JUDGMENT <NAME>, J.

1. The following question has been referred at the instance of the assessee :

"Whether, on the facts and in the circumstance of the case, the <ORG> was right in holding that the profit derived from the sales of import entitlements would not be entitled to relief under section 80E of the Income-tax Act, 1961 ?"

2. The assessee is a priority industry, which is entitled to a rebate under s. 80E of the I.T. Act, 1961. It manufactures forgings and stampings, which are automobile parts. In determining the income on which the rebate under s. 80E of the Act is available, the <ORG> excluded a sum of Rs. 1,70,245, being the profit on sales of import entitlements. The assessee obtained the entitlements on the basis of the export performance. The <ORG> excluded the same on the ground that this did not have any relation to the manufacturing operations of the assessee. This view was confirmed by the <ORG> and the <ORG>. Under s. 80E , in order to get the benefit of deduction, the profits and gains should be attributable to the business of manufacture or sale. The <ORG> held that in order to make profits "attributable" to the manufacturing activity, there should be some direct nexus with the profit earned and the manufacturing activity. As in the view of the <ORG>, there is no such nexus in the profit earned by sale of import entitlement, for the purpose of the relief under s. 80E the profits on sale of import entitlements had to be excluded. The Supreme Court in <CITATION> , while interpreting the words "attributable to" occurring in s. 80E , observed as follows (p. 93) :

"As regards the aspect emerging from the expression 'attributable to' occurring in the phrase profits and gains attributable to the business of' the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression 'attributable to' and not the expression 'derived from'. It cannot be disputed that the expression 'attributable to' is certainly wider in import than the expression 'derived from'. Had the expression 'derived from' been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression 'derived from', as, for instance, in section 80J . In our view, since the expression of wider import namely, 'attributable to', has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity."

3. The import entitlement in this case was given to the assessee on the basis of its export of the goods manufactured by them. Certainly, therefore, the import entitlement was directly attributable to the export of goods manufactured and the business of sale of forgings and stampings. A similar question came up for consideration before <ORG> of this court in <CITATION> .) Ltd. (T.C. Nos. 451 and 452 of 1976, dated January 8, 1980)  128 ITR 531. There it was held that the amount of incentive would qualify for the relief under s. 80-I which provisions was similar to s. 80E . The export incentive, thus, being bound up with the manufacture, sale and export, the assessee is entitled to get the relief under s. 80E even in respect of these profits and gains.

4. We, accordingly, answer the reference in the negative and in favour of the assessee. The assessee will be entitled to its costs. Counsel's fee Rs. 500.


CASE NO.: Appeal (civil) 4892 of 1998 PETITIONER: <ORG>. RESPONDENT: <ORG> AND ORS. DATE OF JUDGMENT: 09/12/1998 BENCH: MRS. <NAME> & B.N. KIRPAL JUDGMENT:

JUDGMENT 1998 Supp(3) SCR 421 The Judgment of the Court was delivered by MRS. <NAME>, J. <ORG>, the appellant in Civil Appeal No. 4893 of 1998 floated a tender dated 20.12.1997 for design, engineering, manufacture, supply, erection and commissioning of large diameter pipes and steel tanks with all accessories and auxiliaries as prescribed in the bid documents for units 3 and 4 of Khaperkheda Thermal Power Station, Maharashtra, each unit being of 210 MW. The qualifying requirements of bidders as specified in the tender were, that the bidder should have designed Fabricated/manufactured, supplied, erected and successfully commissioned large diameter piping system comprising the supply of M.S. pipes not less than 2000 mm diameter and laid/buried for a minimum total length of 3 kms. in a thermal power station and the same should be in successful operation for the past two years as reckoned on the date set for opening of the bid. Further, the bidder should have minimum turnover of Rs. 7.5 crores per annum for the last 3 consecutive years.

Under clause 1.4 of the qualifying criteria, it was provided :

'Notwithstanding anything stated above the Owner reserves the right to assess the Bidders' capability and capacity to perform, should the circumstances warrant such an assessment in the overall interest of the owner.' Pursuant to the invitation, the appellant-<ORG> received tenders from eleven bidders including <ORG> and <ORG>, who are the two contestants before us. After screening of the bids a note was submitted by the Technical Director of the <ORG> for the consideration of <ORG>. The note stated that out of the offers received, four offers were from tenderers who qualified as per the qualifying criteria. <ORG>, Hyderabad was stated to be one of the four such offerers. The note also mentioned that two offerers which included <ORG>, though not meeting the qualifying requirements, had done CW piping for 210 MW units. <ORG> were recommended by the Technical Director for the placement of the order. The said company, however, fell, short of the requisite experience by one year. The note also stated that the offer of <ORG> was the most competitive, being Rs, 43,28,316 Jess than the price quoted by <ORG>, In this connection, it is pointed out by the <ORG> that <ORG> have designed, fabricated and commissioned M.S. pipes of 2000 mm diameter buried underground but for a distance less than 3 kms. They also have the requisite experience of doing such work for thermal power units of 210 MWs.. They have more than 2 years' experience in this work.

<ORG> of <ORG>, at its meeting held on 29.6.1998, after considering the note submitted by the Technical Director, decided to accept the offer of <ORG> in view of the price advantage to the <ORG> and adequate experience of <ORG> of having completed similar type of work for 210 MW units. The offer of <ORG> was accordingly accepted and the tender was awarded to it. <ORG> challenged the decision of the <ORG> in a writ petition filed in <ORG>, <ORG> has passed the impugned interim order under which <ORG> stayed the operation of the Letter of Intent dated 20th Of July, 1998 issued to <ORG> Hence the present appeal.

In these proceedings <ORG> has filed an affidavit of its Technical Director. It is stated in this affidavit that the offer of <ORG> was accepted on account of the price advantage to the <ORG>, its offer being the lowest; and also in view of the adequate experience which <ORG> possessed, having completed similar work in other 210 MW thermal power stations. This was done by relaxing the qualifying criterion which the <ORG> said, it had the right to do, in view of clause 1.4 set out above. The Maharashtra State Electricity <ORG> has also pointed out that <ORG> also do not satisfy all the qualifying criteria because they do not have two years experience of such work which is prescribed under the qualifying criteria. Their total experience; is of less than a year.

Therefore, looking to the fact that relaxation of criteria would have been required in respect of <ORG> also and in view of the fact that the offer of <ORG> is the lowest, if the Board has accepted the offer of <ORG> after weighing their requirements against the qualifications of the two competing bidders, we fail to see how <ORG> could have intervened and stayed the operation of the award of contract to <ORG>

This is not a case where any mala fides have been alleged against any member of the Board. Nor is there any allegation of any collateral motive for awarding the contract to <ORG> The only ground of challenge in the writ petition filed by <ORG> is that <ORG> did not fulfil the qualifying criterion of having laid such pipeline for a distance of 3 kms. But the challenger- <ORG> also does not fulfil the qualifying criterion. In these circumstances, we fail to see any basis for passing the impugned order.

The award of a contract, whether it is by a private party or by a public body or the <ORG>, is essentially a commercial transaction. In arriving at a commercial decision considerations which are of paramount importance are commercial considerations. These would be :(1) The price at which the other side is willing to do the work; (2) Whether the goods or services offered are of the requisite specifications; (3) Whether the person tendering has the ability to deliver the goods or services as per specifications. When large works contracts involving engagement of substantial manpower or requiring specific skills are to be offered, the financial ability of the tenderer to fulfil the requirements of the job is also important; (4) the ability of the tenderer to deliver goods or services or to do the work of the requisite standard and quality; (5) past experience of the tenderer, and whether he has successfully completed similar work earlier; (6) time which will be taken to deliver the goods or services; and often (7) the ability of the tenderer to take follow up action, rectify defects or to give post contract services. Even when the <ORG> or a public body enters into a commercial transaction, considerations which would prevail in its decision to award the contract to a given party would be the same. However, because the <ORG> or a public body or an agency of the <ORG> enters into such a contract, there could be, in a given case, an element of public law or public interest involved even in such a commercial transaction.

