JUDGMENT <NAME>, J.

1. These three civil miscellaneous appeals arise out of the common order in M.C.O.P. No. 115 of 1982 on the file of <ORG>, Madurai. The second respondent before the <ORG> is the appellant in C.M.A. No. 69 of 1984. The claimants are the appellants in C.M.A. No. 128 of 1984 for enhancement of the compensation. The first respondent is the appellant in C.MA No. 144 of 1984.

2. The brief facts which are necessary for the disposal of these appeals can be stated as follows: The appellants in C.MA No. 128 of 1984 who are the claimants have filed M.C.O.P. No. 115 of 1982 claiming compensation of Rs. 8,00,000/- on account of the death of the deceased <NAME> who is the husband of the first claimant, father of the second claimant and son of the third claimant. The case of the claimants is that on 30.9.1981 the deceased <NAME> left his house at about 8.30 a.m. and while he was proceeding to his office on his scooter bearing registration No. MDK 3331 on Madurai Vaigai Albert bridge, one P.R.C. bus bearing registration No. TMS 5965 belonging to the first respondent was proceeding in front of him. The driver of the vehicle TMS 5965 suddenly stopped the vehicle. Immediately the deceased also stopped his scooter. At that time the omnibus LMV bearing registration No. TNA 677 belonging to the second respondent was also proceeding in the same direction, namely, south to north. The driver of the omnibus drove the said vehicle in rash and negligent manner without adhering to the rules of the road and with rapid speed and dashed against the scooterist from behind and then dragged him to the right side. As a result of the same, the scooter and the deceased got jammed between the halted P.R.C. bus and the omnibus. The scooter was reduced into a tangled mass of twisted metal. The scooterist sustained multiple fatal injuries and his head was crushed side to side and it has lost his appearance. The skull had got fractured irregularly into several pieces. As a result of the injuries, the scooterist succumbed to the injuries on the spot. It is stated that but for the rash and negligent driving of the second respondent's driver and the indiscreet negligence on the part of the first respondent's driver, the accident would not have occurred. On enquiry, compensation for negligence has to be determined by the <ORG>. Criminal proceedings also have been instituted against the driver of the second respondent in Crime No. 57 of 1981 and it is pending enquiry before <ORG>, Madurai. Hence, they are liable to pay the compensation claimed. It is further stated that the deceased was a clerk in <ORG> at the time of the accident. He is aged 31 years. He married the first petitioner on 5.5.1979 and out of the happy married life, the second petitioner who is aged 1 1/2 years was born. The mother of the deceased is aged. The separation of her son at such a young age is a tragedy befallen her and her mental anguish is enormous. The deceased was hale and healthy. But for this accident, he would have lived upto the maximum span of life. He has got 30 years of service to his credit till the retirement on 24.5.2011. As a clerk, he would have approximately drawn a salary of Rs. 8,15,000/-. The first petitioner who is young and aged about 29 years has to face various problems. The loss of consortium cannot be estimated by means of monetary measure. The future of her only son is a problem for her. Hence, she claimed a compensation of Rs. 8,00,000/-.

3. The said application is resisted by the respondents and in the statement of objections filed by the first respondent besides denying the allegations in the claim petition it is submitted that the bus of the first respondent was proceeding at a very moderate speed towards north in the down gradient portion of the road on the left with all care and caution. At that time, an old lady, a vendor of orange fruits, was carrying on her head a basket full of orange fruits. While she was going on the western platform of the road, an orange fruit fell down from the basket and rolled across the road in front of the bus. Suddenly, she ran across the road to pick up the same. The driver of the bus stopped the same and saved the lady from being run over. Soon after he stopped the bus, there was a crash behind his bus. It is stated that late <NAME> was coming on his scooter behind the bus very closely without keeping sufficient distance and he was followed by the van TNA 677 driven by the driver of the second respondent in good speed, in a rash and negligent manner. He dashed violently against the scooter and both crashed with the rear right portion of the stationary bus. It is further stated that the van driver as well as the deceased <NAME> were responsible for the accident. The matter was reported to the police by the driver of the first respondent and they charged the driver of the van in C.C. No. 282 of 1981 on the file of <ORG>, Madurai and it is pending. It is also stated that the quantum of compensation claimed is excessive and beyond all proportions.

4. In the statement of objections filed by the second respondent, it is averred that the deceased <NAME> was wholly and mainly at fault. He was not even granted a valid licence to drive scooter. It is further stated that the driver of the <ORG> bus, while proceeding towards north, noticed the sudden crossing of a lady to pick up an orange fruit which fell down from her basket and rolled on the road. The <ORG> bus driver suddenly applied brakes to save the life of the lady. The scooterist who was going behind was not vigilant and he did not take note of stopping of the bus. At that time the scooterist went to the wrong side to overtake the <ORG> bus and dashed against the <ORG> bus which was about to be stopped. The dashing of the scooter was so severe and serious that the scooter and scooterist fell in between the <ORG> bus and the van and the dash is in between the scooter and the <ORG> bus. The allegation that the vehicle of the second respondent dashed against the scooterist with a rapid speed and dragged him into the right side is factually incorrect. It is further stated that the driver is defending the criminal case and the particulars given for claiming the compensation are all not admitted. Further, the first petitioner is given a job in the bank where her husband was working and she was decently paid. Hence the claim for Rs. 8,00,000/- is out of proportion and exorbitant. It is further stated that only the insurance company, the third respondent, is liable to compensate the loss.

5. The third respondent in its objections while adopting the statement of objections of the second respondent with regard to the extent and the quantum except the liability would submit that the second respondent is not in any way responsible for the accident mentioned in the petition and as such the second respondent as well as the third respondent are not liable to pay compensation. It is further stated that the petitioners have to strictly prove the necessary ingredients for quantum of compensation and finally submitted that as per the insurance policy issued to the second respondent for its vehicle TNA 677, the liability of the third respondent is limited to Rs. 50,000/- only.

6. On the pleadings, the <ORG> framed five points. On the side of the claimants, PWs 1 to 5 were examined and Exhs. P-1 to P-19 were marked and on the side of the respondents, RWs 1 to 4 were examined and Exhs. R-1 to R-9 were marked. The <ORG> for the reasons assigned in the order came to the conclusion that the accident happened as a result of the rash and negligent driving of the vehicle belonging to the second respondent as well as the negligent driving of the vehicle belonging to the first respondent and consequently fixed the liability of the first respondent at 25 per cent and that of the second respondent at 75 per cent and finally held that respondent Nos. 1 to 3 are liable to compensate the loss. The compensation was fixed at Rs. 3,60,000/- out of which the insurance company is directed to pay a sum of Rs. 50,000/- as per the policy. The first respondent is directed to pay a sum of Rs. 90,000/-while the second respondent is directed to pay the compensation of Rs. 2,20,000/- and the third respondent was directed to pay a sum of Rs. 50,000/-. Out of the said sum, petitioner Nos. 1 and 2 are each entitled to Rs. 1,50,000/-and the third petitioner was entitled to Rs. 60,000/-, towards compensation. The respondents are directed to deposit the amount within two months and if they fail to pay the amount, they are liable to pay interest at 6 per cent per annum. Aggrieved by the said award, the three appeals are filed by the claimants as well as respondent Nos. 1 and 2.

7. Learned counsel for the appellant in C.M.A No. 69 of 1984, Mr. <NAME>, submitted that the court below ought not to have believed the evidence of PW 5 as his evidence is contrary to the facts which are proved by documents. He would further submit that the injuries on the deceased, which are on his right side, probabilise the case of the appellant that the accident took place when the deceased attempted to overtake the bus of the first respondent and the court below has failed to consider this aspect in fixing the liability on the appellant and also on the first respondent in the M.C.O.P., namely, Managing Director of <ORG>. According to him, the doctrine of res ipsa loquitur is applicable in this case and the liability is to be fixed not only on the driver of the van belonging to the appellant but also on the driver of <ORG> bus as well as the deceased and the liability should be only 1/3rd and not more on the appellant.

