<NAME>, J.

1. This is an appeal from the decision of <ORG> at Fort William in Bengal, dated November 25, 1924, by which the judgment of the Subordinate Judge of Asansol in Zillah Burdwan, dated February 5, 1923, was reversed and the suit dismissed with costs. The appellant prays that the decision of <ORG> should be reversed and that of the Subordinate Judge restored.

2. The material facts are as follows:-The appellant is the receiver of the estate of <NAME>, who was adjudicated an insolvent on February 21, 1914, by the District Judge of Bankura who, by the same order, appointed a receiver of <NAME>'s estate. <NAME> was the son of <NAME>, who, in February 1913, had executed a mortgage for the sum of Rs. 40,000 in favour of the defendants over certain properties that belonged to him. He failed to pay the mortgage interest, and on January 11, 1913, the mortgagees instituted a suit for foreclosure of the mortgage. After some procedure to which it is unnecessary to refer, a solenamah was executed by the mortgagor and mortgagees under which it was agreed that the time for payment of the mortgage debt should be extended on the undertaking of the mortgagor to pay the interest regularly every year within the month of Chaitra. Failing such payment the mortgagees were to be entitled to foreclose. This solenamah (or deed of compromise) was filed by the mortgagees on March 6, 1915, but before any order was made the mortgagor, <NAME>, died on September 7. On his death it is matter of admission that the properties subject to the mortgage or the equity of redemption therein devolved by inheritance on the insolvent <NAME>.

3. By Act III of 1907, which contains the law applicable to the facts of the case, it is provided, Section 16, Sub-section 4, as follows :- "All such property as may be acquired by or devolve on the insolvent after the date of an order of adjudication and before his discharge shall forthwith vest in the <ORG> or Receiver and become divisible among the creditors in accordance with the provisions of Sub-section 2, Clause (a)." This provision is perfectly clear. The moment the inheritance devolved on the insolvent <NAME>, who was still undischarged, it vested in the receiver already appointed, and he alone was entitled to deal with the equity of redemption. The alternative in the section applicable to vesting in the <ORG> was no doubt inserted to provide for the case of a receiver not being appointed at the same time as the adjudication of insolvency was made and to foreclose an argument that vesting was suspended until the actual appointment of a receiver. The difficulty suggested by <NAME> is thus entirely unsubstantial. The <ORG> only acts through a receiver, and any estate acquired by or devolving on an insolvent is vested in him as from the date of acquisition or devolution whatever the date of the receiver's actual appointment.

4. The mortgagor was of course a necessary party to the suit for foreclosure, Civil Procedure Code, Order XXXIV, Rule 1, and, as on his death his interest devolved on the receiver in the insolvency of <NAME>, the plaintiffs became entitled to continue the suit by leave of the <ORG> against the receiver, Order XXII, Rule 10. Instead of adopting this procedure, they chose to transact with the insolvent exactly on the same footing as if he were still undivested, and obtained from him a ratification of the deed of compromise. Proceeding on this, as the interest stipulated had not been paid, they obtained a preliminary decree against him on March 15, 1916, and notwithstanding the subsequent intervention of the receiver, to which reference is subsequently made in detail, a final decree was pronounced on August 31 by which <NAME> was debarred from all right to redeem the mortgaged property.

5. This procedure is said to be justified by the terms of Section 16, Sub-section 5, of the Act already referred to, which runs as follows:- "Nothing in this section shall affect the power of any secured creditor to deal with the security in the same manner as he would have been entitled to realise or deal with it if this section had not been passed." The learned Judges of <ORG> interpret this clause as inferring that the secured creditor is entitled to deal with the security as though there had been no vesting in the <ORG> or the receiver. Their Lordships are clearly of opinion that this construction of the clause cannot be supported. That the rights of the secured creditor over a property are not affected by the fact that the mortgagor or his heir has been adjudicated an insolvent is, of course, plain, but that does not in the least imply that an action against him may proceed in the absence of the person to whom the equity of redemption has been assigned by the operation of law. The latter alone is entitled to transact in regard to it, and he, and not the insolvent, has the sole interest in the subject matter of the suit. To him, therefore, must be given the opportunity of redeeming the property. The contrary view would encourage collusive arrangements between the secured creditor and the insolvent and might involve the sacrifice of valuable equities of redemption which ought to be made available for the benefit of the unsecured creditors of the insolvent with whose interest the receiver is charged. On this point their Lordships are in entire accord with the opinion of the Subordinate Judge.

6. The ratification by <NAME> of the deed of compromise on which the decree against him proceeded was therefore a nullity, and the whole proceedings by which he was made a party to the suit were equally ineffective to bind the equity of redemption vested in the receiver.

7. Counsel for the respondents was unable to adduce any argument in support of the above ground of decision of <ORG>. He, however, strenuously maintained that the second ground, which is only expounded in the judgment of <NAME> was well founded. This is in effect a plea of res judicata, and is based on the intervention of the receiver in the former suit. Having learned that the preliminary decree of March 15, 1916, had been passed against <NAME>, he filed two petitions on April 11 and 16, 1916. In these he contended that he and not <NAME> should have been substituted for the deceased <NAME>. He accordingly prayed that the Court should set aside the preliminary decree and make him a party in the suit as receiver, and to try the suit in his presence. It is admitted that he was never made a party-obviously on the ground that the Subordinate Judge took the same erroneous view of his rights as the Judges of <ORG> in the present case. He was, however, heard on his petitions, and his objections to a final decree were repelled. In effect, therefore, it was urged that a decision had been given against him on the same argument which he has submitted here, and not merely so but that he had appealed to <ORG>, who had found the appeal incompetent-not specifically on the ground that he was not a party to the suit, but on a special ground, of the soundness of which their Lordships have no means of forming an opinion. All this, however, will not avail the respondents. The decree, which is pleaded as constituting res judicata, on the face of it bears that it was pronounced in a suit to which the appellant was not a party, and therefore does not come within the rule as to res judicata in Section 11 of the Civil Procedure Code, which only applies to matters which were in issue in a former suit between the same parties. The refusal to make the appellant a party to the suit cannot be treated as having the same effect as an order to the opposite effect, although it is plain enough from the judgments that if he had been made a party the result would have been the same in both the <ORG> in which he was heard on his petitions. It was suggested that the receiver ought to have appealed from the decision of <ORG> to <ORG>, but whether such an appeal at the instance of a person who was not a party to the suit would have been entertained may well admit of doubt. In any case the appellant, who had done his best to be made a party to this suit and had failed, was quite entitled to proceed on the view that the decree against <NAME> was not binding on him, and to take action in his own name to vindicate the equity of redemption as he has now done.

8. Their Lordships accordingly will humbly advise His Majesty that the appeal be allowed, that the decision of <ORG> be reversed, and that of the Subordinate Judge restored-the appellant to have his costs in the Courts in India and of this appeal.


JUDGMENT <NAME>, J.

1. This is an appeal against an order of the learned Company Judge in proceedings arising during the course of liquidation of <ORG> This <ORG> prior to its liquidation had rented a building belonging to the appellant in the city of Agra at a monthly rent of Rs. 325/- plus Rs. 10/- as house water tax. A portion of the demised premises was let out by the <ORG> to the proprietor of a hotel called <ORG> and the rest was occupied by the <ORG> itself and some of its officials also resided in the premises.

The rent was not paid regularly and the appellant brought a suit No. 810 of 1949, in <ORG> at Agra on 3-9-1949 for the recovery of rent for the months of July, August and September 1949 and on 5-9-1949 obtained an order of attachment before judgment of the furniture etc. belonging to the <ORG> and the same was by the consent of parties kept locked in the <ORG>ing Hall of the premises under the seal of the <ORG>.

On a petition presented on 30-9-1949, the <ORG> was wound up by an order dated 16-12-1949 and Official Liquidators were appointed. On 2-12-1949, a decree was passed in favour of the appellant for arrears of rent for the months of July, August and September. After the winding up order the <ORG> carried on no business in the premises. On the 15th or 16-9-1950 the attached furniture was sold. Two days later, the Official Liquidator asked the appellant to take possession over the building.

As a portion of the building was in the occupation of third parties, the landlord refused to take possession of a portion of the building. Thereafter on 30-11-1950, the appellant by means of an application No. 57 of 1950 under Section 171, Companies Act prayed for permission to file a suit against the <ORG> for arrears of rent accruing after 30-9-1949 up to the date of delivery of possession and for certain other reliefs.

