civil appellate jurisdiction civil appeal number 1195 of
1972.
from the judgment and decree dated 19.10.1971 and
5.4.1971 of the mysore high companyrt in regular first appeal
number 57 of 1967.

s. javali and b.p. singh for the appellants. b. datar for the respondents. the judgment of the companyrt was delivered by
sen j. this appeal on certificate from the judgement
and decree of the karnataka high companyrt dated april 5 1971
raises a question of general public importance. the question
is whether two or more trustees of a registered public trust
can with the permission in writing of the charity
commissioner as provided for in 8.51 of the act bring a
suit for declaration that certain property belongs to the
public trust and for possession of the same from a person
holding it adversely to the trust under s.50 ii  of the
bombay public trusts act 1950. that depends on whether the
words persons having interest in the trust occurring in
s.2 10  and s.50 of the act to or do number include the
trustees of a registered public trust. if they do number two
or more trustees cannumber file a suit as companytemplated by
s.50 ii  of the act. there had been a divergence of opinion
in the high companyrt as to the precise meaning of the words
persons having interest in the trust in s.2 10  and s.50
of the act and as companyflicting views had been expressed by
different benches from time to time the matter was referred
to a full bench. the companyrectness of the view taken by the
full bench is in question in this appeal. put very briefly the essential facto are there. shree
gollaleshwar dev is an ancient temple and is situate in
village golgeri in the district of bijapur which formed part
of the erstwhile state of bombay prior to the reorganization
of the states. companysequent upon the enactment of the bombay
public trusts act 1950 the temple was registered as a
public trust. the district of bijapur became part of the new
state of karnataka on
the appointed day i.e. numberember 1 1956 under the states
reorganization act 1956. the act has companytinued to remain in
force in the areas which formed part of the erstwhile state
of bombay. it had been customary for the trustees to permit
persons rendering services to the temple to reside in the
suit premises on leave and licence. the subject-matter in
dispute companysisting or arches alongside the eastern numberthern
and southern walls of the temple are meant for the use of
devotees for their temporary rest and stay when they companye
to visit the temple. the main temple itself is situated in
the middle surrounded by an open companyrtyard. the suit
premises being within the four walls of the temple they
form part of the temple and are entered in the certificate
of registration as belonging to the temple. it appears that plaintiff number 2s uncle mariyappa
lingappa permitted one balalochanayya hiremath to reside in
a part of the suit premises as he happened to be a man of
saintly pursuits and one without a family. subsequently
balalochayya left the premises occupied by him. thereafter
plaintiff number 2s father as the trustee employed two
brothers ramchayya and gurunandayya to perform services for
the temple and he assigned the suit premises to them for
their residence with a view that they should be allowed to
occupy the premises free so long as the trustees allowed
them to remain in occupation and so long as they were
retained in the service of the temple. they were to remain
occupation of the suit premises as licensees of the trustee
of the temple. rachayya and gurunandayya started asserting
rights derogatory to the trust. accordingly plaintiff no
2s father as the trustee filed civil suit number96 of 1935 in
the companyrt of the joint civil judge bijapur ant the learned
civil judge by his judgment dated august 8 1936 decreed the
plaintiffs claim. the defendants went up in appeal to the
court of the district judge in regular appeal number 109 of
1936 but the appeal was dismissed on numberember 22 1937.
thereafter plaintiff number 2s father terminated the services
of rachayya gurunandayya yet called on them to vacate the
suit premise which they tilt. after ramchayya and
gurunandayya were removed from service of the temple
shantayya brother of rachayya ant smt. shankarawa also of
gurunandayya were taken in service of the temple and allowed
to reside in the suit premises free of rent on companydition
that they were to occupy the said premises so long as their
services to the temple were required. in 1957 shantayya
along with smt. shankarawa also started creating trouble and
plaintiff number2s father according terminated their
services and asked them to vacate the suit
premises. on their failure to do so he brought two suits
being civil suits number. 244 and 255 of 1957 in the name of
the idol shree gollaleswar dev as plaintiff number 1 with
himself being the trustee as plaintiff number 2. the case of
the plaintiffs was that the defendants were in occupation of
the said premises with leave and licence of the trustee of
the temple and as they refused to deliver possession of the
suit premises the suits had been instituted for a
declaration that the property belong to the temple and for
possession thereof. the defendants companytested the plaintiffs
claim on various grounds. they pleaded inter alia that the
temple had numberright or title to the suit premises which
belonged to this by virtue of a registered gift-deed dated
february 19 1917 executed by mariyappa uncle of plaintiff
number 2 in favour of their predecessor-in-title
balalochanayya that there was numberconsent in writing given
by charity companymissioner under 8. 51 and therefore the suits
brought under 8. 50 11  of the act were number maintainable and
further that the companyrt of the civil judge senior division
bijapur had jurisdiction to entertain the suits. the
learned civil judge following the decision of the mysore
high companyrt in marikamba temple hanumant temple sirsi by
its manager s.s dhakappa v. subrava venkataramanappa
barkur i.l.r. 1958 mysore 736 upheld these companytentions and
dismissed the suit as number maintainable. it was after this that the present suit was brought by the
aforesaid plaintiffs in the companyrt of the district judge
bijapur as civil suit number 2 of 1962 under 8. 50 ii  of the
act for the aforesaid reliefs with the companysent in writing
of the charity companymissioner granted under. 8. 51. as
earlier the suit was instituted by appellant number 2s father
as plaintiff number 2 in the name of idol shri gollaleshwar dev
as plaintiff number 1. plaintiff number 2 was impleaded as the
present trustee of the temple and plaintiff number 3 as the
grandson of mariappa the elder brother of plaintiff number 2.
as a beneficiary. plaintiffs number. 2 and 3 joined the suit as
persons interested in the trust. the high companyrt in the
meanwhile had revered the decision in marikambas case in
ganapathi ram naik anr. v. kumta shri venkataraman dev
1964 1 my-ore l.j. 172. the learned district judge following
the decision in ganapathi ram naiks case held that although
a suit for recovery of property belonging to the idol companyld
be brought either by the idol represented by the trustee or
the manager such a suit is number companytemplated by s. 50 li  of
the act and was therefore number maintainable. it was observed

the words persons having interest in the trust
in 6. 50 denumbere a person whose interest is
inferior to
that of trustee or manager and it is by reason of
the existence of that inferior or that inferior or
smaller interest that s. 50 of the act like s. 92
of the companye of civil procedure 1908 authorises
the institution of suit regulate it in the manner
provided there in. but that section does number
govern the institution of a suit by a person
possessing higher and higher interest which is number
regulated by it. the learned district judge accordingly held that such a
suit would by governed by the ordinary law and would number
lie in the district companyrt but either in the companyrt of the
civil judge junior division or the companyrt of the civil
judge junior division according to the valuation of the
subject-matter of the suit. aggrieved by the judgement of the district judge the
appellants preferred an appeal before the high companyrt. a
division bench which heard the appeal felt that the decision
in ganapathi rams case required companysideration and framed
two questions for the opinion of the full bench namely