8. The learned Advocate-General appearing for the first respondent, who is the appellant in C.M.A. No. 144 of 1984, drew the attention of this court to the evidence of PW 5 and submitted that the <ORG> failed to draw proper inference from the evidence of PW 5, an independent witness with regard to the actual occurrence. He would submit that the finding of the <ORG> that the driver of the appellant's bus is also liable for contributory negligence is erroneous as it does not arise for consideration on the facts and circumstances of the case. He would also submit that the <ORG> failed to note that it is the specific case of the claimants themselves that the deceased had already stopped his scooter 5 feet away from the appellant's bus and the driver of the van belonging to the fourth respondent came and dashed against the scooter causing the death and as such the driver of the appellant's bus cannot be held liable for contributory negligence. It is the further contention that the mere fact that the driver of the appellant's bus failed to give signal when he stopped the bus would not constitute contributory negligence, as in the instant case, he had to stop the vehicle to save another person who suddenly crossed the road.

9. The appellants in C.M.A. No. 128 of 1984 are the claimants and they claimed enhanced compensation and also challenged the judgment limiting the liability of the insurance company to Rs. 50,000/-. The learned counsel would submit that though the appeal is restricted to Rs. 6,00,000/-, yet the appellants are entitled to compensation as made in the petition for Rs. 8,00,000/-. He would further submit that the <ORG> failed to consider the relevant facts, namely, the age of the deceased, his last drawn pay and his pensionary and other benefits and the age of the claimants while fixing the quantum. The learned counsel would mainly argue that the <ORG> misdirected itself (Sic. while interpreting) the legal effect of Section 95(2), Sub-clauses (a) and (b) of the Motor Vehicles Act in restricting the liability of the third respondent, insurer, to Rs. 50,000/-. He would further submit that the appellants are entitled to reasonable interest under Section 110-CC of the Motor Vehicles Act and as enunciated in various decisions in this behalf and the <ORG> erred in restricting interest on the compensation at 6 per cent per annum after the expiry of two months from the date of judgment without any valid and sufficient reason therefor. He would also submit that the deduction made out of Rs. 4,50,000/- is also not proper.

10. Per contra, the learned counsel for the insurance company submitted that the judgment of the <ORG> restricting the limit of liability on the insurer is perfectly legal and correct and does not call for interference in view of the relevant provisions of the Motor Vehicles Act and decisions. According to him, Section 95(2)(c) will not apply and Section 95(2)(b) alone will apply. Lastly, he would submit that the quantum of compensation awarded to the claimants is excessive and not in accordance with the principles laid down in various decisions.

11. The following points arise for determination in these appeals:

(1) Whether the learned Tribunal in fixing joint liability on respondent Nos. 1 and 2 at the ratio of 25 per cent and 75 per cent is correct?

(2) Whether the <ORG> is justified in restricting the liability of the third respondent insurance company to Rs. 50,000/- by invoking Section 95(2)(b) and not Section 95(2)(c) ?

(3) Whether the claimants are entitled to any compensation and what is the correct compensation amount payable to the claimants?

12. As regards the first point, it is not in dispute that on 30.9.1981 at about 8.30 a.m. when the deceased was proceeding on his scooter bearing registration No. MDK 3331 on the Madurai Vaigai Albert bridge, the driver of the P.R.C. bus belonging to the first respondent bearing registration No. TMS 5965 suddenly stopped the vehicle without giving any signal. Then the vehicle, namely, omnibus bearing registration No, TNA 677 belonging to the second respondent which was also proceeding in the same direction behind the deceased, dashed against the deceased from behind and as a result of the same, he sustained fatal injuries and died on the spot. The contention of the first respondent was that since a vendor of oranges suddenly crossed the road in order to pick up an orange which fell on the road and in order to save her, he had to stop the vehicle suddenly and the mere fact that he had not given signal for the vehicle coming from behind would not make him liable for death of the deceased and as such he is not in any way liable. In this connection, he relied on the evidence of PW 5. On the other hand, it was the contention of the second respondent that the deceased was also responsible for the accident as he overtook the bus and dashed against it and as a result of the same, he sustained injuries and in any event the <ORG> ought to have held that both respondent Nos. 1 and 2 as well as the deceased are equally responsible for the accident, that the contribution has to be fixed according to the ratio equally and that respondent Nos. 1 and 2 are equally liable to pay compensation of 1/3rd each. It is the case of the claimants that the deceased was not at all in any way responsible for the accident, that it is only due to the rash and negligent driving of the vehicles belonging to respondent Nos. 1 and 2 that the accident occurred, that respondent Nos. 1 and 2 alone are responsible and that the finding of the trial court is perfectly legal and correct and no interference is called for.

13. As regards the accident, we have got the evidence of PW 5 on the side of the claimants and the evidence of the drivers of both the vehicles examined as RWs 1 and 3 and also the evidence of the investigating officer <NAME> Inspector of Police and also the exhibits, Exhs. P-1 to P-13 and Exhs. R-1 to R-8. That the driver of the van TNA 677 belonging to the second respondent was rash and negligent in driving the said vehicle and he was responsible for the death of the deceased is established by overwhelming documentary and oral evidence. It is also not seriously disputed by the learned counsel appearing for the second respondent. It is to be noted that the driver of the first respondent gave a complaint Exh. P-4 against <NAME> the driver of the second respondent and on the basis of the same, a criminal case was registered in Crl. No. 578 of 1981 and he was prosecuted. The evidence of PW 2 coupled with the mahazar prepared by him for recovery of the blood-stained earth, glass pieces, scooter seat and other items, as well as the observation mahazar Exh. P-2 and the rough sketch Exh. P-23 and the evidence of PW 2 regarding the position of the three vehicles involved in the accident and the body of the deceased when he inspected the scene the same day at about 9.45 a.m. within an hour of the accident clearly supported the case of the claimants that it was due to the rash and negligent driving of the van by <NAME> the driver of the second respondent that the accident occurred and the deceased sustained serious injuries and as a result of the same he died. The photos taken at the scene place which are marked as Exhs. P-6 to P-l2 and also the photos which were marked on the side of the respondents as Exhs. R-1 to R-4 also corroborated the evidence of PW 2 and the eye-witnesses PW 5 and RW 1. Even <ORG> admitted the correctness of the physical features in the said photographs. The report of the Motor Vehicles Inspector, which is marked as Exh. P-5, reveals the damage to all the three vehicles and also probabilises the case that the van TNA 677 dashed against the scooter MDK 3331 driven by the deceased and the scooter as a result of the same dashed against the bus TMS 5965. It is seen from the evidence of PW 2 that there is an yellow line in the middle of the road and the road is sloping from south to north and the location of the van in the above place with reference to the yellow line clearly shows that he has violated the traffic rules. The evidence of PW 5 also clearly establishes that it is only because of the rash and negligent driving of the van by its driver, namely, <NAME> that the occurrence took place. PW 5 was coming in the opposite direction and he has categorically stated that when the bus driver applied sudden brakes, the scooter was at a distance of 5 feet behind the bus and since the driver of the van drove the same at a high speed and in negligent manner, he dashed against the deceased who was driving a scooter. There is absolutely nothing to reject his evidence. Besides that, there are other clinching circumstances to hold that the driver of the van should have been rash and negligent in driving the van at the time of the accident. On the date of occurrence, two of the lecturers of the 2nd respondent college got into the van at about 8.30 a.m. at Arasaradi, Madurai and they wanted to reach <ORG> at any cost by 9 a.m. <ORG> also agreed to the same. It is not in dispute that on the way from the place where these two lecturers got into the van there was heavy traffic and it has been so admitted by <ORG> himself. When he passed through the crowded locality and reached the scene place at 8.50 a.m. he was keeping a distance of 35' before his van. He was driving the vehicle in such a way upto the scene and while he approached the scene place, the gap between his van and the bus in front of him was only 25'. It is also admitted that the place of occurrence is a down gradient. It is clear from the various answers elicited from <ORG> that he was also rash and negligent in driving the van at the time of the occurrence. Further, it is seen that he was having a defective eye vision and it is seen as is evident from his admission. The certificate in respect of the same was produced in the criminal case. Hence, we do not find any difficulty in holding that the driver of the van, namely, <ORG> was rash and negligent and it is only as a result of the same that the accident occurred and the deceased met with his death.

