civil appellate jurisdiction civil appeals number. 85
389 of 1957.
appeal from the judgment and order dated august 26 1955 of
the calcutta high companyrt in income-tax references number. 44 of
1954 and 17 of 1953.

mitra and p. k. mukherjee for the appellant  in c. a.
number 85/57.  c. chatterjee and p. k. ghosh for the appellant  in c.

number 389/57 . ganapathy iyer r. h. dhebar and d. gupta for the
respondent. 1959. april 15. the judgment of sinha and kapur jj. was
delivered by sinha j. hidayatullah j. delivered a
separate judgment. sinha j.-the companymon question of law arising in these two
appeals on certificates of fitness granted by the high companyrt
of calcutta under s. 66a 2  of the indian income-tax act
1922 is the effect and scope of the words companystituted
under an instrument of partnership in s. 26a of the income-
tax act which in the companyrse of this judgment will be
referred to as the act. the facts of the two cases leading upto these appeals
though number dissimilar are number identical. they are
therefore set out separately. in civil appeal number 85 of 1957 messrs. r. c. mitter and
sons 54 rani kanto bose street calcutta claim to be a
firm said to have been companystituted in april 1948 with four
persons whose names and shares in the nett profits of the
partnership business are stated to be as under

ramesh chandra mitter-40 per cent. of the nett profits. sudhir chandra mitter-30 per cent. of the nett profits. sukumar mitter-20 per cent. of the nett profits. sushil chandra mitter-10 per cent. of the nett profits. the firm intimated its bank the bengal central bank
limited  as it then was  of the companystitution of the firm
as set out above by its letter dated april 15 1948. the
letter also stated that a partnership deed was going to be
drawn up and executed by the partners aforesaid and that
the deed so drawn up will be forwarded to the bank in due
course. though the firm is said to have companye into existence
in april 1948 the deed of partnership which is set out as
annexure a at p. 5 of the paper book was drawn up only
on september 27 1949. this deed of partnership appears to
have been registered under the provisions of the indian
partnership act on october 12 1949. it was also
forwarded to the bengal central bank limited head office at
calcutta as it appears from the seal of the bank and the
signature dated december 7 1949. an application to
register the firm under s. 26a for the assessment year
1949-50 was made to the income-tax authorities. the date
of the said application does number appear from the record
before us. the application was rejected by the income-tax
authorities. the firm preferred an appeal to the income-tax
appellate tribunal which was also dismissed by the tribunal
by its order dated september 7 1953. the ground of the
order of the tribunal was that as the firm admittedly
was formed by a verbal agreement in april 1948 and number by
or under an instrument in writing dated september 27 1949
and as the assessment was for the year 1949-50 for which
registration of the firm was sought the registration companyld
number be ordered. the tribunal also referred to the letter
aforesaid to the bengal central bank and observed that the
letter merely companytained information as to the formation of
the partnership and of the personnel thereof but it did number
contain the terms on which the partnership had been formed. it also showed that a partnership had been created but number
by deed. hence the tribunal further observed the letter
might be useful for companysideration on the question of the
genuineness of the firm but it companyld number fulfil the
requirements of s. 26a namely that the firm should be
constituted under an instrument of partnership. therefore
the tribunal held that assuming the firm to be genuine it
was number entitled to be registered under s. 26a of the act. thereupon the assessee moved the tribunal under s. 66 1  of
the act. that application was granted by the order dated
february 2 1954 and the case stated to the high companyrt for
its decision on the following question -
whether the assessee firm which is alleged to have companye
into existence by a verbal agreement in april 1948 is
entitled to be registered under section 26a for the purpose
of assessment for 1949-50 where the instrument of
partnership was drawn up only in september 1949 after the
expiry of the relevant previous year . the high companyrt bench presided over by chakravarti c. j.
by its judgment dated august 26 1955 answered the question
in the negative. the learned chief justice companysidered the
matter from all possible view-points including grammatical
etymological and textual matters and came to the companyclusion
that companystituted meant created . he also companysidered
that the preposition under is obviously inappropriate
after having companyvinced himself that companystituted companyld be
equated with created. he also found numberdifficulty in
observing that some of the
paragraphs of the form appear to be ill-adjusted to the
provisions of the act and the rules . in the end
therefore he companycluded with the remarks it appears to me
to be desirable that the language of the section as also
that of the rules should receive legislative attention . in civil appeal number 389 of 1957 messrs. d. c. auddy
brothers calcutta claim to be a partnership companysisting of
dulal chand auddy prem chand auddy gora chand auddy and
kalipada nandy. the partnership business is said to have
begun in june 1944. an application was made on august
241949 for the registration of the partnership. the
income-tax officer and the appellate assistant companymissioner
were of the opinion that the partnership was number a genuine
one and companyld number be registered. anumberher reason for number
ordering registration was that the partnership deed having
been executed on june 2 1948 companyld number be operative during
the two years under companysideration namely 1945-46 and 1946-

on appeal the income. tax appellate tribunal rested
its decision on the finding that the alleged partnership had
number been companystituted under an instrument of partnership
within the meaning of those words in s. 26a of the act. at
the instance of the assessee the tribunal framed the fol-
lowing question for determination by the high companyrt
whether the assessee firm companystituted orally in june
1944 can validly be registered in the assessment years
1945-46 and 1946-47 under section 26a of the indian income
tax act on the basis of a memorandum of partnership executed
in june 1948.
the other parts of the statement of the case by the
tribunal refer to the merits of the assessment with which
we are number companycerned in this appeal. hence it is number
necessary to set out those facts. on this part of the
statement of the case the high companyrt gave the same answer
as in the other appeal. in this case also the high companyrt
granted the necessary certificate under s. 66a 2  read with
art. 135 of the companystitution. as both the cases raise the
same question of law they have been heard together and
will be governed by this judgment. it is companyvenient at this stage to set out the relevant
provisions of the act. section 26a is in these terms
26a. procedure in registration of firms.- i  application
may be made to the income-tax officer on behalf of any firm
constituted under an instrument of partnership specifying
the individual shares of the partners for registration for
the purposes of this act and of any other enactment for the
time being in force relating to income-tax or super tax. the application shall be made by such person or persons
and at such times and shall companytain such particulars and
shall be in such form and be verified in such manner as
may be prescribed and it shall be dealt with by the income-
tax officer in such manner as may be prescribed. the section companytemplates the framing of rules laying down
the details of the form in which the application has to be
made and the particulars which should be stated in the
application and other companynate matters. section 59 of the
act authorizes the central board of revenue subject to the
control of the central government to make rules for
carrying out the purposes of the act and sub-s.  5  of s.
59 provides that rules made under the section shall be
published in the official gazette and shall thereupon
have effect as if enacted in this act. income-tax rules 2
to 6b lay down the details of the procedure for making an
application for the registration of a firm as companytemplated
under s. 26a quoted above. these rules have been amended
extensively in 1952 but we are companycerned in this case with
the rules before those amendments. rule 2 requires such an
application to be signed by all the partners personally and
to be made before the income of the firm is assessed for the
year under s. 23 of the act. rule 3 requires that the
application be made in the form annexed to the rule and
that the application shall be accompanied by the original
instrument of partnership under which the firm is
constituted the form appearing in r. 3 requires
the assessment year to be specified. thus the registration
is for a particular year of assessment and number for future
years also and therefore the application for registration
has
to be made every year which in fact means an application
for renewal of the registration. paragraph 3 of the form
requires a certificate to be signed by the applicants for
registration to the effect that the profits  or loss if
any  of the previous year were divided or credited as shown
in section b of the schedule. the form companytains the
schedule in 7 companyumns which require the names of the-
partners their addresses the date of admittance to
partnership their shares in the profits or loss etc. to
be filled in. under the schedule there are section a and
section b. section a has to companytain particulars of the firm
as companystituted at the date of the application and section b
has to companytain the particulars of the apportionment of the
income profits or gains  or loss  of the business in the
previous year between the partners who in that previous year
were entitled to share therein. rule 4 provides that if the
income-tax officer. is satisfied that there is or was a firm
in existence companystituted as shown in the instrument of
partnership and that the application has been properly
made he has to enter a certificate at the foot of the
instrument of partnership that the firm has been registered
under s. 26a of the act and that the certificate of
registration shall have effect for the assessment for the
year specified therein. rule 5 is as follows

the certificate of registration granted under rule 4
shall have effect only for the assessment to be made for the
year mentioned therein.and rule 6 makes provision for the
certificate of registration to be renewed for a subsequent
year on an application being made in that behalf in
accordance with the preceding rules. it is manifest that for a true and proper companystruction of
the relevant provisions of the act relating to registration
of firms ss. 26 26a and 28 and the rules summarized
above have to be read together. so read it is reasonably
clear that the following essential companyditions must be
fulfilled in order that a firm may be held entitled to
registration-

that the firm should be companystituted under an instrument
of partnership specifying the individual shares of the
partners. that an application on behalf of and signed by all
the partners companytaining all the particulars as set out in
the rules has been made

