PETITIONER: <NAME> AND OTHERS Vs. RESPONDENT: <NAME> AND OTHERS. DATE OF JUDGMENT: 14/04/1954 BENCH: <NAME>, T.L. VENKATARAMA BENCH: <NAME>, T.L. VENKATARAMA MUKHERJEA, <NAME>, VIVIAN HASAN, <NAME> CITATION: 1954 AIR 340 1955 SCR 117 CITATOR INFO : R 1966 SC 634 (7) F 1977 SC1201 (3) RF 1981 SC 416 (34) R 1988 SC1531 (185) F 1991 SC 884 (14) RF 1991 SC1094 (3,11) R 1991 SC1494 (8) ACT: Suits Valuation Act (VII of 1887), s. 1 -Appeal undervalued and presented to a <ORG> of inferior jurisdiction-Whether a decree passed by it on the merits is a nullity-Whether mere change of form or error in a decision on the merits, prejudice within the meaning of section 11 of the Suits Valuation Act- Whether a party who invokes a jurisdiction of a <ORG> can complain of prejudice on the ground of over-valuation or under-valuation. HEADNOTE: The policy underlying section 11 of the Suits Valuation Act,as also of sections 21 and 99 of the Code of Civil Procedure, is that when a case has been tried by a <ORG> on the merits and judgment rendered, it should not be liable to be reversed purely on technical grounds, unless a failure of justice has resulted. The policy of the <ORG> has been to treat objections as to jurisdiction, both territorial and pecuniary, as technical and not open to consideration by an appellate <ORG>, unless there has been prejudice on the merits. Mere change of form is not prejudice within the meaning of section 11 of the Suits Valuation Act; nor a mere error in the decision on the merits of the case. It must be one directly attributable to over-valuation or under-valuation. Whether there has been prejudice or not is a matter to be determined on the facts of each case. The jurisdiction under section 11 is an equitable one to be exercised, when there has been an erroneous assumption of jurisdiction by a Subordinate <ORG> as a result of over-valuation or under- valuation and a consequential -failure of justice. It is neither possible, nor desirable to define such jurisdiction closely or confine it within stated bounds. 118 A party who has resorted to a forum of his own choice on his own valuation cannot himself be heard to complain of any prejudice. <NAME> v. <NAME> (I.L.R. 27 Patna 109); <CITATION> . 38 Cal. 639); <CITATION> . 36 Bom. 628) ; <CITATION> (46 I.A. 24) ; <CITATION> . 46 Mad. 631) <NAME> v. <NAME> (I.L.R. 55 All. 315) referred to. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 14 of 1953.

Appeal by special leave granted by <ORG>, by its Order dated the 29th October, 1951, from the Judgment and Decree dated the 19th July, 1950, of <ORG> at Patna (<NAME> and <NAME>.) in appeal from Appellate Decree No. 1152 of 1946 from the Judgment and Decree dated the 24th day of May, 1946, of <ORG> Additional District Judge in S. J. Title Appeal No. I of 1946 arising out of the Judgment and Decree dated the 27th November, 1945, of <ORG> at Monghyr in Title Suit No. 34 of 1944.

<NAME> (<NAME> and <NAME>, with him) for the appellants. <NAME> and <NAME> for respondents Nos. 1-9.

1954. April 14. The Judgment of the Court was delivered by <NAME> J.-This appeal raises a question on the construction of section 11 of the Suits Valuation Act. The appellants instituted the suit out of which this appeal arises, in <ORG>, Monghyr, for recovery of possession of 12 acres 51 cents of land situated in mauza Bardih, of which defendants Nos. 12 and 13, forming the second party, are the proprietors. The allegations in the plaint are that on 12th April, 1943, the plaintiffs were admitted by the second party as occupancy tenants on payment of a sum of Rs. 1,950 as salami and put into possession of the. lands, and that thereafter, the first party consisting of defendants Nos. 1 to 11 trespassed on them and carried away the crops. The, suit was accordingly laid for ejecting defendants Nos. I to II and for <ORG> profits, past and future, and it was valued at Rs. 2,950, made up of Rs. 1,950 being the value of the relief for possession and Rs. 1,000, being the past <ORG> profits claimed.

