civil appellate jurisdiction civil appeal number 1668
 nt  of 1978.
from the judgment and order dated 15.7.1977 of the
delhi high companyrt in i.t.r. number. 82 83 of 1973.
with
civil appeal number. 77 78  nt  of 1974
from the judgment and order dated 30.7.1973 of the
patna high companyrt in tax appeals cases number. 16 17 of 1972.

c. manchanda and miss a. subhashini for the appellant in

a. number 1668 of 1978.

t. desai harish salve mrs. a.k. verma miss lira
goswami and j.b. dadachandji for the respondent in c.a. number
1668 of 1978.

b. ahuja and miss a. subhashini for the appellant in

a. number 77 78 of 1974.
nemo for the respondents in c.a. number 77 78 of 1974.
the judgment of the companyrt was delivered by
sabyasachi mukharji j. the main question involved in
these appeals is the question of jurisdiction of the high
court to grant stay or pass interim orders in pending
references under section 66 of the indian income-tax act
1922  hereinafter called the act of 1922  and section 256 of
the income tax act 1961  hereinafter called the act of
1961 . these appeals are by special leave from the
judgments of the high companyrts. the main judgment is the
judgment of the delhi high companyrt in the case of l. bansi
dhar and sons v. companymissioner of income-tax new delhi  c.a. number 1668/78 . the question arose in applications filed by
the assessee under section 151 of cpc in two income-tax
references number. 82 and 83 of 1973 relating to the assessment
years 1960-61 and 1962-63 respectively praying that the high
court might be pleased to grant an order of injuction for
restraining the companymissioner of income-tax  i  central
revenue building and or his subordinate officers including
the income-tax officer companypany circle  iii  from enforcing
and or realising the demand raised in the aforesaid
assessment years 1960-61 and 1962-63 and from taking any
steps for the recovery thereof till the disposal of the
references pending in the high companyrt. the assessee is a hindu undivided family. the karta of
the huf is lala bansi dhar. his father lala murlidhar died
in the year 1949 in an air crash. on the death of the
father a sum of rs.249874 was received by lala bansi dhar
from the insurance companypany on account of an accident
insurance policy companyering the risk of the life of the
deceased. the income derived from the said amount was
treated as the income of lala bansi dhar and was assessed in
his personal assessment. lala bansi dhar was married on 3rd
february 1953 and a son tilak kumar was born on 3rd
february 1956. the income from the insurance amount
continued to be assessed in the personal assessment of lala
bansi dhar even after formation of the huf on his marriage
and the birth of a son and companytinued to be so assessed till
the assessment year 1959-60.
in the assessment year 1960-61 for the first time the
income-tax officer treated the income from the insurance
amount as that on the huf and assessed the income in the
hands of the huf. on appeal by the assessee huf the
appellate assistant companymissioner set aside the assessment
holding that the income was the personal income of lala
bansi dhar and number of the huf. against that order the
revenue preferred an appeal to the income-tax appellate
tribunal. a similar appeal was also preferred to the
tribunal by the revenue for the assessment year 1962-63.
both the appeals were disposed of by the tribunal by a
common order on 23rd numberember 1970 whereby it was held that
the income in question was that of the huf and the liable to
be assessed as such. then at the instance of asseasee-huf
the tribunal referred to the high companyrt the following
question under section 256 1  of the income-tax act 1961
as arising out of the said companymon order namely
whether on the facts and in the circumstances of the
case the amount of rs.249874 received by l. bansi dhar
from the insurance companypany on account of the accident
insurance policy companyering the risk to the life of his
father l. murlidhar is companyrectly treated as ancestral
property of the h.u.f. of which l. bansi dhar is the karta? two references were registered as income-tax references
number. 82 and 83 of 1973 and it was in the said references
that the applications for injunction and stay had been filed
by the assesee-huf under section 151 of the companye of civil
procedure invoking the inherent jurisdiction of the high
court. it was stated in the application for stay that for the
subsequent assessment years 1963-64 and 1964-65 similar
appeals had been filed by the revenue before the tribunal
and the same were pending that for the assessment years
1965-66 to 1969-70 however the orders of the appellate
assistant companymissioner were against the assessee and the
assessee-huf had preferred appeals to the tribunal which
were also pending that in the said appeals preferred by the
assessee-huf on application by the assessee the tribunal
had granted stay of the recovery of the tax demanded on
the companydition that the assessee should furnish adequate
security to the satisfaction of the income-tax officer that
since the matter relating to the two assessment years  1960-
61 and 1962-63  was before the high companyrt in references
under section 66 1  of the indian income-tax act
1922/section 256 1  of the income-tax act 1961 similar
order of stay should be granted by the high companyrt and
prejudice would be caused to the assessee if in spite of
full tax being paid by its karta in his personal assessment
the huf is asked to pay tax over again in respect of the
same income. a companynter-affidavit was filed in which a
preliminary objection was raised that under the provisions
of the income-tax act the high companyrt exercised only an
advisory or companysultative jurisdiction and companysequently had
numberjurisdiction or power to grant stay of the recovery of
tax as prayed for in the application and that in fact the
grant of stay by the high companyrt and this companyrt had been
prohibited by the two acts of 1922 and 1961. on merits
however it was admitted that tax had been paid by lala
bansi dhar in his personal capacity on the basis of the same
income which had been returned by him in his individual
income-tax return yet it was admitted that as a result of
the impugned order of the appellate tribunal the income
from the insurance amount was assessable in the hands of the
huf and the huf was obliged to pay the tax unless and until
the question of law referred to the high companyrt was answered
in favour of the assesee and that the assessee would number be
prejudiced if numberstay was granted and the tax was realised
as it would get a refund of the tax paid in case the
references were answered in its favour. the question for determination which fell for
consideration before the high companyrt and which requires to be
considered in these appeals by this companyrt is whether the
court in a reference to it either under section 66 1  of
the act of 1922 or under section 256 1  of the act of 1961
has jurisdiction or power to pass any order granting stay of
recovery of the taxes pending the disposal of the
references. the high companyrt on companysideration of certain matters
rejected the preliminary objection and granted stay of the
realisation of taxes. the high companyrt found that in the
facts and circumstances of the case there should be stay on
terms and the high companyrt granted that stay on companydition that
the assessee should furnish adequate security for the said
amount to the satisfaction of the companycerned income-tax
officer within six weeks from the date of the order of the
high companyrt. the other two matters being civil appeals number. 77 and 78 of 1974 arise out of
the decision of the patna high companyrt where stay was granted
by the patna high companyrt in respect of realisation of tax
pending disposal of the income-tax references. the revenue has companye up to this companyrt challenging the
validity of the decision of the high companyrts that pending
references in income-tax matters to the companyrts either under
section 66 of the act of the 1922 or under section 256 of
the act of 1961 the high companyrts or the supreme companyrt as
the case may be have inherent powers or jurisdiction to
pass any order granting stay or granting injunction staying
the realisation of the amount pending disposal of the
references. incidentally it may be pointed out that at the
bar at the time of hearing of the appeals it was stated by
counsel on behalf of the assessee that in the decision of
the delhi high companyrt ultimately the reference has been
answered in favour of the assessee. so far as the assessee
in that matter is companycerned the question has become
academic. the high companyrt of delhi in its judgment had discussed
all the relevant authorities. the references were pending
under section 66 1  of the act of 1922 for the first two
years in respect of similar appeals for the assessment
years 1965-66 and 1969-70 the references were pending under
section 256 1  of the act of 1961. the scheme of section
66 1  of the act of 1922 as well as section 256 1  of the
act of 1961 are well-knumbern. the high companyrt numbered and as is the case that the act of
1922 did number and the act of 1961 does number companytain any
express provision empowering the high companyrt or the supreme
court to grant stay of recovery of tax including pending
disposal of the reference before it or pass any order in
that respect of the same. therefore the assessee sought to
invoke the inherent jurisdiction or the ancillary powers of
the companyrts. prior to 1918 there was numberprovision for reference to
the high companyrt at all in respect of any decision by the
revenue authorities. in act vii of 1918 section 51
contained this provision under which the chief revenue
authority was empowered to refer a case to the high companyrt
when any question arose regarding the interpretation of any
of the provisions of the act or of any rule made thereunder. the said authority companyld do so  i  either suo motu or  ii
on reference from a subordinate authority or  iii  on the
application of the assessee. this is numberpart of the civil or
appellate authority or revisional jurisdiction of the high
court. section 66 of the act of 1922 companytains similar
provisions like section 149 of the english income-tax act
1918. section 66 of the act of 1922 provides that within
certain time either at the instance of the assessee or at
the instance of the revenue the tribunal might refer a
question of law for the opinion of the high companyrt. it also
empowered the assessee to make an application to the high
court in case the tribunal refused to refer the question
after drawing up a statement of case. it is well-settled
that the fact found by the tribunal were to be accepted by
the high companyrt and in case the high companyrt found that the
facts found by the tribunal were number sufficient the high
court might under sub-section  4  of section 66 require the
tribunal to make such additions thereto or alteration
therein as the high companyrt might direct in that behalf. the
high companyrt upon hearing of any such case should decide the
question of law raised thereby and deliver its judgment
thereon companytaining the grounds on which such decision is
founded and shall send a companyy of such judgment under the
seal of the companyrt and the signature of the registrar to the
appellate tribunal. sub-section  7  of section 66 provides
that numberwithstanding that a reference is made under the
section to the high companyrt income tax shall be payable in
accordance with the assessment made in the case. it is
provided that if the amount of an assessment is reduced as a
result of such reference the amount over-paid shall be
refunded with such interest as the companymissioner may allow
unless the high companyrt on intimation given by the
commissioner within thirty days of the receipt of the result
of such reference that he intends to ask for leave to appeal
to the supreme companyrt or to an authority authorising the
commissioner to postpone payment of such refund until the
disposal of the appeal to the supreme companyrt. section 66a provides for reference to be heard by
benches of high companyrts and appeals in certain cases to this
court. the provisions of companye of civil procedure relating to
appeals to the supreme companyrt as far as might apply in case
of appeals under the section in the like manner as in the
case of appeals by the high companyrt provided that numberhing in
sub-section  3  shall be deemed to have effect on sub-
section  5  or sub-section  7  of section 66. sub-section
 4  of section 66a provides that where the judgment of the
high companyrt is varied or reversed in appeal under the
section effect shall be given to the order of the supreme
court in the manner provided in sub-section  5  and  7  of
section 66 in the case of a judgment of the high companyrt. after the high companyrt and in cases of appeals to the
supreme companyrt the companyrts answer the question in any manner
or give certain opinion. the appellate tribunals would
dispose of the appeals in accordance with the opinions
expressed or answers given by the high companyrts or the supreme
court. therefore under the scheme the appeal is kept
pending before the tribunal and the appellate jurisdiction
is retained by the tribunal but the high companyrt exercises an
advisory or companysultative jurisdiction. under section 256 of 1961 act the provision of
reference to the high companyrt is the same as under section 66
of 1922 act. the slight differences between section 256 of
1961 act and section 66 1  and  2  of 1922 act have been
numbered in kanga palkivalas income tax - 7th edn. - vol i
p.1146. for the present purpose it is number necessary to set
these out in detail. there is provision for reference to the
supreme companyrt under section 257 of 1961 act. by sections 261
and 262 there are provisions for appeal to supreme companyrt
and hearing before supreme companyrt from the decision of the
references in the high companyrts. section 265 enjoins that
numberwithstanding that a reference has been made to the high
court or the supreme companyrt or an appeal has been preferred
to the supreme companyrt tax shall be payable in accordance
with the assessment made in the case. the scheme of 1961 act
so far as the scheme of reference to the high companyrt on a
question of law is companycerned is the same as that of 1922
act. when a question of law arises the tribunal can and in
certain circumstances must seek at the instance of the
assessee or in its own motion or at the instance of the
revenue the opinion of the high companyrt on such a questions. the jurisdiction exercised by the high companyrts is purely
advisory it is neither of a civil companyrt exercising
original number of any appellate or revisional jurisdiction. therefore the powers and jurisdiction of the high companyrts
and in certain cases of the supreme companyrt are those which
are expressed and companyferred upon them and also those which
inher in the exercise of that jurisdiction or are ancillary
or those which sub-serve the exercise of that function and
jurisdiction of giving advice. the appeal is kept pending
before the appellate tribunal. in tata iron steel company limited v. chief revenue
authority of bombay 1923 privy companyncil 50 indian appeals
212 the judicial companymittee had to companysider the question
whether the function of the high companyrt under these
provisions was advisory or number. the judicial companymittee
decided that such advice was number judgment within the meaning
of clause 39 of the letter patent of the high
court of bombay. the use of the expression determination
was number decisive as to whether the decision was merely
advisory or number. the decision or order made by the companyrt
under section 51 was merely advisory. this view was re-
affirmed in companymissioner v. bombay trust companyporation 1936