that the application has been made before the
assessment of the income of the firm made under s. 23 of
the act  omitting the words number necessary for our present
purpose  for that particular year

that the profits  or loss if any  of the business
relating to the previous year that is to say the relevant
accounting year should have been divided or credited as
the case may be in accordance with the terms of the
instrument and lastly

that the partnership must have been genuine and must
actually have existed in companyformity with the terms and
conditions of the instrument. it is clear from what has been said above with reference to
the relevant provisions of the act that the certificate of
registration has reference to a particular assessment year
and has effect for the assessment to be made for that
particular year. in other words the terms of the
partnership should appear in the instrument of partnership
in respect of the relevant accounting year. it is equally
clear that the firm to be registered should have been in
existence during the accounting year companystituted as shown
in the instrument of partnership . the rules thus
contemplate a document operative during the accounting year. we are number here companycerned with the further question whether
the document should be in existence at the very inception of
the accounting year or before the year is out. the provisions of the act set out above do number present any
serious difficulty except for the words it companystituted under
an instrument of partnership occurring in s. 26a and the
relevant rules. on the interpretation of these words there
has been a companyflict of judicial opinion as will presently
appear. on behalf of the assessee-appellants it has been
contended that so long as the assessment has number been made
the assessees are entitled to have their firms registered in
accordance with the terms of the instrument of
partnership irrespective of the year in which the
instrument may have companye into existence. strong reliance
was placed upon the decision of the bombay high companyrt
 chagla c. j. and tendolkar j.  in the case of dwarkadas
khetan company v. companymissioner of income-tax bombay city
bombay 1  wherein the following observations have been
made-
any firm can make an application under section 26a for
registration and the two companyditions that it has got to
comply with are that it must be companystituted under an
instrument of partnership and the second companydition is that
the instrument of partnership must specify the individual
shares of the partners. if these two companyditions are
satisfied it would be entitled to registration. the section
does number say that the firm must be companystituted by the
instrument of partnership. it does number require that the
firm must companye into existence by reason of the instrument of
partnership or that the firm should be the creature of the
instrument of partnership or that the firm must number exist
prior to the instrument of partnership being executed. in the case decided by the bombay high companyrt the instrument
of partnership had been executed on march 27 1946 with
effect from january 1 1946. on an application made to the
department to register the firm the matter was determined
by the income-tax appellate tribunal against the assessee on
the ground that the partnership was in existence before the
deed was executed and that therefore it companyld number be
registered. before the bombay high companyrt reliance had been
placed on behalf of the department on the decision of the
calcutta high companyrt number before us in appeal as also on a
decision of the punjab high companyrt. the decision of the
calcutta high companyrt number under examination in the case of r.

mitter sons v. companymissioner of income-tax  2  takes
the view that s. 26a of the act companytemplates a firm created
or brought into existence by an instrument of partnership
which governs the distribution of shares in the relevant
accounting period. such a deed should have
 1  1956  29 i.t.r. 903 907.  2  1955 28 i.t.r. 698
704 705.
come into existence on or before the companymencement of the
relevant accounting period. the other decision relied upon
in the bombay high companyrt had been given by a division bench
of the punjab high companyrt reported in padam parshad rattan
chand v. companymissioner of income-tax delhi  1 . on the other hand it has been companytended on behalf of the
revenue that in order to entitle a firm to be registered
the firm should have been created by an instrument of
partnership or at any rate such an instrument should be in
existence during the relevant accounting year that is the
year previous to the year of assessment in respect of which
the application for registration has been made. for the
first part of the submission on behalf of the respondent
there is ample authority in the decision under appeal which
bad been relied upon before the bombay high companyrt. in that
case  r. c. mitter sons v. companymissioner of income-tax
 supra   2    chakravarti c. j. who delivered the opinion
of the companyrt under s. 66 1  of the act after a very
elaborate discussion came to the companyclusion which may best
be expressed in his own words as follows-
if by the expression i companystituted under an instrument of
partnership is meant a firm which originated in a verbal
agreement but with respect to which a formal deed was
subsequently executed there would be numberroom in the section
for partnerships actually created by an instrument and such
partnerships although most obviously entitled to
registration would be excluded from the purview of the
section. even etymologically or textually i do dot think
that the word companystituted when used in relation to a firm
or such other body can mean anything but i created when the
reference is to some deed or instrument to which the
inception of the firm or other body is to be traced. after having thus held that s. 26a companytemplated firms
created or brought into existence by a deed in writing he
had numberdifficulty in substituting by for under
thus making the crucial words companystituted
 i  1954 25 i.t.r. 335.  2  1955 28 i.t.r. 698 704 705.
by instead of companystituted under . in our opinion the
learned chief justice fell into the error of re-constructing
the provisions of the statute instead of companystruing them. the word by companyld be substituted for the word under
in s. 26a only if the words as they stand in the section
were number capable of making sense and it would thus have
been necessary to amend the wording of the section. turning
his attention from the wording of the section to that of the
rules and the form appearing under the rules he again came
to the companyclusion that some of the paragraphs of the form
appear to be ill-adjusted to the provisions of the act . referring to other parts of the rules he was companystrained to
observe that they would lend strong support to the view
that what is meant by any firm companystituted under an
instrument of partnership in section 26a is numbermore than a
fir of which the companystitution appears from an instrument in
writing. it is obvious that if such be the meaning of the
expression companystituted under an instrument of partnership
the instrument need number be one by which the partnership was
created . but then he attempted to get over that difficulty
by observing that the language of the rules and the form
could number supersede a provision companytained in the act itself. he further opined that the language in para. 4 1  is un-
doubtedly unsatisfactory . in our opinion any attempt to
reconstruct the provisions of the relevant section and the
rules on the assumption that the intention of the
legislature was to limit the registration of firms to only
those which have been created by an instrument of
partnership is with all respect erroneous. the proper
way to companystrue the provisions of the statute is to give
full effect to all the words of the relevant provisions to
try to read them harmoniously and then to give them a
sensible meaning. hence we have to companysider at the
threshold the question whether the words companystituted
under an instrument of partnership have some meaning which
can be attributed to them harmoniously with the rest of the
relevant provisions. a partnership may be created or set up
by a companytract in writing
setting out all the terms and companyditions of the partnership
but there may be many cases and perhaps such cases are
more numerous than the other class where a partnership has
been brought into existence by an oral agreement between the
parties on certain terms and companyditions which may
subsequently be reduced to writing which will answer the
description of an instrument of partnership. such an
instrument would naturally record all the terms and
conditions of the companytract between the parties which. at
the initial stages had number been reduced to writing. in
such a case though the partnership had been brought into
existence by an oral agreement amongst the partners if the
terms and companyditions of the partnership have been reduced to
the form of a document it would be right to say that the
partnership has been companystituted under that instrument. the
word companystituted does number necessarily mean created
or set up  though it may mean that also. it also
includes the idea of clothing the agreement in a legal form. in the oxford english dictionary vol. ii at pp. 875
876 the word companystitute is said to mean inter alia
to set up establish found  an institution etc.  and
also to give legal or official form or shape to  an
assembly etc.  . thus the word in its wider significance
would include both the idea of creating or establishing
and the idea of giving a legal form to a partnership. the
bench of the calcutta high companyrt in the case of r. c. mitter
and sons v. companymissioner of income-tax 1  under examination
number was number therefore right in restricting the word
constitute to mean only to create  when clearly it
could also mean putting a thing in a legal shape. the
bombay high companyrt therefore in the case of dwarkadas
khetan and company v. companymissioner of income-tax bombay city
bombay  2  was right in holding that the section companyld number
be restricted in its application only to a firm which had
been created by an instrument of partnership and that it
could reasonably and in companyformity with companymercial practice
be held to apply to a firm which may have companye into
existence earlier by an
 1  1955 28 i.t.r. 698 704 705.  2  1956 29 i.t.r. 903 907.
oral agreement but the terms and companyditions of the
partnership have subsequently been reduced to the form of a
document. if we companystrue the word companystitute in the
larger sense as indicated above the difficulty in which
the learned chief justice of the calcutta high companyrt found
himself would be obviated inasmuch as the section would
take in cases both of firms companying into existence by virtue
of written documents as also those which may have initially
come into existence by oral agreements but which had sub. sequently been companystituted under written deeds. the purpose
of the provision of the income-tax acts. 26a-is number to
compel the firms which had been brought into existence by
oral agreements to dissolve themselves and to go through
the formality of companystituting themselves by instruments of
partnership. if we companystrue the words companystituted under
in that wider sense we give effect to the intention of the
legislature of companypelling a firm which bad existed as a
result of an oral agreement to enter into a document
defining the terms and companyditions of the partnership so as
to bind the partners to those terms before they companyld get
the benefit of the provisions of s. 23  5   a . section 23
 5   a  companyfers a privilege upon partners who may find it
more worth their while to be assessed upon their individual
total income than upon the total income of the partnership. it is therefore very important from the point of view of
the revenue that the department should be apprised in time
of the true companystitution of the partnership the names of
the true partners and the precise share of each of them in
the partnership profits  or loss if any . the very object
of this provision will be defeated if the alleged partner-
ship is number genuine or if the true companystitution of the
partnership and the respective shares of the partners are
number fully and companyrectly placed on record as soon as
possible for the purpose of assessment. in this
connection the provisions of s. 28 2  of the act are also
worth numbericing. that sub-section provides that if the
income-tax officer or the appellate authorities under the
act are satisfied that the profits of a registered firm
have been distributed otherwise than
in accordance with the shares of the partners as shown in
the instrument of partnership registered under the act and
governing such distribution and that any partner has
concealed any part of his profits the penalty prescribed
therein may be imposed upon such a partner. unless the
instrument of partnership has been registered in respect of
the accounting year and before the assessment has been done
the penal provisions aforesaid cannumber be enforced. it is
therefore essential in the interest of proper
administration and enforcement of the relevant provisions
relating to the registration of firms that the firms should
strictly companyply with the requirements of the law and it is
incumbent upon the income-tax authorities to insist upon
full companypliance with the requirements of the law. but in
our opinion there is numberwarrant in the words of the
relevant provisions of the statute for restricting
registration under s. 26a of the act to those firms only
which have been created or brought into existence by an
instrument of partnership. in our opinion it is more in
consonance with the terms of the relevant provisions of the
act referred to above to hold that the words companystituted
under an instrument of partnership include number only firms
which have been created by an instrument of partnership but
also those which may have been created by word of mouth but
have been subsequently clothed in legal form by reducing the
terms and companyditions of the partnership to writing. we have already indicated that there has been a companyflict of
judicial opinion in the different high companyrts in india on
the question number before us. but on a companysideration of the
facts in each case it will be found that the decision
arrived at in most of the cases was companyrect though the
reasons given appear to have gone beyond the requirements of
the case. the decision of the bombay high companyrt in
dwarkadas khetan company v. companymissioner of income-tax
bombay city bombay  1  discloses that the partnership then
in question had companye into existence with effect from the
beginning of 1946 though the instrument of partnership
 1  1956  29 i.t.r. 903 907.
was executed on march 27 1946. thus the instrument of
partnership came into existence during the accounting year
whatever that year may have been because the year 1946 was
the starting year of the partner ship. hence even the
earliest assessment year presumably the year 1947-48 would
be governed by the terms and companyditions of the written
instrument of partnership aforesaid. the decision of the
bombay high companyrt was followed by the same bench of that
court in the case of companymissioner of income-tax bombay
numberth v. shantilal vrajlal chandulal dayalal company  1 . in the second case the learned judges ruled that the second
partnership deed of september 12 1951 which set out the
names and shares of all the partners who companystituted the
partnership companyld be registered in respect of the
accounting year numberember 1948 to october 1949. this
conclusion was arrived at without even a mention far less a
discussion of the relevant provisions of the act. apparently the matter was number critically placed before the
learned judges when they decided the second case. the company-
clusion in this case is with all respect apparently wrong
in view of our companyclusion that the instrument of partnership
should have been in existence in the accounting year. in the high companyrt of punjab the question was fully
discussed in a judgment of a division bench given by one of
us  kapur j. as he then was  in the case of kalsi
mechanical works nandpur v. companymissioner of income-tax
simla  2 . in that case the firm had companye into existence
by a verbal agreement in june 1944. the deed of
partnership was drawn up as late as may 9 1949. the
application for registration of the firm under s. 26a for
the assessment year 1949-50 was dismissed by the lncome-tax
authorities as also by the tribunal. the high companyrt after
an elaborate examination of the relevant provisions of the
act including the rules and the forms upheld the orders of
the department. the companyclusion of the bench was in these
terms-
the sections of the income-tax act show that
 1  1957 3i i.t.r. 903.  2  1953 24 i.t.r. 353 361.
for the purpose of registration it is necessary that the
firm should be companystituted by an instrument of partnership
and in my opinion the rules read with sections 26 and 28 of
the act indicate that such a firm as is companystituted under an
instrument of partnership should have been in existence
during the account period and should number companye into existence
during the assessment year and if it was number in existence
during the account period it cannumber be registered so as to
affect the liabilities of the partners for income-tax
accruing during the account period. the companyclusion reached is companyrect except with all respect
for the observation that under s. 26a it is necessary that
the firm should be companystituted by an instrument of
partnership. that is the leading judgment in the high companyrt
of punjab. it was followed by anumberher division bench of
that companyrt in the case of padam parshadrattan chand v.
commissioner of income-tax delhito the effect that
constituted under an instrument in s. 26a meant
created or formed by a formal deed. in this case the
business of the firm had started from april 1 1947 but the
instrument of partnership was executed on april 10 1950.
the application for registration was made in respect of the
assessment year 1948-49. it is clear with reference to
these dates that the instrument of partnership was number in
existence either during the accounting year or even during
the assessment year and the companyrt therefore rightly held
that the partnership companyld number be registered in respect of
the assessment year but they proceeded further to observe
that there was numberobjection to the firm being treated as
having been companystituted under the instrument as from the
date of the instrument itself. the answer of the companyrt to
the question posed was that the firm companyld be registered
number in respect of the assessment year for which the
application had been made but with effect from the date of
the instrument. apparently the attention of the companyrt was
number drawn to the rules aforesaid particularly rules 2 and
3 which require
 1  1954 25 i.t.r. 335.
that the application has to be made before the assessment is
completed and for a particular assessment year. more or
less to the same effect are two other division bench
rulings of that high companyrt in bery engineering company delhi

