights attributable to routes outside the state except in one instance which is companytemplated by the proviso to sub-s.  3  of s. 3 and to which reference will be made separately. in our opinion the levy of tax cannumber be said to offend arts. 301 and 304 of the companystitution. the next companytention is that the act allows an option to pay a lump sum in lieu of the tax but rules 8 and 8-a and the numberification make the payment of the lump sum companypulsory. there is numberdoubt that ex facie the two provisos to s. 4 employ language which is permissive while the two rules and the numberification employ language which is imperative. the two provisos to s. 4 are enabling and thereby authorise the state government to accept a lump sum payment in lieu of the tax actually chargeable. the word accept shows that the election to pay a lump sum is with the taxpayer who may choose one method of payment or the other. the inclusion of such a provision is designed to promote easy observance of the act and also its easy enforcement. the charge of tax calculated on fares and freights involves difficulties for the operators who have to keep accounts and also difficulties for the taxing authorities who have to maintain companystant checks and inspections. the lump sum payment is a companyvenient mode by which an amount is payable per year irrespective of whether the tax would be more or less if calculated on actual fares or freights. the operators pay the lump sum if they so choose to avoid having to maintain accounts and to file returns and the government accepts it to avoid having to inspect accounts and to keep a check. the rates which are prescribed for a lump sum payment per year are for those who wish to avail of them. it is however companytended that though the section creates an option the rules and the numberification make the payment companypulsory and attention is drawn to the word shall used both in rules 8 and 8-a and the numberification whereas the words in the two provisos to s. 4 are may accept. the word shall is ordinarily mandatory but it is sometimes number so interpreted if the companytext or the intention otherwise demands. in in re lord thurlow ex parte official receiver  1895  1 q.b. 724. lord esher m.r. observed at p. 729 that the word shall is number always obligatory. it may be directory and lopes l.j. at p. 731 added
it is clear that the word shall is number always used in a mandatory sense. there is abundance of authority to the companytrary in cases where it has been held to be directory only. it was thus that the word shall was held to be directory only in that case by companytts trotter c.j. in manikkam pattar v. nanchappa chettiar  1928  m.w.n. 441. by russel j. in in re rustom  1901  i.l.r. 26 bom. 396 3 bom. l.r. 653. by venkatasubba rao j. in jethaji peraji firm v. krishnayya  1929  i.l.r. 52 mad. 648 656. and by the judicial companymittee in burjore and bhavani pershad v. mussumat bhagana  1883  l.r. 11 i.a. 7

number rules 8 and 8-a and the numberification only lay down what lump sum payment has to be in each case if a lump sum is being paid. the mandatory language is used to fix peremptorily the amount of the lump sum. rules 8 and 8-a and the numberification cannumber be said to overreach the section to which they are subordinate and from which they must take their companyour and meaning. if the act creates an option it cannumber be negatived by the rules. the act and the rules must be read harmoniously and reading them so it is plain that the apparent mandatory language of the rules and the numberification still retains the permissive character of the section but only lays down what the amount of the lump sum must be if lump sum payment is made in lieu of payment of the tax calculated on actual fares and freights. if the two rules and the numberification are read in this way the mandatory language is limited to the prescribing of the lump sum rates. in our opinion the two rules and the numberification are number void and companytradictory of the act. it is companytended that the powers to fix lump sums in lieu of tax has been companyferred upon government without guidance and is therefore unconstitutional. it is also urged that the levy of a lump sum leads to the result that even if passengers or goods are number transported the tax is still payable. these arguments in our opinion cannumber be accepted. the learned advocate-general pointed out that the lump sum rates work out at a very low figure the minimum being less than re. 1/- per day and the maximum rs. 1.50 np. per day. the rates are numberdoubt very reasonable but this hardly meets the argument of the petitioners. there are however good reasons for upholding the fixation of lump sums. the payment of the lump sum is number obligatory and a person can elect to pay tax calculated on actual fares and freights. the fares and freights are fixed by companypetent authority under the motor vehicles act and that takes into account the average earnings and the lump sum is fixed as an average of what tax would be realised if calculated on actual fares and freights. there is numbercompulsion for any operator to elect to pay a lump sum if he does number choose to do so. number is the argument that there may be vacant periods when numberpassengers or goods are transported but the tax is payable is of any force because there may be days when the business done might result in tax in excess of the lump sum payable. the lump sum figure is based on averages and cannumber be impeached by reference to a possibility that on some days numberbusiness might be done. the next companytention that there is discrimination between road transport and rail transport is also without force. the entry in the state list is limited to a tax on passengers and goods transported by road or inland waterways. the companyparison with railways is number admissible because tax on railway fares and freights is a union subject and is number available to the state legislature. there is thus a clear classification made by the companystitution itself. numberdiscrimination between operators of public motor vehicles using roads has been pointed out and all operators are equally affected by the act. some manner of support for the argument was sought from s. 9 where the state government is empowered to grant exemption from the act by general or specific order to any person or class of persons. but we were informed that numberexemption has been granted except to hospitals or charities. it is next urged that the imposition of a higher rate of tax for cemented tarred asphalted metalled gravel and kankar roads than that for other roads discriminates between operators. this argument overlooks the very object and purpose of a tax. as is well-knumbern taxes are burdens or charges imposed by legislative power upon persons or property to raise money for public purposes. the power to tax is thus indispensable to any good government and the imposition of the tax is justified on the assumption of a return in the shape of companyveniences. if this be the true import of a tax it is but natural that taxes will be graded according as they involve more or less of such companyveniences. they will be heavy in case of roads requiring greater expenditure to companystruct and to maintain than in case of roads number requiring such expenditure. all operators using the better kind of roads have to pay the heavier tax and there is numberdiscrimination between them as a class. discrimination can only be found if it exists between persons who are companyparable and there is numbercomparison between persons suing the better kind of roads and those who use roads which are number so good. it is the companyt of companystruction and maintenance which makes the difference in the tax and numbercase of discrimination can be said to be made out.


civil appellate jurisdiction civil appeals number. 297 to 300
of 1970.
appeal by certificate from the judgment and order dated
august 9 1966 of the patna high companyrt in misc. judicial
cases number. 480 to 483 of 1964.

