<NAME>, J.

1. This is an application for leave to appeal to His Majesty in Council under Clause 41 of the Letters Patent, which is in the following terms:

41. And we do further ordain, that from any judgment, order, or sentence of the said <ORG> at Fort William in Bengal, made in the exercise of original criminal jurisdiction, or in any criminal case, where any point or points of law have been reserved for the opinion of the said <ORG> in manner hereinbefore provided, by any Court which has exercised original jurisdiction, it shall be lawful for the person aggrieved by such judgment, order, or sentence to appeal to Us, Our heirs, or Successors in <ORG>; provided the said <ORG> shall declare that the case is a fit one for such appeal, and under such conditions as the said <ORG> may establish or require, subject always to such rules and orders as we may, with the advice of Our Privy <ORG>, hereafter make in that behalf.

2. The petitioner <NAME> was placed on his trial at the last <ORG>, before Mr. Justice <NAME> and a special jury on charges under Sections 302 and 394, <ORG> . The jury returned a unanimous verdict of guilty on the charge of murder, and Mr. Justice <NAME> thereupon sentenced the prisoner to death. A certificate was then obtained on his behalf from the Advocate-General, under Clause 26 of the Letters Patent, that, in his judgment, whether an alleged direction and an alleged omission to direct the jury did not in law amount to a misdirection should be further considered by <ORG>. The question was accordingly argued before <ORG>. On the 26th September, 1923, <ORG> delivered judgment and ordered that the application made by the prisoner under Clause 26 do stand dismissed. The present application was made on the 3rd October, 1923, for a certificate under Clause 41 that the case is a fit one for appeal to His Majesty in Council. The matter has been exhaustively argued before us, on behalf, as well of the prisoner, as of the <ORG>, and our attention has been invited to the relevent authorities on the subject.

3. It is indisputable that as His Majesty the King is supreme over all persons and <ORG>s within his Dominions, a right of appeal in all oases, civil and criminal, to the King in Council, exists, from the highest <ORG> of each separate colony, province, state or possession, whether it be a <ORG> of record or not, except so far as the prerogative in this behalf has been expressly surrendered; <NAME> v. <NAME> [1880] 5 A.C. 409, Re Wi Matua's Will [1908] A.C. 443. Criminal proceedings, however, are, in practice, reviewed, only if it is shown that by a disregard of the forms of legal process, or by some violation of the principles of natural justice, or otherwise, substantial and grave injustice has been done. <ORG> do not, as a rule, advise His Majesty to grant appeals in criminal cases, except where questions of great and general importance, likely to occur often, are raised, and where the due and orderly administration of the law is shown to be interrupted, or diverted into a new course, which might create a precedent for the future, and where there are no other means of preventing these consequences. Such appeals lie either by the right of grant, in pursuance of leave obtained by the appellant from the <ORG> appealed from, or by reason of special leave granted by <ORG>. The latter appeals arise, either where the <ORG> below does not possess power to grant leave to appeal, or where leave to appeal has been refused by the <ORG> below, or where the leave to appeal was granted on some special point and the appellant wishes to raise points not included in the leave to appeal : <NAME> v. <NAME> [1904] A.C. 412; <ORG> v. <NAME> [1904] A.C. 776; Victorian Railway Commissioners v. <NAME> [1906] A.C. 381; <NAME> v. <ORG> [1923] A.C. 167. But whether leave is granted by the <ORG> appealed from or by <ORG>, it is plain that the answer to the question, whether the case is a fit one for appeal, must depend on the same considerations; the grant of the leave to appeal is a step ancillary to the determination of the appeal, and the principles which regulate the ultimate decision of the appeal cannot obviously be ignored when an application for leave is examined : <CITATION> .  A.C. 599.

4. The judicial pronouncements on the subject fall broadly into two divisions, according as they were made in Indian cases or in Colonial cases. The decisions in Indian cases, again may be conveniently considered in two groups; namely, first, those that had reference to sentences in original criminal trials governed by Clause 41 of the Letters Patent or a provision of like import, and, secondly, those that arose out of appellate decisions not subject to the operation of Clause 41 or a similar rule.

5. In the first group of Indian cases, the earliest decision which has been brought to our notice is that in <CITATION> .  3 Knapp. 348. The appellant had been convicted at a <ORG> held on the <ORG> side of <ORG> on a charge of uttering a forged receipt for money, with intent to defraud <ORG>. The prisoner obtained leave to appeal from <ORG>. <ORG> considered the appeal on the merits, affirmed the conviction in respect of one offence, but reversed the judgment as erroneous in respect of another offence. Important questions of law including a question of jurisdiction were involved in the appeal. The next case in point of time is that of <CITATION>  4 Moo. (P.C.) 239 (P.C.). The Appellants were tried on charges of assault and battery, in <ORG> at Calcutta before Sir <NAME> and a jury and were convicted. A Rule was granted to set aside the verdict but was discharged, Sir <NAME>, C.J. dissenting. <ORG> at the same time gave leave to appeal to Her Majesty in Council. <ORG> heard the appeal on the merits and directed that the rule for new trial be made absolute; and they also intimated their hope that the indictment would not be further prosecuted. It may be noted that when <ORG> Lord <NAME>, (Lord Campbell Knight Bruce, V.C. and Dr. <NAME>) heard the appeal; Sir <NAME> sat as assessor. These two cases, as we shall presently see, stand in a class by themselves, and were not followed in the case of <NAME> v. <NAME>  5 Moo. P.C. 276 (P.C.). There the petitioners applied for leave to appeal from a conviction for felony at a trial held in <ORG> of Bombay before Sir <NAME>, C.J., and Sir <NAME>, J., and a jury who returned a verdict of guilty. Dr. <NAME> who delivered the judgment of <ORG> ruled that there was no power reserved to the <ORG> by the Charter of <ORG>, 1823, which conferred on that <ORG> and that <ORG> alone full and absolute power and authority to allow or deny appeals in criminal cases. With this may be compared the decision of <ORG> in <NAME> v. <NAME>  3 Moo. P.C. 409 (P.C.), where leave granted on an ex parte application to appeal from a criminal proceeding in Jersey, was recalled. The same view was reiterated in <NAME> v. <NAME>  5 Moo. P.C. 296 (P.C.). We next come to the case of <NAME> v. <NAME>  7 M.I.A. 72 (P.C.) where an appeal was allowed from a judgment on a conviction by <ORG> at Calcutta in a case of murder. The prisoner was tried before Sir <NAME>, C.J., and a jury, who returned a verdict of guilty. A question of jurisdiction, which had been reserved, was argued before the Pull <ORG>. The Chief Justice and <NAME>, J., held that the <ORG> had jurisdiction, while <NAME>, J., held that the <ORG> had no jurisdiction. The question turned upon the construction of Section 56 of Stat. 9, Geo. IV, c. 74. <ORG> held that the <ORG> had no jurisdiction and annulled the conviction. In <NAME> v. <NAME>  A.C. 346, which was approved in Re Rajendra Nath Mookerjee  22 All. 49 (P.C.) the prisoner was convicted of offences under Sections 420 and 511 , <ORG> , and was sentenced to imprisonment. The High <ORG> of Allahabad refused to certify under Section 32 of the Letters Patent of 1866 that the case was a fit one for appeal to His Majesty in Council. <ORG> declined to grant special leave. Lord <NAME> observed that there were no doubt very special and exceptional circumstances in which leave to appeal was granted in criminal cases, but it would be contrary to the practice of the <ORG> and very mischievous, if any countenance were given to the view that an appeal would be allowed in every case in which it could be established that there had been a misdirection by the judge who tried the case. In <NAME> v. <NAME> Empress  22 Bom. 528 (P.C.), <ORG> refused to grant leave to appeal. The question raised, related to the true construction of Section 124-A , <ORG> , which, it was urged, had been erroneously interpreted by <NAME>, J., in his charge to the jury. Lord <NAME> observed that, taking a view of the whole of the summing up, there was nothing in that summing up which called upon their Lordships to indicate any dissent from it nor any necessity to correct what was therein contained, looking at the summing up as a whole and looking at each part of what was said by the light of what else was said. In <NAME> v. King-Emperor  25 Mad. 61 (P.C.), the appellant was tried in contravention of Section 34 , Criminal Procedure Code , on an indictment, in which he was charged with no less than 41 acts extending over a period of two years. <ORG> annulled the conviction and sentence on the ground that the trial was prohibited in the mode in which it was conducted. In <NAME> v. <NAME>  33 Bom. 221, the accused was tried before <NAME>, J., and a jury on charges under Section 124-A , <ORG> , and was convicted. Sir <NAME>, C.J., and <NAME>, J., declined to grant leave and ruled that before a certificate could be granted the <ORG> must be satisfied that there was reasonable ground for thinking that grave and substantial injustice might have been done by reason of some departure from the principles of natural justice. Reference was made to the decisions in <NAME> v. <NAME> <NAME>  61 L.T. 740, Ex parte Carew  A.C. 719 and In re <NAME>  12 A.C. 459. To the same effect are the decisions in <NAME> v. King-Emperor  41 Cal. 568 (P.C.), and <NAME> v. King Emperor A.I.<NAME> 1914 P.C. 116, where leave to appeal was refused. It is worthy of note that in the second case, there was a clear indication that even if <ORG> could sit as a <ORG> of criminal appeal, it was hardly doubtful that the appeal would fail. In the first case Viscount <NAME> pointed out that it would be contrary to their constitutional duty, if the <ORG> were to assume the position and function of a <ORG> of Criminal appeal, a <ORG> which could go into questions of evidence and procedure and could deal with the case on the same footing as an ordinary <ORG> of appeal. In the same way, in <NAME> v. <NAME>, Madras A.I.<NAME> 1919 P.C. 31, where important questions arose as to the scope and effect of the provisions of the Indian Press Act, 1910, the High <ORG> of Madras refused to give a certificate. <ORG> granted special leave to appeal; the decision of the High <ORG> was, however, ultimately affirmed on the merits and the appeal was dismissed.