Defendants Nos.- I to II contested the suit. They pleaded that they had been in possession of the lands as tenants on batai system, sharing the produce with the landlord., from <ORG> 1336 and had acquired occupancy rights in the tenements, that the second party had no right to settle them on the plaintiffs, and that the latter acquired' no rights under the settlement dated 12th April, 1943. Defendants Nos. 12 and 13 remained ex-parte.

The Subordinate Judge held, relying on certain receipts marked as Exhibits A to A-114 which were in the handwriting of the patwaris of the second party and which ranged over the period from fasli 1336 to 1347, that defendants Nos. I to II had been in possession for over 12 years as cultivating tenants and had acquired occupancy rights, and that the settlement dated 12th April,' 1943, conferred no rights on the plaintiffs. He accordingly dismissed the suit. The plaintiffs preferred an appeal against this decision to <ORG>. <NAME>, who agreed with <ORG> that the receipts, Exhibits A to A-114 were genuine, and that defendants Nos. I to 11 had acquired occupancy rights, and accordingly dismissed the appeal.

The plaintiffs took up the matter in second appeal to <ORG>, Patna, S.A. No. 1152 of 1946, and there, for the first time; an objection was taken by the Stamp Reporter to the valuation in the plaint and after enquiry, the <ORG> determined that the correct valuation of the suit was Rs. 9,980. The plaintiffs paid the additional <ORG>-fees required of them, and then raised the contention that on the revised valuation, the appeal from the decree of the Subordinater Judge would lie not to the District <ORG> but to <ORG>, and that accordingly S. A. No. 1152 of 1946 should be heard as a first appeal, ignoring the judgment of the District <ORG>. The learned Judges held following the decision of <ORG> that <ORG> in <NAME> v. <NAME> (1), that the appeal to the District <ORG> was competent, and that its decision could be reversed only if the appellants could establish prejudice on the merits, and holding that on a consideration of the evidence no such prejudice had been shown, they dismissed the second appeal. The matter now comes before us on special leave. It will be noticed that the proper <ORG> to try the present action would be the Subordinate <ORG>, <NAME>, whether the valuation of the suit was Rs. 2,950 as given in the plaint, or Rs. 9,880 as determined by <ORG>; but it will make a difference in the forum to which the appeal from its judgment would lie, whether the one valuation or the other is to be accepted as the deciding factor. On the plaint valuation, the appeal would lie to the District <ORG>; on the valuation as determined by <ORG>, it is that <ORG> that would be competent to entertain the appeal. The contention of the appellants is that as on the valuation of the suit as ultimately determined, the District <ORG> was not competent to entertain the appeal, the decree and judgment passed by that <ORG> must be treated as a nullity, that <ORG> should have accordingly heard S.A. No. 1152 of 1946 not as a second appeal with its limitations under section 100 of the Civil Procedure Code but as a first appeal against the judgment and decree of the Subordinate Judge, <NAME>, and that the appellants were entitled to a full heating as well on questions of fact as of law. And alternatively, it is contended that even if the decree and judgment of the District <ORG> on appeal are not to be treated as a nullity and the matter is to be dealt with under section 11 of the Suits Valuation Act, the appellants had suffered "Prejudice" within the meaning of that section, in that their appeal against the judgment of the Subordinate Judge was heard not by <ORG> but by a <ORG> of inferior jurisdiction, viz., the District <ORG> of <NAME>, and that its decree was therefore liable to be set aside, and the appeal heard by <ORG> on the merits, as a first appeal.

(1) I.L.R. 27 Patna 109; A.I.R. 1949 Patna 278, The answer to these contentions must depend on what the position in law is when a <ORG> entertains a suit or an appeal over which it has no jurisdiction, and what the effect of section II of the Suits Valuation Act is on that position. It is a fundamental principle well established that a decree passed by a <ORG> without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the <ORG> to pass any decree, and such a defect cannot be cured even by consent of parties. If the question now under consideration fell to be' determined only on the application of general principles governing the matter, there can be no doubt that the District <ORG> of Monghyr was coram non judice, and that its judgment and decree would be nullities. The question is what is the effect of section 11 of the Suits Valuation Act on this position.

