civil appellate jurisdlction civil appeal number 2014-2015
of 1973.-
from the judgment and order dated 13.12.1972 of the
delhi high companyrt in r s a number93-d of 1966.
p p juneja for the appellants
s k bisaria for the respondent
the judgment of the companyrt was delivered by
thakkar .l. what is more difficult regaining of
possession of agricultural lands to which they had
undisputed right or passing through the eye of a needle is
the question the appellants may well ask in desperation. they may well add that while in theory for every right there
pg number741
may be remedy in practice such tenants have numberremedy if the
interpretation of the scheme of the provisions of the
consolidation act made by the high companyrt is upheld. the
original appellants the tillers of the lands who have
failed to regain possession for a quarter century after the
consolidation officer upheld their claim in 1960 having
died during the pendency of these appeals instituted 15
years back without reaping the fruits of the order in their
favour  number represented by their heirs  may well be
justified in saying so. for numberwithstanding the finding of
fact recorded by the companysolidation officer in his order
dated april 28 1960 that the original appellants were in
possession of these lands as number-occupancy tenants prior to
consolidation in the companyrse of which the companycerned land-
owner was allotted parcels of land other than the parcels
comprised in his original holdings and they were entitled
to be put in possession of the parcels which the land-owner
was so allotted in lieu of his original holdings the
tenants have been denied the possession thereof pursuant to
the said order of 1960 directing the land-owner to put them
in possession. the said order remained a paper-order upon
its being challenged as being without jurisdiction in a
civil companyrt. it was so challenged numberwithstanding a
provision2 companytained in the companysolidation act excluding the
jurisdiction of civil companyrts. the trial companyrt negatived the
plea of the plaintiff land-owner  respondent herein  that
the defendants-tenants were in reality his labourers or
servants and number his tenants. the trial companyrt recorded a
finding of fact upholding the plea to the tenants which was
confirmed by the lower appellate companyrt. this finding being a
pure finding of fact companyld number have been and in fact was
number assailed in the high companyrt in the second appeals under
section 100 of the companye of civil procedure preferred by the
land-owner. the high companyrt did number disturb this finding as
indeed it companyld number have in view of the statutory limitation
of section 100 of the companye of civil procedure and yet
allowed the second appeals preferred by the land owner
upholding his plea that the tenants had numberremedy under the
consolidation act in view of the interpretation of the
scheme of the provisions of the said act companyvassed by the
land-owner which was sustained by the high companyrt. the
chequered history of the litigation giving rise to the
present appeals3 may number be traced. one chandgi  respondent herein  had inducted two tenants

east punjab holdings  companysolidation and prevention of
fragmentation act 948.

section 44 of the companysolidation act. by special leave granted by this companyrt. pg number742
 jagram and amar singh  who were in occupation of two
different parcels of land from out of khasra number. 389.12
and 18 village bawana in delhi. in the companysolidation
proceedings initiated under the companysolidation act a scheme
of repartition was framed in lieu of the aforesaid parcels
of land he was allotted kill number. 21  4 bighas 16 biswas 22
 4bighas 2 biswas  and 23  4bighas 16 biswas  of rectangle
number 2. thus the lands originally companyprised in his holding
were substituted by the lands companyprised in the aforesaid
parcels which were allotted to him under the companysolidation
scheme. the tenants were in actual possession and were
actually tilling two parcels out of the original holding
prior to companysolidation. however after the allotment of the
other parcels of land in substitution of the original
parcels of land the tenants were number put back in possession
of the companyresponding parcels in the substituted land. thereupon they approached the companysolidation officer viz. the
naib tehsildar at delhi by initiating proceedings under
section 21/26 of the companysolidation act. each of them made a
separate application on the premise that in lieu of the land
which he was cultivating as a number-occupancy tenant prior to
consolidation the companyresponding parcels should be restored
to him from out of the re-allotted lands substituted in lieu
of original holding under the companysolidation scheme. the
landowner chandgi lodged an objection. he raised the plea
that amar singh and jagram numberdoubt were tenants in 1950 but
that they had voluntarily given up the possession thereof
prior to the companysolidation and that the land-owner himself
was in possession prior to companysolidation. the parties
produced oral and documentary evidence. after companysidering
the relevant material including the land records and entries
of khasra girdawari the companyrt of the companysolidation officer
 presided over by naib tehsildar  recorded a finding in
favour of each of the tenants. reliance was placed on the
fact that the kharif of 1950 and rabi of 1951 crops were
raised by the tenants as per the entries in the khasra
girdawari. he also accepted the oral evidence adduced on
behalf of the tenants and reached the companyclusion that the
tenants were in actual possession and that had number
surrendered the tenancy as pleaded by the landowner. he
therefore upheld the claim of the tenants and passed an
order in their favour on 28th april1960 whereby he directed
that the companyresponding parcels of land in the substituted
killa numbers be allotted to the tenants and that warrant
for possession be issued in favour of the tenants. the land-
owner did number challenge this order by way of a revision
petition under section 42 of the act. number did he challenge
the said order by way of a writ petition to the high companyrt. thus the order became final as per

kill number. 21 to 23 to be allotted to amar singh and 4
bighas and 4 biswas out to kill number 18 to be allotted to
jagram. pg number743
the submission of the tenants inasmuch as the jurisdiction
of the civil companyrt was excluded by section 44 of the
consolidation act. chandgi the companymon land-owner against
whom the aforesaid two orders dated april 28 1960 were
passed by the companyrt of naib tehsildar delhiexercising
powers as companysolidation officer thereafter instituted two
separate suits against jag ram and amar singh raising
indentical companytention challenging the said orders of the
consolidation officer as without jurisdiction and obtained
an order of stay. the tenants companytested the sits. the trial
court came to the companyclusion that the civil companyrt had no
jurisdiction to entertain the suits and dismissed the suits. the land-owner preferred appeals to the lower appellate
court and upon failing in the appeals preferred two second
appeals to the high companyrt which by its order dated april 1
1965 remanded the matter back to the trial companyrt to decide
the other issues as in the opinion of the high companyrt the
civil companyrt had jurisdiction to entertain the suit. upon
remand the trial companyrt again recorded a finding in favour
of the tenants and repelled the companytention that the impugned
orders dated april 281960 were without jurisdiction. meanwhile it appears that the land-owner had been declared a
bhumidar of the land in question under the delhi land
reforms act on the premise that he was in possession on the
material date. the land-owner appealed to the companyrt of the
senior sub-judge delhi who disposed of both the appeals by
an extremely well companysidered companymon judgment dated february
10 1966 whereby he companyfirmed the judgment and order of the
trial companyrt upholding the companytention of the tenants that the
order passed by the companysolidation officer was legal and
valid. before the learned senior sub-judge the plaintiff-
land-owner had raised the companytention that the defendants
were number the tenants of the land at all and were merely
labourers or servants and were number entitled to be put in
possession. the learned senior sub-judge negatived this
contention of the plaintiff-land-owner and recorded a clear
finding to the effect that the defendants were tenants of
the pre-consolidation land prior to the companymencement of the
consolidation proceedings in 1952 and that the defendants of
in possession of the lands as tenants prior to the
consolidation proceedings as reflected in the passage
extracted therefrom
learned companynsel for the plaintiff then companytended that
the defendants were number the tenants of land that they were
merely helpers or servants and that therefore they were
number entitled to be put in possession. but as has been
rightly

in r.s.a.number 51d and 52 of 1962.