6. In the second group of Indian Cases, we have instances where, in the absence of a provision like that of Clause 41 of the Letters Patent, application for special leave was made to <ORG>, It will be recalled in this connection that as pointed out in <NAME> v. <NAME> [1870] 7 B.H.C. 77, <NAME> v. King-Emperor [1908] 18 C.L.J. 119, <NAME> v. King-Emperor [1913] 18 C.L.J. 121, and <CITATION> , where there is no provision like Clause 41 applicable, <ORG> can grant leave to appeal to His Majesty in Council, and this was apparently overlooked by <NAME>, J., in <NAME> v. <NAME>  15 Cal. 608 (F.B.). In such cases the remedy is by an application for special leave to His Majesty in Council. The earliest instance is afforded by the case of Queen v. <NAME>  9 M.I.A. 168 (P.C.). <ORG> came to the conclusion that justice had not been very well administered in the case and yet refused the application. Dr. <NAME> observed that the consequences of granting an appeal in cases of this description, wore so exceedingly strong, they were so entirely destructive of the administration of all criminal jurisprudence, that the <ORG> could not for a single moment doubt, that they were of the greatest importance in guiding their Lordships to form a judgment. The application was thus refused, because, if it were granted "not only would the course of justice be maimed, but in very many instances it would be entirely frustrated." This standpoint was emphasised by Sir <NAME>, C.J., when he was invited to grant a certificate in the case of <NAME> v. <NAME>  10 Bom. H.C. 75. The decision in Maharaja <NAME> v. Secretary of <ORG>  32 Cal. 1 (P.C.) does not directly touch the question because there the decision impeached was that of the Governor-General in Council which might be treated as a political act - an act of <ORG> - not a decision of a <ORG> from which an appeal lay to His Majesty in Council. Similar observations apply to Exp. Mgomini  21 Cox. 154, where <ORG> declined to interfere with an act of the executive government of <ORG>, as later on in <NAME> v. A.G. of <ORG>  A.C. 93. The decisions of what were undoubtedly Criminal <ORG>s were sought to be challenged before <ORG>, by special leave in <NAME> v. King-Emperor  8 C.W.N. 63 (S.N.), <NAME> v. Queen-Empress  25 Cal. 26, <NAME> v. King-Emperor  13 Bom. L.<NAME> 9, <CITATION>  36 Mad. 501 (P.C.), <NAME> v. King-Emperor A.I.<NAME> 1915 P.C. 29, <NAME> v. King-Emperor A.I<NAME> 1917 P.C. 29, <NAME> v. King-Emperor A.I.<NAME> 1920 P.C. 23, <NAME> <NAME> v. King-Emperor A.I.<NAME> 1921 P.C. 29, <NAME> v. King-Emperor 43. A.I.R 1921 P.C. 24 and <NAME> v. King-Emperor A.I.<NAME> 1922 P.C. 162 (P.C.). In <NAME> v. Queen-Empress  25 Cal. 26 the appeal was allowed on the ground that the Magistrate who had taken cognizance of the alleged offence and had issued a warrant against a subject of the <ORG>, had acted without jurisdiction. <CITATION>  36 Mad. 501 (P.C.), which was an appeal by special leave in a murder case, the appeal was allowed and the conviction was set aside. <ORG> came to the conclusion that there was no evidence which could support conviction for murder or abetment of murder. In <NAME> v. King-Emperor A.I.R 1921 P.C. 24, the sentence of transportation for fourteen years was held to be illegal, and the case was remitted to the High <ORG> with instructions to pass a sentence according to law. In <NAME> v. King-Emperor A.I<NAME> 1917 P.C. 29, <NAME> v. King-Emperor A.I.<NAME> 1920 P.C. 23, <NAME> <NAME> v. King-Emperor A.I.<NAME> 1921 P.C. 29, and <NAME> v. King-Emperor A.I.<NAME> 1922 P.C. 162 (P.C.), special leave was granted, but the appeal in each instance ultimately failed on the merits. On the other hand in <NAME> v. King-Emperor  8 C.W.N. 63 (S.N.), <NAME> v. King-Emperor  13 Bom. L.<NAME> 9, and <NAME> v. King-Emperor A.I.<NAME> 1915 P.C. 29, the application for special leave to appeal was dismissed.

7. In the series of cases which came before <ORG> from Colonial Courts, the earliest is the decision in <ORG> v. <NAME> [1863] 1 Moo. P.C. (N.S.) 296, where Lord <NAME> quoted with approval the observations of Dr. <NAME> in <NAME> v. <NAME> [1862] 9 M.I.A. 172 (P.C.). This set the tradition, as it were, and it came to be recognised that though it was the settled prerogative of the <ORG> to receive appeals in all Colonial cases : In re Bishop of Natal [1864] 3 Moo. P.C. (N.S.) 115, the inconvenience of entertaining such appeals in cases of a strictly criminal character was so great, the obstruction that it would offer to the administration of Justice in the Colonies was so obvious, that it was only on rare occasions, in exceptional circumstances, that applications of that description should be encouraged or entertained by <ORG>. This doctrine will be found to permeate the stream of later decisions. Amongst these may be mentioned Levein v. <NAME> [1866] L.R. 1 P.C. 536, In re <NAME> [1865] L.R. 1 P.C. 260, R. v. <NAME> [1867] L.R. 1 P.C. 520, R. v. Murphy (1869) L.R. 2 P.C. 535, R. v. Cottee [1873] L.R. 4 P.C. 599, Esnouf v. A.G., Jersey [1883] 8 A.C. 304, Riel v. R. [1885] 10 A.C. 675, In re Dillet [1887] 12 A.C. 459, Dinizulu v. A.G., Zululand [1889] 61 L.T. 740, Macleod v. A.G.N.S.W. [1891] A.C. 455, Ex parte Deeming [1892] A.C. 422, Makin v. A.G., N.S.W. [1894] A.C. 57, Kops v. <NAME> [1894] A.C. 650, Sprigg v. Sigcan [1897] A.C. 238, Ex parte Carew [1897] A.C. 719, <CITATION>  A.C. 234, R. v. Marais  A.C. 51, Ex parte Aldred  A.C. 51, Nelson v. R.  A.C. 250, Rex v. Louw  A.C. 412, Badger v. A.G., Newzealand  97 L.T. 621, Teshinguazi v. A.G. of Natal  A.C. 248, Armstrong v. R.  30 T.L.R. 215, Lanier v. R.  A.C. 221 and <CITATION> .  A.C. 599. It is not necessary to set out here a detailed analysis of all the observations of their Lordships in the cases mentioned; their essence will be found concisely stated by Lord <NAME> in Re Dillat  12 A.C. 459, which has been repeatedly followed:

The rule has been repeatedly laid down and has been invariably followed that Her Majesty will not review or interfere with the course of criminal proceedings, unless it is shown that by a disregard of the forms of legal process or by some violation of the principles of natural justice or otherwise, substantial and grave injustice has been done.

8. This principle was successfully invoked on behalf of the Crown in the cases of R. v. <NAME> [1867] L.R. 1 P.C. 520, R. v. <NAME> (1869) L.R. 2 P.C. 535, and R. v. <NAME> [1873] L.R. 4 P.C. 599, where <ORG> had, in each instance, set aside a conviction and granted a new trial in excess of its jurisdiction. There was no occasion to apply the doctrinein Levien v. <NAME> [1866] L.R. 1 P.C. 536, as the prisoner obtained a free pardon and was discharged from prison before his appeal could be heard, <ORG> held that as the prisoner had obtained the substantial benefit of a free pardon they would not enter upon the merits of the case or pronounce an opinion upon the legal objections to the conviction. But the principle was successfully invoked on behalf of the accused in the cases of <ORG> v. <NAME> [1863] 1 Moo. P.C. (N.S.) 296, In re Me Dermott [1865] L.R. 1 P.C. 260, In re Dillet [1887] 12 A.C. 459, <NAME> v. A.G.N. S.W. [1891] A.C. 455 and <NAME> v. R. [1902] A.C. 250. A noteworthy instance of successful appeal will be found in Lanier v. R. [1914] A.C. 221, where the conviction was for embezzlement, and this may be taken along with <CITATION>  36 Mad. 501 (P.C.), which was, as we have soon, a successful appeal against conviction for murder and sentence of death. In this connection, the following passage from the judgment of Lord <NAME> in <CITATION> .  A.C. 599, may be usefully recalled.