What are these elements of public interest ? (1) Public money would be expended for the purposes of the contract; (2) The goods or services which are being commissioned could be for a public purpose, such as, construction of roads, public buildings, power plants or other public utilities. (3) The public would be directly interested in the timely fulfilment of the contract so that the services become available to the public expeditiously. (4) The public would also be interested in the quality of the work undertaken or goods supplied by the tenderer. Poor quality of work or goods can lead to tremendous public hardship and substantial financial outlay either in correcting mistakes or in rectifying defects or even at times in re-doing the entire work - thus involving larger outlays or public money and delaying the availability of services, facilities or goods. e.g. A delay in commissioning a power project, as in the present case, could lead to power shortages, retardation of industrial development, hardship to the general public and substantial cost escalation.

When a writ petition is filed in the High court challenging the award of a contract by a public authority or the <ORG>, the court must be satisfied that there is some element of public interest involved in entertaining such a petition. If, for example, the dispute is purely between two tenderers, the court must be very careful to see if there is any element of public interest involved in the litigation. A mere difference in the prices offered by the two tenderers may or may not be decisive in deciding whether any public interest is involved in intervening in such a commercial transaction. It is important to bear in mind that by court intervention, the proposed project may be considerably delayed thus escalating the cost far more than any saving which the court Would ultimately effect in public money by deciding the dispute in favour of one tenderer or the other tenderer. Therefore, unless the court is satisfied that there is a substantial amount of public interest, or the transaction is entered into mala fide. the court should not intervene under Article 226 in disputes between two rival tenderers.

When a petition is filed as a public interest litigation challenging the award of a contract by the <ORG> or any public body to a particular tenderer, the court must satisfy itself that party which has brought the litigation is litigating bona fide for public good. The public interest litigation should not be merely a cloak for attaining private ends of a third party or of the party bringing the petition. The court can examine the previous record of public service rendered by the organisation bringing public interest litigation. Even when a public interest litigation is entertained the court must be careful to weigh conflicting public interests before intervening. Intervention by the court may ultimately result in delay in the execution of the project The obvious: consequence of such delay is price escalation. If any re-tendering is prescribed, cost of the project can escalate substantially. What is more important, ultimately the public would have to pay a much higher price in the form of delay in the commissioning of the project and the consequent delay in the contemplated public service becoming available to the public. If it is a power project which is thus delayed, the public may lose substantially because of shortage in electric supply and the consequent obstruction in industrial development. If the project is for the construction of a road, or an irrigation canal, the delay in transportation facility becoming available or the delay in water supply for agriculture being available, can be a substantial set back to the country's economic development. Where the decision has been taken bona fide and a choice has been exercised on legitimate considerations and not arbitrarily, there is no reason why the court should entertain a petition under Article 226.

Hence before entertaining a writ petition and passing any interim orders in such petitions, the court must carefully weigh conflicting public interests. Only when it comes to a conclusion that there is an overwhelming public interest in entertaining the petition, the court should intervene.

Where there is an allegation of mala fides or an allegation that the contract has been entered into for collateral purposes, and the court is satisfied on the material before it, that the allegation needs further examination, the court would be entitled to entertain the petition. But even here, the court must weigh the consequences in balance before granting interim orders.

Where the decision-making process has been structured and the tender conditions set out the requirements, the court is entitled to examine whether these requirements have been considered. However, if any relaxation is granted for bona fide reasons, the tender conditions permit such relaxation and the decisions is arrived at for legitimate reasons after a fair consideration of all offers, the court should hesitate to intervene.

It is also necessary to remember that price may not always be the sole criterion for awarding a contract. Often when an evaluation committee of experts is appointed to evaluate offers, the expert committee's special knowledge plays a decisive role in deciding which is the best offer. Price offered is only one of the criteria. The past record of the tenderers, the quality of the goods or services which are offered, assessing such quality on the basis of the past performance of the tenderer, its market reputation and so on, all play an important role in deciding to whom the contract should be awarded. At times, a higher price for a much better quality of work, can be legitimately paid in order to secure proper performance of the contract and good quality of work-which is as much in public interest as a low price. The court should not substitute its own decision for the decision of an expert evaluation committee.

Normally before such a project is undertaken, a detailed consideration of the need, viability, financing and cost, effectiveness of the proposed project and offers received takes place at various levels in the <ORG>. If there is a good reason why the project should not be undertaken, then the time to object is at the time when the same is under consideration and before a final decision is taken to undertake the project. If breach of law in the execution of the project is apprehended, then it is at the stage when the viability of the project is being considered that the objection before the appropriate authorities including the <ORG> must be raised. We would expect that if such objection or material is placed before the <ORG> the same would be considered before a final decision is taken. It is common experience that considerable time is spent by the authorities concerned before a final decision is taken regarding the execution of a public project. This is the appropriate time when all aspects and all objections should be considered. It is only when valid objections are not taken into account or ignored that the court may intervene, Even so, the <ORG> should be moved at the earliest possible opportunity. Belated petitions should not be entertained.

The same considerations must weigh with the court when interim orders are passed in such petitions. The party at whose instance interim orders are obtained has to be made accountable for the consequences of the interim order. The interim order could delay the project, jettison finely worked financial arrangements and escalate costs. Hence the petitioner asking for interim orders, in appropriate cases should be asked to provide security for any increase in cost as a result of such delay, or any damages suffered by the opposite party in consequence of an interim order. Otherwise public detriment may outweigh public benefit in granting such interim orders. Stay order or injunction order, if issued, must be moulded to provide for restitution;

A somewhat different approach may be required in the cases of award of a contract by the <ORG> for the purchase of times for its use. Judicial review would be permissible only on the established grounds for such review including mala fides, arbitrariness or unreasonableness of the Wendensbury variety. Balance of convenience would play a major role in moulded interim relief.

There is a third variety of transactions entered into by the <ORG> which come up for consideration before the courts, This is where the <ORG> grants licences or permissions for a fee or consideration to private parties, enabling them to commercially exploit such a licence or permission. The principles of judicial review are no different in such a case. However, grant of stay or injunction in such cases may or may not result in prejudice to the public revenue, depending on the facts of the case. At times granting of a licence or permission may cause public harm e.g. in the case of damage to the ecology. Interim orders will have to be mouled in such cases on a consideration of all relevant factors, providing for restitution where required in public interest.

It is unfortunate that despite repeated observations of this court in a number of cases, such petitions are being readily entertained by <ORG> without weighing the consequences. In the case of <CITATION> ,  1 SCC 568, this court observed that if the <ORG> acts fairly, though falters in wisdom, the court should not interfere. "A pragmatic approach to social justice compels us to interpret constitutional provisions, including those like Articles 32 and 226, with a view to see that effective policing of the corridors of power is carried out by the court until other ombudsman arrangement.............. emerges............ The court cannot usurp or abdicate, and the parameters of judicial review must be clearly defined and never exceeded. If the Directorate of a <ORG> company has acted fairly, even if it has faltered in its wisdom, the court cannot, as a super auditor, take <ORG> to task. This function is limited to testing whether the administrative action has been fair and free from the taint of unreasonableness and has substantially complied with norms of procedure set for it by rules of public administration.'' <CITATION> .  6 SCC 651, this <ORG> again examined the scope of judicial review in the case of a tender awarded by a public authority for carrying out certain work. This <ORG> acknowledged that the principles of judicial review can apply to the exercise of contractual powers by <ORG> bodies in order to prevent arbitrariness or favouritism. However, there are inherent limitations in the exercise of that power of judicial review. The <ORG> also observed that the right to choose cannot be considered as an arbitrary power. Of course, if this power is exercised for any collateral purpose, the exercise of that power will be struck down. "Judicial quest in administrative matters has been to find the right balance between the administrative discretion to decide matters and the need to remedy any unfairness. Such an unfairness is set right by judicial review." After examining a number of authorities, the <ORG> concluded (at page 687) as follows ;-

(1) The modern trend points to judicial restraint in administrative action.