i.r. privy companyncil 269 63 indian appeals 408. it is for
this reason that section 66a of the 1922 act expressly
provided for an appeal from a decision of the high companyrt
under section 66 of the said act. the high companyrt numbered that
neither 1922 act number 1961 act did companytain any express
provision empowering the high companyrt or the supreme companyrt to
grant stay or recovery of tax pending disposal of the
reference before it. the high companyrt in the decision under
appeal held that it had inherent jurisdiction under section
66 of 1922 act or under section 256 of 1961 act to grant
stay pending disposal of the reference. the high companyrt
referred to the several decisions some of which will have to
be numbericed here. thereafter on companysideration of the relevant
facts the high companyrt granted the stay in the instant case
as numbered before. reliance was placed by the high companyrt on the decision
of the andhra pradesh high companyrt in polisetti narayana rao

commissioner of income-tax hyderebad 29 i.t.r. 222. the
andhra pradesh high companyrt referred to the decision in the
case of hukum chand boid v. kamalanand singh  1906  i.l.r. 33 cal. 927 and referred to the observations of woodroffe
j. where he posed the question as to whether the power
vested in the high companyrt under section 151 of the companye of
civil procedure was wide enumbergh to apply to a case like the
present. it was numbered that the decision was approved and
followed by the madras high companyrt in several cases as was
numbered at page 226 of 29 i.t.r. it was further pointed out
that article 227 was wide enumbergh to include such power. the
judgment of that companyrt was delivered by bhimasankaram j.
subba rao c.j. of the andhra pradesh high companyrt was a party
to that decision. it may however be pointed out that in
the facts and circumstances the companyrt found that the
assessee was number entitled to any relief pending the disposal
of the reference. as pointed out before that reliance had
been placed by the andhra pradesh high companyrt on the decision
in hukum chand boids case  supra . it is necessary
therefore to discuss that decision. the said case was
concerned with the nature of the jurisdiction and the ambit
of powers under section 583 and 546 of the companye of civil
procedure 1882 as it stood at the relevant time. the
division bench of the calcutta high companyrt companysisting of
woodroffe and mookherjee jj. held that under the principle
indicated by section 583 of the companye of civil procedure a
decree for reversal
necessarily carried with it the right to restitution of all
that had taken under the erroneous decree and the appellate
court having seisin of the appeal had as ancillary to its
duty to grant restitution an inherent power in the exercise
of which it companyld numberwithstanding that the decree appealed
against had been executed call upon the respondent to
furnish security for the due performance of any decree which
might be made on the appeal. after discussing the facts the
court held that the companye of civil procedure bound the companyrts
so far as it went. the companye was number exhaustive and did number
affect the previously existing powers unless it took these
away in matters with which it did number deal the companyrt companyld
exercise an inherent jurisdiction to do that justice between
the parties which was warranted under the circumstances and
which the necessities of the case required. there was
difference of opinion between woodroffe j. and mookerjee j.
on the scope of applicability of section 546 of the companye of
civil procedure. justice woodroffe at page 931 of the report
observed-
the companyrt has therefore in many cases where
the circumstances require it acted upon the
assumption of the possession of an inherent power
to act ex debito justitiae and to do that real and
substantial justice for the administration for
which it alone exists. similarly justice mookerjee observed at page 941 of the
report as follows-
it may be added that the exercise by companyrts of
what are called their inherent powers or
incidental powers is familiar in other systems
of law and such exercise is justified on the
ground that it is necessary to make its ordinary
exercise of jurisdiction effectual because when
jurisdiction has once attached it companytinues
necessarily and all the powers requisite to give
it full and companyplete effect can be exercised
until the end of law shall be attained  see works
on companyrts and their jurisdiction section 27 and
wells on jurisdiction of companyrts chapter xvii . these observations however will have to be understood
in the companytext in which the same were made. if there was
jurisdiction to do certain matter then all powers to make
that jurisdiction effective must be implied to the authority
unless expressly prohibited. but in references under 1922
act as well as
1961 act the companyrts merely exercise an advisory or
consultative jurisdiction while the appeals are kept pending
before the tribunal therefore numberhing should be implied as
distracting from the jurisdiction of the tribunals. power to
grant stay is incidental and ancillary to the appellate
jurisdiction. what was true of the appellate jurisdiction
could number be predicated of the referential jurisdiction. -
see the observations of the majority judgment of the delhi
high companyrt in narula trading agency v. companymissioner of sales
tax 1981 47 s.t.c. p.45 though made in the companytext of
different statutory provisions. this decision of andhra pradesh high companyrt was numbericed
by this companyrt in income-tax officer cannanumbere v. m.k. mohammed kunhi 71 i.t.r. 815. that decision requires a
little closer examination. this companyrt in that decision was
dealing with section 254 of the act of 1961 which companyferred
on the appellate tribunal powers of the widest amplitude in
dealing with appeals before it. this companyrt held that power
granted by implication the power of doing all such acts or
employing such means as were essentially necessary to its
execution. the statutory power under section 254 carried
with it the duty in proper cases to make such orders for
staying recovery proceedings pending an appeal before the
tribunal as would prevent the appeal if successful from
being rendered nugatory. section 254 carried with it the
appellate powers of the appellate tribunal. this companyrt while
interpreting that power referred to the sutherlands
statutory companystruction of third edition articles 5401 and
5402. in domats civil law  cushings edition  volume 1
at page 88 maxwell on interpretation of statutes eleventh
edition and case to the companyclusion that where the power was
given to an authority incidental powers to discharge that
authority were implied in the grant of that power. this
court numbered that the income-tax appellate tribunal was number a
court but exercised judicial powers. the companyrt numbered that
there were certain decisions in which difficulties were felt
that the appellate tribunal did number possess the power to
stay recovery during the pendency of an appeal. reference
was made to a decision of the andhra pradesh high companyrt in
the case of vetcha sreeramamurthy v. the income-tax officer
vizianagaram and anumberher 30 i.t.r. 252 where viswanatha
sastri j. observed that there was numberconfinement of an
express power of granting a stay of realisation of the tax
number was there any power allowing the tax to be paid in
instalments. the learned judge observed that neither the
appellate assistant companymissioner number the appellate tribunal
was given the power to stay the companylection of tax. therefore according to the learned judge
whether the law should number be made more liberal so as to
enable an assessee who has preferred an appeal to obtain
from the appellate forum a stay of companylection of tax
either in whole or in part on furnishing suitable security
was a matter for the legislature to companysider. referring to
the decision in pollisetti narayana rao v. companymissioner of
income-tax  supra  this companyrt made an observation to the
effect that the same high companyrt held that stay companyld be
granted by it pending reference of a case by the appellate
tribunal to the high companyrt. this power the high companyrt had
under section 151 of the civil procedure companye and under
article 227 of the companystitution. this passage in our
opinion cannumber be taken as approving the observations of the
andhra pradesh high companyrt in pollisetti narayana raos case
 supra . this companyrt was dealing with the power of the
appellate authority i.e. the appellate tribunal. therefore
that would be an entirely different question. the appellate
authority must have the incidental power or inherent power-
inherent for the disposal of an appeal to grant a stay or
number to grant a stay. the high companyrt in our opinion as was companytended by the
revenue in answering a question under section 66 of 1922 act
or section 256 of 1961 act does number exercise original
appellate or revisional jurisdiction but only advisory
jurisdiction. see the observations of the judicial companymittee
in tata iron steel company limited v. chief revenue authority
bombay  supra . it is only companysultative neither original
number appellate. in new jehangir vakil mills limited v. companymissioner of
income-tax bombay numberth kutch and saurashtra 37 i.t.r. 11
this companyrt held that the high companyrt cannumber direct the
tribunal to find new facts or raise a new question of law or
embark a new line of enquiry. in companymissioner of income-tax bombay v. scindia steam
navigation company limited 42 i.t.r. 589 a bench of five judges of
this companyrt was of the view that reference jurisdiction or
special jurisdiction is different from appellate or
supervisory jurisdiction. the jurisdiction of the high companyrt
in a reference under section 66 of 1922 act was special one
different from its ordinary jurisdiction as a civil companyrt. the high companyrt hearing a reference under that section did
number exercise any appellate or revisional or supervisory
jurisdiction over the tribunal. it acted purely in an
advisory capacity on a reference which properly came before
it under section 66 1  and  2  of 1922 act. this companyrt numbered
that the high companyrt gives the tribunal advice
but ultimately it is for the tribunal to give effect to that
advice. this companyrt further observed that it was of the
essence of such a jurisdiction that the companyrt shall decide
only questions which were referred to it and number any other
questions. this companyrt was however of the view that the
power of the companyrt to issue a direction to the tribunal
under section 66 2  of the act of 1922 was in the nature of
a mandamus and it was well settled that numbermandamus would be
issued unless the applicant had made a distinct demand on
the appropriate authorities for the very reliefs which he
sought to enforce by mandamus and that had been refused. this question was again companysidered by this companyrt in
petlad turkey red dye works company limited companymissioner of income-
tax bombay numberth 48 i.t.r. 92. this companyrt observed at page
98 of the report that the jurisdiction of the high companyrt was
confined to giving an opinion. it was purely advisory and
the high companyrt had numberjurisdiction to direct the tribunal to
take fresh evidence. in c.p. sarathy mudaliar v. companymissioner of income-tax
andhra pradesh 62 i.t.r. 576 this companyrt numbered that the high
court cannumber set aside the order of the tribunal and the
high companyrt does number sit in appeal over the judgement of the
tribunal. if the high companyrt found that the material facts
were number stated in the statement of case or the tribunal
had number stated its companyclusion on material facts the high
court might call upon the tribunal to submit a supplementary
statement of case under section 66 4  of 1922 act. it may be
mentioned that it would be incidental to answering the
question. in the case of companymissioner of income-tax bombay city
i v. greaves companyton and company limited 68 i.t.r. 200 this companyrt
numbered that it was well settled that the high companyrt was number a
court of appeal under reference under section 66 of 1922 act
or under section 256 of 1961 act and it was number open to the
high companyrt in such a reference to embark upon a re-appraisal
of the evidence and the facts found by the tribunal must be
accepted by the high companyrt. a full bench of the kerala high companyrt in the case of k.
ahamad v. companymissioner of income-tax kerala 96 i.t.r. 29
held that the high companyrt had power to delete under section
256 of 1961 act an erroneous sentence in the judgment. the
full bench held that the companyrts were companystituted for the
purpose of doing justice and should have power that is
inherent to the discharge of the function and that these
must have power akin to companyrect accidental slips. the full
bench therein acted on the principle that numberact of the
court should ever injure a party. a learned single judge of the bombay high companyrt in the
case of jatashankar dayaram v. companymissioner of income-tax
101 i.t.r. 343 held that application for a reference under
section 256 2  of 1961 act in forma pauperis can be
permitted. this would be incidental or ancillary to the
discharge of the function of giving advice companyferred under
section 66 of 1922 act. this companyrt in the case of jaipur mineral development
syndicate v. companymissioner of income-tax new delhi 106

t.r. 653 at 656 held that reference which was dismissed
for paper books number being filed in time companyld be restored. it is companymon ground that jurisdiction companyferred upon
the high companyrt under the income-tax act is neither original
number appellate. the jurisdiction which it exercised in
dealing with the income-tax reference was advisory and is a
special jurisdiction. it was companytended on behalf of the assessee that the
high companyrt was a companyrt when it exercised its special
jurisdiction and it was well settled that the high companyrt
while hearing a reference under a taxing statute had
inherent power to make all such orders as it would be
necessary to do justice where the circumstances of the case
so required and for this reliance was placed on the
observations of this companyrt in the case of jaipur mineral
development syndicate v. companymissioner of income-tax new
delhi  supra . but as has been numbericed before the power that
was exercised was for properly giving advice. the allahabad high companyrt in sridhar v. companymissioner of
wealth-tax 153 i.t.r. 543 at 547 observed that only power
that high companyrt companyld exercise under section 27 of the
wealth-tax act 1957 was similar to section 66 of 1922 act
i.e. to give opinion about the questions referred to it in
an advisory capacity by answering the questions in favour of
the assessee or the revenue as the case might be. even
while hearing a reference under a taxing statute the high
court has certain inherent powers. but the extent and scope
of the inherent power which can be exercised by an appellate
or revisional companyrt cannumber be the extent and scope of the
inherent power of the high companyrt while exercising an
advisory jurisdiction such as is companyferred by section 27 of
the act. the inherent power which the high companyrt can
exercise while hearing a reference under section 27 must be
confined to the procedure about the hearing of a reference
and to passing such orders as are ancillary or incidental to
the advice which the
high companyrt proposes to give while answering the questions. while hearing a reference under section 27 the allahabad
high companyrt further held that the high companyrt did number have the
further inherent power to pass interim orders restraining
the orders of aac or by the tribunal being given effect to. it was further held that what the high companyrt companyld number do at
the time of passing the final order it companyld certainly number
do as an interim measure in the purported exercise of its
inherent power. it is true that the high companyrts sometimes act on the
assumption that it possessed inherent power to act ex debito
justitiae and to do real and substantial justice for which
alone these existed where the circumstances of the case so
required the power related to matters of procedure and number
substantive rights of the parties. see in this companynection
manumberar lal chopra v. rai bahadur rao raja seth hiralal
1962 1 supp. s.c.r. 450 where this companyrt a page 463 of
the report referred to section 151 of the companye of civil
procedure and observed that the section itself said that
numberhing in the companye should be deemed to limit or otherwise
affect the inherent power of the companyrt to make orders
necessary for the ends of justice. this inherent power as
was observed by this companyrt had number been companyferred on the
court. it was a power inherent in the companyrt by virtue of its
duty to do justice between the parties before it. further the companye itself recognised the existence of the
inherent power of the companye there was numberquestion of
implying any powers outside the limits of the companye. see also
padam sen and anr. v. the state of uttar pradesh 1961 1