14. Now coming to the liability of the first respondent, we have to consider the evidence of PW 5 in the light of the evidence given by <NAME>, <NAME> and the admissions made by RW 1 and various exhibits filed in this case. It is not in dispute that the bus belonging to the first respondent was proceeding from south to north followed by the scooter driven by the deceased which was followed by the van driven by <NAME>. It is also not in dispute that the driver of the bus belonging to the first respondent applied sudden brakes without giving any signal, that the van dashed against the scooter which dashed against the bus and that the deceased and the scooter got in between the bus and the van and as a result of the injuries, he died. <NAME>, Inspector of Police, inspected the scene place at about 9.30 a.m. immediately after the occurrence, that is, within half an hour and he noted the physical features of the vehicles involved in the accident and also the place in which the deceased was found. He took photographs, drew rough sketch and prepared observation mahazar which are marked as Exhs P-2, P-3 and P-6 to P-12. The Motor Vehicles Inspector also inspected the scene place and submitted a report Exh. P-5 giving his opinion. It is seen from the report of the Motor Vehicles Inspector that the accident did not occur on account of any mechanical defect and that the van TNA 677 dashed against the scooter MDK 3331 which dashed against the rear body of TMS 5965 stage carriage. <NAME> an eye-witness to the occurrence. It is seen from his evidence that he was coming in the opposite direction on a scooter and that at the time of the occurrence, he found the <ORG> bus stopped by applying brakes with terrific noise. The scooterist was found at a distance of 5' and the van came at a high speed and dashed against the scooter and the scooter dashed against the bus and the deceased died. He also noticed damages to all the three vehicles.

15. The learned Advocate-General appearing for the first respondent submitted that in view of the admission of PW 5 that he noticed the scooterist standing with the scooter at a distance of 5' after stretching his legs on the ground, it cannot be said that the driver of the bus was negligent. He also stated that when he first saw the accident, he noticed the van dashing against the scooter. The evidence of PW 5 has to be read along with other evidence adduced in this case. It is seen from the sketch prepared by PW 2 that the version of the driver <NAME> that he suddenly applied brakes in order to save the vendor of oranges is false as the bus was not stopped by the side of the vendor and in front of the orange fruit; but it went ahead after crushing the orange fruit and stopped after crossing the place. The physical features noted in Exhs. P-2 and P-3 with regard to the location of the three vehicles and the body of the deceased pro-babilise the case of the claimants that the accident took place only due to the rash and negligent acts of the drivers of both the vehicles. It is to be noted that all the three vehicles sustained damages as is evidenced by Exh. P-5, the report of the Motor Vehicles Inspector. Even <NAME>, the driver of the bus, admitted in his evidence that it is necessary to show signal by waving his hands before the brakes are applied and also red signal is to be shown to the vehicles coming from behind. He also admitted that while applying brakes in this case, he did not do so, as he noticed the old woman crossing the road half-way. He also admitted in evidence that there is a bend at the southern side and the road is not running straight but only curved. There are two boards. One board is to the effect that the vehicles should be driven slowly to the left and the other board is that on any account the vehicle should not cross the yellow line. He admitted that the old woman was at a distance of 300' away from the curved portion. If really <NAME> proceeded at a speed of 10 kmph at the time of the occurrence, there is no difficulty in applying the brakes after showing sign to the vehicle coming from behind. From the answers elicited in his evidence it is clear that he has not applied the brakes as per traffic rales and that he did not take proper care. It is clear from the evidence of <ORG> that the driver of the bus belonging to the first respondent was running at a high speed and that if he had shown signal while applying brakes, the accident would not have happened. It is also in evidence that the driver of the bus left the terminus at about 8.28 a.m. and the occurrence took place at 8.55 a.m. In between the distance of 6 miles, there are 20 bus stops and at each bus stop the bus stopped for 2 minutes. Admittedly there was crowd in the bus and people got in at each bus stop. Therefore, the version of the driver of the bus that he drove the vehicle at a speed of 10 kmph is false. It is also not in dispute that the road was sloping towards north and that it was a low gradient. It cannot be said that the driver of the bus was not negligent in not showing the signal and following the normal procedure in applying sudden brakes. The old woman who is said to have crossed the road was also not examined. The <ORG> rightly took into consideration the material fact, namely, the driver of the first respondent bus has not followed the traffic rules and he has admittedly failed to show the signal to the vehicle coming behind while applying brakes. The road is also curved and sloping one. The occurrence took place immediately after the curved portion. It is clear that he was also responsible for the accident. If he had shown the signal, the vehicle which was coming from behind, namely, the driver of the van, would not have proceeded further and dashed against the scooter which in turn would not have dashed against the bus. If really he was driving the bus at a slow speed, there was no necessity for him to apply sudden brakes to avert an accident. It is clear from the evidence of <NAME> that he saw the vendor of oranges at a distance of 10'. Considering the physical features, namely, the place where the bus was stopped with reference to the orange fruit, the version of the driver of the bus was rightly rejected by the <ORG>.

16. The learned Advocate-General for the first respondent relied on two decisions reported in <NAME> v. <NAME> 1979 ACJ 476 (MP) and <NAME> v. <ORG> (1950) 1 All ER 367. (Sic. The first decision) relates to a case where the petitioner boarded a tempo as a passenger. When the tempo was proceeding on the road, all of a sudden a boy ran from one side of the road to the other and the tempo driver, in order to avert the accident, had the only option of applying brakes. He applied the brakes which resulted in the accident in which the appellant received injuries. It is the admitted case that the boy suddenly appeared in front of the vehicle and the driver had to exercise discretion on the spur of moment to avert accident. In the circumstances, it was held that the driver was not in any manner negligent. That was a case where the petitioner was inside the tempo and sustained injury while the brakes were applied to avert an accident when a boy suddenly ran across the road. The said decision is not applicable to the facts of this case. Here, the accident occurred on account of the failure on the part of the driver of the <ORG> bus to followthe traffic rules and give signal to the vehicle coming behind while applying the brakes and it is only because of his failure that the vehicles coming from behind dashed against each other and as a result of the same the accident took place. The negligence of the driver is very clearly established. The decision relied on by the first respondent is not helpful. That was a case where the passenger in the tempo sustained injury while applying brakes and the question of showing any signal to the incoming vehicle does not arise in that case. In the circumstances of the case, it was held in that case that the driver was not responsible. Similarly, in the case of <NAME> v. <ORG> (1950) 1 All ER 367, the passenger in the omnibus had left his seat and was walking down the gangway with the intention of alighting at the next stopping place. At that time, the driver applied brakes to avoid running over a dog. The passenger was thrown to the floor of the vehicle and sustained injuries. It was held in that case that the driver acted as an ordinary and careful driver, as he was faced with a sudden emergency caused by the dog's appearance in front of the omnibus and therefore the driver was not guilty of negligence. In this case, even from the evidence of the driver, it is seen that he has not acted as an ordinary and careful driver. In view of the traffic rules, it is his duty to show signal to the vehicle coming from behind it by waving his hands and also lighting the red light behind the vehicle in order to avert dashing. But he has failed to do it. It is only because of the negligent act of the driver of the first respondent that the accident took place.

17. In this connection, our attention was drawn to the decisions reported in <CITATION> 1958-65 ACJ 179 ( <CITATION> . 1977 ACJ 343 (SC). In <NAME>'s case, their Lordships observed:

Normally, it is for the plaintiff to prove negligence but as in some cases considerable hardship is caused to the plaintiff as the true cause of the accident is not known to him but is solely within the knowledge of the defendant who caused it, the plaintiff can prove the accident but cannot prove how it happened to establish negligence on the part of the defendant. This hardship is sought to be avoided by applying the principle of res ipsa loquitur. The general purport of the words res ipsa loquitur is that the accident 'speaks for itself or tells its own story. There are cases in which the accident speaks for itself so that it is sufficient for the plaintiff to prove the accident and nothing more. It will then be for the defendant to establish that the accident happened due to some other cause than his own negligence.