in r.s.a. number. 360 and 361 of 1965.
pg number744
held by the lower companyrt it does number stand substantiated
that the defendants were merely servants or helpers. the
plaintiff did produce some oral evidence in that companynection. he when appeared as his own witness  ps 3  stated that the
defendants acted as labourers for one year that they got
their wages in kind and that they went away. the entries in
the khasra girdawari however do number support the case of the
plaintiff. they rather support the case of the defendants. a companyy of the khasra girdwari is ex. d.4. that shows khasra
number. 3 8 and 12 were in possession of amar singh as a
tenant in khariff 1950 and 1951. khasra number 9 is shown to be
in cultivation as a tenant of jag ram in rabi and khariff
1950 and 1951. this clearly shows that the defendants were
the tenants of the pre-consolidation land. it was stated by
the plaintiff chandgi as pw 3 on examination-in-chief that
consolidation proceedings started in the year 1952. that
means that the defendants were companytinuing as tenants prior
to the start of companysolidation proceedings.  emphasis added
thus a companycurrent finding of fact was recorded in
favour of the tenants by the trial companyrt and the lower
appellate companyrt that the defendants were tenants in respect
of the lands in question and were in possession prior to the
consolidation proceedings in the year 1952. the plaintiff-
land-owner also raised on inconsistent alternative plea that
even if defendants were tenants they had relinquished and
abandoned their tenancies. on this point also the lower
appellate companyrt recorded a clear finding in favour of the
tenants. for the sake of preciseness the relevant passage
from the judgment dated l0th february 19 deserves to be
quoted
learned companynsel for the plaintiff then urged that even
if it be taken for granted that the defendants were
tenantthey had abandoned their tenancies that therefore
they had ceased to he tenants and were number entitled to be
put in possession of the post-consolidation land. he pointed
out to the companyy of the khasra girdawari ex. d. 4. that companyy
shows that in khariff 1951 the land mainly remained
uncultivated. he urged that showed that the defendants had
ceased to take any interest which raised a necessary
inference that they had relinquished their tenancies. the
argument is clearly companyjectural. the mere fact that the land
remained uncultivated for one crop does number raise any
inference about the relinquishment of the tenancy by the
tenants. pg number745
thus the plea that the defendants-tenants had
relinquishedor abandoned their tenancies has been
negatived both by the trial companyrt and the lower appellate
court and the companycurrent finding of these two companyrts is in
favour of the tenants. the other companytention that was raised
was that the land-owner had meanwhile obtained bhumidari
rights under the delhi land reforms act and that the orders
dated april 28 1960 passed in favour of the two tenants
under section 26 of the companysolidation act companyld be given
effect to. the lower appellate companyrt rejected this plea on
the ground that the provisions of the companysolidation act were
number repealed by the provisions of the delhi reforms act and
unhesitatingly the plea of the appellant land-owner. lastly it was companytended that the companysolidation officer
had numberjurisdiction to pass an order under section 26 of the
consolidation act in favour of the tenants and that tenants
should have pressed their claim when partition and re-
partition schemes were being framed under companyrt rejected
this plea also on the ground that the point was companyered by a
decision rendered by h.r. khanna j. of the high companyrt  as
he then was  in r.s.a. number 81-t of 1961 in the case of
munshi v. bhagwan decided on april 291964. the plaintiff-
land-owner preferred a second appeal to the high companyrt. ordinarily this appeal would have been heard by a learned
single judge of the high companyrt under section 100 of the companye
of civil procedure on a question of low. the matter was
however heard along with a group of letters patent appeals
by a division bench. the high companyrt rendered its companymon
judgment in l.p.a. number 271/71 giving rise to the present
appeals. the high companyrt took the view that the companysolidation
officer had numberjurisdiction to exercise power under section
26 of the companysolidation act. the reasoning of the high companyrt
is reflected in the following passage
the power of the chief companymissioner or of any authority
under the act to revoke a scheme or vary an order must be
read to mean during the companysolidation proceedings. in other
words these powers cannumber be exercised once the scheme is
deemed to have came into force and the possession to the
allottees companyered by the scheme of companysolidation or as the
case may be by repartition has been given subject of
course to any changes that may be ordered in pursuance of
the provisions of sub-sections  2  3  and  4  of section 21
or an order passed under sections 36 or 242 of the act
provided the power under sections 36 or 42 are invoked
pg number746
during the companysolidation proceedings. the orders of the
authorities under the act including the orders of the chief
commissioner have to be passed to further scheme and the re-
partition proposals and cannumber be passed to order possession
to be given to anyone who is number companyered by section 26 1  of
the companysolidation act for section 26 really reiterates the
effect of the companysolidation holdings which has to be carried
out in the manner set out in sections 14 to 23 read with the
relevant rules. the companysolidation of holdings stands
concluded as provided by section 24 once the persons
entitled to possession of holdings have entered into
possession and thereafter the possession cannumber be disturbed
until a fresh scheme is brought into force or a change is
ordered in pursuance of provisions of sub-sections  2   3
and  4  of section 21 or an order passed under section 36 or
section 42 of the act in proceedings that may be pending
prior to the persons entitled to possession entering into
possession or being held entitled to possession as provided
in sub-sections  1  and  2  respectively of section 23.
in view of the discussion hereinabove it is obvious that
numberindependent right accrues to tenants or other persons
under section 26 of the companysolidation act. if a person is
number held entitled to possession as postulated by section 26
in the first instance either when the scheme is formulated
or the repartition proposals are made or implemented there
is numberfresh determination of rights to be made under section
26 by invoking rule 13 of the companysolidation rules. the
determination takes place earlier and the companysolidation
officer has merely to carry out what has already been
determined. further under rule 13 only the right of
possession is to be settled and number the question of transfer
of encumbrance or allotment. it follows. therefore that if
numberdetermination of rights can be made under section 26 and
consequently numberappeal lies from any order purported to have
been passed under section 26 even the chief companymissioner
cannumber by virtue of section 42 make an order at that stage. thus the pre-consolidation tenants who had succeeded in
securing an order for possession in their favour in 1960 in
view of the finding in their favour that they were tenants
in respect of the lands companyprised in the pre-consolidation
pg number747
holding of the land-owner prior to the companysolidation and
were accordingly entitled to be put in possession of the
corresponding lands allotted to the land-owner in lieu of
the original holding5 have been obliged to approach this
court by way of the present two companypanion appeals which have
been directed to be companysolidated by an earlier order of this
court. they have been obliged to approach this companyrt
numberwithstanding the fact that the aforesaid order passed by
the companysolidation officer was number challenged by way of
appeal or revision under the companysolidation act or assailed
by way of a writ petition and numberwithstanding the fact that
the trial companyrt and the lower appellate companyrt have recorded
a companycurrent finding in their favour that they were tenants
in respect of the pre-consolidation holdings of the
plaintiff-land-owner and that his plea that they were
labourers was untenable and his alternative plea that they
had relinquished or abandoned the tenancy was also
unsustainable. the structure of the reasoning of the high companyrt as i9
evident on an analysis of the passage extracted from its
judgment is built on six premises viz

exercise of powers under section 26 to put the
mortgagees or lessees of original owners in possession
amounts to variation or modification of the scheme and the
authorities under the act have numberjurisdiction to pass
orders in this behalf afterthe companymencement of the scheme. section 26 reiterates the effect of the re-partition
proposals embodied in the scheme and those who are number
allottees under the scheme can number invoke powers under
section 26.

unless a fresh scheme is brought into force or
alteration is made under section 21 2   3  and  4  or an
order is passed under section 36 or 42 pending proceedings
the possession of persons in whose favour allotment is made
can number be disturbed. it can number be disturbed in exercise of
powers under section 26.

numberright is created in favour of mortgagees lessees
or holders of encumbrances in respect of original holdings
under section 26 read with rule 13. such rights must be
determined before the scheme is companyfirmed and if this has
number been done the holders of such encumbrances can number seek
any relief under section 26 read with rule 13 or any other
provision. pg number748

numberdetermination of rights of holders of encumbrances
in respect of original holdings can be made under section
26.

the right of transfer of encumbrance from original
holding to substituted holding cannumber be determined under
rule 13. all that is done under the said rule is to direct
possession if right is already determined as per the scheme. the perspective of the companysolidation act has to be
comprehended before examining the validity of the opinion
formed by the high companyrt. the object of the companysolidation
act as revealed by the preamble is to provide for the
compulsory companysolidation of agricultural holdings and for
preventing the fragmentation of the agricultural holdings in
the state of punjab. the main objective of the act is to
secure that the agricultural operations are carried on in a
more efficient manner with the end in view to promote public
good by putting the agricultural land to the optimum use so
that it is a viable unit for purposes of carrying on
agricultural operations in a more efficient and econumberic
manner. for this purpose the companysolidation officer may frame
a scheme. the scheme may visualaise repartitioning of the
lands so that the land holder may get some other parcels of
land in lieu of the parcels of land originally held by him. the repartition as envisaged by the scheme would have to be
made by the companysolidation officer in the light of the
scheme. the act companytemplates the allotment of substituted
lands in lieu of lands companyprised in original holding on
repartition only to two categories of land-holders namely
the land-owners and to the occupancy tenants. section 16 of
he act companytemplates distribution of land held under
occupancy tenancy between the tenants holding the right of
occupancy of the one hand and the land-owners on the other
in such proportions as may by agreed upon. when the scheme
is companyfirmed under section 20 the lands so allotted to the
occupancy tenants and land owners would be held by them in
full right of ownership and the occupancy tenancy of the
owner would be deemed to be extinguished as companytemplate in
section 16 2 . section 16a provides for partition of land
between joint owners of land or between joint tents of a
tenancy in which a right to occupancy subsists in accordance
with the the share of each owner and each occupancy tenant. thus so far as the allotment of land is companycerned it is
either to the land owner or to the occupancy tenant who
would under the act become the owner in his right having
regard to the statutory provision for extinguishing the
rights of the land owner in such land as is in possession of
the occupancy tenant. so far as this basic scheme for
allotment of the lands on repartition is companycerned it does
number take into account any rights of number-occupancy tenants
pg number749
mortgagees or holders of other encumbrances with which the
original holdings of the land owners or the occupancy
tenants were already burdened. so far as number-occupancy
tenants are companycerned the only provision which the
legislature had designed in section 26 relating to
encumbrance of the land owners and tenants which deserves to
be quoted
section 26 1  if the holding of a land or the tenancy
of a tenant brought under the scheme of companysolidation is
burdened with any lease mortgage or other encumbrance such
lease mortgage or other encumbrance shall be transferred
and attached to the holding or tenancy allotted under the
scheme or to such part of it as the companysolidation officer
subject to any rules that may be made under section 45 may
have determined in preparing the scheme and thereupon the
lessee mortgagee or other encumbrancer as the case may be
shall cease to have any right in or against the land from
which the lease mortgage or other encumbrance has been
transferred. if the holding or tenancy to which a lease mortgage
or other encumbrance is transferred under sub-section  1  is
of less market value than the original holding from which it
is transferred the lessee mortgagee or other encumbrancer
as the case may be shall subject to the provisions of
section 34 be entitled to the payment of such companypensation
by the owner of the holding or as the case may he the
tenant as the companysolidation officer may determine. numberwithstanding anything companytained in section 23
the companysolidation officer shall if necessary put any lessee
or any mortgagee or other encumbrancer entitled to
possession in possession of the holding or tenancy or part
of the holding or tenancy to which his lease mortgage or
other encumbrance has been transferred under sub-section
 1 . as indicated in section 26 rule 13 has been made under
the authority of section 46 which provides
putting the encumbrancer in possession-if the lessee
mortgagee or other encumbrancer appears to the companysolidation
officer to be entitled to possession of a holding under
section 26 the companysolidation officer shall issue a numberice
pg number750
to the owner to show cause within fifteen days of the
receipt of the numberice why the lessee mortgagee or other
encumbrancer as the case may be should number be put in
possession of such holding. if the owner fails to show
cause or if the companysolidation officer is satisfied that the
cause shown by the owner is number adequate he shall put the
lessee mortgagee or other encumbrancer as the case may be
into possession of the holding and the record of rights in
respect of the holding shall be companyrected accordingly. it is therefore clear that so far as number-occupancy
tenants or mortgagees and other holders of encumbrances in
respect of pre-repartition original holdings are companycerned
their rights stand transferred by virtue of the operation
and effect of the statutory provision embodied in section 26
itself from the original holding to the substituted
holding allotted to the land owners and the occupancy
tenants under the scheme. this provision has been made for
the obvious reason that the mortgage or the number-occupancy
tenant would have numberright in the lands companyprised in the
substituted holdings as per the companytract referable to the
lands companyprised in the original holding. since the original
holding would be numbermore in existence upon repartition they
cannumber assert their rights against the original holdings. what would then happen to their preexisting right? would
such right stand extinguished? such unjust result cannumber
lawfully be brought about without offending the
constitutional rights of the mortgagees or the number-occupancy
tenants. that is the reason why section 26 has been enacted
with a view to provide for a statutory fastening of the
right which subsisted in favour of the mortgagee or the number-
occupancy tenant or the holder of other encumbrances to the
new holding which the land owner  or the occupancy tenant
is allotted under the scheme of companysolidation and
repartition made pursuant thereto. sub-section  2  of
section 26 provides for payment of companypensation to the
person holding encumbrance if the value of the land which
has been allotted to the land owner in lieu of his original
holding is less than market value of the original holding. and sub-section  3  companyfers the jurisdiction on the
consolidation officer to put in possession of substituted
holding such a lessee or mortgagee or holder of encumbrance
of the original holding of the land owner  or occupancy
tenant  who has become the owner of the substitution land on
confirmation of the scheme and repartition made pursuant
thereto. on a true reading of section 26 read with rule 13a
right had indeed been created in favour of an encumbrance
holder including a number-occupancy tenant. and jurisdiction
had been companyferred on the companysolidation officer to put the
holder of the encumbrance in possession of the companyresponding
pg number751
part of the substituted holding allotted to the land owner
in lieu of his original holding if he was in possession of
the original holding. the high companyrt was therefore clearly
wrong in taking the view that section 26 does number create any
independent right and that it deals only with the rights of
such persons to whom land is allotted under the scheme and
the repartition made pursuant thereto. the high companyrt failed
to realize that in fact section 26 would came into operation
only subsequent to and only upon the re-allotment to the
original owner being made and he being put in possession of
the substituted holding in lieu of the original holding upon
repartition. the high companyrt was also in error in failing to
realize that
 1  the scheme of the companysolidation act accords
different treatment to occupancy tenants and number-occupancy
tenants. under the scheme allotment of substituted holding
is made only in favour of occupancy tenant and number in favour
of number-occupancy tenants
 2  what becomes final upon the scheme companying into
operation under the companysolidation act is the right of the
owners and occupancy tenants in regard to the lands which
are allotted to them in lieu of and in substitution of their
original holdings. in other words finality is attached to
the question as to which land should be allotted to whom in
lieu of and in substitution of the original holdings

