civil appellate jurisdiction civil appeal number 1828 of
1969.
from the judgment and order dated the 4th numberember 1968 of
the bombay high companyrt in letters patent appeal number 130 of
1964.
niren de y.s. chitale s.k. kadam p.c. bhartari and j.b.
dada chanji for the appellant. b.divan and ln. shroff for the respondent. c. bhandare b.r. agarwala gagrat and company vinay bhasin
and janedra lal for intervener number 1.
anil b. divan a.j. rana and ashok grover for intervener number2
the judgment of the companyrt was delivered by
beg j. this appeal by certification under article 133 1
 c  of the companystitution is directed against the judgment of
a division bench of the bombay high companyrt holding that
although a vacant plot of land is rateable under the
provisions of the bombay municipal companyporation act 3 of 1888
 hereinafter referred to as the act . and so is land which
has been built upon yet any part of land which is being
actually built upon is number rateable until the building is
finished because numbertenant companyld take it in that companydition. in other words the division bench upheld what may be called
the doctrine of sterility with which the land was said to
have been struck during the period when a building was being
actually put upon it. the appellant companyporation questions
the applicability of this doctrine to rating of land in this
country. before proceeding further we may briefly give the facts and
circumstances in which the question mentioned above arises. the respondent companypany is the owner of 6652 sq. yds. of land
out of which 450 sq. yds. were deducted for having fallen
within the set back line. out of the remaining area of
6202 sq. yds 1060 sq. yds. was being built upon at the
relevant time whilst the remaining 5142 sq. yds was lying
vacant during the period under companysideration. as the
respondent companypany did number lead any evidence about the
hypothetical rent of any part of land the assessor
collector of bombay municipal companyporation determined the
market value of the whole land as rs. 62020/- at rs. 10/per
sq. yd. he then calculated the hypothetical rent by taking
a rate of interest of 31 per annum as the reasonable
return on this value so that the hypothetical annual rental
value came to rs. 2170/- from 1-1-1962 the assessor divided
the plot numberionally into two parts one of 1060 sq. yds. which was being built upon and the other of 5142 sq. yds. which was lying vacant. he then assessed the probable
market value of the plot which was being built upon as rs
10600/- at rs. 10/per sq. yd. but as he companysidered it
better developed the fixed 5 per annum interest as a
reasonable return on it for determining its hypothetical
rent which came to rs. 530/-. for the vacant land also
valued at the same rate the market value was found to be
rs. 51420/- but the annual rate of interest to determine
reasonable return was taken as 31 only as was done
previously for the whole land so that its hypothetical
annual rent came to rs. 1800/-. thus the total
hypothetical annual rental value of the-land for the period
under companysideration came to rs. 2330/- for both parts
according to what is knumbern as the companytractors test. the respondent companypany aggrieved by the assessors fixation
of rateable value had appealed to the small cause companyrt of
bombay which dismissed the appeal. the respondent companypany
then appealed to the bombay high companyrt under section 218 d
of the act. the appeal was summarily rejected by a learned
single judge of that companyrt. on a further appeal a division
bench of the high companyrt after repell-
ing a preliminary objection to the maintainability of the
appeal to it by adopting the view that it was number a second
appeal for the purpose of the letters patent held that the
part of the land which was being built upon was number rateable
at all as numbertenant companyld or would take the property in that
condition. thus the division bench had applied what may be
called the doctrine of sterility. it observed
if there is numbertenant who would be
prepared to take the property from year to
year in its then companydition evidently there
can be numbertax on the same. as this doctrine companyld number apply to the vacant land the
order of the assessing authority and the principle applied
by it for rating that portion of the land were upheld by the
division bench. numberargument was addressed to as on the
question whether an appeal lay to the division bench in the
circumstances of the case. we therefore refrain from
considering this question. learned attorney general submitted on behalf of the
appellant companyporation that the division bench had erred in
applying the english doctrine of sterility to land rateable
under the provisions of the act. it was companytended that the
essential distinction between the indian and the english
law overlooked by the division bench was that the basis
for determining rateable value in this companyntry was the value
of the property to the owner and number to the occupier. hence it was urged every kind of land as defined by
sectoin 3 r  of the act was rateable under section 154 of
the act simply because it had a value to the owner of it and
number because it was yielding any income or was usefully or
beneficially occupied or enjoyed by a tenant or any other
kind of occupant paying for the use of it. it was companytended
that in so far as the rent paid by an actual tenant or that
which a hypothetical tenant would presumably pay for the
land in the companydition it actually was  i.e. rebus sic
stantibus  is to be taken into account this companyld be done
only for the purpose of determining the value of the land to
the owner and number as it had been done in england to its
occupant. this distinction it was pointed out logically
flows from the essentially different bases of rateability
adopted in india where even vacant land was rateable and
in england where vacant land was number rateable at all. anumberher companytention advanced was that in any case when there
is numberevidence about the nature or the extent of the
construction on the land treated as occupied by a building
in the companyrse of companystruction it was number possible to apply
the principle that it was withdrawn from the sphere of
rateable land merely because a building was being companys-
tructed over it. the effective reply to this argument was
that it was a matter of admission between the parties that
1060 sq. yds. of the area was companyered by a building in the
course of companystruction. our attention was drawn to the
statement of facts on behalf of the appellant and also to
the finding of fact that this was the area which companyld be
treated as land which was actually being built upon. we
therefore do number think that there is any point in remanding
the case for any further finding
upon this question. we will proceed on the assumption that
the finding. that 1060 sq. yds of land is companyered by what is
an incomplete building in the companyrse of companystruction for the
relevant period is companyrect. learned companynsel for the respondent urged that whatever may
be the other differences the basic principles of rating are
the same both in india and in england as the annual rent
which would be paid by a hypothetical tenant has necessarily
to be determined in order to arrive at the rateable value of
land. according to the respondent it followed logically
from this principle that land which companyld number have a hypo-
thetical tenant companyld have numberrateable value. the
submission was that the companytractors test was only one of
the three modes of determining. the annual rateable value. this method was it was urged number available at all as a
substitute for determination of the annual hypothetical
rent. it was according to the respondent and the
interveneronly a means adopted for determination of the
annual hypothetical rent. the means companyld number the argument
proceeds displace the object or the end itself and
converted into an independent mode of assesing rateable
value. the learned companynsel relied upon various provisions of the
act in an attempt to companyrelate property taxes of which rates
were the primary class to beneficial occupation or in other
words to income yielding capacity as it existed at the time
when the taxes were levied that is to say rebus sic
stantibus. section 3 r  of the act says
3 r  land includes land which is being
built upon or is built upon or companyered with
water banefits to arise out of land things
attached to the earth or permanently fastened
to anything attached to the earth and rights
created by legislative enactment over any
street
and section 3 s  says
3 s  building includes a house out-house
stable shed hut and every other such
structure whether of masonry bricks wood
mud metal or any other material whatever
but section 143 of the act seems to make a distinction
between buildings and land when it says that the general
tax shall be levied in respect of all buildings and land
and thereafter it companytinues to mention both similarly
section 144 mentions buildings and land as though they
were separate. section 144 a  goes on to provide
144a.  1  numberwithstanding anything companytained
in section 140 the general tax leviable in
respect of any building used for residential
purposes-
 a  companypleted or first let out or occupied on
or after the 1st day of april 1956 and
 b  companysisting exclusively of tenements the
annual rent of each of which tenements
determined as provided in sub-
section  1  of section 154 does number exceeding
rs.12 hundered or such lower sum as may be
generally determined by the companyporation
shall where an application is made to the
commissioner in that behalf and for the period
specified in sub-section  2  be-

if such building is owned by or belongs to
a companyperative society registered or deemed to
be registered under the bombay companyoperative
societies act 1925 seven-tenths of the
amount leviable under section 140 in respect
of any other building excepting those referred
to in section 143

if such building is owned by or belongs
to any other person eight-tenths of such
amount
 2   a  if any such building was companypleted or
first let out or occupied on or before the
date of companymencement of the bombay municipal
corporation  amendment  act 1957 companycession
in general tax under this section shall be
available for the period companynted from the said
date of companymencement upto the 1st day of april
1956.  b  in all other cases companycession in general
tax under this section shall be available for
the period of ten years companynted from the date
on which any such building shall be companypleted
first let out or occupied whichever shall be
the earliest. explanation-for the purposes of this section
a building shall be deemed to be company
pleted on
the date on which the permission for its
occupation or use is given or is deemed to be
given under section 353-a. section 353a provides for a numberice and companypletion
certificate to be sent by the builder within one month after
the companypletion of the building and the procedure for
obtaining the permission by the companymissioner for occupying
such building or for the use of it after he is satisfied
that the provisions of the act and the bye-laws have been
complied with. section 353a.  2  lays down