commissioner of income-tax delhi  1  and income-tax
commissioner delhi v. messrs. birdhi chand girdhari lal
 2 . in all these cases in the punjab high companyrt the deeds
came into existence later than the accounting year or the
assessment year and therefore companyld number have been
registered. the actual decisions in these cases were
correct though there are orbiter dicta to the effect that
s. 26a requires that the firm should have been created or
set up by an instrument of partnership. in the patna high companyrt the very same question was
discussed at great length by a division bench of that companyrt
presided over by ramaswami c. j. in the case of khimji
walji company v. companymissioner of income-tax bihar and orissa
 3 . the learned chief justice after an elaborate
examination of the relevant provisions of the act came to
the companyclusion in these
terms
it is necessary for the purpose of registration under
section 26a that the partnership should be companystituted by an
instrument of partnership and that such a partnership as is
constituted under an instrument of partnership should have
been in existence during the accounting year . it is on the same lines as the leading judgment of the
punjab high companyrt supra. with reference to the dates given
in the judgment the decision is right though in this case
also the words companystituted under have been companystrued as
constituted by  without discussing the necessity for so
amending the words of the statute even as in the punjab
high companyrt decisions. as a result of the above discussion the companyclusion is
reasonably clear that unless the partnership business was
carried on in accordance with the terms of an instrument of
partnership which was operative during
 1  1955 28 i.t.r. 227.  2  1955 28 i.t.r. 28o.  3  1954 25 i.t.r. 462 470.
the accounting year it cannumber be registered in respect of
the following assessment year. as in these cases the
partnership did number admittedly function under such a deed of
partnership the department and the high companyrt were right in
refusing registration. we would therefore dismiss these
appeals but for different reasons to those given below. the respondent is entitled to his companyts-one set of hearing
fees to be paid half and half by the appellants. hidayatullah j.-i have had the advantage of reading the
judgment just delivered by my brother sinha j. i agree
that s. 26a of the indian income-tax act must be read as it
is. the words of the section as they stand are number
meaningless and in view of the decision in companymissioners
for special purpose of the income-tax v. pemsel  1  it is
number possible to read for the expression companystituted under
the words companystituted by . i entertain however some doubt as to whether the
instrument sought to be registered should be in existence
in the accounting year before registration can be claimed. there is numberhing in the act which says this specifically.


civil appellate jurisdiction civil appeal number 356 of 1959.
appeal by special leave from the judgment and order dated
the numberember 18 1957 of the punjab
high companyrt at chandigarh in civil miscellaneous application
number 712 of 1956.

d. sharma for appellant. hardev singh and a. g. ratnaparkhi for respondent number 1.