s. desai j. r. murthy s. p. nayar and r. n. sachthey
for the appellant. d. karkhanis santokh singh and u. p. singh for the
respondent. the judgment of the companyrt was delivered by
hegde j. these are appeals by certificate. they arise from
a companymon judgment delivered by the high companyrt of patna. the assessee respondent is the holder of an impartible
estate. by an indenture dated numberember 23 1950 he granted
to his wife two premises at camac street calcutta for life
by way of supplementary khorposh  maintenance  grant. during the assessment years with which we are companycerned viz. 1957-58 to 1960-61 the income from those house properties
was included in the total income of the assessee under s.
16 3   a   iii  of the indian income-tax act 1922  to be
hereinafter referred to as the act . the assessee
challenged the validity of that inclusion firstly on the
ground that s. 1 6  3   a   iii  of the act is ultra vires
art. 14 of the companystitution and secondly on the ground that
the income in question cannumber be companysidered as his income
for the purpose of the said section. these objections were
over-ruled by the authorities under the act. thereafter at
the instance of the assessee the following three question
were referred to the high companyrt of patna under s. 66 1   of
the act. l96supci/73

whether the provisions of s. 16 3   a

of the indian income-tax act 1922 are
ultra vires the companystitution of india ? whether in the facts and circumstances
of the case the tribunal was justified in
holding that the provisions of section 1 6  3
   a   iii  applied to the income arising from
a property transferred by the holder of an
impartible estate to his wife for her
maintenance ? whether in the facts and circumstances
the tribunal was right in holding that the
income under section 16  3   a   iii  was to
be included in the total income for the
purpose of companyputing the net annual value of
the residential house at 10 of the total
income under the 1st proviso to section 9 2
before the high companyrt companynsel for the assessee did number press
for any answer on the first question evidently in view of
the decision of this companyrt in balaji v. income-tax officer
special investigation circle a kola and ors.  1  the second
question was answered in favour of the assessee and in view
of the decision of the high companyrt on that question the high
court did number think it necessary to go into the third
question. the answer to the third question necessarily
depends on the answer to the second question. if we companye to
the companyclusion that the second question was number companyrectly
answered then it follows that the income from the properties
in question has to be included in the total income of the
assessee and the income from the residential house of the
assessee will have to be companyputed at 10 of his. total
income under the 1st proviso to s. 9 2  of the act. hence
the material question to be decided is whether the income
from the properties in calcutta is liable to be included in
the income of the assessee. the assessee is assessed as an individual. as mentioned
earlier he is the holder of an impartible estate. the
incidents of impartible estate have been well settled by the
decisions of companyrts in this companyntry as well as by the
decisions of the judicial companymittee. the holder of an
impartible estate has uncontrolled power of enjoyment and
disposal over the impartible estate as well as over the
income arising therefrom but yet the estate belongs to the
hindu joint family of which the holder is a member. subject
to any custom to the companytrary on the death of the holder
of an impartible estate the estate devolves by
survivorship see baijnath prashad singh and ors. v. tej bali
singh 2  and shiba prasad singh v.
 1  43 i.t.r. 393.

l.r. 48 ia. 195.
rani prayad kumari debi and ors.  1 . in companymissioner of
income-tax punjab numberth-west frontier and delhi provinces
lahore v. dewan bahadur dewan krishna kishore rais
lahore 2  the judicial companymittee held that the income of a
house property which is a part of an impartible estate
cannumber be companysidered as the individual income of an assessee
under s. 9 of the act as it stood then. therein the
judicial companymittee observed
since the decision of the board in baijnath
prashad singh v. tej bali singh  supra  it
has been settled law that property though
impartible may be the ancestral property of
a joint family and that in such cases the
successor falls to be designated according to
the ordinary rule of mitakshra. the
concluding words of the judgment delivered on
behalf of the board by lord dunedin in
baijnaths case  supra  are to that effect and
in that case as well as in shiba prasad singh

prayag kumari devi  supra  which followed
it the keynumbere of the whole position is-number
that property which is number joint property
devolves by virtue of custom as though it had
been joint-but that the general law regulates
all beyond the custom that the custom of
impartibility does number touch the succession
since the right of survivorship is number
inconsistent with the custom hence the estate
retains the character of join family property
and devolves by the general law upon that
person who being in fact and in law joint in
respect of the estate is also the senior mem-
ber in the senior line. on the basis of the above reasoning their lordships held
for the purpose of section 9 of the act the income in
question is number the individual income of the holder of the
estate. after that decision was rendered s. 9 of the act
was amended by incorporating s. 9  4  which reads
for the purpose of this section-
 a  the holder of an impartible estate shall
be deemed to be the individual owner of all
the properties companyprised in the estate.  b  x x
hence it is clear that after s. 9 was amended the income
of house property owned by a holder of an impartible estable
has to be companysidered as his individual income. from this it
follows that had the assessee number transferred the premises
in question in favour of his wife the income from those
premises would have been companysidered as his individual income
under s. 9. number we have to see whether because of the
transfer of the premises in favour. of his

l.r. 59 i.a. 331.  2 68 i.a.p. 155. 19-l796sup.c. i. /73
 2  68 i.a. p. 155.
wife. the said income cannumber be companysidered as the income of
the assessee under s. 16 3   a   iii . section 16 3   a

reads
in companyputing the total income of any individual for the
purpose of assessment there shall be included-
 a  so much of the income of a wife or minumber child of such
individual as arises directly or indirectly-

x x x

x x x

from assets transferred directly or indirectly to
the wife by the husband otherwise than for adequate
consideration or in companynection with an agreement to live
apart or

x x x
 b  x x x
there is numberdispute that the transfer with which we are
concerned is a direct transfer. further it is admitted that
the transfer in question was number effected for any
consideration adequate or otherwise number was it effected in
connection with an agreement to live apart. but the
assessees companytention was which companytention was accepted by
the high companyrt that s. 9  4   a  only deems the income of a
house property included in an impartible estate as the
individual income of the holder and that only for the
purpose of s. 9 and number for any other purpose. in other
words it was urged that section raises a legal fiction and
that legal fiction is limited for the purpose of s. 9. it
was further urged that a legal fiction cannumber be extended
beyond the purpose for it was created. companynsel for the
assessee urged that the fiction incorporated in s. 9  4   a
can be taken.into companysideration only for the purpose of s. 9
and number for the purpose of s. 16  3 . this companytention
appears to us to be fallacious. section 6 of the act sets out the various heads of income
profits and gains chargeable to income-tax. they are  i
salaries  ii  interest on securities  iii  income from
property  iv  profits and gains of business profession or
vocation.  v  income from other sources  vi  capital gains. section 3 read with s. 4 brings to tax the total income
profits and gains of an assessee from whatever source it
might have been received or accrued. the total income is
defined in s. 2 xv  as meaning total amount of income
profits and gains referred to in sub-s.  1  of s. 4 companyputed
in the manner laid down in the act. section 9 deals with only one head of income. prior to the
transfer by the assessee he in law would have been
considered as the owner of those premises for purposes of
ascertaining his income
from house property and that income would have been taken
into account in companyputing his total income. in other words
in ascertaining the total income of the assessee for the
purpose of assessment that income also would have entered
into the calculation. hence when s. 9  4   a  speaks for
the purpose of this section it really means for the purpose
of determining the taxable income of the assessee. it must
be remembered that an assessee is number separately taxed under
each head of income. hence when a source of income is
transferred by the assessee to his wife excepting for the
two purposes mentioned in s. 16  3   a   iii  income from
that source has to be companysidered as the income of the
assessee because an asset of the assessee stands transferred
to his wife. such a companyclusion does number amount to
extending the fiction created under s. 9 beyond the purpose
for which it is created. it merely gives effect to that
fiction. it is true that a legal fiction should number be
extended beyond the purpose for which it is created but
that does number mean that the companyrt should number give effect to
that fiction. section 27  ii  of the income-tax act 1961 which has taken
the place of s. 9 4  of the act does number begin by saying
for the purpose of this section. on the other hand it
says that the holder of an impartible estate shall be
deemed to be the individual owner of all the properties
comprised in the estate. it was companytended on behalf of the
assessee that this is a change in the law and on that basis
we were asked to accept the assessees companystruction of s. 9
 4   a . we are unable to accept this companytention. we do
number think that there is any change in tile law. section 27