c.r. 884 at 887.
the special jurisdiction of the high companyrt under
section 256 does number deprive it of judicial character or its
inherent power it was submitted. this in our opinion does
number solve the question because the high companyrt in answering
reference indubitably acts in judicial capacity and must be
implied to have powers which are necessary to discharge the
obligations in exercising its jurisdiction of giving advice
conferred by the special provisions of the statute. it was
further submitted that the extent and scope of that inherent
power companyld number be companyfined to a straight jacket. it took
within its ambit the power to grant stay of proceedings
before the companyrt as it deemed necessary to do for the ends
of justice. the high companyrt companyld exercise such power to
grant stay it was submitted where the legislature had number
denied or excluded the same in unmistakable terms. but this
was number clear because of the language. it was stated that
pendency of a
reference would number stay the realisation indicates that
reference has numberhing to do with the stay of realisation. the realisation of number-realisation of tax is part of the
appellate jurisdiction of the tribunal. it was however
submitted that the inherent power of the high companyrt and also
of the supreme companyrt had number been excluded by the general
provision in section 265 of 1961 act which stated that
numberwithstanding that a reference has been made to the high
court or the supreme companyrt or an appeal has been preferred
to the supreme companyrt tax shall be payable in accordance
with the assessment made. this section it was submitted
did number impose any embargo on the inherent power. it was
submitted that section 265 of 1961 act as regards reference
made to the high companyrt is in pari materia with section
66 7  which also related to reference to the high companyrt. section 66 7  was interpreted by the andhra pradesh high
court in pollisetti narayana rao v. companymissioner of income-
tax  supra . it was submitted that legislature by adopting
the identical language in 1961 act must be regarded as
having accepted it in section 265 of 1961 act. it was
submitted that while in re-enacting similar provisions of
section 66 7  in section 265 the legislature must be
regarded as intending the same meaning to the pari material
expression in the 1961 act. for this reliance was placed on
the observations of house of lords in the case of barras v.
aberdeen steam trawling and fishing company limited 1933 a.e.r. 1933 a.c. 402 where it was held that once certain words in
an act of parliament had received a judicial companystruction in
one of the superior companyrts and the legislature repeated
these without any alteration in a subsequent statute the
legislature must be taken to have used them according to the
meaning which a companyrt of companypetent jurisdiction had given to
them. lord macmillan however observed that this rule of
interpretation afforded only a valuable presumption as to
the meaning of the language employed in a statute. where a
judicial interpretation is well settled and well recognised
the rule ought doubtless to receive effect but must be a
question of circumstances whether parliament was to be
presumed to have tacitly given statutory authority to a
single judgment of a companypetent companyrt so as to render that
judgment however obviously wrong unexaminable by the
highest companyrt. therefore in this case only solitary decision of the
andhra pradesh high companyrt which was number in all subsequent
cases followed and which in a way was companytrary to several
decisions of the other high companyrts as well as this companyrt
cannumber be said to have received parliamentary acceptance. the attention of the andhra pradesh high companyrt was number drawn
to the decision of this companyrt in seth
premchand satramdas v. state of bihar 19 i.t.r. 108 where
dealing with the nature of the jurisdiction of the companyrts in
reference matters under sales tax act this companyrt observed
that the high companyrt acquired jurisdiction to deal with the
case by virtue of an express provision of the bihar sales
tax act. jurisdiction was only companysultative neither original
number appellate. the calcutta high companyrt in the case of dwarka prasad
baja v. companymissioner of income-tax west bengal-i 126 i.t.r. 219 observed that in exercising its jurisdiction under
section 256 of the income-tax act 1961 the high companyrt did
number act as a companyrt of appeal as the income-tax appellate
tribunal does under section 254 of the act. the high companyrt
in disposing of the reference companyld only answer the
questions actually referred and companyld number raise any question
by itself. the findings of fact by the tribunal were final
so far as the high companyrt was companycerned and only on limited
grounds such findings of fact companyld be challenged. after the
judgment of the high companyrt is delivered the tribunal has to
pass necessary orders to dispose of the case in companyformity
with the judgment under section 260 of the act. the high
court exercised a very limited jurisdiction. it did number
dispose of the entire matter but its decision was companyfined
only to the questions of law as arise from the order of the
tribunal. therefore it companyld number be said that the high
court exercised its general jurisdiction under article 227
of the companystitution in dealing with a reference. if the high
court companyld in such case exercise its powers under equity
jurisdiction and grant a temporary injunction or a stay it
would have to ascertain and to go into facts for which the
income-tax act 1961 did number make any provision. moreover
issuance of orders permitting companylection or recovery of tax
or staying such companylection or recovery if made under
exercise of inherent power would result in extension of the
jurisdiction of the high companyrt under section 256 of the act
of 1961. the calcutta high companyrt further was of the view
that a companyrt companyld number vest itself with such additional
jurisdiction by invoking its inherent powers. hence the
court in seisin of a reference under the i.t. act companyld number
issue an order of temporary injunction according to the
calcutta high companyrt or stay of proceedings which was an
injunction in an indirect manner in respect of recovery of
taxes. in an appropriate case if the assessee feels that a
stay of recovery pending disposal of the reference is
necessary or is in the interest of justice then the
assessee is entitled to apply before the appellate authority
to grant a stay until disposal
of reference by the high companyrt or until such time as the
appellate authority thought fit. but in case the appellate
authority acted without jurisdiction or in excess
jurisdiction or in improper exercise of the jurisdiction
then decision of such appellate authority can be companyrected
by the high companyrts by issuing appropriate writs under
article 226 and 227 of the companystitution. it has to be borne in mind that in answering questions
or disposing of references either under section 66 of 1922
act or section 256 of 1961 act the high companyrts do number
exercise any jurisdiction companyferred upon them by the companye of
civil procedure or the charters or by the acts establishing
respective high companyrts. in respect of certain matters
jurisdictions exercised by the high companyrt must be kept
separate from the companycept of inherent powers or incidental
powers in exercising jurisdiction under section 66 of 1922
act or 256 of 1961 act. section 66 of income-tax act of 1922
or section 256 of income-tax act of 1961 is a special
jurisdiction of a limited nature companyferred number by the companye
of civil procedure or by the charters or by the special acts
constituting such high companyrts but by the special provisions
of income-tax act 1922 or 1961 for limited purpose of
obtaining high companyrts opinion on questions of law. in
giving that opinion properly if any question of incidental
or ancillary power arises such as giving an opportunity or
restoring a reference dismissed without hearing or giving
some additional time to file paper book such powers inhered
to the jurisdiction companyferred upon it. but such incidental
powers can number be so companystrued as to companyfer the power of
stay of recovery of taxes pending a reference which lie in
the domain of an appellate authority. therefore the companycept
of granting stay in a reference ex debito justitiae does number
arise. that companycept might arise in case of the appellate
authority exercising its power to grant stay where there is
number express provision. ex debito justitiae is to do justice
between the parties. rendering advice on the question of law referred to the
courts has numberhing to do with the recovery of tax or
granting stay in respect of the same. therefore in our opinion it cannumber be said that the
high companyrt had inherent power or incidental power in the
matter of a reference pending before it to grant stay of
realisation or to grant injunction. that must remain within
the jurisdiction of the appellate authority and pendency of
a reference does number detract
from that jurisdiction of the appellate authority. in our
opinion therefore the high companyrt was in error in
exercising its jurisdiction by passing an order for stay of
realisation under section 151 of the companye of civil procedure
in a pending reference. the high companyrt companyld have exercised
its power if the appellate authority had number properly
exercised its jurisdiction number in reference jurisdiction
but by virtue of its jurisdiction under article 226 or
article 227 in appropriate cases. but that was number the case
here. in that view of the matter we are in respectful
agreement with the views expressed by the allahabad high
court in sridhar v. companymissioner of wealth-tax  supra  and
the views of the calcutta high companyrt in dwarka prasad baja

commissioner of income-tax west bengal-i  supra  and we
are unable to sustain the views expressed by andhra pradesh
high companyrt in polisetti narayana rao v. companymissioner of
income-tax hyderabad  supra .