Section 11 enacts that notwithstanding anything in section 578 of the Code of Civil Procedure, an objection that a <ORG> which had 'no jurisdiction over a suit or appeal had exercised it by reason of over-valuation or under-valuation, should not be entertained by an appellate <ORG>., except as provided in the section. Then follow provisions as to when the objections could be entertained, and how they are to be dealt with. The drafting of the section has come in-and deservedlyfor considerable criticism; but amidst much that is obscure and confused, there is one principle which stands out clear and conspicuous. It is that a decree passed by a <ORG>, which would have had no jurisdiction to hear a suit or appeal but for over-valuation or under-valuation, is not to be treated as, what it would be but for the section, null and void, and that an objection to jurisdiction based on over-valuation or undervaluation should be dealt with under that section and not otherwise. The reference to section 578 , now section 99 , of the Civil Procedure Code, in the opening words of the section is significant. That section, while providing that no decree shall be reversed or varied in  appeal on account of the defects mentioned therein when they do not affect the merits of the case, excepts from its operation defects of jurisdiction. Section 99 therefore gives no protection to decrees passed on merits, when the <ORG>s which passed them lacked jurisdiction as a result of over-valuation or undervaluation. It is with a view to avoid this result that section 11 was enacted. It provides that objections to the jurisdiction of a <ORG> based on over-valuation or under-valuation shall Dot be entertained by an appellate <ORG> except in the manner and to the extent mentioned in the section. It is a self-contained provision complete in itself, and no objection to jurisdiction based on over-valuation or under-valuation can be raised otherwise than in accordance with it. With reference to objections relating to territorial jurisdiction, section 21 of the Civil Procedure Code enacts that no objection to the place of suing should be allowed by an appellate or revisional <ORG>, unless there was a consequent failure of justice. It is the same principle that has been adopted in section 1  1 of the Suits Valuation Act with reference to pecuniary jurisdiction. The policy underlying sections 21 and 99 of the Civil Procedure Code and section 11 of the Suits Valuation Act is the same, namely, that when a case had been tried by a <ORG> on the merits and judgment rendered, it should not be liable to be reversed purely on technical grounds, unless it had resulted in failure of justice, and the policy of the <ORG> has been to treat objections to jurisdiction both territorial and pecuniary as technical and not open to consideration by an appellate <ORG>, unless there has been a prejudice on the merits, The contention of the appellants, therefore, that the decree and judgment of the District <ORG>, Monghyr, should be treated as a nullity cannot be sustained under section 11 of the Suits Valuation Act.

On behalf of the appellants <CITATION> (1) and <CITATION> (2) which was affirmed by <ORG> in <CITATION> (3) were relied on as supporting the contention (1) I.L.R. 38 Cal. 639.

(2) I.L.R. 36 Bom, 628.

(3) 46 I.A. 24.

that if the appellate <ORG> would have had no jurisdiction to entertain the appeal if the suit had been correctly valued, a decree passed by it must be treated as a nullity. <CITATION> (1), the facts were that one <NAME> instituted a suit to recover the estate of her husband <NAME> in <ORG>, Alipore, valuing the claim at Rs. 2,100, whereas the estate was worth more than a lakh of rupees. The suit was decreed, and the defendants preferred an appeal to <ORG>, which was the proper <ORG> to entertain the appeal on the plaint valuation. There, the parties compromised the matter, and a consent decree was passed, recognising the title of the defendants to portions of the estate. Then, <NAME>, the daughter of <NAME>, filed a suit for a declaration that the consent decree to which her mother was a party was not binding on the reversioners. One of the grounds urged by her was that the suit of <NAME> was deliberately under-valued, that if it had been correctly valued, it was <ORG> that would have had the ,competence to entertain the appeal, and that the con,sent decree passed by the District Judge was accordingly a nullity. In agreeing with this contention, <ORG> observed that a decree passed by a <ORG> which had no jurisdiction was a nullity, and that even consent of the partes could not cure the defect. In that case, the question was raised by a person who was not a party to the action and in a collateral proceeding, and the <ORG> observed:

" We are not now called upon to consider what the effect of such lack of, jurisdiction would be upon the decree, in so far as the parties thereto were concerned. It is manifest that so fir as a stranger to the decree is concerned, who is interested in the property affected by the decree, he can obviously ask for a declaration that the decree is a nullity, because made by a <ORG> which had no jurisdiction over the subject-matter of the litigation" On the facts, the question of the effect of section 11 of the Suits Valuation Act did not arise for determination, and was not considered.

(1) I.L.R. 38 Cal. 639.