(2) The court does not sit as a court of appeal but merely reviews the manner in which the decision was made.

(3) The court does not have the expertise to correct the administrative decision. If a review of the administrative decision is permitted it will be substituting its own decision, without the necessary expertise, which itself may be fallible.

(4) The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract.

(5) The Government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative or quasi-administrative sphere. However, the decision can be tested by the application of the "Wednesbury principle" of reasonableness and the decision should be free from arbitrariness, not affected by bias or actuated by mala fides.

(6) Quashing decisions may impose heavy administrative burden on the administration and lead to increased arid unbudgeted expenditure.

The same view has been reiterated in <CITATION> .,  1 SCC 738, the court observing that judicial review of contractual transactions by Government bodies is permissible to prevent arbitrariness, favouritism or use of power for collateral purposes. This Court added a further dimension to the undesirability of intervention by pointing out that where the project is a high cost project for which loans from <ORG> or other international bodies have been obtained after following the specifications and procedure of such a body, it would be detrimental to public interest to interfere. The same principles have been also reaffirmed in <CITATION> .,  1 SCC 478 with this Court again emphasising the need to allow for certain flexibility in administrative decision-making, observing that the decision can be challenged only On the Wednesbury principle of unreasonableness i.e. unless the decision is so unreasonable that no sensible person would have arrived at such a decision, it should riot be upset. <CITATION> .,  2 SCC 405, this Court once again observed that if a reasonable procedure has been followed, the decision should not be challenged except on the Wednesbury principle of unreasonableness.

Dealing with interim orders, this Court observed in <CITATION> .,[ 1985] 2 SCR 190 at page 196 that an interim order should not be granted without considering balance of convenience, the public interest involved and the financial impact of an interim order. Similarly, in <NAME> and <NAME>: v. State of Maharashtra and <ORG>.,  1 SCC 134, the Court said that while granting a Stay the court should arrive at a proper balancing of competing interests and grant a Stay only when there is an overwhelming public interest in granting it, as against the public detriment which may be caused by granting a Stay. Therefore, in granting an Injunction or Stay order against the award of a contract by the <ORG> or a <ORG> agency, the court has to satisfy itself that the public interest in holding up the project far out-weighs the public interest in carrying it out within a reasonable time. The court must also take into account the cost involved in staying the project and whether the public would stand to benefit by incurring such cost.

Therefore, when such a Stay order is obtained at the instance of a private party or even at the instance of a body litigating in public interest, any interim order which stops the project from proceeding further, must provide for the reimbursement of costs to the public in case ultimately the litigation started by such an individual or body fails. The public must be compensated both for the delay in implementation of the project and the cost escalation resulting from such delay. Unless an adequate provision is made for this in the interim order, the interim order may prove counter- productive, In the present case it was submitted that the terms and conditions of the tender specified the requisite qualifying criteria before a person could offer a tender. The criteria which were so laid down could not have been relaxed because such a relaxation results in a denial of opportunity to others. In support, the respondents relied <CITATION> .,  3 SCC 489. In that case the Court had held judicial review as a check on the exercise of arbitrary powers by the <ORG> and as a check on its power to grant largess. the Court also observed that When the exercise of discretion is structured in terms of the tenders which have been invited the discretion must be exercised in accordance with the norms so laid down. The same view has been taken by this Court in <CITATION> .,  2 SCC 691, where this Court observed that where rational non- discriminatory norms have been laid down for granting of tenders, a departure from such norms can only be made on valid principles, These principles enunciated by this Court: are unexceptional.

In the present case, however, the relaxation was permissible under the terms of the tender. The relaxation which the <ORG> has granted to <ORG> is on valid principles looking to the expertise of the tenderer and his past experience although it does not exactly tally with the prescribed criteria. What is more relevant, <ORG> who have challenged this award of tender themselves do not fulfil the requisite criteria. They do not possess the prescribed experience qualification. Therefore, any judicial relief at the instance of a party which does not fulfil the requisite criteria, seems to be misplaced. Even if criteria can be relaxed both for-<ORG> and <ORG>, it is clear that the offer of <ORG> is lower and it is on this ground that the <ORG> has accepted the offer of <ORG> We fail-to see how the award of tender can be stayed at the instance of a party which does not fulfil the requisite criteria itself and whose offer is higher than the offer which has been accepted, It is also obvious that by stopping the performance of the contract so awarded, there is a major detriment to the public because the construction of two thermal power units, each of 210 MWs., is held up on account of this dispute. Shortages of power have become notorious. They also seriously affect industrial development and the resulting job opportunities for a large number of people. In the present case there is no overwhelming public interest in stopping the project. There is no allegation whatsoever of any mala fides or collateral reasons for granting the contract to M/s. <ORG>

In our view <ORG> has seriously erred in granting the interim order. The appeals are, therefore, allowed and the impugned order is set aside. <ORG> shall pay to the appellants herein the costs of the appeals.


JUDGMENT <NAME>, J.

1. Messrs. <ORG>, the assessee, was assessed to income-tax for the assessment years 1966-67 and 1969-70, the accounting periods ending on June 30, of the calendar years of 1965 and 1968. In the said assessment year 1966-67, the assessee claimed allowance on depreciation and deduction of business expenditure. The Income-tax Officer found that during the accounting period ending on June 30, 1965, the total purchase of raw materials was worth only Rs. 1,220, consumption of raw materials was worth only Rs. 120 and stores and spares to the extent of only Rs. 70 had been consumed. The Income-tax Officer held that the assessee had not commenced manufacturing and that production, if any, during the period was only on an experimental basis. On that ground, the Income-tax Officer disallowed depreciation and deduction of business expenditure.

2. For the assessment year 1969-70, the Income-tax Officer found that the plant and machinery of the assessee did not work for the whole year. Total consumption of raw material during the year was also low and a very limited quantity of finished goods were produced. On the ground that the factory of the assessee had worked for less than thirty days, the claim of the assessee for depreciation was disallowed.

3. Being aggrieved, the assessee went up in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner considered the directors' report as also the profit and loss account of the assesses and found that the plant and machinery of the assessee were in use though on a very small scale in the assessment year 1966-67. He held that the assessee had set up its business during the relevant accounting year as it had commenced production and following the decision of <ORG> in <CITATION>  26 ITR 151, and of <ORG> in the case of <ORG> v. <ORG>  63 ITR 478, held that the Income-tax Officer was not justified in disallowing the depreciation and expenditure on the ground that it was prior to the commencement of the assessee's business.

4. On the basis of the aforesaid finding for the assessment year 1966-67, the Appellate Assistant Commissioner also held that in the assessment year 1969-70, the appellant having set up its business earlier, the Income-tax Officer should have allowed depreciation as also development rebate.

5. Being aggrieved, the <ORG> went up in appeal before <ORG>. Before the Tribunal, the <ORG> relied on a decision of <ORG> in <CITATION>  63 ITR 72, where it was held that where erection of plant had been completed and only a small quantity of raw material was consumed without any actual turning out of finished products, it could not be said that the business of manufacture had commenced. The consumption of raw materials, if any, would be only by way of experiment and the deduction of the amount claimed as business expenditure could not be allowed.

6. The <ORG> held that <ORG> did not have occasion to consider the decision of <ORG> in the case of <ORG> [1967] 63 ITR 478, where <ORG> had allowed the claim of the assessee to deduction of business expenditure where the business had actually been set up. On that ground, the <ORG> rejected the contentions of the <ORG>. The <ORG> held further that as the business had been set up in the year 1966-67, the claim for depreciation in the subsequent assessment year 1969-70 should be allowed automatically.