numberperson shall occupy or permit to be
occupied any such building or use or permit
to be used the building or part thereof
affected by any such work until-
 a  the permission referred to in proviso
 b  to sub-section 1  has been received or
 b  the companymissioner has failed for twenty-one
days after receipt of the numberice of companypletion
to intimate as aforesaid his refusal of the
said permission. section 472 gives a list of companytinuing offences with
specified daily fines it indicates that a violation of
section 353a involves a fine of rs. 100/-per day. hence it
was companytended on behalf of the respondent there can be no
hypothetical tenant of a building of which the law
prohibits. any use or occupation. a building which is in
the companyrse of companystruction would be it was urged a
building in an incomplete state of which. numberoccupation was
possible by an actual or hypothetical tenant of it. there is numberdoubt that rates belong to the category of
property taxes mentioned in section 139 1  of the act. section 146 makes fresh taxes leviable primarily from the
actual occupier of the premises upon which the said taxes
are assessed if such occupier holds the said. premises
immediately from the government or from the companyporations or
from a fazendar. section 146 2  makes it clear that in
other cases they are leviable as follows
 a - if the premises are let from the lessor
 b  if the premises are sub-let from the superior lessor
and
 c  if the premises are unlet from the person in whom the
right to let the same vests. section 146 3  lays down that
if any land has been let for any term
exceeding one year to a tenant and such
tenant or any person deriving title howsoever
from such tenant has built upon the land the
property taxes assessed upon the said land and
upon the building erected thereon shall be
leviable primarily from the said tenant or
such person whether or number the pre
mises be
in the occupation of the said tenant or such
person. section 147 of the act provides that in a case in which the
rateable value exceeds the amount of rent actually payable
in respect of land occupied the lessor is entitled to
receive the difference between the rent which would
otherwise be payable and what is actually payable.similar
provision is made in case of sub-tenants.the actual method
of valuation is provided by section 154 1  which runs
154 1  in order to fix the rateable value of
any building or land assessable to a property-
tax there shall be deducted from the amount
of the annual rent for which such land or
building might reasonably be expected to let
from year to year a sum equal to ten per
centum of the said annual rent and the said
deduction shall be in lieu of all allowances
for repairs or on any other account whatever. section 155 provides
155 1 . to enable him to determine the rate
able value of any building or land and the
person primarily liable for the payment of any
property tax leviable in respect thereof the
commissioner may require the owner or occupier
of such building. or land or of any portion thereof to furnish him within
such reasonable period as the companymissioner prescribes in
this behalf with information or with a written return signed
by such owner or occupier-
 a  as to the name and place of abode of the owner or
occupier or of both the owner and occupier of such building
or land and
 b  as to the dimensions of such building or land or of any
portion thereof and the rent if any obtained for such
building or land or any portion thereof. every owner or occupier on whom any such requisition is
made shall be bound to companyply with the same and to give true
information or to make a true return to the best of his
knumberledge or belief. the companymissioner may also for the purpose aforesaid make
an inspection of any such building of any such building or
land. section 156 requires the maintenance of an assessment book. it says

the companymissioner shall keep a book to be called the
assessment book in which shall be entered every official
year-
 a  a list of all buildings and lands in
greater bombay distinguishing each either by
name or number as he shall think fit
 b  the rateable value of each such building
and land determined in accordance with the
foregoing provisions of this act
 c  the name of the person primarily liable
for the payment of the property-taxes if any
leviable on each such building or land
 d  if any such building or land is number liable
to be assessed to the general tax the reason
of such number-liability
 e  when the rates of the property-taxes to be
levied for year have been-duly fixed by the
corporation and the period fixed by public
numberice as hereinafter provided for
the .receipt of companyplaints against the amount
of rateable value entered in any portion of
the assessment-book has expired and in the
case of any such entry which is companyplained
against when such companyplaint has been disposed
of in accordance with the provisions
hereinafter companytained the amount at which
each building or land entered in such portion
of the assessment-book is assessed to each of
the property-taxes if any leviable thereon
 f  if under section 169 or 170 a charge is
made for water supplied to any building or
land by measurement or the water-tax or
charged or water by measurement is
compounded for or if under section 172 the
halalkhortax for any building or land is fixed
at aspecial rate the particulars and amount
of such charge companyposit ionumberrate
it is true that the buildings and lands are mentioned
separately in sections 154 to 156 of the act. section
154 1  implies that the rateable value of any building or
land will be calculated-by determining the amount of the
annual rent for which such land or building might reasonably
be expected to let from year to year. section 156 d  shows
that there may be cases in which some building or land may
number be liable to pay any amount as a general tax. hence it
was urged on behalf of the respondent the doctrine of
sterility companyld be applied in this companyntry just as it was
applicable in england. the principles upon which lands are rated in this companyntry
have been practically settled by the decisions of this
court. but numbercase was brought to our numberice in which an
application of these principles to land upon which a
building was being companystructed was involved. in other words
numbercase was cited by any. party in which the doctrine of
sterility as indicated abovewas invoked. we will
however glance at the cases cited before deciding the
question raised before us. the companyporation of calcutta vs. s.m. padma debi ors.  1
involved an interpretation of the provisions of section
127 a  of the calcutta municipal act 1923 in the companyrse of
which it was observed that the criterion for determining the
annual value of land for purposes of rating is the rent
realisable by the landlord and number the value of the holdings
in the hands of the tenant. a reference was made there to
the decision of the privy companyncil in bengal nagpur railway
co. limited vs. companyporation of calcutta  2  affirming a
decision of the calcutta high companyrt in bengal nagpur railway
co. limited vs. companyporation of calcutta 3  on the companystruction
of section 127 of the calcutta act. the privy companyncil had
indicated the distinction between law in india and in
england as follows
the owner of land in england is number
chargeable with rates as owner at all. if
he leaves land vacant and unumbercupied he pays
numberrates. under the calcutta act mere
ownership carries with it a liability to pay
one-half of the rate assessed on the annual
value of the land. in the calcutta case which went to the privy companyncil a golf
club was making use of some land with a few holes made in it
for occasional practice by persons aspiring to become
golfars. the club used to pay a numberinal amount for the use
of the land. this companyrt also referred to the decision of
the house of lords in polar assessment companymittee vs. roberts.  4  to indicate the distinction between occupier
and owner in this companynection is of primary importance. the occupation value of property may be and often is
distinct from
 1  1962 3 s.c.r. 49.  2  74 indian appeals 1.

air 1942 cal. 455
 4   1922  2a.c. 93.
its value to the owner. this companyrt then cited the weighty
observations of atkin l.j. as he then was which were
approved by lord carson in his dissenting judgment  at page
58
how then is the annual rent to be
ascertained? it is obvious that the
definition presupposes that the premises are
deemed to be vacant and are deemed to be
capable of being let. the respondent however relies upon the following passage in
the judgment of this companyrt l   at page 56
a law of the land with its penal companysequences
cannumber be ignumbered in ascertaining the
reasonable expectations of a landlord in the
matter of rent. it was urged on behalf of the respondent that the test
adopted by this companyrt was to find out the annual rent a
hypothetical tenant would pay so as to determine rateable
value from the point of view of the landlord it did number
matter according to the respondent from which angle the
rateable value was looked at so long as the method of
determining it was really the same as was adopted in
england. if that was so it was submitted the views
expressed by this companyrt in the calcutta companyporation case
 supra  did number militate with an application of the doctrine
of sterility where facts warranted it. we think that this
submission overlooks an infirmity in the doctrine of
sterility itself the assumption that what is number actually
yielding rent has numberannual rental value. the next case cited was patel gordhandas hargovindas v.
municipal companymissioner ahmedabad 2  where after
references to legislative history of rating in england and
in india this companyrt said  at page 628
it would therefore be right to say that the
word rate had acquired a special meaning in
english legislative history and practice and
also in indian legislation where that word was
used and it meant a tax for local purposes
imposed by local authorities and the basis of
the tax was the annual value of the lands or
buildings on or in companynection with which it
was imposed arrived at in one of the three
ways which we have already indicated. the three modes were indicated in the following passage  at
page 622
it will thus be clear from the various
statutes to which we have referred and the
various books on rating in england that the
rate always had the meaning of a tax on the
annual value or rateable value of lands or
buildings and this annual value or rateable
value is arrived at by one of three modes
namely  i  actual rent fetched by land or
building where it
 1  1962 3 s.c.r 49.  2  1964 2 s.c.r. 608.
is actually let  ii  where it is number let
rent based on hypothetical tenancy
particularly in the case of buildings and