<CITATION> (1) the plaintiffs instituted a suit in the <ORG> of the Subordinate Judge, First Class, for a declaration that he was the adopted son of one Venkatrao and for an injunction restraining the defendant from interfering with his possession of a house. The plaint valued the declaration at Rs. 130 and the injunction at Rs. 5, and the suit was valued for purposes of pleader's fee at Rs. 69,016-9-0 being the value of the estate. The suit was decreed by the Subordinate Judge, and against his decree the defendant preferred an appeal to <ORG>, which allowed the appeal and dismissed the suit. The plaintiff took up the matter in second appeal to <ORG>, and contended that on the valuation in the plaint the appeal against the decree of the Subordinate Judge lay to <ORG>, and that the appeal to <ORG> was incompetent. This contention was upheld, and the decree of the District Judge was set aside. It will be seen that the point in dispute was whether on the allegations in the plaint the value for purposes of jurisdiction was Rs. 135 or Rs. 69,016-9-0, and the decision was that it was the latter. No question of over-valuation or under-valuation arose,' and no decision on the scope of section 11 of the Suits Valuation Act was given. As a result of its decision, <ORG> came to entertain the matter as a first appeal and affirmed the decree of the Subordinate Judge. The defendant then took up the matter in appeal to <ORG> in <CITATION> (2), and there, his contention was that, in fact, on its true valuation the suit was triable by <ORG>, and that <ORG> was the proper <ORG> to entertain the appeal. <ORG> held that this objection which was " the most technical of technicalities " was not taken in the <ORG> of first instance, and that the <ORG> would not be justified " in assisting an objection of that type," and that it was also untenable. Before concluding, it observed: " The <ORG> Fees Act was passed not to arm a litigant with a weapon of technicality against his (1) I.L.R. 36 Bom. 628.

(2) 46 I.A. 24.

opponent but to secure revenue for the benefit of the <ORG>.......The defendant in this suit seeks to utilise the provisions of the Act not to safeguard the interests of the <ORG>,but to obstruct, the plaintiff ; he does not contend that the <ORG> wrongly decided to' the detriment of the revenue but that it dealt with the case without jurisdiction. In the circumstances this plea, advanced for the first time at the hearing of the appeal in the District <ORG>, is misconceived, and was rightly rejected by the High <ORG>."

Far from supporting the contention of the appellants that the decree passed in appeal by <ORG> should be regarded as a nullity, these observations show that an objection of the kind now put forward being highly technical in character should not be entertained if not raised in <ORG> instance. We are therefore of opinion that the decree and judgment of <ORG>, Monghyr, cannot be regarded as a nullity.

It is next contended that even treating the matter as governed by section 11 of the Suits Valuation Act, there was prejudice to the appellants, in that by reason of the under- valuation, their appeal was heard by a <ORG> of inferior jurisdiction, while they were entitled to a bearing by <ORG> on the facts. It was argued that the right of appeal was a valuable one, and that deprivation of the right of the appellants to appeal to <ORG> on facts must therefore be held, without more, to constitute prejudice. This argument proceeds on a misconception. The right of appeal is no doubt a substantive right, and its deprivation is a serious prejudice; but the appellants have not been deprived of the right of appeal against the judgment of <ORG>. The law does provide an appeal against that judgment to <ORG>, and the plaintiffs have exercised that right. Indeed, the undervaluation has enlarged the appellants' right of appeal, because while they would have had only a right of one appeal and that to <ORG> if the suit had been correctly valued, by reason of the under-valuation they obtained right to two appeals, one to <ORG> and another to <ORG>. The complaint of the appellants really is not that they had been deprived of a right of appeal against the judgment of <ORG>, which they have not been, but that an appeal on the facts against that judgment was heard by <ORG> and not by <ORG><ORG>. This objection therefore amounts to this that a change in the forum of appeal is by itself a matter of prejudice for the purpose of section 1  1 of the Suits Valuation Act.