7. On the application of the <ORG> under Section 256(1) of the Income-tax Act, 1961, the following question has been referred as a question of law arising out of the order of the Tribunal for the opinion of this court:

"Whether, on the facts and in the circumstances of the case, the <ORG> was right in holding that the business was set up within the meaning of the Income-tax Act during the accounting year relevant to the assessment year 1966-67 and, as such, whether the assessee was entitled to depreciation and expenses claimed for the assessment year 1966-67 and depreciation for the assessment year 1969-70 ?"

8. At the hearing before us, learned counsel for the <ORG> drew our attention to the decision cited earlier in the proceedings below. He relied, in particular, on the decision of <ORG> in the case of Sir <ORG> [1967] 63 ITR 72 and invited us to follow the same. The other decisions are as follows :

(a) CWT v. <ORG> :

9. In this case, <ORG> held that where a business unit had been set up by the assessee which was ready to commence production, the assessee was entitled to claim deduction of the expenditure which could not be disallowed on the ground that the same had been incurred prior to the commencement of the actual business of commercial production. <ORG> made a distinction between setting up of a unit and the operational function of the unit as a business.

(b) <CITATION> . :

10. In this case, the assessee was incorporated with the object of manufacture and sale of cement in the relevant assessment year. The assessee obtained a mining lease for quarrying limestone and started, mining operations. In its assessment to income-tax, the assessee claimed deduction of expenditure incurred for extracting limestone and also depreciation and development rebate for its machinery. It was held by <ORG> of <ORG> that the business of the assessee consisted of three types of activities, viz., acquiring raw materials, manufacturing of cement and sale of cement. It was held that the activity in quarrying limestone was a part of the assessee's business which came first in point of time and that the assessee had commenced business when it started its activity of extraction of limestone. The expenditure incurred and the depreciation and development rebate claimed were held to be deductible in computing the trading profits of the assessee.

(c) <CITATION> :

11. In this case, <ORG> of this court following the decision of <ORG> in the case of <ORG> [1967] 63 ITR 478, held that where a business had been set up by the assessee, the expenses incurred in such setting up could not be disallowed on the ground that the assessee had not commenced commercial production in such business.

12. In the case before us, the Appellate Assistant Commissioner and the <ORG> have come to a finding that the assessee had set up its business in the assessment year 1966-67. This finding has not been challenged as perverse and has become final. In the face of such finding, following the decision of <ORG> referred to above, the question referred has to be answered in the affirmative and in favour of the assessee. The business having been set up in the earlier assessment year, it also must be held that the same position continued in the subsequent assessment year 1969-70.

13. There will be no order as to costs, <NAME>, J.

14. I agree.


PETITIONER: THE COMMISSIONER OF INCOME-TAX, WEST BENGAL I,CALCUTTA Vs. RESPONDENT: <ORG>. DATE OF JUDGMENT29/01/1973 BENCH: <NAME>, K.S. BENCH: <NAME>, K.S. REDDY, P. JAGANMOHAN KHANNA, HANS RAJ CITATION: 1973 AIR 927 1973 SCR (3) 448 1973 SCC (1) 442 CITATOR INFO : R 1976 SC 313 (27) D 1989 SC 501 (16) ACT: Income Tax Act , ss. 143 , 156 and 271(1)(a)(i) - Penalty-Whether related to tax assessed or tax payable. HEADNOTE: The assessee failed to furnish the return of its income within the time allowed but submitted the return after a notice under s. 28(3) of: the Income-tax Act , 1922, was served on him. A provisional assessment was made by the Income-tax Officer under s. 23B of the 1922-Act and the assessee deposited the amount. The Income-tax Act , 1961, having come into force thereafter, the Income-tax Officer the assessment under the provisions of that Act, determined the tax due and the penalty payable by the assessee. In doing so, he did not take, into consideration the amount deposited by the assessee, that is, he took into consideration not the amount demanded under s. 156 of the 1961-Act but the amount assessed under s. 143 . The Appellate Assistant Commissioner confirmed the order; but the <ORG> held that the penalty under s. 271 (1) (a) (1) is to be levied on the tax assessed minus the amount paid under the provisional assessment order, and <ORG>, on reference, agreed with the <ORG>. Dismissing the- appeal by the <ORG> to this <ORG>, HELD : (1) The acceptance of one or the other interpretation sought to be placed on s. 271(1) (a) (1) by the parties would lead to some inconvenient result; but the duty of. the <ORG> is to read the section, understand its language and give effect to it. If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the <ORG> to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible that construction which favours the assessee must be adopted. [451D-F] (2) Section 271(1) (a) (i) stipulates that the Income-tax Officer may direct that the assessee shall pay by way of penalty, "in addition to the amount of tax, if any, payable by him a sum equal to two per cent of the tax for every month.............. Quantification of the tax payable is always referred to in the Act as a tax "assessed". A tax payable is not the same thing as tax assessed. The tax payable is that amount for which a demand notice is issued under s. 156 . Hence, there can be no doubt that the expression 'the amount of tax, if any, payable by him' referred to in the first part of the section refers to the tax payable under a demand notice. The definite article 'the' in the words "the tax" in the latter part of the provision, shows that it refers to the tax, if any, payable by the assessee, mentioned in the first part of the section. [452D-G; 453A-B] (3)At any rate, the provision is capable of more than one reasonable interpretation, and since the provision, is not merely a tax provision but a penalty provision as well the interpretation in favour of the assessee must be accepted. [453B-D] 449 <CITATION> , 76, I.T.R. 582, approved. <NAME> v. Commissioner of Income-tax, Punjab, 6 I.T.R 616 and <CITATION> , 86 I.T.R. 657, disapproved. JUDGMENT:

CIVIL APPELLATE JURISDICTION : CIVIL APPEAL N0. 497 of 1970. Appeal by Certificate from the Judgment and order date June 26, 1969 of <ORG> in Income-tax Reference No. 145 of 1966.

<NAME>, <NAME>, <NAME> and <NAME>, for the appellant.

<NAME>, <NAME>, <NAME> and <NAME>

<NAME>, the respondent.

<NAME>, <NAME> and <NAME>, for the intervener.

The Judgment of the Court was delivered by <NAME>, J.-This appeal by certificate arises from the decision of <ORG> in a case stated by <ORG>, 'B' Bench, Calcutta. After setting out the relevant facts, the <ORG> solicited the opinion of <ORG> on the following question of law :

'Whether on the facts and in the circumstances of the case, the <ORG> was right in holding that in calculating the penalty leviable under section 271 (1) (a) of the Income-tax Act , 1961 the amount paid by the assessee under the provisional assessment under section 23B of the Indian Income-tax Act, 1922, was to be deducted from the amount of tax determined under section 23(2) of that Act in order to determine the amount of tax on which the computation of the penalty was to be based and in reducing the amount of the penalty imposed on the assessee to Rs. 2,737/-."

<ORG> answered that question in the affirmative and in favour of the assessee. Aggrieved by that decisions the Commissioner has brought this appeal.

Let us now proceed to state the facts relevant for deciding the point in issue, as could be gathered from 'the statement of the case.