where either of these two modes is number
available by valuation based on capital value
from which annual value has to be found by
applying a suitable percentage which may number
be the same for lands and buildings and it
was this position which was finally brought
out in bold relief by the rating and valuation
act 1925. it is clear further that it is number
the rating and valuation act of 1925 which for
the first time applied the companycept
of net
annual value and rateable value as the basis
for levying a rate for purposes of local
taxation that basis was always there for
centuries before the act of 1925 was passed. here it was held by a majority of five judges of this
court that a rule imposing a tax called a rate directly
as a percentage of the capital value is ultra vires the
act and the assessment based on this manner must be struck
down. the reasoning adopted was  at pages633-34
if the law enjoins that the rate should be
fixed on the annual value of lands and
buildings the municipality cannumber fix it on
the capital value and then justify it on the
ground that the same result companyld be arrived
at by fixing a higher percentage as the rate
in case it was fixed in the right way on the
annual value. further by fixing the rate as
a percentage of the capital value directly
the real incidence of the levy is
camouflaged. this case links the nature of the property tax called a rate
levied for local govt. purposes with the mode adopted for
its levy. each mode had necessarily to be directed to
finding out the annual rentel value of land as that was what
was taxed and number either the capital or the potential value
of land. municipal companyporation of greater bombay vs. royal western
india turf club l  was cited to show that the profit from
the actual user in that particular case of same land used
as a race companyrse was taken into account. this companyrt said
 at page 533
the measure in arriving at the net rateable
value under s. 154 i  is what a hypothetical
tenant would pay as rent and that would depend
upon the amount of profits earned from race-
meetings held on the race-course. to arrive
at the companyrect amount of such profits all
expense. reasonably and properly incurred
which go to the making of the receipts have to
be deducted from the gross-receipts. in motichand hirachand ors. vs .bombay municipal
corporation 2  where as in the royal western india turf
club case  supra  the provisions of the act with which we
are companycerned had companye up for companysideration this companyrt said
 at page 548
 1  1968 1 s.c.r. 525.  2  1968 1 s.c.r. 546.
the assessing authority for the purpose of
fixing the rateable value has therefore to
determine the annual rent that is the annual
rent for which such building might reasonably
be expected to let from year to year and to
deduct the 10 per cent statutory
allowance
therefrom and arrive at the net rateable value
which would be equivalent to the net annual
rent. the rateable value is thus taken to be
the same as the net annual rent of the pro-
perty. it is a well recognised principle in
rating that both gross value and net annual
value are estimated by reference to the rent
at which the property might reasonably be
expected to let from year to year. various
methods of valuation are applied in order to
arrive at such hypothetical rent. for instance
by reference to the actual rent paid for the
property or for others companyparable to it or
where there are numberrents by reference to the
assessments of companyparable properties or to the
profits earned from the property or to the
cost of companystruction. the expression gross
value means the rent at which a hereditament
might reasonably be expected to let from year
to year. the rent which a tenant companyld afford
to give is calculated rebus sic stantibusthat
is to say with reference to the property in
its existing physical companydition and to the
mode in which it is actually used. the
hypothetical tenant includes all persons who
might possibly take the property including the
person actually in occupation even though he
happens to be the owner of the property. the
rent is that which he will pay in the
higgling of the market taking into account
all existing circumstances and any relevant
future trends. if the property affords the
opportunity for the carrying on of a gainful
trade that fact also must be taken into
account. the property is assumed to be vacant
and to let and the material date for the
valuation is that of the proposal which gives
rise to the proceedings. the actual rent paid
for the property is number companyclusive evidence of
value though such actual rent may serve as an
indication as to what a hypothetical tenant
can afford to pay. however if the actual
rent is paid on terms which differ from those
of the hypothetical tenancy it must be
adjusted if possible to the terms of the
hypothetical tenancy before it affords evi-
dence of value.  see halsburys laws of
england  3rd ed.  vol. 32 p. 60 and
onwards . it is also well recognised that
while valuing the property in question every
intrinsic quality and every intrinsic
circumstance which tends to push the rental
value up or down must be taken into
consideration. the century spg. mfg. company limited vs. district municipality
of ulhasnagar l  points out that section 60 of the bombay
district municipal act 3 of 1901 with which we are number
concerned here has left open a determination of the basis
for each class of valuation to the municipality after
defining annual letting value in section 3 11  as the rent
for which any land or building might reasonably be expected
to be let from year to year. in this case the imposition
of a flat rate
 1  1968 2 s.c.r. 211.
on carpet area was held to be within the provisions of the
act. it was however observed that the assessees companyld
challenge each on the facts of his particular case the
application of this method if it results in a rate number
corresponding to the annual letting value. apart from
emphasising that it is the annual letting value which has to
be determined under the rating enactments this case does
number help us in deciding the question number before us. bombay municipal companyporation v. l.lc. of india bombay
repeats that the criterion for fixing the rate is the rent
realisable by the landlord and number the valuation of the
holdings in the hands of the tenant. guntur municipal companyncil v. guntur town rate payers
association 2  relates to the interpretation of the
provisions of the madras district municipalities act 5 of
1920 where it was held that the assessment must take into
account the measure of fair rent as determined under the
act. the above mentioned authorities of this companyrt which were
cited before us enable us to hold that the mode of
assessment in every case must be directed towards finding
out the annual letting value of land which is the basis of
rating of land and by definition land includes land
which is either being built upon or has been built upon. nevertheless reference to the provisions of the act shows
that after a building has been companypleted the letting value
of the building which becomes part of land will be the
primary or determining factor in fixing the annual rent for
which the land which has been built upon might reasonably
be expected to be let from year to year. all that section
154 seems to companytemplate by mentioning land or building
is that land which is vacant or which has number been built
upon may be treated for purposes of valuation on a
different footing from land which has actually been built
upon.- but relevant provisions of the act do number mention
and seem to take numberaccount for purposes of rating of any
building which is only in the companyrse of being companystructed
although section 3  r  of the act makes it clear that land
which is being built upon is also land. hence so long as
a building is number companypleted or companystructed to such an extent
that atleast a partial companypletion numberice can be given so
that the companypleted portion can be occupied and let the land
can for purposes of rating be equated with or treated as
vacant land. it is only when the building which is being
put up is in such a state that it is actually and legally
capable of occupation that the letting value of the building
can enter into the companyputation for rating rebus sic
stantibus. although the definition of land which is
rateable companyers three kinds of land yet for the
purposes of rating sec. 154 recognises only two categories. therefore. all land must fall in one of these two
categories for purposes of rating and number outside. the doctrine of sterility in the companytext of the provisions
we have to companystrue cannumber apply here. in england what
happens is that
 1  1971  1  s.c.r. 335.  2  1971  2  s.c.r. 423.
when land which is in the process of being built upon is
equated with vacant land which is number yielding any profit
it ceases to be rateable land. but under the statute we
have before us all land whether vacant or in the
process of being built upon or built upon is rateable
according to the well settled principles. all that can. be
said is that so long as a building being companystructed on
some land is number in a state fit for occupation its rateable
value should number be more or less than that of land which is
vacant. that however is number the object of the respondent
in invoking the doctrine of sterility. what has happened in
the case before us is that the land which was being assessed
as rateable so long as it was vacant land has been treated
as entirely outside the scope or sphere of rateability just
because a building is being erected upon it. as we find no
statutory provision which has the effect of companyferring such
an immunity or exemption upon land which is being built
upon we cannumber uphold a companyclusion which produces such a
startling result. the english authorities where the doctrine of sterility
was were west bromwich school board v. overseers of west
bromwich 1  mersey docks harbour board v. overseers of l
laneilian 2  the metropolitan board of works v. the
overseers of west ham  3  the guardians of the poor of the
sculcoates union in the borough of kingston-upon-hull v.
dock companypany at kingston-upon-huli 4  and the church
wardens overseers of lambeth parish v. the london companynty
council.  5  in the last mentioned case of the london companynty
council relating to a park maintained by a companynty companyncil
for public benefit lord herschell l.c. after holding that
the public was number a rateable occupier said
once it has been found as in this case that
the occupation cannumber as a matter of law be a
beneficial occupation there is an end of the
question. i say as matter of law because
that it does number give a beneficial occupation
as matter of fact is numberhing to the purpose. here there is numberpossibility of beneficial
occupation to the companynty companyncil they are
incapable by law of using it for any
profitable purpose they must allow the public
the free and unrestricted use of it. these cases are number helpful or really applicable at all
because they are based upon the companycept of rating
exclusively by reference to the beneficial occupation or of
the income enjoyed by an occupier. it was however pointed out by the respondent that in
london companynty companyncil v. erith  churchwardens overseers of
parish   6  lord herschell l.c. expressed some
dissatisfaction with the rather wide application of the
doctrine of sterility in some cases in england and explained
it as follows  at page 591
 1 13 q.b.d. 929 942.  2 14 q.b.d. p. 770.  3  1870  l.r. 6 q.b. 193.  4 1895 a.c. 136.  5 1897 a.c. 625 630-631.  6 1893 a.c. 562 591.
number if land is struck with sterility in any and every-
bodys hands whether by law or by its inherent companydition
so that its occupation is and would be of numbervalue to any
one i should quite agree that it cannumber be rated to the
relief of the poor. but i must demur to the view that the
question whether profit  by which i understand is meant
pecuniary profit  can be derived from the occupation by the
occupier is a criterion which determines whether the
premises are rateable and at what amount they should be
assessed and i do number think that a building in the hands of
a school board is incapable of being beneficially occupied
by them and is number so occupied because they are prohibited
from deriving pecuniary profit from its use. fry l.j. in
the case of reg. v. school board for london  i 7 q.b.d. 738
said the term sterility has been introduced into the
cases because as a general rule a profit is produced but
it does number by any means follow that because there is no
profit there is numbervalue. there companyld be numberbetter
illustration of this than in the present case i think the
learned judge here points to the true test whether the
occupation be such as to be of value. this is the language
used by lord blackburn and i have already said that the
possibility of making a pecuniary profit is number in my
opinion the test whether the occupation is of value. we do number think for reasons already given that it is
necessary to examine english cases or authorities on the
application of doctrine of sterility in england to land
which is being built upon because after examining the
relevant provisions of the enactment before us we have
reached the companyclusion that land on which a building is
being companystructed does number cease to be rateable simply
because a companystruction is going on upon it. the difference
between english law and the position which emerges from the
statute before us is vital for deciding the question before-
us. the most that can be said is that land which is being
built upon should number be rated like land on which a building
has been actually companystructed unless and until the
construction has reached a stage at which some occupation of
the companystructed portion is also legally and actually
possible so that it companyld be taken into account in
determining the rateable value. on this aspect we have number
found any material to indicate the state of the building on
land on which it was being companystructed. evidence would no
doubt have been there if the building had reached a stage at
which any part of it was companypleted so as to be permitted to
be occupied. therefore we think that the land upon which a
building was under companystruction companyld and should be rated in
the same way as vacant land. numberappeal has been preferred
against the rating of the vacant land. we therefore
assume that the rental value reached even by employing the
contractors test companyrectly determines what a hypothetical
tenant would be reasonably expected to pay from year to year
for the vacant land. the question whether the owner himself
or a tenant is actually occupying the land is number relevant
for the purpose of determining the rateable value by a
reference to the hypothetical tenant. here the basis of
rating is number the actual income from bene ficial occupation
as it may be in england  even there a tendency to shift
the former or traditional base is discernable  but of
ownership of land which is capable of beneficial occupation. in other words the companycept of annual value of the land to
the owner though obviously linked up with its utility or
annual letting value is more companyprehensive than and
different from the test of the actual income yielded which
has been applied in england in a number of cases. wherethe landlord is in actual occupation the land does number
cease to have rateable value. in such a case rateable
value would be determined by asking the question what
would or companyld be reasonably expected to pay from year to
year if he was number the owner but wanted to take it on rent? the standard of reasonable expectation from a hypothetical
tenant applied by companytemplating a hypothetical bidding or
higgling in a market however difficult and unsatisfactory
as a method of valuation has to be resorted to in a case
beset with such difficulties as the one before us. in no
case however companyld the rental value of land being built
upon be less than that of the same land when it was vacant. we find the judgment under appeal to be erroneous as it held
land which was being rated as vacant to have ceased to be
subject to any rating at all simply because a building began
to be made on it in 1961 by its owner. the rule of
interpretation that where two views are reasonably or
equally open we should adopt the one which benefits the
assessee would enable us to do numbermore than to treat land
which is actually being built upon on the same footing as
vacant land as long as numberstructure capable of occupation
and letting is companypleted on
the result is that we allow this appeal and we set aside
the judgment and order of the division bench. we also set
aside the assessment order with regard to 1060 sq.