The learned counsel for the claimants relied on this decision and submitted that the burden is on the drivers of the respondent Nos. 1 and 2 to establish that the accident happened due to some other cause than their own negligence and in this case the burden has not been discharged. On the other hand, there are materials to hold that on account of rash and negligent driving, not only of the driver of the van but also the driver of the <ORG> bus, the accident occurred and as a result of the same the scooterist succumbed to the injuries. In this connection our attention was drawn to the evidence of the doctor, PW 1, who conducted autopsy and his evidence has not been challenged by the first respondent. As already noticed, the physical features were noted by the investigating officer and the damage to the vehicles. In the circumstances of the case, we have no hesitation in holding that the driver of the first respondent is also liable for contributory negligence and that the first respondent is liable to compensate the loss sustained by the claimants. The court below rightly considered the extent of liability as regards respondent Nos. 1 and 2 and fixed it at the ratio of 25 per cent and 75 per cent. We are of the view that the ratio adopted by the <ORG> is perfectly correct and no interference is called for. Accordingly we hold that both respondent Nos. 1 and 2 are liable to compensate the loss sustained by the claimants at the ratio of 25 per cent and 75 per cent as fixed by the <ORG>.

18. The next question to be considered is whether the order of the <ORG> restricting the liability of the insurance company, third respondent, to Rs. 50,000/- is legal and proper.

19. The contention of the learned counsel for the claimants is that the vehicle, namely, the van belonging to the second respondent will not come under Section 95(2)(b) of the Motor Vehicles Act, but only under Section 95(2)(c) and as such, the insurance company is liable to pay the amount of compensation determined by the <ORG> and it should not be restricted. On the other hand, the learned counsel for the insurance company submitted that this vehicle will certainly come under the vehicle referred to in clause (2) (b) of Section 95 and as such, the <ORG>'s finding restricting the liability to Rs. 50,000/- is correct. For proper appreciation, it is worthwhile to quote the provision of Section 95(2) which reads as follows:

95(2). Subject to the proviso to Sub-section (1), a policy of insurance shall cover any liability incurred in respect of any one accident up to the following limits, namely-

(a) where the vehicle is a goods vehicle, a limit of one lakh and fifty thousand rupees in all, including the liabilities, if any, arising under the Workmen's Compensation Act , 1923 , in respect of the death of, or bodily injury to, employees (other than the driver), not exceeding six in number, being carried in the vehicle;

(b) where the vehicle is a vehicle in which passengers are carried for hire or reward or by reason of, or in pursuance of, a contract of employment,-

(i) in respect of persons other than passengers carried for hire or reward, a limit of fifty thousand rupees in all;

(ii) in respect of passengers, a limit of fifteen thousand rupees for each individual passenger;

(c) save as provided in clause (d), where the vehicle is a vehicle of any other class, the amount of liability incurred;

(d) irrespective of the class of the vehicle, a limit of rupees six thousand in all in respect of damage to any property of a third party.

The question that now arises for consideration is whether the van TNA 677 is a vehicle in which passengers are carried for hire or reward or by reason of, or in pursuance of, a contract of employment. The vehicle is described in the policy Exh. R-9 as 'TNA 677 Matador van, carrying capacity of passengers 15'. As regards the limitation as to use, it is stated that it is being used as hotel/school technical omnibus and Rs. 90/- was paid as premium under the head 'passenger'. It is seen from Endorsement No. 13 (b) attached to and forming part of policy, for legal liability to passengers excluding liability for accidents to employees of the insured arising out of and in the course of their employment, an additional premium of Rs. 95/- was paid. It is seen from Exh. P-5, report of the Motor Vehicles Inspector that the said vehicle has been described as LMV omnibus and fitness certificate was also issued to the vehicle and the particulars were also noted as 798/81/1988/MKG/MDN/18.2.88. The learned counsel appearing for the insurance company drew our attention to the definitions of the vehicles under Section 2 of the Motor Vehicles Act, wherein under Section 2 (18-A) 'omnibus' means any motor vehicle constructed or adapted to carry more than six persons excluding the driver. While describing motor car under Section 2(16) it is stated that motor car means any motor vehicle other than a transport vehicle, omnibus, road-roller, tractor, motor cycle or invalid carriage. 'Motor cab' has been defined in Section 2(15) as any motor vehicle constructed, adapted or used to carry not more than six passengers excluding the driver, for hire or reward. It is submitted that the vehicle TNA 677 omnibus cannot be a motorcar and as omnibus, the vehicle in question has obtained fitness certificate. Fitness certificate is contemplated only in the case of transport vehicles. Section 36 of the Act deals with special provisions in regard to transport vehicles and Section 38 deals with the certificate of fitness of transport vehicles. Transport vehicle is defined under Section 2(33) as public service vehicle or a goods vehicle. It is to be noted that private vehicle does not require any fitness certificate. The fitness certificate so far as the van TNA 677 is concerned is valid till 18.2.1988.

20. The learned counsel for the insurance company drew the attention of the court to the relevant rules under the Tamil Nadu Motor Vehicles Rules wherein under Rule 55 (i) it is provided that in the case of a transport vehicle other than a motor cab both registration marks shall exhibit the letters and numerals in two separate horizontal lines, the letters above and the numerals below while in all other cases the registration marks may exhibit the letters and numerals either in two horizontal lines as aforesaid or in one horizontal line. Rules 101, 102 and 103 deal with the procedure and issue of certificate of fitness in respect of transport vehicles. Rule 189-B which deals with the grant of Statewide public carrier's permit, deals with tourist omnibus. Under Rule 294-A, vehicles used for public purpose referred to therein were exempted from taking out permits.

21. The learned counsel for the insurance company submitted that even as per the evidence of <ORG>, <NAME> and <NAME>, who were employed as lecturers in the second respondent college, got into the van and he was asked to take them to <ORG> by 9 a.m. as they were to be there at that time. That the vehicle was utilised for taking the employees of the 2nd respondent college from the college to the university is not in dispute. <NAME>, the Principal of the second respondent college, also stated that the van was used for the use of the college and that those lecturers were travelling in the van at the time of the accident. He would say that no hire was charged. The learned counsel for the insurance company submitted that by reason of employment, they were taken in the van and as such it would fall under Section 95(2)(b) , being a vehicle in which passengers were carried by reason of the contract of employment In this connection, the learned counsel drew the attention of this court to the decision in <NAME> v. <NAME> (1970) 2 All ER 335 and also the passages occurring at page 705 of <ORG> 7th Edn., where the two cases hzard v. <ORG> (1937) 3 All ER 79 and <NAME> v. <NAME> (supra) were referred to. The learned author has summarised the case <NAME> v. <NAME> (supra) as follows:

<NAME> and <NAME> were moulders employed by the second defendants at a foundry 30 miles from their homes. The second defendants arranged with <NAME> to lend him a car in which he could drive to work, bringing <NAME> and two other employees. Although the arrangements for providing the car and paying him an allowance for petrol was part of <NAME>'s contract of service neither he nor <NAME> was obliged to use the car if they did not wish to do so. It was not a term of their contract of service that they must use it. When riding as a passenger in the car on the way to work <NAME> was injured in an accident for which <NAME> was held to blame.

Held: <NAME> was in the vehicle 'by reason of...a contract of employment' but not 'in the course of his employment'.

The learned counsel relying on the ratio in the above decision submitted that by the travelling of the two college lecturers in the college van from the college to the university, it can be safely stated that they are passengers carried by reason of contract of employment. In this connection, our attention was drawn to Exh. R-9 policy wherein also it is stated that a comprehensive policy was taken in connection with the commercial vehicle and accordingly premium was paid. Hence, we find much force in the contention of the insurance company that the vehicle would come under Section 95(2)(b) and not under Section 95(2)(c) . When once it is held that it comes under Section 95(2)(b) , the latest decision of <ORG> reported in <CITATION> 1988 ACJ 270 (SC), is in all fours applicable in this case. It was held in the above-quoted decision:

Comprehensive insurance of the vehicle and payment of higher premium on this score, however, do not mean that the limit of the liability with regard to third party risk becomes unlimited or higher than the statutory liability fixed under sub-section (2) of Section 95 of the Act. For this purpose a specific agreement has to be arrived at between the owner and the insurance company and separate premium has to be paid on the amount of liability undertaken by the insurance company in this behalf. Likewise, if risk of any other nature, for instance, with regard to the driver or passenger etc. in excess of statutory liability, if any, is sought to be covered it has to be clearly specified in the policy and separate premium paid therefor. This is the requirement of the Tariff Regulations framed for the purpose.