In this case we are concerned with the assess's assessment for the assessment year 1960-61, the relevant account year ending on December 31, 1959. In that regard the Income-tax Officer issued a notice under s. 22(2) of the Indian Income- tax Act, 1922 (to be hereinafter referred to as the "1922 Act") on June 1, 1960. The same was served on the assessee on June 13, 1960. That notice required the assessee to submit its return on or before July 18, 1960. On July 18, 1960, the assessee moved for extension of time for submitting its return. The Income- tax Officer extended the time by two months and at the same time the informed the assessee that no further time would be allowed. The assessee failed to furnish its return within the extended time. Thereafter a notice under s.28(3) of the 1922 Act was served on' the assessee on January 16, 1961. On the very next day viz. January 17, 1961, the assessee filed its return for the assessment year in question. The assessment was completed by the Income-tax Officer only on October 31, 1962. Meanwhile on April 1, 1961 the Income-tax Act , 1961 to be hereinafter referred to as the "Act") came into force. As under the provisions of s.297(2) (g) of the Act the proceedings for the imposition of the penalty had to be initiated and completed under the Act, a fresh notice under s. 274(1) of the Act was served on the assessee. The assessee objected to the validity of the notice but that objection was overruled. At present we are not concerned with that objection. We are also not concerned with the other objections taken by the assessee which were negatived by the <ORG>. The Income-tax Officer determined the tax due from the assessee for the assessment year at Rs. 1,25,512/10 P. and on that basis, the penalty payable by the assessee was fixed at Rs. 12,7 3 4 / IO P. At this stage it may be mentioned that on February 2,1961, a provisional assessment was made by the Income-tax Officer under s. 23B of the 1922 Act. Immediately thereafter the, assessee deposited Rs. 92,294/55 P. In determining the penalty due from the assessee, the Income-tax Officer took into consideration not the amount demanded under s. 156 of the Act but the amount assessed under s. 143 of the Act. In appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. On a further appeal, the <ORG> came to the conclusion that the penalty under s.271 (1) (a) (i) is to, be levied on the tax assessed minus the amount paid under the provisional assessment order namely Rs. 92,294/55 P. On the basis of that finding, it determined the penalty payable by the assessee at Rs. 2,737/44 P. The conclusion of the <ORG> was accepted as correct by <ORG>.

Learned Counsel for the <ORG>, Mr. <NAME> contended that on a proper construction of s. 27  1 (1) (a) (i) it would be seen that the penalty had to be determined on the basis of the tax assessed under s. 143 of the Act. Counsel urged that if that is not the true construction then 'the effectiveness of the section may be taken away by the assessee paying the tax due by him a day before the demand notice is served on him. In support of the interpretation placed by him, Mr. <NAME> relided on the decisions of <ORG> in <NAME> v. Commissioner of Income-tax, Punjab(1) and the decision of the Delhi 6 I.T.R. 616.

High-<ORG> in <CITATION> (1). <ORG> followed the decision of <ORG>. On the other hand, it was urged by Mr. <NAME>, learned Counsel for the assessee and Mr. <NAME>, learned Counsel for the interveners that. on a proper interpretation of the provision mentioned earlier, it would be, clear that the penalty can be only imposed on the amount payable under s. 156 .In support of their contention, they relied on the decision of the Mysore, <ORG> in <CITATION> -:tax, Mysore(2). They further urged that if ,interpretation placed by the <ORG> on s. 271 (1) (a) (i) is accepted as correct, the result would be that the advance tax paid or taxes deducted at the source cannot be taken into consideration in determining the penalty payable. If that be true, the Counsel urged that even if the assessee had paid more tax than he need have paid, but had not submitted his return within the time fixed, he would be liable to pay penalty on the entire amount assessed. According to them the law cannot be presumed to be so harsh at that. There is no doubt that the acceptance of one or the other interpretation sought to be placed on S. 271 (1) (a) (i) by the parties would lead to some inconvenient result, but the duty of the court is to read the section, understand its language and give effect to the same. If the language is plain, the fact that the consequence of giving effect to it. may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible that construction which favours the assessee must be adopted. This is a well 'accepted rule of construction recognised by this <ORG> in several of its decisions. Hence all that we have to see is, what is the true effect of the language employed in s. 271 ( 1 ) (a)

(i). If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty. Let us now read section 271 (1 )(a) (i). The section to the extent material for our present purpose reads :

"It the Income-tax Officer or the Appellate Assistant Commissioner in the course of 'any proceedings under this Act, is satisfied that any person-

(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish...... by notice given under sub-

(1) 86. I.T.R. 657. (2) 74 I.T.R. 582 section(2) of section 139 . . .. . ., Dr has without reasonable cause failed to furnish it within the time allowed and in the manner required... by such notice he may direct that such person shall pay by way of penalty-

(i) in the casts referred to in clause (a), in addition to the amount of the tax, it any, payable by him a sum equal to two per cent, of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent, of the tax."

(emphasis supplied) Section 271(1)(a)(i) stipulates that the Income-tax Officer may direct that the assessee shall pay by way of penalty, in cases similar to the one that we are considering "in addition to the amount of the tax, if any, payable by him a sum equal to 2 per cent of the tax for every month during which the) default continued but not exceeding in the aggregate 50 per cent of the tax".

We must first determine what is the meaning of the expression "the amount of the tax, if any, payable by him" in 271 (1) (a) (i), Does it mean the amount of tax assessed under s. 143 or the amount of tax payable under s. 156 . The word "assessed" is a term often used in taxation laws. It is used in several provisions in the Act. Quantification of the tax payable is always referred to in the Act as a tax "assessed". A tax payable is, not the same thing as tax assessed. The tax payable is that amount for which a demand notice is issued under s. 156 . In determining the tax payable, the tax already paid has to be deducted. Hence there can be no doubt that the expression "the amount of the tax, if any, payable by him" referred to in the first part of s. 271 (1) (a) (i) refers to the tax payable under a demand notice. We next come to the question what is the meaning to tic attached to the words "the tax" found in the latter part of that provision. It may be noted that the ex- pression used is not "tax" but "the tax". The definite article "the" must have reference to something said earlier. It can only refer to the tax, if any, payable by the assessee mentioned in the first part of s. 271 (1) (a) (i). It is true the expression "tax" is defined in s. 2(43) thus :

" "tax" in relation to the assessment year commencing on the 1st day of April, 1965 and any subsequent assessment year means income- tax chargeable under the provisions of this Act. and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date."

But the difficulty in this case is, as mentioned Carrier the expression used is not "tax" but "the tax". That expression can be reasonably understood as referring to the expression earlier used in the provision namely "the amount of the tax, if any payable' by the assessee. At any rate, the provision in question is capable of more than one reasonable interpretation. Two high courts namely Calcutta and Mysore have taken the view 'that the expression tithe tax" in s. 271(1) (a) (i) refers to "the tax, if any, payable" (by the assessee) mentioned in the earlier part-of the section. It is true that Lahore and Delhi <ORG> have taken a different view. But the view taken by the Calcutta and Mysore Hi,-,It Courts cannot be said to be untenable view. Hence, particularly in view of the fact that we are interpreting, not merely a taxing provision but a penalty provision as well, the interpretation placed by the Calcutta and Mysore <ORG> cannot be rejected.. Further as seen earlier, the consequences of accepting the interpretation placed by the <ORG> may lead to harsh results. For the reasons mentioned above, this appeal is dismissed with, costs.

<ORG> dismissed.


ORDER

1. The petitioner is serving as Deputy Manager in the Production Centre in the establishment of the second respondent-<ORG> in the Twin Cities (<ORG>). The petitioner was placed under suspension by the proceedings of the Managing Director of the <ORG> dated 13-3-1996 under Rule 23(iv) of the <ORG> Employees Conduct, Discipline and Appeal Rules, 1983, for short 'the CCA Rules' pending further investigation and enquiry against the petitioner. This order was issued by the Managing Director in pursuance of the order of the <ORG>, G.O. Rt. No.218, Industries and Commerce (SES) Department dated 12-3-1996 directing the management of <ORG> to place the petitioner and four others under suspension pending enquiry. The <ORG>, further, by the impugned proceeding, G.O. Rt. No.235, Youth Advancement Tourism and Culture (Ses) Department dated 18-6-1998 continued the suspension of the petitioner beyond 12-3-1998.

2. No charges are yet framed against the petitioner. However, in the counter filed by the first respondent it is stated that the enquiry revealed that the petitioner had drawn a sum of Rs.45,000/- as advance for purchase of raw materials, but he failed to produce the relevant vouchers, stock entries, and he did not choose to get the advance adjusted immediately. Nothing concrete is said or laid in the counter filed by the management of <ORG> justifying the continued suspension of the petitioner. The allegations arc vague and general in nature.