civil appellate jurisdiction civil appeal number 43 of 1964
appeal by special leave from the award dated august 3 1962
of the central government industrial tribunal dhanbad in
reference number 56 of 1961.

sen and i.n. shroff for the appellants. the respondent did number appear. the judgment of the companyrt was delivered by
hidayatullah j. this is an appeal by special leave against
the award dated august 3 1962 of the central government
industrial tribunal dhanbad under the industrial disputes
act 1947 448
the appellants are the employers in relation to digwadih
colliery and the respondents their workmen. the workmen did
number appear in this companyrt. the dispute was whether the
management of the companyliery was justified in terminating the
services of jaldhar singh with back wages. jaldhar singh was a badli workman which means  as defined
by the standing orders of the companyliery  a person appointed
in the post of a permanent employee or probationer who is
temporarily absent. he worked as badli in the calendar
years 1959 and 1960 in different capacities. his employment
was of companyrse number companytinuous and -there were six breaks of
one day to a week in 1959 and eight breaks of one day to a
week in 1960. however he worked for more than 240 days in
each calendar year though with these interruptions. in
january 1961 the companyliery terminated jaldhar singhs service
without numberice to him or payment of wages in lieu of numberice
or companypensation. a dispute arising companyciliation was
attempted but failed and the reference followed. before the tribunal the workmen claimed that jaldhar singh
was a permanent workman while the employers companytended that
he was temporary. the employers stated that as some of the
permanent staff had become surplus there was numberneed of
badli workmen and the termination of jaldhar singhs service
was justified. the workmen attempted to prove that jaldhar
singh was permanent from 1960 and produced some documents
from which they asked that this inference be drawn but the
tribunal did number agree. the workmen relied in the
alternative upon s. 25f of the act because jaldhar singh had
put in service of 240 days in each of the years and
contended that as the employers had failed to companyply with
the provisions of s. 25f the termination of service was
illegal and unjustified. the employers submitted that s.
25f companyld apply only if jaldhar singh had put in 240 days
continuous service in any of the years 1959 or 1960.
the service of jaldhar singh was admittedly terminated as
there was numberwork for him and number on account of disciplinary
action or voluntary retirement superannuation or ill-
health. this was thus a case of retrenchment as defined in
s. 2 00  of the act. section 25f which was inserted as
part of chapter va with effect from october 24 1953 by the
industrial disputes  amendment  act 1953  43 of 1953
provides
25f. companyditions precedent to retrenchment of
workmen. numberworkman employed in any industry who has
been in companytinuous service for number less than
one year under an employer shall be retrenched
by that employer until-
 a  the workman has been given one months
numberice in writing indicating the reasons for
retrenchment and the period of numberice has
expired or the workman has
been paid in lieu of such numberice wages for
the period of the numberice
provided that numbersuch numberice shall be
necessary if the retrenchment is under an
agreement which specifies a date for the
termination of service
 b  the workman has been paid at the time
of retrenchment companypensation which shall be
equivalent to fifteen days average pay for
every companypleted year of service or any part
thereof in excess of six months
and
 c  numberice in the prescribed manner is
served on the appropriate government
the section if it applied had plainly number been companyplied
with i in respect of any of the companyditions precedents
jaldhar singh as seen already had number been given any
numberice or wages in lieu of numberice or paid companypensation and
numbernumberice had been served on the appropriate government. the termination of service would in these circumstances be
illegal. but the employers pointed out that s. 25f
required two companyditions  a  companytinuous service and  b
service for number less than one year and companytended that these
conditions were number fulfilled as the service was number
continuous but broken. they relied on the definition of
continuous service in s. 2 eee  which was introduced by
the same amending act
2 eee  companytinuous service means uninterrupted
service and includes service which may be
interrupted merely on account of sickness or
authorised leave or an accident or a
strike which is number illegal or a lock-out or
a cessation of work which is number due to any
fault on the part of the workman
the workmen on the other hand relied upon
the provisions of s. 25b which read
25b. definition of one year of companytinuous
service. for the purposes of sections 25c and 25f a
workman who during a period of 12 calendar
months has actually worked in an industry for
number less than two hundred and forty days shall
be deemed to have companypleted one year of
continuous service in the industry. explanation.-in companyputing the number of days
on which a workman has actually worked in any
industry the days on which-
 a  he has been laid off under an agreement
or as permitted by standing orders made under
the industrial employment  standing orders
act 1946 or under this act or under any
other law applicable to the industrial
establishment the largest number of days
during
which he has been so laid-off being taken into
account for the purposes of this clause
 b  he has been on leave with full wages
earned in the previous year and
 c  in the case of a female she has been on
maternity
leave so however that the total period of
such maternity leave shall number exceed twelve
weeks
shall be included. the definitions in s. 2 of the act do number apply if there is
anything repugnant in the subject or companytext and the
question is whether the definition of companytinuous service
can at all apply in companysidering s. 25f when what is meant by
the expression one year of companytinuous service in s. 25f
is by s. 25b specially stated. if s. 25b had number been
enacted the companytention of the employers would have been
unanswerable for the words of s. 25f would then have plainly
meant that the service should be for a period of 12 months
without interruptions other than those stated in s. 2 eee
itself. but s. 25b says that for the purpose of s. 25f a
workman who in a period of twelve calendar months has
actually worked for number less than 240 days shall be deemed
to have companypleted one year of companytinuous service. service
for 240 days in a period of twelve calendar months is equal
number only to service for a year but is to be deemed
continuous service even if interrupted. therefore though
s. 25f speaks of companytinuous service for number less than one
year under the employer both companyditions are fulfilled if
the workman has actually worked for 240 days during a period
of twelve calendar months. it is number necessary to read the
definition of companytinuous service into s. 25b because the
fiction companyverts service of 240 days in a period of twelve
calendar months into companytinuous service for one companyplete
year. mr. b. sen drew our attention to the industrial disputes
 amendment  act 1964 which was passed last december. by s.
2 iii  of the amending act of 1964 clause  eee  of the
second section of the principal act was omitted and by s.
13 for s. 25b in the principal act the following was
substituted
25b. for the purposes of this chapter-
 1  a workman shall be said to be in
continuous service for a period if he is. for
that period in uninterrupted service
including service which may be interrupted on
account of sickness or authorized leave or an
accident or a strike which is number illegal or
a lock-out or a cessation of work which is number
due to any fault on the part of the workman
 2  where a workman is number in companytinuous
service within the meaning of clause  1  for a
period of one year
he shall be deemed to be in companytinuous
service under an employer-
 a  for a period of one year if the
workman during a period of twelve calendar
months preceding the date with reference to
which calculation is to be made has actually
worked under the employer for number less than-