The learned Company Judge, Mr. Justice <NAME>, as he then was, by an order dated 5-1-1951, rejected the prayer of the appellant for permission to file a suit against the <ORG> as the claim could very well be decided in the winding up proceedings and thereafter by consent of parties proceeded to decide the claim himself, acting under the powers conferred on him by Section 45B , <ORG>ing Companies Act , 1949.

This claim was decided on 30-8-1951 and it was held that the appellant was entitled to recover rent from the Official Liquidators at the rate of Rs. 325/- per mensem from 1-10-1949 up to the date on which the Official Liquidators gave the petitioner such possession of the premises as, would in law terminate the <ORG>'s tenancy, that he was also entitled to recover a sum of Rs. 500/-on account of damages to his property, but from this sum, he was by consent, entitled to set off the sum of Rs. 364/- due by him to the <ORG>. Against this order a special appeal was filed by the Official Liquidators. This was numbered as 17 of 1951 and the appellant filed a cross-objection. These were dismissed by us by an order dated 1-9-1955.

2. While this appeal was pending the appellant applied to the Registrar of this Court to transmit the decree passed by the learned Company Judge on 30-8-1951 to the District Judge, Allahabad for execution. The Registrar considering that this was an ordinary decree granted the certificate of transfer and the appellant applied to the District Judge for execution of his decree against the <ORG> by attachment of a sum of Rs. 12,644/11/- which was in fixed deposit with the Allahabad <ORG> Ltd.

3. When the Official Liquidators came to know of this, they applied to the Company Judge by means of an application No. 29 of 1953 dated 21-7-1953 praying that the proceedings in execution pending in <ORG>, Allahabad be declared to be void and further proceedings be stayed and the order of attachment withdrawn.

4. This petition was allowed by the learned Company Judge, Hon'ble Mr. Justice <NAME>, by an order dated 10-2-1954. The learned Judge held that the order of attachment made by the Civil Judge was contrary to law inasmuch as permission for the same had not been obtained under Section 171 , Companies Act and Section 232(1) declared any such attachment affected without leave of the Court to be null and void and that the proper method of executing the decree passed by the former Company Judge, was to approach the Official Liquidators and to obtain from them pro rata payment along with other creditors or, if the opposite party claimed preferential payment, to put forward such claim under Section 230 , Companies Act .

5. An argument had been advanced on behalf of the appellant to the effect that the decree in question having been passed by the Company Judge himself was executable under Section 199 , Companies Act and no permission under Section 171 of the Act was necessary, and the decree could be executed in the ordinary manner. This plea was rejected by the learned Judge.

6. Against this order the appellant has filed the present special appeal and the points urged by him before us are:

1stly that the decree in execution being a decree of <ORG> itself was executable in the same manner as any order or decree of <ORG> under Section 199 , Companies Act , and that therefore no permission under Section 171 , Companies Act was required for the purpose.

2ndly that the decree represented a debt which was incurred by the Official Liquidators after the date of winding up and as such was not liable to be paid pro rata along with the debts due from the <ORG> to the other creditors before the date of winding up.

Lastly that this was a debt which should be treated as costs of the winding up and was therefore payable before any other debt under Section 230(3) , Companies Act .

7. As regards the first point, it may be con-ceded that the order of the learned Company Judge awarding rent and damages to the appellant must be treated as an order to which Section 199 , Companies Act applies and that therefore it could be ''enforced in the same manner in which decrees of such <ORG> made in any suit pending therein may be enforced" as provided for by the section. But this does not prevent the operation of Section 171 as regards the execution of the order. Section 171 lays down that "when a winding up order has been made or a provisional liquidator has been appointed no suit or other legal proceeding shall be proceeded with or commenced against the company except by leave of the <ORG>, and subject to such terms as the <ORG> may impose."

8. Section 171 makes no distinction between a suit or legal proceeding decided by the <ORG> itself or by some other <ORG>. In the present case the appellant's claim for rent was, by consent of parties, decided by the Company <ORG> itself. It will be assumed that the leave of the <ORG> was implicit so far as the proceeding in this <ORG> was concerned. But no such implied leave can be inferred for the initiation of the execution proceedings in the <ORG> of the District Judge.

Before the execution proceedings could be instituted, leave of <ORG> was necessary under Section 171 . The object of Section 171 is to vest the control of all suits or legal proceedings against a <ORG> under liquidation in the <ORG> in which winding up proceedings are pending, so that the creditors of the <ORG> may not be deprived of their just dues upon a pro rata distribution, by one creditor taking away the whole or a portion of the assets of tine <ORG>, without submitting himself to the pro rata distribution.

After the passing of the order of winding up or of the appointment of the provisional liquidator, all the property and effects of the <ORG> are deemed to be in the custody of the <ORG> as from the date of the order of winding up of the <ORG> (S. 178 (2)) and the Official Liquidator is directed to take into custody or in his control all such property for the purposes of winding up.

It would be very anomalous therefore if the property and effects of the <ORG> which is being wound up by the <ORG> are to be taken away without leave of the <ORG> by a claimant who does not come forward to prove his claim in the winding up. The law, therefore, provides that all suits or legal proceedings shall not be commenced or proceeded with against the <ORG> except by leave of the <ORG> in which winding up proceedings are pending.

Section 171 does, therefore, apply even to the order of the <ORG> which is sought to be enforced not by a petition in the winding up but by instituting execution proceedings in some other <ORG>. It is immaterial in such cases that the claim or debt which is the subject-matter of the suit or other legal proceeding came into existence after the date of winding up.

9. The execution proceedings initiated by the appellant in the Civil Judge's <ORG>, therefore, were void, being in contravention of Section 171 . It was not disputed before us that the word 'proceedings' used in Section 171 includes execution proceedings also. According to the provisions of Section 232 , Companies Act the attachment made under the orders of the learned Civil Judge not having been effected with the leave of the <ORG>, must be held to be void.

10. As regards the second point raised on behalf of the appellant, the position is this. Sec-tion 228, Companies Act and Rule 98 of the <ORG> Rules made by this <ORG>, vide Ch. XXVIII of the Rules of the <ORG> at p. 251, contemplate that all the debts and claims against the <ORG> shall, so far as may be, be estimated according to the value thereof at the date of the order of winding up of the company and under Section 229 , they are to be paid pro rata as insolvency proceedings. Rule 97 of the <ORG> Rules, however, provides as follows : --

"When any rent or other payment falls due at stated periods, and the order or resolution to wind up is made at any time other than one of such periods, the persons entitled to the rent or payment may prove for a proportionate part thereof up to the date of the winding up order or resolution as if the rent or payment grew due from day to day;

Provided that where the Official Liquidator remains in occupation of premises demised to a company which is being wound up, nothing herein contained shall prejudice or affect the right of the landlord of such premises to claim payment by the company, or the Official Liquidator, of rent during the period of the company's or the Official Liquidator's occupation."

The proviso to the rule is clear. The landlord's right to claim payment of the rent which falls due after the date of winding up on account of the Official Liquidator remaining in occupation of the premises demised to the Company which is being wound up, is not affected or prejudiced by anything in the Company Rules. This clearly means that such rent is not to be classed with the debts due from the Company up to the date of winding up, and instead of being paid pro rata along with such debts, is to be paid in full.

The reason appears to be obvious. The Official Liquidator is empowered to disclaim a property which he does not wish to retain because it is onerous and not profitable or not necessary for the purposes of winding up, see Section 230A , Companies Act . If he neglects to do so, the landlord should not be made to suffer loss. This rule appears to be based upon the observations of <NAME> in In re, <ORG>; Ex. parte Roberts and <NAME>, (1881) 18 Ch. D. 649 (A). Said the learned Judge.

"In like manner, a lessor is for many purposes an independent person. His rights ought not to be interfered with, more than is necessary, by reason of his lessee having become insolvent, and having chosen (to use the Lord Justice's expression) to have a winding up .....

A mortgagee and a lessor, although intone sense independent persons, are nevertheless creditors of the company in respect of any amount due on the mortgage or on the lease at the date of the winding up, and, as such creditors, they ought, in my judgment, to have neither preference nor priority.

In respect of any rights arising after the winding up by reason of the company or the liquidators remaining in possession of the demised or of the mortgaged premises, they ought, in my judgment, to be treated as independent persons, and if the company or the liquidator choose to remain in possession of the demised or mortgaged premises, they must so remain upon the terms and conditions of the instrument; just as any other person must observe those terms.

In that way, then, I draw the line at the commencement of the winding up; and I hold that all claims of creditors before that date should be dealt with upon the principle of equality; but that with regard to the rights after that, the company is in no better position because it has become insolvent and has had a winding up. That appears to me to be consistent with the current of decision which has drawn the line with regard to the exercise of the power of distress in respect of rent after the winding up; but with respect to rent before the winding up, to allow him only his right to compete with the other creditors by proving in the winding up."