Having regard to the particular position in which their Lordships stand to criminal proceedings, they do not propose to intimate what they think the rule of English Law ought to be, much as it is to be desired that the point should be settled by authority so far as a general rule can be laid down where circumstances must so greatly vary, That must be left to a Court which exercises, as their Lordships do not, the revising functions of a general <ORG>; <NAME> v. King-Emperor [1913] 41 Cal. 568 (P.C.). Their Lordships' practice has been repeatedly defined. Leave to appeal is not granted except where some clear departure from the requirements of justice exists : <NAME> v. Reg. [1885] 10 A.C. 675; nor unless 'by a disregard of the forms of legal process, or by some violation of the principles of natural justice or otherwise, substantial and grave injustice has been done : In re <NAME> [1887] 12 A.C. 459. It is true that these are cases of applications for special leave to appeal but the <ORG> has repeatedly treated applications for leave to appeal and the hearing of criminal appeals as being upon the same footing : <NAME> v. Reg. [1885] 10 A.C. 675, Exp. Deeming [1892] A.C. 422. The <ORG> cannot give leave to appeal where the grounds suggested could not sustain the appeal itself: and, conversely, it cannot allow an appeal on grounds that would not have sufficed for the grant of permission to bring it. Misdirection, as such, even irregularity as such, will not suffice. Exp. <NAME> [1893] A.C. 346. There must be something which, in the particular case, deprives the accused of the substance of fair trial and the protection of the law or which in general tends to divert the due and orderly administration of the law into a new course, which may be drawn into an evil precedent In future : Reg. v. <NAME> [1867] L.R. 1 P.C. 520.

9. The same principle was emphasised by Viscount <NAME> in <NAME> v. King Emperor A.IR. 1917 P.C. 29:

It is well settled that the unwritten principles of the Constitution, of the Empire restrain <ORG> from being used in general as a <ORG> of review in criminal cases. But, while the Sovereign in Council does not interfere merely on the question whether the <ORG> below has come to a proper conclusion as to guilt or innocence, such interference ought to take place where there has been a disregard of the proper forms of legal process, grievous and not merely technical in character, or a violation of principle in such a fashion as amounts to a denial of justice. Their Lordships have now heard full arguments in the case before them, and have examined the procedure and evidence with minuteness. Before considering the result, it is right that they should state what they conceive to be, in a case such as that before them, the character of the limitation of their function. The constitution of the Empire is tending to develop in the direction of regarding as final, decisions given in the local administration of criminal justice. The general principle is established that the Sovereign in Council does not act, in the exercise of the prerogative right to review the course of justice in criminal cases, in the free fashion of a fully constituted <ORG> of criminal appeal. The exercise of the prerogative takes place only where it is shown that injustice of a serious and substantial character has occurred. A mere mistake on the part of the <ORG> below, as, for example, in the admission of improper evidence, will not suffice if it has not led to injustice of a grave character. Nor do <ORG> advise interference, merely because they themselves would have taken a different view of evidence admitted. Such questions are, as a general rule, treated as being for the final decision of the <ORG>s below.

10. The principles thus enunciated must be deemed well settled, though there may be considerable room for refinement of argument and divergence of opinion in their application. This is amply indicated by the fact that cases are by no means rare where leave to appeal has been granted after full examination, and yet the appeal has not ultimately been sustained, two such instances are furnised by <CITATION> .  A.C. 599 and Annie Besant v. A.G. Madras A.I.R. 1919 P.C. 31. Here it may be recalled that as stated by Lord <NAME> in <NAME> v. <ORG>  A.C. 481 their Lordships of <ORG>, when called upon to grant special leave to appeal in civil oases, do take into consideration the general importance of the question raised and the fact that it has evoked great difference of judicial opinion.

11. In the case before us, the legality of the conviction rests upon the correct construction of Section 34 of the Indian Penal Code. The judgments delivered by <ORG> establish that there has been a deep-seated divergence of judicial opinion in every superior Court in India as to the true interpretation of that section. The question not only goes to the root of the matter in the present case, but is of great and general importance and of frequent occurrence in the administration of criminal law wherever the Indian Penal Code is in operation. It is not the function of this Bench to pronounce an opinion upon the question of the construction of Section 34 : we cannot arrogate to ourselves the authority which belongs to their Lordships of <ORG> under Clause 41 of the Letters Patent. But this is plain that if Section 34 has not been correctly interpreted by <ORG>, substantial and grave injustice has been done to the prisoner. In the view we thus take, we shall not express an opinion, whether there may not be other questions also in the appeal, such as the question of the true construction of Clause 26 of the Letters Patent, which by themselves bring the case within the limited category of criminal proceedings review-able, according to established practice, by their Lordships of <ORG>. On anxious consideration of the character of the questions involved in this case and full recognition of the principles which regulate the functions of <ORG> in respect of criminal proceedings, we have come to the conclusion that we should declare that this case is a fit one for appeal to His Majesty in Council under Clause 41 of the Letters Patent. We direct accordingly that a certificate be granted to this effect.

12. We further direct that, as a certificate under Clause 41 has been ordered, the execution of the sentence under appeal be stayed, subject to such orders as may be passed by their Lordships of <ORG>. W§ are not unmindful of the observations of their Lordships in <NAME> v. King-Emperor A.I.R. 1915 P.C. 29, made under different circumstances. In that case, an application for special leave to appeal from conviction and sentence of death, was made to <ORG>. The application was made a few days before the date fixed for the carrying out of the sentences. Counsel for the petitioners stated that they were not in a position to proceed with the petition for leave to appeal, as the transcripts of the judgment of <ORG> and of the evidence had not reached them, and they asked the <ORG> to make an order or a recommendation to <ORG> for the postponement of the execution of the sentences pending the hearing of the petition. Viscount <NAME> intimated that their Lordships were unable to advise His Majesty to make any order on the petition for special leave to appeal at that stage, or to interfere to stay execution. The attention of their Lordships was not drawn to the fact that in Re Ames [1844] 3 Moo. P.C. 409 (P.C.), when special leave to appeal was granted by <ORG> on the 7th July, 1838, the sentence against the petitioners was suspended; this is not affected by the fact that the leave granted ex parte was subsequently revoked. Be that as it may, the petitioners in <NAME> v. King-Emperor A.I.R. 1915 P.C. 29, were left to notify <ORG> that an application for special leave was pending before <ORG>; this-they did, and they were in fact reprieved, pending the hearing of the petition, which was ultimately dismissed as no ground of appeal was shown to bring the matter within the limited class of cases where <ORG> intervenes in criminal proceedings. In the case before us, a certificate has been directed under Clause 41, and there is consequently an appeal pending from the sentence. Clause 42 ordains that this <ORG> shall, in all cases of appeal to His Majesty in Council, conform to and execute such judgments and orders as His Majesty in Council might think fit to make in the premises and this has to be read along with Section 21 of <ORG> Act, 1833 (Stat. 3 & 4 Will. 4, C. 41) which renders it obligatory on every <ORG> of Justice to carry into effect the order or decree of His Majesty in Council on any appeal from its order, sentence, or decree. In such circumstances, it is essential in this case that the sentence passed by this <ORG> should be suspended in order that the appeal to His Majesty in Council may not be frustrated. There is more than one instance where the <ORG> which had passed the sentence stayed execution thereof pending decision of the questions in controversy by their Lordships of <ORG> : see <NAME> v. Queen [1857] 7 M.I.A. 72 (P.C.) decided by <ORG>, In Re Levien [1855] 10 Moo. P.C. 31, decided by <ORG> and <NAME> v. <NAME> [1914] A.C. 599 decided by <ORG> of Hongkong. Reference may in this connection be made to the decision in <CITATION>  40 Cal. 955, where this <ORG>, in exercise of its inherent power to stay proceedings pursuant to its own order stayed proceedings in a civil matter in view of an application to <ORG> for special leave to appeal to His Majesty in Council. We may add that the applicability of the doctrine of inherent power to criminal cases was expressly recognised by a Special Bench of this <ORG> in <NAME> v. Ali Mahamad A.I.R. 1921 Cal. 30.

13. The prisoner will not be required to furnish security for the costs of the appeal. As Viscount <NAME> observed in <NAME> v. King-Emperor A.IR. 1917 P.C. 29, where the appeal by the special leave was ultimately dismissed, "there will, as hitherto has been usual in such eases, be no order as to costs." The order for costs made in the case of <NAME> v. <NAME> Madras A.I.R. 1919 P.C. 31, must consequently be deemed an exception to the ordinary rule, justifiable only in the special circumstances of that case. We observe that in <CITATION>  36 Mad. 501 (P.C.), Sir <NAME>, on behalf of the prisoner whose appeal had succeeded, asked for costs against the <ORG>; but Lord <NAME>, referring to <CITATION> .  A.C. 817, stated that their Lordships were of opinion that the application should not be granted. This accords with Pooneakhoty v. R.  3 Knapp. 348, and <NAME> v. R.  A.C. 250. But in Lanier v. R.  A.C. 221, which was heard shortly afterwards before the <ORG>, differently constituted, their Lordships, looking to the exceptional nature of the case, held that the <ORG> should pay to the appellant the costs of the appeal. A precedent for this course may be found in <NAME> v. <NAME>, N.S.W.  A.C. 455. We cannot and do not express an opinion as to the costs of the present appeal before <ORG>, we merely hold that, in view of the observation of Viscount <NAME> in <NAME> v. King-Emperor A.IR. 1917 P.C. 29 as to the usual practice in this class of cases, the prisoner be not required to furnish security for the costs of the <ORG>.

14. We finally direct, under Clause 42, that a complete copy of the record (to be printed in the usual manner) be transmitted for the use of their Lordships of <ORG>. This will be prepared, as is done in capital eases, at the cost of the <ORG> and will include-

(i) the record of the proceedings before the Committing Magistrate;

(ii) the record of the proceedings at the <NAME>. An accurate copy must be obtained of the notes of the trial Judge;

(iii) the record of the proceedings under Clause 26 of the Letters Patent;

(iv) the record of the present proceedings under Clause 41 of the Letters Patent.