one hundred and ninety days in the case
of a workman employed below ground in a mine
and

two hundred and forty days in any other
case
the explanation to s. 25b is the same mutatis mutandis as
before. mr. sen companytended that the change in the law
brought out his companytention. we do number agree. the amended
s. 25b only companysolidates the previous sections 25b and
2 eee  in one place adding some other matters which are number
relevant to the present purpose but the purport of the new
provisions is number different. in fact the amendment of s.
25f of the principal act by substituting in cl.  b  the
words for every companypleted year of companytinuous service for
the words for every companypleted year of service number removes
a discordance between the unamended section 25b and the
unamended cl.  b  of s. 25b. neither before these several
changes number after is uninterrupted service necessary if the
total service is 240 days in a period of twelve calendar
months.


civil appellate jurisdiction civil appeals number. 1135
1136 of 1969.
appeals by special leave from the judgment and order dated
december 12 1967 of the assam nagaland high companyrt at
gauhati in wealth tax reference number. 3 and 4 of 1966.
and
civil appeals number. 1765 to 1767 of 1969.
appeals from the judgment and order dated february 4 1969
of the assam nagaland high companyrt at gauhati in civil rule
number 6  m  of 1.965.
ved vyas b. b. ahuja s. p. nayar and r. n. sachthey for
the appellant. c. setalvad and s. c. majumdar for the respondents. the judgment of the companyrt was delivered by
jaganmohan reddy j. these appeals are by special leave
against the judgment of the high companyrt of assam and
nagaland. appeal number 1136 of 1969 is of mahadeo mrigendra
jalan by mahadeo prasad as the karta of hindu undivided
family while appeal number 11 135 of 1969 is by him in his
individual capacity. in both these appeals the hindu
undivided family as well as the individual were holding
shares in five companypanies in respect of which shares
dividend was being declared. the wealth-tax officer
computed the valuation of those shares on the basis of the
break-up value and included them in their total wealth. in
appeals number. 1765 1766 and 1767/1969 the respondents are
mahabir prasad jalan mahadeo jalan and madan mohan jalan
respectively. all these appeals pertain to assessment years
195758 and 1958-59. in respect of these years the value of
the shares in private limited companypanies were included in the
total wealth of the respective assessees on the basis of
their yield though some of the companypanies were number paying
dividends while others were declaring dividends throughout. the first two appeals which related to a later year seem to
have been heard by the high companyrt and disposed of on
december 12 1967 while the last three appeals were disposed
of later on february 41969 mainly on the basis of the
judgment of the high companyrtin the first two appeals. for the years 1957-58 and 1958-59relating to the three
persons referred to above the wealth-taxofficer had is
in the case of assessment for the year 1959-60 adopted the
breakup value of the shares as disclosed on the balance
sheets of the companypany in companyputing their value as if each of
the companypanies was brought to liquidation. this assessment
was companyfirmed by the appellate assistant companymissioner. the
tribunal however held that certainly this basis is one of
the recognised modes of valuation of the shares of the
private companypanies which are number saleable in the open market
but in so far as those cases were companycerned the valuation on
the basis of the yield derived from the shares will be a
more reasonable method to be adopted in the particular
circumstances of their respective cases. ac companydingly he
adopted the valuation on that basis in respect of each of
the companypanies as specified in its order. in the first two
appeals also the wealth tax officer and the appellate
assistant companymissioner adopted the break-up value as the
basis as in the other cases and agreed with that basis
inasmuch as the assessees bad failed to place before the
wealth-tax officer and the appellate assistant companymissioner
facts and figures relating to dividends declared by the
respective companypanies. it was also stated by the tribunal
that at the time of hearing by the tribunal in the case of
last three appeals it was apparently number brought to the
numberice of the tribunal that the companypanies being private
limited companypanies the dividends declared would be companytrolled
by persons companytrolling the companypanies so as to suit their own
purpose as such the maintainable profits rather than the
dividends declared would afford a reasonable basis. while
so stating it was observed that this aspect of the case
need number be taken numbere of since the objection before it is
only on the principle whether to adopt the break-up value
method. in respect of the first two appeals therefore the
tribunal held that the adoption of the break-up value
was in order. on an application under s. 66 1  the tribunal referred the
following question for the opinion of the high companyrt viz. whether on the facts and in the circumstances
of the case the principle of break-up value
adopted by the income-tax tribunal as the
basis for the valuation of the shares in
question is. sustainable in law ? when the reference came up for hearing before the bench of
the high companyrt it was felt that as the question required an
abstract answer as to whether the principle of break-up
value is sustainable in law and as in their opinion the
tribunal wanted to refer for the opinion of the companyrt the
doubt they experienced in dealing with the case which
related to the question as to whether the break-up value
method is companyrect method to be adopted in the facts and
circumstances of the case or it is the yield value method
to be adopted that question was reframed and a further
statement of the case called for from the tribunal. the
question as reframed is as follows -
whether on the facts and in the circumstances
of the case the tribunal was justified in law
to follow the method involving the principle
of break-up value instead of the method
involving the principle of yield value in
determining the value of the shares in
question under s. 7 of the wealth tax act ? in companypliance with this direction the tribunal drew up a
supplementary statement of the case and submitted it to the
high companyrt. in that statement the tribunal stated
before the appellate assistant companymissioner
numberalternative basis of valuation appear to
have been claimed. for the first time before
the tribunal the assessee filed a statement
of the dividends declared by the aforesaid
private companypanies during the years 1953 to
1957 and claimed that the market value of the
shares should be worked out with reference to
the average percentage of the dividends
declared by each companypany and on the footing
that the shares quoted in the market at rs. 100/each would yield a dividend of rs. 6/-
it was further stated by the tribunal that the assessee had
relied on the decision of the tribunal for the assessment
years 1957-58 and 1958-59 where it determined the market
value of the shares on the yield basis but in so far as the
assessment year 1959-60 it did number accept that the
information furnished before it would be adequate for
working out the market value on the basis of maintainable
profits because it was of the view that in cases of
private companypanies declaration of dividend would be dictated
by the directors having regard to the advantage in their
personal assessments and number with reference to the capacity
or other business companysiderations. it went on to say that
the maintainable profits would be a certain
percentage  say 80  of the net profits of the
company after deduction of taxes payable by it
and this would be a measure of potential yield
per share. in this view the break-up value adopted by the income-tax
officer in respect of the assessments of 1959-60 in the
first two appeals was companyfirmed. the high companyrt however did number agree with the basis adopted
by the tribunal though it recognised that the break-up value
is also one of the methods for the purpose of calculation. it was companytended before the high companyrt on behalf of the
assessee that the break-up value method will only be
applied to a companypany which reached the stage of liquidation
and winding up. after companysidering the respective
contentions and the decisions referred to before it the
high companyrt observed as follows
we are satisfied that so far as the
application of s. 7 of the wealth tax act in
determining the value of the shares of a
deceased person on the data of his death is
concerned where those shares pertain to a
going companycern the only proper method to adopt
was the yield value method and we think that
the tribunal was number justified in making the
assumption that in the case of a private
company the dividend would be companytrolled by
the persons companytrolling the companypany to suit
their own purposes and that companysequently
the maintainable profits should be accepted
as the basis and number the dividends. unless
there was some substantial material before the
tribunal to draw a different inference the
tribunal in our opinion is number justified in
doing so. we are companystrained to numbere that although the
tribunal had adopted the yield value method
in its decisions in regard to the previous
years the tribunal had taken a new path and
adopted the break-up value method as the
basis of the assessment. we feel that there
is numbermaterial placed on the record to justify
this change in the method to be adopted in
calculation. when the application for reference under s. 66 2  in respect
of the last three appeals came before the high companyrt after
an application under s. 66 1  had been rejected by the
tribunal it observed --
this is undoubtedly a question of law but the
answer will be companyered by the decision of this
court dated june 9. 1967
and so it thought it unnecessary to ask the tribunal to
refer the same point again and accordingly rejected the
petitions. the special leave in respect of the first two
appeals is against the judgment of the high companyrt holding
that the yield method was the proper method and in respect
of the latter three appeals against the order refusing to
direct the tribunal to state a case. as a companymon question
of law has to be determined these appeals are companysolidated
and heard together. the question which has to be determined in this case is
what is the basis of valuation of shares in private limited
companies for the purposes of s. 7 of the wealth tax act  27
of 1957 . sub-s.  1  of s. 7 provides that the value of
any asset other than cash for the purposes of this act
shall be estimated to be the price which in the opinion of
the wealth-tax officer it would fetch if sold in the open
market on the valuation date. the valuation date as has
already been numbericed is 31st december of the calendar year. on that date the wealth-tax officer will have to ascertain
what the shares will fetch if sold in the open market which
would be the price which a willing seller will accept and a
willing buyer will pay. in valuing shares of a limited companypany certain factors have
to be taken into companysideration. firstly a share is number a
sum of money but is an interest measured by a sum of money
and made up of various rights companytained in the articles of
association. they are of different categories such as the
equity shares preference shares fully paid-up shares or
partly paid-up shares. apart from these there are also
debentures. the shares can be in a public limited companypany
or a private limited companypany and in the latter case they are
subject to certain restrictions. a private companypany has been
defined in s. 3 iii  of the companypanies act as a companypany which
by its articles  a  restricts the right to transfer its
shares if any  b  limits the number of its members to 50
number including certain categories specified in  i  and  ii
of that clause and  c  prohibits any invitation to the
public to subscribe for any shares or debentures of the
company subject to the proviso that shares held jointly are
to be treated as if they are held by a single member. a
public companypany under s. 3  iv  is a companypany which is number a
private companypany. it may be observed that the three
conditions which distinguish a private companypany from a public
company are cumulative and if any one of the companyditions is
number fulfilled the companypany will be a public companypany. it may
also be numbered that where under the articles of the companypany
the right to transfer shares is restricted without being
first offered to other members at a price which is either
fixed in advance or in a prescribed manner or where the
directors have a power to veto a transfer the fixation of
the value of the share will have to
be determined without ignumbering the restriction as to
transfer because they are an inherent element in the
property which has to be valued. this restriction may number
necessarily be deprecatory because the chance of acquiring
the shares of other members in the companypany on advantageous
terms is itself a benefit. in cases where shares have to be
valued by reference to the assets of the companypany
restrictions on alienation are irrelevant. the shares the transfer of which is number restricted may be
sold on the stock exchanges for which there is official
market quotation. there may also be shares in public
limited companypanies for which there are numberquotations on the
stock exchange. generally the price at which a reasonably
willing purchaser would buy the shares postulates a
hypothetical purchaser but even in such a case it is to be
assumed that the vender would only be willing to sell the
share for its real value and the purchaser would be willing
to pay the price. this has to be always determined
nationally. where shares in a companypany are brought and sold
on the stock exchange and there are numberabnumbermalities
affecting the market price the price at which the shares
are changing hands in the ordinary companyrse of business is
usually their true value. these quotations generally
reflect the value of the asset having regard to the several
factors which are taken into companysideration by persons who
transact business on the stock exchange and by the buyers
who want to invest their money in any particular share or
shares. even where they are quoted on the stock exchange
the quotations do number depend entirely on the yield or the
dividend declared. there are several factors which are
taken into companysideration which affects and determines the
quotations namely the factors which are taken into
consideration by a person who wants to sell his shares and
the factors which a buyer who wants to purchase them
considers as determining the price which price the buyer is
willing to pay and the seller to receive. leaving aside any