The question, therefore, is, can a decree passed on appeal by a <ORG> which had jurisdiction to entertain it only by reason of under-valuation be set aside on the ground that on a true valuation that <ORG> was not competent -to entertain the appeal? Three High <ORG>s have considered the matter in Full Benches, and have come to the conclusion that mere change of forum is not a prejudice within the meaning of section 11 of the Suits Valuation Act. <CITATION> (1), <CITATION> (2) and <NAME> (3). In our judgment, the opinion expressed in these decisions is correct. Indeed, it is impossible on the language of the section to come to a different conclusion. If the fact of an appeal being heard by a Subordinate <ORG> or District <ORG> where the appeal would have lain to the High <ORG> if the correct valuation had been given is itself a matter of prejudice, then the decree passed by the Subordinate <ORG> or the District <ORG> must, without more, be liable to be set aside, and the words "unless the overvaluation or under-valuation thereof has prejudicially affected the disposal of the suit or appeal on its merits" would become wholly useless. These words clearly show that the decrees passed in such cases are liable to be interfered with in an appellate <ORG>, not in all cases and as a matter of course, but only if prejudice such as is mentioned in the section results. And the prejudice envisaged by that section therefore must be something other than the appeal being heard in a different forum. A contrary conclusion will lead to the surprising result that the section was enacted with the object of curing (1) I.L.R. 46 Mad. 631.

(2) I.L.R. 55 All. 315.

(3) I.L.R. 27 Patna 109; A.I.R. 1949 Patna 278.

defects of jurisdiction arising by reason of over-valuation, or under-valuation but that, in fact, this object has not been achieved. We are therefore clearly of opinion that the prejudice contemplated by the section is something different from the fact of the appeal having been heard in a forum which would not-have been competent to hear it on a correct valuation of the suit as ultimately determined. It is next argued that in the view that the decree of the lower appellate Court is liable to be reversed only on proof of prejudice on the merits, the second appellate Court must, for the purpose of ascertaining whether there was prejudice, hear the appeal fully on the facts, and that, in effect, it should be Heard as a first appeal. Reliance is placed in support of this contention on the observations of two of the learned Judges in <NAME> v. <NAME> (1). There, <NAME> observed that though the second appeal could not be treated as a first appeal, prejudice could be established by going into the merits of the decision both on questions of fact and of law,, and that that could be done under section 103 of the Civil Procedure Code. <NAME> agreed that for determining whether there was prejudice or not, there must be an enquiry on the merits of the decisions on questions of fact but he was of opinion that that could be done under section I I of the Suits Valuation Act itself. <NAME>, however, declined to express any opinion on this point, as it did not arise at that stage. The complaint of the appellants is that the learned Judges who heard the second appeal, though they purported to follow the decision in <NAME> v. A. <NAME> (1) did not, in fact, do so, and that there was no consideration of the evidence bearing on the questions of fact on which the parties were in dispute.

That brings us to the question as to what is meant by prejudice" in section II of the Suits Valuation Act. Does it include errors in findings on questions of fact in issue between the parties ? If it does, then it will be obligatory on the <ORG> hearing the second appeal to examine the evidence in full and decide whether the (1) I.L.R. 27 Patna tog; A.I. R, 1949 Patna 278.

conclusions reached by the lower appellate <ORG> are right. If it agrees with those findings, then it will affirm the judgment; if it does not, it will reverse it. That means that the <ORG> of second appeal is virtually in the position of a <ORG> of first appeal. The language of section 11 of the Suits Valuation Act is plainly against such a view. It provides that overvaluation or under-valuation must have prejudicially affected the disposal of the case on the merits. The prejudice on the merits must be directly attributable to over-valuation or under-valuation and an error in a finding of fact reached on a consideration of the evidence cannot possibly be said to have been caused by over-valution or under-valuation. Mere errors in the conclusions on the points for determination would therefore be clearly precluded by the language of the section. It must further be noted that there is no provision in the Civil Procedure Code, which authorises a <ORG> of second appeal to go into questions of fact on which the lower appellate <ORG> has recorded findings and to reverse them. Section 103 was relied on in <NAME> v. <NAME> (1) as conferring such a power. But that section applies only when the lower appellate <ORG> has failed to record a finding on any issue, or when there had been irregularities or defects such as fall under section 100 of the Civil Procedure Code. If these conditions exist, the judgment under appeal is liable to be set aside in the exercise of the normal powers of a <ORG> of second appeal without resort to section 11 of the Suits Valuation Act. If they do not exist, there is no other power under the Civil Procedure Code authorising the <ORG> of second appeal to set aside findings of fact and to re-hear the appeal itself on those questions. We must accordingly hold that an appellate <ORG> has no power under section 1  1 of the Suits Valuation Act to consider whether 'the findings of fact recorded by the lower appellate <ORG> are correct, and that error in those findings cannot be held to be prejudice within the meaning of that section.