15. We further direct that the memorandum furnished by Mr. Justice <NAME> to the members of <ORG> (from which an extract was read out in open <ORG>) be printed in its entirety as a confidential document and be transmitted in a sealed cover, to be placed before their Lordships for such use as their Lordships may determine. We consider it essential that all the materials available to this <ORG> should be placed at the disposal of their Lordships.

16. Let six copies of the Paper Book when printed be furnished free of charge to the prisoner.


PETITIONER: COMISSIONER OF INCOME TAX, AMRITSAR Vs. RESPONDENT: M/S.SHIV PRAKASH JANAK RAJ & CO.PVT. LTD. ETC. DATE OF JUDGMENT: 30/09/1996 BENCH: B.P. JEEVAN REDDY, SUHAS C. SEN ACT: HEADNOTE: JUDGMENT:

J U D G M E N T B.P.JEEVAN REDDY, J.

These appeals are preferred by the <ORG> against the judgment of <ORG> answering the questions, referred at the instance of the assessee, in favour of the assessee and against the <ORG>. The question involved in all these appeals are common. It would be sufficient if we take the case of one of the assessees, M/s.Shiv Prakash Janak Raj & Co.(P) Ltd. Four assessment years are relevant in this case, viz., Assessment Years 1968-69, 69-70, 1970-71 and 1971-72. The two questions referred under Section 256(1) of the Income Tax Act, 1961 are:

"(i) Whether, on the facts and in the circumstances of the case, the <ORG> was right in holding that the interest for the assessment year 1971-72, had already accrued to the assessee on October 31, 1970, under the mercantile system of accountancy?

(ii) Whether, on the facts and in the circumstances of the case, the <ORG> was right in holding that the subsequent relinquishment of interest by a resolution dated November 24, 1970, did not affect the tax liability of the assessee on accrual basis?"

The partners of a firm, <ORG> [the Firm], are also the shareholders/directors of the assessee-company. The assessee-company had advanced a loan to the firm. During the accounting year relevant to the Assessment Year 1966-67, it charged interest in a sum of Rs.25,048/- on the loan so advanced. Similarly, for the Assessment Year 1967-68, it charged interest in a sum of Rs.25,843/-. For the four assessment years concerning herein, however, the assessee adopted a different course. [The accounting year adopted by the assessee was the year ending on 31st October 31] In respect of the Assessment Year 1968-69 [year ending October 31, 1967], the assessee-company passed a resolution on October 9, 1967 [i.e., before the end of the accounting Year] deciding not to charge interest from the firm in view of the difficult financial position of the firm. For the next three assessment years, i.e., Assessment Years 1969-70, 1970-71 and 1971-72, similar resolutions were passed on February 26, 1969, March 16, 1970 and November 24, 1970 respectively. In other words, in the case of last three assessment years, the resolution deciding not to charge interest on the loan advanced to the firm was passed after the expiry of the relevant accounting year. Indeed, the resolution says that the firm had approached the assessee- company to waive the interest on the loan for each of the said years and that on such representation that the directors of the assessee-company [who were also partners in the said firm] decided that no interest shall be charged for each of the said three assessment years.

In the assessment proceedings relating to the said four assessment years, the Income Tax Officer took the view that inasmuch as the loans in question were interest-bearing loans and because the assessee-company had relinquished the interest without any commercial considerations and further because the directors/ shareholders of the assessee-company were interested in the firm, it was a case of collusion between them to evade the tax liability. Accordingly, he added an amount towards interest calculating it at the rate of fifteen percent per annum. On appeal, the Appellate Assistant Commissioner found that inasmuch as the resolution to waive the interest was passed after the expiry of the accounting year and further because the assessee-company was following the mercantile system of accounting, the interest must be held to have already accrued to the assessee before it was waived. He, however, reduced the rate of interest to nine percent. With that modification, he dismissed the appeals. The assessee thereupon filed a further appeal to the <ORG> but without success. The <ORG> observed that even though no entries were made in the books of the assessee-company or of the firm with respect to receipt or payment of interest, that circumstance is of no relevance in view of the facts that the resolutions were passed after the expiry of the accounting year that the assessee was maintaining its accounts on mercantile business and further that the relinquishment of interest was not for any commercial reasons. On reference, however, <ORG> took a contrary view purporting to follow the decision of this Court in <CITATION> [(1973) 89 I.T.R.266]. <ORG> held that in view of the said decision, the principle of earlier decision of this Court in <CITATION> [(1971) 82 I.T.R.835] cannot be applied to this case.

In these appeals, it is contended by <NAME>, learned senior advocate for the appellant-Revenue, that in the facts and circumstances of the case, the view taken by the <ORG> was the correct one being consistent with the decisions of this Court and that <ORG> was in error in holding to the contrary. <NAME>, learned counsel for the assessee, however, sought to support the reasoning and conclusion of <ORG>.

Before we refer to the decisions of this <ORG>, it is necessary to reiterate the basic facts of the case. For the previous two assessment years, viz., 1966-67 and 1967-68, the assessee-company did charge interest on the loan advanced by it to the firm which shows that the loan was an interest-bearing loan. The second circumstance to be noticed is that the resolution waiving interest was passed after the expiry of the relevant accounting year in the case of three subsequent assessment years, viz., Assessment Years 1969-70, 1970-71 and 1971-72. Only in the case of Assessment Year 1968-69, was the resolution passed before the expiry of the accounting year. Thirdly, the assessee-company was maintaining its accounts on mercantile basis. Yet another circumstance to be noticed is that the <ORG> has found it as a fact that the waiver was not based upon any commercial considerations. Of course, no entries were made in the accounts of the assessee-company, or for that matter in the accounts of the firm, in respect of four assessment years concerned herein, that any interest was received or paid. On these facts, it has to be held that in the case of three subsequent assessment years, the interest had accrued to the assessee notwithstanding the fact that no entries may have been made in the accounts of the assessee to that effect. The waiver of interest after the expiry of the relevant accounting year only meant that the assessee was giving up the money which had accrued to it; It cannot be said, in the circumstances, that the interest amount had not accrued to the ascessee. Therefore, the <ORG> was right in taking the view it did in respect of Assessment Years 1969- 70, 1970-71 and 1971-72. In the case of Assessment Year 1968-69, however, the resolution was passed before the expiry of the accounting year and though the finding of the <ORG> is that the said waiver was not actuated by any commercial considerations, yet the learned counsel for the <ORG> did not press the <ORG>'s case so far as this assessment year is concerned.

In <ORG>, the relevant facts are the following: the assessee which was the managing agent of its sursidiary company, maintained its accounts on the mercantile system. It was entitled to receive an office allowance of Rupees one thousand per month, a commission at 12 1/2 per cent of the net profits of the managed company and an additional commission of 1 1/2 per cert on all purchases of cotton and sales of cloth and yarn. In the accounting year ended on December 31,1954, and December 31, 1955, the managed-company suffered losses and the assessee earned only commission on the sale of cloth and yarn for the two years. The total amounts including the office allowance which the assessee was entitled to receive were Rs.50.719/- and Rs.13,963/- for the two years. Under clause 2(e) of the commission was due to the assessee on December 31, 1954 and December 31, 1955 respectively and it was payable immediately after the annual accounts of the managed company had been passed in general meetings, which were held on November 24, 1955 and July 21, 1956 respectively. By resolutions of its board of directors dated April 4, 1955 and June 19, 1956 respectively [i.e., after the commission had become due but before it had become payable in terms of clause 2(e)], the assessee relinquished its commission on sales and office because the managed had been suffering heavy losses in the past years. The <ORG> held that the relinquishment by the assessee of its remuneration after it had become due was of no effect. It also rejected the assessee's claim that amounts relinquished were allowable under section 10(2)(xv) of the Income Tax Act, 1922. <ORG> agreed with the view taken by the <ORG>. On appeal, this Court agreed with the view taken by <ORG> and the <ORG>. It held that the commission had accrued to the assessee on December 31, 1954 and December 31, 1955 and the fact that the payment was deferred till after the accounts had been passed in the meetings of the managed company did not affect the accrual of the income. It was held that since the assessee had chosen to give up unilaterally the amounts accrued to it, it could not escape the liability to tax on those grounds. <NAME>,J., speaking for <ORG> made the following observations which are apposite to the issue concerned herein:

"The appellant-company admittedly was maintaining its accounts according to the mercantile system. <ORG> is well known that the mercantile system of accounting differs substantially from the cash system of book-keeping. Under the cash systems it is only- actual cash receipts and actual cash payments that are recorded as credits and debits; whereas under the mercantile system, credit entries are made in respect of amounts due immediately they become legally due and before they are actually received; similarly, the expenditure items for which legal liability has been incurred amounts in question are actually disbursed. Where accounts are kept on mercantile basis, the profits or gains are credited though trey are not actually realised, and the entries thus made really show nothing more than an accrual or arising of the said profits at the material time. The same is the position with regard to debits made. (See Indermani Jatia y. Commissioner of Income-tax [1959] 35 I.T.R.298; [1959] Suppl.1 S.C.R.45 (S.C.).....In the present case, the amounts of income for the two years in question were given up unilaterally after they had accrued to the appellant-company. As such, the appellant could not escape the tax liability for those amounts."