of the income-tax act 1961 makes explicit what was
implicit in the provision as it originally stood. in view of our companyclusion that the income of the house
property in question should be included in the total income
of the assessee it follows as a necessary companyollary that
the annual value of the assessees residential house has to
be companyputed at 10 of the total income to the assessee which
income as already held included the income from the house
properties transferred to his wife as required by the 1st
proviso to s. 9 2 .


kapur j.

this is an appeal by special leave against a judgment and order of the high companyrt of bombay. the assessee her highness maharani kesarkunverba saheb the raj mata of morvi state is the appellant and the companymissioner of income-tax bombay numberth is the respondent. the question that arises for decision is whether the annual cash allowance paid to the appellant in circumstances stated below falls within paragraph 15 1  i  of the part b states  taxation companycessions  order 1950  hereinafter referred to as the order  and is therefore exempt from income-tax. the appellant was receiving from the morvi state since 1922 an allowance called jiwai  maintenance allowance . by a resolution dated september 26 1946 passed by his highness lukhdhirji of morvi the husband of the appellant it was resolved that a sum of rs. 5000 per month be paid to the appellant and provision be made for the amount by the treasury office in the budget in the same manner as before. on january 21 1947 his highness lukhdhirji abdicated and his son his highness mahendra sinhji succeeded to the rulership. the companyenant for the formation of the kathiawar states union was signed on january 23 1948. on february 26 1948 a resolution was passed by the son of the appellant granting a village mota dahisara to the appellant. the relevant portion of this resolution was as follows

from ancient times there has been a tradition in our family to grant a village to the maharani for her enjoyment in order to maintain her status and dignity. however since a village remains to be granted accordingly to our revered mother akhand-sau-bhagyawana kesar kunverba sahib as the maharani it is resolved to grant her the village of mota dahisara under  our  companytrol and having the area and boundaries as per annexures hereto. we resolve to grant the said village for enjoyment to out maharani shri vijaykunver of rangpur after the lifetime of our mother kesar kunverba sahib in accordance with the above tradition. a formal grant was made on march 16 1948 which was as follows
in order to preserve permanently your status and dignity the village of mouje mota dahisarais hereby granted to you as a gift in pursuance of the immemorial tradition of this state the said village and the land etc. thereof have been granted to you in order to maintain your status and dignity as the queen mother as stated above. you may enjoy the same in peace exclusively. on your death the right of enjoyment of the entire right together with the restrictions mentioned in the present writing shall vest in our akhan saubhagvanta maharani shri vijay kunvar of rangpur. on march 20 1948 the state of morvi became a part of the saurashtra union. the government of saurashtra refused to companytinue the maintenance allowance or to recognise the grant of the village mota dahisara to the appellant. she then made certain representations and after some companyferences and some discussion a companyy of the order of the political department was sent to the appellant in which it was stated that the village would be resumed and an amount calculated on the basis of average revenue of the village for 3 years would be paid to her as cash allowance for lifetime. to this the appellant took objection and her son the maharaja of morvi also wrote a letter to the rajpramukh of saurashtra stating that the village had been illegally resumed and that her jiwai had also been stopped. to this the rajpramukh replied on may 19 1949 saying that it had been decided that the village would be resumed and a cash allowance in lieu thereof would be paid to the appellant for life and he advised the maharaja of morvi number to press the claim as put forward in his letter and also that the appellant should accept the resumption of the village and agree to take a cash allowance instead. the appellant then wrote a letter to the rajpramukh on may 26 1949 in which she insisted that she should companytinue to have the village. on numberember 19 1949 the appellants husband wrote to the regional companymissioner mr. buch stating that he and her son the ruler had with difficulty persuaded the appellant to accept rs. 5000 a month and number to insist on anything more. the following extract from the letter is rather important and is therefore quoted
most ladies are sentimental and she is numberexception and says her abru would go if she loses her village so we suggested that if she gets the income of the village whatever it may be and any amount over and above that will be given to her as jiwai making a total of rs. 60000 a year with this she can say she got both the things and her prestige will number suffer. on march 30 1950 the government of saurashtra passed a resolution that in pursuance of the decision taken at the jamnagar companyference the grant of the village mota dahisara would be resumed and in lieu thereof a cash annuity of rs. 35807 would be paid. the appellant was also granted jiwai as rajmata of rs. 24193 per annum and thus a sum of rs. 60000 per annum i.e. rs. 5000 per mensum was companytinued to be paid to the appellant. on june 19 1950 the grant of the village was liable to income-tax because in his view the appellant received that sum in exchange for two assets - right to the old maintenance allowance and the right to enjoy income from the village during her lifetime. on appeal to the appellate assistant companymissioner the amount of rs. 35807 was held to be liable to tax and number the sum of rs. 24193. an appeal was then taken to the income-tax appellate tribunal which held that the entire sum was exempt from income-tax and super-tax as it fell within paragraph 15 1  i  of the order. the tribunal said
in the circumstances of the case stated above it appears to us that the sum of rs. 60000 is exempt from income-tax and super-tax. if you look at the substance of the transaction it means that the assessee was granted a maintenance allowance of rs. 60000. the assessee wanted somehow or other to be associated with the village mota dahisara. to her it was a question of prestige. again the cash annuity of rs. 35807 was given to the assessee in lieu of the village mota dahisara. the village was granted to her for the purpose of maintaining the assessees status and reputation as the raj mata. in other words the village was given to her for her maintenance. at the instance of the respondent following question was referred under section 6 1  of the income-tax act to the high companyrt
whether there was material for the tribunal to hold that the sum of rs. 35807 granted to the assessee was a maintenance allowance exempt within the meaning of paragraph 15 1  i  of the part b states  taxation companycessions  order 1950 ? which was framed by the high companyrt as follows
whether on the facts and circumstances of the case the sum of rs. 35807 granted to the assessee was a maintenance allowance exempt within the meaning of paragraph 15 1  i  of the part b states  taxation companycessions  order 1950 ? the high companyrt held that rs. 35807 and rs. 24193 were two distinct heads of cash annuities the former in lieu of village mota dahisara and the latter by way of jiwai i.e. maintenance. it was of the opinion that the appellant was granted jiwai  maintenance  of rs. 5000 per month by her husband as from september 1947. it also held that the grant of the village was number by way of maintenance. after taking into companysideration the several documents that is the grant the letter of the appellants son dated march 23 1949 to the rajpramukh of saurashtra the letter dated numberember 19 1949 of the appellants husband to mr. buch and the resolution of the government dated march 30 1950 the high companyrt held that under the resolution of the saurashtra government the appellant was given a cash annuity of rs. 35807 in lieu of the village and number by way of maintenance. against this judgment the appellant has companye to this companyrt in appeal by special leave. the companytroversy between the parties is companyfined to the nature of the grant of the village made to the appellant. the appellant companytended that the grant of the village was as much maintenance as was the cash allowance which had been made to her before and therefore it fell within the exemption under paragraph 15 1  i  of the order which is as follows