That was also a case where in respect of commercial vehicle, a comprehensive policy was taken as in this case. Their Lordships after referring various decisions and also quoting the limits of liability as indicated in the policy, in para 6 of the judgment, which is similar to the one in the instant case, held in para 7 as follows:

A perusal of the policy, therefore, indicates that the liability undertaken with regard to the death or bodily injury to any person caused by or arising out of the use (including the loading and/or unloading) of the motor vehicle falling under section II (1) (i) has been confined to 'such amount as is necessary to meet the requirements of the Motor Vehicles Act , 1939'. This liability, as is apparent from clause (b) of Sub-section (2) of Section 95 of the Act, was at the relevant time Rs. 20,000/- only. The details of the premium also indicate that no additional premium with regard to a case falling under section II (1) (i) was paid by the owner of the vehicle to the insurance company. It is only the vehicle which was comprehensively insured, the insured's estimate of value including accessories (I.E.V.) thereof having been shown as Rs. 40,000/-. In this view of the matter the submission made by learned counsel for the respondents that the appellant had in the instant case undertaken an unlimited liability does not obviously have any substance. The liability under the policy in the instant case was the same as the statutory liability contemplated by clause (b) of Sub-section (2) of Section 95 of the Act, namely, Rs. 20,000/-. An award against the appellant could not, therefore, have been made in excess of the said statutory liability.

In the instant case also, as is seen from the policy, the limit of the amount of the company's liability under section II-1 (i) in respect of any one accident is such amount as is necessary to meet the requirements of the Motor Vehicles Act , 1939. As against the limit of the amount of the company's liability under section II-1 (ii) in respect of any one claim or series of claims arising out of one event, it is shown as Rs. 50,000/-. The premium paid is shown as below:

Basic premium Rs. 176/- 1/2% I.E.V. Rs. 260/- S.RC.C. Rs. 130/- Passengers Rs. 90/- Driver Rs. 8/- _________ Total Rs. 664/- _________ The insured's estimate of value including accessories is Rs. 50,000/-. The latest decision of <ORG> cited above is in all fours applicable to the case on hand. Applying the said ratio, it cannot be said that the finding of the <ORG> restricting the liability to Rs. 50,000/- is in any way illegal or improper so as to warrant this court to interfere with the same.

22. As regards the enhancement of compensation made by the claimants, it is submitted by the learned counsel for the appellants that the date of birth of the deceased is 24.5.1951 and he joined service on 5.6.1970. But for the accident, he would have continued in service till 24.5.2011 and he would have become an officer from 1.7.1983. He would have received Rs. 8,00,000/- and more by way of salary during this period. These details have not been disputed by any of the respondents. The learned counsel for the claimants submitted that the <ORG> is not correct in deducting 20 per cent out of the compensation arrived at Rs. 4,50,000/-. He has submitted that the <ORG> has also not taken into consideration the three pay revisions which will yield a substantial potential income. He would also submit that though the claimants have restricted their claim to Rs. 6,00,000/- in the appeal, it is for the court to estimate the claim and the court is bound to grant just amount irrespective of the amount claimed by the claimants. On a careful analysis of the entire materials placed before us, we find that the <ORG> took into consideration the relevant factors in fixing the compensation. The <ORG> has rightly come to the conclusion that the deceased <NAME> would have contributed a sum of Rs. 900/- per month towards family expenses to PW 4 and he would have spent Rs. 500/- for his expenses. On that basis, he has calculated the contribution to the family at Rs. 10,800/- per annum and multiplied it by 29 years, till the date of his retirement, which comes to Rs. 3,13,200/-. For the loss of consortium to the wife as well as love and affection to the child, he has fixed a compensation of Rs. 36,800/-. Towards loss of gratuity a sum of Rs. 22,150/- is awarded and towards provident fund the deceased would have got Rs. 63,169/- if he was alive and retired peacefully and on that score the <ORG> awarded a compensation of Rs. 1,00,000/-. Thus, under all the three heads, it comes to Rs. 4,50,000/-. The <ORG> deducted 20 per cent towards lump sum payment and consequently awarded Rs. 3,60,000/-. In the circumstances and in view of the materials placed before this court, we are of the view that the compensation fixed by the <ORG> is just and reasonable and there is absolutely nothing to enhance the same on any score.

23. The contention of the learned counsel for the claimants is that the <ORG> has awarded interest at 6 per cent per annum only if the compensation was not deposited within two months. It was pointed out that interest is awarded from the date of default of such payment and that the direction in regard to payment of interest is not correct. We find much force in the contention of the learned counsel for the claimants. In this connection, the learned counsel for the claimants drew the attention of this court to the decisions in <NAME> v. <NAME> 1985 ACJ 397 ( <CITATION> 1985 ACJ 645 ( <CITATION> 1987 ACJ 15 ( <CITATION> 1989 ACJ 1007 (Madras) and submitted that the <ORG> ought to have awarded interest at least from the date of petition when the claim was made. <CITATION> (supra), it was held as follows:

We are of the view that <ORG> of <ORG> erred in the exercise of its discretion under Section 110-CC of the Motor Vehicles Act, 1939, in not awarding interest on the amount of compensation finally determined by it from the date of the application. It is undoubtedly true that under Section 110-CC , <ORG> of <ORG> had discretion to award interest at such rate and from such date not earlier than the date of the application as it may think fit in the exercise of its discretion. But it is well settled that every discretion conferred by statute must be exercised judicially on the basis of the facts and circumstances of a particular case. Here when the learned single Judge enhanced the amount of compensation, he awarded interest on the enhanced amount at 6 per cent per annum from the date of his judgment and <ORG> also, when it further enhanced the amount of compensation, directed that interest at the rate of 6 per cent per annum be paid on the enhanced amount from the date of its judgment and not from the date of the application. The learned single Judge as well as <ORG> totally ignored the fact that the enhanced amount of compensation awarded by them was in their judgment the correct amount of compensation payable to the appellants on account of the death of the deceased resulting from the accident. The learned single Judge and <ORG> should have therefore awarded interest on the enhanced amount of compensation from the date of the application. We accordingly set aside the judgment of <ORG> as also the judgment of the learned single Judge in so far as these judgments direct that interest shall be payable on the enhanced amount of compensation from the date of the respective judgments and instead, we direct that interest shall be payable on the enhanced amount of compensation as finally determined by <ORG> at the rate of 12 per cent per annum from the date of the application for compensation.

<CITATION> 1987 ACJ 15 (SC), it was held:

In regard to the interest, however, we think the petitioners are entitled to a higher rate of interest than that awarded by the <ORG> and confirmed by <ORG>. We find that in Narcinva V. Kamat v. <NAME> 1985 ACJ 397 (SC), this court awarded interest at 12 per cent from the date of the accident up to the date of payment. Subsequently in <CITATION> 1985 ACJ 645 (SC), a larger Bench of this court awarded compensation (Sic. interest) at 12 per cent per annum from the date of the application for compensation. We are of the opinion that the petitioners should be entitled to interest at 12 per cent per annum from the date of the application for compensation to the date of payment. We order accordingly.

<CITATION> 1989 ACJ 1007 (Madras), a Division Bench of this court allowed interest at the rate of 12 per cent per annum from the date of the petition. It is needless to multiply the various decisions of <ORG> and other <ORG> on this subject and it will suffice to state that it has been uniformly held that the claimants are entitled to interest from the date of petition till the date of payment at 12 per cent per annum. Accordingly the order passed by the court below directing payment of interest at 6 per cent per annum from the date of default of payment of the money in pursuance of the award is hereby modified and instead, the respondents are directed to pay interest in respect of the amount payable by them at 12 per-cent per annum from the date of petition till the date of payment and the award has to be modified accordingly.

24. In the result, C.M.A. No. 69 of 1984 and C.M.A. No. 144 of 1984 are dismissed. C.M.A No. 128 of 1984 is allowed and the order of the <ORG> directing the respondents to pay interest at 6 per cent per annum on the compensation two months after the date of judgment if they failed to pay the amount is hereby set aside and instead, respondent Nos. 1 to 3 are directed to pay interest from the date of the petition till the date of payment in respect of the amount payable by them at 12 per cent per annum and in other respects, the award passed by the <ORG> is confirmed. However, in the circumstances of the case, the parties are directed to bear their respective costs in these appeals.