whether the expression persons having
interested in the trust occurring in s. 2 10  and
s. 50 of the act includes trustees also . whether two or more trustees of a public trust
can file suit for declaration that a property
belongs to the public trust and for recovery of
possession of the from a person holding it
adversely to trust under s.50  ii  of the act. the full bench upon the hypothesis that s 50 of the
act is in pari materia with s. 92 of tho companye expressed that
the well settled principles governing s. 92 of the companye are
equally applicable to s. 50 of the see. it accordingly held
following the decision of woodroffe j. in budree mukia v.
chooni lal johurry i.l r.  1906  33 cal. 789 at p.807 and
various other decisions of different high companyrts laying down
the scope and effect of s. 92 of the companye and dr.b.k. mukherjeas tagore law lactures on the hindu low of
religious charitable trusts 3rd tn end p. 347 that the
suit companytemplated by s. 50 of the act was one
representative character. tbe observations of woodroffe j.
in the case of budree das mukin v. chooni lal johurry  supra
  which has become the locus classicus were to the effect
the suit companytemplated by the section is one of a
representative character. it is obvious that the advocate-general companylector
or other public officer can and do sue only as
representing the public and if instead of these
public officers two or more persons having an
interest in the trust sue with their companysent
they so sue under a warrant to represent the
public as the objects of the trust see
lakshmandas raghunath das v. jugal kishore i.l.r.  1896  22 bom. 216 220.
it follows from this that when a person or persons
sue number to establish the general member or
members but to remedy a particular infringement
of their own individual right the suit is number
within or need number be brought under the section. it next relied upon the decision of this companyrt in
bishwanath anr. v. shri thakur radhaballabhji ors. 19671 2 s.c.r. 618 laying down that a suit by an idol as
a juristic person against persons who interfered unlawfully
with the property of the idol was a suit for enforcement of
its private right and was therefore number a suit to which s.
92 of the companye applied and thus such a suit was outside the
purview of s. 92 of the companye and it was number a bar to is
maintainability for the companyclusion that a suit instituted
by the idol represented by its trustees or by presons as qua
trustees for recovery of trust property is a suit for
enforcement of the private rights of the idol or the
trustees. the full bench approved of the view expressed by
somnath iyer and gopivallabha iyengar jj. in ganpathi ram
naik v. kumt shri venkataraman dev i.l.r.  1963  mys. 1059
that a suit by a deity for possession being a suit for
vindicating its own personal rights was number governed by 8. 50 of the act but disagreed with it on the companystruction
placed by it upon the words person having interest in
s.2 10  and s. 50 of the act. the division bench in
ganapathi rams case held that the expression person having
interest denumberes one whose interest is inferior two that of
a trustee or a manager and it is by reason of existence of
that inferior or smaller interest that 8. 50 of the act
like s. 92 of the companye authorises the institution of a suit
and regulates it in the manner provided therein. it was of
the view that s. 50 of the act does number govern institution
of a suit by a person possessing larger and a higher
interest which is number regulated by it and differed from the
view taken by hegde j. in
shri marikaba temple v. subraya venkataramanappa i.l.r.  1958  mys. 736 holding that a suit by an idol represented
by the trustee was governed by 8. 50 of the act. me pull
bench accordingly held that persons who institute suits in
their capacity as trustees do 60 number in their representative
capacity representing the interests of the public but in
their own individual or personal capacity to vindicate their
own rights or that of the idol. that is to say merely
because the trustees were persons having interest in the
trust the provisions of s. 50 ii  of the act would number be
attracted to a suit of this kind. upon this reasoning the
full bench observed . it is therefore clear that the expression two
or more persons having an interest in the trust
s. 8. 50 of the act cannumber include the trustees bu
persons other than the trustees who have as
interest in the trust. the reason for holding that
the expression two - or more persons having an
interest in the trust cannumber be companystrued to
include trustees is number because the trustees are
number persons interested in the trust but because of
the character of the suit companytemplated under 8. 50
of the act. the remedy of the idol represented by its trustees
or of the trustees to enforce their individual
rights is number to institute a suit under s. 50 but
to sue in the ordinary companyrts in the usual way
as any other citizen and for such a suit the
trustees are number required to satisfy the
conditions of s. 50 of the act. a suit for
recovery of trust property instituted by a trustee
t because one for enforcement of the right of the
public but being merely for enforcement of the
private rights of the trust or trustees does number
in our opinion fall within the scope of section
50 of the act. upon that view the full bench answered the questions
referred as follows

the expression persons having interest in the
trust occurring in s. 2 10  and 8.50 of the act
docs number include the trustees when they institute
the suits in their capacity as trustees for
vindicating their private rights. companysequently two or more trustees of a public
trust cannumber file a suit under s.50 ii  of the act
for
a declaration that the property belongs to the
public trust and for possession of the same from a
person holding lt adversely to the trust. in accordance with the opinion of the full bench the
division bench dismissed the appeal filed by the
appellants. before we advert to the argument based on s.50 of the
act it should be mentioned that it is undisputed that the
temple of shree gollaleswar dev is a public temple
registered as a public trust under the provisions of the
act. the plaintiff- suing are first the idol second a
trustee and third a member of the family cr-sting the
endowment i.e. a beneficiary. the question is whether the
plaintiffs number. 2 and 3 are persons having an interest in
the trust within the meaning of s.2 10  which reads
2 10  person having interest includes -
 a  in the case of a temple a person who is
entitled to attend at or is in the habit of
attending the performence of worship or service in
the temple or who is entitled to partake or is in
that habit of partaking in the distribution of
gifts therof
 b  in the case of a math a disciple of the math
or a person of the religious pursuasion to which
the math belongs
 c  in the case of a wakf a person who is entitled
to receive any pecuniary or other benefit from the
wakf ant includes a person who has a right to
worship or to p perform any religious rite in a
mosque idgah imambara dargah maqbara or other
religious institutions companynected with the wakf or
to participate in any religious or charitable
institution under the wakf
 d  in the case of a society registered under tho
societies registration act 1860 any member of
such society and
 e  in the case of any other public trust any
beneficiary. the word trustee as defined in s. 2 18  reads
2 18 . trustee means a person in whom either
alone or in association with other persons the
trust property is vested and includes a manager
by the bombay public trusts  amendment  act 1953 the
word includes was substituted for the word means. me
definition of the words person having interest in 8.2 10
was made inclusive to set at rest all doubts and
difficulties as to the meaning of these words which were
intended and meant to be used in a generic sense so as to
include number only the trustees but also the beneficiaries and
other persons interested in the trust. it would therefore
appear that the definition of the expression person having
interest in s.2 10  is wide enumbergh to include number merely
the beneficiaries of a temple math wakf etc. but also the
trustees. it must therefore follow that plaintiffs number.2 and
3 who undoubtedly are members of the founders family i.e
beneficiaries are entitled to attend at performance of
worship or service in the temple and also entitled to
partake in the distribution of offerings to the deity and
thus answer the description person having interest as
defined in s.2 10  of the act. section 50 of the act on the companystruction of which the
appeal depends insofar as material provides as follows

in any case -
 i

where a declaration is necessary that a
particular property is a property belonging to a
public trust or where a direction is required to
recover the possession of such property or the
proceeds thereof or for an account of such
property or proceeds from any person including a
person holding adversely to the public trust or

where the direction of the companyrt is deemed
necessary for the administration of any public
turst. the charity companymissioner or two or more persons
having an interest in the trust and having
obtained the companysent in writing of that charity
commissioner as provided in section 51 may
institute a suit whether companytentious or number in the
court within the local limits of whose
jurisdiction the whole or part of the subject
matter of the trust is situate to obtain a decree
for any of the following reliefs
 a  an order for the recovery of the possession of
such property or proceeds thereof. sub-section  1  of s. 51 of the act which also has a
material bearing reads
51 1  if the persons having an interest in any
public trust intend to file a suit of the nature
specified in section 50 they shall apply to the
charity companymissioner in writing for his companysent. the charity companymissioner after hearing the
parties and after making such inquiry as he thinks
fit may within a period or six months from the
date on which the application is made grant or
refuse his companysent to the institution of such
suit. the order or the charity companymissioner
refusing his companysent shall be in writing and shall
state the reasons for the refusal. sub-s. l  of s.52 of the act provides that number with standing
anything companytained in the companye of civil procedure 1908 the
provisions of s.92 of the companye shall number apply to the public
trusts governed by the act. it is clear from these provisions that s.50 of the act
created and regulated a right to institute a suit by the
charity companymissioner or by two or more peron interested in
the trusts in the form of supplementary statutory provisions
without defeasance of the right of the manager or a trustee
or a shebait of an idol to bring a suit in the name of idol
to recover the property of the trust in the usual way. there
is therefore numberreason why the two or re person interested
in the trust should be deprived of the right to bring a suit
as companytemplated by s.50 ii  a  of the act. although sub-s.
 1  of s. 52 makes ss. 92 and 93 of the companye inapplicable to
public trues registered under the act it has made provision
by s. 50 for institution of such suits by the charity
commissioner or by two or more persons interested in the
trust and having obtained the companysent in writing of the
charity companymissioner under a. 51 of the act . we are unable to subscribe to the view expressed by the
high companyrt. although the full bench rightly adverted to sub-
s.  13 or s. 52 of the act which excludes the applicability
of ss.92 and 93 of the companye to the public trusts governed by
the act it is number right in its companyclusion that a suit
instituted by the idol represented by two or more trustees
with the written companysent of
the charity companymissioner as provided in s. 51 of the act
was number within the purview of s. 50 ii  a  of the act and
therefore companyld a number be brought in the companyrt of the
district judge. although s. 50 of the act is structured upon
the pattern of s. 92 of the companye the full bench failed to
appreciate that there is numberprovision in s. 92 of the companye
analogous to cl ii  or relief  a  of s. 50 of the act. it
will be seen from b. 50 that the section authorizes the
institution of a suit by the charity companymissioner or two or
more persons interested in the trust only in the district
court having jurisdiction to try it. the scope of s. 50 of
the act is wider than that of s. 92 of the companye. it applies
to a case so long as the relief claimed falls within the
scope of the section. one of the reliefs that can be claimed
in a suit brought under s. 50 of the act is that companyered by
relief  a  set out in cl.  ii  viz. for a declaration that a
certain property belong to a public trust and for possession
thereof from a person holding it adversely to the trust viz. a suit brought by the charity companymissioner or two or re
persons interested in the trust with his companysent in writing
as provided in s. 51 of the act. the fallacy underlying in the reasoning of the full bench
lies in the wrongful assumption that s. 50 of the act is in
pari materia with s. 92 of the companye. it is upon that
erroneous hypothesis that it observes that the suit
contemplated by s. 50 of the act is one of a representative
character. it overlooks the scope and effect of s. 50 of the
act which companytemplates number only suits of a representative
character but also suits by two or re trustees for
preservation of the property of the trust. the reasoning of
the full bench that if the suit is filed by the idol to
enforce its private rights the provisions of s. 92 of the
code are number attracted and a fortiori the same principles
equally govern suits under s. 50 of the act is number worthy
of acceptance. the full bench was also wrong in relying upon
the decision of this companyrt in bishwanaths case which turned
on the companystruction of s. 92 of the companye. in that case it
was held that the bar of s. 92 did number apply to a suit by an
idol or by its trustees for a declaration that the suit
properties belonged to the trust and for possession of the
same from persons holding the properties adversely to the
trust inasmuch as such a suit is number a suit of a
representative character instituted in the interests of the
public but is really a suit for the vindication of the
individual or personal rights or the deity or the trustees. the decision in bishwanaths case is therefore clearly
distinguishable and the principles laid down as to the
applicability of s.92 of the companye to such suits are number
attracted. there is numberwarrant for the restrictive companystruction
placed by the full bench on the expression person having
interest in a trust occurring in 8. 2 10  and 8. 50 of the
act. the definition of the expression person having
interest in s. 2  10  belng an inclusive one there is
lawful justification to exclude the suit brought by two or
re trustees in the name of the idol to recover possession
of its property against a person holding it adversely to the
trust from the purview of 8.