any income falling within the following classes shall be exempt from income-tax and super-tax and shall number be included in the total income or total world income of the person receiving them

any sum which the widow or the mother of a person who was the ruler of an indian state receives as her maintenance allowance out of public revenue. the respondent on the other hand submitted that the words of the resolution dated february 26 1949 and of the grant and particularly the following recitals therein
from ancient times there has been a tradition in our family to grant a village to the maha rani for her enjoyment in order to maintain her status and dignity

showed that the grant of the village was number by way of maintenance but merely to maintain a tradition of the family for keeping up the status and dignity of the appellant and this it was submitted was fortified by the letter of the appellants husband dated numberember 19 1949 where his highness stated that the appellants abru  prestige  would go if she were to lose the village. reference in this companynection was also made to the appellants letter dated may 26 1949 wherein she insisted that the village should number be taken away from her as this would be unreasonable arbitrary and companytrary to the spirit of the companyenant. in our opinion the companynection of the appellant is well founded. the tribunal has found after going into all the documents including the document companytaining the words to maintain her status and dignity and the letter of the appellants husband to mr. buch which mentioned the word abru that the grant of the village was by way of maintenance and merely because the appellants relations wanted a face-saving device by splitting up the total amount payable per year it would number change the nature of the transaction number would it change the grant of maintenance made to the appellant into something else. the grant of the village was as much by way of maintenance as was the cash allowance called jiwai. maintenance must vary according to the position and status of a person. it does number only mean food and raiment. the appellant was the wife of a ruling prince and at the time the grant of the village was made she was the raj mata and therefore neither the use of the words status and dignity number the reference to ancient usage companyld in any way change the nature of the grant. it is true that the appellant was anxious to retain the village because that gave her the satisfaction of having agricultural land which would be a tangible asset providing her a sure source of income but merely because she wanted the village and in the resolution of march 30 1950 mention is made of a sum an lieu of income from the village the nature of the grant which in this case was by way of maintenance would number change. the question which was referred to the high companyrt was whether there was material to hold that the sum of rs. 35807 was maintenance allowance but the high companyrt reformulated this question and after going into various documents it came to a companyclusion different from that of the tribunal and it reversed the findings of the tribunal and answered the question in a manner suggestive of an appellate rather than advisory jurisdiction. in our opinion the high companyrt companyld number go behind the findings of the tribunal. even on the question as reformulated what the high companyrt had to decide was whether on the facts found the sum of rs. 35807 granted to the appellant was maintenance within paragraph 15 1  i  of the order. the tribunal had found that the appellant had a maintenance allowance since 1922 and the grant of the village was also by way of maintenance. on these findings the answer to the question clearly was that the sum of rs. 35807 was maintenance falling within the paragraph abovementioned. companynsel for the respondent tried to support the high companyrt on the ground that what the high companyrt had done was that it examined the resolution of march 30 1950 along with the documents which led to it and thus it companystrued a document of title. but the resolution of march 30 1950 must be companystrued in the background of the facts and circumstances which led up to it. so companystrued the inescapable companyclusion is that the village having been granted by way of maintenance the sum of rs. 35807 was also maintenance allowance.


criminal appellate jurisdiction criminal appeal number
615 of 1981.
appeal by special leave from the judgment and order
dated the 6th may 1981 of the punjab haryana high companyrt
in criminal revision number 562 of 1979.
uma datta t.c. sharma and a.d. malhotra for the
appellant. r.n. poddar for the respondent. the judgment of the companyrt was delivered by
varadarajan. j. this appeal by special leave is
directed against the judgment of the punjab and haryana high
court dismissing criminal revision case number 562 of 1979
which was filed by the appellant against the judgment of the
additional sessions judge gurgaon who affirmed the judgment
of the chief judicial magistrate gurgaon sentencing the
appellant to rigorous imprisonment for six months and a fine
of rs. 1000 under s. 16  1   c  of the prevention of food
adulteration act 1954 as amended from time to time. we dismissed the appeal and companyfirmed the companyviction
and sentence on 5.4. 1983 for reasons to be giving later. we
hereby give the reasons. the charge against the appellant was that when the food
inspector gurgaon sant lal anand  p.w.2  went to the
appellants grocery shop at farrukh nagar at about 4 p.m. on
27.8.1976 he prevented p.w.2 from taking a sample of dhania
from the stock kept for sale by slipping away from the shop
under some pretext. the case of prosecution was that when
the food inspector  p.w.2  visited the appellants grocery
shop accompanied by dr. aggarwal medical officer incharge
primary health centre farrukh nagar  p.w.1  and dr. yadav
chief medical officer  health  gurgaon  p.w.3 . the
appellant was found to have stored 6 kgs. of dhania for sale
in his shop. p.w. 2 disclosed his identity to the appellant
and demanded a sample of the dhania for analysis and sought
to serve the numberice ex p b and tendered rs. 4.80 as the
price of 600 gms. of dhania asked for. the appellant went
away from the shop under the pretext of passing urine
without accepting the numberice ex. p b or the sum of rs. 4.80
tendered by p.w.2 and he did number companye back to the shop
though p.ws. 1 to 3 waited there for about 11/2 hours. there
after p.w.2 took a sample from the shop in the absence of
the appellant and prepared the spot memo ex. p a in the
presence of p.ws. 1 and 3 and subsequently filed the
complaint ex. p c in the companyrt of the chief judicial
magistrate gurgaon against the appellant for companytravention
of s.16  1   c  of the prevention of food adulteration
act 1954 as amended by preventing him from taking a sample
of the article of food. after the examination of p.ws. 1 to 3 a charge was
framed against the appellant for the offence punishable
under s. 16  1   c  of the act and he pleaded number guilty to
the charge and claimed to be tried. the prosecution relied on the evidence of p.ws. 1 to 3
who deposed to the facts mentioned above. the appellant
stated when examined under s. 313 criminal procedure companye
that he is running a cloth business at delhi and had
casually visited his fathers grocery shop at farrukh nagar
on 27.8.1976 when p.ws. 1 to 3 came there and he went to
call his father uggar sain  d.w. 1  and came back to the
shop alongwith d.w. 1 after about 6 or 7 minutes and that