civil appellate jurisdiction civil appeal number. 1386-91
of 1977
appeals by special leave petitions from the judgment
and order dated 1st december 1976 of the karnataka high
court in s.t.r.p. number. 24-29 of 1975.  t. desai s.j. chandran mrs. a.k. verma for the
appellant. s. javali and swaraj kaushal for the respondent. the judgement of the companyrt was delivered by
sabyasachi mukharji j. these appeals by special leave
are from the judgment and decision of the high companyrt of
karnataka dated 1st december 1976 involving the questions
of assessability of the appellant sales tax central as well
as state. while granting leave this companyrt excluded the
question whether the sales effected in the canteen by the
appellant were assessable to sales tax. by the impugned
judgment the high companyrt of karnataka had dismissed several
writ petitions against several orders being s.t.r.ps. number. 28 27 and 29 of 1985 under the karnataka sales tax act for
the year 1960-61 1961-62 and 1962-63 respectively and also
three others namely s.t.r. ps. number. 25 26 and 24 of 1975
under the central sale tax act for the companyresponding years
respectively at the instance of the present appellant. these involved companymon questions of law and facts and were
disposed of by a companymon judgment. we also propose to do the
same. as stated one of the questions was about the
taxability of the turn-over in respect of the sales made in
the canteen of the appellant companypany. this question is number
before us. before the tribunal the two following questions
relevant for appeals before us were agitated namely

whether the turnumberer apportioned from the job
works undertaken by the appellant related to the
sales of materials by the appellant to the indian
air force or other private parties as the case
may be and as such whether these were taxable as
held by the ower appellate authority. whether in the case of job works undertaken from
the private parties mainly on quotation on
inclusive price-basis the sales tax authorities
were right in apportioning a portion of the
turnumberer as attributable towards sales of
materials. in order to appreciate the companytroversy in these
appeals it is necessary to state certain facts. the
appellant is a manufacturer of spare parts and accessories
of various aircrafts and has also established facilities for
assembling servicing repairing overhauling of aircrafts
their instruments and accessories. the sales tax authorities
sought to subject to tax that portion of the total turnumberer
of the appellant for the relevant years in question which
was equivalent to the money value of the spare parts to the
aircrafts which the appellant supplied to the indian air
force as a result of their use in the process of repairing
servicing and overhauling of the aircrafts their
instruments and accessories which were sent to the appellant
for the aforesaid purposes during the relevant years in
question. at the outset it is important to emphasise that the
jobs done by the appellant were servicing assembling
repairing and overhauling airforce planes entrusted to the
appellant. in the second appeal being civil appeal number 1387
 nt  of 1977 the main job done was assembling sales tax
was levied in respect of the turnumberer for doing the same
job. these works were done on the basis of companytracts or job
orders issued from time to time. while numbercontract directly
concerning the repairing servicing and overhauling of a
specified aircraft instrument or accessary in which the
spare parts had been used in the execution of service
contracts was on record there is however a specimen
contract that was entered into between the appellant and

a.f. being agreement dated 23rd june 1951 hereinafter
referred to as 1951 companytract. the agreement is described
as companytract for the flight servicing and maintenance of the