3. The only question which arises for consideration is whether the continued suspension of the petitioner, in the facts and circumstances of the case, is justified and legal or whether it is arbitrary and unreasonable.

4. The power of the management of <ORG> to place the petitioner under suspension in contemplation of and/or pending departmental enquiry is not contested before the Court. The power of suspension or to extend the period of suspension has to be exercised with circumspection, care and after application of mind. The employer must make a fair and proper assessment of the matter in the given circumstances and carefully scrutinise that prima facie there exists grave and compelling circumstances which in the light of the material available and collected during the preliminary enquiry or investigation would lead to the likelihood of the removal or dismissal of the employee from service. Although suspension of an employee in contemplation of or pending enquiry as such does not violate any of his legal right, it should not be forgotten that the suspended employee is subjected to social ridicule, condemnation and humiliation; he is looked down by colleagues, friends, kith and kin and he lives a life of tarnished image, infamy and agony. A proper judgment exercised would prevent unnecessary harassment and humiliation of suspension. Suspension should not be resorted to as a matter of course unless the allegations against the employee are serious. The employer, before resorting to suspension, shall consider whether the continuation of the delinquent would be detrimental to public interest or would hamper the enquiry or whether the delinquent, if continued in the post, is likely to tamper with official records relating to the allegation or charge or influencing the witnesses. If there are no such facts, suspension of delinquent will not be justified. <ORG>, in the case of <CITATION> , 1994 (2) SLR (Calcutta) 77, held that an order of suspension shall not be made in an arbitrary manner and any order of suspension, if casually made, will cause harm and suffering to the concerned employee. If after suspension enquiry is unduly delayed or prolonged, then, it will be an indication to show that the suspension is not bona fide. An employee who is placed under suspension in contemplation of enquiry or pending enquiry is entitled to ask on suspension that the matter should be investigated within the reasonable period of time, and if such a principle of natural justice is not recognised, then, it would imply that the employer is vested with a totally arbitrary and unfettered power of placing its employees under disability and distress for an indefinite duration. The suspension order is bad if it is not followed by the charge-sheet within reasonable time. It is unjust on the part of the employer to pass an order of suspension and then not to take any further action for years.

5. In the instant case the petitioner was placed under suspension more than 31 months back and till date no charges are framed. There is no reasonable explanation for this inordinate delay. The only defence purforth in the counter-

affidavits filed by the respondents is that the preliminary enquiry/investigation is "entrusted to <ORG> and the investigation is under progress and the outcome of the report is awaited," It is not the case of the respondent tliat the petitioner is involved in a scries of malpractices and blame-worthy transactions and therefore the <ORG> requires more time to investigate into malpractices. The only allegation as set out in the counter is that the petitioner drew a sum of Rs.45.000/- as advance for purchase of raw materials, but he has failed to produce the relevant vouchers, stock entries and he did not choose to get the advance adjusted immediately. I am at a loss to understand how more than 31 months time is not sufficient for the <ORG> to investigate and submit report. The investigating agency cannot take its own time for investigation which is comparable to a preliminary enquiry at its pleasure and at the peril of the delinquent employee; it is expected that the investigating agency should act with promptitude and diligence. That is why this <ORG> in number of opinions handed down in the cases involving review of suspension orders held that an employer having placed an employee under suspension in contemplation of or pending enquiry should act with promptitude and diligence, frame the charges within the reasonable time and conduct and conclude the enquiry and pass appropriate order without much loss of time. Such a course is not only imperative in the interest of the charged employee but also in the best interest of the maintenance of healthy employer-employees relationship and to maintain harmony in an organisation or an industry. Be that as it may, if there is a delay on the part of the <ORG> in investigating and submitting the report, the respondents should have taken up the matter with the <ORG> and directed it to investigate and submit the report without much loss of time. It is not forthcoming from the records that such a course was adopted by the respondents.

6. <ORG> in <CITATION> , 1973 (2) SLR 553 (Ori HC), while reviewing the validity of the suspension order of an employee held that if there was a delay on die part of <ORG> in investigating the offence, then the department should have taken up the matter with the police authority and that the prolonged suspension of the employee was unjustified. To the same effect is the decision of <ORG> in <CITATION> , 1961 (2) LLJ 644 (SC). <ORG> in <CITATION> , 1983 Lab.IC 1743 (Mad- HC) held that an employee cannot indefinitely be kept under suspension pending issue of charge-sheet and the continued suspension of the employee is penal in character. In the case of <CITATION> ., 1978 SLJ 421 the Court held that the continued suspension of the employee for a period of 2-1/2 years without framing the charge-sheet and without any reasonable explanation for the delay is unjustified. These decisions show that even in those cases where there is no time limit to issue charge-sheet after suspension; the employer is obligated to investigate into the allegations and frame charges and conclude the disciplinary proceedings within a reasonable time with diligence and promptitude.

7. <ORG> has issued G.O.Ms. No. 86, General Administration (Services-C) Department dated 8-3-1994. Sub-clause (iii) of Clause 3 of the <ORG> Order provides for an outer limit of two years for suspension of a public servant and it states tliat only in exceptional cases having regard to the gravity of the charges levelled against an employee, suspension be extended beyond a period of two years. Here is a very pathetic case. The outer limit of time prescribed under the above <ORG> Order spent itself even before the charges are framed. The charge to be framed against the petitioner-delinquent is not in the sight anywhere and it seems to be indefinite. In that view of the matter, it should be held that the continued suspension of the petitioner by the impugned order of the <ORG> without disclosing reasons is unjustified and unwarranted. Even then, the <ORG> would not have intervened if the respondents are likely to frame the charges against the petitioner in the near future. In the course of the hearing, the <ORG> pointedly asked the learned Counsel appearing for the respondents as to whether the respondents intend to frame the charges against the petitioner in the near future. There is no satisfactory and responsible response to the <ORG>'s query. On the other hand, stock reply of the learned Counsel for the respondents is that investigation is pending and they would take steps only after submission of the report by the <ORG> and that it is the prerogative of the employer to place an employee under suspension in contemplation of or pending departmental enquiry. There is no sign of the second respondent framing the charges against the petitioner in the near future and the respondents do not show any inclination or anxiety or urgency to frame the charges without further loss of time. The lamentable callousness of the respondents cannot be countenanced by the <ORG>. The power of employer to place the employee under suspension in contemplation of or pending departmental enquiry, which power repeatedly called' 'prerogative'' by the learned <ORG> Pleader in her wisdom, is not a Royal prerogative nor a prerogative of an absolute monarch or despot. The power vested in the employer to place an employee under suspension is not an absolute power. The word "absolute power" does not find a place in the dictionary of our Constitutional and Administrative Laws. The power to suspend an employee vested in the respondents is a public power; every public power is a limited power, and the donee of that power is expected to exercise that power reasonably and fairly and not arbitrarily and capriciously. That is what Article 14 mandates and commands.

8. In the result, the writ petition is allowed with no order as to costs and the impugned order of the Government G.O. Rt. No.218, <ORG><ORG>) department dated 12-3-1996 is quashed. However, it is made clear that this order shall not come in the way of the respondents framing the charges and conducting departmental enquiry against the petitioner. Liberty is also reserved to the respondent to seek review of this order if they find the petitioner indulging in tampering of the official records relating to the allegations or influencing the witnesses.