11. I may, however, point out that the current of authority in England appears to be that the lessor is entitled to recover his full rent which became due after the order of winding up only if the premises are occupied by the Official Liquidator for the purposes of the winding up and not otherwise.

In In re <ORG>, Ex parte Perkins, (1881) 17 Ch. D. 158 (B), with reference to the liquidator remaining in occupation of a colliery which had been taken on lease by the Company prior to the winding up, it was observed:

"If he (the liquidator) continued in the possession of the property he could only do so upon the terms of the lease, and it is only equitable, if he keeps the lease as an asset of the company 'and for the purposes' of the liquidation, that he should satisfy those conditions upon which the asset remains his; in other words, he should pay the rent in full." (Italics here in ' ' mine).

12. Mr. Justice <NAME> in In re Oak Pits Colliery Co., (1882) 21 Ch. D. 322 (C) pointed out that:

"No authority has yet gone the length of deciding that a landlord is entitled to distrain for or be paid in full rent accruing since the commencement of the winding up, where the liquidator has done nothing except abstain from trying to get rid of the property which the company holds as lessee. If the landlord had endeavoured to re-enter and the liquidator had objected, the case might be different."

The facts found in that case were that the liquidator left the company's plant & machinery where he found them until he sold in July 1881; that he had them valued in May, 1880, with a view to a sale which was not carried out; and that he took no steps to surrender the company's interest in the Oak Pits Colliery and 133 acres to the landlord. On these facts it was held that they were toot sufficient to entitle the landlord either to distrain or to be paid in full. This decision was followed in In re Levi & Co. Ltd., (1919) 1 Ch. 416 (D).

13. If I were to apply the principle laid down in the case of <ORG> (C), I would have held that in the present case the liquidator remained in occupation of the premises not for the purposes of winding up but because he could not think of any suitable method of getting rid of the premises in spite of all his desire to do so.

It has been noted above that he asked the landlord to take over possession of the premises on 10-9-1950 but the landlord refused to do that. He was making no use of the premises. Some persons were occupying some portions of the building forcibly. He attempted to dislodge them. In one instance he did ask one of such persons not to pay rent to the landlord after the landlord refused to take over possession from him.

But this appears only because he was not sure what the legal position was. In any case the <ORG> had closed its business and the liquidator was not carrying on the business after winding up and the property was not used by him for the purposes of liquidation.

14. But it appears to me that under the proviso to Rule 97 it is immaterial whether the premises were retained in his occupation by the liquidator for the purposes of winding up or not. If they remained in occupation of the Official Liquidator, the landlord is entitled to receive the rent in full and is not liable to share pro rata along with other creditors.

15. As regards the third points, in view of what has been observed above, the rent in dispute can be claimed in full on the same footing as costs of winding up under Section 230(3) , Companies Act .

16. In the result I would allow this appeal in part, modify the order of the learned Single Judge and direct the Official Liquidators to pay to the appellant in full the amount that has fallen due to him from 1-10-1949. In other respects the order of the learned Single Judge will stand.

<NAME>, J.

17. I agree BY THE COURT:

18. We allow this appeal in part, modify the order of the learned single Judge and direct the Official Liquidators to pay to the appellant in full the amount of arrears of rent due to him from 1-10-1949 till the date on which the tenancy was terminated. In other respects the order of the learned single Judge will stand. The appellant is entitled to his costs of this appeal.


PETITIONER: JAIN INK MANUFACTURING COMPANY Vs<ORG> RESPONDENT: LIFE INSURANCE CORPORATION OF INDIA & ANR<ORG> DATE OF JUDGMENT22/08/1980 BENCH: FAZALALI, SYED MURTAZA BENCH: FAZALALI, SYED MURTAZA CHANDRACHUD, <NAME>, A<ORG>D<ORG> CITATION: 1981 AIR 670 1981 SCR (1) 498 1980 SCC (4) 435 CITATOR INFO : D 1988 SC1708 (23) RF 1991 SC 855 (45) ACT: Public Premises (Eviction of Unauthorised occupants) Act, 1971, S<ORG> 2(2)(g)- Unauthorised occupation of public premises-Tenant in possession before the premises became public premises-Eviction whether can be ordered under the Act<ORG> Public Premises (Eviction of Unauthorised occupants) Act, 1971, Delhi Rent Control Act , 1958  & Slum Areas (Improvement and Clearance) Act 1956-over-riding effect of Acts-No conflict as scope and objects of Acts are different-Premises Act whether prevails over Rent Act <ORG> HEADNOTE: The <ORG> (respondent No<ORG> 1) purchased a building at a court auction<ORG> The appellant was inducted as a tenant by the prior owner of the premises<ORG> The <ORG><ORG>C<ORG> gave notice under section 106 of the Transfer of Property Act directing the appellant to vacate the premises<ORG> As the appellant did not vacate the premises the <ORG> filed a complaint with the Estate Officer, <ORG> (respondent No<ORG> 2) under the provisions of the Public Premises (Eviction of Unauthorised occupants) Act 1971, who issued a notice to the appellant under section 4(1) of the Act to show cause why the appellant be not evicted<ORG> Before the Estate Officer the appellant raised preliminary objections which related to th equestion of jurisdiction of the Estate Officer to proceed under the Premises Act<ORG> The Estate Officer decided the question against him and <ORG> confirmed the order<ORG> In appeal to this Court on behalf of the appellant it was contended: (1) The appellant could not be described as an 'unauthorised occupant' within the meaning of section 2(2)(g) of the 1971 Act because he had entered into possession of the premises long before they were purchased by the <ORG>; (2)(i)<ORG> The Premises Act of 1971 which had been given retrospective effect from the 16th September, 1958 should be construed as a law having been passed in 1958 and so construed the Rent Act (The Delhi Rent Control Act ) passed in 1959 over-rides the Premises Act; (ii) The Rent Act which is a special law would override the Premises Act and (iii) The intention of the <ORG> in passing the Rent Act as seen from section 3(a) was merely to exclude from its operation only premises belonging to the <ORG> and if the intention was to exclude other premises belonging to corporate bodies or <ORG> then section 3(a) would have been differently worded<ORG> Apart from the Rent Act section, Section 19 of the Slum Areas (Improvement and Clearance) Act, 1956 which is also a Special Act applying only to such places which are declared to be slums under the Act, would override the provisions of both the Rent Act and the Premises Act<ORG> 499 Dismissing the Appeal: ^ HELD: (1)(a) The appellant was undoubtedly in unauthorised occupation of the premises<ORG> [503 D] (b) Section 2(2)(g) does not use the word 'possession' or the words 'entry into possession' at any point of time at all<ORG> The section merely requires occupation of any public premises<ORG> Entry into possession connotes one single terminus, viz<ORG>, the point of time when a person enters into possession or occupies the property whereas occupation is a continuous process which starts right from the point of time when the person enters into possession or occupies the premises and continues until he leaves the premises<ORG> [502 G-H] In the instant case the lease was determined by the landlord by a notice under section 106 of the Transfer of Property Act<ORG> Therefore, there can be no doubt that the appellant was in unauthorised occupation of the premises once the lease was determined<ORG> [503 Cl Raj Kumar Devendra Singh & Anr<ORG> v<ORG> State of Punjab and Ors<ORG>  2 SCR 166 distinguished<ORG> 2(i) The Premises Act was passed in 1971 and came into force on 23rd August, 1971 that is long after the Rent Act was passed in 1959<ORG> The mere fact that by virtue of a fiction the Premises Act was given retrospective effect from 1958 will not alter the date when the Premises Act was actually passed, that is August 23, 1971<ORG> The Premises Act being subsequent to the Rent Act would naturally prevail over and override the provisions of the Rent Act <ORG> [503 G] (ii) The scope and the object of the Premises Act is quite different from that of the Rent Act <ORG> The Rent Act is of much wider application, inasmuch as it applies to all private premises, which do not fall within the limited exceptions indicated in section 2 of the Premises Act<ORG> The object of the Rent Act is to afford special protection to all the tenants or private landlords who are neither a Corporation nor <ORG> or Corporate Bodies<ORG> Even under the Rent Act , a special category has been carved out by section 25B which provides for special procedure for eviction to landlords who require premises for their personal necessity<ORG> Section 25B , therefore, becomes a special law within the Rent Act <ORG> Therefore, the Premises Act as compared to the Rent Act , is a Special Act and overrides the provisions of the Rent Act <ORG> [505 <CITATION>  2 SCR 421 & <CITATION> <ORG>  SCR 603 referred to<ORG> (iii) once the Premises Act becomes a Special Act dealing with the premises belonging to the Central <ORG>, <ORG> and other statutory bodies, the Rent Act stands superseded<ORG> [505 F] 3<ORG> Section 19 of the Slums Act shows that it is in direct conflict with the Premises Act which expressly provides for the forum for evicting persons in unauthorised occupation of premises which fell in section 2 of the Premises Act The Premises Act, being subsequent to the Slums Act, as amended in 1964, and again being a special Act having a very limited sphere, must necessarily override the Slums Act<ORG> [506 D] 500 JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 224 of 1979.