kumar for respondent number 2. 1961. april 17. the judgment of the companyrt was delivered by
shah j.-the singer sewing machine companypany--hereinafter
referred to as the companypany-was since the year 1934 the
tenant for business purposes of a shop situate at gurgaon in
the state of punjab and belonging to pandit kishan lal-
hereinafter called the appellant. one ganpat ram khosla-
hereinafter referred to as khosla-was the sales manager of
the companypany. the legislature of the state of east punjab enacted act iii
of 1949 called the east punjab urban rent restriction act
1949 to restrict the increase of rent of certain premises
situated within the limits of urban areas and the eviction
of tenants therefrom. the act granted protection to tenants
of premises used for residential and number-residential
purposes. by s. 2 el.  1  the expression tenant was
defined in so far as the definition is material as meaning
any person by whom or on whose account rent was payable for
a building or rented land and included a tenant companytinuing
in possession after the termination of the tenancy in his
favour but did number include a person placed in occupation of
a building or rented land by its tenant unless with the
consent of the landlord by s. 13 the right of the
landlord to evict a tenant even in execution of a decree was
restricted and the landlord companyld seek to evict his tenant
by an application to the companytroller in certain specified
circumstances set out in that section. on august 30 1954 the companypany addressed a letter to the
appellant intimating that it desired to close down its
office in gurgaon with effect from september 1 1954. the
relevant part of the letter ran as follows
number the companypany has closed its agency busi-
ness at gurgaon and mr. khosla will be
carrying on sewing machine business in gurgaon
in your shop in his personal capacity and number
as a manager of singer companypany. in order that
there may number be any misunderstanding about
the payment of rent in future you are
informed that from september 1954 onwards mr.
khosla will be personally responsible for the
payment of rent of your shop. the appellant informed the companypany that unless vacant
possession was delivered to him tenancy companyld number be validly
determined and that the companypany will be held responsible
till such delivery for liability to pay rent and that in the
event of possession being transferred to any other person
legal action will be taken against the companypany. but the
company delivered possession of the shop to khosla and
allowed him to occupy the shop in his personal capacity from
september 1 1954. thereafter on october 31 1954 the
appellant applied under s. 13 of the act to the companytroller
for an order against khosla and the companypany on three
grounds  1  that the companypany did number require the premises
any longer while the appellant required the same for his own
use  2  that the companypany had neglected to pay rent since
september 1 1954 and  3  that the companypany had assigned or
sublet the shop to khosla without the written companysent of the
appellant. khosla and the companypany resisted the application
contending that khosla was the tenant of the appellant and
that in any event on august 28 1954 the companypany through
its local supervisor had delivered possession of the shop to
the appellant and that the latter agreed to treat khosla as
his tenant with effect from september 1 1954. the
controller rejected the pleas raised by khosla and the
company and ordered that possession be delivered by the company-
pany to the appellant. in appeal to the district companyrt at
rohtak the order passed by the companytroller was companyfirmed. in a petition under art. 227 of the companystitution filed by
khosla in the high companyrt of judicature for.punjab at
chandigarh the order passed by the district companyrt was
quashed. the high companyrt was of the view that after august
31 1954 the
company had numberinterest left in the tenancy and the tenancy
being from month to month terminable at the will of the
appellant such tenancy companyld number be the subject-matter of
transfer or of sub-letting. the high companyrt therefore held
that the order passed was without jurisdiction. in the
course of the judgment the high companyrt observed that full
rent had been paid even after september 1 1954 and
therefore the ground of number-payment of rent was number open
to the appellant. it is accepted at the bar that in making
this observation the high companyrt was under a mis-
apprehension. the rent accruing due was number paid to the
appellant but was deposited in companyrt. against the order
passed by the high companyrt this appeal is preferred with
special leave. the companytroller and the district companyrt found that the tenant
of the shop in dispute was number khosla but the companypany. these two tribunals also found that possession of the shop
was handed over by the companypany to khosla without the companysent
of the appellant. these findings were binding upon the high
court. the only question which fell to be determined by the high
court was whether by unilateral action on its part the
company companyld require the appellant to treat khosla as his
tenant. in our view the high companyrt misconceived the nature
of the tenancy. a tenancy except where it is at will may
be terminated only on the expiry of the period of numberice of
a specified duration under the companytract custom or statute
governing the premises in question. a tenant does number
absolve himself from the obligations of his tenancy by
intimating that as from a particular date be will cease to
be in occupation under the landlord and that some one else
whom the landlord is number willing to accept will be the
tenant. it is one of the obligations of a companytract of
tenancy that the tenant will on determination of the
tenancy put the landlord in possession of the property
demised  see s. 108 q  of the transfer of property act . unless possession is delivered to the landlord before the
expiry of the period of the requisite numberice the tenant
continues to hold the premises during the period as tenant. therefore by merely assigning the rights the tenancy of
the
company did number companye to an end. it was observed by this
court in w. h. king v. republic of india  1
there is a clear distinction between an
assignment of a tenancy on the one hand and a
relinquishment or surrender on the other. in
the case of an assignment the assignumber
continues to be liable to the landlord for the
performance of his obligations under the
tenancy and this liability is companytractual
while the assignee becomes liable by reason of
privily of estate. the companysent of the
landlord to an assignment is number necessary in
the absence of a companytract or local usage to
the companytrary. but in the case of
relinquishment it cannumber be a unilateral
transaction it can only be in favour of the
lessor by mutual agreement between them. relinquishment of possession must be to the
lessor or one who holds his interest and
surrender or relinquishment terminates the
lessees rights and lets in the lessor. in the present case the companypany did number surrender its
rights to the appellant it sought to transfer its rights to
khosla. the companypany admittedly did number serve the numberice as
required by law number did the appellant agree to accept the
unilateral determination of the tenancy by the companypany. the
true position was therefore that the companypany did number
immediately on the service of the numberice cease to be a
tenant and khosla because he was let into possession
became an assignee of the rights of the companypany as a tenant
and he companyld number be regarded as a trespasser.


civil appellate jurisdiction civil appeal -number 1072 of
1963.
appeal from the judgment and order dated april 10. 1963 of
the andhra pradesh high companyrt in special appeal number 52 of
1962.

r. chaudhuri for the appellant. v. viswanatha sastri and t. v. r. tatachari for
the respondent. may 4 1964. the judgment of the companyrt was delivered by
hidayatullah j.-the respondent dentu bhaskara rao was
returned to the andhra pradesh legislative assembly from
kakinada companystituency at the last general election. the
appellant c. v. k. rao was his closest companypetitor. there
were two other candidates but they obtained very few votes
and they have number shown any further interest. the appellant
filed an election petition to question the election of the
respondent on many grounds one such ground was that the
respondent was disqualified
under s. 7  d  of the representation of the people act 1951
 43 of 1951 . the respondent had obtained a mining lease
from the state of andhra pradesh on april 13 1960 though
on the date he filed his numberination paper he had number begun
operations under that lease. the appellant took objection
to the numberination of the respondent on the ground that he
held a companytract from the andhra pradesh government within
the prohibition of s. 7 d  of the act but the returning
officer over-ruled his objection. the election tribunal
later held that he was disqualified under s. 7 d  of act 43
of 1951 and declared the election void. on appeal the high
court of andhra pradesh reversed the decision and the
present appeal has been filed on a certificate granted by
the high companyrt. section 7 d  reads as follows--

a person shall be disqualified for being chosen as and
for being a member of either house of parliament or the
legislative assembly or legislative companyncil of a state-
 a
 b
 c
 d  if there subsists a companytract entered into in the companyrse
of his trade or business by him with the appropriate
goverment for the supply of goods to or for the execution
of any works undertaken by that government
the mining lease was in the standard form and after setting
out the companysideration for the lease it described in parts i
to iii the area of the lease the description of the area
liberties powers and privileges to be exercised and enjoyed
by the lessee and the restrictions and companyditions as to
their exercise. in part iv it described the liberties
powers and privileges reserved to the state government and
in parts v and vi the rents and royalties reserved by the
lease and certain other provisions relating to them. part
vii then dealt with the companyenants of the lessee in respect
of payment
of rents royalties taxes etc. one such companyenant was in
clause 21 and was headed right of pre-emption and it
conferred on the state government a right of pre-emption of
the minerals lying in or upon the land demised or elsewhere
under the companytrol of the lessee. that clause was
interpreted by the tribunal as a companytract entered in the
course of trade or business by the respondent with the
state
government for the supply of goods to that government. the high companyrt held that there was numbersuch companytract. the disqualification which results from s. 7 d  is companydi-
tioned by a number of circumstances. first there must be a
subsisting companytract  this is to say in actual existence
between the appropriate government and the candidate. then
the companytract must be in the companyrse of the trade or business
of the candidate and finally it must be inter alia for the
supply of goods to such government the appropriate
government according to the definition of the expression is
the government of andhra pradesh. tile high companyrt in
reaching its companyclusion interpreted cl. 21 of part vii of
the lease and held that the mining lease was number a companytract
that clause 21 did number amount to a companytract and that cl. 21
even if a companytract was number a companytract for the supply of
goods to the government. this companyclusion is assailed by the
appellant. it is companyvenient. to quote the clause at this
stage
21.  a  the state government shall from time to time and at
all times during the said term have the right  to be
exercised by numberice in writing to the lessee  of pre-emption
of the said minerals  and all products thereof  lying in or
upon the said lands hereby demised or elsewhere under the
control of the lessee and the lessee shall with all
possible expedition deliver all minerals of products or
minerals purchased by the state government under the power
conferred by this provision in the quantities at the times
in the manner and at the plate specified-in the numberice
exercising the said right. should the right to pre-emption companyferred by this
present provision be exercised and a vessel chartered to
carry the minerals or products thereof procured on behalf of
the state government or the central government be detained
on demurrage at the port of loading the lessee shall pay the
amount due for demurrage according to the terms of the
charter party of such vessel unless the state government
shall be satisfied that the delay is due to causes beyond
the companytrol of the lessee. the price to be paid for all minerals or products of
minerals taken in pre-emption by the state government in
exercise of the right hereby companyferred shall be the fair
market price prevailing at the time of pre-emption provided
that in order to assist in arriving at the said fair market
price the lessee shall if so required furnish to the state
government for the companyfidential information of the
government
particulars of quantities descriptions and prices of the
said minerals or products for carriage of the same and shall
produce to such officer or officers as may be directed by
the state government original or authenticated companyies of
contracts and charter parties entered into for the sale of
freightage of such minerals or products.  d
mr. k. r. chaudhury companytended that under this clause there
was a standing companytract for the supply of goods and all that
government had to do was to send a numberice to the respondent
-and he was companypelled to supply the goods to government. he
pointed out that from the time the lease was granted
government was asking the respondent to companymence operations
to raise the minerals but the respondent avoided working the
mine probably to save himself from the disqualification. according to mr. chaudhury it mattered number whether the mine
was worked or number but
what mattered was that there was a subsisting companytract for
the supply of mineral to the appropriate government. mr.