q. training companymand i.a.f. companymunication flight. the
agreement was between hindustan aircraft limited described
in the agreement as the companytractor and the president of
india described in the agreement as the owner. it may be
mentioned that the hindustan aircraft limited has later on
become the appellant i.e. m s hindustan aeronautics limited. as the companytentions of the parties in these appeals centered
on the question whether the companytracts in question the
income of which has been subjected to sales tax were works
contracts only or were agreements to sell spare parts it
would be relevant to refer in detail to some of the clauses
of the 1951 companytract. the agreement states that the companytractor agrees to
accomplish for the owner the servicing and maintenance of
the h.q. training companymand i.a.f. companymunication flight and
works required on visiting aircrafts to the standard as
specified in the said agreement at bangalore or at any other
place required by the owner. then the specifications
according to which the works had to be done were mentioned
thereafter. the agreement also provides that the works would
be carried out by the companytractor and payment made by the
owner at companyt plus 10 profit basis or at the companytractors
standard fixed rates where applicable. sub-clause  b  of
clause 2 provides that any additional works to those
specified in clause i items  a   b  and  c  authorised by
air headquarters should also be charged for separately as
per sub-clause  a  of clause 2 of the agreement. as the question of the price of the spares and
materials is involved it is necessary to set out clause 3
which deals with spares and materials
generally the owner will provide the companytractor
with all the necessary spares and materials  other than
expendable materials such as paints dopes cleaning
rages etc. . where however there is delay in the
supply of essential items the companytractor will provide
those wherever possible either by purchase or
manufacture within an expenditure authorised by the
owners deputy financial adviser at the companytractors
request from time to time. all items provisioned by the
contractor will be the property of the owner and will
be issued on companytract loan. the owner agrees to pay the
contractor for provision of spares at the following
rates-
 a  for items manufactured by the companytractor-cost plus
 b  for items purchased from indigenumbers and overseas
sources-actual invoice price plus all other
charges the companytractor is called upon to pay such
as packing and shipping etc. plus 5.
regarding technical advice and publications clause 4
of the 1951 agreement stipulated that all relevant service
publications and manuals would be made available on loan to
the companytractor through i.a.f. liaison officer attached to
the companytractors factory. regarding delivery it was
provided by clause 5 that subject to the owners companypliance
with clause 3 the companytractor would keep ready for flight as
many of the available planes as possible. clause 6 of 1951 agreement deals with terms of payment
and stipulated that the companytractor would submit to the owner
monthly bills as per clause 2 a  supported by companyt analysis
showing inter alia of certain details and the details are
set out in different sub-clause mentioned in clause 6 of the
agreement. the other incidental provisions of clause 6 are
number relevant for the companytroversy in question. clause 7 of
the 1951 agreement dealt with indemnity for loss or damage
which is number relevant for our purposes. clause 8 dealt with
right to cancel the agreement clauses 9 and 10 provided for
inspection. clause 11 prohibited the companytractor the
appellant from in any way assigning or transferring any
rights or benefits under the agreement except with the
previous companysent of the owner in writing. clauses 12 13 and
14 are also number relevant for our purpose. we may mention that reliance was also placed on behalf
of the appellant on an affidavit by one shri s. krishna
murthy who was the sales officer of the overhaul division of
the appellant companypany and which affidavit had been filed
before the sales-tax tribunal in mysore bangalore. in the
said affidavit he had described the nature of the works
done by the appellant in companynection with repairs and had
mentioned that two types of works were done one was
overhaul of aircrafts accessories and equipments thereof
and the other knumbern as fixed quotation basis. it is number
necessary to refer to the said affidavit in detail. he had
mentioned in the said affidavit the procedure for preparing
the bills and had stated that after the works were
completed a final inspection of the repairs done was
checked by the works inspection department whereafter
delivery orders were prepared and thereafter he described
how bills were prepared thus
after the work is companypleted a final inspection
of the repair done is checked by the works inspection
department whereafter a delivery order is prepared and
the billing section prepares the bill. as it is
required by the defence audit purposes the labour
charges and material charges are shown which is worked
out on companyt plus 10 basis. in the case of private aircraft owners and other
airlines for a similar companytract for repairs we give a
fixed price quotation unlike in the case of repairs to
defence aircraft which by virtue of the companytract is on
cost plus 10 basis wherein a break up had to be given
as aforementioned for purposes of defence audit. the sales tax authorities sought to tax that portion of
the total turnumberer of the appellant for the relevant years
in question which was equivalent to the money value of the
spare parts of the aircrafts which it had supplied to the
indian air force as a result of their use in the process of
repairing servicing and over-hauling of the aircrafts
their instruments and accessories which were sent to the
appellant for the said purpose during the relevant years in
question. the works undertaken and executed by the appellant
in assembling repairing servicing and overhauling were on
cost plus 10 profit basis as well as on fixed inclusive
quotation basis. the appellant with regard to the latter
types of companytracts succeeded before the appellate tribunal
who held such companytracts to be exclusively works companytract. the companytroversy before the high companyrt and before us in these
appeals is only with regard to the first category of
contracts which the appellate tribunal held to be companyposite
contracts. the appellant companytended that so far as the supply
of spare parts to the indian air force during the relevant
period was companycerned there had been numbersale of the spare
parts to the i.a.f. for that spare parts in question were
used during the companyrse of and in the process of execution of
the works companytracts relating to the servicing repairing and
overhauling of the aircrafts their instruments and
accessories and that there was numbersale companytracts as such in
pursuance whereof the spare parts in question companyld be said
to have been sold to the i.a.f. the tribunal had negatives
the companytention of the appellant and the appellant had gone
up in revision before the high companyrt. the high companyrt was of
the view that whether the supply of the spare parts by the
appellant would amount to sale or number would depend on the
fact as to whether there was a sale companytract between the
appellant and the i.a.f. in that regard. the high companyrt was
of the view that
in the light of certain documents which we would also
incidentally numbere it companyld number be said that supply of spare
parts and other materials was number in companytemplation of the
contracting parties and the spare parts in question became
the property of the owner i.e. i.a.f. only by way of
accretion to the aircrafts for being used in the process of
executing the companytracts and number as a result of the agreement
between the companytracting parties. the high companyrt referred to
certain decision and came to the companyclusion that in the
present case what was sought to be brought within the
purview of sales tax act was the companyt to the vendees of the
spare parts supplied by the appellant. in such a case the
high companyrt was of the view that the stage at which the
property therein passed to the owner was number material. what
was material was as to whether the goods in question were
the property of the assessee before the same became the
property of the president of india under the companytracts. dealing with the companytention of the parties the high
court was of the view that in providing separately the basis
of payment of spare parts in the companytracts the intention of
the parties was clear and unambiguous i.e. the parties
clearly agreed to the sale of spare parts according to the
contract. certain invoices were placed on record namely
the invoice dated 28.2.1962 being invoice number ht2/cat.b f-1
which indicated separately the labour charges being rs. 26837.69 and materials and spares used by the appellant as
per schedule attached as rs. 32187.92 reference was also
made to anumberher invoice dated 31.3.1962 which had also
mentioned separately labour charges as well as the companyts of
the materials and spares. to the same effect was anumberher
invoice dated 28-2-1962. the tribunal was of the view that
these invoices supported the companyclusion that the labour
charges had been separately itemised from the price of the
spare parts and whenever any spare parts had been provided
by the i.a.f. authorities the price thereof had been
deducted indicating that the spare parts supplied by the
appellant. for the aforesaid reasons as indicated in the
judgment of the high companyrt the high companyrt was of the view
that sale of spare parts was clearly in companytemplation of the
parties and the documents in question companystituted companyposite
contracts one relating to the remuneration for the services
rendered and the other for the sale of goods. in that view
of the matter the high companyrt was of the view that the
tribunal was right in dismissing the appeals of the
appellant on the particular turnumberer of the appellant. the question before us is therefore whether the
payments made for spare parts in executing the companytracts in
question were also
sales companytracts or were part of one companytract of executing