Appeal by Special Leave from the Judgment and Order dated 6-12-1978 of <ORG> in C.W. No. 1361/78.

<NAME> and <NAME> for the Appellant.

<NAME>, <NAME>, <NAME>, <NAME> and Mrs. <NAME> for the Respondents.

The Judgment of the Court was delivered by <NAME>, J.-This appeal by special leave is directed against a <ORG> judgment dated December 6, 1978 of <ORG> and arises under the following circumstances.

The appellant was inducted as a tenant by one <NAME> who was the owner of the premises in question and the rent payable at the time of the tenancy-was Rs 55 per month. The premises were, however, purchased by <ORG> (for short, <ORG>) at a court auction on July 19, 1958 and the appellant in view of the same attorned to the new landlord, namely, the <ORG>. The Delhi Rent Control Act of 1958 (hereinafter referred to as the ' Rent Act ') came into force on February 9, 1959 and on July 24, 1969 the new landlord gave a notice under s. 106 of the Transfer of Property Act to the appellant determining the tenancy. This notice, however, was subsequently withdrawn and after some correspondence with the appellant the rent was increased by the <ORG> from Rs. 55 to Rs. 125 per month. Sometime towards the end of July 1966, the <ORG> gave a fresh notice under s. 106 of the Transfer of Property Act purporting to determine the tenancy. Thereafter, there were some parleys between the <ORG> and the appellant and ultimately the <ORG> agreed to accept the enhanced rent of Rs. 300 per month from the appellant with effect from December 1, 1976. On April 23, 1977 the <ORG> gave another notice under s. 106 superseding the previous notice and directing the appellant to vacate the premises on or before May 31, 1977. As the appellant did not vacate the premises, the <ORG> filed a complaint with respondent No. 2, the Estate Officer, <ORG> under the provisions of the Public Premises (Eviction of Unauthorised Occupants) Act , 1971 (hereinafter referred to as the 'Premises Act'). Thereafter, the second respondent issued a notice to the appellant under s. 4(1) of the Premises Act to show cause why the appellant be not evicted. The appellant appeared before the Estate Officer and raised certain preliminary objections which having been decided against him, the appellant filed a writ petition in <ORG> against the order of the Estate Officer and reiterated the preliminary objections taken by him before the Estate Officer. After considering the preliminary objections which mainly related to the question of jurisdiction of the Estate officer to proceed under the Premises Act, <ORG> overruled all the objections and dismissed the writ petition in limine, though by a reasoned order. Hence, this appeal to <ORG>.

Before dealing with the contention raised by counsel for the respondent we might mention that the proceedings before the Estate officer under the Premises Act have only been stayed and not yet decided on merits because the appellant wanted the Estate officer to decide the question of jurisdiction as a preliminary issue.

In support of the appeal, Mr. <NAME> submitted three main contentions before us. In the first place, he submitted that the provisions of the Premises Act would have no application to the present premises because the appellant could not be described as an unauthorised occupant as he had entered into possession of the premises long before they were purchased by the <ORG>. It was argued that the condition precedent for the assumption of jurisdiction by the Estate officer was that the appellant must be an unauthorised occupant, and if the possession of the appellant was lawful, though the property changed hands subsequently, the appellant could not be dubbed as an unauthorised occupant. In this connection, reliance was placed on a decision of this Court in <CITATION> have gone through the decision cited before us and we find that the provisions of the Punjab Act , which was the subject matter of interpretation by this Court in that case, were substantially and materially different from s. 2(2)(g) of the Premises Act which defines unauthorised occupation. Mr. <NAME>, however, strongly relied on the following observations made by this Court in the case supra:-

"If the appellants were in possession before the date of the sale of the property to the <ORG>, it could not be said that the appellants entered into possession of public premises, for, at the time when they were in occupation of the property, the property was not public premises. Then it was either the joint family property or the property of the Maharaja, namely, <NAME>. The property was not public premises before it was sold to the <ORG>."

If these observations of this Court are torn from the context they may presumably support the argument of the appellant but we have to read these observations in the light of the specific provisions of the Punjab, Public Premises and Land (Eviction and Rent Recovery) Act, 1959 (hereinafter referred to as the ' Punjab Act '). Relevant portion of s. 3 of that Act may be extracted thus:

"For purposes of this Act, a person shall be deemed to be in unauthorised occupation of any public premises:-

(a) where he has whether before or after the commencement of this Act, entered into possession thereof otherwise than under and in pursuance of any allotment, lease or grant." [Emphasis Ours] It would be seen that before a person could be said to be in an unauthorised occupation, the Act required the following conditions:-

(1) that the occupant had entered into possession before or after the commencement of the Act. (2) that he had entered into such possession otherwise than under and in pursuance of any allotment, lease or grant.

That Act , therefore, lays special stress on only one point, namely, the entry into possession. Thus, if the entry into possession had taken place prior to the passing of the Act, then obviously the occupant concerned would not be an unauthorised occupant. What made the occupancy unauthorised was his entry into possession at a particular point of time. It was in construing these provisions that this Court held that if the appellants in that case were in possession before the sale of the property to the Government, their entry into possession could not be said to be unauthorised. These observations, however, would have absolutely no application to the instant case where s. 2(2)(g) defines unauthorised occupation thus:-

"unauthorised occupation', in relation to any public premises, means the occupation by any person of the public premises without authority for such occupation, and includes the continuance in occupation by any person of the public premises after the authority (whether by way of grant or any other mode of transfer) under which he was allowed to occupy the premises has expired or has been determined for any reason whatsoever."

To begin with, it is manifest that s. 2(2)(g) does not use the word 'possession' or the words 'entry into possession' at any point of time at all. The section merely requires occupation of any public premises. Entry into possession connotes one single terminus, viz., the point of time when a person enters into possession or occupies the property whereas occupation is a continuous process which starts right from the point of time when the person enters into possession or occupies the premises and continues until he leaves the premises. What is germane for the purpose of interpretation of s. 2(2)(g) is whether or not the person concerned was in occupation of the public premises when the Premises Act was passed. In the instant case, it is not disputed that the appellant continued to occupy the property even after the Premises Act came into force and in fact accepted the <ORG> as his landlord. In these circumstances, therefore, the case of the appellant squarely falls within the ambit of the definition of 'unauthorised occupation' as contemplated by s. 2(2)(g) . There is yet another aspect of the matter which distinguishes the present case from the language employed in the Punjab Act . Section 2(2)(g) is an inclusive definition and consists of two separate limbs-(1) where a person is in occupation in relation to any public premises without authority for such occupation, and (2) even if the possession or occupation of the tenant continues after the lease is determined. In the instant case, the lease was doubtless determined by the landlord by a notice under s. 106 of the Transfer of Property Act whose validity for purposes of deciding the question of law has not been questioned by the learned counsel for the appellant. Therefore, there can be no doubt that the appellant was in unauthorised occupation of the premises once the lease was determined. The second limb mentioned in s. 2(2)(g) is conspicuously absent from the provisions of the Punjab Act . For these reasons, we overrule the first contention raised by the counsel for the appellant and we hold, agreeing with <ORG>, that the appellant was undoubtedly in unauthorised occupation of the premises.