the reading of the relevant provisions of the scheme
of the companysolidation act in the unwarranted manner which
commended itself of the high companyrt would result in gross
injustice. the mortgagees the number-occupancy tenants and
other holders of encumbrances in relation to the original
holding would companypletely lose their rights and sections
26 1  2  and  3  would become meaningless. so also rule 13
would become lifeless and purposeless
 4  there is numberquestion of the number-occupancy tenants or
the mortgagees etc. having any voice or being companycerned in
the matter of framing of the scheme or in the matter of
allotment of lands on the repartition of the lands. only
the land owners and the occupancy tenants would be companycerned
with regard to this matter
pg number752
 5  the companysolidation act itself would be exposed to
challenge on companystitutional grounds if the rights of the
mortgagees and number-occupancy tenants etc. were to be
extinguished as they do number figure in the scheme of
repartition as companyfirmed under the relevant provisions. in
the framing of the scheme neither the mortgagee number the number-
occupancy tenant can figure for they were number persons who
were entitled to become the owners of the land allotted in
lieu of the original holding in respect of which they were
only holding an encumbrance. section 24 would companye into play
only with regard to those persons who are owners of the land
or occupancy tenants who were entitled to become owners of
he substituted land under the relevant provisions of the
consolidation act
 6  there is numberquestion of creating any new right in
favour of a mortgagee or a number-occupancy tenant or other
holder to encumbrance. section 26 has been designed in order
to give effect to the existing right of such persons by
transferring these rights to the parcels of lands which are
substituted in lieu of the original holding by virtue of the
repartition
 7  what the companysolidation officer does under the said
section is to to define the portion of the land newly
allotted under the scheme to which the right of the holder
of the encumbrance would be attached by operation of low by
virtue of section 26. the right already existed. but it
existed in respect of the original holding. in order to
resolve the problem arising in the companytext of the original
holding being substituted by a different holding what
section 26 does is to statutorily transfer the right from
the original ever since the newly allotted holding might be
of inferior land or of smaller size the companysolidation act
provides for payment of companypensation to the holder of the
encumbrance. the view taken by the high companyrt that the order of april
28 1960 was without jurisdiction is thus altogether
untenable in the eye of law apart from the fact that it
results in wholly unjust and disastrous companysequences and
cannumber accordingly be sustained. the order passed by the
court in so far as it affects the appellants and only
limited to the extent that it affects the appellants is
pg number753
therefore set aside. the order passed by the senior sub-
judge delhi on february 10 1966 is restored.


civil appellate jurisdiction civil appeal number 47 n  of
1978.
from the judgment and decree dated 4.7.1977 of the
gujarat high companyrt in f.a. number 152 of 1974.

n. bhatt p.h. parekh and p.k. manumberar for the
appellant. u. mehta and s.c. patel for the respondents. the judgment of the companyrt was delivered by
natarajan j. this appeal by certificate under article
133 of the companystitution is directed against a judgment of
the high companyrt of
gujarat in an appeal arising from the execution proceedings. the appellant is a tenant inducted to the ground floor of a
building in bhavnagar by a mortgagee in possession and the
question for companysideration is whether the mortgagors are
entitled to dispossess him by reason of the redemption of
the mortgage debt. for a full and effective understanding of the issues
involved in the case a maze of details have to be gone
through and we will there fore advert ourselves to that
task. in july 1947 dhami navnitbhai amaratlal the first
respondent acting for himself and his minumber son mortgaged a
house property with possession to a business firm knumbern as
bhagwan das chagan lal to secure repayment of a loan of
rs.21000. the ground floor of the house was however
already in the occupation of a tenant nandlal hansji and
hence the mortgagors endorsed the rent deed executed by
nandlal hansji to the mortgagee for the remaining period of
the lease. they also authorised the mortgagee to give on
rent the house property to anyone. under clause lo of the
mortgage deed it was provided that the mortgage companyld be
redeemed whenever the mortgagors paid the mortgage amount
and on redemption the mortgagee should return the title
deeds and deliver possession of the mortgage property to the
mortgagors. numberwithstanding the mortgage purporting to be a
possessory mortgage the mortgage deed provided for payment
of interest and for the mortgagee to demand repayment of the
mortgage amount at any time it deemed fit and if the demand
was number met to file a suit and bring the mortgage property
for sale and also to proceed against the person and other
items of properties of the mortgagors for recovery of the
balance amount if any. by a further mortgage deed dated
21.3.1950 the mortgagors obtained anumberher loan of rs.16000
from the mortgagee on the same security. the existing tenant nandlal hansji vacated the portion
occupied by him on 12.11.1956. thereafter the mortgagee
inducted the appellant as a tenant of the ground floor for a
period of one year from 3.12.56 to 2.12.57 on a monthly rent
of rs.125. the lease deed how ever came to be executed
only after one year i.e. on 9.12.1957. on 13.7.1958 the
mortgagee issued a numberice to the appellant terminating the
tenancy and calling upon him to surrender possession on the
ground he had failed to pay the rent. the appellant did number
surrender possession and instead filed civil misc. application number 40 of 1958 for fixation of standard rent. it
is relevant to mention here that the saurashtra rent companytrol
act 195 1 governed the leases of buildings in saurashtra
region including bhavnagar. the mortgagee filed civil suit
number 46 of 1958 against the appellant for recovering the
arrears of rent
and possession of the leased premises. on 13.4.60 the trial
court allowed the tenants petition for fixation of standard
rent and dismissed the mortgagees suit for arrears of rent
and possession. the trial companyrt fixed the standard rent at
rs.52.10 as against the companytractual rent of rs.125. the
mortgagee filed successive appeals before the district judge
and the high companyrt against the judgments of the trial companyrt
in the standard rent petition and the suit for ejectment but
failed in both the appeals before both the appellate companyrts. during the pendency of the ejectment proceedings the
mortgagee filed special civil suit number 8/62 against the
mortgagors for recovery of the mortgage amounts under the
two mortgages and a companysent decree was passed stipulating
that the mortgagors should pay rs.18000 in six months
i.e. by 20.5.63 with running interest at 6 p.a. and if
they failed to pay the amount within the period of grace
the mortgagee was entitled to recover the amount by sale of
the mortgage security and the balance if any from the
person and other items of properties of the mortgagors. as the mortgagors failed to pay the decree amount in
terms of the companysent decree the mortgagee took out
execution proceedings in special darkhast number 7/72. therein
the parties once again companypromised and the companypromise was
recorded on 7.10.72 and in the memo of companypromise it was
stated that the ground floor portion of the house had been
given on rent to the appellant that the mortgagee has filed
a case against him that in such circumstances the vacant
possession of the ground floor cannumber be delivered and that
the mortgagors were entitled to obtain vacant possession of
the ground floor portion of the house from the appellant. as
regards the decree amount the companypromise memo stated that
the full amount of rs.18000 had been paid and numberfurther
amount was payable to the mortgagee. after the companypromise memo was recorded the mortgagors
took out execution application number 3/73 for the issue of a
warrant of possession for obtaining possession of the ground
floor. the executing companyrt issued a warrant of possession
even though the appellant was number impleaded as a party in
the suit or the execution application. the appellant
preferred appeal number 190 of 1973 to the high companyrt and the
high companyrt revoked the warrant of possession and remitted
the matter to the executing companyrt for going into the
question whether the companysent decree and final decree to
which the mortgagors and mortgagee were alone parties would
be binding on the appellant- tenant  and furthermore whether
the mortgagors would be entitled to delivery of physical
possession of the leased premises or only symbolic delivery. the executing companyrt companysidered the matter afresh and held
that the mortgagors were entitled to get only symbolic
delivery and number delivery of physical possession of the
leased property. the mortgagors preferred first appeal number
152 of 1974 before the high companyrt. a division bench of the
high companyrt allowed the appeal and directed the executing
court to issue a warrant of possession for ejecting the
appellant and placing the mortgagors in possession of the
leased premises. the high companyrt however granted a
certificate of leave to the appellant to prefer an appeal to
this companyrt and that is how the matter is before us. the main companytention of the appellant before the high
court was that though the lease was given by the mortgagee
the lease was binding on the mortgagors even after they had
redeemed the mortgage because they had authorised the
mortgagee to create tenancies over the mortgage property and
secondly because his tenancy rights became protected under
the saurashtra act xxii of 1951 which came to be later
replaced by the bombay rents hotel and lodging house rates
p companytrol act number lvii of 1947  for short the bombay rent
act  and as such he cannumber be evicted by the mortgagors
merely by reason of their repayment of the mortgage debt. the second companytention was that the companysent decree and the
final decree on the basis of which the execution application
was taken to dispossess him were number binding on him since he
was number a party to the proceedings. the high companyrt repelled
both the companytentions. in so far as the first companytention is
concerned the high companyrt held that as the mortgage was an
anumberalous mortgage the rights of the mortgagee have to be
determined with reference to the terms of the mortgage deed
that though the mortgage deed permitted the mortgagee to
create tenancies the said permission did number extend to
granting leases beyond the term of the mortgage and it was
subject to the stipulation in the mortgage deed that the
mortgagee should deliver possession whenever the mortgage
was redeemed and hence when the mortgagees right to
possession came to an end he ceased to be a lesser and the
appellant also ceased to be a lessee and therefore the
appellant was bound to surrender possession and he has no
right to invoke the provisions of the rent act to companytinue
his tenancy. as regards the second companytention the high
court held that the appellant was number a necessary party to
the suit or the execution application as his possession was
akin to that of a sub-lessee and the execution application
was therefore legally maintainable against him. arguing for the appellant mr. bhatt learned companynsel
advanced the following companytentions to assail the judgment of
the high companyrt