PETITIONER: <ORG> Vs. RESPONDENT: THE COMMISSIONER OF INCOME-TAX,WEST BENGAL DATE OF JUDGMENT: 12/05/1959 BENCH: <NAME>, NATWARLAL H. BENCH: <NAME>, NATWARLAL H. DAS, <NAME> <NAME>, M. CITATION: 1959 AIR 1165 1960 SCR (1) 185 ACT: Income-tax-Assessment of land-developing Company-Mercantile method of accounting adopted by assessee and accepted by Incometax Officer-Accrued liability for future development expenses, if an allowable deduction in the accounting year- lndian Income-tax Act (XI Of 1922), S. 1O(1) . HEADNOTE: The appellant company carried on land-developing business and sold land after development on a profit. The whole of the development was not carried out before the land was sold nor the whole of the sale price received in cash at the time of the sale. In the accounting year in question the appellant sold a number of plots and received a portion of the sale price but as it maintained its accounts in the mercantile method it entered the whole price receivable, viz., Rs. 43,692-11-9, in credit side though only Rs. 29,392-11-9 was actually received and debited a sum of Rs. 24,809, being the estimated expenditure for the developments it had, by terms incorporated in the deeds of sale, under- taken to carry out within six months thereof, although no part of it was actually spent during that year. The appellant claimed a deduction of the said sum of RS. 24,809 in computation of the profits and gains of its business during the assessment year. The Income-tax Officer, while accepting the method of accounting adopted by the appellant, disallowed the 'claim on the ground that no expenses had actually been incurred and the estimate was only a probable one. The Appellate Assistant Commissioner as well as <ORG> confirmed the disallowance on appeals and <ORG>, on a reference under S. 66(1) of the Income-tax Act held against the appellant. The question was whether the deduction claimed was a legally allowable expense of the year in question. Held, that the liability which was undertaken by the appel- lant under the deeds of sale was an accrued liability and not a contingent one. Although the time of six months was not of the essence of the contract, the undertaking it had given was unconditional and absolute in terms and the liability must be held to have accrued on the execution of the deeds of sale though it was to be discharged at a future date. <CITATION> ,  S-C.R. 950, referred to. <NAME> v. <NAME> (Inspector of Taxes), (1948) 30 T.C. 496. distinguished. 24 186 The difficulty in estimating such a liability for purposes of debit under the mercantile system of accounting could be no ground for treating an accrued liability as a conditional one, since it was always open to the Income-tax authorities to arrive a proper estimate thereof having regard to all the circumstances of the case. <ORG> v. <NAME> (Inspector Taxes), [19481 A.C. 459, referred to. Regard being had, therefore, to the accepted commercial practice and trading principles, the estimated deduction, even if it did not come under any of the specific provisions Of S. 10(2) of the Act, was certainly an allowable deduction under s. 10(1) of the Act, there being no prohibition, either express or implied, against it in the Act and, consequently, the question must be answered in the affirmative. <CITATION> , (1958) 34 I.T.R. 10 ; Russel v. <ORG>, (1888) 13 App. Cas. 418 ; <ORG>, v. <NAME>, (1892) 3 T.C. 185; <ORG> <CITATION> , (1913) L.R. 58 .A. 239 and <CITATION> , (1932) L.R. 59 I.A. 290, referred to. JUDGMENT:

Civil, APPELLATE JURISDICTION: Civil Appeal No. 213 of 1955. Appeal from the judgment and order dated June 26, 1953 of <ORG> in I.T.R. No. 34 of 1952. <NAME>, <NAME> and <NAME>, for the appellant.

<NAME> and<NAME>, for the respondent. 1959. May 12. The Judgment of the Court was delivered by BHAGWATI J.-This appeal with a certificate under Art. 135 of the Constitution read with s. 66A(2) of the Indian Income- tax Act raises the question as to whether the appellant ",as entitled to a deduction of Rs. 24,809 in the computation of its profits and gains for the assessment year 1948-49. The appellant deals in land and property and carries on land developing business and in the course of the said business, it buys land, develops it so as to make it fit for building purposes and sells it at a profit in plots. The developments undertaken are in the main, that roads are to be laid out, a drainage system to be provided and street lights installed and they are to be maintained till the sample are taken over by the <ORG>. The whole of the development is not carried out before the land is sold, nor the whole of the sale price received in cash at the time of the sales. The procedure followed is that when a plot is sold, the purchaser pays about 25 % of the purchase price in cash and undertakes to pay the balance with interest at a certain rate in ten annual installments which he secures by creating a charge on the land purchased. The appellant, in its turn, undertakes to carry out the developments within six months from the date of the, sale but this time is not of the essence of the contract and what the appellant undertakes is to carry out the 'developments within a reasonable time. The tinderbox is incorporated in the deed of sale itself, whereas the security is given by the purchaser by means of a separate document.

In the accounting year relating to the assessment year 1948- 49 the appellant sold a number of plots and received a portion of the sale price from the purchasers according to the scheme mentioned above. The appellant maintains its accounts in the mercantile method under which money not actually received but only treated as received on the basis that it was due and receivable is entered in the books of account on the credit side. Even though the appellant did not receive the whole of the price, viz., Rs. 43,692-11-9, it entered in the credit side of its books of account the whole of that sum representing the full sale price of the lands sold during the accounting year though only a sum of Rs. 29,392-11-9 was actually received in cash from the purchaser and the balance of Its. 14,300 represented the unpaid balance retained by the purchasers the payment of which was secured by creating charge on the said lands as also the interest received or receivable in the year of account tinder the deeds of charge. The whole of this sum of Rs. 43,692-11-9 was, however, credited in the books of account by the appellant according to the mercantile system of accounting adopted by it.

In so far as under the terms of the deeds of sale the appellant had undertaken to carry out the developments within six months from the date of sale it estimated a sum of Rs. 24,809 as the expenditure for the developments to be carried out in respect of the plots which had been sold during the year and debited the same in its books of account on the ground that the liability for the said sum of Rs. 24,809 had actually arisen, the appellant being bound to provide the facilities it had undertaken to do, even though no part of that amount represented any expenditure actually made during that year.

In the course of its assessment to income-tax for the year 1948-49, the appellant claimed a deduction of the said sum of Rs. 24,809 in the computation of the profits and gains of its business. The Income-tax Officer disallowed that claim on the ground that the expenses had not been actually incurred in the year of account and also on the ground that the estimate had not been proved to be based on a consideration of the real expenses which the Company would have to incur for the purpose. The Appellate Assistant Commissioner, on appeal, confirmed the disallowance by the I.T.O. on the ground that there was as yet no accrued liability and on the further ground that as the development would be carried out in the future, the expenditure estimated at current prices could not be allowed. On appeal taken by the appellant before <ORG>, the <ORG>, held that it was by no means certain what the actual cost would be when the developments were carried out and that although the appellant had undertaken to carry out certain developments, it could bring expenses into account only when the expenses were actually incurred. The <ORG> accordingly dismissed the appeal.

The appellant thereafter made an application before the <ORG> requiring it to refer to <ORG> under s. 66(1) of the Income-tax Act certain questions of law arising out of its order. The <ORG> thereupon stated a case and referred the following question to <ORG> for its decision:-

Whether on the facts and circumstances stated above, the sum of Rs. 24,809 can legally be allowed as an expense of the year under consideration."

The statement of case drawn by the <ORG> was severely criticized by <ORG> as under: -

" Unfortunately, the treatment of the question by the authorities below has been of a somewhat summary character, presumably because it was raised and argued before them in a superficial form. But even if such was the case, there is hardly any justification for the <ORG> failing to realise it least what facts were required to be found and stated. The statement of case is sketchy and bare and like most of the statements we have to deal with during this session, has hardly any appearance of a case seriously stated." In spite of the above observations <ORG> dealt with the question and after dealing exhaustively with the arguments which were urged be-fore it by the learned Counsel for the appellant answered the question in the negative. On an application made by the appellant, however, <ORG> granted the requisite certificate under Art. 135 of the Constitution to appeal to this <ORG> and lience, this appeal.