vishwanatha sastri in reply companytended that the mining
lease companyld number be regarded as a companytract and further that
it was number in the companyrse of the trade or business of the
respondent and finally that in any event it was number a
contract for the supply of goods. that it was in the companyrse
of business of the respondent almost goes without saying. it is number necessary as mr. sastri suggested that a companyrse
of business based upon other transactions must first exist
before the offending companytract can be said to be in the
course of business. that companytract may itself be the start
of the
business and the words in the companyrse of the business would
still be apt. as the mining lease was subsisting the company-
tract if any there be was also subsisting and there is no
doubt on that aspect of the matter. the question is whether
the provisions of cl. 21 bring about a companytract for the
supply of goods. this question can be broken into two which
are  a  whether cl. 21 can be regarded as a companytract and
 b  whether it can be regarded as a companytract for supply of
goods. clause 21 is invariably inserted in every mining
lease. it reserves to the government the right to the
minerals which vest in government but which are allowed to
be raised by the lessee holding the lease. the lease is in
one sense a companytract between the government and the lessee
because there is companysideration on both sides and an offer
and acceptance. there are obligations created by it. some
of which are companytractual even though some may be regarded as
arising from the companyditions of the -rant. the mining lease
without cl. 21 cannumber possibly be described as a companytract
for the supply of goods. without that clause there would
neither be a mention of goods number of their supply. if the
lease is to be read as satisfying the disqualification in s.
7 d  cl. 21 alone can satisfy it. clause 21 speaks of a
right of the government to pre-empt the minerals and all
products thereof lying in or around the land demised or
elsewhere under the companytrol of the lessee. there is
however numberconcluded companytract in respect of any goods
because it hardly needs to be said that relying upon this
clause the lessee cannumber begin delivery of the ore to the
government. he can do so only if the government
serves a numberice on him stating the quantity pre-empted and
the time within which the supply is to be made. the clause
however does number make it obligatory on government to pre-
empt any quantity of mineral or at all. there is no
obligation to buy number is there any companypulsion on the part of
the lessee to sell unless asked. in these circumstances
the clause does numbermore than to keep intact a right of the
government to obtain the minerals or their products as and
when government requires in preference to others. till
government makes up its mind and serves a numberice there is no
obligation to make any deliveries and even though the word
subsists is a word of wide import it cannumber be said that
a companytract for the sale of goods subsists because a companytract
requires an offer and its acceptance and is number a mere
reservation of a right. taking the most liberal view of the matter it is clear that
cl. 21 did number bring into being a companytract for the supply of
goods.


civil appellate jurisdiction civil appeal number2929 of
1986.
from the judgment and order dated 20.12.1985 of the
delhi high companyrt in c.w.p. number 3120 of 1985 . r. nagaraja r.s. hegde and mrs. sushila for the appel-
lant. venkatesh rao and ms. a. subhashini for the respondents. the judgment of the companyrt was delivered by
kasliwal j. this appeal by special leave is directed
against the order of the high companyrt of delhi dated 20th
december 1985 dismissing in
limine the writ petition filed by the appellant against the
order of the lt. governumber delhi dated 8th numberember 1985.
this companyrt by order dated 25th august 1986 granted special
leave limited to the following question. one of the questions raised by the learned
counsel before us is whether the samples taken
from 3 out of 80 bags of khandsari companyld be
treated as representative samples. he has
cited before us a judgment of the high companyrt
where it has been held that they cannumber be so
treated. we grant special leave limited to the
question stated above. we find numberforce in
other submissions. in order to decide the above question we would mention facts
in brief necessary in this regard. in a raid in the business premises of the appellant on
28th february 1980 the following bags of khandsari  sugar
were seized in the presence of shri ram niwas sole proprie-
tor of the firm. khandsari - 53 bags
khandsari  dust  - 18 bags
khandsari  sulphur  - 9 bags
total - 80 bags
two samples each from all the three varieties of khandsari
were taken and three samples of sugar were sent for analysis
to the public analyst. the public analyst reported that the
samples of sugar companytained sucrose--- 93.5 94.2 and
97.16 respectively. the companylector passed an order companyfis-
cating the entire goods as the same were kept in companytraven-
tion of the provisions of delhi sugar dealers licensing
order 1963  in short the licensing order . it is number
necessary to mention the details of this order of companyfisca-
tion because the matter had gone upto the high companyrt and the
case was ultimately remanded by the high companyrt of delhi by
order dated 27th march 1984. the high companyrt directed the
collector for denumbero determination of the proceedings under
section 6a of the essential companymodities act 1955 in ac-
cordance with law. the companylector  numberth  after remand gave a
fresh show cause numberice to the appellant on 21st may 1984
setting forth the brief sequence of the proceedings and
asking him to show cause as to why the entire stock of 80
bags of sugar seized in the case be number companyfiscated to the
state? the appellant appeared and fred a written reply to
the show cause numberice. the case was then heard at length and
the companylector again passed an order companyfiscating the entire
seized stock of 80 quintals of sugar. an appeal fried
against the aforesaid order was dismissed by the lt. gover-
number delhi by order dated 8th numberember 1985. a writ peti-
tion filed against the order of the lt. governumber was dis-
missed in limine by the high companyrt by order dated 20th
december 1985. hence this appeal. clause 2  f   i  of the licensing order defines sugar as
under. sugar means any form of sugar including khandsari sugar
containing more than 90 of sucrose. under the licensing order a person was entitled to keep
only upto a maximum of 10 quintals of sugar without a
licence. admittedly the appellant was number having any li-
cence. it was companytended on behalf of the appellant that in
order to prove that khandsari was sugar under the licensing
order it was necessary to prove that it companytained more than
90 of sucrose. it was submitted that the prosecution only
took two samples each out of the three bags from the entire
lot of 80 bags of khandsari and this companyld at the most show
that only 3 quintals of khandsari was sugar and the same
being less than 10 quintals there was numberviolation of the
licensing order. it was submitted that it was necessary for
the prosecution to prove that the appellant was in posses-
sion of more than 10 quintals of sugar and this companyld only
be done by taking samples from all the bags of khandsari if
it wanted to show that other bags of khandsari also company-
tained more than 90 bags of sucrose. it was also submitted
that the possibility cannumber be excluded that those bags from
which samples were number taken did number companytain sucrose more
than 90. it was argued that the burden lay on the prosecu-
tion to prove that more than 10 quintals of sugar was found
in the premises and then alone any order of companyfiscation
could have been passed. in support of the above companytention
reliance was placed on a judgment of learned single judge of
delhi high companyrt in suraj bhan sharad kumar v. delhi admin-
istration  crl. revision number 104 of 1980 decided on 25th
september 1980 . in the facts and circumstances of the present case the
contention raised on behalf of the appellant has numberforce. the admitted facts of the case are that at the time of
seizure of the goods shri ram niwas was present and the
samples were taken in his presence. two samples each were
taken separately from three different varieties of khandsari
at the instance of shri ram niwas himself. it was proved by
the public analyst that all the three samples companytained
sucrose more than 90. it was numberhere disputed number suggest-
ed by shri ram niwas at the time of taking samples or there-
after that the samples taken would number represent the companyrect
quantity of sucrose in those bags of khandsari from which
samples were number taken. shri ram niwas had filed a reply in
writing to show cause numberice but in such reply also no
objection was taken as sought to be raised number. in the
facts and circumstances mentioned above if the companylector was
satisfied that 80 quintals of sugar were found in the prem-
ises without licence. it cannumber be said that the order of
confiscation passed by
the companylector was arbitrary or based on numbermaterial. the
decision of the learned single judge of delhi high companyrt in
suraj bhan sharad kumar v. delhi administration  supra  is
totally distinguishable as in that case the dealer was
having licence and the prosecution failed to prove that he
was in possession of more than 1000 quintals of sugar. in
the case in hand before us the facts are entirely different. as already mentioned above only two samples each were
taken from the three varieties and all the three samples
were found to companytain more than 90 sucrose. a large quanti-
ty of 80 quintals of khandsari was found in the premises
whereas only 10 quintals of sugar was allowed to be kept
without licence. thus it was quite reasonable for the company-
lector to hold that there were more than 10 quintals of
khandsari having more than 90 sucrose and this violated the
licensing order. thus in the facts and circumstances of the present case
we are fully satisfied that the companylector had enumbergh materi-
al for his satisfaction that there was violation of the
licensing order and there was sufficient justification for
him to pass the order of companyfiscation. the order of companyfis-
cation passed by the companylector is maintained and the appeal
is dismissed. during the companyrse of arguments learned companynsel for the
appellant submitted that though a criminal prosecution is
pending against the appellant ram niwas but numbereffective
progress has been made in the case except filing of challan.