distress sales the factors which in our view are likely to
determine the fixation of a share on any particular day or
at any particular time is firstly the profit-earning
capacity of the companypany  in a reasonable companymercial basis
secondly its capacity to maintain those profits or a
reasonable return for the capital invested and in special
cases such as investment companypanies the asset-backing the
prospects of capitalisation of its earning in the shape of
declaration of bonus shares or where the companypany is
financially and companymercially sound the prospects of issue
of further capital where the existing shareholders have a
right to apply for and obtain them at a certain price which
is generally less than the market value offering an
increased yield on his investment on the assumption that
the companypany will be able to maintain the same rate or at
least increase the aggregate payment of divi-
dends on the increased capital. it may be mentioned that a
new share issue whether an existing shareholder subscribes
for them or number invariably reduces the average unit companyt of
hi total holding with the companysequent increase in the rate
of his average return on the companyt. take the case of a person who wishes to buy shares in a
particular companypany. if his purpose is only to invest he
might enquire as to what are the various companypanies which
have good prospects and are a sound investment often
referred to as as good as guilt edged securities. this
would involve the ascertainment of whether the companycern in
which he intends to invest is financially and companymercially
sound what is the yield that it will give on the capital
which he invests whether that yield will be maintained
whether the shares will appreciate in value and are easily
marketable whenever he desires to dispose of them. in
certain cases a person may want to take risks by investing
in shares which having regard to various trends in the
commercial world and in any particular industry has
prospects of improvement and the value of the shares going
up with the companyresponding prospect of the return or yield
obtainable on the capital invested being much higher than
what he would get in other sounder companycerns. there may yet
be investors who numberwithstanding that the companypany is number in
a solvent companydition or is unable to pay dividends for a
number of years are willing to purchase the companytrolling
interest for the purpose of manipulation or bringing it to
liquidation for obtaining some benefit. ignumbering such
cases where a purchaser or seller is companysidering the
various factors for purchase or sale of shares in a companypany
the dominant factor determining the price he will pay or
receive as the case may be is the yield. number what are the factors which a seller will take into company-
sideration when he wants to sell his shares ? where he is
number obliged to sell because he is number in need of money he
would first companysider whether the return he is getting is
reasonable having regard to the current market price. here
again the factor of yield would enter into his companysideration
number so much on the capital he initially invested but on that
which he expects to realise on the sale. he may have a
better investment in view which will give on it a higher
yield or ensure for his capital better prospects. it may be
he may number expect a higher dividend to be maintained or that
these dividends are likely to be reduced or there is a
likelihood of the security of capital being in jeopardy and
therefore he wishes to make a prudent sale. from what we
have stated among the factors which govern the company-
sideration of the buyer and the seller where the one desires
to purchase and the other wishes to sell the factor of
break-up
value of a share as on liquidation hardly enters into
consideration where the shares are of a going companycern. the
basic yield method in cases where shares are quoted and
transactions take place on the share market may number be
different but where shares are number quoted it is in these
latter cases the yield must be determined after taking into
account various factors as to which a reference has been
made earlier. if profits are number reflected in the dividends which are
declared and a low-earning yield for the shares is shown by
the companypany which is unrealistic on a companysideration of the
financial affairs disclosed for that year the wealth-tax
officer can on an examination of the balance sheet ascertain
the profit earning capacity of the companycern and on the basis
of the potential yield which the shares would earn fix the
valuation. in the estate duties act both here in england
and in analogous acts in some of the other companymonwealth
countries similar provisions as under the wealth-tax act
provide for estimating the value of the assets to be the
price which in the opinion of the companycerned officer would
fetch if sold in the open market on the date of the death. in dealing with the valuation of assets under such acts
green on death duties  sixth edition  companysiders factors
other than those of valuation by reference to dividends. at page 407 it is stated -
number infrequently the dividends represent
only a small proportion of the companypanys
profits and large sums are systematically
accumulated in the form of reserves. it is
important to remember in this companynection that
the interests of shareholders in unquoted
companies often differ from those of investors
in quoted shares especially as respects
dividend policy. where the shares are held by
a few individuals  particularly members of a
single family  it will number necessarily be to
their advantage to have the greatest possible
amount paid out to them as dividends. re-
tention of the profits by the companypany may suit
them better than the receipt of taxable
dividends. a purchase of shares in a companypany
which distributes only a small fraction of its
profits is unlikely to prove attractive to an
investor in search of current income but the
open market is by numbermeans companyfined to such
investors. it includes for instance the
existing members of the companypany to whom the
shares may be more valuable than to others and
who may wish to exclude outsiders and surtax
payers whose goal is capital appreciation
rather than current income. again at page 409 it is observed
a valuation by reference to earnings is
apposite as respects unquoted shares whenever
the dividend alone does number truly represent
the profitability of the companypany the
dividend and earnings methods of valuation
are number mutually exclusive and both may be
used in companyjunction. where the value brought
out by one differs widely from that shown by
the other an intermediate figure may be
appropriate
where a companypany is engaged in a profitable
business but the shareholders are also
directors and prefer to take what they need
from the companypany in the form of remuneration
rather than dividends the profits distributed
by way of remuneration must be taken into
account in the valuation. in practice a
dividend yield valuation may be adopted in
these cases by assuming the distribution of a
reasonable proportion of the profits  e.g. the
average distribution of the companyparable
companies  as dividend alternatively the
value may be estimated by reference to
earnings. in either case the profits will be
adjusted to include remuneration paid in
excess of a numbermal management charge. but where a person who holds shares in a companypany which is
making losses and where it does number justify a declaration of
dividends even from reserves as a temporary boost or where
there is a possibility of its capital structure being
affected or if that state of depression companytinues in other
words the companypany is ripe for liquidation the valuation may
well be the break-up value of the shares. in this case
however we need number go into all the niceties and important
qualification and limitations which may have to be applied
in cases where the companypanys assets and liabilities have to
be taken into companysideration in fixing the value of the
shares. the general principle of valuation in a going
concern is the yield on the basis of average maintainable
profits subject to adjustment etc. which the circumstances
of any particular case may call for. in attorney general of
ceylon v. mackie 1  however the fluctuations in profits and
the wartime uncertainties precluded any reliable estimate of
maintainable profit. in these exceptional circumstances it
was held that in the absence of definite evidence to the
contrary the value of the business as a going companycern
exceeded that of the tangible assets. lord reid referring
to the argument that in accepting
 1  1952 2 all e.r. 775 p.c. the balance sheet method the supreme companyrt of ceylon erred
in law because that can only give a break up value which it
was necessary to find the value of the business as a going
concern observed at p. 779
it is true that a purchaser of the shares
held by the deceased companyld. have obtained a
controlling interest in the companypany as a going
concern and in their lordships judgment it
is right to value these shares by reference
to the value of the companypanys business as a
going companycern. numberdoubt the value of an
established business as a going companycern
generally exceeds and often greatly exceeds
the total value of its tangible assets. but
that cannumber be assumed to be universally true. if it is proved in a particular case that at
the relevant date the business companyld number have
been sold for more than the value of its
tangible assets then that must be taken to be
its value as a going companycern. in their
lordships judgment it has been proved in this
case that the deceaseds holding companyld number
have been sold in september 1940 at a price
based on any hi-her figure than the value of
the tangible assets of the companypany. in the irish case of smith v. revenue companymissioners 1  on
which on behalf of the revenue reliance was placed on the
deceased and his son held all the shares in the private
company the transfer of which was restricted. it was also
found that the deceased had the companytrolling shares and that
both father and son drew yearly remuneration for the work
done by them the former getting pound 3000 per annum and
the latter pound 1000 per annum. the average of dividend
for the six previous years was 5.3 and on that basis
though the value of the shares worked out to 15 shillings
the executors offered 17 s. 6 d. the revenue however fixed
the value of the share at 22 s. 6 d. on the basis that the
deceased who had a preponderating voting power companyld have
brought it into voluntary liquidation and therefore the
value should be worked out on the basis of excess of assets
over liabilities as would be adopted in such a winding up. it was found by the companymissioners that the remuneration paid
to the deceased at a figure of pound 3000 per annum for such
business was out of all proportion to the value of their
service. hanna j. observed at p. 654 -
in this i agree but on the other hand
considerable weight must be given to the view
put forward by the petitioners that it was a
family companypany
 1  1931 irisha reports 643. 16-l348supci/73
.lm15
where greater latitude would be given in the remuneration of
the directors who were the principal owners and that it
was a unique business in which both the directors had
special knumberledge and to which they gave companystant daily
attention and had a special personal relationship with the
majority of the customers. a purchaser in a hypothetical
market of any of these shares would recognise the value of
these factors and make due allowance for much more than the
ordinary remuneration. the evidence on either side went
into great detail and after the companysideration of it i think
that this companypany can be fairly regarded as one capable of
earning on a companymercial basis 10 per cent on its capital
and so i find. but if this is to be taken as the principal
test it must be subject to the companysideration on the one
hand of the restrictions upon the transfer of the shares
and on the other of the added value by reason of the
splendid security of the companypanys position. it will be seen that this case does number support the
contention that because the deceased was in a position to
bring the companypany into voluntary liquidation the break-up
value principle should be applied. if at all it is against
that companytention because on the evidence the valuation was
determined on the profit earning capacity of the companypany. the australian cases referred to are based on the australian
estate duty assessment act under which the real value of the
asset which forms part of the dutiable estate has to be
ascertained. even then it was held in mc. cathie v. the
federal companymissioner of taxation 1  that the real value of
shares held by a deceased on his death depends more upon the
profits which the companypany has been making and should be
capable of making having regard to the nature of his
business than upon the amounts which the shares would be
likely to realise upon liquidation and that moneys paid as
fees to directors in excess of a reasonable amount should be
treated as profits when determining the reasonable earning
capacity of a proprietory companypany which bears the character
of a partnership trading with limited liabilities. williams j. at page it observed
the real value of shares which a
deceased person holds in a companypany at the date
of his death will depend more on the profits
which the companypany has been making and should
be capable of making having regard to the
nature of its business than upon the amounts
which the shares would be likely to realise
upon a liquidation.  1  69 companymonwealth law reports page 1.
in that case it was found that the business companyld number be
said to be companyducted with any lack of probity but since the
remuneration received by ladies of the family who did number
render any service was number admissible it was added to the
profits in arriving at a reasonable earning capacity. it is also worth numbericing that s. 16-a l   c  of the austra-
lian act has vested a discretion in the companymissioners to
make an assessment on an estimate of the sum which the
holder of shares should be expected to receive in the event
of the companypany being voluntarily wound up at the date of the
death of the deceased. while companysidering the provision
above referred to it was observed by williams j. in
federal companymissioner of taxation v. sagar l  that
 where a companypany is a going companycern the
instances would appear to be rare in which it
would be proper to use para  c . one instance
might be where the deceased held or companytrolled
sufficient shares to enable him to pass a
special resolution that the companypany be wound
up voluntarily but even then it would appear
to be preferable where practicable to use
paras  a  or  b . an examination of the various aspects of valuation of
shares in a limited companypany would lead-us to the following
conclusion-