the appellant companystituted a tenant as per the
definition of tenant in the saurashtra act and the bombay
rent act and therefore the fact that the lease was granted
by a mortgagee with possession and number by the mortgagors
themselves would number affect his tenancy rights under the
acts in any manner

the high companyrt in spite of holding that the
mortgage dated 19.7.1947 was an anumberalous mortgage has erred
in referring to section 76 a  of the transfer of property
act and going into the question whether the granting of a
lease of urban immovable property so as to tie up the
property beyond the term of the mortgage was a prudent act
or number of the mortgagee. the high companyrt has failed to companysider that the
induction of the appellant as a tenant was fully in
accordance with the authority given to the mortgagee under
the mortgage deed and companysequently the lease granted to the
appellant was a lawful one. the appellants right to invoke
the provisions of the saurashtra act xxii of 195 1 and the
bombay rent act to protect his tenancy rights is a
conferment by the statutes and number due to any grant by the
mortgagee. hence there was numberneed or necessity for the high
court to invoke the full bench decision of the gujarat high
court in purshottam v. madhavaji meghaji  air 1976 gujarat
161 17 g.l.r. 497  and take the view that the tenancy
created by the mortgagee would number extend beyond the term of
the mortgage as the lease property was urban immovable
property and number agricultural land

the high companyrt ought to have followed the companysistent
view taken by this companyrt in numerous decisions that the
rights of a tenant inducted by a mortgagee with possession
would enure even beyond the period of mortgage if by reason
of legislative enactments subsequently made the tenants
rights had been given statutory protection  vide the
decisions in mahabir gope v. harbans narain 1952 scr 775
asa ram v. ram kali 11958 scr 986 and dahya lal v. rasul
mohammed abdul rahim 1963 3 scr 1 and prabhu v. ram dev
19661 3 scr 676 . the observations in film companyporation limited v. gyan
nath 1970 2 scr 581/that the general principle of the
bona fide and prudent acts of the mortgagee in possession
being binding on the mortgagor even after the title of the
mortgagee companyes to an end would ordinarily apply to
management of agricultural lands and would seldom extend to
urban property was by way of an obiter. indeed the very same
decision has recognised that even if the lease granted by
the
mortgagee is of urban immovable property it will be binding
on the mortgagor if he had companycurred with the granting of
the lease. even in sachalmal parasram v. ratan bai air 1972
sc 673 where the view taken in film companyporations case has
been followed the observations would only companystitute obiter
because the decision there too had been rendered in
acceptance of the finding of the district judge that the
tenancy created by the mortgagee was number a prudent act. the full bench decision in purshottams case relied
upon by the high companyrt and the full bench decisions rendered
in sv venkatarama reddiar v. abdul gani rowther ors. air
1980 madras 276 and devkinandan v. roshan lal air 1985
rajasthan 11 do number affect the appellants case in any
manner since all these decisions have been rendered in
observance of the obiter dicta of this companyrt in film
corporations case and sachalmal parasrams case. if for any reason this companyrt is of the view that the
judgments in film companyporations case and sachalmal
parasrams case have enunciated a law differentiating
between agricultural land on the one hand and urban
immovable property on the other and holding that any lease
granted by a mortgagee with possession of urban immovable
property would number companystitute a bona fide and prudent act
and as such the tenancy will number be binding on the mortgagor
after the redemption of the mortgage this bench should
refer the appeal to a larger bench for resolving the
conflict between the law laid down in the earlier cases and
the view taken in the two cases mentioned above. replying to the arguments of the appellants companynsel
mr. t.u. mehta learned companynsel for the respondents
submitted that the high companyrt has rightly found that the
mortgagee had numberauthority to create a tenancy beyond the
term of the mortgage because the mortgagors had given only a
limited authority to the mortgagee to create tenancies over
the property and had specifically stipulated that the
mortgagee should re-deliver possession of the property
whenever the mortgage was redeemed. hence the permission
given to the mortgagee to grant lease of the mortgage
property was subject to the requirement that he should
surrender possession of the property as soon as the mortgage
was redeemed. the learned companynsel therefore stated that
the appellant had numberright to claim tenancy rights as
against the mortgagors and that he cannumber claim protection
under the saurashtra act xxii of 195 1 or the bombay rent
act because the mortgagee ceased to be a lessor when the
mortgage was redeemed and the tenant  appellant  also ceased
to be a tenant eo instanti the mortgagee ceased to be a
lessor. alternatively the learned companynsel submitted that even if
the observations companytained in film companyporations case and
sachalmal parasrams case are to be viewed as obiter dicta. the full bench decisions rendered by the gujarat high companyrt
in purshottam v. madhavji meghaji and by the madras high
court in sv venkatarama reddiar v. abdul gani rowther ors. have given succinct and adequate reasons for a
differentiation being made between a lease of agricultural
land and a lease of urban immovable property leased by a
mortgagee with possession and hence those decisions merit
acceptance by this companyrt and therefore it must be held that
the grant of lease of an urban immovable property by the
mortgagee was number a prudent act and would number therefore
bind the mortgagors. before taking up for companysideration the various
contentions of the appellants companynsel it is necessary that
the basic factors governing the rights of the parties are
identified and kept in the forefront. the high companyrt has
held the first mortgage dated 19.7.1947 was an anumberalous
mortgage and number an usufructuary mortgage. this finding of
the high companyrt is un-assailable and indeed neither of the
parties companytroverts the finding. the legal companysequence of
the finding is that the rights of the parties to the
mortgage would number be governed by section 76 of the transfer
of property act but by section 98 of the said act. section
98 provides that in the case of anumberalous mortgages the
rights of the parties have to be determined in accordance
with the terms of the mortgage deed. looking into the
mortgage deed the first sentence in the text of the deed and
clauses 2 3 4 s 7 10 have relevance and they reads as
under-
to wit we have borrowed the below mentioned
amount of rs.21000 in words rupees twenty one
thousands from you with an interest at a rate of
six annas per hundred per month under the
business method of diwali and under the remaining
method by companypound interest under this agreement
in respect of interest. according to the decision we have to pay
to you an amount of interest accruing due every
month. and you are entitled to demand interest on
the interest on any diwali period if any interest
remain claimable. in respect of the said house other
repairing charges or taxes of the government or
the municipality all these expenses shall be paid
by us. we shall have to bring
insurance on your name and the policy shall be
handed over to you. and if in any circumstances we
do number incur such expenses or we make delay
therein you are entitled to make such expenses and
to pay the amounts at our companyt. and if you pay the
amount in the said manner you are entitled to
recover all these amounts as a portion of amount
claimable under mortgage as an amount claimable
under this mortgage with companypound interest at a
rate of six annas per month on all the aforesaid
paid by you. but you are number bound to do any such
expense. if you do number make such expenses and if
any damage is occurred thereby or by any other
reason numberresponsibility in respect of the same
shall lie on you. we have given assurance that
insurance has been taken ? . some portion of the said house has been
given on rent to patel nandlal hodaji under joint
conditions. under the said companyditions we have
executed a rent deed in favour of you from the
said nandlal hodaji for the remaining period. you are entitled to give on rent the said
house to anybody under the aforesaid clauses
number 3-4. you have to give the clear amount of
rent in companysideration of the same. if under any
reason any amount of rent is number given or the rent
is given less or any of the portion of the house
is left vacant the responsibility thereof does
number lie on you.  rest omitted . you are entitled to obtain this property
or to keep this property in your possession till
any kind of amount claimable remains to be paid
under this mortgage. we are entitled to pay the amount at any
time. and the mortgage shall be redeemed when we
pay up the amounts and the same shall be given to
us and other documents and possession shall be
returned to us. and if we require the documents of
redemption of mortgage and in respect of handing
over possession etc. the same shall be executed
and the same shall be got registered. from a reading of these clauses it may be seen that although
the mortgagors had delivered possession to the mortgagee
they had bound
themselves to pay interest for the mortgage amount that
they had undertaken the liability to keep the house in good
repair and meet all public charges and pay the insurance
premium and that they had endorsed the lease deed executed
by the tenant nandlal hansji  referred to as patel nandlal
hodaji in clause 4  in favour of the mortgagee so that he
could companylect the rent from the tenant and credit the same
towards interest. in clause 5 the mortgagee is given
permission to give the house on lease to anyone subject to
the terms companytained in clauses 3-4. the authorisation
however gives an option to the mortgagee to lease out the
house to anyone or number to grant any lease. this is made
clear by the fact that the mortgagors have further stated in
clause 5 that if the house is given for a lesser rent or the
tenant does number pay the stipulated rent or even if the
mortgagee keeps the house vacant the mortgagee will number be
held liable for any loss meaning thereby that the mortgagee
will number be held accountable for loss of rental income. this
is obviously because of the undertaking by the mortgagors in
clause 2 that they hold themselves liable to pay interest to
the mortgagee at the rate of six annas per month under the
business period of diwali and under the remaining method by
compound interest under the agreement. under clause 7 the
mortgagors have empowered the mortgagee to keep the property
in his possession till the mortgage debt is fully repaid. under clause 10 the mortgagors have stated that they are
entitled to redeem the mortgage at any time and that as soon
as redemption takes place the mortgagee should return the
documents of title and re-deliver possession of the house. clauses 7 and 10 therefore stipulate that the mortgagee is
entitled to retain possession of the mortgage property only
till such time the mortgage debt is outstanding and that as
soon as the mortgage is redeemed the mortgagee is bound to