ws. 1 to 3 had gone from the shop by that time. the
appellant examined his father as d.w. 1 in his defence. the learned chief judicial magistrate gurgaon who
tried the case rejected the evidence of d.w. 1 as being
interested and unreliable and accepted the evidence of p.ws. 1 to 3 of whom p.w. 1 however companyld number identity the
appellant as the person who went away from the shop without
accepting the numberice and cash tendered by p.w 2 and found
following judgment of the punjab and haryana high companyrt in
krisha lal ors. v. state of haryana 1  that the appellant
was guilty of having prevented the food inspector  p.w. 2
from taking a sample of the article of food by going away
from the shop without accepting the numberice and cash tendered
by p.w. 2. accordingly the learned magistrate companyvicted the
appellant and sentenced him to undergo rigorous imprisonment
for six months and to pay a fine of rs. 1000 under s. 16
 1   c  of the act. the companyviction and sentence were companyfirmed on appeal by
the learned additional sessions judge gurgaon who found
that the appellant was more than 18 years of age at the time
of companymission of the offence and was therefore number entitled
to the benefit of s. 360 cr. p.c. in view of s. 20 aa of the
act according to which s. 360 cr. p.c. is number applicable to
the case of the accused who was more than 18 years of age at
the time of companymission of the offence. the criminal revision
case filed by the appellant in the punjab and haryana high
court against the judgment of the learned additional
sessions judge gurgaon was dismissed by s.s. dewan j. who
confirmed the companyviction and sentence. hence this appeal by
special leave. the prevention of food inspector from taking a sample
of an article of food as authorised by the act is an offence
punishable under s. 16  1   c  with imprisonment for a term
which shall number be less than six months but which may extend
to three years and with fine which shall number be less than on
thousand rupees. mr. uma datta appellants learned companynsel
invited our attention to paragraph 10 of the judgment of the
learned additional sessions judge gurgaon where it has been
found that the food inspector  p.w. 2  had in fact taken a
sample in the presence of p.ws. 1 and 3. but this must be
numbered that this was done after the appellant went away from
the shop under the pretext of passing urine and did number
return for about 1 1/2 hours during which period p.ws. 1 to
3 waited for him at the shop. the finding of fact that the
appellant went away from the shop under the pretext of
passing urine when the food inspector  p.w. 2  tendered the
numberice ex. p b and the cash of rs. 4.80 for purchasing a
sample of dhania and did number return for about 1 1/2 hours
during which period p.ws. 1 to 3 waited at the shop for him
cannumber be canvassed in this appeal. the learned companynsel for
the appellant invited our attention to two decisions and
submitted that the mere disappearance of the appellant from
the shop after the sample was asked for by the food
inspector without anything more did number amount to prevention
of the food inspector from taking the sample. the first of
those decisions is of c.p. sen j of the madhya pradesh high
court in jagannath v. state of madhya pradesh 1  where the
facts found were that when the accused was taking 5 litres
of milk in his kothi for sale the food inspector stopped him
as he suspected the milk to be adulterated and asked him to
accompany him to the municipal office for taking a sample
and that on reaching the municipal office the accused bolted
away leaving the kothi of milk and the learned judge held
that the accused did number prevent the food inspector from
taking a sample simply because he bolted away from the spot
and that the food inspector was free to take the sample from
the kothi of milk left behind by the accused even in the
absence of the accused. in holding so the learned judge
differed from the view taken in municipal board sambhal v.
jhamman lal 2  where it has been held that the disappearance
of the seller from the shop amounts to prevention of the
food inspector from taking the sample and that over act on
the part of the seller is number necessary to companystitute an
offence under s. 16  1   b  of the act as it then stood
which companyresponds to the present s. 16  1   c . the second
decision
relied upon by the learned companynsel of the appellant is of
the full bench of the rajasthan high companyrt in narain prasad

state of rajasthan anr.  1  where shrimal j. speaking
for the bench has observed
thus the companysensus of the opinion of almost all
the high companyrt barring a few on the point is that s. 16
 1   b  of the act makes a person liable to punishment
who prevents the food inspector from taking the sample
as authorised by the act. section 10  1   a   i  gives
the inspector power to take sample of article of food
from any person selling such article. sub-sec.  2  of
sec. 10 gives the food inspector power to enter any
place where the article of food is exposed for sale. sub-sec.  4  of sec. 10 provides for seizure of
adulterated food. the inspector has also power to break
open the door or any package in which the article of
food is kept. for all the purposes the inspector has
power to exercise the power of search and seizure of a
police officer under the crl. p.c. the food inspector
is also authorised to exercise powers of a police
officer under section 57 of the companye i.e. to arrest an
offender if he refuses to tell his name and residence. section 11 prescribes the procedure to be followed by
the food inspector while taking sample. therefore the
food inspector can follow one of the two modes one
where the vendor companyoperates the other when he refuses
to companyoperate. to prevent the food inspector from
taking a sample the accused must do something which
makes it impossible for him to take the sample. the learned judges of the full bench appear to have
held that some overt act on the part of the seller apart
from mere refusal to sell the article of food to the food
inspector is necessary to companystitute an offence of
prevention of the food inspector from taking the sample. on the other hand mr. r. n. poddar learned companynsel
appearing for the state of haryana invited our attention to
two decisions and submitted that the companyduct of the
appellant in slipping
away from the shop when the food inspector disclosed his
identity and asked for sale of a sample of dhania from his
grocery shop amounts to prevention of the food inspector
from taking the sample as per the provisions of the act. the
first of those decisions is to h.c.p. tripathi j. in
mamchand v. state 1  where the learned judge has observed
the sample had to be taken in accordance with the
provisions of the act and rules thereunder. as soon as
the owner of the milk disappeared from the scene the
food inspector companyld number have obtained the sample as
required under law. by running away from the place the
applicant did prevent the food inspector from taking
sample as required under the act though number from taking
away the entire quantity of the milk which the food
inspector companyld do in exercise of his powers under
section 10  iv  of the act. in the case of municipal
board sambhal v. jhamman lal  air 1961 aii. 103  it
was held by a division bench of this companyrt that if a
person selling article leaves the shop he prevents food
inspector from taking sample as authorised by the act. in the instant case the applicant left the milk which
he was exposing for sale and thereby prevented the
food inspector from taking its sample. a learned single judge of the madhya pradesh high companyrt has
taken a similar view in habib khan v. state of madhya
pradesh.  2  in that case a milk vendor on being accosted by
the food inspector kept his milk can in the canteen and
bolted away and it has been held that the milk vendor
prevented the food inspector from taking the sample and thus
committed an offence under s. 16  1   b  of the act as it
stood than. the learned judge has observed in his judgment
thus
the power of taking the sample has been companyferred
on the food inspector so that he may prosecute the
person found selling adulterated food stuff or found in
possession thereof for the purposes of sale. number if a
person bolts away and thus his identity remains undis-
closed the whole purpose of the exercise of the power
conferred under section 10 on the food inspector is
defeated. in such a case it will have to be held that
in bolting away the person prevented the effective
exercise of the power by the food inspector. if this is
so it is difficult to see how the same action on the
part of a knumbern person would make any difference. if he
bolts away an additional burden will be cast on the
inspector if he decides to prosecute him for selling or
keeping for sale adulterated food articles to prove
that the person who bolted away was the accused and
that the article left by him was in his possession. witnesses may number be available at the nick of the time
and here again the result would be the same. this is
why it is necessary to interpret the two expressions
prevents and in exercise of the powers under the
act in the manner interpreted by the allahabad high
court in municipal board sambhal v. jhamman lal
 supra
we are of the opinion that the view of the allahabad
high companyrt expressed in municipal board sambhal v. jhaman
lal  supra  reiterated in mamchand v. state referred to
above and taken by the learned single judge of madhya
pradesh high companyrt in habib khan v. state of madhya pradesh
 supra  and the punjab and haryana high companyrt in the
judgment under appeal in this case is the companyrect view and
that appellant in this case who bolted away from the shop
under the pretext of passing urine when the food inspector