The second contention put forward by Mr. <NAME> was that in view of the provisions of the Rent Act which override the provisions of the Premises Act, s. 14 of the Rent Act completely bars recovery of possession of any premises except in accordance with the procedure laid down in the Rent Act . It was contended by Mr. <NAME> that although the Premises Act was passed in 1971, it has been given retrospective effect from 16th September 1958 and, therefore, should be construed as a law having been passed in 1958 and as the Rent Act was passed in 1959 it overrides the Premises Act. We are, however, unable to agree with this argument. In the first place, the Premises Act was passed in 1971 and came into force on the 23rd of August 1971, that is to say, long after the Rent Act was passed in 1959. The mere fact that by virtue of a fiction the Premises Act was given retrospective effect from 1958 will not alter the date when the Premises Act was actually passed, that is to say August 23, 1971. In these circumstances, therefore, the Premises Act being subsequent to the Rent Act would naturally prevail over and override the provisions of the Rent Act . It was further contended by Mr. <NAME> that the Rent Act being a special law as compared to the Premises Act, it will override the Premises Act without going into the question as to which of the two Acts were prior in point of time. In support of his contention the counsel relied on a decision of this Court in <CITATION> where this Court observed as follows:

"When two or more laws operate in the same field and each contains a non-obstante clause stating that its provisions will override those of any other law, stimulating and incisive problems of interpretation arise. Since statutory interpretation has no conventional protocol, cases of such conflict have to be decided in reference to the object and purpose of the laws under consideration."

(emphasis supplied) It is true that in both the Acts there is a non-

obstante clause but the question to be determined is whether the non-obstante clauses operate in the same field or have two different spheres though there may be some amount of overlapping. The observations cited above clearly lay down that in such cases the conflict should be resolved by reference to the object and purpose of the laws in consideration. <CITATION> .,(2) this Court made the following observations:-

"It is therefore, desirable to determine the overriding effect of one or the other of the relevant provisions in these two Acts, in a given case, on much broader considerations of the purpose and policy underlying the two Acts and the clear intendment conveyed by the language of the relevant provisions therein."

In the light of the principles laid down in the aforesaid cases we would test the position in the present case. So far as the Premises Act is concerned it operates in a very limited field in that it applies only to a limited nature of premises belonging only to particular sets of individuals, a particular set of juristic persons like companies, corporations or <ORG>. Thus, the Premises Act has a very limited application. Secondly, the object of the Premises Act is to provide for eviction of unauthorised occupants from public premises by a summary procedure so that the premises may be available to the authorities mentioned in the Premises Act which constitute a class by themselves. That the authorities to which the Premises Act applies are a class by themselves is not disputed by the counsel for the appellant as even in the case of <CITATION> . such authorities were held to form a class and, therefore, immune from challenge on Art. 14 of the Constitution. Similarly, the summary procedure prescribed by the Premises Act is also not violative of Art, 14 as held by this Court in  <CITATION> .(1).

Thus, it would appear that both the scope and the object of the Premises Act is quite different from that of the Rent Act . The Rent Act is of much wider application than the Premises Act inasmuch as it applies to all private premises which do not fall within the limited exceptions indicated in s. 2 of the Premises Act. The object of the Rent Act is to afford special protection to all the tenants or private landlords or landlords who are neither a Corporation nor <ORG> or Corporate Bodies. It would be seen that even under the Rent Act , by virtue of an amendment a special category has been carved out under s. 25B which provides for special procedure for eviction to landlords who require premises for their personal necessity. Thus, s. 25B itself becomes a special law within the Rent Act . On a parity of reasoning, therefore, there can be no doubt that the Premises Act as compared to the Rent Act , which has a very broad spectrum, is a Special Act and overrides the provisions of the Rent Act .

It was also suggested by Mr. <NAME> that in view of s. 3(a) of the Rent Act, which is extracted below, it would appear that the intention of the legislature in passing the Rent Act was merely to exclude from its operation only premises belonging to the Government and if the intention was to exclude other premises belonging to corporate Bodies or Corporations, then s. 3(a) should have been differently worded:

"3. Nothing in this Act shall apply:-

(a) to any premises belonging to the Government."

This in our opinion, does not advance the case of the appellant any further because once the Premises Act becomes a special Act dealing with premises belonging to <ORG>, Corporations and other statutory Bodies, the Rent Act stands superseded. We have to consider the provisions of the two Acts, they having been passed by the same legislature, viz., <ORG>, and the rule of harmonious construction would have to apply in such cases.

For these reasons, we overrule the second preliminary objection taken by the appellant.

Lastly, it was argued that apart from the Rent Act , s. 19 of the Slum Areas (Improvement and Clearance) Act, 1956 (hereinafter referred to as the 'Slums Act'), which also would have to be construed as a Special Act applying only to such places which are declared to be slums under the Act, would override the provisions of both the  Rent Act and the Premises Act. This argument appears to us to be without substance. The Slums Act was passed as far back as 1956 and the Premises Act was subsequent to the Slums Act and would, therefore, prevail over the Slums Act. Relevant portion of s. 19 of the Slums Act may be extracted thus:

"19. (1) Notwithstanding anything contained in any other law for the time being in force, no person shall, except with the previous permission in writing of the competent authority,-

(a) institute, after the commencement of the Slum Areas (Improvement and Clearance) Amendment Act, 1964 any suit or proceeding for obtaining any decree or order for the eviction of a tenant from any building or land in a slum area;"

A perusal of s. 19 of the Slums Act clearly shows that it is in direct conflict with the Premises Act which expressly provides for the forum for evicting persons in unauthorised occupation of premises which fell in s. 2 of the Premises Act. The Premises Act being subsequent to the Slums Act, as amended in 1964, and again being a special Act having a very limited sphere, must necessarily override the Slums Act on the same lines of reasoning as we have indicated in the case of the Rent Act . For these reasons, therefore, the last contention put forward by the counsel for the appellant is also overruled. <ORG> had also overruled all these preliminary objections more or less on the same reasons as given by us though not in such details.

It is, however, not necessary for us to remand the matter to the trial court for decision of the case on merits because the Solicitor General having agreed to give two years' time to the appellant to vacate the premises on filing the usual undertaking, the appellant does not want to contest the proceedings before the Estate officer, <ORG> and has undertaken to give vacant and peaceful possession to the respondent on August 1, 1982. Meanwhile, the appellant shall keep on paying the usual rent. The appellant shall also file an undertaking accompanied by an affidavit to the effect that it shall hand over vacant and peaceful possession to the respondent on or before August 1, 1982 and-shall not induct any tenant on the premises. The undertaking shall be filed within three weeks from today. The subject matter of the appeal is accordingly disposed of finally.

N.V.K. Appeal dismissed.


<ORG>, J.

1. There are certain productions of the soil of an estate which, by the Roman law, were regarded as of the character oil fruits or profits, though not falling within the ordinary comprehension of these words. Such were the minerals and stones obtained from pita and quarries--see Digest, Lib. VII, 13, De Verb Sign., 77. Under the modern law, however, Lord <NAME>, in a <ORG> case, said: "What we call a mineral lease is really, when properly considered, a sale, out and out, of a portion of the land"--Gowan v. <NAME> L.R. 2 II.L. (<ORG>.) at p. 284. See also <NAME> v. <NAME> 16 L.J.Q.B. 103. Similarly, we think that the removal of earth from a rice field is distinctly a taking of a portion of the substance, not merely of a profit, of the land. In the present case, the owner of the fields was undoubtedly in possession until the servants of <NAME> came to take away earth for her embankment. He prevented this, and thus retained possession of the whole property, of part of which <NAME>'s people had sought to dispossess him. There had thus been only an attempt, well or ill founded, at dispossession, not an actual dispossession. The person asserting the right was not dispossessed, on her own showing, of anything, only prevented from taking it as she had a right to do. On such a complaint a <NAME> has not jurisdiction.

2. The second clause of Section 4 of the Mamlatdars' Act is intended to guard against disturbances of the possession which the first clause protects as possession. There was no jurisdiction under that clause.