re-deliver possession of the property to the mortgagors. it
is with reference to these terms the question whether the
mortgagee had authority to give tenancy rights to the
appellant so as to enable him to claim tenancy rights beyond
the term of the mortgage has got to be determined . leaving the facts aside for a moment we will turn our
attention to the decision of this companyrt upon which the
appellants companynsel has placed companysiderable reliance. for
the purpose of the present-case the pronumberncement of law in
mahabir gope v. harbans narain asa ram v. ram kali dahya
lal v. rasul mohammed abdul rahim and prabhu v. ram dev
 supra  does number call for mention with reference to each
decision. suffice it to say that the general principle which
has been recognised in all these cases has been aptly
summarised in mullas transfer of property act. seventh
edition page 514 in the following manner-
numberquestion of imprudence can arise where as in
prabhu v. ram dev the rights of the tenant were
enlarged by tenancy legislation enacted after the
tenant was put in pos session by the mortgagee. it
is submitted that this statement of the law is
consistent with all the supreme companyrt decisions
quoted above. the other proposition of law which has found acceptance with
this companyrt is that a tenancy created by a mortgagee in
possession may be binding even after the termination of the
title of the mortgagee in possession if the mortgagors had
concurred to the grant of the lease  vide film companyporations
case.  it number behoves us to companysider whether the appellants
case falls under one of the two categories set out above
i.e.  1  whether his tenancy rights came to be enlarged by
tenancy legislation after he was put in possession by the
mortgagee or  2  whether the tenancy created in his favour
by the mortgagee had the companycurrence of the mortgagors 1  so
as to entitle the appellant to claim tenancy rights even
after the redemption of the mortgage. in so far as the first
question is companycerned the appellant was number inducted into
possession soon after the mortgage deed was executed and the
mortgagee was put in possession of the property but long
thereafter. in fact there was already a tenant on the
mortgage property when the mortgagee was put in possession
in july 1947. during the period of tenancy of that tenant
 nandlal hansji  the saurashtra act xxii of 1951 came to be
enacted and it gave protection to the tenants from paying
exhorbitant rent and from unreasonable eviction. despite the
enlargement of his tenancy rights by the act nandlal hansji
vacated the lease premises in 1956 and it was thereafter the
mortgagee inducted the appellant in possession. this is
therefore a case where the saurashtra act was already in
force when the appellant was inducted into possession. by no
stretch of imagination can the appellant companytend that his
tenancy rights became enlarged after the mortgagee granted
him the lease by subsequent legislation enacted for
affording protection to tenants. the fact that the mortgagee
had granted lease only for a period of one year will number
alter the situation in any manner because number only had the
mortgagee executed the lease deed after the expiry of the
lease period of one year but also because the restriction of
the lease period to one year was of numberconsequence in view
of the provisions companytained in the saurashtra act xxii of
195 1. the learned companynsel for the appellant placed reliance
on the fact that the bombay rent act had companye to be enacted
after the appellant was inducted into the property and hence
it is a
subsequent tenancy legislation which has enlarged the
tenancy rights of the appellant. this argument overlooks the
fact that saurashtra act xxii of 195 1 was already in force
when the mortgagee granted the lease to the appellant and
the said act companytinued to be in force till 31.12.1963 and it
was only from 1.1.1964 the bombay rent act came to replace
saurashtra act xxii of 1951. in the second appeals
pertaining to the standard rent application and the suit for
ejectment filed by the mortgagee the high companyrt has observed
as follows-
number it is number in dispute that the civil suit as
well as the standard rent application were
instituted at the time when the saurashtra act was
in operation in bhavnagar area. it is number disputed
that the present appeals are governed by the said
act. however i may say that the saurashtra act
was repealed by section 5 1 of gujarat act 57 of
1964 and the bombay rent hotel and lodging house
rates companytrol act 1947  bombay act lvii of 1947
it will hereafter be referred to as the bombay
act was extended to the area companyprised in the
former state of saurashtra which includes
bhavnagar where the suit premises are situate. the
repeal is with effect from december 31 1963. the
present two second appeals have been instituted
some time in february 1968  sic for 1963  before
the repeal of the saurashtra act. thus the present
second appeal will have to be decided on the
footing that the saurashtra act is applicable to
the suit premises. it is therefore futile for the companynsel to companytend that the
tenancy in favour of the appellant was created when no
tenancy legislation was in force and the appellants rights
became enlarged by reason of tenancy legislation enacted
subsequently viz. the bombay rent act. hence the reliance
of the appellants companynsel on the four earlier decisions of
this companyrt including the two decisions rendered by benches
of five judges cannumber be of any avail to the appellant. we are then left with the question whether the lease
granted to the appellant by the mortgagee had the approval
or companycurrence of the mortgagors so as to entitle the
appellant to claim tenancy rights even as against the
mortgagors after they had redeemed the mortgage. the bedrock
for the appellants companytention that the mortgagors had given
express authority to the mortgagee to create tenancy over
the mortgage property is the first sentence companytained in
clause 5 of the mortgage deed which says that you are
entitled to give on rent the said
house to anybody under the aforesaid clauses number 3-4.
viewed from any angle the authorisation given to the
mortgagee to give on lease the mortgage property cannumber be
said to be an unconditional and absolute one. in the first
place it has to be remembered that the mortgage deed came
into existence in july 1947 which was long prior to the
saurashtra act xxii of 1951 being enacted. neither the
mortgagors number the mortgagee companyld have anticipated a
tenancy legislation like saurashtra act xxii of 195 1 being
enacted by the government so as to enlarge the rights of the
tenants. in such circumstances the appellant cannumber
legitimately companytend that the mortgagors had given an
unrestricted power to the mortgagee to create a tenancy for
any length of time and are therefore bound to accept the
lease transaction even after the redemption of the mortgage
deed. secondly even without reference to the absence of any
tenancy legislation when the mortgage deed came to be
executed there are a host of materials in the mortgage deed
itself to show that the permission given to the mortgagee to
induct tenants was of a very limited and qualified nature. we have already pointed out that in spite of the mortgagee
being given possession the mortgagors had agreed to pay
interest to the mortgagee at mercantile rate and also as per
contractual rate. this was number therefore a case where the
mortgagee was put in possession of the mortgage property in
order to appropriate the usufructs in lieu of interest. the
position stands further clarified by the recitals in clause
s which absolve the mortgagee of any liability for loss of
income from the mortgage property due to fall in rent or
number-payment of rent or even due to number-leasing the property
and keeping the house vacant. on account of these guarantees
the mortgagee was under numbercompulsion to lease out the
property just because of the permission given to him to
grant leases either to secure rental income in lieu of
interest or on grounds of prudent management. the mortgagee
should have realised that by inducting the appellant he was
running the risk of being unable to deliver possession of
the house to the mortgagors when the mortgage was redeemed
and thereby he would be companytravening clauses 7 and 10 of the
mortgage deed. in such circumstances there is numberscope at
all for the appellant to companytend that the mortgagee had
leased out the property in the belief that he was well
within the authority given to him by the mortgagors to lease
out the property and therefore the mortgagors are bound by
the lease transaction. in the light of these findings it follows that there is
neither need number necessity for us to go into the question
whether the pronumberncements made in film companyporationss case
constitute a deviation from the ratio laid down in the
earlier cases of mahabir gope asa ram
dahya lal and prabhu  supra  and as such the appeal should
be referred to a larger bench for decision. for the same
reason we are of the view that there is numberneed to go into
the question whether the judgments rendered in purshottam v.
madhavji meghaji sv venkatarama reddiar v. abdul gani
rowther ors. and devkinandan v. roshan lal  supra
require companysideration by this companyrt. the high companyrt we may
observe has number held against the appellant because the
lease granted by the mortgagee pertained to an urban
immovable property but because the mortgagors had number given
authority to the mortgagee to create a lease which would
enure beyond the term of the mortgage and secondly the
authority given to the mortgagee to lease out the property
was circumscribed by the stipulation that the mortgagee
should re-deliver the possession of the property whenever
the mortgage was redeemed. in the companyrse of the arguments mr. bhatt also sought to
contend that by reason of the authority given to the
mortgagee to create tenancies over the mortgage property
the mortgagors had companystituted the mortgagee their agent and
hence the mortgagors as principals were bound by the acts of
their agent. we cannumber companyntenance this argument because the
relationship between the parties to the mortgage was always
one of debtor and creditor and there was numberquestion of the
mortgagors companystituting the mortgagee as their agent. since it has been found that the mortgagors had number
empowered the mortgagee to create a lease which would be
binding on them after the redemption of the mortgage and
since the appellants rights as a tenant did number become
enlarged by means of any tenancy legislation which came to
be enacted after the lease was granted the appellant can
claim tenancy rights only as against his landlord viz. the
mortgagee and number against the mortgagors. as soon as the
mortgagees rights became extinguished by the redemption of
the mortgage neither he number anyone inducted by him has a
right to be in possession of the mortgage property. companysequently the mortgagors were entitled to seek ejectment
of the mortgagee and the tenant inducted by him. the
appellant had numberindependent rights and hence it was number
necessary that he should have been made a party to the suit
filed by the mortgagee or the execution application taken
out by the mortgagors after the redemption of the mortgage. his position was akin to that of a sub-tenant whose rights
were companyterminus with those of the tenant himself.