the works companytracts. on behalf of the appellant it was urged before us
referring to the terms of the companytracts which are more or
less in the form of 1951 companytract mentioned before that
the companytracts in question manifested the clear intention
that in substance and reality these were agreements to carry
out works of assembling repairs servicing and overhauling
of the aircrafts being the property of the indian air force. we must emphasise that the property in such planes was and
had all along companytinued to remain with the air force. relevant companytracts and the whole transactions between the
parties indicate that the materials used in the process of
such assembling repairs servicing and overhauling were
either supplied by the indian air force or were of the
appellant the bulk was supplied by the govt. the question
therefore is was it the intention to do the works
undertaken as one job or number. companynsel on behalf of the
appellant companytended that that was the intention and there
was numberintention whatever to pass any property in any
chattel qua chattel. it is well settled that the difference between companytract
of service and companytract for sale of goods is that in the
former there is in the person performing work or rendering
service numberproperty in the things produced as a whole
numberwithstanding that a part or even the whole of materials
used by him had been his property. in the case of a companytract
for sale the thing produced as a whole has individual
existence as the sole property of the party who produced it
some time before delivery and the property therein passed
only under the companytract relating thereto to the other party
for price. it is necessary therefore in every case for the
courts to find out whether in essence there was any
agreement to work for a stipulated companysideration. if that
was so it would number be a sale because even if some sale may
be extracted that would number affect the true position. merely
showing in the bills or invoice it was companytended on behalf
of the appellant the value of materials used in the job
would number render the companytract as one of sale. the nature and
type of the transactions are important and determinative
factors. what is necessary to find out in our opinion is
the dominant object. it was urged before us that companytract of sale is one
whose main object was to transfer property in and the
delivery of the possession of a chattel to the buyer. if the
principal object of works undertaken by the party was a
transfer of a chattle qua chattel the companytract would
be for sale. it is necessary to find out whether the
contract was primarily a companytract for supply of materials at
a price agreed to between the parties and the work or
service rendered is only incidental to the execution of the
contract. mere transfer of property in goods used in the
performance of a companytract was number sufficient. to companystitute
a sale there must be an agreement expressed or implied
relating to the sale of goods and the performance of the
agreement by passing of title in those very goods. on behalf of the respondent companynsel companytended that the
spare parts in question had been supplied by the appellant
against payment of price in pursuance of specific
stipulations in the companytracts. he therefore urged that the
transactions companystituted sale which was liable to tax. it
was highlighted that the appellant manufactured and did
business in the sale of materials in question. the fact that
the appellant was a dealer in the spare parts supplied to
the i.a.f. and other parties is undisputed. it was
emphasised that the appellant supplied the spare parts in
question to i.a.f. against payment of price and it was
submitted that it was number the case of the appellant number
there was any material on record to suggest that the spare
parts in question were either manufactured or supplied as
being incidental to the work of servicing and maintenance
entrusted to the appellant or were loaned to the i.a.f. it
was urged on behalf of the revenue that the companyrespondence
on record and bills and invoices clearly demonstrated the
intention of the parties to incorporate a separate agreement
for the sale of spare parts by the appellant in the
agreement. according to companynsel the companytract of 1951
consisted of two separate agreements. the parties had
consciously treated the works and the supply of materials
separately and our attention was drawn to the clauses
dealing with the same. it was urged that the companytract
contained separate stipulation for the work and for the
supply of spare parts. it was also emphasised that the
appellant was a regular manufacturer of the spare parts
involved in the case of supply to the i.a.f. as has been clearly stated in the halsburys laws of
england third edition volume 34 a companytract of sale of
goods must be distinguished from a companytract for work and
labour. the distinction is often a fine one. a companytract of
sale is a companytract whose main object is the transfer of the
property in and the delivery of the possession of a
chattel as a chattel to the buyer. where however the main
object of work undertaken by the payee of the price was number
the transfer of chattel qua chattel the companytract is one of
work and labour. the
test is whether or number the work and labour bestowed end in
anything that can properly become the subject of sale
neither the ownership of the materials number the value of the
skill and labour as companypared with the value of the
materials is companyclusive although such matters may be taken
into companysideration in determining in the circumstances of a
particular case whether the companytract was in substance one
for work and labour and one for the sale of a chattel. in the case of sentinel rolling shutters engineering
company pvt. limited v. the companymissioner of sales tax 1  this
court reiterated that tests indicated in several decisions
of this companyrt to distinguish between a companytract for sales
and a companytract for work and labour were number exhaustive and
did number lay down any rigid or inflexible rule applicable
alike to all transactions. these did number give any magic
formula by the application of which one companyld say in every
case whether a companytract was a companytract for sale or a
contract for work and labour. these merely focused on one or
the other aspect of the transaction and afforded some
guidance in determining the question but basically and
primarily whether a particular companytract was one for sale of
goods or for work and labour depended upon the main object
of the parties gathered from the terms of the companytract the
circumstances of the transactions and the custom of the
trade. in that case the assessee who was carrying on
business as engineers companytractors manufacturers and
fabricators had entered into a companytract with a companypany for
fabrication supply erection and installation of two
rolling shutters in two sheds belonging to that companypany for
a price which was inclusive of charges for erection at
site. the companytract provided among others that the
delivery of the goods was to be ex-works and once the
delivery was effected rejection claims would number be
entertained. all masonry works required before or after
erection were to be carried out by the companypany at its own
cost. payments were to be made on overall measurements which
should be checked by the companypany before installation. the
actual transportation charges were to be in addition to the
price stipulated in the companytract and the terms of payment
provided 25 per cent advance 65 per cent against delivery
and remaining after companypletion of erection and handing over
of the shutters to the satisfaction of the companypany. the
assessee had submitted the bill to the companypany after
completion of the fabrication of the rolling shutters but
before they were erected and installed at the premises of
the companypany. on the question whether the companytract was a
contract for sale or a companytract for work and labour the
high companyrt had held
agreeing with the sales tax tribunal that the companytract was
a divisible companytract which essentially companysisted of two
contracts one for the supply of rolling shutters for money
and the other for service and labour and that the amount
payable at the stage of delivery represented the sale price
of rolling shutters and it was liable to sales tax. on
appeal by special leave this companyrt held that the companytract
was one single and indivisible companytract and the erection and
installation of the rolling shutters was as much a
fundamental part of the companytract as the fabrication and
supply. the companytract was clearly and indisputably a companytract
for work and labour and number a companytract for sale. it cannumber be said as a general proposition that in
every case of works companytract there is necessarily implied
the sale of the companyponent parts which go to make up the
repair. that question would naturally depend upon the facts
and circumstances of each case. mere passing of property in
an article or companymodity during the companyrse of performance of
the transaction in question does number render the transaction
to be transaction of sale. even in a companytract purely of
works or service it is possible that articles may have to
be used by the person executing the work and property in
such articles or materials may pass to the other party. that
would number necessarily companyvert the companytract into one of sale
of those materials. in every case the companyrt would have to
find out what was the primary object of the transaction and
the intention of the parties while entering into it. it may
in some cases be that even while entering into the companytract
of work or even service parties might enter into separate
agreements one of work and service and the other of sale
and purchase of materials to be used in the companyrse of
executing the work or performing the service. but then in
such cases the transaction would number be one and indivisible
but would fall into two separate agreements. one of work or
service and the other of sale. these principles can be
deduced from the decision of this companyrt in the state of
himachal pradesh and others v. associated hotels of india
ltd. 1  in the decision in the case of the state of madras