The question which really arises for our determination in this appeal is whether having regard to the fact that the appellant's method of accounting, viz., the Mercantile method was accepted by the Income Tax Officer and the receipts appearing in the books of account included the unpaid balance of the sale price of the plots in question, the amount of liability undertaken by the appellant to earn those receipts was to be deducted even if there had not been actual disbursement made by it during the accounting year. Put in other words, the question was whether in view of the fact that the sum of Rs. 43,692-11-9 had been entered on the credit side in the books of account even though it was not money actually received but only money treated as received on the basis that it. was due and receivable, the sum of Rs. 24,809 which had been entered as debit, being the liability of the appellant undertaken by it to earn those receipts, should be deducted in determining the taxable profits and gains of the appellant.

The mercantile system of accounting is well-known and this method has been explained in a judgment of this Court in <CITATION> (1). " That system brings into credit what is due, immediately it becomes legally due and before it is actually received and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed. "

The main ground on which the claim of the appellant for deducting this sum of Rs. 24,809 ",as disallowed by all the authorities below was that the expenditure was not actually incurred in the year of account, it was by no means certain what the actual cost would be when the developments "-are carried out and that there was as yet no accrued liability but only a contingent liability undertaken by the appellant, even though the undertaking was incorporated in the deeds of sale themselves.

The following were the developments undertaken to be carried out by the appellant as appears from the order of the Appellate Assistant Commissioner:-

" There was a condition in the Conveyance deeds that the appellant does hereby covenant with the purchaser that the appellant shall complete the construction of roads, drains, provide suitable pucca surface drains on both sides of the roads and shall also make arrangements for lighting up the said roads and shall maintain the said roads, drains, lights till the same are taken over by the Municipal Besides provision for roads, drains, etc., t~he ~Deed provides for filling u~p of low lands and there is a clause in the Conveyance Deed which shows that the ~appellant's shall at his own cost ~fi.11 the low lands and tank with earth and bring the same to road level. "

(~1) II9531 ~S.C.R. ~95o, 958~-

This undertaking having been incorporated in the deeds of sale themselves there was certainly a liability undertaken by the appellant to carry out these developments within six months from the dates of those deeds. Time was of course not of the essence of the contract and the appellant therefore was at liberty to carry out that undertaking within a reasonable time. That, however, did not absolve it in any manner whatever from carrying out the undertaking and the purchasers were in a position to enforce the undertaking by taking appropriate proceedings in that behalf. Reliance was placed on behalf of the <ORG> on the case of <ORG> v. <NAME> (Inspector of Taxes) (1) in which a distinction was drawn between an actual i.e., legal liability, which is deductible, and a liability which is future or contingent and for which no deduction can be made. The facts of that case were that the Company which carried on the business of managing factory canteens, had contracted with a factory owner to maintain the crockery, cutlery and utensils used in the canteen otherwise known as the light equipment in its original quantity and quality. The cost of replacement was admittedly a proper deduction in computing profits, as was also any sum paid to a factory owner in settlement of the value of shortages on termination of the contract. Owing to war and. other circumstances it was impossible or impracticable for the Company to obtain replacements in some cases, and the obligations under the contracts with the factory owners in those cases still remained to be performed. in the accounts for the year deductions had been made both of the amounts actually expended on replacements and the amounts which the company was liable to expend when the equipment became available. The Company claimed to be entitled to deduct in computing its profits amounts representing at current prices, the liability to effect replacements as soon as the required equipment became obtainable. The former amounts were allowed as deductions, and the latter <ORG> (reversing the decision (1) (1948) 30 T.C. 496.

of the <ORG> below) held not to be deductible. The basis of the decision was that the real liability under the contract was contingent, not actual, since the obligations of the company were not such that it might be sued for the cost of 'replacements at current prices, but only for possible damages for breach of contract in the event of the factory owner preferring a claim under the contract, and since no legal liability could arise until such a claim was made, the liability had-to be regarded as contingent and not deductible.

It is clear from the above that on the facts and circumstances of that case the <ORG> held that it was not an accrued liability but was merely a contingent one and if that was the case only the sums actually expended could be deducted and not those which the company was liable to expend in the future.

<NAME> in his " Income-tax ", Second Edition, Vol. II, at p. 204 under the caption " Accrued Liability " observes as under, after citing the case mentioned above:-. "In cases, however, where an actual liability exists, as is the case with accrued expenses, a deduction is allowable; and this is not affected by the fact that the amount of the liability and the deduction will subsequently have to be varied. A liability, the amount of which is deductible for income-tax purposes, is one which is actually existing at the time of making the deduction, and is distinct from the type of liability accruing in <ORG> v. <NAME> (lnspector of Taxes) which although allowable on accountancy principles, is not deductible for the purpose of income-tax. "

Approaching the question before us in the light of the observations made above we have got to determine what was the nature of the liability which was undertaken by the appellant in regard to the development of the lands in question, whether it was an accrued liability or was one which was contingent on the happening of a certain event in the future.

There is no doubt that the undertaking to carry out the developments within six months from the dates of the deeds of sale was incorporated therein and that undertaking was unconditional, the appellant binding itself absolutely to carry out the same. It was not dependent on any condition being fulfilled or the happening of any event, the only condition being that it was to be carried out within six months which in view of the fact that the time was not of the essence of the contract meant a reasonable time. Whatever may be considered a reasonable time under the circumstances of the case, the setting up of that time limit did not prescribe any condition for the carrying out of that undertaking and the undertaking was absolute interms. If that undertaking imported any liability on the appellant the liability had already accrued on the dates of the deeds of sale, though that liability was to be discharged at a future date. It was thus an accrued liability and the estimated expenditure which would be incurred in discharging the same could very well be deducted from the profits and gains of the business. Inasmuch as the liability which had thug accrued during the accounting year was to be discharged at a future date the amount to be expended in the discharge of that liability would have to be estimated in order that under the mercantile system of accounting the amount could be debited before it was actually disbursed.

The difficulty in the estimation thereof again would not convert an accrued liability into a conditional one, because it is always open to the Income-tax authorities concerned to arrive at a proper estimate thereof having regard to all the circumstances of the case. That it can be so done is illustrated by <ORG> v <NAME> (Inspector of Taxes) (1) where a particular asset which could not be immediately realised in a commercial sense was valued in money for income-tax Purposes in the year of its receipt and it was observed by Viscount Simon:- " It seems to me that it is not correct to say that an asset, such as this block of shares, cannot be valued in money for income-tax purposes in the (1) [1948] A.C. 459, 469.

year of its receipt because it cannot, in a commercial sense, be immediately realized. That is no reason for saying that it is incapable of being valued, though, 'if its realization cannot take place promptly, that may be a reason why the money figure set against it at the earlier date should be reduced in order to allow for an appropriate interval. Supposing, for example, the contract conferring the asset on the taxpayer included a stipulation that the asset should not be realized by the transferee for five years, and that if an attempt was made to realise it before that time, the property in it should revert to the transferor. This might seriously reduce the value of the asset when received, but it is no reason for saving that when received it must be regarded as having no value at all. The Commissioners, as its seems to me, in fixing what money equivalent should be taken as representing the asset, must fix an appropriate money value as at the end of the period to-which the appellant's accounts are made up by taking all the circumstances into consideration."

As in the case of assets received during the accounting year which could not be immediately realized in a commercial sense, so in the case of liabilities which have already accrued during the accounting year, though they may not have to be discharged till a later date. It will be always open to the Income-tax authorities to fix an appropriate money value of that liability as at the end of the accounting period by taking all the circumstances into consideration and the estimate of expenses given by the assessee would be liable to scrutiny at their hands having regard to all the facts and circumstances of the case.

<ORG> was, therefore, clearly in error when it stated:-

" In view of all the circumstances of the case it must in my opinion, be held that the amounts of sale-price, not received in cash, were also received and for the purpose of earning the receipts the assessee spent, besides giving the lands, nothing more than a promise. Since the whole amount was actually received in the year of account before and without making the promised expenditure, no question of allowing a deduction of any expenditure from such receipts of the year arises."