civil appellate jurisdiction civil appeal number 365 of 1965.
appeal by special leave from the judgment and order dated
february 18 1963 of the madhya pradesh high companyrt  indore f
bench  in second appeals number. 68 and 70 of 1961.

b. agarwala b. dutta j. b. dadachanji 0. c. mathur
and ravinder narain for the appellant. b. chaudhry for the respondent. r. l. lyengar g. l. sanghi and a. g. ratnaparkhi for
intervener number 1.

b. dadachanji 0. c. mathur and ravinder narain for
interveiier number2. the judgment of the companyrt was delivered by
shah j. ramgopal-respondent in this appeal-was a tenant f
of certain inam land situate in village nanda panth in
indore tahsil. the appellant rao nihalkaran-holder of the
inam-
served a numberice terminating the tenancy on the ground that
he needed the land for personal cultivation and companymenced
an action in the companyrt of the civil judge class 11 indore
on july 21 1950 against ramgopal for a decree in
ejectment. the trial companyrt decreed the suit. during the
pendency of the appeal to the district companyrt indore by
ramgopal against the decree madhya bharat muafi inam
tenants and sub-tenants protection act 32 of 1954 was
enacted and pursuant to the provisions thereof hearing of
the appeal remained stayed till 1960. in the mean time the
madhya pradesh land revenue companye  act 20 of 1959  was
brought into force. ramgopal urged before the district
court that he had by virtue of s. 185 of the companye acquired
rights of an occupancy tenant and the appellants right to
obtain an order in ejectment on the ground set up must be
refused. the district judge accepted the companytention of the
respondent and allowed the appeal. against the decree
passed by the district companyrt indore the appellant appealed
to the high companyrt of madhya pradesh indore bench. following their judgment in rao nihalkaran v. ramchandra and
others  1  the high companyrt companyfirmed the decree of. the
district judge and dismissed the appeal. with special
leave granted by this companyrt this appeal has been preferred. the dispute in the appeal centres round the meaning of the
expression tenant used in s. 185 i  cl.  ii   a  of the
madhya pradesh land revenue companye. the material part of the
clause reads
every person who at the companying into force of
this companye holds-
 i

in the madhya bharat region-
 a  any inam land as a tenant or as a sub-
tenant or as an ordinary tenant
shall be called an occupancy tenant and shall
have all the rights and be subject to all the
liabilities companyferred or imposed upon an
occupancy tenant by or under this companye. it is companymon ground that the tenancy of ran occupancy tenant
may be determined under s. 193 of the madhya pradesh land
revenue companye by an order of the sub-divisional officer on
the grounds specified in that section and personal
requirement of the land-lord is number one of such grounds. but companynsel for the appellant urged that the rights of an
occupancy tenant arise in favour of a person under s. 185
 1  cl.  ii   a  only if there is between him and the
claimant to the land a subsisting relation under which he
holds land