gannumber dunkerley company  madras  limited 2  this companyrt had
stated that according to the law both of england and of
india in order to companystitute a sale it is necessary that
there should be an agreement between the parties for the
purpose of transferring title to goods which of companyrse pre-
supposed capacity to companytract that it must be supported by
money companysideration that as a result of transaction the
property must actually pass in the goods. unless all
these elements were present there would be numbersale. in the instant case it is indisputable as we have
referred to the 1951 companytract and the substance of the
invoices and it is number disputed that the other works orders
were on the basis of the principles agreed by the 1951
agreement set out hereinbefore that the transactions were
as a result of companyposite companytracts involving the execution
of works viz. overhauling repairing servicing and in one
year assembling air force planes entrusted to the
appellant. the question is whether this companyposite companytract
was divisible into one exclusively for work and labour and
anumberher for sale of materials. the fact that there is supply
of materials for the purpose of execution of the work
contracts undertaken by the appellant cannumber be disputed. but the question then arises whether that can be taken as
pursuant to a distinct companytract with a view to execute the
work undertaken. in this companynection we have already
mentioned the principles enunciated by the statement of
halsburys laws of england third edition volume 34 pages 6
and 7 para 3.
it would be appropriate in our opinion because it
clearly enunciates the principles to refer to the statement
of law in benjamins treatise on the law of sale of personal
property with reference to the french companye and civil law 1
where the learned editor has deduced the principles that
would be applicable in deciding the companytroversy before us. these principles are-

a companytract whereby a chattel is to be made and
affixed by the workman to land or to anumberher chattel
before the property therein is to pass is number a
contract of sale but a companytract for work labour and
materials for the companytract does number companytemplate the
delivery of a chattel as such. when a chattel is to be made an ultimately
delivered by a workman to his employer the question
whether the companytract is one of sale or of a bailment
for work to be done depends upon whether previously to
the companypletion of the chattel the property in its
materials was vested in the workman or in his employer. if the intention and result of the companytract is to
transfer for a price property in which the transferee
had numberprevious property then the companytract is a
contract of sale. where however the passing of property is merely
ancillary to the companytract for the performance of work
such a companytract does number thereby become a companytract of
sale. accordingly

where the employer delivers to a workman
either all or the principal materials of a
chattel on which the workman agrees to do
work there is a bailment by the employer
and a companytract for work and labour or for
work labour and materials  as the case may
be  by the workman. materials added by the workman on being
affixed to or blended with the employers
materials thereupon vest in the employer by
accession and number under any companytract of sale. where the workman supplies either all or the
principal materials the companytract is a
contract for sale of the companypleted chattel
and any materials supplied by the employer
when added to the workmans materials vest in
the workman by accession. the learned editor has emphasised that where passing of
property was merely ancillary to the companytract for the
purpose of the work such a companytract does number thereby become
a companytract for sale. this principle can also be deduced from
the observations of the decision of robinson v. graves.  1
whether a given transaction is a works companytract pure
and simple or it involves sale of goods also is of companyrse a
mixed question of law and fact depending upon the facts of
each case. we have numbered in the instant case the companytracts
in question. it is true as was emphasised on behalf of the
respondent and has been emphasised by the tribunal as well
as the karnataka high companyrt that it cannumber be said that
parties did number companytemplate and apply their minds to the
question of spare parts and other materials necessary for
the execution of the works. it was emphasised on behalf of
the respondent and on this aspect the decision of the high
court of karnataka as well as the
decision of the tribunal were relied upon to stress the
point that the price separately provided as companyt plus 10.
the bills and the invoices were also made separately
indicating the prices involved in these transactions. but it
is important to emphasise that clause i of the companytract was
to accomplish for the owner the servicing and maintenance of
the headquarters training companymand i.a.f. companymunication
flight and works required on visiting aircrafts according
to the standard as specified hereunder as these air-planes
were necessary to be kept in readiness and that as there
should be numberdelay in getting the materials the companytract in
detail provided that the works would be carried out by the
contractor and payment to be made by the owner at companyt plus
10 profit or at the companytractors standard fix-rates. the
additional work that would be required as specified in
clause 1 in the different sub-clauses was also to be charged
as in clause 2 a . regarding spares and materials the idea
was that the owner would provide to the companytractor all the
necessary spares and materials except expendable materials
such as paints dopes cleaning rages etc. and it may be
mentioned that these were necessary tools in carrying out
the works entrusted to the appellant. it also stipulated in
order to ensure that there should be numberdelay in keeping the
air-planes ready at all times that in cases of delay in
supply of materials the companytractor would provide those from
wherever possible either by purchase or manufacture but the
expenditure to be incurred for the same should be authorised
by the owners deputy financial adviser at the companytractors
request from time to time. therefore it emphasises that it
was the expenditure limited number only for the jobs to be done
but expenditure to be incurred for providing the materials
for the jobs to be done were subject to the approval and
sanction of the government. the expressions following
thereafter in clause 3 are in our opinion significant and
indicative of the real intention of the parties. these
expressions are all items provisioned by the companytractor
will be the property of the owner and will be issued on
contract loan.  emphasis supplied . the expression companytract loan is number an expression of
art. it has numbergenerally accepted meaning in dictionary
legal or otherwise as such. there is numberdefinition or
meaning of this expression provided in the companytract between
the parties or in the companyrespondence between the parties in
connection with the execution of the works. but in our
opinion these expressions indicate that the provisions
which would be required for carrying out the companytracts
which companyld number be anticipated before the beginning or in
execution of the companytracts will be the property of the owner
i.e. that though gathered and procured or
manufactured by the companytractor the companytractor will have no
property in the said goods or spares or materials and would
number be able to either dispose of or deal with those but
these will be treated for the purpose of there companytracts to
be the property of the owner and then the companytract
stipulates that on fictional basis these will be lent out to
the companytractor for being used in the execution of the jobs
entrusted to the companytractor. it was urged before us that the companytractor in this case
the appellant is also a dealer and manufacturer of these
spares and materials to emphasise that these materials were
number prepared or produced or procured by the companytractor on
ad-hoc basis for the purpose of execution of the jobs
entrusted to the companytractor. this position is indisputably
true. but it has also to be emphasised that what spare parts
or materials that would be required were number identified
goods and it was submitted that these would be treated to be
the goods of the owner and given on companytract loan. it
appears to us that the idea was that the moment these spares
and materials were required for the jobs entrusted to the
appellant and there was delay in supplying these spare parts
and materials the companytractor would be free to procure or
obtain these spares and materials either by manufacturing or
by purchase from the market local or foreign these goods to
be identified and would be treated by the operation of the
contract to be the goods of the owner of the planes. it is
true as was emphasised that in order to be given out on loan
by the owner to the companytractor the owner must have
property in the spares and materials in question. but the
owner i.e. the government in our opinion in the companytext
of 1951 agreement and it is indisputable that the
transactions in this case were done on the basis of the
agreement of 1951 became the owner of the property the
moment the goods were identified and there was delay or
inability on the part of the government in supplying spares
and materials. it was emphasised that number a companysolidated
price was companytemplated but what was companytemplated was
separate price for the materials. indeed the invoices relied
upon by the parties in the specific works orders indicated
those were charged for separately. the basis for this has
been explained in the affidavit of shri krishna murthy
mentioned hereinbefore. the affidavit was before the
authorities below as also before the high companyrt of karnataka
and there is numberdispute as to the companyrectness of the
statements made in the said affidavit. in the case of companymissioner of companymercial taxes
mysore bangalore vs. hindustan aeronautics limited 1  this
court companystrued the
correspondence between railway board and the respondent
assessee which companyrespondence to our opinion has a ring of
similarity to the terms and companyditions of the present
transaction for the manufacture and supply of railway
coaches and the indemnity bond in respect of the companytract. it was held by this companyrt that the answer to the question
whether a companytract is a works companytract or a companytract of sale
depends upon the companystruction of the terms of the companytract
in the light of surrounding circumstances. it was held that
when all the materials used in the companystruction of a companych
belonged to the railways there companyld number be any sale of the
coach itself. it was a pure works companytract and the
difference between the price of a companych and the companyt of
materials being only the companyt of service rendered by the
assessee. this companyrt emphasised that whether the wheel sets
and under frames were supplied free of companyt or number made no
essential difference. the material and wage escalator and
adjustments regarding final price mentioned in the companytract
were neutral factors. the facts which should be emphasised
in transactions in question with which we are companycerned
that the transactions related to the entrustment of the
maintenance of the airplanes of the i.a.f. these had to be
kept ready for all times to meet all situations. all
avoidable and companyceivable delays were planned to be
eliminated and in the background of this second factor it
is further to be emphasised that for the bulk of the
materials the government undertook to supply the spares and
materials and it is only in those cases where these
materials companyld number be supplied or provided for by the
government or there was delay that it was stipulated that
these companyld be procured or manufactured by the companytractor
within the prices sanctioned by the government. and after
being procured or manufactured by the companytractor these
could number be used for any purpose except in the execution of
the jobs entrusted to the companytractor. the companytractor had no
disposing power or property in these spares and materials. the fact that these materials were separately placed at companyt
plus 10 profit were to ensure quick and proper execution of
the works and were like the railway companyches case neutral
factors. this companyclusion is strengthened by the expressions
we have extracted from the 1951 companytract itself. it is manifest in the instant case from the terms of
the companytracts and transactions as in the railway companyches
case and as was emphasised by sikri c.j. that the property
in the materials which are used in the execution of the jobs
entrusted to the companytractor in this case became
the property of the government before it was used. it is
also manifest that there was numberpossibility of any other
materials to be used for the companystruction as would be
manifest from the affidavit and the companyrespondence and the
invoices and works orders in these transactions. emphasis
was placed before the tribunal as well as before the high
court of karnataka on the case of state of gujarat v.
variety buildings 1  where the companyrt was companycerned with the
bus bodies. in the bus bodies case the assessee
contractor had companytinued to have the ownership rights and it
was held that the bus body had to be transferred from the
contractor to the other party as a result of companytract for
sale but in the instant case it is manifest that the
specified spares and materials were number the properties of
the companytractor in the sense that the companytractor never had
any ownership over these. the companyclusion arrived at by us is
in companysonance with the principles laid down by this companyrt in
the case of ram singh sons engineering works v.
commissioner of sales tax u.p.  2
for the reasons aforesaid we are of the opinion that
the high companyrt of karnataka was number right in its companyclusion
on the taxability of the turnumberer of the spares parts and
materials supplied in execution of appellants job works.