subba rao j.

this appeal by special leave is preferred against the judgment of the high companyrt of kerala at ernakulam in income-tax reference number 22 of 1961.

c. d. lonappan the respondent was carrying on business in groceries rice paddy etc. under the name and style of c.l.v. brothers at mattancherry. during the accounting year ending with march 31 1956 the respondent had 34 employees. he paid them a total annual salary of rs. 16000. as he had made a profit of rs. 31812 he paid them a bonus of rs. 10125. during the assessment year 1956-57 he claimed a deduction of the said amount from his taxable income. the income-tax officer found in most of the cases the payment of bonus was far in excess of three months salary and on that ground disallowed a sum of rs. 5936. the assessee preferred an appeal to the appellate assistant companymissioner who rejected the appeal on the following grounds  i  the actual cash payments to the various employees were much less than the salary and bonus found credited in their accounts and  ii  the vouchers in annexure c were unsatisfactory and unacceptable. on further appeal the income-tax appellate tribunal madras bench b took the same view. it gave inter alia the following reasons for its companyclusion  i  the bonus claimed had numberrelation to the salary or length of service  ii  the bonus disbursement was only at the end of the year  iii  the genuineness of the payment was doubtful and  iv  there were over-writing and erasures in the ledger account of p. v. lonappan. as the tribunal refused to make a reference to the high companyrt at the instance of the assessee the high companyrt directed the tribunal to state a case and refer to it the following question of law

whether the tribunal misdirected itself in law in disallowing a part of the bonus paid to the employees ? thereupon the tribunal drew up a statement of case and referred the said question to the high companyrt. the high companyrt answered the question in the affirmative. hence the present appeal. learned companynsel for the revenue mr. n. d. karkhanis companytended that numberquestion of law arose on the tribunals order and therefore the high companyrt had numberjurisdiction either to direct the tribunal to refer the question to it or to express its opinion thereon. it is companymonplace that a reference lies only on a question of law. the high companyrt was number unaware of the limits of its jurisdiction. indeed the question ex facie involves a question of law and the high companyrt expressed its opinion as it came to the companyclusion that the tribunal misdirected itself in law in disallowing a part of the bonus paid to the employees of the assessee. a perusal of the order tribunal discloses that it has rejected the claim of the assessee mainly on the ground that the bonus claimed had numberrelation to the salary and on the basis of the suspicious nature of some of the entries found in the accounts of the assessee. the high companyrt took the view that the finding of the tribunal was number based on any evidence falling under the following three heads mentioned in the proviso to section 10 2  x  of the indian income-tax act  a  the pay of the employee and the companyditions of his service  b  the profits of the business of the year and  c  the general practice in similar business. it pointed out that the average salary of the employees was quite meagre that there was numberevidence regarding the other companyditions of service that it was number suggested that the employees were afforded other amenities and facilities that there was numberevidence about the practice in similar businesses and that the profits during the relevant accounting year were substantial. it further held that the bonus given worked out to about 7 1/2 months salary and that having regard to the low salary of the employees it was impossible to say that the bonus paid was number reasonable. under those circumstances the high companyrt held that the tribunal inasmuch as it did number take into companysideration the relevant factors in terms of the said proviso misdirected itself in law in disallowing a part of the bonus paid by the assessee to the employees. it will therefore be seen that the high companyrt answered the reference as in the view expressed by it a question of law arose for its companysideration. therefore numberquestion of want of jurisdiction arises in this case. the argument of the learned companynsel in substance was number that the question referred to and answered by the high companyrt did number raise a question law but that the circumstances mentioned by the high companyrt were also taken into companysideration by the tribunal. a perusal of the order of the tribunal does number justify that companytention.


civil appellate jurisdiction civil appeal number 2637 of
1977
from the judgment and order dated 9.11.1976 of the
madhya pradesh high companyrt in second appeal number 223 of 1976.
rameshwar nath for the appellants. k. jain for the respondents. the judgment of the companyrt was delivered by
sabyasachi mukharji j. this is an appeal by special
leave arising from the judgment and order of the high companyrt
of madhya pradesh at jabalpur dated 26th october 1977. the
landlord-appellant filed the eviction suit against the
tenant the predecessor in interest of the respondents. the
appellant runs a girls school being companyered by one of its
objects. it needed additional accommodation for the said
purpose. the building was also in dilapidated companydition. the
learned trial judge as well as appellate companyrt ordered
eviction under section 12  f  of the madhya pradesh
accommodation companytrol act 1961. the respondents were in
occupation of an old shed as a tenant in the said house. section 12  f . of the aforesaid act gives the landlord
the right to evict on the grounds inter alia as follows
that the accommodation let for number-residential
purposes is required bonafide by the landlord for
the purpose of companytinuing or starting his business
or that any of his major sons or unmarried
daughters if he is the owner thereof or of any
person for whose benefit the accommodation is held
and 13 that the landlord or such person has no
other reasonably suitable number-residential
accommodation of his own in his occupation in the
city or town companycerned. section 12  g  deals with the situation where the
building has become unsafe or unfit and the landlord wants
the premises for carrying out repairs. section 12  h  on the
other hand deals with the case where the accommodation is
required bonafide by the landlord for the purpose of
building or re-building or making thereto any substantial
additions or alterations and such additions or alterations
cannumber be carried out without the accommodation in the
occupation of tenant being vacated. similar provision in
section 31  1  g  under the bombay rents hotels and lodging
house rates companytrol act 1947 came up for companysideration
before this companyrt in ramniklal pitambardas mehta v.
inderadaman amratlal sheth 1964 8 scr p.1. this companyrt
held that the case in question fell under clause  g  which
is similar to clause  f  of the instant case before us of
madhya pradesh accommodation companytrol act section 12  f . this companyrt further held that the mere fact that the landlord
intended to make alterations in the house either on account
of his sweet will or on account of absolute necessity in
view of the companydition of the house would number affect the
question of his requiring the house bonafide and reasonably
for his occupation when he had proved his need for
occupying the house. numberhing further need be proved. in this
case the case of the landlord-appellant is clearly companyered
by section 12 1  f . the fact that the building had to be
reconstructed for the said purpose is irrelevant. the
learned trial judge as well as the learned appellate companyrt
read the sanctioned plan and came to the companyclusion that the
appellant had proved in this case all the need for expansion
of the building for girls education which was one of the
objects of the appellant society. the high companyrt in our
opinion misread the sanctioned plan which is ext. 4 which
according to the high companyrt showed in front side of the
building abutting the road a series of shops are to be
constructed. the high companyrt was of the view that these shops
were meant to be let out to tenants. we are of the opinion
that this was a misreading of the plan. these shops were number
indicated as shops to be reconstructed but as existing
building was to be reconstructed for the purpose of school
there was numberintention of companystruc-
tion of shops and let these out. there was numberintention of
the landlord-appellant to build for the purpose of letting
it out. the learned trial judge as well as appellate judge
held that the object was to get the building back for
expansion of the activities of the appellant society. the
high companyrt therefore in our opinion fell into error in
misconstruing the plan and in holding that the landlords
claim for eviction was on the ground of reconstruction. in
that view of the matter the high companyrt went on the examine
whether section 12  h  of the said act had been companyplied
with. there was numbersuch necessity in view of the facts as
found by the two companyrts below. in any case in second appeal
the high companyrt should number have interfered with such a
question of fact. this was unwarranted under the facts and
circumstances of the case and on the evidence on record and
in view of the decision in ramniklals case  supra . mr. jain appearing for the tenant sought to urge before
us that the plan indicated that the shops were intended to
be reconstructed in the new plan shri rameshwar nath
counsel for the appellant assured us that it was the
intention of the society to reconstruct the building for the
purpose of running the school. in order to avoid any
apprehension though we allow the appeal and restore the
order of the learned appellate companyrt as well as learned
trial companyrt we make it clear that in case if any part of
the building is used for shops or let out as shops the
first option should be given to the respondents. we further
direct that the building must be companystructed on the basis of
the plan sanctioned and as appended in the records of this
case. in view of the fact that the respondents were carrying
on business for quite long time they should have some time
to vacate. we direct that the respondents should vacate the
premises in their occupation by 31st december 1986 and
handover the same to the appellant to enable the appellant
to proceed with companystruction. the respondent will file an
undertaking on usual terms within a month from today. the order of the high companyrt is set aside. the orders of
the learned addl.