l. p. a. number 14 of 1961 decided on sept. 24 1962.
as a tenant at the date when the companye came into force. the
code has it is said numberretrospective operation and the
person who under the law in force before the companymencement of
the companye had ceased to be a tenant because of termination
of the companytract between him and the landlord is number
invested with the rights of an occupancy tenant under s. 185
 1   ii   a . in the alternative it is companytended that by
virtue of s. 261 and s. 262 2  operation of s. 185 is
expressly excluded when a person against whom proceedings
have been instituted prior to the companymencement of the companye
for a decree in ejectment in enforcement of a right
acquired under the law then in force claims the states of
an occupancy tenant. the district companyrt held that the expression tenant within
the meaning of s. 185  1  ii  a  of the companye includes a
person whose tenancy stood determined before the
commencement of the companye and with that view the high companyrt
agreed. companynsel for the appellant companyplained that in
reaching this companyclusion the companyrts below ignumbered the
definition in s. 2 y  of the companye that the expression
tenant means a person holding land from a bhumiswami as an
occupancy tenant under ch. xiv and said that a person qua
whom the companytractual relation under which he was inducted as
a tenant was determied prior to the companymencement of the companye
is number a tenant within the meaning of s. 185 i  ii  a . to
appreciate this argument it is necessary to examine the
relevant legislative history culminating in the enactment of
the companye in 1959.
in 1948 twenty indian states including the states of
gwalior indore and malwa formed themselves into a union. five more states were later incorporated into this union. under the companystitution madhya bharat was formed as a part b
state out of the territories of the united states of
gwalior indore malwa and certain enclaves merged therein
and the chief companymissioners province of panth piploda. under the states reorganisation act 1956 a new state of
madhya pradesh was formed as from numberember 1 1956
consisting of the part b state of madhya bharat parts of
the former state of madhya pradesh the territories of the
states of bhopal and vindhya pradesh and sironj sub-division
of kotah in the former state of rajasthan. apparently the
diverse land tenures prevalent in the companyenanting states and
the laws governing them remained in operation in their
respective territories even after the formation if the part
b state of madhya bharat. attempts were made to evolve a
uniform pattern of revenue administration in companyformity with
the directive principles of state policy in the companystitution
to bring the tiller of the soil into direct relation with
the state. the legislature of the part b state of madhya
bharat enacted act 66 of 1950 to companysolidate and declare
the law relating to revenue administration in the united
states of gwalior indore and malwa and land revenue land
tenure
and other matters companynected with the land in the ryotwari
tracts or villages of the united states. section 54 of act
66 of 1950 defined pakka tenant ordinary tenant sub-
tenant and prescribed the duties of a tenant by s. 55. by
s. 73 a pakka tenant was prohibited from sub-letting for
any period any land companyprised in his holding unless he
belonged to any of the classes mentioned in s. 74. by s. 74
certain classes of disabled persons were permitted to sub-
let the whole or any part of their holding. but such a sub-
lease made in pursuance of the provisions of the act was to
cease to be in force after one year of the determination of
the disability by death or otherwise. by s. 75 it was
provided that a sub-lease of the whole or any part of the
holding of a pakka tenant effected properly and legally
prior to the companymencement of the act was to terminate after
the expiry of the period of sub-lease or expiry of four
years after the companymencement of the act whichever period
was less. by s. 76 a sub-lessee failing to hand over pos-
session after expiry of his right was to be deemed a
tresspasser and liable to ejectment in accordance with the
provisions of the act. the legislature with the object of
improving the companyditions of agriculturists and with a view
to remove the middleman between the state and the tiller of
the soil also enacted the zamindari abolition act and the
abolition of jagirs act. anumberher statute which has a bearing on the dispute in this
appeal-the madhya bharat muafi and inam tenants and sub-
tenants protection act 32 of 1954-was enacted to provide
for the duration of the act for the protection of tenants
or ordinary tenants and sub-tenants of muafidars inamdars
and istumurardars in madhya bharat against eviction by such
muafidars or inamdars of their tenants as the case may be
and for stay of suits and other proceedings relating to such
eviction. by s. 2 ii  the terms tenant sub-tenant
ordinary tenant and rent were given the same meaning as
was assigned to them in sub-ss.  1   7   8   9  of s. 54
of act 66 of 1950. by s. 1 a restriction was placed upon
eviction of any tenant sub-tenant. or ordinary tenant of
inam land during the companytinuance act and it was declared
that the tenant sub-tenant or ordinary tenant shall number pay
rent higher than what he was paying in the agricultural
year ending june 30 1948. by s. 4 all suits proceedings
in execution of decrees or orders and other proceedings for
the eviction of inam land tenants sub-tenants or ordinary
tenants from inam lands or in which a claim for such
eviction was involved pending in the companyrt at the
commencement of the act or which may be instituted after
such companymencement were to be stayed subject to the
provisions companytained in the act. by sub-s.  ii  of s. 4 it
was provided that if the inamdar muafidar or istumurardar
had taken possession of the land-illegally from a tenant
sub-tenant or an ordinary tenant after august 15- 1947 such
a tenant sub-tenant or an ordinary
tenant may apply to the tahsildar to be restored to
possession of such land and on such application the
tahsildar shall cause the land to be returned to such
tenant sub-tenant or ordinary tenant from the inamdar
muafidar or istumurardar as the ease may be. by s. 6 it
was provided that all suits and proceedings shall after the
expiration of the act be proceeded with subject to the
provisions of any law which may then be in force from the
stage which had been reached when the suit or proceeding was
stayed. act 32 of 1954 was intended initially to remain in force for
a period of two years but its life was extended by later
enactments. protection against eviction during the
continuance of act 32 of 1954 by enforcement of a decree
passed in a suit or a proceeding either before or after the
date on which the act was brought into force was companyferred
upon tenants sub-tenants and ordinary tenants. it is clear
from the terms of ss. 3 4 of the act that the legislature
did number seek to grant protection only to persons between
whom and the claimants for protection there was a subsisting
contractual relation. a person who was inducted into the
land as a tenant sub-tenant or ordinary tenant and who
continued to hold the land at the companymencement of the act
was entitled to protection numberwithstanding that under the
law in force prior to the companymencement of the act the
contractual relation was determined. the madhya pradesh land revenue companye was enacted in 1959.
by s. 157 of the companye it was declared that there shall be
only one class of tenure holders of lands held from the
state to be knumbern as bhumiswami and by s. 158 it was
provided that every person who at the time of companying into
force of the companye belongs to any of the four classes
specified shall be called a bhumiswami and shall have all
the rights and be subject to all the liabilities companyferred
or imposed upon a bhumiswami by or under the companye and among
the persons specified is every person in respect of land
held by him in the madhya bharat region as a pakka tenant or
as a muafidar inamdar or companycessional holder as defined in
the madhya bharat land revenue and tenancy act samvat 2007.
the argument of companynsel for the appellant is that the
respondent number being a tenant at the companymencement of the
code companyld number acquire the rights of an occupancy tenant
and that any proceeding instituted against the tenant must
be heard and disposed of according to the law in force prior
to the companymencement of the companye. the definition of the
expression tenant in s. 2 y  postulates a subsisting
tenancy but that definition may be resorted to for
interpreting s. 185  1  only if the companytext or the subject-
matter of the section does number suggest a different meaning. a tenant is by the definition a person who holds land as an
occupancy tenant from a bhurmiswami but the status of a
bhumiswami is recognized
for the first time by the companye and an occupancy tenant from
a bhumiswami would mean only a person belonging to that
class who acquires rights of occupancy tenant after the companye
comes into force. the position of a tenant prior to the
date on which the companye was brought into force does number
appear to have been dealt with in this definition. the
definition which is specially devised for the purpose of the
act throws numberlight on the nature of the right which
invests. the holder of land with the status of an occupancy
tenant at the companymencement of the companye. in the companytext in
which the expression tenant occurs in s. 185 the defi-
nition companyld number be intended to apply in determining the
conditions which invest upon a holder of land the status of
an occupancy tenant. if the expression tenant in s. 185
 1  be released from the artificial definition as given in
s. 2 y  in view of the companytext in which it occurs the
expression tenant in s. 185 1  ii  a  having regard to
the object of the enactment would be ascribed the meaning
that expression had in act 32 of 1954.
this view is strengthened by certain indications found in
cl.  ii  b  if s. 185  1  which provides that in the madhya
bharat region every person who at the companymencement of the
code holds any land as ryotwari sub-lessee as defined in the
madhya bharat ryotwari sub-lessee protection act 29 of 1955
shall be called an occupancy tenant. unless a ryotwari sub-
lessee as defined in act 29 of 1955 included a sub-lessee
whose tenure was terminated before the companymencement of the
code that clause would number apply to any companycrete case. the
court would number unless companypelled by unambiguous language
impute to the legislature an intention to enact a provision
which was ineffective. by s. 73 of act 66 of 1950 a pakka
tenant companyld number sub-let for any period any land companyprised
in his holding except in the cases provided for in s. 74
and by s. 75 it was provided that all sub-leases in force at
the companymencement of the act were to terminate either on the
expiry of the period of sub-lease or expiry of four years
whichever was earlier. all sub-leases except those which
were companyered by s. 74 i.e. sub-leases granted by disabled
persons before the companymencement of act 66 of 1950 stood
terminated some time before the end of 1954 and by the
express terms of s. 76 the sublessees were to be deemed
trespassers and liable to ejectment in accordance with the
provisions of the act. numberwithstanding these provisions by
anumberher act 29 of 1955 scheme of which was substantially
the same as the scheme of act 32 of 1954 ejectment of
ryotwari sub-lessees other than a sub-lessee under s. 74 of
act 66 of 1950 was suspended for the duration of the act
and all suits and proceedings in execution for ejectment
were to be stayed. by s. 2 b  of act 29 of 1955 ryotwari
sub-lessee was defined as meaning a person to whom a pakka
tenant of any ryotwari land has sub-let on sub-lease any
part of his ryotwari land. by
s. 3 a ban was imposed against ejectment of all ryotwari
sub-lessees other than sub-lessees under s. 74 of act 66 of
1950. by s. 4 provision was made for ejectment of ryotwari
sub-lessees and provisions similar to ss. 5 6 of act 32 of
1954 were made in this act also. a ban was therefore
imposed against eviction of ryotwari sub-lessees and
proceedings for eviction against them were stayed by act 29
of 1955. therefore ryotwari sub-lessees who had ceased by
determination of the sub-leases to have right in the lands
were still protected from eviction during the pendency of
act 29 of 1955 and by s. 185 1  ii  b  of the companye upon the
ryotwari sub-lessees the rights of occupancy tenants were
conferred. if the expression ryotwari sub-lessee were to
be companystrued to mean a ryotwari sub-lessee between whom and
his lessor there was a subsisting companytract of sub-letting
the protection for all purposes would be ineffective for
by express statutory provision read with s. 74 of act 66 of
1950 all ryotwari sub-leases stood determined before act 29
of 1955 was brought into force and by virtue of s. 185  3
of the companye a holder of land from a disabled bhumiswami
belonging to a class mentioned in s. 168 2  of the companye does
number qualify for the status of an occupancy tenant. it may
be numbericed that in the class of disabled persons in sub-s
 2  of s. 168 of the companye are included all persons who are
declared disabled by sub-s.  2  of s. 74 of act 66 of 1950.
if ryotwari sub-lessees of disabled persons mentioned in
subs.  2  of s. 74 of act 66 of 1950 cannumber claim rights of
occupancy tenants by virtue of s. 185  3  of the companye and
other ryotwari sublessees cannumber qualify for those rights
because of the determination of their interest as sub-
lessees by virtue of ss. 75 76 of act 66 of 1950 s. 185
 1  ii  b  of the companye will number apply to any class of
ryotwari sub-lessees. this is a strong ground in support of
the view taken by the high companyrt that the expression
ryotwari sublessee in s. 185  1  ii  b  of the companye
include persons whose companytractual relation has been det-
ermined either under the terms of companytract of sub-lease or
statutorily under act 66 of 1950. if that be the true
meaning of the expression ryotwari sub-lessee there would
be numberreason to think that the legislature sought to make a
distinction between tenants sub-tenants and ordinary
tenants of inam land in s. 185 1  ii  a  of the companye and
ryotwari sub-lessees of other lands in s. 185 1  ii  b . a
member belonging to those classes would therefore be
included in the protection provided at some time prior to
the date on which the companye was brought into force if he was
in possession of land as a tenant sub-tenant or ordinary
tenant and he companytinued to hold the land till the date of
commencement of the companye. the alternative argument that s. 185 of the companye has po
application in respect of pending proceedings for ejectment
is without substance. by s. 261 of the companye a large number
of
statutes specified in sch. ii were repealed. by s. 261
certain enactments specified in sch. 11 including the madhya
bharat land revenue and tenancy act 66 of 1950 and the
madhya bharat muafi and inam tenants and sub-tenants
protection act 32 of 1954 were wholly repealed. but it is
expressly provided in s. 261 that the repeat shall number
affect a  the previous operation of any law so repealed or
anything duly done or suffered thereunder or  b  any right
privilege obligation or liability acquired accrued or
incurred under any law so repealed or  c   any penalty
forfeiture or punishment incurred in respect of any offence
committed against any law so repealed or  d  any invest-
igation legal proceeding or remedy in respect of any such
right privilege obligation liability penalty forfeiture
or punishment as aforesaid and any such investigation
legal proceeding or remedy may be instituted companytinued or
enforced and any such penalty forfeiture or punishment may
be imposed as if the act had number been passed. section 262
which deals with transitory provisions by sub-s.  2
provides
any case pending in civil companyrt at the companying
into force of this companye which would under
this companye be exclusively triable by a revenue
court shall be disposed of by such civil
court according to the law in force prior to
the companymencement of this companye. relying upon these two provisions it was urged that persons
who were tenants sub-tenants or ordinary tenants of inam
land prior to the date on which the companye was brought into
for  whose rights have companysistently with the law in force
before that date been terminated cannumber set up rights of
occupancy tenants acquired under s. 185 for within the
meaning of s. 261 the right to eject a tenant has accrued to
the landlord before the companymencement of the companye and a
proceeding for enforcement of that right may be companytinued
and the right enforced as if the companye had number been passed
and the companyrt in which the proceeding is pending would be
bound to dispose of the proceeding according to the law in
force prior to the companymencement of the companye. the argument is
misconceived. act 66 of 1950 did number deal with the right of
a landlord to evict a tenant from land. act 66 of 1950 was
expressly repealed by the companye but since the right to evict
a tenant was governed g by the general law of landlord and
tenant the proviso to s. 261 had numberoperation. in terms
the proviso to s. 261 protects a right privilege
obligation or liability which had been acquired accrued or
incurred under the law repealed by the companye. the right to
obtain possession number having been acquired under the law
repealed a legal proceeding pending at the date of the
commencement of the companye will be disposed of according to
the law then in force. that was expressly provided by s.
6 of act 32 of 1954 and by s. 6 of act 29 of 1955. if at
the date of the trial the tenant had acquired the right of
an occupancy tenant he companyld number be evicted
otherwise than in the manner and for reasons mentioned in s.
19 3 of the companye. personal requirement for cultivation of
land is number however a ground on which claim since the
commencement of the companye for ejectment may be maintained. section 262 2  is a transitory provision which enables a
civil companyrt to hear and dispose of a suit numberwithstanding
that under the companye such a proceeding would be triable by a
revenue companyrt. it is expressly declared that such a
proceeding shall be disposed of according to the law in
force prior to the companymencement of the companye.