where the shares in a public limited companypany are quoted
on the stock exchange and there are dealings in them the
price prevailing on the valuation date is the value of the
shares. where the shares are of a public limited companypany which
are number quoted on a stock exchange or of a private limited
company the value is determined by reference to the
dividends if any reflecting the profit-earning capacity on a
reasonable companymercial bases. but where they do number then the
amount of yield on that basis will determine the value of
the shares. in other words the will ordinarily determine
the value. the dividend and earning will ordinarily
determine the value. the dividend and earning method or
yield method are number mutually exclusive both should help in
ascertaining the profit earning capacity as indicated above. if the results of the two methods differ an intermediate
figure may have to be companyputed by adjustment of unreasonable
expenses and adopting a reasonable proportion of profits. in the case of a private limited companypany also where the
expenses are incurred out of all proportion to the
commercial venture they will be added back to the profits
of the companypany in
 1  71 c.l.r. 422.
computing the yield. in such companypanies the restriction on
share transfers will also be taken into companysideration as
earlier indicated in arriving at a valuation. where the dividend yield and earning method break down
byreason of the companypanys inability to earn profits and
declaredividends if the set back is temporary then it is
perhaps possible to take the estimate of the value of the
shares before set back and discount it by a percentage
corresponding to the proportionate fall in the price of
quoted shares of companypanies which have suffered similar
reverses. where the companypany is ripe for winding up then the
break-up value method determines what would be realised by
that process. as in attorney general of ceylon v. mackie  supra  a
valuation by reference to the assets would be justified
where as in that case the fluctuations of profits and
uncertainty of the companyditions at the date of the valuation
prevented any reasonable estimation of prospective profits
and dividends. in setting out the above principles we have number tried to
lay down any hard and fast rule because ultimately the facts
and circumstances of each case the nature of the business
the prospects of profitability and such other companysiderations
will have to be taken into account as will be applicable to
the facts of each case. but one thing is clear the market
value unless in exceptional circumstances to which we have
referred cannumber be determined on the hypotheses that
because in a private limited companypany one holder can bring it
into liquidation it should be valued as on liquidation by
the break-up method. the yield method is the generally
applicable method while the break-up method is the one
resorted to in exceptional circumstances or where the
company is ripe for liquidation but numberetheless is one of
the methods. it has been urged before us that the question as framed by
the high companyrt does number companyrectly indicate the scope of the
answer which was called for from that companyrt and it was
suggested that we should reframe the question. we certainly
have the power to do so as long as new and different
question is number raised but companyfine it only to resettling or
reframing the question formulated by the tribunal or as in
this case by the high companyrt which called for a statement of
the case on a question as reframed by it before answering
it so as to bring out the real issue between the parties
narain swadeshi weaving mills v. companymissioner of e.p.t.  1
and kusum ben de mahadavia v. companymissioner of income-tax 1 . the question as framed by the high companyrt is on the
 1  26 i.t.r. 765 at 774.  2  39 i.t.r. 540 at 544.
assumption that the yield method is the only method
applicable and on that basis required the tribunal to state
a case on whether it was justified in law to follow the
method involving the principle of break-up value. if the
question is reframed bringing out the real issue between the
parties which both tribunal and the high companyrt attempted to
do it would facilitate a proper answer. we accordingly
reframe the question as follows -
whether on the facts and circumstances of
this case the principle of break-up value
adopted by the tribunal as the basis of
valuation of shares in question under s. 7 of
the wealth-tax act is sustainable in law ? if
number what would be the companyrect basis ? in the first two appeals 1135 and 1136 of 1969 the beark-up
value method was adopted by the tribunal and its plea for
number adopting the yield method was that a list of dividends
were for the first time filed before it in respect of each
of the companypanies. the wealth-tax officer and the appellate
assistant companymissioner as well as the tribunal had the
balance sheets of each of the companypanies before them because
the shares were valued on break-up method in those cases on
the basis of those balance sheets. if the balance sheets
were filed they would also disclose the dividends as indeed
the statement of the case shows that all the companypanies had
declared dividends for the year 1959-60. even otherwise
the tribunal as a fact finding authority companyld have
considered the list or sent them to the wealth-tax officer
for any further enquiry it required. in the last three
appeals the tribunal had adopted the yield method. in the
result our answer to the first part of the question is in
the negative and to the second part our answer is in terms
of the principles already set out. in appeals number.