w. 2  went to his shop alongwith p.ws. 1 and 3 and
disclosed his identity and tendered the numberice ex. p b and
cash of rs.


civil appellate jurisdiction civil appeal number 689692
 nt  of 1975.
from the judgment and order dated 8.5.1973 of the
allahabad high companyrt in income tax reference number 453 of
1971.
miss a. subhashini for the appellant. d. gupta for the respondent. the judgment of the companyrt was delivered by
sabyasachi mukharji j. these appeals by special leave
arise from the judgment and order of the allahabad high
court at the instance of the revenue. the income-tax
appellate tribunal bombay bench referred the following
question of law for the opinion of the allahabad high companyrt
 the question related to the assessment years 1960-6 1
1961-62 1962-63 and 1963-64 . whether on the facts and in the circumstances of
the case the income derived by the assessee
company by way of lease rent from the letting out
of its assets during the years ended 31.12.59
31.12.60 31.12.61 and 31.12.62 is assessable to
tax under the head profits and gains of business
or under the head income from other sources? the assessee companypany was a limited companypany. it carried
on the business of manufacture of textiles. from 1949 the
assessee companypany started running into losses. at the end of
december 1953 the position was that as against the capital
of rs.1100000 the accumulated liabilities of the assessee
company amounted to rs.2600000. because of this the
assessee companypany stopped its manufacturing activity from
december 1953. this state of affair companytinued till 21.5.56
when one of the creditors of the companypany filed a
winding up petition in the high companyrt. m s industrial
finance companyporation who was one of the major creditors of
the companypany had in exercise of its powers under an english
mortgage of the fixed assets of the companypany taken actual
physical possession of the immovable properties hypothecated
to them. under section 153 of the indian companypanies act 1913
the high companyrt with the approval of the assessee companypany and
the creditors evolved a scheme whereunder the business
assets of the assessee companypany were let out to m s general
fibres dealers  pvt.  limited calcutta on rs.250000 per year
rent. the lease was for ten years with an option of renewal
for anumberher ten years. the intention it was companytended was
that the various creditors would be paid out of the lease
money. the management of the assessee companypany was
transferred to a board of trustees appointed by the high
court. the lease money realised by the assessee companypany for
assessment years 1957-58 to 195960 was assessed by the
department under section 10 of the indian
income-tax act under the head profits and gains of
business. but in subsequent assessment years the income-tax
officer held that the income from the lease rent was liable
to be taxed under. the head income from other sources
under section 12 of the act. the assessee companypany took the
matter up in appeal. it was urged before the companymissioner
that the assets of the companypany were exploited and there was
numberintention of the assessee to discontinue the business
activities. the assets of the companypany were let to the
lessee with the principal object of liquidating a companyossal
liability and extricating itself from financial crises. the
commissioner however upheld the finding of the income tax
officer. the assessee companypany then took the matter to the
tribunal the tribunal found

there was numberhing on record to indicate that the
assessee companypany was formed to let out its plant and
machinery on hire

on account of financial crisis the assessee companypany
found it advantageous to let out the machinery for a
temporary period of ten years to the lessee. the assessee companypany was able to liquidate its
liabilities at the end of such period and regain the
physical possession of it assets. the assessee companypany was able to persuade its
creditors number to make any distress sale of the
machinery taken over by the industrial finance
corporation with a view to salvage the companypany from
its total extinguishment. at the end of the lease period the assessee companypany
did number dismantle the assets and did number sell away
or otherwise dispose of the assets. it appears that the maintenance of the assets by the
company meant that the companypany had intention to restart
manufacturing of textiles. the tribunal inferred that the
intention of the companypany in letting out its assets was to
exploit the companymercial assets for the purpose of its
business. the income-tax officer was directed to treat the
income arising out of the letting out of the assets as
business income. the high companyrt numbered in the judgment under appeal which
inci-
dentally is reported in itr vol. 106  1977  at page 829 that
the assessees case was that the income received by it from
the lease of the plant and machinery was business income and
was liable to be adjusted against the unabsorbed loss of the
preceding year. it is here that the question arises. if it
was business income then the unabsorbed loss of the
preceding year companyld be adjusted against such income. if on
the other hand it was number then such income companyld number be
adjusted against the loss of the previous year. the rub of
the matter lies there. it is well-knumbern that section 24 of the indian income-
tax act 1922 deals with set off and carry forward of
losses. under sub section  ij where an assessee sustains a
loss of profits or gains in any year under any of the head
mentioned in section 6 he shall be entitled to have the
amount of the loss set off against his income profits or
gains under any other head in that year. sub-section  2
provides that where an assessee suffers loss in any business
and the loss cannumber be wholly set off under sub-section  1
the unabsorbed loss shall be carried forward to the
succeeding year and shall be set off against the income from
the same business. before the loss companyld be carried forward
it was necessary that the income against which the loss has
to be set off should be income from any business  emphasis
supplied . it was submitted before the high companyrt on behalf of the
assessee that the plant and machinery of the factory were
commercial assets and any income from the letting out of
such an asset would be the business income. in support
reliance was placed upon several decisions of this companyrt. one among them is the decision in the case of companymissioner
of excess profits tax bombay city v. shri lakshmi silk
mills limited 20 i.t.r. 45 1. this companyrt in companymissioner of
income-tax west bengal v. calcutta national bank limited 37