JUDGMENT

1. This is an appeal from the Order of <ORG> of Patna striking out the defence of the tenant for failure to deposit rent in accordance with the Bihar Building (LR. and E.) Control Ordinance 1982. <ORG> found that there was such default. <ORG> in revision also found that the rent for the month of July, which was to be deposited by the 15th August, 1979, was deposited not earlier than 20th August, 1979, so, there was a default. Indeed, <ORG> has further noted the conduct of the tenant who had made default even in complying with the two orders mentioned above. Therefore, <ORG> was of the view that <ORG> had rightly struck off the defence. The tenant made out a case that there was a bank strike and as such he could not deposit his rent in time, that is obviously not a correct plea. It was found that there was, in fact, no bank strike. The special leave petition proceeded on the basis that there was actual delay of 4 or 5 days in depositing the rent. Section 13 of the Act stipulates that if in a suit for recovery of possession of any building the tenant contests the suit as regards the claim for ejectment, the landlord may move an application at any stage of the suit for an order on the tenant to deposit rent month by month at the rate at which it was last paid and also subject to the law of limitation, the arrears of rent, if any, and the <ORG> after giving an opportunity to the parties to be heard may make an order to deposit the rent month by month at such rate as to be determined and the arrears, both before and after the institution of the suit, if any, and thereafter provide "on failure of the tenant to deposit the arrears of rent within 15 days of the next following month the <ORG> shall order the defence against the ejectment to be struck off". Therefore, there is a duty cast on the <ORG> to strike out the defence if there is a failure of the tenant to deposit arrears of rent within 15 days. In this case, both <ORG> as well as <ORG> have found that there was, in fact, a delay to pay the arrears of rent within 15 days. In that view of the matter it is not possible to interfere with the order of <ORG>. The appeal therefore fails and is accordingly dismissed. There will, however, be no order as to costs.


JUDGMENT <NAME>, J.

1. This appeal arises out of Original Petition No. 107 of 1963 filed by the appellant, <NAME>, before <ORG>, Madras, under Section 110 of the Motor Vehicles Act, 1939. One <NAME>, the husband of the appellant, <NAME>, was travelling in lorry MSZ 4627 on 2nd March, 1963, at about 9-50 A.M. The lorry belonged to Messrs. <ORG>, the first respondent, and it had been insured with the second respondent, <ORG>, as required by Sections 94 and 95 of the Act. The lorry was loaded with iron shafts, and the lorry was transporting them from the Madras Harbour to a company called <ORG> The lorry came along the main road, Madhavaram High Road, which runs from south to north, and then entered the compound called Huzur Gardens, in a portion of which the company <ORG>, is situated. There are two gates to the Huzur Garden facing Madhavaram High Road. One was an entrance and the other, an exit gate. The lorry came along Madhavaram High Road, turned west into Huzur Gardens and after passing about 2\ furlongs, turned north to reach <ORG>, which was about a furlong north. Just after the turning, some of the iron shafts rolled back from the lorry and <NAME> who was seated on the top of the shafts was thrown down and struck by some of the shafts. He was in due course removed to the hospital and he died within a few hours as a result of the injuries sustained in the above manner. On these facts, <NAME> preferred a claim for Rs. 15,000.

2. The main basis of the claim was that the driver of the lorry, one <NAME>, as disclosed by the evidence on her side, was driving the lorry at an excessive speed. It would also appear that the iron shafts had not been tied properly. They were tied by a rope about 1/2" in diameter and there was no rear covering to prevent them from sliding backwards. The real ground of the claim was that the driver was driving the vehicle fast and was, therefore;, negligent and that the incident which resulted in the death of the deceased was as a result of the negligence of the driver of the vehicle and therefore the owner of the vehicle would be liable; and because it had been insured, the second respondent, <ORG> would also be liable.

3. The claim was resisted by the owner on the ground that there was no negligence on the part of the driver and that he had been driving the vehicle at a low speed of ten miles. It was also pleaded that the quantum of the claim was excessive.

4. <ORG> pleaded in addition that it was not liable because, according to it, the place where the accident took place was not a public place within the meaning of Section 95 (1) (b) of the Act. It may be stated that Section 94 requires a policy of insurance to be taken out by the owner of a motor vehicle complying with the requirements of Chapter VIII. Section 95 (1) (b) of the Motor Vehicles Act reads thus:

In order to comply with the requirements of this Chapter, a policy of insurance must be a policy which insures the person or classes of persons specified in the policy to the extent specified in Sub-section (2) against any liability which may be incurred by him or them in respect of the death of, or bodily injury to, any person caused by or arising out of the use of the vehicle in a public place.

'Public Place ' is defined in Section 2 (24) of the Act thus:

"Public Place" means a road, street, way or other place, whether a thoroughfare or not, to which the public have a right of access, and includes any place or stand at which passengers are picked up or set down by a stage carriage.

The contention of the Insurance company is based on the averments that the area of Huzur Gardens (about 93 acres) is owned by one legal individual, <ORG>, that a number of public companies are situated there, that the public have no right of access to the premises and that the public and vehicles are allowed inside only on permission by the watchman at the gate.

5. <ORG> (<NAME>) held that the petitioner <NAME> had not proved that <NAME> sustained the injuries as a result of any negligence on the part of the driver of the lorry. He rejected the petition on that ground. He, however, pointed out that if the petitioner were entitled to succeed, a sum of Rs. 10,000 would be a reasonable amount of compensation. He also expressed himself in favour of the contention of <ORG> that the place was not a public place within the meaning of Section 2 (24) of the Act and that <ORG> would not be liable.

6. Aggrieved by the said decision, <NAME> has preferred this appeal. The first question which arises is whether the injuries caused to <NAME> were as a result of the negligence of the driver of the vehicle. It is true that the burden of proof is on <NAME>. But, in my opinion, she has discharged the burden. It may be mentioned straightaway that there is no direct evidence of the speed of the vehicle at the time when the deceased Was thrown out of the vehicle.' But there is circumstancial evidence sufficient to draw the inference that the driver must have been driving the vehicle at a speed which must be considered excessive for that particular place and having regard to the load which the lorry was carrying. The evidence consists in the main of that of <NAME>, who was the Deputy Works Manager in <ORG>, Sembium, which was another concern situated at a distance of about 100 yards east of the place of accident within Huzur Gardens. It was actually on the road leading from east to west inside the compound. P.W. 5 had come out a few minutes before for smoking a cigarette and <NAME>, the driver of his car was also standing by his side. Just then the ill-fated lorry came from east to west behind them. P.W. 5's evidence is to the following effect:

It appeared as though it was being driven at a great speed. This I concluded because of the heavy rattling noise the shaft inside the lorry was making. I cannot say at what speed it went. It was loaded with steel shaftings. It was not a covered lorry. It had no covering on the sides. There were posts on the sides. I remarked to <NAME> that the lorry will meet with an accident. After 150 yards it took a bend and immediately I heard a crashing sound. I immediately called for <ORG> and the ambulance of my organisation to rush to the spot. I did not go. <NAME> the Fire Officer and his crew went. They brought an injured man in a stretcher. I am not aware if he was given any first aid. I left him to Dr. <NAME> and went away.

7. The above evidence in the chief examination clearly shows that P.W. 5 felt from the heavy rattling noise that the lorry was being driven at a great speed. His impression was that the lorry would meet with an accident, and so it did. Nothing elicited in the cross-examination shakes the above inference. What was elicited was this:

The shaftings might be haphazardly kept, or road may be bad as the shaftings rattled. I do not know how the shaftings were tied. I did not go to the spot because I did not want to see a ghastly scene and no useful service will be served if I went without help. I do not know if Perumal ran to the spot. There were workers on the road doing repair work. The lorry was passing towards by back-So I could not see it till it went past me. I did not see it when the accident occurred.

8. P.W. 9 <NAME> was the Supervisor in <ORG>. He went to the place of accident as desired by P.W. 5. He went with his fire engine and men to the spot. His evidence is:

I saw a man between two iron bundles. Some iron rods lay scattered. There were three bundles in the lorry. Seven iron rods lay scattered. It was an open lorry. It had no sidings. The iron rod were fastened to the lorry by ropes. Both his legs had been crushed.

In cross-examination it was elicited:

Each bundle contained seven rods. There were four bundles on the road. A rod was three inches in diameter. The injured was found about 30 to 40 feet behind the lorry. To Court: The lorry had no planks or poles on any of its sides. But it had rings on sides. The rope was 3/4" thick.... The road at the place of accident was of red earth.