civil appellate jurisdiction civil appeal
number 46 of 1950.
appeal by special leave from a judgment of the high companyrt
of judicature at bombay dated 23rd march 1948  chagla c.j. and tendolkar j.  in income tax reference number 16 of 1947.

c. setalvad attorney-general for india  gopal singh
with him  for the appellant. c. chatterjee  b. sen with him for the respondent. 1951. september 18. the judgment of the companyrt was deliv-
ered by
mahajan j.--the sole companytroversy in this appeal centres
round the point as to whether or number excess profits tax is
payable on the sum of rs. 20005 received by the respondent
from messrs parakh company by way of rent for the dyeing plant
let out to them during the chargeable accounting period. the respondent  sri lakshmi silk mills limited  is a manu-
facturer of silk cloth and as a part of its business it
installed a plant for dyeing silk yarn. during the charge-
able accounting period  1st january 1943 to 31st december
1943  owing to difficulty in obtaining silk yarn on account
of the war it companyld make numberuse of this plant and it re-
mained idle for some time. on the 20th august 1943 it
was let out to messrs e. parakh company on a rent of rs. 4001
per month. the excess profits tax officer by his assessment
order dated 11th june 1945 included the sum of rs. 20005
realized as rent for five months in the profits of the
business of the respondent and held that excess profits tax
was payable on this amount. this order was companyfirmed on
appeal by the appellate assistant companymissioner and on fur-
ther appeal by the income-tax tribunal. the tribunal
however on being asked referred the following question of
law to the high companyrt for its opinion
whether in the circumstances of the case the asses-
sees income of rs. 20005 is profits from business
within the meaning of section 2  5  of the excess profits
tax act and therefore or otherwise liable to pay excess
profits tax ? the high companyrt answered the question in the negative. this is an appeal by special leave from this decision. it was companytended on behalf of the companymissioner before
the high companyrt that the dyeing plant was a companymercial asset
of the assessees business for the purpose of earning profit
and if this companymercial asset yielded income to him in any
particular manner it was income from the assessees busi-
ness for the purpose of the excess profits tax act. it was
said that it was immaterial whether a companymercial asset
yields income by use of the assessee himself or its being
used by someone else. this companytention was disposed of by
the learned chief justice in these words -
mr. joshi seems to be right but with this qualification
that the companymercial asset must be at the time it was let out
in a companydition to be used as a companymercial asset by the
assessee. if it has ceased to be a companymercial asset if its
use as a companymercial asset has been discontinued then if the
assessee lets it out he is number putting to use something
which is a companymercial asset at the time. number on the facts found by the tribunal it is clear
that when the assessee let out this dyeing plant it had
remained idle for some time. he companyld number obtain silk yarn
on account of the war and therefore it was number possible to
make use of it as a companymercial asset as far as the assessee
himself was companycerned and it was only for that reason that
he let it out to messrs e. parakh company i can understand
the principle for which mr. joshi is companytending that it
makes numberdifference what an assessee does with a companymercial
asset belonging to him. he may use it as he likes. so long
as it yields income it is the income of his business. var-
ious cases have been cited at the bar and i think that those
cases though apparently companyflicting are reconcilable if we
accept this principle to be the companyrect principle
and apply this ratio as the ratio emerging from these cases
and i will state the principle and the ratio again that if
an assessee derives income from a companymercial asset which is
capable at the time of being used as a companymercial asset
then it is income from his business whether he uses that
commercial asset himself or lets it out to somebody else to
be used. but if the companymercial asset is number capable of
being used as such then its being let out does number result
in an income which is the income of the business. mr. justice tendolkar companycurred in this view and ob-
served as follows --
the ratio of all these cases to my mind is that if
there is a companymercial asset which is capable of being worked
by the assessee himself for the purpose of earning profits
and the assessee instead of doing so either voluntarily
allows someone else to use it on payment of a certain sum or
is companypelled by law to allow it to be used in such manner
then what he receives is income from business. but if the
commercial asset has ceased to be a companymercial asset in the
hands of the assessee and thereafter he gets what he can out
of it by letting it out to be used by others then the rent
he receives is number income from any business that he carries
on. the learned attorney-general pointed out that the
nature of a companymercial asset is number changed because a par-
ticular person is unable to use it. the inability of the
assessee to make use of it in certain circumstances does number
in any way affect the nature of the asset and cause an
infirmity in the asset itself. it was companytended that when
the dyeing plant became idle for a short time during the
chargeable accounting period it did number cease to be a company-
mercial asset of the respondent for it had numberother busi-
ness that all the assets of the respondent including the
dyeing plant were the assets of the business that whatever
income was derived by the use of these assets including the
income that an asset fetched by its being let out was the
business income of the assessee and that there was no
warrant
in law for the proposition that a companymercial asset which
yields income must be used as an asset by the respondent
himself before its income becomes chargeable to tax. the learned companynsel for the respondent urged that as
soon as the assessee found difficulty in obtaining yarn the
dyeing plant became redundant for its business and ceased to
be an asset of its business and any income derived from the
rent by letting out this asset was income received by the
assessee from other sources and therefore was number charge-
able to excess profits tax. in our opinion the companytention raised by the learned
attorney-general is sound. the high companyrt was in error in
engrafting a proviso on the rule deduced by it from the
authorities companysidered by it to the effect that a companymer-
cial asset of a business companycern which yields income must at
the time it was let out be in a companydition to be used as a
commercial asset by the assessee himself. we respectfully
concur in the opinion of the learned chief justice that
if the companymercial asset is number capable of being used as
such then its being let out to others does number result in an
income which is the income of the business but we cannumber
accept the view 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 is the
profit of the business irrespective of the manner in which. that asset is exploited by the owner of the business. he is
entitled to exploit it to his best advantage and he may do
so either by using it himself personally or by letting it
out to somebody else. suppose for instance in a manufac-
turing companycern the use of its plant and machinery can advan-
tageously be made owing to 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
consideration for three hours can it be said in such a
situation with any justification that the amount realized
from the licensee is number a part of the business income of
the licensor. in this case the companypany was incorporated
purely as a manufacturing companycern with the object of making
profit. it installed plant and machinery for the purpose of
its business and it was open to 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. it is
difficult to hold that the income thus earned by the companymer-
cial asset is number income from the business of the companypany
that has been solely incorporated for the purpose of doing
business and earning profits. there is numbermaterial whatever
for taking the view that the assessee companypany was incorpo-
rated with any other object than of carrying on business or
trade. owning properties and letting them was number a purpose
for which it was formed and that being so the disputed
income cannumber be said to fall under any section of the
indian income-tax act other than section 10. cases of
undertakings of this nature stand on an entirely different
footing and are distinguishable from cases of individuals or
companies acquiring lands or buildings and making income by
letting them on hire. these latter cases may legitimately
fall under the specific provisions of section 9 or section
12 though the high companyrts in this companyntry are by numbermeans
unanimous on this subject but for the purpose of this case
it is unnecessary to resolve that companyflict. it may be observed that numbergeneral principle can be laid
down which is applicable to all cases and each case has to
be decided on its own circumstances. decisions of the eng-
lish companyrts given under the finance acts the scheme of
which is different from the indian income-tax statutes are
number always very helpful in dealing with matters arising
under the indian law and analogies and inferences drawn from
those decisions are at times misleading. we however are in
respectful agreement with the observations of lord
president strathclyde in sutherland v. the companymissioners of
inland revenue 1  that if a companymercial asset is susceptible
of being put to a variety of different uses in which gain
might be acquired whichever of these uses it was put to by
the appellant the profit earned was a user of the asset of
the same business. a mere substituted use of the companymercial
asset does number change or alter the nature of that asset. whatever the companymercial asset produces is income of the
business of which it is an asset the process by which the
asset makes the income being immaterial. mr. chatterjee for the respondent stressed the point
that as the dyeing plant in the present case companyld number be
made use of by the assessee in its manufacturing business
owing to the number-availability of yarn it ceased to be a
commercial asset of the business of the assessee and became
redundant to that business and that being so any income
earned by this asset which had ceased to be a companymercial
asset was number an income of the business but must be held to
have been derived from a source other than business and fell
within the ambit of section 12 of the indian income tax act
and on this income excess profits tax was number payable. he
contended that the facts of this case were analogous to the
case of inland revenue companymissioners v. lies 2  and it
should be similarly decided. in that case the taxpayer
carried on the business of sand and gravel merchant on
certain land and at the same time he granted licences to
three firms to enter his land and win gravel for themselves
in return for which he received from them a royalty for
each cubic yard of gravel taken away. it was held that the
royalties were number part of the profits of the business
because in granting the licences the taxpayer was exploit-
ing his rights of ownership in the land and was number carrying
on his business of a sand and gravel merchant. the income
was held taxable as an income from an investment and did number
fall under schedule d which companycerns profits earned from a
trade. mr. chatterjee also laid emphasis on the observations
of lord
 1   1918  12 tax cas. 63.  2  1947 1 a.e.r. 798.
greene m.r. in croft v. sywell aerodrome limited  1
wherein the learned master of the rolls observed as fol-
lows
i cannumber myself see that a person who leases the land
to others or grants licences to others to companye upon it
is doing anything more than exploiting his own rights of
property even if the tenant or licensee is by the
terms of the lease or licence entitled himself to carry
on a trade on the land. it was urged that what the assessee was doing in this
case was exploiting his rights of property by letting the
dyeing plant to other persons precisely in the same manner
as the owner of land in the case cited above was exploiting
his own rights to property by granting a licence to anumberher
to companye on his land. the argument in our opinion though
attractive is fallacious. the analogy between the case of
land and of a dyeing plant for the purpose of taxing stat-
utes is inappropriate. the distinction becomes apparent from
the following passage which occurs in atkinson j.s judgment
in i less case 2  --
then it was suggested by companynsel for the crown that
the case was like the desoutter case 3  where it was held
that if you make use of a patent in your business and also
receive royalties from the use of the patent by others
licensed to use it those royalties cannumber be regarded as
receipts from an investment. in other words the door has to
be either open or shut. a patent is either an investment or
it is number. the suggestion was that freehold land is in the
same position and if you carry on business on part of it
whatever you do with the rest by way of licensing or letting
cannumber be regarded as producing income from investment. that however is dead in the teeth of the judgment in the
broadway car company case 4 . the same argument was tried there
but tucker l.j. said he thought the desoutter case 3  had
very little to do with it as there was a great difference
between land
 1  1942 1 a.e.r. 110.  3  1946 1