The learned Judge also quoted with approval certain observations made by Hidayatullah,J. [as he then was] in <CITATION> . [(1962) 46 I.T.R 144], which we shall refer to presently. The ratio of this decision clearly support the <ORG>'s case.

In <ORG>, the facts are the following: the respondent, which was the managing agent of two companies, maintained its accounts on the mercantile system. It was entitled to an agreed managing agency commission and an office allowance from each of the managed companies. No date for payment of the commission was stipulated in the managing agency agreements. The accounting year of the respondent as well as the managed companies was the financial year. The respondent gave up the managing agency commission from both the managed companies for the Assessment Years 1954-55 to 1956-57, after the end of the relevant financial Years but before accounts were made up by the managed companies. It also gave up before the end of the relevant financial Years its office allowance from one of the managed companies for the Assessment Years 1955-56 and 1956-57. <ORG> held that the commission given up was not the respondent's real income and that since it was given up op grounds of commercial expediency, it was an allowable deduction under Section 10(2)(xv) of the Indian Income Tax Act, 1922. In relation to office allowance, the <ORG> found that the financial position of the managed company was not sound during the relevant accounting years that it was necessary for the respondent to give up the office allowance in order to stabilise the finances of the managed company and because of the sacrifice made by the respondent the finances of the managed company improved and as a result the respondent was able to earn more profits in later years. On reference made under Section 66(2) , <ORG> opined that (1) the commission foregone by the respondent-assessee was not its real income. [On that basis, it declined to answer the question whether the amounts of the commission foregone were allowable as revenue expenditure under Section 10 {2)(xv) of the 1922 Act] and (2) that the office allowance foregone was deductible as business expenditure under Section 10(2)(xv) . On appeal, this Court affirmed the view taken by <ORG>. We are, however, concerned only with the first answer given by <ORG>. In our opinion, there is no contradiction or inconsistency between the holding in this case and the holding in <ORG>. In this case, the important fact found was that the money became due to the assessee not at the end of the accounting year, but on the date the managed company made up its accounts. Indeed, no date was fixed in the agreement for payment of the commission and the assessee gave up its commission even before it accrued to it, i .e., before the managed company made up its account. It is for this reason, this Court held that the commission had not accrued to the assessee by or before the date it gave it up. Indeed, <NAME>,J., speaking for himself and <NAME>,J., specifically referred to the decision in <ORG> and distinguished it on the above basis. We are, therefore, unable to agree with <ORG> that by virtue of the decision of this Court in <ORG>, the principle of <ORG> does not apply to the present case. The facts of the present case [with respect to three assessment years, viz., 1969-70, 1970-71 and 1971-72] do squarely fall within the principle of <ORG>.

<CITATION> [(1986) 158 I.T.R.102], the facts were the following: the appellant-<ORG> maintained its accounts on the basis of mercantile system. It was charging interest on the loans advanced by it. Some of the loans had become "sticky", i.e., their recovery had become extremely doubtful. The <ORG>, however, charged interest on these loans also, debiting the account of the concerned parties. But instead of carrying the interest amount to the profit and loss account, the appellant remitted the said interest amount to a separate account called "the Interest Suspense Account". In the course of its assessment, the <ORG> claimed that having regard to the poor financial condition of the said debtors and the poor chances of recovery of interest from them, the interest amount due from them was taken to the "Interest Suspense Account" to avoid showing inflated profits by including hypothetical and unreal income and further that the interest on such sticky advances was not its real Income and, hence, not taxable. Both the <ORG> and <ORG> rejected the plea. On appeal, this <ORG>, by majority, <NAME> and <NAME><NAME>., [<NAME>,J. dissenting] affirmed the decision of <ORG>. This <ORG> held that the interest on sticky advances did accrue to the appellant-<ORG> according to the mercantile system of accounting and that, indeed, the appellant had debited the respective parties with interest. The appellant, however, did not chose to treat the debt as bad debts but carried the interest amount to the 'Interest Suspense Account". Mere crediting of the said interest amount to, what it called the "Interest Suspense Account", without treating it as a bad debt or irrecoverable interests was repugnant to Section 36 (1)(vii) and Section 32(3) of the Act and that the concept af real income does not help the appellant-<ORG>. It was observed that the concept of real income cannot he so read as to defeat the object and the provisions of the Act. <NAME>,J., in his opinion, discussed all the relevant cases on the subject including <ORG> and <ORG> as well as the derision of this <ORG> in <ORG> and stated the proposition emerging therefrom in the following words:

"(1) It is the income which has really accrued or arisen to the assessee that is taxable. Whether the income has really accrued or arisen to the assessee must be Judged in the light of the reality of the situation. 12) The concept of real income would apply where there has been a surrender of income which in theory may have accrued but in the reality of the situation, no income had resulted because the income did not really accrue. (3) Where a debt has become bad, deduction in compliance with the provisions of the Act should be claimed and allowed. (4) Where the Act applies, the concept of real income should not be so read as to defeat the provisions of the Act. (5) If there is any diversion of income at source under any statute or by overriding title, then there is no income to the assessee.

(6) The conduct of the parties in treating the income in a particular manner is material evidence of the fact whether income has accrued or not. (7) Mere improbability of recovery, where the conduct of the assessee is unequivocal, cannot be treated as evidence of the fact that income has not resulted or accrued to the assessee. After debiting the debtor's account and not reversing that entry - but taking the interest merely in suspense account cannot be such evidence to show that no real income has accrued to the assessee or been treated as such by the assessee. (8) The concept of real income is certainly applicable in judging whether there has been income or not but, in every case, it must be applied with care and within well-recognised limits."

To the argument of real income pressed with great persistence in that case, the learned Judge responded in the following words:

"We were invited to abandon legal fundamentalism. With a problem like the present one, it is better to adhere to the basic fundamentals of the law with clarity and consistency than to be carried away by common cliches. The concept of real income certainly is a well-

accepted one and must be applied in appropriate cases but with circumspection and must not Be called in aid to defeat the fundamental principles of the law of income-tax as developed."

We respectfully agree with the propositions as well as the observations of the learned Judge with respect to the plea of real income.

We may now deal with the decision in <ORG>, relied upon strongly by <NAME>, learned counsel for the respondent-assessee. The assessee-firm was the managing agent of two shipping companies. Under the managing agency agreement, the assessee was entitled to receive as commission ten percent of the freight charged. Between April 1, 1947 and December 31, 1947, a sum of Rs.1,71,885/- from one company and Rs.2,56,815/- from the other company became due to the assessee as commission at the aforesaid rate of ten percent. In the books of account of the assessee, these amounts were credited to itself and debited to the managing companies. But what happened even before December 31, 1947 is of relevance. In November 1947, the assessee desired to have the managing agency transferred to two private limited companies, <ORG> and <ORG>, floated by the assessee-firm. Certain shareholders of the managed companies objected to the rate of commission and suggested that the commission should be either ten percent of the profits of the managed companies or 2 1/2 percent of the freight receipt. The board of directors of <ORG> agreed with the said suggestion and invited the assessee-firm to reduce its managing commission to 2 1/2 percent of the freight for that year as well as for the future years. The assessee accepted the said offer and agreed to voluntarily reduce its managing agency commission both in respect of that year as well as for the future years to 2 1/2 percent of the total freight. A similar procedure was followed in the case of the other managed company [<ORG>]. On this basis, both the managed companies appointed the two private limited companies aforesaid as their managing agents at their extraordinary meeting held on December 30, 1947 - the appointment was to take effect from January 1, 1948. Subsequently, at the annual general meetings cf the two man managed companies held in December, 1948, the commission was reduced from ten percent of the freight to 2 1/2 percent as already agreed. The assessee accordingly gave up seventy five percent of its earnings during the aforesaid year of account [April 1, 1947 to December 1, 1947] and disclosed only the remaining twenty five percent amount as its income in its assessment proceedings. The Income Tax Officer and the Appellate Assistant Commissioner held that the commission amount @ ten percent of the freight had already accrued to the assessee during the previous year ending on March 31, 1948 and since the assessee had given up seventy five percent of the said amount after such accrual, the whole of the commission amount, which was actually credited in the books of the assessee, is includible in its income. On appeal, there was a difference of opinion between the two members of the <ORG>. On reference to the President, he held that even though the actual reduction took place after the year of account was over, there was in fact an agreement to reduce the commission even during the currency of the accounting year and hence, it cannot be said that the larger income [@ ten percent] had accrued to the assessee-firm. Accordingly, the assessee's appeal was allowed by the <ORG>. Thereupon, the following two questions were referred to <ORG> under Section 66 , viz.:

"(1) Whether the two sums of Rs.1,36,903 and Rs.2,00,625 are income of the 'previous year' ended March 31,1948?

(2) If the answer to the first question is in the affirmative, whether they represent an item of expenditure permissible under the provisions of section 10(2)(xv) of the Indian Income-tax Act, 1922, in computing the assessee's income of that 'previous year' from its managing agency business?"

<ORG> agreed with the view taken by the President of the <ORG> and answered the first question in the negative, i.e., in favour of the assessee and against the <ORG>. It declined to express any opinion on the second question. This Court affirmed the approach adopted by the President of the <ORG> and <ORG>. It pointed out:

"Here too, the agreements within the previous year replaced the earlier agreements, and altered the rate in such a way as to make the income different from what had been entered in the books of account. A mere book-keeping entry cannot be income, unless income has actually resultad, and in the present case, by the change of the terms the income which accrued and was received consisted of the lesser amounts and not the larger. This was not a gift by the assessee firm to the managed companies. The reduction was a part of the agreement entered into by the assessee firm to secure a long-term managing agency arrangement for the two companies which it had floated."