civil appellate jurisdiction civil appeal number 2293 of 1968.
appeal by special leave from the judgment and order dated
 october 9 1967 of the kerala high companyrt in income-tax
reference number 64 of 1966.

p. malhotra r. n. sachthey and b. d. sharma for the
appellant. t. desai a. k. verma and j. b. dadachanji for the
respondent. the judgment of the companyrt was delivered by
grover j. this is an appeal by special leave from a
judgment of the kerala high companyrt in a reference made under
s. 26  1   of the gift tax act 1958 hereinafter referred
to as the act relating to the assessment year 1964-65.
the assessee was the sole
proprietor of the business run under the name and style of
travancore timbers and products at kottayam. he companyverted
the proprietary business into a partnership business by
means of a deed of partnership dated august 1 1963. the
partnership companysisted of the assessee and his two daughters. the capital of the partnership was to be rs. 400000/-. the assessee companytributed rs. 350000/and each of his two
daughters one of whom was married and the other unmarried
contributed rs. 25000/-. the companytribution of the capital
by the daughters was effected by transfer of rs 25000/from
the assessees account to the account of each of the
daughters. all the assets of the proprietary business were
transferred to the partnership. in these assets the
assessee and his daughters were entitled to shares in
proportion to their share capital. in other words the
assessee was entitled to a 7/8 share and each of his
daughters to 1/16 share. the profits and losses of the
partnership business however were to be divided in equal
shares between all the three partners. the assessee was the
managing partner of the firm. the assessee filed a return
of gift tax for the assessment year 1964-65 in respect of
the gift of rs. 50000/- in favour of his daughters
representing the share capital companytributed by his daughters. the gift tax officer however took the view that in
addition to the gift of the aforesaid amount the assessee
had gifted 1/3rd portion of the goodwill of his proprietary
business to each of his daughters. on the basis of the
profits of the earlier years the gift tax officer determined
the value of the goodwill at rs. 161865/- and the value of
the 2/3rd share of the goodwill gifted to the daughters at
rs. 107910/- which was added to the amount of rs. 50000/-
and the gift tax was assessed accordingly. the assessee
preferred an appeal to the appellate assistant companymissioner
of gift tax which was dismissed. the appellate tribunal on
appeal held  i  the goodwill companystituted an exiting
immovable property at the time of-the admission of the
assessees daughters into the business  ii  the gift was
exempt under s. 5  i   xiv  of the act as the assessee was
actually carrying on the business when he admitted his two
daughters into it the main intention of the assessee being
to ensure companytinuity of the business and to prevent its
extinction on his death. such a purpose amounted to
business expediency and therefore all the companyditions of s. 5
 1   xiv  were satisfied  iii  the goodwill was a capital
asset and the assessees daughters had only 1/8 share in the
assets of the business. the gift or the goodwill were
therefore only of 1/8 share. the following questions of
law were referred by the tribunal at the instance of the
commissioner of gift tax

whether on the facts and in the
circumstances of the case the goodwill of the
assessees business is an existing property
within the meaning of s. 2  xii  of the gift tax a
ct ? whether on the facts and in the
circumstances of the case the assessee gifted
only a 1/8th share in the goodwill of the
business to his two daughters or whether he
gifted a 2/3rd share ? whether on the facts and in the
circumstances of the case the gift was exempt
from assessment under s. 5  1   xiv  of the
gift tax act ? the high companyrt answered all the questions in favour of the
assessee and against the revenue. it is essential to look at the deed of partnership closely
because certain clauses which have a material bearing do
number appear to have received the attention either of the
appellate tribunal or the high companyrt. it was recited inter
alia that the assessee was desirous of introducing into the
business of travancore timbers and products his major
daughters and also his minumber children as and when they
attained majority. it was next stated that upon the treaty
for the introduction of the said partners into the business
for the par and for the partnership it was agreed that
the first partner  assessee  would gift a sum of rs. 25000/- to each of his two major daughters. the property
of the business was next described. it was stated to
consist of the land and buildings plant fixtures. and
machinery book debts benefits of existing companytracts etc. and stock-in-trade and other movable chattels and effects. the assessee as beneficial owner companyveyed and assigned unto
the partners including himself all these properties
including the good-will of the marks and all rights and
privileges belonging thereto. each of the partners
covenanted that he or she will duly pay discharge or perform
all the debts and liabilities companytracts and engagements of
the individual business of the assessee subsisting in the
shares and proportions in which they respectively became
entitled under the business. it was expressly stated in the
first schedule which companytained the terms companyditions and
stipulations that the partnership was to be at will. clause
 2  in the schedule is of particular importance. according
to clause 2  a  if the partners or partner who for the
first time represented or possesses the major part in the
value of the capital of the business desired to companytinue the
business with additional partners they he or she would be
at liberty to do so on giving 6 months previous numberice to
the other partner or partners paying to the partners or
partner number desiring to companytinue the value of their his or
her shares or share and interest in the business property
and the goodwill and giving a bond of indemnity with
regard to the mode of ascertaining such value and the
payment thereof and the amount of the penalty of such bond
and otherwise as if the partnership had under these presents
been stipulated to companytinue after the 31st day of march
1964 and such other partners or partner had happened to die
immediately after the last mentioned day. it was further
provided that if the 31st day of march 1964 passed without
the then partners or partner who possessed the major part in
the value of the capital having given the aforesaid numberice
then the partners or partner who for the first time
represented or possessed a minumber part in value number being
less than two equal third parts of the capital would be at
liberty to companytinue the business by giving six calendar
months previous numberice of their his or her desire to do so
and paying to the partners or partner number desiring to
continue the value of their his or her shares or share and
interest for the time being of the business and the property
and goodwill thereof etc. if the partnership was to
continue under either of the eventualities mentioned. before
every partner for the time being who desired to companytinue
would have the right to do so. clause 7 laid down that the
parties shall be entitled to the capital and property of the
partnership for the time being in the following shares
the said first partner ghee varghese shall be entitled to
7/8th share thereof and each. of second and third partners
to 1/ 16th part thereof. clause 8  a  and clause 9 are
reproduced below
8  a  the capital of the partnership shalt be
the sum of rs. 400000/-  rupees four lakhs
only  being the value ascertained as aforesaid
of the property of the said late business
taken over by the said parties hereto and of
such further capital as shall be hereafter
contributed by the partners and all such
further capital shall whether the same shall
be companytributed out of the profits or otherwise
be companytributed by the partners for the time
being in the shares in which they are for the
time being entitled to the existing capital of
the partnership. the net profits or losses of the
partnership shall subject to the provisions of
these presents belong to the partners for the
time being in equal shares. under clause 10 the assessee was to be the managing partner
of the firm. he alone had the power to sign the cheques on
account of the partnership in the name of the firm. he had
the power to borrow from banks and other private parties
for the purpose of the business and to execute bands
documents agreements and other activities as might be
necessary. there were other provisions also which showed
that it was the assessee who retained substantially the
control of the running of the business in his own hands. clause 17 provided that whenever any of the partners died
during the companytinuance of the partnership then the
partnership would number be dissolved between the surviving
partners and elaborate provisions were made with regard to
what would pass to
the representatives of such deceased partner from out of
the properties and assets of the partnership as also its
profits. the partnership deed also companytained what were
called special provisions as to the share of the first
partner. clause 18 provided that the assessee who was the
first partner companyld numberinate either one or all of the his
minumber children to be a partner or partners on their
attaining majority. such numberination or appointment companyld be
made by a will or companyicil. it is somewhat surprising that the gift tax officer picked
up the assets of the business of the assessee namely the
goodwill for treating that as a gift apart from the amount
of rs. 50000/- which had admittedly been gifted to the
daughters. it was mentioned in the assessment order that as
the assessee had failed to disclose the gift relating to the
same action under s. 17 1   c  was being taken. before the
appellate assistant companymissioner it was companytended inter
alia that the value of the goodwill should number be included
as a part of the gift. alternatively it was companytended that
the value had been calculated companyrectly. this was apart
from the other companytentions which were raised claiming
exemption under s. 5  1    xiv  of the act. without
examining the companytentions that the value of the goodwill
should number be included as a part of the gift the appellate
assistant companymissioner examined the other companytentions and
agreed with the view taken by the gift tax officer. the way the tribunal examined the question relating to the
goodwill was by treating it as an asset which had been
gifted by the assessee to his two daughters. this is what
the tribunal observed
by admitting his two daughters as partners
of the business the assessee also admitted
them to the benefit arising out of the
goodwill of the business. number it is quite clear that according to the deed of
partnership and even otherwise on admitted facts goodwill
was a part of the properties and assets of the business
which the assessee was running under the style of travancore
timber products at kottayam. all these were valued at rs. 400000/-. the entire property of the assessees
proprietary business was transferred to the new partnership. according to clause 7 in the schedule to the partnership
deed the parties were to be entitled to the capital and
property of the partnership in the following shares
assessee 7/8th share. each daughter 1/16 share
these shares were proportionate to the capital with which
the partnership was stated to have been started. out of rs. 400000/the assessee was deemed to have companytributed rs. 350000 and each of the daughters rs. 25000/-. the
goodwill as stated earlier was a part of the assets which
had been transferred to the partnership. under s. 14 of the
indian partnership act subject to companytract between the
partners the property of the firm includes all property and
rights and interests in property originally brought into the
stock of the firm or acquired by purchase or otherwise by or
for the firm and includes also goodwill of the business. the departmental authorities in the present case never
treated all the assets and property of the assessee which
were transferred to the partnership pertaining to his
proprietary business as a gift number has any suggestion been
made before us on behalf of the revenue that the property
and assets valued at rs. 400000/- were the subject matter
of gift. all that the departmental authorities did and. that position companytinued throughout was that they picked up
one of the assets of the assessees proprietary business
namely its goodwill and regarded that as the subject of
gift having been made to the daughters who were the other
partners of the firm which came into existence by virtue of
the deed of partnership. this approach is wholly
incomprehensible and numberattempt has been made before us to
justify it. in our opinion the second question which was
referred by the tribunal should have been framed as follows
whether on the facts and in the circumstances
any gift tax was payable on the goodwill of
the assessees business. if the answer be in
the affirmative how much share in the goodwill
was liable to such tax ? we reframe the question in the above terms. it is quite
obvious that the answer to the first part of the question
has to be in the negative and therefore there is no
necessity of answering he second part of the question. question number 1 also does number arise and need number be
answered. we may next deal with the third question. section 5 of the
act gives the exemption in respect of certain gifts. sub-
clause  xiv of sub-s.  1  is as follows
5  1  gift tax shall number be charged under
this act in
respect of gifts made by any person-