3. We, therefore, set aside the order made by the mamlatdar with costs.


PETITIONER: <ORG>, <NAME> Vs. RESPONDENT: COMMISSIONER OF INCOME-TAX, <NAME> DATE OF JUDGMENT: 08/12/1965 BENCH: <NAME>, S.M. BENCH: <NAME>, S.M. SUBBARAO, K. SHAH, J.C. CITATION: 1966 AIR 1053 1966 SCR (2) 944 CITATOR INFO : F 1967 SC 819 (5) R 1969 SC 840 (11) R 1969 SC 946 (5) E 1969 SC1160 (5) D 1975 SC 97 (20) R 1976 SC 772 (6) R 1986 SC1483 (4) ACT: Indian Income-tax Act , 1922, s. 10(2)(xv) -Loan obtained by company-Stamp duty and other expenditure incurred in obtaining the loan-Whether capital or revenue expenditure- Whether laid out for purpose of business. HEADNOTE: During the accounting period relevant for the assessment year 1950-51 the appellant company obtained a loan of 40 lakhs of rupees from <ORG>. The loan was secured by a charge on the fixed assets of the company. A sum of Rs. 84,633 was shown in the Balance Sheet for the said accounting year as mortgage loan expenses; the sum was not charged as expenditure in the profit and loss account. In the accounts for the accounting year ending March 31, 1953, this sum was written off by appropriation against profits of that year. The Income-tax Officer disallowed the deduction; he held that the expenditure was incurred in obtaining capital and should be distinguished from interest on borrowed capital which alone was admissible as a deduction under s. 10(2)(iii) . In his view the expenditure was of a capital nature and therefore not admissible under s. 10(2)(xv) either. After intermediate proceedings <ORG> in reference gave a finding upholding the view of the Income-tax Officer. The appellant by special leave, came to this Court. It was contended on behalf of the appellant that : (1) the expenditure in question was not incurred to acquire any asset or advantage of an enduring nature; (2) it was applied wholly and exclusively for the purposes of the business; and (3) was admissible as a deduction under S. 10 (2) (xv). HELD : In the circumstances of the case the expenditure in question was revenue expenditure within s. 10(2)(xv) . (i)When there is no express prohibition, an outgoing, by means of which an assessee procures the use of a thing by which it makes a profit, is deductible from the receipts of the business to ascertain taxable income. On the facts of the instant case, the money secured by the loan was the thing for the use of which this expenditure was made. In principle, apart from any statutory provisions, there is no distinction, as drawn by the Income-tax Officer, between interest in respect of a loan and an expenditure incurred for obtaining the loan. [950 G-H] (ii)A loan obtained cannot be treated as an asset or advantage for the enduring benefit of the business of the assessee. A loan is a liability and has to be repaid and it is erroneous to consider a liability as an asset or an advantage. [955 C] (iii)The nature of the expenditure incurred in raising a loan cannot be made to depend on the nature and purpose of the loan. A loan may be intended to be used for the purchase of raw material when it is negotiated but the company may after raising the lo-an change its mind and spend it on securing capital assets, [955 11-956 B] 945 (iv)The loan was voluntarily entered into in order to facilitate the running of the business of the company and it could not be said that it was not laid out wholly and exclusively for the purpose of the business. [958 B] Case law considered. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1106 of 1964. Appeal by special leave from the judgment and order dated the October 31, 1961 of <ORG> in Tax Case No. 67 of 1958.

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

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

The Judgment of the Court was delivered by <NAME>, <NAME> This appeal by special leave is directed against the judgment of <ORG> at Madras answering the following question of law in favour of the respondent :

"Whether on the facts and in the circumstances of the case, the <ORG> was right in law in holding that the sum of rupees 84,633/- expended by the assessee in obtaining the loan or any part thereof is an allowable expenditure ?"

The facts and circumstances of the case as stated by the <ORG> in the statement of the case are as follows : The appellant, <ORG>, Madras, hereinafter referred to as the assessee, is a public limited company. The question arises in respect of the assessment year 1950- 51, accounting period April 1, 1949 to March 31, 1950. During the accounting year it obtained a loan of 40 lakhs of rupees from <ORG>. This loan was secured by a charge on the fixed assets of the company. Since Mr. <NAME>, the learned counsel for the respondent, has disputed some facts as stated by the Appellant <ORG>, it would be convenient to give these facts in the words of the Appellate <ORG>. It is stated in the statement of the case that "the proceeds of this loan was utilised to pay off a prior debt of 25 lakhs due to Messrs <ORG> and <ORG>. It cannot be stated definitely how the balance of 15 lakhs was used but the directors, while reporting on the accounts for the year ended 31-3-1949 on 4-10-1949 stated that that was utilised towards working funds." The expenditure of Rs. 84,633/- in connection with this loan was made up of thefollowing items :

Stamps 60,02300 Registration Fee 16,,06700 Charges for certified copy of the mortgage deed 2800 Indemnity deed by <ORG> 1500 <NAME>'s fee for drafting deed 7,50000 Legal fees 1,00000 Total Rs. 84,633 0 0 The assessee did not charge this expenditure in the profits and loss account for that year. It was shown in the Balance Sheet as mortgage loan expenses. It continued to be so shown till March 31, 1952. In the accounts for March 31, 1953 this was written off by appropriation against the profits of that year.

The Income Tax Officer refused to allow the deduction of Rs. 84,633/-. He observed "As per the information furnished by the auditors, Rs. 25 lakhs of the loan was to be paid to Messrs <NAME>, Limited, and <ORG> in, discharge of the amount borrowed from them and utilised on the capital assets of the company.

Though in the Company's books the amount of Rs. 84,633 was not charged to revenue but capitalised and carried forward in the Balance Sheet, for purposes of income tax, the Company's auditors claim the same as an admissible item of revenue expenditure." He held that the expenditure was incurred in obtaining capital and should be distinguished from interest on borrowed capital which was alone admissible as a deduction under S. 10 (2) (iii). According to him, s. 10 (2) (xi) specifically excludes from consideration any item of capital expenditure. He further held that the case was not distinguishable from the decision in <ORG> v. <ORG>, Central Provinces(1). The Appellate Assistant Commissioner agreed with the Income Tax Officer. <ORG> distinguished the case of <ORG>

(1) 6 I.T.C. 28.

v. Commissioner of Income Tax(1) on the ground that in the Nagpur Electric Light(1) case money was expended for obtaining capital. It observed as follows "Here we find the position to be different. A study of the balance-sheets of the company as at 31-3-1949 discloses the fact that the paid- up capital was sufficient to cover the entire capital outlay of the company and that the further borrowal of Rs. 25 lakhs was for aug- menting the working. funds of the company. It appears to us that even at that early stage the money was borrowed and used not for capital purposes but for augmenting the working funds of the company. We, therefore, consider that the whole of the mortgage loan was used firstly to discharge the loan of Rs. 25 lakhs and the balance for working funds and, as such, the whole of the amount was purely for the purposes of augmenting the working capital of the company and that it could not be stated that it was used for capital purposes. In this view of the matter, we hold that the money expended in obtaining the loan is an allowable expenditure." <ORG>, after noticing the findings of the Income Tax Officer and the <ORG> preferred the findings of fact made by the Income Tax Officer. It observed "At this stage, we may point out that the conclusion reached by the <ORG> that the money was borrowed only for working expenses and not for capital investment proceeded on an inference based upon the balance-sheet. The <ORG> did not investigate how the sum of Rs. 25 lakhs earlier borrowed from <ORG> was actually utilised. Though in the order of the Income- tax Officer it is found stated that that amount was utilised on the capital assets of the company and that statement was based on the authority of the information furnished by the auditors of the assessee, the <ORG> either overlooked or ignored this circumstance. In the face of the statement so recorded by the Income-tax Officer, the <ORG> does not appear to have been justified in relying upon inferences in ascertaining whether the earlier borrowal was on capital or revenue account."

(1)6 I.T.C. 28.

<ORG> after reviewing various cases, observed :

"If we ask for what purpose the expenditure in the present case was incurred, the only answer must be that it was incurred for the purpose of bringing into existence an asset in the shape of borrowing these Rs. 40 lakhs. The further question would then be whether this asset or advantage was not for the enduring benefit of the business and whether the expenditure incurred was one which was incurred once and for all. The answer to both questions would again be in the affirmative. It is true that the borrowed money has to be repaid and it cannot be an enduring advantage in the sense that the money becomes part of the assets of the company for all time to come. But, it certainly is an advantage which the company derives from the duration of the loan and undoubtedly it could not have been for any purpose other than an advantage to the business that the borrowing was made. That it is not enduring in the sense that the borrowing has to be repaid after a short or long period, as it were, cannot affect the conclusion that it was nevertheless an asset or an advantage that was secured. Viewed in the light of the tests adumbrated in the above decision <CITATION> (1) it seems to us that the expenditure must be regarded as capital expenditure. As the facts of the case which we have set out earlier indicate, there can be no doubt that at least to the extent of Rs. 25 lakhs that amount was expended for purposes of a capital nature, clearly in order to bring into existence capital assets. We have also pointed out that though it was vaguely stated by the <ORG> that the other sum of Rs. 15 lakhs was utilised as working funds, there seems to be no material whatsoever before the <ORG> to justify its coming to that conclusion."