<NAME>,J., speaking for himself and <NAME>,J., observed that the facts of the case before them was identical to the facts of the case in <CITATION> . [(1960) 39 I.T.R.8] and that the principle of the said decision squarely applied to the facts of the case before them. In the course of the judgment, thy learned Judge observed:

"Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a 'hypothetical income', which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. This is exactly what has happened in this case, as it happened in the Bombay case [ <CITATION> . (1956) 29 I.T.R.987), which was approved by this court."

We may also mention that when this case was cited before this Court in <ORG>, it has been distinguished on the basis of the above fact, viz., that the agreement to give up seventy five percent of the commission was arrived at during the relevant previous year itself, i.e., before the close of the previous year and, therefore, what accrued to the assessee at the end of the relevant previous year was the commission at 2 1/2 percent of the freight alone and not @ ten percent. It cannot, therefore, be said that this case lays down any principle contrary to the one enunciated in <ORG>. Since the facts of the case in <ORG> are identical to the facts in <ORG>, we do not think it necessary to refer to the facts of that case separately.

<NAME> submitted that applying the real income theory, it must be held that no interest had really accrued to or received by the assessee for the said three assessment years [1969-70, 1970-71 and 1971-72] and that indeed, no such entries were made in the account books of the assessee. He submitted that, as a fact, no income was received and that the assessee cannot be asked to pay tax on income which it had not received. We answer this contention by repeating the words of <NAME>, J. in <ORG>, which we have extracted hereinabove. The concept of real income cannot be employed so as to defeat the provisions of the Act and the Rules. Where the provisions of the Act and the Rules apply and followed. There is no room- nor would be permissible for the court - to import the concept of real income so as to whittle down, qualify or defeat the provisions of the Act and the Rules.

For the above reasons, the appeals relating to Assessment Years 1969-70, 1970-71 and 1971-72 [in the case of <NAME> & Co.] are allowed and the appeal relating to Assessment Year 1968-69 [in the case of <NAME> & Co.] is dismissed as not pressed. For the same reasons, the other appeals are allowed. The judgment of <ORG> in all these matters [except with respect to the Assessment Year 1968-69 in the case of <NAME> & Co.] is set aside. The questions referred to are answered in favour of the <ORG> and against the assessee [except in the appeal relating to Assessment Year 1968-69 in the case of <NAME> & Co.].

There shall be no order as to costs.


PETITIONER: <ORG> ETC. Vs. RESPONDENT: COMMERCIAL TAX OFFICER, VII CIRCLE, HYDERABAD ETC. DATE OF JUDGMENT25/10/1976 BENCH: <NAME>, JASWANT BENCH: <NAME>, JASWANT KHANNA, HANS RAJ CITATION: 1977 AIR 1459 1977 SCR (1) 914 1977 SCC (1) 441 CITATOR INFO : E&D 1985 SC1211 (41) O 1986 SC 649 (21,23,30,40) D 1987 SC 611 (10) RF 1991 SC 735 (20) ACT: Andhra Pradesh General Sales Tax Act, 1957--Excise and countervailing duty paid by the buyers directly into the <ORG>--Neither the invoice nor books of the assessee (manufacturer) show the excise duty--Excise duty--If fails under "any sums charged by the dealer" occurring in the definition of "turnover". HEADNOTE: Section 2(1)(s) of the Andhra Pradesh General Sales Tax Act, defines 'turnover" to mean the total amount set out in the bill of Sale as the consideration for the sale or purchase of goods including any sums charged by the dealer for anything done in respect of goods sold at the time of or before the delivery of the goods. The appellants in the first two sets of appeals are manufacturers of Indian liquors. A buyer of Indian liquor from the distilleries pays, in the first instance, the excise duty in the <ORG> and obtains a distillery pass for the release of liquor. On presentation of the distill- ery pass an invoice is prepared by the manufacturers showing the price of liquor. Neither invoice. nor the account books of the manufacturers show the excise duty paid by the purchasers. Under the system in vogue in the second set of appeals, the appellant who is the owner of a bonded warehouse pre- pares a bill for the liquor required by the purchaser who pays the countervailing duty in the <ORG> in his own name and obtains a pass from the excise authorities for the removal of the liquor from the warehouse. In both the, cases <ORG> included the excise duty in the taxable turnover of the appellants. The High, Court dismissed the writ petition of the appel- lants impugning the orders of the Sales Tax Officers. Allowing the appeal, HELD: (1) Excise duty and countervailing duty paid directly by the buyers for the Indian liquors did not con- stitute a part of the turnovers or, the appellants. [924 C] (2) The phrase 'any sums charged by the dealer' occur- ring in the definition of 'turnover' has to be understood in its ordinary popular sense. So construed, it means what is demanded and collected or received by the dealer. [923 B] In the instant case the excise duty or the countervail- ing duty has not been charged or received by the dealer but has been charged by the excise authorities and deposited directly by the buyers of the liquor in the State exchequer. It cannot be said that the excise duty or the countervailing duty was charged by the appellants. <CITATION> ., this Court held in relation to the definition of turn-over that the aggregate amount includes the tax as part of the price paid by the buyer; the amount goes into the common till of the dealer till 'he pays the tax; it is the money which he keeps using for his business till he pays the tax; it is the money which he keeps using for his busi- ness till he pays it over to Government; it becomes a part of the circulating capital of the tradesman and is turned over in his business. Secondly the price paid by the pur- chaser was not so much money for the cause turnover means the amount of money which is turned over in the busi- ness. [923 E-G] 915 In the instant case the excise and the countervailing duties did not go into the common tills of the appellants and did not become a part of their circulating capital. The Sales tax authorities were not competent to include in the turn- overs of the appellants the excise duty and the countervail- ing duty which was not charged by them but was charged by and. paid directly to the excise authorities by the buyers of the liquors. [924 <CITATION>  S.C.R. 837 followed. <CITATION>  Supp. 3 S.C.R. 436, Sea Customs ACT  3 S.C.R. 787, <CITATION>  3 S.C.R. 219, <CITATION> .  1 S.C.R. 865 & <CITATION> .  3 S.C.C. 421 referred to. <CITATION> . (122 S.T.C. 476) and (13 S.T.C. 98) referred to and distinguished. The Government of Andhra (now <CITATION> . (8 S.T.C. 114) distinguished. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 248-251 of 1976.

(Appeals by Special Leave from the Judgment and Order dated 28-11-1975 of <ORG> in Writ Petitions Nos. 1195-1198/75).

CIVIL APPEALS Nos. 934-936 of 1976.

(Appeals by Special Leave from the Judgment and Order dated 28-11-1975 of <ORG> in Writ Petitions Nos. 3931, 3944 and 4029/75).

CIVIL APPEALS No. 693 of 1976.

(Appeal by Special Leave from the Judgment and Order dated 28-11-1975 of <ORG> in Writ Petition No. 6790/74).

<NAME> and <NAME> for the Appellant (CAs 248- 251/76).

<NAME> for the Appellant (CAs. 934-936/76). <NAME> and <NAME> for the Appellant (CA. 693/76). <NAME>, Attorney General for India, <NAME>, <NAME> and <NAME> for the Respondents (in CAs. 248- 251/76 and CAs. 934-936/76).

T.V.S.N. Chari for the Respondent (In CA No. 693/76). The Judgment of the Court was delivered by <NAME>, J.--This batch of appeals by special leave which are directed against three separate judgments of <ORG> at Hyderabad dismissing three sets of writ petitions Nos. 1195 to 1198 of 1975,3931, 3944 and 4929 of 1975 and 6790 of 1974 filed by the. appel- lants to challenge certain orders of the sales tax authori- ties made in respect of re-determination of their' turnover for certain years under the Andhra Pradesh General Sales Tax Act, 1957 (hereinafter referred to as 'the Act') shah be disposed of by this judgment, as they raise a common question as to whether the excise duty deposited directly in a State treas- ury or a sub-treasury by the purchasers of the Indian-made foreign liquor called 'Indian liquor' before removing the said liquor from a distillery and the countervailing duty remitted directly to a State Treasury or a sub-treasury by the purchasers of the aforesaid specie of liquor before removing it from a bonded warehouse can properly be said to form part of the turnover of .he manufacturer and of the owner of the bonded warehouse respectively and as such liable to sales tax under the Act.