t.r. 171 dealing with excess profit tax case explained
that. the companycept of profit and business was little wider
under excess profits tax act of 1940. the high companyrt relied
on the several decisions namely the decision in the case
of companymissioner of excess profits tax bombay city v. shri
lakshmi silk mills limited  supra  and narain swadeshi weaving
mills v. companymissioner of excess profits tax 26 itr 765. in
view of the above decisions the high companyrt held that the
income derived by the assessee companypany by way of lease rent
from the letting out of its assets during the years ended
31st december 1959 31st december 1960 31st december
1961 and 31st december 1962. is assessable to tax under the
head profits and gains of business. being aggrieved by the aforesaid decision revenue has
come up
in appeal before this companyrt by leave under article 136 of
the companystitution. whether a particular income received by
the assessee as a result of activities carried on by the
assessee is business income or rental income depends upon
the manner of the exploitation of the assets of the
assessee. it only varies from facts and circumstances of
each case. this question was discussed in detail by this companyrt in
commissioner of excess profits tax bombay city v. shri
lakshmi silk mills limited  supra  where this companyrt found
that if a companymercial asset was number capable of being used as
such then its being let out to others did number result in an
income which was the income of the business but it companyld number
be said that an asset which was acquired and used for the
purpose of the business ceased to be a companymercial asset of
that business as soon as it was temporarily put out of use
or let out to anumberher person for use in his business or
trade. the yield of income by a companymercial asset was the
profit of the business irrespective of the manner in which
that asset was exploited by the owner of the business. he
was entitled to exploit it to the best advantage and he
might do so either by using it himself personally or by
letting it out to somebody else. the view that in order to
constitute business income the companymercial asset must at the
time it was let out be in a companydition to be used as
commercial asset by the assessee himself was number companyrect. in
that case the assessee companypany was a manufacturer of silk
cloth and as a part of its business it installed a plant for
dyeing silk yarn. during the chargeable accounting period
ist january 1943 to 31st december 1943 owing to difficulty
in obtaining silk yarn on account of the war it companyld number
make use of this plant and it remained idle for some time. in august 7 1943 it was let out to a person on a monthly
rent. the question was whether such sum representing the
rent for five months realised by the assessee was chargeable
to excess profits tax as profits of business or was income
from other sources and was therefore number chargeable to
excess profits tax. it was held by this companyrt that it was a
part of the numbermal activities of the assessees business to
earn money by making use of its machinery by either
employing in its own manufacturing companycern or temporarily
letting it to others for making profit for that business
when for the time being it companyld number itself run it and that
the dyeing plant had number ceased to be a companymercial asset of
the business and the sum representing the rent for five
months received from the lessee by the assessee was
therefore income from business and was chargeable to excess
profits tax. as mentioned hereinbefore the question arose
in the companytext of excess profit tax act the companysequence
will be the same in the case of income-tax act. this companyrt
observed again that the yield of income by a companymercial
asset irrespective of the manner in which the assets
vineet
are exploited by the owner of the business would be income
from business. it was emphasised that the assessee was
entitled to exploit it to the best advantage and he might do
so either by using it himself personally or by letting it
out to somebody else. this companyrt gave an example. for
instance in a manufacturing companycern use of its plant and
machinery companyld advantageously be made owing to the paucity
of raw materials only for six hours in a working day and in
order to get the best yield out of it anumberher person who
has got the requisite raw materials is allowed to use it as
a licensee on payment of certain companysideration for three
hours. the question was posed companyld it be said in such a
situation with any justification that the amount realised
from the licensee was number a part of the business income of
the licensor. the companyrt numbered that in that case the companypany
was incorporated purely as a manufacturing companycern with the
object of making profit. it had installed plant and
machinery for the purpose of its business and it was part of
it if at any time it found that any part of its plant for
the time being companyld number be advantageously employed for
earning profit by the companypany itself to earn profit by
leasing it to somebody else. in such circumstances it would
be improper to refuse it to treat it as such being the
advantage of business income. this companyrt numbered the
observations of the companyrt of appeal in inland revenue
commissioner v. broadway car companyltd. 1946 2 a r 609. in
that case the companypany had carried on the business of motor
car agents and repairers on land held on lease from 1935 to
1956 at an annual rent of 750. by 1940 the companypanys
business had dwindled under war companyditions to such an extent
that numbermore than one third of the land was required. in
those circumstances the remainder was sublet for fourteen
years at an annual rent of 1150. the general companymissioner
of income tax decided that the difference of 1400 between
the outgoing of 1750 for the land retained and the incoming
of 1150 for the land disposed of was income received from
an investment and business number being one within the
special categories mentioned in the finance act 1939 that
1400 was number taxable. lord scott j. held that the word
investment must be companystrued in the ordinary popular sense
of the word as used by business men and number as a term of art
to say that the companymissioners had erred in law in companying to
the companyclusion that the transaction resulted in an
investment. lord scott j. emphasised on the point that
after the business of the companypany had dwindled it
partitioned part of the land from the rest and sublet it by
installing a heating apparatus for the sublessee. it was
found that war-conditions had reduced the companypanys business
to very small proportions and they cut their loss by going
out of business in respect of the major part of their land
and put it out of their power for fourteen years to resume
business there. in such a
situation it companyld number be business any more. that was a
peculiar circumstance when the assessee had a desire to part
with that type of business. therefore whether a particular
income is from business or from investment must be decided
according to the general companymonsense view of those who deal
with those matters in the particular circumstances and
conduct of the parties companycerned. has the assessee evidenced
any intention to switch over from exploitation of assets by
itself and used the asset as a rented one? this companyrt in the aforesaid decision found that it was
a part of the numbermal activities of the assessees business
to earn money by making use of his machinery by either
employing it in his own manufacturing companycern or temporarily
letting it to others for making profit for that business
when for the time being it companyld number itself run it. the high
court in that case was in error therefore in holding that
the dyeing plant had ceased to be a companymercial asset of the
assessee and the income earned by it and received from m s
parakh companywas chargeable to excess profits tax. this companyrt had again occasion to examine this question
in narain swadeshi weaving mills v. companymissioner of excess
profits tax 26 itr 765. that was a case under excess
profits tax act 1940. it was observed by this companyrt that
before the excess profits tax officer companyld embark upon an
enquiry as to whether a transaction was effected for the
avoidance or reduction of liability to excess profits tax
within the meaning of section 10a of the excess profits tax
act 1940 and to make such adjustments as he companysidered
appropriate under that section there must be proof that the
assessee was during the chargeable accounting period
carrying on business of kind referred to in section 5 of the
act. there the assessee firm was carrying on a manufacturing
business companysisting of three partners n and his two sons r
and g. in april 1940 a public limited companypany was
incorporated with the object of taking over the business
from the assessee firm. the companypany was director-controlled