The learned counsel for the assessee company, <CITATION> , urges that the expenditure is admissible as a deduction under s. 10(2) (xv) of the Act. He says that <ORG> erred in holding that the expenditure was made to acquire any asset or advantage of an enduring nature within the test laid down by Viscount <NAME> and approved by this Court in <CITATION> (1). He (1) 27 I.T.R. 34.

further says that what was secured by the expenditure was a loan and in India money expended in raising a loan, whether by means of a debenture or a mortgage and whether you call it a loan capital or not, is not an expenditure in the nature of capital expenditure. He further submits that the expenditure was expended wholly and exclusively for the purpose of the business of the company. The learned counsel for the revenue, Mr. <NAME>, supports the reasoning of <ORG>. He says that <ORG> was right in preferring the findings of the Income Tax Officer on the ground that there was no material for the finding made by <ORG> and the finding was based on surmises and material evidence was ignored. He says that <ORG> in a reference is entitled to ignore any findings of fact made by <ORG> if those findings are vitiated. In the alternative, he says that the question referred is wide enough to include the question whether there was any material for the finding of <ORG>. On the merits he contends that expenditure takes the colour from the thing on which the expenditure is made. If the money is spent to obtain capital then the expenditure assumes the nature of capital expenditure, but if the money is spent to obtain raw-materials then the expenditure takes the colour of revenue expenditure. He further says that the borrowed money is an enduring asset and any expenditure made to obtain this money falls within the test laid down by Viscount <NAME> and approved by this Court. A number of cases have been referred to during the hearing of the case by both the counsel but we do not propose to refer to all of them. We must start first with the cases decided by this Court and see what principles have been laid down for distinguishing revenue expenditure from expenditure in the nature of capital expenditure, and especially those cases which dealt with similar problems. We will first consider <CITATION> (1). This was not a case arising under the Indian Income Tax Act but under the Madras Plantations Agricultural Income Tax Act, 1955, in which a section exactly similar to s. 10 (2) (xv) existed. In brief, the facts in that case were that the assessee had borrowed money for the purpose of purchasing the plantations and he claimed that in computing his agricultural income from these plantations the entire interest paid by him on moneys borrowed for the purpose of purchasing the plantation should be deducted as expenditure, under s. 5(e) of the Act. In (1) 8 S.C.R. 60 1 53 I.T.R. 186.

the Madras Act there was no provision similar to S. 10(2)

(iii) of the Act and thus interest was not expressly deductible as an allowance. This <ORG> applied the test formulated by Viscount ,<NAME>, L. C., in <ORG>) and approved by the <ORG> in <CITATION> (1), and held that the payment of interest was a revenue expenditure. It observed that "no new asset is acquired with it; no enduring benefit is obtained. Expenditure incurred was part of circulating or floating capital of the assessee. In ordinary commercial practice payment of interest would not be termed as capital expenditure." This <ORG> further held that the expenditure was for the purpose of business. Mr. <NAME> tried to distinguish that case on the ground that what was at issue was interest on loan and not expenditure incurred for ,obtaining the loan. In our opinion, there is no justification for drawing this distinction in India. As observed by Lord <NAME> in Scottish North American Trust v. Farmer(1) "the interest is, in truth, money paid for the use or hire of an instrument of their trade as much as is the rent paid for their office or the hire paid for a typewriting machine. It is an outgoing by means of which the Company procured the use of the thing by which it makes a profit, and like any similar outgoing should be deducted from the receipts, to ascertain the taxable profits and gains which the Company earns. Were it otherwise they might be taxed on assumed profits when, in fact, they made a loss."

It will be remembered that there was no section like s. 10(2) (iii) of the Act in the English Income Tax Act. On the other hand, there were certain rules prohibiting the deduction in respect of "any capital withdrawn from, or any sum employed or intended to be employed as capital in such trade. " or "any interest which might have been made if any such sums as aforesaid had been laid out at interest." Lord <NAME> first held in that case that the express prohibitions did not apply to the facts of the case and then proceeded to discuss general principles. These observations show that where there is no express prohibition, an outgoing, by means of which an assessee procures the use of a thing by which it makes a profit, is deductible from the receipts of the business to ascertain taxable income. On the facts of this case, the money secured by the loan was the thing for the use of which this expenditure was made. In principle, apart from any statutory provisions, we see no distinction between interest in respect of a loan and an expenditure incurred for obtaining the loan. (1) 10 T.C. 155. (2) 1 S.C.R. 972 : 27 I.T.R. 34.

(3)5 T.C. 693 at 707.

Mr. <NAME> urges that these observations of Lord <NAME> should be limited to a case where temporary borrowings are made. It is true that <ORG> was dealing with the case of a company and the moneys that were borrowed were of a temporary character. But this fact was only relied on to hold that the moneys secured were not 'capital' within rule 3 of First Case, section 100 (5 and 6 Vic. Ch. 35) of the Income Tax Act , 1842, for Lord <NAME> observed at p. 706;

". . . it appears to me, simply, amounts to this that the word "capital" must, in this rule, be held to bear a wholly artificial meaning differing altogether from the ordinary signification, though there be no context in the clause requiring that there should be given to it a meaning different from that which it bears in ordinary commercial transactions."

He then referred to the decision in <NAME> v. <ORG>) to show that the borrowing by a joint-stock company of money by the issue of debentures does not amount to an increasing of the capital of the company.

<CITATION> (2), this Court again examined the question of distinguishing between capital expenditure and revenue expenditure.

This Court first held that on the facts of the case, cl.

(iii) of s. 10(2) did not apply, because the assessee in that case had agreed to pay the balance of consideration due by the purchaser and this did not, in truth, give rise to a loan. Then <NAME>, J., observed :

"Whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of principles of commercial trading. The question must 'be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business, that it may be regarded as an integral part of the profit-earing process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure:' (1) 3 D.G. and J. 123. (2) [1965] 1 S.C.R. 770 :

56 I.T.R. 52 L8Sup. Cl/63-14 We will now briefly deal with relevant decisions of the High Courts. The first case referred is In re <ORG>) In that case, <ORG> had incurred an expenditure of Rs. 28 lakhs as underwriting commission paid to underwriters on an issue of 7 lakhs preference shares of Rs. 100/- each and the company claimed to deduct this amount as expenses under S. 9 (2)

(ix) of the Indian Income Tax Act (VII of 1918). <NAME>, C.J., observed:

"If it is admitted that the cost of raising the original capital cannot be deducted from profit after the first year, it is dffficult to see how the cost of raising additional capital can be treated in a different way. Expenses incurred in raising capital are expenses of exactly the same character whether the capital is raised at the flotation of the company or thereafter : <ORG> v. <NAME> (2)".

He further observed that "as long as the law allows preliminary expenses and goodwill to be treated as assets, although of an intangible nature, the money so spent is in the nature of capital expenditure just as much as money spent in the purchase of land and machinery." The Chief Justice accordingly held that Rs. 28 lakhs could not be treated as expenditure (not in the nature of capital expenditure) solely incurred for the purpose of earning the profits of the company's business. <NAME>, J., also came to the same conclusion, and he thought that the ratio decidendi in <ORG> v. <NAME> (2 ) and the principles underlying the decision in <ORG> v. Watson(1) lent support to this conclusion.

At this stage it would be convenient to consider the Case of <ORG> v. <NAME> (2) relied on in this decision. We have already mentioned that the statute law in England is different from the law in India and the observations of the learned Judges in the English cases must be appreciated in the light of the background of the English Income Tax Act. In this case a mortgage company had raised money by the issue of debentures and debenture stock and incurred expenses for the issue of mortgage and placing of such debentures and debenture-stock. The Company claimed to deduct these expenses but <ORG> held that the expenses could not be deducted under Schedule D of the English Income Tax Act as trading ex- (1) 1 I.T.C. 125.

(3) [1897] A.C. 1 (2) 3 T.C. 2S5.

penses. <NAME>, J., gave the following reasons for disallowing the claim:

"The amount paid in order to raise the money on debentures, comes off the 'amount advanced upon the debentures, and, therefore, is so much paid for the cost of getting it, but there cannot be one law for a company having sufficient money to carry on all its operations and another which is content to pay for the accommodation. This appears to me to be entirely concluded by the decision of yesterday. (<ORG> v. Bell(1)".

In the course of arguments, <NAME> had remarked "It is only so much capital. A man wants to raise pound 1 00,000 of capital, and in order to do that he has to pay pound-4,000. That makes the capital pound 96,000. That is all."

In reply to the argument of <ORG>, Q.C., that "the capital of the, company, properly-so-called, is the share capital" <NAME>, <NAME> remarked :

"To the extent that you borrow you increase the capital of the company."