So far, the definition of "prejudice" has been negative in terms-that it cannot be mere change of forum (1) I.L.R. 27 Patna 109.

Dr mere error in the decision on the merits. What then is Positively prejudice for the purpose of section 11 ? That is a question which has agitated <ORG> in India ever. since the enactment of the section. It has been suggested that if there was no proper hearing of the suit or appeal and that had resulted in injustice, that would be prejudice within section 11 of the Suits Valuation Act. Another instance of prejudice is when a suit which ought to have been filed as an original suit -is filed as a result of under-valuation on the small cause side. - The procedure for trial of suits in <ORG> is summary; there are no provisions for discovery or inspection; evidence is not recorded in extenso, and there is no right of appeal against its deci- sion. The defendant thus loses the benefit of an elaborate procedure and a right of appeal which he would have had, if the suit had been filed on the original side. It can be said in such a case that the disposal of the suit by <ORG> has prejudicially affected the merits of the case. No purpose, however, is. served by attempting to enumerate exhaustively all possible cases of prejudice which might come under section II of the Suits Valuation Act. The jurisdiction that is conferred on appellate <ORG> under that section is an equitable one, to be exercised when there has been an erroneous assumption of jurisdiction by <ORG> as a result of over-valuation or under- valuation and a consequential failure of justice. It is neither possible nor even desirable to define such a risdiction. closely, or confine it within stated bounds. Pt can only be predicated of it that it is in the nature of a revisional jurisdiction to be exercised with caution and for the ends of justice, whenever the facts and ,situations call for it. Whether there has been prejudice or not is, accordingly, a matter to be determined on the facts of each case.

We have now to see whether the appellants have suffered any prejudice by reason of the under-valuation. They were. the plaintiffs in the action. They valued the suit at Rs. 2,950. The defendants raised no objection to the jurisdiction of the <ORG> at any time. When the plaintiffs lost the suit after an elaborate  trial, it is they who appealed to the District <ORG> as they were bound to, on their valuation. Even there, the defendants took no objection to the jurisdiction of the District <ORG> to hear the appeal. When the deci sion went on the merits against the plaintiffs, they preferred S. A. No. 1152 of 1946 to the High <ORG> of Patna, and if the Stamp Reporter had not raised the objection to the valuation and to the <ORG>-fee paid, the plaintiffs would not have challenged the jurisdiction of the District <ORG> to hear the appeal. It would be an unfortunate state of the law, if the plaintiffs who initiated proceedings in a <ORG> of their own choice could subsequently turn round and question its jurisdiction on the ground of an error in valuation which was their own. If the law were that the decree of a <ORG> which would have had no jurisdiction over the suit or appeal but for the over-valuation or undervaluation should be treated as a nullity, then of course, they would not be estopped from setting up want of jurisdiction in the <ORG> by the fact of their having themselves invoked it. That, however, is not the position under section 1  1 of the Suits Valuation Act. Why then should the plaintiffs be allowed to resile from the position taken up by them to. the prejudice of their opponents, who had acquiesced therein ? There is considerable authority in the Indian <ORG>s that clausts (a) and (b) of section I 1 of the Suits Valuation Act should be read conjunctively, notwithstanding the use of the word "or." If that is the correct interpretation, the plaintiffs would be precluded from raising the objection about jurisdiction in an appellate <ORG>. But even if the two provisions are to be construed disjunctively, and the parties held entitled under section 1  1 (1) (b) to raise the objection for the first time in the appellate <ORG>, even then, the recuirement as to prejudice has to be satisfied, and the party who has resorted to a forum of his own choice on his own valuation cannot himself be heard to complain of any prejudice. Prejudice can be a ground for relief only when it is due to the action of another party and not when it results from one's own act. <ORG>s cannot recognise that as prejudice which flows from the action of the very party who complains about it. Even apart from this, we are satisfied that no prejudice was caused to the appellants by their appeal having been heard by the District <ORG>. There was a fair and full hearing of the appeal by that <ORG>;' it gave its decision on the merits on a consideration of the entire evidence in the case, and no injustice is shown to have resulted in its disposal of the matter. The decision of the learned Judges that there were no grounds for interference under section 11 of the Suits Valuation Act is correct.

In the result, the appeal fails and is dismissed with costs.

Appeal dismissed.