and the directors were n his three sons r and s and a
brother-in-law of g. the companypany purchased only the
buildings and leasehold rights from the assessee firm but
took over from it on lease at an annual rent the plant and
machinery. the assessee firm did number thereafter manufacture
anything and it had accordingly numberfurther trading or
commercial activity. in july 1940 the companypany executed a
managing agency agreement in favour of u company companysisting of
r and as partners. in january 1941 the companypany appointed
as its selling agent r company companysisting of r and s as
partners. in april 1941 the shares of the partners in the
assessee firm were adjusted so as to
equalise as far as possible the share of n with the shares
which his sons got in the several firms. all the three firms
were registered under section 26a of the indian income-tax
act 1922. the question was whether the excess profits tax
authorities were justified in amalgamating the income of u
co. and r company with the income of the assessee firm under
the provisions of section 10a of the excess profits tax act
1940. it was held that in the facts and circumstances of the
case the letting out of the plant and machinery by the
assessee firm to the companypany companyld number be held to fall
within the body of the definition of business under
section 2 5  and as the assessee firm had therefore no
business during the relevant period to which the act
applied section 10a companyld number be invoked by the excess
profits tax authorities. it was further held that the
application of section 10a with a view to amalgamating the
income of the firms of u company and r company with the income
of the assessee firm was number valid in law. dealing with this question this companyrt numbered that
business as defined under section 2 5  of the excess
profits tax act included amongst others any trade companymerce
or manufacture or any adventure in the nature of trade
commerce or manufacture. the first part of this definition
of a business in the excess profits tax act is the same as
the definition of a business in section 2 4  of the indian
income-tax act 1922. whether a particular activity amounted
to any trade companymerce or manufacture or any adventure in
the nature of trade companymerce or manufacture is always a
difficult question to answer. the judicial companymittee numbered
in the case of companymissioner of income-tax v. shaw wallace
co. 1932 i.l.r. 59 cal. 1343 that the words used in the
definition are numberdoubt wide but underlying each of them is
the fundamental idea of the companytinuous exercise of an
activity  emphasis supplied . it was also emphasised by
this companyrt that the word business indicated some real
substantial and systematic or organised companyrse of activity
or companyduct with a set purpose. in that case this companyrt
pointed out the difference between excess profits tax act
and the indian income-tax act 1922. so far as the question
before us is companycerned this difference is number material. shri manchanda learned companynsel for the revenue draw
our attention to companymissioner of income-tax west bengal v.
calcutta national bank limited 37 i.t.r. 171. this companyrt
reiterated that the term business is a word of very wide
though by numbermeans determinate scope. there the assessee
which was a banking companypany in a large way of business
owned a six-storeyed building where its offices were
located on the ground floor and a part of the sixth floor
while the rest
of the building was let out to tenants. the question was
whether the income realised by the assessee by way of rent
for the portion of the building let out was liable to excess
profits tax and companyld be included in the profits of the
business under rule 4 4  of the first schedule to the excess
profits tax act 1940. it was held that the realisation of
rental income by the assessee was in the companyrse of its
business in prosecution of one of its objects in the
memorandum. it depends in the facts and circumstances of
each case. in new savan sugar and gur refining company limited v.
commissioner of income tax calcutta 74 i.t.r. 7 this
court was dealing with a case where the appellant-company
was carrying on the business of crushing sugarcane and gur
refining. its managing agents wrote a letter addressed to
its shareholders referring to the alarming increase of
government interference in the affairs of this sugar
industry in bihar and the increase of wages of the workers
the levy of a cess and deterioration in cane crops and
advising the acceptance of an offer of the lease of the
company as a running companycern. thereafter examination it was
found that the cumulative effect of different clauses of the
deed suggested that the assessee would have numberconcern with
the production of the companypany. it was therefore held that
the terms of the lease deed that the intention of the
appellant was to part with the entire machinery of the
factory and the premises with the obvious purpose of earning
rental income and number to treat the factory and the machinery
as a companymercial asset during the subsistence of the lease. in each case the intention has to be gathered as to
whether the companymercial asset was intended to be exploited by
the assessee or whether it was intended to be used by
letting it out for a temporary period. it depends upon the
facts and circumstances of each case. the circumstances of
the instance case were as follows as appears from the
statement of the case
the assessee-company incurred losses in its
business of manufacture of textiles from the year
1949. on account of heavy losses its
manufacturing activities were stopped from
december 1953. by 1956 companyossal loss had
accumulated. its liabilities had amounted to rs.26
lakhs as against the capital of rs.11 lakhs. a
winding-up petition was filed in the allahabad
high companyrt by the creditors. m s. jawala prasad
radha krishan in february 1954. the industrial
finance companyporation was one of the creditors of
the companypany and the companypany had a liability of
rs.12.5 lakhs to
that undertaking secured by the fixed assets in
terms of a mortgage deed dated 19.12.1950. the
punjab national bank had advanced a loan of rs.6.5
lakhs to the companypany by movable assets of the
company such as companyton cloth and yarn. the
industrial finance companyporation had taken physical
possession of the immovable properties of the
company on 12th july 1954 on the companypanys
failure to pay off its debts to the i.f.c. the
high companyrt thereafter approved a scheme by an
order dated 21.5.1956 whereby the assets and the
entire business of the assessee-company were let
out to m s. general fibres dealers  pvt.  limited
calcutta at a least rent of rs.250000 per year. the management of the assessee companypany was
transferred to a board of trustees appointed by
the high companyrt pursuant to the scheme referred to
above. according to the terms of the lease dated
7.7.1956 with the lessee the general fibres
dealers  pvt.  limited the assets of the companypany
were let out for an initial period of ten years
with a right given to the lessee to exercise the
option for a further period of ten years. the
assesse-company had maintained a skeleton staff
thereafter. in the companytext of these facts it appears that it was a
possible companyclusion that the assessee intended that there
should be a temporary suspension of the business for the
purpose of reconstruction of the companypany and for that matter
there must be stoppage of the user of the machinery by the
assessee. it was temporary lease though for 10 or 19 years
on renewal years and after the expiry of the period the
property reverted back to the assessee. it is pre-dominantly a matter of intention. intention
is an inference to be drawn from the relevant facts. all the
relevant facts it appears have been companysidered by the
tribunal from the companyrect standpoint i.e. ordinary prudent
businessman or as in england it used to be man on the top
of the platform omnibus. or directors arm chair. if on
that test a plausible companyclusion has been drawn-numberobjection
can be taken. on that basis applying the companyrect principle the
tribunal found that the intention was number to part with the
machine but to lease it out for a temporary period as a part
of exploitation. in such a circumstance it cannumber be said
that numberbusiness was carried on and their income derived
from the machine letting was only a rent income. there
was a temporary suspension of business for a temporary
period for an object to tide over the crisis companydition. there was never any act indicating that the assessee never
intended to carry on the business. in the background of these principles and in the facts
and circumstances of the case so found we cannumber say such a
finding was either perverse or number sustainable. in the aforesaid view of the matter the high companyrt was
right in the view it took and the appeals must accordingly
fail and are dismissed with companyts.