In our opinion, if one keeps in mind the background of the English Income Tax Act, the observations reproduced above have no relevance to cases arising under the Indian Income Tax Act . In face of rule 3, Case 1, S. 100 (5 & 6 Vict. Ch. 35) prohibiting the deduction of any expenditure in respect of any sum employed or intended to be employed as capital, <NAME> and <NAME>, JJ. were only concerned with the question whether the amount secured by debentures and the amount obtained by the issue of debentures and debenture stock could be called capital employed or intended to be employed within the meaning of this rule. Rightly or wrongly, the English Courts have held that the amount obtained by the issue of debentures is capital employed within the meaning of the rule, but this does not give us any guidance in interpreting the words 'capital expenditure' occurring in s. 10 (2) (xv) of the Act. In our opinion, <ORG> was wrong in relying on <ORG> v. <NAME>). But we do not say that the Tata Iron and Steel (1) 3 T.C. 239. (2) 3 T.C. 255.

Co. (1) case was wrongly decided. Obtaining capital by issue of shares is different from obtaining loan by debentures.

In <ORG> v. Commissioner of Income Tax(1), <ORG>, Nagpur, held that expenses for raising debenture loan required for changing the system of supplying current from D.C. to A.C. and for discharging a prior loan was not allowable as deduction of the company's assessable income. The Judicial Commissioner followed the case of <ORG> v. <NAME>) and In re <ORG>). After referring to these two cases, the only additional reason given was that "apart from authority it seems to us to stand to reason that money expended in obtaining capital must be treated as capital expendiure." With great respect we must hold that this case was wrongly decided.

<ORG> in <CITATION> (4)held that the expenditure incurred by the company a capital expenditure and was 10(2)(xv). <ORG> v. Jackson(5) Du#(1) and some other cases Madras(4) held that the expenditure raise a loan by debenture was therefore not deductible under s. relying on European investment and <ORG> v. drew a distinction between the borrowing of capital and securing merely temporary or day-to-day accommodation or banking or trading facilities. According to <ORG>, the expenses for borrowing capital could not be treated as revenue expenditure. This distinction may be valid in English Law but we are unable to appreciate how the distinction is valid under the Indian Income Tax Act . As the decision is mainly based on this distinction and relies inter alia on In re <ORG>(") and <ORG> v. Commissioner of Income Tax (2 we must with respect hold that the case was wrongly decided.

<CITATION> Court relying on Texas Land and Mortgage Company V. William Holtham(3) and the decision in <CITATION> (4) held that on the facts and circumstances of that case, brokerage and commission of four annas on every maund of sugar paid by (2) 6 I.T.C. 28. (3) 3 T.C. 255.

(1) 1 I.T.C. 125. (4) 38 I.T.R. 533.

(5) 18 T.C. 1. (6) 24 T.C. 171.

(7) 47 I.T.R. 139.

the assessee company was not revenue expenditure but capital expenditure. In our opinion, the derision, as far as the brokerage was concerned, was wrong, but we do not say anything in this case with respect to the decision as far as the commission on sale of goods was concerned. <ORG> examined the question in great detail in <CITATION> (1), <NAME>, J., held that the loan of Rs. 10 lakhs obtained by the company was an asset or advantage for the enduring benefit of the business of the assessee. He placed reliance on a number of cases,some of which we have already considered. But we are unable to agree that a loan obtained can be treated as an asset or advantage for the enduring benefit of the business of the assessee. A loan is a liability and has to be repaid and, in our opinion, it is erroneous to consider a liability as an asset or an advantage within the test laid down by Viscount <NAME> and approved and applied by this <ORG> in many cases. <NAME>, J., after referring to a number of cases, felt that the raising of capital by issue of debentures was a recognised mode of raising capital and he felt that the decided cases had laid down the proposition that borrowing money by the issue of debentures was an acquisition of capital asset and that any commission or expenditure incurred in respect thereof was of a capital nature and not to be considered as in the nature of revenue. He was impressed by the fact that not a single case to the contrary was brought to his notice. But we have to decide the case on principle, and with respect it seems to us that he erred in treating the loan as equivalent to capital for the purpose of s. 10(2) (xv) of the Act.

<CITATION> of income Tax (2) <ORG> held that the expenditure incurred for raising loan for the carrying on of a business cannot in all cases be regarded as an expenditure of a capital nature. On the facts of the case they held that as construction and sale of the building was the sole business of the firm and the building was its stock-intrade, and the loan was raised and used wholly for the purpose of acquiring this stock-in- trade and not for obtaining any fixed assets or raising any initial capital or for expansion of the assessee's business, the expenditure incurred for the raising of loan was not an expenditure of capital nature but revenue expenditure. Although the conclusion of <ORG> was correct, we are not able to agree with the principle that the nature of the expenditure incurred in raising a loan would depend upon the nature and purpose of (1) 54 I.T.R. 592. (2) 57 I.T.R. 455.

the loan. A loan may be intended to be used for the purchase of raw-material when it is negotiated, but the company may after raising the loan change its mind and spend it on securing capital assets. Is the purpose at the time the loan is negotiated to be taken into consideration or the purpose for which it is actually used ? Further suppose that in the accounting year the purpose is to borrow and buy raw- material but in the assessment year the company finds it unnecessary to buy raw-material and spends it on capital assets. Will the income tax officer decide the case with reference to what happened in the accounting year or what happened in the assessment year ? In our opinion, it was rightly held by the Nagpur Judicial Commissioner in <ORG> v. Commissioner of Income Tax(1) that the purpose for which the new loan was required was irrelevant to the consideration of the question whether the expenditure for obtaining the loan was revenue expenditure or capital expenditure.

To summarise this part of the case, we are of the opinion that (a) the loan obtained is not an asset or advantage of an enduring nature; (b) that the expenditure was made for securing the use of money for a certain period-, and (c) that it is irrelevant to consider the object with which the loan was obtained. Consequently, in the circumstances of the case, the expenditure was revenue expenditure within S. 10(2)(xv) .

The last contention of Mr. <NAME> is that even if it is revenue expenditure, it was not laid out wholly and exclusively for the purpose of business. <NAME>, J., reviewed the case law in <CITATION> (1) and observed as follows :

"The expression "for the purpose of the business" is wider in scope than the expression "for the purpose of earning profits." Its range is wide : it may take in not only the day to day running of a business but also the rationalisation of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile tide; it may also comprehend pay- ment of statutory dues and taxes imposed as a precondition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business."

(1) 6 I.T.C. 28. (2) [1964] 7 S.C.R. 693: 53 I.T.R. 140.

Mr. <NAME> says that the act of borrowing money in this case was not 'incidental to the carrying on of a business. We are unable to accept this contention. <CITATION> (") this Court held that <ORG>, an investment company, when it borrowed money on debentures, the interest paid by it was incurred solely for the purpose of making or earning such income, profits or gains within the purview of S. 12(2) of the Indian Income Tax Act . It held on a review of the facts that the transaction was voluntarily entered into in order indirectly to facilitate the running of the business of the company and was made on the ground of commercial expediency. This case, in our opinion, directly covers the present case, although Mr. <NAME> suggests that the case of an investment company stands on a different footing from the case of a manufacturing company. In some respects, their position may be different but in determining the question whether raising money is incidental to a business or not, we cannot discern any difference between an investment company and a manufacturing company. We may mention that in that case this Court was not considering whether the expenditure was in the nature of a capital expenditure or not, because it was agreed all through that the expenditure was not in the nature of capital expenditure, and the only question which this Court dealt with was whether the expenditure was incurred solely for the purpose of making or earning income, profits or gains. The case of <CITATION> (1) also supports the conclusion we have arrived at on this part of the case. It was held in that case that the payment of interest and a sum equivalent to 11/16th of the profits of the business of the assessee in pursuance of an agreement for obtaining loan from the lender were in a commercial sense expenditure wholly and exclusively laid out for the purpose of the assessees business and they were, therefore, deductible revenue expenditure.

Before we conclude we must deal with the point raised by Mr. <NAME> that <ORG> erred in law in preferring the findings of the Income Tax Officer to that of <ORG>. It is not necessary to decide this question but it seems to us that in a reference <ORG> must accept the findings of fact made by <ORG> and it is for the person who has applied for a reference to challenge those findings first by an application under s. 66(1) . If he has. failed to file an application under (1) 20 I.T.R. 1. (2)  3 S.C.R. 359 : 42 I.T.R. 7.

S.66(1) expressly raising the question about the validity of the findings of fact, he is not entitled to urge before <ORG> that the findings are vitiated for one reason or the other.

To conclude we hold that the expenditure of Rs. 84,633/- was not in the nature of capital expenditure and was laid out or expended wholly and exclusively for the purpose of the assessee's business. The answer to the question referred, therefore, must be in the affirmative. The appeal is allowed, the judgment of <ORG> set aside and the question referred answered in the affirmative. The appellant will have its costs incurred here and in <ORG>.

Appeal allowed.