9. P.W. 10 is the Sub-Inspector of Police who received intimation at 11-30 A.M and went to the spot at 1 p.m. He has drawn a sketch of what he observed at the scene of occurrence, which finds a place in the records. His evidence is this:

The road was 42' 4". MSZ. 4627 lorry was parked on the road about 50 feet from the junction of the main road. (What he calls as the main road is the east to west road inside the compound). Three bundles of steel shaft lay 4 or 5 feet behind the lorry. Blood marks were found 51' 3" south from the front portion of the lorry. It was facing north. Four bundles of shaft were in the lorry. The road is unmetalled. Ropes were found snapped. It was an open type lorry. It was a straight road. It was dry.

In cross-examination, this was what was elicited:

I recorded the statement of the driver in my handwriting. There were no poles to the sides of the lorry. But there were ropes. The rope was 1/2" thick. It was an ordinary one. Ropes had snapped and hanging on the sides.

10. The evidence of P.Ws. 9 and 10 may be summarised thus: <NAME> was found crushed as a result of some of the iron shafts which had fallen down from the lorry. He was about 30 to 40 feet behind the lorry; to be exact, about 51' 3" south of the front portion of the lorry. The place was in the north-south road with a width of 42'4".

11. The evidence of P.Ws. 5, 9 and 10 is, in my opinion, sufficient to show that the driver of the lorry had driven the vehicle at a Speed which must be considered excessive in that context. P.W. 5 had no doubt that the speed was excessive that he apprehended that there would be an accident. The very fact that the iron shafts slipped down from the lorry and that the lorry stopped fifty feet from the main road also shows that the lorry had been travelling at an excessive speed. In this connection, my attention has been drawn to a table at page 42 of Bingham's Motor Claims Cases, Vth Edition, a portion of which I quote:

The Highway Code gives the following stopping distances in perfect conditions that is, good weather, broad day light, good dry roads:

Overall Speed. Thinking Braking stopping m.p.h. distance. distance. distance.

30 30 45 75

20 20 20 40.

12. According to the above table, it is reasonable to infer that the lorry must have been travelling at a speed of twenty miles an hour. At this stage, an argument has been put forward that it would not be right to assume that the lorry had to travel 51 feet to come to a halt. It is urged on behalf of the respondents that it is possible that the lorry driver began applying the brakes only after realising that the man had fallen down and on that reasoning, it is urged that the lorry must have been travelling only at a speed of ten miles an hour. It seems to me that this is only a pure guess. In the absence of the evidence of the driver, I think the inference which I have drawn is the proper inference, since it takes into account the evidence of P.W. 5. There can be no doubt that if anybody had to examine the driver, it was the first respondent who had to do it. It is unreasonable to expect the appellant to have examined the driver. The appellant had let in sufficient evidence prima facie to show that there was negligence on the part of the driver, and in order to rebut that inference, it was the owner who had to examine the driver.

13. <ORG>, in my opinion, failed to draw the necessary inference from the above circumstances. The <ORG> after discussing the evidence of P.W. 5 says that it is not possible to infer any rash or negligent driving on the part of the driver from the evidence of this witness. I cannot agree. On the evidence, it seems to me that the proper inference is that the driver was driving the Vehicle at an excessive speed, and was guilty of negligence and it is that negligence in driving which has resulted in the fatal injuries to <NAME>. The respondents relied on Exhibit R. 2 which is the opinion expressed by the Chief Assistant State Prosecutor that the driver need not be prosecuted and that the case was one of pure accident. It is needless to observe that this opinion cannot bind the Claims <ORG> or this <ORG>. I should, however, add that the deceased was also partly at fault in sitting on the top of the iron rods. But, in my opinion, that is only a factor which will mitigate the damages and cannot absolve the first respondent of his liability for the negligence of the driver. '

14. I now proceed to the next question, namely, whether the place where the accident occurred was a public place within the meaning of Section 2 (24) of the Act, and if it was not a public place, whether the second respondent will not be liable. The definition in Section 2 (24) has already been extracted. It is clear from the definition that the criterion is whether the public have a right of access to the place; and it will not be a public place merely, if as a matter of fact, the public have access. Applying the test to the evidence in this case, it is clear that the place is not a public place within the meaning of the definition in Section 2 (24). The evidence of P.W. 5 is:

My organisation is in Huzur Gardens, Sembium, which is 93 acres in extent. There are 8 or 9 companies belonging to <ORG> Madhavaram High Road is the main road for our compound. The lorry travelled 2. 1/2 furlongs after branching from Madhavaram High Road. The lorry was going to <ORG> It had to go for 100 yards, take a turn to the right and go one furlong to reach <ORG>. I am employee of the company from 1949. There are two gates in Madhavaram High Roard. There are watchmen at both the gates. All lorries that came in have got to be permitted to go in.

15. Thus the evidence is that Huzur Gardens is a private property and there are eight or nine companies there belonging to <ORG> by whom the road is kept, that there are watchmen at two gates facing Madhavaram High Road and that lorries have got to get the permission before they could enter. Though nothing is said about the members of the public requiring permission, it is a reasonable inference from the evidence that the members of the public also require permission before they could enter. Thus, on the evidence, it is clear that the public have no right as such to enter the premises.

16. <NAME>, the learned Counsel for the appellant, has cited a number of decisions where it was held that a place would be a public place if, as a matter of fact, the public were having access to the place. But in those cases, there is either no definition or if there was any definition, it did not lay down the test of right of access to the public, and it was enough if, as a matter of fact, the public were having access to the places. From this point of view, it is unnecessary to discuss the cases in detail, and it is sufficient to note them. The decisions are: <NAME> v. <ORG> (1945) 61 T.L.R. 225, <NAME> v. <NAME> (1941) 1 K.B. 198, <CITATION> (1954) All L.J. 487, <CITATION> 1961 (2) Cr L.J. 638: , and <CITATION> .

17. <NAME> put forward a contention that it is not open to <ORG> to take up this defence because that is not one of the defences enumerated as being open to them in Section 96 (2) of the Act. The argument has no force because, before Section 96 (2) comes into play, the liability of the insurance company must arise under Section 95 (1) (b); and if under Section 95 (1) (b) they are not liable on the ground that the vehicle was not used in a public place as defined in the Act , section 96 (2) does not come into play at all. Otherwise, it would mean that Section 95 (1) (b) making a reference to 'public place ' would be a dead letter. It is significant to note that Section 96 (1) itself speaks of the policy required to be issued under Clause (b) of Sub-section (1) of Section 95 .

18. The question that remains is the quantum of compensation. The evidence as accepted by <ORG> is that the deceased was earning about Rs. 5 per day. After allowing for his own food and clothing, he could provide Rs. 2-50 nP. per day to his family which worked out to Rs. 75 per month. It was pointed out that at this rate, the claim for 25 years would amount to Rs. 22,500 but the claim was restricted to Rs. 15,000. The deceased was aged about 39 years. The Tribunal observed:

There is no knowing if the deceased would have lived for 25 years more. There is also no knowing if the deceased would have had a predominantly happy life during the rest of his life had he not died in the accident. In this state of evidence, the quantum of compensation can be mostly a guess work. In my opinion an amount of Rs. 10,000 will be a reasonable compensation taking into consideration that a lump sum has to be given which will also produce some interest.

19. It seems to me that a further reduction in the quantum of compensation will have to be made for the following reasons: The <ORG> proceeded on the assumption that the deceased would earn Rs. 5 per day for all the thirty days in the month. This leaves out of account the holidays and the fact that--according to the owner's evidence--he was only a casual labourer and was not entitled as of right to work every day in the month. Further, some reduction will also have to be made in view of the fact that the deceased was himself negligent in sitting on the top of the iron shafts. I would therefore reduce the amount of compensation to Rs. 6,500 (six thousand five hundred)--In view of my finding that <ORG> will not be liable to pay, this amount will be paid by the first respondent. The appeal is allowed. In the circumstances of the case, I make no order as to costs.