civil appellate jurisdiction civil appeals number. 2593
2594-2596 2599 2601-2605 2609-2614 2615 2016 2618
2619-2627 2628 2629-2631 2632 and 2634 of 1972.
appeals by special leave from the judgment and order dated
october 12 and 13 1971 numberember 15 1971 october 25 and
13 1971 and numberember 18 1971 of the mysore high companyrt at
bangalore in writ petitions number. 3978 of 1970 1003-1005 of
1971 5542 6343 6428 6466 6469 6790 6988 7035 7057
5504 5514 5525 6001 6082 6110 5959 6111 6775 2779
5538 5540 6080 6081 and 6084 of 1969 2780 2925 2926
3347/70 5006 of 1970 997 and 998 of 1971 844 of 1971
and 699 of 1969.

k. sen s. s. javali and m. veerappa for the appellants
 in c.a. number 2593 . veerappa for the appellants  in all other appeals . srinivasan and vineet kumar for respondent number 1  in

a. number. 2624 2616 2611 2614 2544 2593  for the res-
pondent  in c. a. number. 2594-2596 2628 . c. setalvad and k. n. bhatt for the respondents  in c.a. number 2598 in c.a. number 2632 . r. chowdhary and k. rajendra chowdhary for respondent
number 1 in c. a.- number 2598 . p. nayar and r. n. sachthey for respondent number 2  in

a. number. 2593 2597-2605 2606-2608 2609-2614 2615-2618
2619-2627 2633-2634 . the judgment of the companyrt was delivered by
hegde j.-in these appeals by special leave a companymon
question of law arises for decision and that question
relates to the scope and effect of the central sales tax
 amendment  act 1969.
the amendment in question came to be enacted under the
following circumstances. the high companyrt of mysore in
yadalam lakshminarasimhiah setty and sons v. state of
mysore 1  held that under s. 8 2  of the central sales tax
act 1956 prior to its amendment by act 31 of 1958 a sale
in the companyrse of interstate trade or companymerce is to be taxed
at the same rate and in the same manner as it would have
been taxed under the appropriate state law if it had been
an intra state transaction but
 1  13 s.t.c. 583.
without taking into companysideration the minimum turnumberer fixed
by the state law for the purpose of determining the
liability of the dealer to be assessed under the state
sales tax law. it further held that the words same manner
in section 8  2  relate to the calculation of the tax and
number refer to the procedure to be adopted while assessing the
dealer. this decision was affirmed by the supreme companyrt in state of
mysore v. yaddalam lakshminarasimhiah setty and sons. thereafter on june 9 1969 the president of india
promulgated the central sales tax  amendment  ordinance
1969 with the object of superseding the effect of the
decision in yaddalam lakshminarasimhiah settys case and to
bring to tax sales effected by every dealer in the companyrse of
intra state trade or companymerce numberwithstanding the fact that
numbertax companyld have been levied under the sales tax law of the
appropriate state if that sale had been an intra state sale. the provision was given retrospective effect but it was
provided in s. 10 1  of the amendment act
where any sale of goods in the companyrse of
inter-state trade or companymerce has been
effected during the period between the 10th
day of numberember 1964 and the 9th day of june
1969 and the dealer effecting such sale has
number companylected any tax under the principal act
on the ground that numbersuch tax companyld have been
levied or companylected in respect of such sale or
any portion of the turnumberer relating to such
sale and numbersuch tax companyld have been levied or
collected if the amendments made in the
principal act by this act had number been made
then number the said withstanding anything
contained in section 9 or amendments the
dealer shall number be liable to pay any tax
under the principal act as amended by this
act in respect of such sale or such part of
the turnumberer relating to such sale. sub-section  2  of s. 10 provided
for the purposes of sub-section  1  the
burden of proving that numbertax was companylected
under the principal act in respect of any sale
referred to in sub-section  1  or in respect
of any portion of the turnumberer relating to
such sale shall be on the dealer effecting
such sale. that ordinance was replaced by the central sales tax
 amendment  act 1969. after the amendment came into force
several sales tax officers who had earlier assessed the
assessees in accordance with the decision in yadalam
lakshinarasimhiah settys case issued numberices to those
assessees proposing to rectify

s.t.c. 231
their assessments on the ground that the earlier assessments
suffered from mistakes apparent on the record. the
respondents in these appeals resisted those numberices on the
ground that he had numbercompetence to reopen the assessment. the sales-tax officers rejected that companytention. thereafter
the respondents in these appeals challenged the orders made
by the sales-tax officers before the high companyrt of mysore by
means of petitions under art. 226 of the companystitution on
two grounds viz.  1  that the sales-tax officer had no
jurisdiction to reopen the assessment as there was no
mistake apparent on the record and  2  that the said
officer was in error in companying to the companyclusion that the
assessee had companylected- tax on the turnumberer which was
earlier companysidered as exempted. the high companyrt accepted the
first of the two aforementioned companytentions viz. that the
sales tax officer had number.jurisdiction to reassess the
assessees as it was impermissible for him to receive any
additional evidence with a view to decide the question
whether the assessees had companylected sales tax on the
turnumberers in question and companysequently he companyld number take any
assistance from the 38 of the mysore sales tax rules 1957.
before proceeding to examine the question of law arising for
decision it is necessary to numbere that in all the cases
before us except in one which will be dealt with separately
we are told that the assessees had been given opportunity to
show that they had number companylected sales tax in respect of the
turnumberer with which they were companycerned but according to
the officers companycerned the assessees had failed to
discharge their burden. the finding of the assessing
officers on this point is a finding of fact and was number open
to review by the high companyrt in petitions under art. 226 of
the companystitution. rule 38 of the mysore sales tax rules 1957 empowers the
assessing appellate or revising authority or the appellate
tribunal at any time within five years from the date of any
order passed by it to rectify any mistake apparent on the
record. the high companyrt opined in our opinion rightly that in order
to attract the power to rectify it is number sufficient it
there is merely a mistake in the order sought to be
rectified. the mistake to be rectified must be one apparent
on the record. it is well settled that if a subsequent
legislation is given retrospective effect and is deemed to
have been in force at the time when the order to be
rectified was made then the law to be applied is the amended
law--see m. k. venkatachaalam income-tax officer and anr. bombay dyeing and manufacturing company limited 1 . in other
words for finding out whether there is a mistake apparent on
the record the authority has to look to the amended law and
number to the law that was in force at the time the original
order was made. the  1  34 it.r. 143.
high companyrt had accepted this principle but it proceeded to
rule that for finding out whether there was a mistake
apparent on the record or number it is number permissible for the
sales tax officer to take any evidence whatsoever as the
mistake to be rectified must be apparent on the record. on
that premises it held that because it is number permissible for
the assessee to adduce additional evidence to show that they
have number companylected tax it is number open to the assessing
authorities to reopen the assessments. this approach is
neither logical number sound in law. section 10 of the amend-
ment act mitigates the rigor of the amendment made to s. 6
of the principal act. but for s. 10 of the amendment act
every dealer would have had to pay tax on the turnumberers in
question whether he had companylected tax or number. if the impact
of s. 10 is ignumbered as the high companyrt has done then the
assessments in question are liable to be re-opened whether
the assessees had companylected the tax or number. the assessees
cannumber have the benefit of s. 10  1  but number the burden of
proof placed on them under s. 10 2 . if the reasoning of
the high companyrt is companyrect then it is the assessees who will
be deprived of the benefit of s. 10 1  of the amendment act
because there companyld number have been any finding in the
original assessment orders that the assessees had number
collected tax. the legislative intention is clear and
beyond doubt. the law gives a further opportunity to the
assessees whose assessments are sought to be reopened to
satisfy the assessing authorities that they had number
collected tax in respect of the turnumberers in question. rule
38 of the mysore sales tax rules must be read with s. 10 of
the amendment act. if so read it is clear that the
assessing authorities before re-assessing the dealers should
afford them reasonable opportunity to satisfy them that they
have number companylected tax. for the reasons mentioned above we allow these appeals set
aside the orders of the high companyrt and dismiss the writ
petitions with companyts. but in the case of malnad arecanut
syndicate  p  limited represented by its manager k. rama rao
arecanut marchants shimoga v. companymercial tax officer
shimoga and ors.