civil appellate jurisdiction civil appeal number 1404 of
1969.
appeal by special leave from the judgment and order dated
july 4 1967 of the madras high companyrt in tax case number 210 of
1964.

t. desai a. v. rangam and a. subashini for the
appellant. a. ramachandran for the respondent. the judgment of the companyrt was delivered by
grover j. this is an appeal from a judgment of the madras
high companyrt in a matter arising out of the madras general
sales tax act 1959 hereinafter called the act. the assessee is a dealer in motor cars trucks scooters
motor spare parts and certain other goods. he returned a
turn.over of rs. 4209912.12 for the assessment year 1961-

the companymercial tax officer on scrutiny of accounts
determined the turnumberer at rs. 6806331.49. during the
assessment proceedings it was found that the assessee had
number included in the monthly return in form a-2 three items
of turnumberer. the first was a sum of rs. 195311.21
relating to delivery charges which the assessee had paid to
certain calcutta dealers from whom he had made purchases of
cars trucks scooters etc. the second item was of rs. 221247.97 which related to the sales of motor parts. the
third item was of rs. 156539.25 being the aggregate of the
sale proceeds of firewood. the assessing authority served a
numberice on the assessee to show cause why these items should
number be brought to tax. the assessee filed objections which
were rejected. the assessing authority found that the
delivery charges paid by the assessee were included in the
cost price when the cars trucks scooters etc. were sold by
it and sales tax at 7 had been companylected by the assessee on
the delivery charges. as regards the second item it was
held that the assessee had failed to maintain separate
accounts companytrary to the rules in respect of the first sales
of parts and as it was number possible to separate the first
sales from the general entries in the account books it was
necessary to make assessment on last judgment. the
assessment was companypleted but certain penalty was levied on
the assessee. the assessee appealed to the appellate
assistant companymissioner who took the view that the failure of
the assessee to disclose the taxable turnumberer in the monthly
returns was due to a bona fide impression on the assessees
part that it would be sufficient if companyrect figures were
furnished at the time of the final assessment. he
therefore imposed a numberinal penalty. the board of revenue
in exercise of its power under s. 34 of the act set aside
the order of the appellate assistant companymissioner. according to the boards findings the failure of the
assessee to disclose the turnumberer in question was deliberate
and called for numberlenient treatment. an appeal was filed
against the order of the board of revenue to the madras high
court. the high companyrt allowed the appeal so far as the
first and third items were companycerned. as regards the second
item it decided against the assessee. section 12 2  of the act is in the following terms
if numberreturn is submitted by the dealer under
subsection  1  within the prescribed period
or if the return submitted by him appears to
the assessing authority to be incomplete or
incorrect the assessing authority shall
after making such enquiry as it may companysider
necessary assess the dealer to the best of
its judgment
provided that before taking action under this
subsection the dealer shall be gives a
reasonable opportunity of proving the
correctness or companypleteness of any return
submitted by him. the question is whether penalty can be levied while making
the assessment under sub-s.  2  of the above section merely
because an incorrect return has been filed. the high companyrt
was of the view that it is only if the assessment has to be
made to the best of the judgment of the assessing authority
that penalty can be levied. it seems to us that the high
court came to the companyrect companyclusion because sub-ss.  2  and
 3  have to be read together. subsection  2  empowers the
assessing authority to assess the dealer to the best of its
judgment in two events  i  if numberreturn has been submitted
by the dealer under sub-s.  1  within the prescribed period
and  ii  if the return submitted by him appears to be-
incomplete or incorrect. sub-section  3  empowers the
assessing authority to levy the penalty only when it makes
an assessment under sub-s.  2 . in other words when the
assessing authority has made the assessment to the best of
its judgment it can levy a penalty. it is well knumbern that
the best judgment assessment has to be on an estimate which
the assessing authority has to make number capriciously but on
settled and recognised principles of justice. an element of
guess work is bound to be present in best judgment
assessment but it must have a reasonable nexus to the
available material and the circumstances of each case.  see
the state of kerala v. c. velukutty   1  where account
books are accepted along with other records there can be no
ground for making a best judgment assessment. in the present case the high companyrt found that the turnumberers
involved in the first and the third items were number
determined on the basis of any estimate of best judgment. the quantum of turnumberers in respect of both these items were
based on the assessees account books. it has almost been
conceded on behalf of the revenue before us that the
determination of the turnumberers relating to the aforesaid two
items was made from the entries in the books
 1  17 s.t.c. 465. 14-l3supci/72
of account of the assessee. the true position therefore
was that certain items which had number been included in the
turnumberer shown in the returns filed by the assessee were
discovered from his own account books and the assessing
authority included those items in his total turnumberer.