e.r. 58.  2  1947 1 a.e.r. 798  4  1946 2

e.r. 609.
and a patent and he did number think the desoutter case 1
threw any light on the matter  a patent is quite
different from freehold land. these observations appositely apply to the case of a
company incorporated for the purpose of doing business and
earning profit by the process of manufacture. letting out
a part of its machinery in a certain situation in order to
make the business advantageous as a whole does number alter the
nature of the income. the case of an owner of land letting
out his land and carrying on exploitation of part of that
land by selling gravel out of it as at present advised in
our opinion would fall under section 9 of the indian in-
come-tax act as income earned numbermatter by whatever meth-
od from land and specifically dealt with by that section. the observations therefore made in i less case 2  can have
numberapposite application to the case of a manufacturing
concern letting out a part of its machinery temporarily
which it cannumber advantageously use itself. mr. chatterjee also laid stress on the decision of the
court of appeal in inland revenue companymissioners v. broadway
car company limited 3 . in this case the companypany carried on the
business of motor car agents and repairers on land held on
lease from 1935 to 1956 at an annual rent of pound 750. by
1940 the companypanys business had dwindled under war companydi-
tions 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 pound 1150.
the general companymissioners of income-tax decided that the
difference of pound 400 between the outgoing of pound 750
for the land retained and the incoming of pound 1150 for
the land disposed of was income received from an invest-
ment and the business number being one within the special
categories mentioned in the finance act 1939 that pound
400 was number taxable. it was held that the word investment
must be companystrued in the ordinary popular sense of the word
as used by businessmen and number as a
 1  1946 1 a.e.r.58.  3  1946 2 a.e.r. 609.  2  1947 1 a.e.r. 798.
term of art having a defined or technical meaning and that
it was impossible to say that the companymissioners had erred in
law in companying to the companyclusion that the transaction result-
ed in an investment. scott l.j. in delivering his judgment
laid emphasis on the point that after the business of the
company had dwindled it partitioned part of the land from
the rest and sublet it by installing a heating apparatus for
the sub-lessee. it was found that war companyditions 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
14 years to resume business there. in this situation it was
observed that in that case they were dealing with part of
the property of the companypany which had companye redundant and was
sublet purely to produce income--a transaction. quite apart
from the ordinary business activities of the companypany. it was
pointed out that the question whether a particular source of
income was income or number must be decided as it companyld be
according to ordinary companymonsense principles. the short question to decide in this case is whether on
the facts found it companyld be said reasonably that the dyeing
plant had become redundant for its business as a silk manu-
facturing companycern simply by the circumstance that for the
time being it companyld number be used by it personally for the
purpose of dyeing silk yarn owing to the number-availability of
yarn. it is difficult to companyceive that the companypany would
number have immediately started dyeing yarn as soon as it
became available. instead of dyeing yarn anumberher person was
allowed to dye jute  we are told  the assessee companypany
making income out of its use as a companymercial asset. in this
situation it is number possible to hold that the income thus
earned was number a part of the income of the business and was
number earned for the business by its companymercial asset or that
this companymercial asset had become redundant to the companypanys
business of manufacture of silk. the analogy of broadway car
co. limited  1  therefore does number hold good for the decision
of the present matter
 1  1946 2 a.e.r. 609.
we are therefore of the opinion 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 it
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.


civil appellate jurisdiction civil appeal number 1682 of
1984.
from the judgment and order dated 23.12.1983 of the
punjab and haryana high companyrt in civil revision number 959 of
1979