If then the estimated expenses which would have to be incurred in duly discharging that liability which was undertaken by the appellant and was incorporated in the deeds of sale could be deducted in accordance with the mercantile system of accounting adopted by the appellant and accepted by the I.T.O., is there anything in the Income-tax Act which would prevent this debit being allowed as a deduction in the computation of the profits and gains of the appellant's business? The appellant, had, it appears, claimed this deduction as and by way of expenditure wholly laid out for the purposes of its business under s. 10(2)(xv) of the Income-tax Act. On an interpretation of that provision, <ORG> was inclined to hold, though it did not decide the question, that to the extent that a definite liability had accrued about which all preliminary proceedings causing the accrual of the liability in a concluded form had already been gone through although the actual disbursement had not yet taken place, s. 10(2)(xv) would cover accrued liabilities though the amount may not actually have been expended on the footing that the liability being certain, the amount was as good as spent and on that basis there would be room in the clause for debits which are proper debits under the mercantile system of accounting. It, however, distinguished the present case on the ground that the liability here was a floating liability, the measure of which depended upon the will of the appellant and the discharge of which rested only in a promise and that the expenses were entirely at large and the development work itself merely so.

Apart, however, from the question whether s. 10(2) (xv) of the Income-tax Act would apply to the facts of the present case, the case is in our opinion, well within the purview of s. 10 (1) of the Income-tax Act . The appellant here is being. assessed in respect of the profits and gains of its business and the profits and gains of the business cannot be determined unless and until he expenses or the obligations which have been incurred are set off against the receipt's The expression profits and gains has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipts is deducted therefrom- whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date. As was observed by Lord <NAME> in <NAME> v. <ORG>('):

" The duty is to be charged upon I a sum not less than the full amount of the balance of the profits or gains of the trade, manufacture, adventure, or concern'; and it appears to me that that language implies that for the purpose of arriving at the balance of profits all that expenditure which is necessary for the purposes of earning the receipts must be deducted, otherwise you do not arrive at the balance of profits, indeed, otherwise you do not ascertain, and' cannot ascertain, whether there is such a thing as profit or not. The profit of a trade or business is the surplus by which the receipts from the trade or business exceed the expenditure necessary for the purpose of earning those receipts. That seems to me to be the meaning of the word " profits " in relation to any trade or business. Unless and until you have ascertained that there is such a balance, nothing exists to which the name " profits can properly be applied."

A similar opinion was expressed in <ORG> V. Styles (2) :-

" When we speak of the profits or gains of a trader we mean that which he had made by his trading. Whether there be such a thing as profit or gain can only be ascertained by setting against the receipts the expenditure or obligations to which they have given rise."

These are no doubt observations from the English cases dealing with English statutes of Income-tax, but the general principles which can he deduced therefrom (1) (1888) 13 App. Cas. 418, 424 (2) (1892) 3 T. C. 185 are, nevertheless, applicable here and it was stated by Lord <NAME> in <CITATION> (1) " English authorities can only be utilised with caution in the consideration of Indian Income-tax cases owing to the difference in the relevant legislation, but the principle laid down by Lord Chancellor <NAME> in <ORG> v. <NAME> (supra), is of general application unaffected by the specialities of the <ORG> system. " The thing to be taxed", said his Lordship, "is the amount of profits or gains ". The word " profits ", I think, is to be understood in its natural and proper sense in a sense which no commercial man would misunderstand."' It may be useful to observe at this stage that prior to the amendment of the Indian Income-tax Act in 1939, bad and doubtful debts were not treated as deductible allowance for the purpose of computation of profits or gains of a business, <ORG> in the <CITATION> observed:-

" Although the Act nowhere in terms authorises the deduction of bad debts of a business, such a deduction is necessarily allowable. What are chargeable to income-tax in respect of a business are the profits and gains of a year; and in assessing the amount of the profits and gains of a year account must necessarily be taken of all losses incurred otherwise you would not arrive at the true profits and gains."

<ORG> in disallowing the claim of the appellant in the present case only considered the provisions of s. 10 (2)(xv) of the Act and came to the conclusion that on a strict interpretation of those provisions the sum of Rs. 24,809 was not an allowable deduction. Its attention was drawn by the learned Counsel for the appellant to the provisions of s. 10(1) of the Act also but it negatived this argument observing that under the Indian Act , the profits must be (1) (193i) L. R. 58 1. A. 239, 252.

(2) (1932) L. R. 59 I. A. 290, 296.

determined by the method of making the statutory deductions from the receipts and any deduction from the business receipts, if it was to be allowed, must be brought under one or the other of the deductions mentioned in s. 10(2) and that there was no scope for any preliminary deduction under general principles. It was, however, held by this Court in <CITATION> (1) " It is to be noted that while s. 10(1) imposes a charge on the profits or gains of a trade, it does not provide how those profits are to be computed. Section 10(2) enumerates various items which are admissible as deductions, but it is well settled that they are not exhaustive of all allowances which could be made in ascertaining profits taxable under S. 10(1) ."

<NAME>, J., who delivered the Judgment of this Court then proceeded to discuss the cases of <CITATION> (2), <ORG> v. <NAME> (3) and <CITATION> (4), and observed:"

The result is that when a claim is made for a deduction for which there is no specific provision in s. 10(2) , whether it is admissible or not will depend on whether, having regard to accepted commercial practice and trading principles, it can be said to arise out of the carrying on of the business and to be incidental to it. If that is established, then the deduction must be allowed, provided of course there is no prohibition against it, express or implied, in the Act. Turning now to the facts of the present case, we find that the sum of Rs. 24,809 represented the estimated expenditure which had to be incurred by the appellant in discharging a liability which it had already undertaken under the terms of the deeds of sale of the lands in question and was an accrued liability which according to the mercantile system of accounting the appellant was entitled to debit in its books of account (1) (1958) 34 I.T.R. 10, 14.

(2) (1932) L.R. 59 I.A. 290, 296.

(3) (1892) 3 T.C. 185.

(4) (1931) L.R. 58 I.A. 239, 252.

for the accounting year as against the receipts of Rs. 43,692-11-9 which represented the sale proceeds of the said lands. Even under s. 10(2) of the Income-tax Act, it might. possibly be urged that the word " expended was capable of being interpreted as " expendable "or to be expended " at least in a case where a liability to incur the said expenses had been actually incurred by the assessee who adopted the mercantile system of accounting and the debit of Rs. 24,809 was thus a proper debit in the present case. We need not however base our decision on any such consideration. We are definitely of opinion that the sum of Rs. 24,809 represented the estimated amount which would have to be expended by the appellant in the course of carrying on its business and was incidental to the same and having regard to the accepted commercial practice and trading principles was a deduction which, if there was no specific provision for it under section 10(2) of the Act was certainly allowable deduction, in arriving at the profits and gains of the business of the appellant under section 10(1) of the Act, there being no prohibition against it, express or implied in the Act. It is to be noted that the appellant had led evidence before the Income-tax authorities in regard to this estimated expenditure of Rs. 24,809 and no exception was taken to the same in regard to the quantum, though the permissibility of such a deduction was questioned by them relying upon the provisions of s.10(2) of the Act.

It therefore follows that the conclusion reached by <ORG> in regard to the disallowance of Rs. 24,809 was wrong and it should have answered the referred question in the affirmative.

Before we conclude, we are bound to observe that having accepted- the receipts of Rs. 43,692-11-9 in their totality even though a sum of Rs. 29,392-11-9 only was actually received by the appellant in cash, thus making the' appellant liable for income-tax on a sum of Rs. 14,300 which had not been received by it during the accounting year, it was hardly open to the <ORG> to urge that the sum of Rs. 24,809 should not have been allowed as a permissible deduction before arriving at the profits or gains-of the appellant which were liable to tax. Consistently enough with this attitude, the <ORG> ought to have expressed its willingness to treat only a sum of Rs. 29,392-11-9 as the actual receipt of the appellant during the accounting year and made up the computation of the profits and gains of the appellant's business on that basis. The <ORG>, however, did nothing of the sort and insisted upon having its pound of flesh, asking us to delete the whole of the item of Rs. 24,809 from the debit side of the account which it was certainly not entitled to do.

We accordingly allow the appeal, set aside the judgment of <ORG> and answer the referred question in the affirmative. The respondent will of course pay the appellant's costs throughout.

Appeal allowed.