The circumstances which have given rise to these appeals lie in a short compass and may be briefly stated: The appel- lants in the first two sets of Appeals Nos. 248 to 251 of 1976 and 934 to 936 of 1976 carry on the business of manu- facture of 'Indian liquors' in their distilleries estab- lished in Andhra Pradesh under licences issued to them by the Commissioner of Excise under the Andhra Pradesh Excise Act, 1968 (Act 17 of 1968) and the rules made thereunder and sell their finished products to the wholesale dealers who in turn sell them to retail dealers. Under Rule 76 of the Andhra Pradesh Distillery Rules, 1970 removal of any liquor manufactured or stored without prepayment of the excise duty specified in rule 6 is forbidden. Rule 77 of the Rules prohibits issue of any liquor until its quantity and strength have been duly verified by the distillery officer. Rule 579 of the Rules authorises the distillery officer on payment of excise duty to grant a distillery pass for remov- al of the liquor fit for human consumption to the persons specified in the said rule including a person holding a licence for sale of liquor by wholesale or retail. Under Rule 81 of the Rules, every application for a distillery pass for removal of liquor has to be addressed in writing to the distillery officer and has to be accompanied by a challan in original for payment of excise duty therefor and a general or special permit for the purpose of removal of the liquor. Rule 82 of the Rules enjoins the distillery officer upon tender of cash payment of excise duty by the applicant to fill up the challan for presentation with the cash at a <ORG> or sub-<ORG> of the district in which the distillery is situate, and the applicant for distillery pass to present the <ORG> receipt in token of his having made payment of the duty where after the distillery officer has to affix the said receipt to the counterfoil of form D-

6. Rule 83 of the Rules casts responsibility upon an applicant for a distillery pass to, make a correct calcula- tion and full payment of the excise duty upon the liquor desired to be removed. Rule 84 of the Rules requires, the distillery officer to issue the liquor under a pass in form D-6 sending a duplicate' thereof to the Excise Superintend- ent of the district of destination on being satisfied that the applicant is entitled under the Rules to remove the liquor and has made payment of the requisite excise duty. Accordingly every buyer of the Indian liquor from either of the 'appellants' distilleries during the years in ques- tion obtained the distillery pass for release of the liquor after making payment of the excise duty and presented the same at the concerned distillery whereupon bill of sale or invoice was prepared by the distillery showing the price of the liquor. The said bill did not include the excise duty paid by the buyer. The appellants' books of accounts also did not contain any reference regarding the excise duty paid by the purchasers in the manner stated above. The appellants paid the sales tax in full as per final assessments made by the sales tax authorities under the Act. it appears that after the completion of the assessments of the sales tax under the Act for the years in question, the Commercial Tax Officer felt that there had been a failure to include the excise duty paid on the aforesaid liquors vended by the appellants in their taxable turnover. Accordingly, acting under the provisions of section 14(1) of the Act, the Commercial Tax Officer issued notices in February, 1975 to the appellants in the afore- said first two sets of appeals to show cause why the assess- ments be not reopened. Aggrieved by the said action of the Commercial Tax Officer, the appellants filed writ petitions Nos. 1195 to 1198 of 1975 and 3931, 3944 and 4929 of 1975 in <ORG> challenging the said notices which, as already stated, were dismissed by <ORG>.

The appellant in Appeal No. 693 of 1976 is a firm which is a licensed wholesale dealer in liquors and owner of a bonded warehouse under the Andhra Pradesh Indian Liquor (Storage in bond) Rules, 1969 where it stores or deposits Indian Liquors such as whisky, brandy. gin etc. imported by it from various States outside the State of Andhra Pradesh without prepayment of countervailing duty or other fee and issues the same according to the rules to its customers. The modus operandi of the appellant is that it makes a bill for the value of the liquor required by an intending purchaser, who thereafter pays the requisite countervailing duty in his own name and the Excise Officer incharge of the bonded warehouse grants him a pass entitling him to remove the liquor from the warehouse. According to the appellant, it gets only the price of the liquor from its buyers. For the assessment year 1971-72, the Commercial Tax Officer, Hydera- bad III by its order dated August 16, 1972 included the amount representing the countervailing duty paid by the purchasers in respect of the Indian liquors in bond which was not included in the bills of sale issued by the appel- lant. On appeal, the Assistant Commissioner by its order dated March 26, 1973 deleted from the turnover of the appel- lant the item pertaining to the excise duty paid directly by the purchasers holding that the excise duty so paid by the purchasers did not, in the circumstances, form part of the turnover of the appellant. Sometime thereafter, <ORG> by its order dated August 5, 1974 passed in T.A. Nos. 331 of 1973 and 5 of 1974 upheld the assessment made under similar circumstances by the Commer- cial Tax Officer, Vijayawada, on the turnover of <ORG> Shaw <ORG> Thereupon the Deputy Commissioner, Commer- cial Taxes, Hyderabad by virtue of the power vested in him under section 20 of the Act issued the impugned notice dated October 9, 1974. to the appellant calling upon it to show cause why the order passed by the Assistant Commissioner, <ORG> on March 26, 1973 should not be set aside and the original assessment order of the Commercial Tax Officer dated August 16, 1972 restored. The appellant was also required to file objections and adduce evidence in support thereof within 7 days from the date of receipt of the impugned notice, Aggrieved by the notice, the appellant flied a petition being petition No. 6790 of 1974 before <ORG>. seeking issue of an appropriate writ, order or direction declaring that the appellant was not liable to pay sales tax on excise duty paid by the purchasers in their own names and restraining the Deputy Commissioner, <ORG>, Hyderabad, respondent in the appeal from taking further proceedings in pursuance Of the said notice. The said petition having been dismissed, the appellant has, as already stated, come up in appeal to this Court. At the hearing of these appeals, Mr. <NAME> and the other counsel appearing on behalf of the appellants have assailed the aforesaid Judgments and orders of <ORG> by urging in the first instance that the view taken by <ORG> about the nature and character of excise duty and countervailing duty is not correct. They have also after trying in vain to argue for considerable length of time that on the true construction of the Andhra Pradesh Excise Act, 1968, the Andhra Pradesh Distillery Rules, 1970, the Andhra Pradesh Foreign and Indian Liquor Rules, 1970 and the Andhra Pradesh Indian Liquor (Storage in bond) Rules, 1969, a manufacturer of Indian liquors and an owner of a bonded warehouse are not primarily responsible for payment of the excise duty or countervailing duty, as the case may be, contended that a manufacturer and owner of the bonded ware- house are not solely responsible for payment of the said duties and a purchaser of the liquor who obtains a distill- ery pass or a werehouse pass and transport permit is also legally responsible for payment therefor and if he does pay the duty, it is something which he does in discharge his own statutory liability and not something which he does for or on behalf or for the benefit of the manufacturer or the owner of the bonded warehouse. They have alternative- ly contended that on a true construction of the expression 'turnover' as defined in section 2(1) (s) of the Act, the determinative factor is the total amount set out in the bill of sale as consideration for the sale of the liquor and since the excise duty or the countervailing duty was direct- ly paid by the purchasers to the excise authorities and did not at all form part of the-consideration for the sale of the said liquor as set out in the bills of sale, it was not permissible for the sales tax authorities to assess the turnover by roping therein something which was not set out in the bills of sale as consideration for the sales. They have lastly contended that in any event as the excise duty or the countervailing duty was at no time charged by the appellants for anything done in respect of the liquors sold but was charged by the excise authorities before removal of the liquors under the Andhra Pradesh Excise Act, 1968 and the rules made thereunder, it could not constitute a part of the turnover and taxed under the Act.

Although some controversy was sought to be raised by counsel for the appellants regarding the nature and charac- ter of the excise duty and countervailing duty but as rightly pointed out by the learned Attorney General, the matter has been put beyond doubt by the decisions of this Court. <CITATION> ) after a review of the authorities bearing on the matter, it was held by this Court as follows :--

(1) [1962] supp. 3 S.C.R. 436.

'The excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. Subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost is not lost. The method of collection does not affect the essence of the duty but only relates to the machinery of collection for administrative convenience." Again In re Sea Customs Act(1) it was ob-

served:

"The question with respect to excise duties was considered by this Court in the case of Amalgamated Coal fields <CITATION> (A.I.R. 1962 S.C. 1281). After considering the previous decisions of <ORG> In re. The Central Provinces and Berar Sales of Motor and Lubricant Taxation Act (1939 F.C.R.

18); <CITATION> (1942 F.C.R. 90) and of <ORG> in Governor General in Council v. Province of Madras (1945 F.C.R. 179), this Court observed as follows at p. 1287:

"With great respect, we accept the principles laid down by the said three deci- sions in the matter of levy of an excise duty and the machinery for collection thereof. Excise duty is primarily a duty on the produc- tion or manufacture of goods produced or manufactured within the. country. It is an indirect .duty which the manufacturer or producer passes on to the ultimate consumer, that is, ultimate incidence will always be on the customer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience."

This will show that the taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. We may in this connection contrast sales tax which is also imposed with reference to goods sold, where the taxable event, is the act of sale. Therefore, though both excise duty and sales-tax are levied with reference to goods, the two are very different imposes; in one case the imposition is on the act of manufacture or production while in the other it is on the act of sale. In neither case therefore can it be said that the excise duty or sales tax is a tax directly on the goods for in that event they will really become the same tax. It would thus appear 'that duties of excise partake of the nature of indirect taxes as known to standard works on economics and are to be distinguished from direct taxes like taxes on property and income."

(1) [1964] 3 S.C.R. 787.