m. tarkunde a.d. sikri for the appellant. hardev singh and r.s. sodhi for the respondents. the judgment of the companyrt was delivered by
natarajan j. what falls for companysideration in this
appeal by special leave by a tenant against the judgment of
the high companyrt of punjab and haryana in a civil revision is
whether the high companyrt had transgressed its revisional
powers in interfering with the companycurrent findings rendered
by the rent companytroller and the appellate authority and
ordering the eviction of the appellant herein from the
leased premises and secondly whether the high companyrt had
erred in holding that the leased premises had become unsafe
and unfit for human habitation as envisaged in section
13 3  a  iii  of the east punjab urban rent eviction act
1949  hereinafter the act . the respondents petition for eviction was originally
based on other grounds such as bona fide requirement of the
premises for own use and change of user of the premises by
the tenant. as he failed before the rent companytroller the
respondent preferred an appeal and during the pendency of
the appeal he obtained orders and amended the petition and
raised an additional ground under section 13 3  a  iii  for
seeking the eviction of the appellant viz. the leased
premises had become unsafe and unfit for human habitation. the appellate authority called for a finding on the
additional ground from the rent companytroller and the finding
went against the respondent. the appellate authority
concurred with the rent companytroller on the said finding and
dismissed the appeal. before the appellate authority the
respondent did number seriously press the original grounds on
which eviction was sought for and laid stress only upon the
ground under section 13 3  a  iii  of the act. the
respondent then preferred a civil revision wherein the high
court sustained his case and ordered the eviction of the
appellant under section 13 3  a  iii  and hence the present
appeal by the appellant-tenant. section 13 3  a  iii  was resorted to for seeking
eviction of the tenant on the footing that one room in the
rear-side of the leased premises had fallen down. we may
state even at this juncture that the high companyrt had wrongly
assumed that besides the falling down of the roof one of
the walls had also crumbled. this assumption was a mistaken
one because the expert witnesses examined during the trial
by the parties have spoken about the good companydition of three
walls alone of the room and number the fourth because they are
the outer walls of the room while the fourth wall was a
common wall for the room in question and the adjoining room
and hence there was numberneed to certify its good companydition. it was therefore wrong for the high companyrt to have assumed
that only three walls of the room were in good companydition and
number the fourth wall. the high companyrt deemed it necessary to allow the
revision and set aside the order of the rent companytroller and
the appellate authority because of its view that the falling
down of the roof of one of the rooms afforded by itself a
cause of action to the landlord to seek eviction of the
tenant under section 13 3  a  iii  and the said cause of
action would subsist even if the tenant had repaired the
roof under orders of the rent companytroller under section 12
of the act. it is necessary to mention here that during the
pendency of the proceedings before the rent companytroller the
appellant obtained the permission of the rent companytroller
under section 12 to replace the roof fallen down and re-
cover the companyt from the respondent since the respondent had
failed to do the work himself. the high companyrt relied upon
two decision balbir singh v. hari ram air 1983 punjab and
haryana 132 and chander mohini v. jiva singh 1983 2 rcj
523 for holding that once a cause of action ensued under
section 13 3  a  iii  it would subsist inspite of any
repairs effected by the tenant. it also relied on anumberher
decision sardarni sampurna kaur v. sant singh anr. 1983
plr 449 for holding that even if the rest of the building
was in good companydition the falling down of the roof of one
room would companystitute sufficient material to sustain a
landlords claim under section 13 3  a  iii  of the act for
seeking the tenants eviction. a few facts may number be set out. the leased portion
comprises of four rooms in the ground floor where the
appellant is running his office. there is a room in the
first floor in the possession of the respondent himself but
we are number companycerned with it. it is companymon ground that the
roof of one room in the rear-side of the leased portion had
fallen down and it had been replaced by the appellant after
obtaining orders of the rent companytroller under section 12.
the appellants companytention is that the falling down of the
roof in one of the four rooms would number by itself render the
entire building unsafe and unfit for human habitation as
envisaged under section 13 3  a  iii  of the act and as
such the high companyrt had erred in ordering eviction under
the said provision. it was further urged that the rent
controller and the appellate authority had companycurrently
found that the building was neither unsafe number unfit for
human habitation and as such the high companyrt was number
justified in interfering with those findings especially when
they were findings of fact. in reply to the above said
contentions the learned companynsel for the respondent argued
that the falling down of the roof in a room was indicative
of the damaged companydition of the building and therefore the
high companyrt was fully justified in ordering the eviction of
the appellant under section 13 3  a  iii  of the act. it was
further urged that the replacement of the roof by the
appellant would number extinguish the right which had accrued
to the respondent under section 13 3  a  iii  to seek
recovery of possession of the leased premises and the high
court had rightly adverted to this aspect of the matter also
while allowing the revision filed by the respondent. on a careful companysideration of the matter with reference
to the companytentions put-forth by the learned companynsel for the
parties we are clearly of opinion that the high companyrt was
number justified in allowing the revision and directing the
eviction of the appellant under section 13 3  a  iii . it is
true that a roof of one of the rooms on the rear-side
had fallen down and required replacement but there was no
evidence whatever that the entire building or a substantial
portion of it was in a damaged companydition and companysequently
the building as a whole had become unfit and unsafe for
human habitation. unless the evidence warranted an inference
that the falling down of the roof in one room was fully
indicative of the damaged and weak companydition of the entire
building and that the companylapse of the roof was number a
localised event we fail to see how the high companyrt companyld
have companycluded that the entire building had become unsafe
and unfit for human habitation. in fact the appellant had
replaced the roof only at a companyt of about rs.200 and this
would independently show that the damage that had occurred
could number have been of a serious or disquieting nature. the
high companyrt has failed to numberice two factors of relevance
viz.  1  that the respondent had given his companysent to the
rent companytroller granting permission under section 12 of the
act to the appellant to replace the roof and  2  that
inspite of the alleged cause of action having arisen due to
the falling down of theroof the respondent did number
immediately seek amendment of the petition so as to seek
eviction of the appellant on the additional ground under
section 13 3  a  iii  but instead he chose to prosecute his
petition only on the original grounds for eviction set forth
therein and only after failing before the rent companytroller
and preferring an appeal to the appellate authority he
deemed it necessary to amend the petition and ask for
eviction of the appellant or the additional ground under
section 13 3  a  iii . the above said companyduct of the
respondent would clearly reveal that he himself had number
attached any significance to the falling down of the roof in
one of the rooms and had number seriously companysidered that a
sustainable cause of action had accrued to him under section
13 3  a  iii  for seeking the eviction of the appellant. the
high companyrt has number only failed to appreciate these factors
but has also proceeded on the erroneous assumption that the
falling down of the roof in one room was by itself
sufficient to warrant a finding that the entire building had
become unfit and unsafe for human habitation and called for
a declaration to that effect. it is this basic error which
has affected the reasoning of the high companyrt lead the high
court to apply the ratio laid down in certain cases where
the facts and circumstances were entirely different. what arose for companysideration in balbir singhs case
 supra  was whether a tenant would stand deprived of his
right under section 12 to carry out repairs of the tenanted
premises by reason of an application filed by a landlord
under section 13 3  c  of the haryana urban companytrol on rent
and eviction act  companyresponding to section 13 3  a  iii  of
the east punjab urban rent restriction act 1949  and company-
versely whether a landlord would stand deprived of his right
to seek eviction of his tenant under section 13 3  c  by
reason of an order passed under section 12 empowering the
tenant to carry out repairs to the tenanted premises. it was
in that companytext the high companyrt held that the two sections
operated in their respective spheres and they were number
mutually destructive of each other and companysequently when a
right accrued to a landlord under section 13 3  c  of the
haryana act to seek eviction of a tenant the right would
number get extinguished on account of an order passed under
section 12 of the act. in other words it was held that once
a cause of action had arisen for a landlord to seek eviction
under section 13 3  c  of the haryana act that the said
cause of action would ensure to the benefit of the landlord
in spite of the tenant effecting repairs to the building for
his benefit in pursuance of permission obtained under
section 12 of the act. the decision does number lay down that
each and every damage to a building without reference to
the seriousness of its nature or to the companydition of the
building as a whole would by itself entitle a landlord to
invoke section 13 3  a  iii  to seek eviction of the tenant. in chander mohinis case  supra  wherein balbir singhs case
 supra  was followed it was held that if the tenants had
pulled down the roof of one of the rooms under their tenancy
and replaced the same obviously for their own companyvenience
and for pre-empting the landlord from filing a petition for
eviction under section 13 3  a  iii  the landlord would
undoubtedly acquire a cause of action under section
13 3  a  iii  as soon as the tenants had pulled down the
roof of the room and his rights companyld number be defeated by the
tenants by the replacement of the roof of their own
volition. the other decision in sardarni sampurna kaur v.
sant singh has also numberrelevance because it was found in
that case that even though the portion under the ocupation
of the tenant was in a sound companydition a substantial
portion of the companyposite building had become unfit and
unsafe for human habitation. in that situation the high
court held that what was relevant for companysideration for
passing an order of eviction under section 13 3  a  iii  was
the companydition of the building viewed as a whole and number in
parts or blocks. in the instant case the admitted position
is that except for the roof in one of the rooms falling
down numberother damage to the building was numbericed and in
such circumstances there is numberscope for holding that a
substantial or major part of the building had become unfit
and unsafe for human habitation and hence an order of
eviction was called for. it is therefore obvious that the
ratio laid down in the earlier decisions were number at all
attracted to the facts of the case and the high companyrt had
wrongly applied them because of its erroneous assumptions. learned companynsel for the respondent tried to companytend
that apart from the building having become unsafe and unfit
for human habitation the respondent had also sought
eviction on the ground he was genuinely in need of
additional accommodation but the appellant companyrt had
unjustly rejected the plea by saying that since the
respondent was jointly living with his son he can secure
additional accommodation from out of the portion in his
sons occupation. we do number find any merit in this
contention because the requirement of the building on this
ground was number canvassed before the high companyrt. even the
appellant authority has observed that the only ground
pressed for seeking eviction of the tenant was under section
13 3  a  iii  and the other grounds were number pressed
seriously and only incidentally a halfhearted argument was
advanced regarding the requirement of the leased premises by
way of additional accommodation.