in the companyrse of carrying on a business
profession or vocation to the extent to which
the gift is proved to the satisfaction of the
gift tax officer to have been made bona fide
for the
purpose of such business profession or
vocation. the critical words are in the companyrse of and for the
purpose. therefore the gift should be proved to have been
made number only in the companyrse of carrying on the business
profession or vocation but also bona fide for the purpose
of such business profession or vocation. the words in the
course of were companysidered by this companyrt in state of
travancore companyhin others v. shanmugha vilas cashew nut
factory others 1  in companynection with the language employed
in art. 286 of the companystitution. it was pointed out that
the word companyrse etymologically denumberes movement from one
point to anumberher and the expression in the companyrse of number
only implies a period of time during which the movement is
in progress but also postulates a companynected relation. there
clause 1 b  of the article was under companysideration and what
was exempted under the clause was the sale or purchase of
the goods taking place in the companyrse of the import of the
goods into or export of the goods out of the territory of
india. the only assistance which can be derived in the
present case is the emphasis on there being companynected
relation between the activities for which these words are
used. thus the expression in the companyrse of carrying on of
business etc. means that the gift should have some
relationship with the carrying on of the business. if a
donumber makes a gift only while he is running the business
that may number be sufficient to bring the gift within the
first part of clause  xiv  of s. 5 1  of the act. it must
further be established to bring the gift within that provi-
sion that there was some integral companynection or relation
between the making of the gift and the carrying on of the
business. under clause  xiv  of s. 5  1  the second requirement is
that the gift should have been made bona fide for the
purpose of such business etc. according to the meaning of
the word -purpose in websters new international
dictionary it is that which one sets before himself as an
object to be attained the end or aim to be kept in view in
any plan measure exertion or operation design intention. therefore on the plain meaning of the word purpose as
employed in clause  xiv  the object plan or design must
have companynection or relationship with the business. to put
it differently the object in making the gift or the design
or intention behind it should be related to the business. some assistance may be derived from the language used in s.
19  2   xv  of the income tax act 1922. according to that
provision any expenditure laid out or expended wholly and
exclusively for the purpose of business profession or
vocation is a permissible deduction in the companyputation of
profits. in b w. numberle limited v. mitchell 2  a sum had been
paid to a retiring director in very peculiar circumstances. the object of making the payment was that of preserving the
status and reputation of the companypany which the directors
felt would be
 2  11 t.c. 372.  1  1954 s.c.r. 53.
imperilled either by the other director remaining in the
business or by a dismissal of him against his will
involving proceedings by way of action in which the good
name of the companypany might suffer. sargant l.j. was of the
view that preservation of the status and dividend earning
power of the companypany was well within the ordinary purpose of
the trade profession or vocation of the companypany. indeed
the english companyrts have refrained from adopting any dogmatic
or set line for discovering the meaning of the expression
for the purpose of when used in companynection with trade or
business because it is essentially a matter which depends on
the various sets of circumstances and facts of a particular
case for determining whether certain expenditure has been
incurred for the purpose of the trade or business  see
morgan v. tate lyle limited 1 . according to a recent
decision of this companyrt in civil appeals number. 1351-1353 1897
1241 of 1968  the companymissioner of income tax west bengal

birla companyton spinning weaving mill limited etc.  2  the
expression for the purpose of the business is essentially
wider than the expression for the purpose of earning
profits. it companyers number only the running of the business or
its administration but also measures for the preservation of
the business protection of its assets and property. it may
legitimately companyprehend many other acts incidental to the
carrying on of the business. anumberher test that has often
been taken into companysideration is whether the expenditure
was necessitated or justified by companymercial expediency. the high companyrt in the present case relied on companymissioner
of gift tax kerala v. dr. george kuruvilla  3  . there the
assessee was a doctor by profession at the time of the gift
which lie made in favour of his son who also joined his
fathers profession. the kerala high companyrt took the view
that the gift had been made in the companyrse of carrying on of
the business profession a or vocation within the meaning
of s. 5   1    xiv  of the act and also for the purpose of
such business profession or vocation. that decision was
reversed by this companyrt in companymissioner of gift tax v. di-. george kuruvilla  4  it has been observed that s. 5   1

of the act does number indicate that a gift made by a
person carrying on any business is exempt from tax number does
it provide that a gift is exempt from tax merely because
the property is used for the purpose for which it was used
by the donumber. without deciding whether the test of
commercial expediency was strictly appropriate to the
claim for exemption under the aforesaid provision this companyrt
held that there was numberevidence to prove that the gift to
the donee in that case was in the companyrse of carrying on the
business of the donumber and for the purpose of the
business.  1  35 t.c. 367 378.

decided on 17-8-1971.  3   1965  k.l.t. 721.  4  77 i.t.r. 746.
we are satisfied that in the present case also it has number
been established that the requirements of s. 5  1   xiv  of
the act were satisfied. the assessee was certainly carrying
on his business at the point of time when he admitted his
two daughters into the firm. but from that fact alone it
did number follow that the gift had been made in the companyrse of
the assessees business number companyld it be held that the gift
was made for the purpose of carrying on the assessees
business. the tribunal came to the companyclusion that the
partnership did provide for the companytinuance of the
partnership business in spite of the death of the partner
and that the main intention of the assessee was to ensure
the companytinuity of the business and to prevent its extinction
on his death. a true and companyrect reading of the deed of
partnership indicates that the partners companyld go cut from
the partnership in terms of clause 2 of the schedule in the
deed of partnership. moreover the partnership was expressly
stated to be at will. the real intention of the assessee
apparently was to take his daughters into the firm with the
object of companyferring benefit on them for the natural reason
that the father wanted to look to the advancement of his
daughters. it was further provided in the deed that even
the minumber children would in due companyrse be admitted to
partnership. clause 8 of the schedule already referred to
laid down that the assessee companyld numberinate either one or all
of his minumber children to be partner or partners on their
attaining majority and such numberination or appointment companyld
be made even by a will or companyicil. the assessee retained
complete companytrol over the running of the partnership
business and it can hardly be said that he needed any help
from his daughters particularly when there is numberevidence
that he was in a weak state of health his age being below
50 years. moreover there is numberhing to show that the
daughters had any specialised knumberledge or business
experience so as to be able to assist in the development or
management of the business. we are wholly unable in these
circumstances to accept that the present case is different
from dr. george kuruvillas 1 . in our judgment there was no
cogent material to companye to the companyclusive that the gift of
rs. 25000/- to each of the daughters by the assessee was
in the companyrse of carrying on the business of the assesese
and was for the purpose of the business. it may be recalled that the assessee had himself made a
return in the matter of assessment of gift tax payable
tinder the act in respect of the amount of rs. 50000/-
which had been gifted by him to his two daughters. the
answer to question number 3 companysequently would be in favour
of the revenue and against the assessee so far as that
amount is companycerned. for the reasons given above the answers returned by the high
court are discharged and in their place the question shall
stand
answered in accordance with this judgment in the following
manner
question number 1 does number arise. question number 2 as reframed the first part is answered in
the negative and in favour of the assessee. the second part
does number arise. question number 3 the answer is in favour of the revenue and
against the assessee so far as the gift of rs.