It is, therefore, clear that excise duty is a duty on the production or manufacture of goods produced or manufac- tured within the country though as observed by one of us (<NAME>, J.) in <CITATION> (1) laws are to be found which impose a duty of excise at stages subsequent to the manufacture or production. The position with regard to the nature and character of countervailing duty has equally been made clear in a number of decisions of this Court. <CITATION> .(2) which was followed in <CITATION> . (2), <NAME>, J. (as he then was) observed:

"This brings us to the consideration of the meaning of the expression "countervailing duties" as used in Entry 51, List 1I of the Seventh Schedule to the Constitution. The expression "countervailing duties" has not been defined in the Constitution or the Bihar & Orissa Act 2 of 1915. We have, therefore, to depend upon its etymological sense and the context in which it has been used in Entry 51. In its etymological sense, it means to coun- ter-balance; to avail against with equal force or virtue; to compensate for something or serve as an equivalent of or substitute for: see Black's Law Dictionary, 4th Edn. 421. This would suggest that a countervailing duty is imposed for the purpose of counterbalancing or to avail against something with equal force or to compensate for something as an equiva- lent. Entry 51 in List II of the Seventh Schedule to the Constitution gives power to <ORG> to impose duties of excise on alcoholic liquors for human consump- tion where the goods are manufactured or produced in the State. If also gives power to levy countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India. The fact that countervailing duties may be imposed at the same or lower rates suggests that they are meant to counterbalance the duties of excise imposed on goods manufactured in the State. They may be imposed at the same rate as excise duties or at "a lower rate, presumably to equalise the burden after taking into account the cost of transport from the place of manu- facture to the taxing State. It seems, therefore, that countervailing duties are meant to equalise the burden on alcoholic liquors imported from outside the State and the burden placed by excise duties on alcohol- ic liquors manufactured or produced in the State. If no alcoholic liquors similar to those imported into the State are produced or manufactured, the right to impose counter- balancing duties of excise levied on the goods manufactured in the State will not arise. It may, therefore, be accepted that countervail- ing duties can only be levied if similar goods are actually produced or manufactured in the State on which excise duties are being levied."

(1) [1976] 3 s.c.c. 219.

(2) [1966] 1 S.C.R. 865.

(3) [1976] 3 S.C.C. 421.

Having seen that a provision can be inserted in the excise law for collection of the excise duty at a stage subsequent to the manufacture or production of the excisable article, we shall now proceed to examine the main contentions raised by counsel for the appellants. We have first to see as to how far the contention of counsel for the appellants that apart from a manufacturer of Indian liquors and an owner of a bonded warehouse (who in our opinion cannot but be regard- ed as primarily responsible for payment of excise duty and countervailing duty respectively in view of sections 21, 28 & 65 of the Andhra Pradesh Excise Act, 1968, and rules 3, 4, 5, 6, 67 & 76 of the Andhra Pradesh Distillery Rules, 1970, and condition No. 9 of the Distillery Licence granted under rule 5 of these Rules; rules 5 & 10 of the Andhra Pradesh Indian Liquor (Storage. in bond) Rules, 1969, conditions Nos. 7 & 10 of the licence granted in form B.W. 1 under rule 5(2). the phraseology of the application for receipt of liquor into the bounded warehouse prescribed by rule 9(2) and the terms of the counterpart agreement required to be executed by a licensee of an Indian liquor bonded warehouse under rules 3(2) and 5(2) of these Rules) the buyers of the said liquors are also liable under the law for payment of the aforesaid duties can be sustained. For a proper deter- mination of this question, it is necessary to recall the provisions of the Andhra Pradesh Distillery Rules, 1970 which have been set out in the earlier part of this judg- ment. The said rules particularly rules 79, 81, 82, 83 and 84 lend a good deal of support, in our opinion, to the contention of counsel for the appellants and make every intending buyer of the Indian liquor liable for payment of the excise duty before obtaining the distillery pass and lifting the quantity mentioned therein from 1he distillery. Accordingly agreeing with counsel for the appellants we hold that intending purchasers of the Indian liquors who seek to obtain distillery passes are also legally responsible for payment of the excise duty which is collected from them by the authorities of <ORG>. The position in regard to the countervailing duty is not,however dear though rule 10(1) of the Andhra Pradesh Indian Liquor (Storage in bond) Rules, 1969 and rules 5(2) and 17 of the Andhra Pradesh Foreign and Indian Liquor Rules, 1970 enable the intending buyers of Indian liquors to remove the same from a bonded warehouse on payment of the said duty, to the excise authorities.

. This is not, however, sufficient to dispose of the matter.The real and pivotal question that requires to be determined is whether the excise duty or the countervailing duty, as the case may be. paid directly to the excise authorities of the <ORG> or deposited directly in the <ORG> exchequer in respect of the Indian liquor by the buyers thereof before removing it from any of the aforesaid dis- tilleries or the warehouse can be said to form part of the taxable turnover of the appellants as according to section 5 of the Act which is the charging section sales tax is required to be paid by the appellants on their turnover of the year. It will be useful at this stage to advert to the definitions of the words 'turnover' and 'sale' as given in clauses (s) and (n) of sub-section (1) of section 2 of the Act. Shorn of unnecessary details, these definitions run as under:

"turnover" means the total amount set out in the bill of sale (or if there is no bill of sale, the total amount charg ed) as the consideration for the sale or purchase of goods (whether such consideration be cash, deferred payment or any other thing or value) including any sums charged by the dealer for anything done in respect of goods sold at the time of or before the delivery of the goods and any other sums charged by the dealer, whatever be the description,name or object thereof ......... . ...................

"sale" with all its grammatical varia- tions and cognate expressions means every transfer of the property in goods by one person to another in the course of trade or business, for cash, or for deferred payment, or for any other valuable consideration..... In the instant case, it is not disputed that excise duty or countervailing duty paid directly to the excise authorities by the purchasers of Indian liquors before removal thereof from the distilleries or the bonded warehouse on the strength of the distillery and warehouse passes was not included in the bills of sale as the consideration for the sales, but 1hat alone, according to the Attor- ney General, is not determinative of the matter. He has invited our attention to the second part of the definition of the word 'turnover' as set out above and has strenuous- ly urged that as in addition to the price of the liquor set out in the bills of sale as consideration for the sales, other sums charged by the dealer at the time of or before the delivery of the goods also form part of turnover, and according to the well estab- lished canon of construction, a taxing stat- ute has to be interpreted reasonably so that there is no evasion of the tax, the phrase 'any sums charged by the dealer' occurring in the aforesaid definition of the word 'tur- nover' must be 'construed as meaning any item of expense including the excise duty or the countervailing duty to which the buyers were put by the manufacturers of the liquors or the owner of the bonded warehouse. We find our- selves unable to accept the construction sought to be put by him as it is opposed to the plain meaning of the said phrase. It will be advantageous here to refer to the decisions of this <ORG> in. <CITATION> (1) where <NAME>, J. speaking for the Bench after quoting the observations made by Lord Russell of Killowen in <ORG> v. Duke of Westminster(2) which were approved by <ORG> in the <CITATION> (3) observed: "It is no doubt true that in construing fiscal statutes and determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the <ORG> satisfies the <ORG> that the case fails strictly within the provi- sions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be (1)  S.C.R. 837. (2) [19361 A.C.I, 24. (3) A.I.R. 1940 P.C. 183.

imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter. We must of necessi- ty, therefore, have regard to the actual provisions of the Act and the rules made thereunder before we can come to the conclu- sion that the appellant was liable to assess- ment as contended by the Sales Tax Authori- ties."

Bearing in mind the principle set out in A.V. Fernan-

<NAME>'s case (supra) the phrase 'any sums charged by the dealer' has to .be understood in its ordinary popular sense. So construing the phrase, it means "what is demand- ed and collected or received by the dealer." In the instant cases, the excise duty or the countervailing duty has, as already stated, not been charged or received by the dealer but has been charged by the excise authorities and deposited directly by the buyers of the liquor in the <ORG> exchequer. It is, therefore, difficult to hold that excise duty or' countervailing duty was charged by the appellants. The reason for inclusion of tax or a duty in the turn- over was explained in two decisions of this Court bearing the same cause title viz. <CITATION> . (12 S.T.C. 476) and (13 S.T.C. 98). In the first of these cases, it was observed :--

"Under the definition of turnover the aggre-

gate amount for which goods are bought or sold is taxable. This aggre gate amount includes the tax as part of the price paid by the buyer. The amount goes into the common till of the dealer till he pays the tax. It is money which he keeps using for his business till he pays it over to Government. Indeed, he may turn it over again and again till he finally hands it to Government." In the other decision, <NAME>, J. (as he then was) said:

"In laws dealing with sales tax, turn- over has, in England and America also, been held to include the tax. The reason for such inclusion is stated to be that the dealer who realises the tax does not hand it over forth- with to Government but keeps it with him, and turns it over in his business before he parts with it. Thus, the tax becomes,for the time being, a part of the circulating capital of the tradesman, and is turned over in his business. Again, it was said that the price paid by the purchaser was not so much money for the article plus tax but a composite sum. Therefore, in calculating the total turnover, there is nothing wrong in treating the tax as part of the turnover, because "turnover" means the amount of money which is turned .over in the business."

In the instant cases, the excise and countervailing duties did not go into the common tills of the appellants and did not become a part of their circulating capital. We are, therefore, of the view that the 9 --1338SCI/76 Sales Tax authorities were not competent to include in the turnovers of the appellants the excise duty and the counter- vailing duty which was not charged by them but was closed by and paid directly to the excise authorities by the buyers of the liquors as stated above.

The Full Bench decision of <ORG> in <CITATION> .(1) relied upon by the <ORG> is clearly distinguishable. In that case, it was the actual collection of certain sums as dharamam or charity by the dealer from the purchasers on the occasion of the sales that made the learned Judges to hold that they constitute part of the turnover. In Messrs George Oakes (Private) Ltd.'s case (supra) also, the tax in question was collected by the registered dealer.

We have, therefore, no hesitation in holding that the excise duty and the countervailing duty paid directly by the buyers of the Indian liquors as stated above did not consti- tute a part of the turnovers of the appellants. For the foregoing reasons, we allow the appeals and set aside the impugned judgments and orders. In the circum- stances of the case, we leave the parties to pay and bear their own costs of these appeals.

P.B.R. Appeals al- lowed. (1) 8 S.T.C. 114.