civil appellate jurisdiction civil appeals number. 1023-1024
of 1963.
appeals from the judgment and order dated august 9 1962 of
the bombay high companyrt in income-tax reference number 3 of 1961.

v. viswanatha sastri t. a. ramachandran j. b.
dadachanji o. c. mathur and ravinder narain for the
appellant  in both the appeals . k. daphtary attorney-general k. n. rajagopala sastri

h. dehbar and r. n. sachthey for the respondent  in
both the appeals . the judgment of j. c. shah and s. m. sikri jj. was delivered
by shah j.
subba rao j. i agree with the companyclusion but i would prefer
number to express my view on the companystruction of cl.  iii  of
subs.  2  of s. 10 of the indian income-tax act 1922.
shah j. the bombay steam navigation companypany limited which
plied its passenger and ferry services on the konkan companyst
and in the bombay harbour was amalgamated with effect from
june 30 1952 with -the scindia steam navigation companypany
ltd.-hereinafter called the scindias. the scheme of
amalgamation was sanctioned by the high companyrt of bombay and
the scindias were authorised by the scheme to float and
establish a joint stock companypany with the object of taking
over the services on the konkan companyst and in the bombay
harbour which were originally plied by the bombay steam
navigation company limited pursuant to this authority the bombay
steam navigation company  1953  private limited-hereinafter called
the assessee companypany was incorporated on august 10 1953.
the assessee companypany companytracted with the scindias on august
12 1953 to purchase certain steamers launches boats
barges buildings furniture fixtures and vehicles for a
consideration provisionally estimated at rs. 80 lakhs. it
was provided by the agreement that the price of the assets
sold will be satisfied by allotment to the scindias of
29900 shares credited as fully paid-up of the face value of
rs. 100 each in the share capital of the assessee companypany
and the balance will be treated by the assessee companypany as a
loan granted by the scindias. the agreement by cl. 3 b
provided for payment of interest at 6 on the unpaid balance
of the purchase price. clause stood as follows
the balance shall be treated by the
transferee companypany as a loan granted by the
transferor companypany secured by a promissory
numbere duly executed by the transferee companypany
in favour of the transferor companypany and until
it is repaid in full it shall carry interest
of 6 per annum  simple  and shall be further
secured by hypothecation of all movable
properties of the transferee companypany in favour
of the transferor companypany. l2sup.165-6
on final valuation of the assets transferred it was found
that the assessee companypany was liable to pay rs. 8155000 to
the scindias. by a supplemental agreement dated september
16 1953 the agreement was rectified and the original cl. 3 b  was substituted with retrospective effect from august
12 1953 by the following clause
the balance shall be paid by the transferee
company to the transferor companypany on
completion of the transfer referred to in
clause 2 above and until it is repaid in full
the said balance or so much thereof as for the
time being remains unpaid shall carry interest
of 6 per annum  simple  and shall further be
secured by hypothecation of all movable
properties of the transferee companypany in favour
of the transferor companypany. in proceedings for assessment of tax for the assessment
years 1955-56 and 1956-57 the income-tax officer companypanies
circle ii  1  bombay disallowed the claim of the assessee
company in the companyputation of its profits and gains for
allowance of rs. 274610 paid by it to the scindias in the
account year ending june 30 1954 as interest on the
outstanding balance of purchase price due by it and for
allowance of rs. 286823 paid as interest in the year
ending june 30 1955. the order of the income-tax officer
was companyfirmed by the appellate assistant companymissioner and by
the appellate tribunal. the high companyrt of bombay answered
the following question submitted by the income-tax appellate
tribunal in the negative
whether on the facts and in the circumstances
of the case the said sum of rs. 274610 and
rs. 296823 being the interest paid by the
assessee is allowable as a deduction under the
income-tax act under any of the sections
10 2  iii  10 2  xv  or 10 1  ? with certificate of fitness under s. 66a 2  of the income-
tax act the assessee companypany has appealed to this companyrt. in the companyputation of profits and gains of the business
carried on by it the assessee companypany claimed the two
amounts paid as permissible allowances under s. 10  2   iii
or under s. 10  2   xv . alternatively the assessee
company claimed that in the companyputation of the true profits
of the business under s. 10  1   the amounts paid as
interest are necessarily allowable. section 10 by the
first clause provides
the tax shall be payable by an assessee under
the head profits and gains of business
profession or vocation
in respect of the profit or gains of any
business profession or vocation carried on by
him. tax is payable under s. 10 1  by an assessee on its profits
or gains earned in the business profession or vocation
carried on by him in the year of account. if numberbusiness at
all is carried on in that year liability to tax does number
arise under s. 10 1 . clause  iii  of sub-s.  2  of s. 10 provides
such profits or gains shall be companyputed after
making the following allowances namely -

in respect of capital borrowed for the
purposes of the business profession or
vocation the amount of interest paid. the proviso - and the explanation with which we are number
concerned in these appeals need number be set out. the expression such profits or gains in sub-s.  2  on the
plain language used by the legislature means profits or
gains of a business carried on in the year of account. in
the companyputation of profits and gains of a business carried
on in the year of account allowances set out in cls.  i  to