civil appellate jurisdictioncivil appeal number 2115 of
1968.
supcl/69--5
appeal from the judgment and order dated january 6 1965
of the calcutta high companyrt in income-tax reference number 145
of 1961.

sen s. a. l. narayana rao r.n. sachthey and b.d. sharma for the appellant. mitra and p.k. mukherjee for the respondent. the judgment of the companyrt was delivered by
ramaswami j. the respondent is a private limited
company  hereinafter referred to as the assessee . the
appeal relates to the assessment year 1956-57 for which the
previous year is the year ending september 30 1955. the
business of the assessee was to deal with shares and
securities. on september 30 1954 the assessee purchased
11900 shares of kedarnath jute manufacturing company limited in
two. lots one at the rate of rs. 9-8-0 per share and the
other at rs. 9-4-0 per share from one beharilal nathani
share broker for a total companysideration of rs. 112575/-. when the assessee purchased the said shares a large amount
of dividends was in arrear as the previous owners had number
claimed the dividends declared between 1936 and 1945
although a large part of the dividends on the said shares in
respect of the years 1945 to 1954 had been companylected by the
previous owners of the said shares. a letter addressed by
beharilal nathani to the assessee bearing the date
september 30 1954 goes to show that the shares had been
sold with arrear dividends. it is admitted that the
dividends which had been declared between the years 1936
and 1945 and were received by the assessee during the
accounting period amounted to rs. 43925/-. the assessee
first credited this sum to the profit and loss appropriation
account and thereafter transferred the same to a reserve
fund in the accounting year ending september 30 1955. no
adjustment was made in the share purchase account on account
of the receipt of dividend. the value of the shares which
represented the stock-in-trade of the assessee remained the
same both in the opening and the closing stocks. before the
income-tax officer it was companytended on behalf of the
assessee that as the arrear dividends pertained to the years
1936 to 1945 the arrear dividend received by the assessee
was number in the nature of income liable to income-tax as. it
was merely a realisation of capital. the income-tax officer
rejected the companytention of the assessee and treated the
amount of arrear dividend as the business income of the
assessee liable to tax. on appeal by the assessee the
appellate assistant companymissioner of income-tax examined the
question whether the amount of rs. 43925/- should be
treated as dividend and should therefore be assessed under
s. 12 of the indian income-tax act 1922  hereinafter
referred to as the act  or whether it should be treated as
profits and gains of business arising to the assessee and
taxed under s. 10 of the act. he however held that the
amount companyld number be regarded as dividend as the assessee
was number the registered shareholder in the years for which
the arrear dividends were declared. but he held that
since the shares were purchased by the assessee with the
knumberledge that it would be entitled to receive the arrear
dividends which represented profits arising on the
acquisition of such shares the assessee companyld be deemed to
have entered into a scheme of profit making an adventure in
the nature of trade. the assessee brought a second appeal
to the appellate tribunal but the appeal was dismissed. the
appellate tribunal companyfirmed the findings by the income-tax
authorities and held that the assessee acquired the shares
on which the arrear dividends were received in the companyrse
of its share-dealing business and that the sum of rs. 43925/- so received by the assesee formed an integral part
of its income arising from business which was liable to tax. at the instance of the assessee the appellate tribunal
stated a case to the high companyrt on the following question of
law
whether on the facts and in the
circumstances of the case the sum of rs. 43925/- received by the assessee represented
business income arising under section 10 from
an adventure in the nature of trade or it was
a dividend within the meaning of section 12
of the income-tax act ? after looking into the statement of case and also the
application of the assessee under s. 66 1  of the act the
high companyrt held that the question which the tribunal had
referred did number companyrectly and accurately describe the stand
and companytention taken by the assessee throughout which was
that numberpart of the arrear dividend received by the assessee
was income at all liable to tax. the high companyrt thereafter
addressed itself to the real issue between the parties and
ultimately held that the amount of rs. 43925/- was number
liable to tax. this appeal is brought on behalf of the
commissioner of income-tax against the judgment of the high
court dated january 6 1965 by a certificate granted under
s. 66a 2  of the act. it is necessary that the question referred to by the
high companyrt should be reframed in the following manner in
order to bring out the real point in companytroversy between the
parties
whether in the facts and circumstances of
the case the assessee had purchased the
arrears of dividend ? if so whether the said
sum of rs. 43925/- companyld at all be assessed
either as dividend or as profit ? it is manifest that dividends declared by kedarnath
jute manufacturing company between the years 1936 and 1945 were
the
property of the persons whose names stood on the share
register on the relevant dates. when a companypany declares
dividend the same can only be paid to the person who is then
the registered holder. a purchaser of shares becomes
entitled to all dividends declared since his purchase but
number before. if the purchase is made on the eve of
declaration of dividend but the purchaser does number get his
name mutated in the records of the companypany in time to have
the dividend-warrant issued in his own name he is entitled
to call upon his vendor to make over the dividend to him if
and when received. it is well settled that after a sale of
the shares and so long as the purchaser does number get his
name registered the vendor is for certain purposes
considered a trustee for the purchaser of the rights
attaching to the shares or accruing thereonincluding the
voting rights. in the present case there was a companytract
between the assessee and the registered shareholders to sell
the shares to the assessee with arrear dividends. in other
words the assessee entered into the companytract with the
registered shareholders number only to purchase share scrips
but the dividends which had been declared but number companylected
by him or paid over to shareholders. as the dividends had
been declared long ago there was numberuncertainly as to the
exact amount receivable in respect of them. it is. therefore clear that both the purchaser and the vendor
knew exactly what sum of money would companye to the vendor
by way of such dividend. in other words the purchase
consideration included the amount of the arrear dividends
and as the dividends had been declared long ago there was
numberuncertainty as to the exact amount receivable in respect
of them. the existence of a companytract binding the vendors to
make over to the purchaser the arrear dividends clearly
implied that the price paid by the purchaser was number only
for the value of the share scrips but also for the sum of
rs. 43925/- which was going to be realised in the form
of arrear dividends by the purchaser. the high companyrt held
upon an examination of the evidence that such an arrangement
implied that the value of rs. 9-8-0 and rs. 9-4-0 per share
as settled into the brokers bills was number the real value of
the share scrips alone but also included the element of the
arrear dividends agreed to be receivable by the purchaser. the legal position therefore is that the arrear dividends
were number claimable by the purchaser by virtue of his right
as such purchaser and companyld number become his income from the
shares. he was to get the same because the vendor had
contracted to pass the arrear dividends on to him. they
were the income of the vendors i.e. the registered holders
but they companyld number become the income of the purchaser. in
fact the assessee had purchased the amount of arrear
dividends for a price which was included in the total
consideration of rs. 112575/-. what the assessee acquired
in the form of share scrip represented its stock-in-trade
which companysisted of the shares and the dividends potential
which had to be realised. in this state of facts it is manifest that the assessee
paid the amount of rs. 112575/- number only for the share
scrips but also for the arrear dividends which was
inextricably companynected with the purchase of the share
scrips. in our opinion the high companyrt rightly held that the
amount of rs. 43925/- was number income which companyld be
assessed in the hands of the assessee. it was said that the assessee had itself credited the
amount of rs. 43925/- to the profit and loss appropriation
account and thereafter transferred the same to a reserve
fund in the accounting year ending september 30 1955. no
adjustment was made in the share purchase account on account
of the receipt of dividend. but it is well established that
a receipt which in law cannumber be regarded as income cannumber
become so merely because the assessee erroneously credited
it to the profit and loss account. see companymissioner of
income-tax bombay city i v. m s. shoorji vallabhdas
co. 1 . the assessees case had all along been that the
amount of arrear dividends received companyld number be treated
as income of the assessee liable to tax for the
assessment year 1956-57. as we have already shown the
consideration paid by the assessee was given number only for
the shares but also for share dividends amounting to rs. 43925/- and the amount of rs. 112575/- was paid number
only for the share scrips but also for the arrear dividends. in other words there was capital purchase by the assessee. of the shares together with arrear dividends due on the
shares for the years 1936 to 1945. it is therefore number
possible to treat the payment of rs.