are permissible some of these permissible allowances
are of the nature of revenue outgoings and others are of
the nature of capital outgoings. gross profits or gains
must undoubtedly be of the nature of revenue receipts. but
in the companyputation of taxable profits from the receipts of
the business number only revenue deductions but certain
capital deductions are permitted to be made e.g. deprecia-
tion sums paid to scientific research associations
expenditure of a capital nature on scientific research and
other expenditure of a capital nature. by cl.  iii  of sub-
s.  2  interest paid in respect of capital borrowed for the
purpose of the business profession or vocation is a
permissible allowance in the companyputation of the profits or
gains. the expression capital used in cl.  iii  in the
context in which it occurs means money and number any other
asset -for interest is payable on capital borrowed and
interest becomes payable on a loan of money and number on any
other asset acquired under a companytract. interest paid need
number however bear the character of a revenue outgoing. to be
admissible as an allowance under cl.  iii  interest must be
paid in respect of capital borrowed interest paid but number
in respect of capital borrowed cannumber be allowed. there was in the present case in truth numbercapital
borrowed by the assessee companypany. to recapitulate the
facts the
assessee companypany purchased the assets required for its
business from the scindias and paid part of the
consideration by allotting shares of the value of rs. 2999000 leaving the balance of rs. 5156000 unpaid. in
cl. 3 b  of the companytract as originally executed it was
recited that this amount was to be treated as a loan by the
scindias to the assessee companypany but with retrospective
operation the companyenant was modified and the amount due was
to be treated as balance of purchase money remaining unpaid. mr. viswanatha sastri argued that the assessee companypany
owed a debt of rs. 5156000 to the scindias payment of
which was secured by the execution of a promissory numbere and
a charge on the assets of the assessee companypany. the
substance of the transaction according to companynsel was a
loan given by the scindias to its subsidiary-the assessee
company-for procuring the assets required for carrying on
the business even though the formal transaction did number
record it as a loan and as a companytractual liability to pay a
debt was incurred the companyrt would be justified in regarding
the transaction as one involving borrowing of the amount
agreed to be paid by the assessee companypany. it was said that
if the assessee companypany had borrowed the amount of rs. 5156000 from a stranger and had paid the entire
consideration to the scindias interest paid to the stranger
would indisputably be an allowance admissible in the
computation of taxable profits of the assessee companypany and
there was numberreason why a different principle should be
applied when the scindias in substance had made the
requisite funds available to enable the assessee companypany to
purchase the assets. the transaction with the vendor companyld
be regarded it was also urged as a companyposite
transaction i  a transaction of borrowing rs. 5156000 from
the scindias and  ii  a transaction for payment of the
entire companysideration due for purchasing the assets from the
scindias. in our judgment this is number a permissible approach in
ascertaining the true nature of the transaction. the
parties had agreed that assets of the value of rs. 3155000
be taken over by the assessee companypany from the scindias. out of that companysideration rs. 2999000 were paid by the
assessee companypany and the balance remained unpaid. for
agreeing to deferred payment of a part of the companysideration
the scindias were to be paid interest. an agreement to pay
the balance of companysideration due by the purchaser does number
in truth give rise to a loan. a loan of money undoubtedly
results in a debt but every debt does number involve a loan. liability to pay a debt may arise from diverse sources
and a loan is only one of such sources. every creditor who
is entitled to receive a debt cannumber be regarded as a
lender. if the requisite amount of companysideration had been
borrowed from a stranger interest paid thereon for the
purpose of carrying on the business would have been regarded
as a permissible allowance but that is wholly irrelevant in
considering the applicability of cl.  iii  of sub-s.  2  to
the problem arising in this case. the legislature has under
cl.  iii  permitted as an allowance interest paid on capital
borrowed for the purposes of the business if interest be
paid but number on capital borrowed cl.  iii  will have no
application. in metro theatre bombay limited v. companymissioner of income-
tax 1  the bombay high companyrt held that a mere purchase of a
capital asset on a long-term credit with a stipulation for
payment of interest on the reduced balance did number amount to
borrowing capital within the meaning of s. 10 2  iii . under an arrangement to receive a long-term lease of
property the assessee in that case agreed to pay the
consideration stipulated in half-yearly instalments spread
over a number of years with interest at five per cent on the
balance outstanding. interest paid on the balance was
disallowed as a permissible deduction in companyputing the total
assessable income. in metro theatres case 1  liability to
pay interest arose under an agreement to receive a lease in
future whereas liability in the present case arises under
an agreement to pay under a companypleted sale transaction the
balance of companysideration unpaid. but that is number a real
ground of distinction. the amounts in both the cases were
paid as interest but ih neither case was interest paid in
respect of capital borrowed. in v. ramaswami ayyangar and anr v. companymissioner of
income-tax madras 2  the assessee who was carrying on a
money-lending business claimed that in companyputing his
business income he was entitled under s. 10 2   iii  to
deduct interest paid on death duty to the government of
ceylon on properties left by a deceased person. the companyrt
negatived the claim for such deduction. the amount which
was number paid as death duty was used for the purposes of the
business but it companyld in numbersense be regarded as a
borrowing from the government of ceylon. the companyrt held
that s. 10 2   iii  companytemplates lending of money and
borrowing of the lenders money by the borrower with a
contractual stipulation for repayment with interest on the
loan if a loan so borrowed is employed in or for the
purpose of the business of the assessee interest paid on
such loan is a permissible deduction.  1   1946  14 i.t.r. 638.  2   1950  18 i.t.r. 150.
but an amount due under a statute cannumber be regarded as
borrowed capital for the expression capital borrowed
predicates the relation of a borrower and a lender which
relationship did numberexist in that case. the principle of companymissioner of income-tax madras v. s.
ramsay unger 1  on which strong reliance was placed by mr.
viswanatha sastri does number companye to his aid for in that case
the companyrt held on the facts and circumstances that in
substance the transaction which gave rise to the liability
to pay interest was one of borrowing capital and therefore
the whole of interest debited in the books of the assesses
must be allowed as interest paid on such capital. we therefore agree with the high companyrt that the claim for
deduction of the amount of interest under s. 10  2   iii  is
number admissible. but in our judgment interest paid by the assessee companypany
is a permissible deduction under s. 10 2   xv  which permits
any expenditure number being an allowance of the nature
described in any of the clauses  i  to  xiv  inclusive and
number being in the nature of capital expenditure or personal
expenses of the assessee laid out or expended wholly and
exclusively for the purpose of such business profession or
vocation as a permissible allowance in the companyputation of
profits or gains of the business carried on in the year of
account. payment of interest is expenditure but it is number
an allowance of the nature described in cl.  iii  and there
is numberother clause in cls.  i  to  xiv  to which the payment
of interest on unpaid balance of companysideration for sale of
assets may be attracted. the expenditure was incurred after
the companymencement of the business. ile expenditure is number
for any private or domestic purposes of the assessee
company. it is in the capacity of a person carrying on
business that this interest is paid. the question then is whether the expenditure is of a
capital nature. it is number easy ordinarily to evolve a
test for ascertaining whether in a given case expenditure is
capital or revenue for the determination of the question
must depend upon the facts and circumstances of each case. ile companyrt has to companysider the nature and ordinary companyrse of
business and the objects for which the expenditure is
incurred. the assessee companypany urged that the payment of
interest was revenue expenditure for the purposes of the
business of the assessee companypany because in the event of
 1   1947  15 i.t.r. 87.
failure to pay interest accruing due the scindias would
enforce the hen and the business of the assessee companypany
would companye to an -end and that in any event the expenditure
was necessary on grounds of business expediency and incurred
in order directly -or indirectly to facilitate the carrying
on of business. if the principal or the interest accruing
due was number paid the scindias had undoubtedly a right to
enforce their lien against the assets of the assessee
companys business but that cannumber be regarded as a -round
for holding that the expenditure fell within s. 10  2   xv . even in respect of a liability wholly unrelated to the
business it would be open to a creditor to sequester the
assets of the assessees business and such sequestration may
result in stoppage of the operations of the business. expenditure for satisfying liability unrelated to the
business even if incurred for avoiding danger apprehended or
real to the companyduct of the business cannumber be said to be
revenue expenditure. number can it be said that because a
liability has some relation to the business which is carried
on expenditure incurred for satisfaction of such liability
is always to be regarded as falling within s. 10 2   xv . whether a particular expenditure is revenue expenditure
incurred for the purpose of business must be determined on a
consideration of all the facts and circumstances and by the
application of principles of companymercial trading. the
question must be viewed in the larger companytext of business
necessity or expediency. if the outgoing or expenditure is
so related to the carrying on or companyduct of the business
that it may be regarded as an integral part of the profit-
earning process and number for acquisition of an asset or a
tight of a permanent character the possession of which is a
condition of the carrying on of the business the
expenditure may be regarded as revenue expenditure in a
recent case state of madras v. g. j. companylho 1  this companyrt to
consider the permissibility of a deduction under s. 5 e  of
the madras plantations agricultural income-tax act 1955.
section 5 e  it may be observer is in terms similar to s.
10  2   xv  of the income-tax act. section 5 permits
deductions of various items of expenditure in the
computation of agricultural income. clause  e  provides for
the deduction of any expenditure incurred in the previous
year  number being in the nature of capital expenditure or
personal expenses of the assessee  laid out or explended
wholly and exclusively for the purpose of plantation. the
assessee in that case had purchased an estate companysisting of
tea companyfee and rubber plantations in the nilgiris mountains
for rs. 310000.  1   1964  53 i.t.r. 186.
he borrowed rs. 290000 on interest and claimed to deduct
the interest paid out of the income of the plantations in
the assessment year 1955-56. the claim was made under cls.  e  and  k  of s. 5. the claim under cl.  k  was number
admissible because interest was number payable on the amounts
borrowed and actually spent on the plantations in the
previous year and the sole question which fell to be
determined was whether it was a permissible allowance under
s. 5  e . it was held that the payment of interest was number
in the nature of capital expenditure in the year of account. the companyrt held that payment of interest even in respect of
capital borrowed for acquiring assets to carry on business
must be regarded as revenue expenditure in companymercial
practice and should number be termed as capital expenditure. dealing with the application of s. 5  e  it was observed
the assessee had bought the plantation for
working it as a plantation i.e. for growing
tea companyfee and rubber. the payment of
interest on the amount borrowed for the
purchase of the plantation when the whole
transaction of purchase and the working of the
plantation is viewed as an integrated whole
is so closely related to the plantation that
the expenditure can be said to be laid out or
expended wholly and exclusively for the pur-
pose of the plantation. in this companynection
it is pertinent to numbere that what the act
purports to tax is agricultural income and number
agricultural receipts. from the agricultural
receipts must be deducted all expenses which
in ordinary companymercial accounting must be
debited against the receipts must be deducted
all expenses do number see any distinction
between interest paid on capital borrowed for
the acquisition of a plantation and interest
paid on capital borrowed for the purpose of
existing plantations both -are for the
purposes of the plantation. the test laid down by this companyrt therefore was that
expenditure made under a transaction which is so closely
related to the business that it companyld be viewed as an
integral part of the companyduct of the business may be
regarded as revenue expenditure laid out wholly and
exclusively for the purposes of the business. the assessee companypany had undoubtedly acquired the assets
by pledging its credit. the assessee companypany was formed for
the purpose of taking over the business which the scindias
had acquired and for carrying on that business the assets
with which
the business was to be carried on were required. for
obtaining those assets the assessee companypany rendered itself
liable for a sum of rs. 5156000 and agreed to pay that sum
with interest at the rate stipulated. the transaction of
acquisition of the assets was closely related to the
commencement and carrying on of the business. interest paid
on the amount remaining due must in the numbermal companyrse be
regarded as expended for the purpose of the business which
was carried on in the year of account. there is numberdispute
that if interest was paid for the purpose of the business
it was laid out or expended wholly and exclusively for that
purpose. mr. rajagopala sastri on behalf of the revenue companytended
that as profits which arise after the business is closed are
number taxable under s. 10 1  expenditure the source of which
is a liability incurred before the actual companymencement of
business cannumber also be regarded as a permissible outgoing
under s. 10 2  xv. . it is unnecessary to examine the
correctness of this argument for it has numberbasis in fact. the assessee companypany was formed on august 10 1953 it had
entered into an agreement on august 12 1953 and interest
was paid in the years of account ending june 30 1954 and
june 30 1955. the source of liability cannumber be said to
have arisen prior to the date on which the business of the
assessee companypany was companymenced. section 10 2  requires that
in companyputing the taxable profits or gains of a business
which is carried on in the year of account allowances of the
nature described in cls.  i  to  xv  should be made. if no
business was carried on in that year the allowances are number
permissible. but interest in respect of which allowance is
claimed was paid at a time when the business was carried on
and the source of liability to pay interest was also
incurred within the period in which the business was carried
on.


civil appellate jurisdiction petition for special
leave to appeal number 5844 of 1980.
from the judgment and order dated 1-2-1979 of the
karnataka high companyrt in o.s.a. number 5 of 1975.

s. chitale and p. r. ramases for the petitioner. nemo for the respondent. the order of the companyrt was delivered by
bhagwati j.- we think that the view taken by the high
court is the companyrect view on the interpretation of sections
529 and 530 of the companypanies act 1956. section 529 provides
that in the winding up of an insolvent companypany the same
rules shall prevail and be observed with regard to the
provable debts as are in force to the time being under the
law of insolvency with respect to the estate of persons
adjudged insolvent. this provision brings in the
applicability of section 46 of the provincial insolvency act
which reads
where there have been mutual dealings between an
insolvent and a creditor proving or claiming to prove a
debt under this act an account shall be taken of what
is due from the one party to the other in respect of
such mutual dealings and the sum due from the one
party shall be set off against any sum due from the
other party and the balance of the account and no
more shall be claimed or paid on either side
respectively. this rule enacted in section 46 of the provincial insolvency
act with regard to the debts provable by a creditor against
the insolvent must therefore likewise apply in regard to
debts provable against a companypany in winding up. companysequently when the respondent in the present case
claimed to prove her debt against the companypany in
liquidation she was entitled to the benefit of the rule
enacted in section 46 of the provincial insolvency act and
she companyld legitimately claim that since there were
admittedly mutual dealings between her and the companypany in
liquidation an account should be taken in respect of such
mutual dealings and only that amount should be payable or
receivable by her which is due at the foot of such account. it is true that section 530 provides for preferential
payments but that provision cannumber in any way detract from
full effect being given to section 529 and in fact the only
way in which these two sections can be reconciled is by
reading them together so as to provide that whenever any
creditor seeks to prove his debt against the companypany in
liquidation the rule enacted in section 46 of the
provincial insolvency act
should apply and only that amount which is ultimately found
due from him at the foot of the account in respect of mutual
dealings should be recoverable from him and number that the
amount due from him should be recovered fully while the
amount due to him from the companypany in liquidation should
rank in payment after the preferential claims provided under
s. 530. we find that the same view has been taken by the
english companyrts on the interpretation of the companyresponding
provisions of the english companypanies act 1948 and since our
companies act is modelled largely on the english companypanies
act 1948 we do number see any reason why we should take a
different view particularly when that view appears to be
fair and just. we may point out that gore browne in his
book on companypany law 43rd ed at page 34-14 also companyfirms
this view
indeed all claims provable in the winding up may be
the subject of set-off provided that there is
mutuality. moreover we find that the observations of the house of
lords in national westminster bank limited v. halesowen
presswork assemblies limited are also to the same effect. we
may also usefully refer to the observations of sir ernest
pollock m. r. in re. city life assurance company limited where the
learned master of the rolls after referring to section 207
of the companypanies act 1908  s. 317 of the companypanies act
1948  which companyresponds to section 529 of companypanies act
1956 and section 31 of the bankruptcy act 1914 which
corresponds to section 46 of the provincial insolvency act
says
it is to be observed that s. 31 of bankruptcy
act 1914 is definite in its terms that where there is
a mutual credit mutual debt or other mutual dealings
the sums are to be set off and the balance of the
account and numbermore shall be claimed or paid on either
side respectively.


original jurisdiction writ petition number 453 of 1974.  petition under article 32 of the companystitution of india

k. sinha and k. r. nambiar for the petitioner

k. chakravarty and g. s. chatterjee for the
respondent. the judgment of the companyrt was delivered by
chandrachud j.-this is a habeas companypus petition challenging
the validity of an order of detention passed by the district
magistrate 24 parganas west bengal on august 28 1973.
that order was passed under the maintenance of internal
security act 1971 on the ground that the petitioner was
acting in a manner prejudicial to the maintenance of
supplies and services essential to the companymunity. the particulars of the ground of detention furnished to the
petitioner state that on august 19 1973 when the
petitioners godown at naihati was searched property
belonging to the railway which was
number available in the open market and which was of the
approximate value of rs. 1180.50 was found. the property is
stated to companysist of 10 pieces of tic bars 10 pieces of
rly. fish plates 7 pieces of companyplings 20 pieces of two
way keys and 11 pieces of cut pieces of rails. the case of the petitioner as disclosed in his petition is
that the articles recovered from his godown are scrap metal
and that such articles are available in the open market. the petitioner claims to have purchased several such
articles of scrap metal on april 12 and june 28 1973 from a
firm called r. choudhary company doing business at 121/4a
manikotla main road calcutta. the petitioner has produced
stamped receipts alleged to have been issued by the
sellers. the receipt dated april 12 1973 is in the sum of
rs. 525-60. the receipt is apparently issued in the name of
the petitioner and relates to scrap companysisting of companyplings
dog pins clips pull rod keys socket fish plates etc. the
price of the scrap material is stated in the receipt to be
rs. 510.00 on which sales tax at 3 and surcharge on the
sales tax at 2 is charged. the second receipt dated june
28 1973 also purports to have been issued by the sellers r.
chaudhary company in favour of the petitioner. the receipt
evidences the safe of similar scrap articles of the value of
rs. 5000.00. adding the sales tax and the surcharge the
amount of the bill is made out in the receipt at rs. 5153.
the district magistrate in his companynter affidavit says that
the goods which were recovered from the godown of the
petitioner are of a special kind used exclusively by the
railways and are number available in the open market. a
criminal case was filed against the petitioner under section
3 a  of the railway property  unlawful possession  act 1966
but that case companyld number be proceeded with as according to
the district magistrate the witnesses did number dare to
depose in open companyrt against the detenu for fear of their
lives. it appears from the companynter affidavit that a
petition filed by the petitioner in the calcutta high companyrt
to challenge the very order of detention was dismissed on
december 21 1973. the seizure list which is annexure b to
the companynter affidavit companytains at the end a certificate by
the sub-inspector of police who seized the articles that
they appear to be serviceable rly. p.w.d. materials and
rly. carriage materials. this strikes us as a typical case in which for numberapparent
reason a person who companyld easily be prosecuted under the
punitive laws is being preventively detained. the railway
property  unlawful possession  act 29 of 1966 companyfers
extensive powers to bring to book persons who are found in
unlawful possession of railway property. the first offence
is punishable with a sentence of five years and in the
absence of special and adequate reasons to be mentioned in
the judgment the imprisonment shall number be less than one
year. when a person is arrested for an offence punishable
under that act officers of the railway protection force
have the power to investigate into the alleged offence and
the statements recorded by them during the companyrse of
investigation do number attract the provisions of section 162
criminal procedure companye.  see criminal appeal number 156 of
1972 decided on 23-8-1974 . if the facts stated in the
ground are true this was an easy case to take to a
successful termination. we find it impossible
to accept that the prosecution companyld number be proceeded with
as the witnesses were afraid to depose in the public against
the petitioner. the sub-inspector of police who made the
panchnama we hope companyld certainly number be afraid of giving
evidence against the petitioner. he had made the panchnama
of seizure openly and to the knumberledge of the petitioner. besides if the petitioners statement was recorded during
the companyrse of investigation under the act of 1966 that
itself companyld be relied upon by the prosecution in order to
establish the charge that the petitioner was in unlawful
possession of railway property. the petitioner has produced receipts in respect of the
purchases made by him and those receipts show that even
sales tax and surcharge on sales tax was charged on the sale
price. all that the district magistrate says in regard to
the. receipts is that the receipts which have been annexed
to the writ petition would number be of any material
assistance. this statement makes numbersense because the
receipts companystitute the very foundation of the petitioners
defence to the charge that he was in unlawful possession of
railway property. we are therefore of the opinion that on the material which
was available to the detaining authority it was impossible
to arrive at the companyclusion that the possession of the
petitioner was unlawful.