PETITIONER: <ORG> Vs. RESPONDENT: COMMISSIONER OF INCOME-TAX,WEST BENGAL. DATE OF JUDGMENT: 04/05/1951 BENCH: <NAME>, VIVIAN BENCH: <NAME>, VIVIAN KANIA, <NAME>, M. PATANJALI DAS, SUDHI RANJAN CITATION: 1951 AIR 278 1951 SCR 594 CITATOR INFO : R 1960 SC 738 (7,8) F 1961 SC1028 (7) R 1965 SC 321 (16) R 1966 SC 54 (5) F 1966 SC1053 (17) R 1966 SC1514 (11) APL 1967 SC1475 (4) RF 1977 SC2394 (6) APR 1979 SC 373 (3) RF 1979 SC1441 (21) R 1987 SC1723 (5,7) ACT: Indian Income-tax Act (XI of 1922), s. 12 (2)--Busi- ness expenditure--Interest on debentures--Reducing capital of company by taking over shares and giving debentures to shareholder--Income of company reduced--Interest on deben- tures, whether allowable. HEADNOTE: A private limited company formed for dealing in shares and securities had a share capital of 250 lacs of rupees of which shares of the face value of 50 lacs were held by A and the remaining shares were held by his nominees. As the company was in need of money it was resolved, with the consent of A, to reduce the share capital by 50 lacs by the company taking over the 50 lacs shares which were held by A and giving to A instead debentures of the face value of Rs. 50 lacs carrying interest at 5 per cent. per annum. <ORG> and (1) 76 I.A, 74. 595 <ORG> held that the interest on the debentures could not be allowed as business expenditure under s. 12 (2) of the Income-tax Act , the main grounds on which this con- clusion was arrived at being (i) the purpose of the transac- tion was to effect the conversion, (ii) the taxable income of the company was reduced, (iii) it was the same person who brought about the transaction to whom the share money was paid and who took the debentures, (iv) the transaction was more in the interest of that person than the company, (v) the capital of the company could have been reduced in other ways: Held by <ORG> <NAME>, DAs and <NAME>, JJ.) that the test for deciding whether the ex- penditure was allowable under s. 12 (2) was whether the transaction was properly entered into as part of the compa- ny's ordinary undertakings to facilitate the carrying on of its business for the purpose of earning income, and in the absence of fraud <ORG> was not justified in coming to the conclusion that the interest on the debentures was not allowable on the considerations mentioned above. On the facts it was clear that the transaction was entered into in order to facilitate the carrying on of the business of the company and that it was made on the ground of commer- cial expediency. The interest on the debentures was accordingly allowable under s. 12 (2). <NAME> v. <ORG>  A.C. 118 referred to. JUDGMENT:

CIVIL APPELLATE JURISDICTION. Civil Appeal No. 89 of 1950. Appeal against the Judgment and Order dated 5th July, 1949, of <ORG> at Calcutta (<NAME> and <NAME>) in Income-tax Reference No. 11 of 1948. <NAME> (<NAME>, with him) for the appellant. <NAME>, Attorney-General for India (<NAME>, with him) for the respondent.

1951. May 4. The Judgment of the Court was delivered by Boss J.--This is an assessee's appeal from a judgment of <ORG> at Calcutta delivered on a reference made to it under section 66 (1 )of the Incometax Act. The question submitted for <ORG>'S opinion was as follows:--

"Whether in the circumstances of this case, the interest paid by the assessee on debentures was incurred solely for the purpose of making or earning such income, profits or gains which are assessable under sub-section (1) of section

The assessee is a private limited company which was incor- porated on 3rd January, 1927. It is an investment company known as <ORG>. The objects set out in the memorandum of association are to buy, sell and otherwise deal with shares, securities, bonds and so forth generally. The company was originally formed for acquiring, holding and otherwise dealing with shares and Government securities which had previously belonged to one Lord <NAME>. The share capital of the company at the date of its incorpo- ration was 250 lacs and consisted partly of preference shares and partly of ordinary shares. Of these Lord <NAME> held the majority including the 50,000 ordinary shares of the face value of Rs. 50,00,000 with which we are here concerned. The rest of the share capital was held by the nominees of the late Lord <NAME>.

Lord <NAME> died on the 28th of March, 1937, leaving an estate in Great Britain as well as in India. One <NAME> was appointed administrator of his estate in India and held these 50,000 shares in question in that capacity.

According to the statement of the case drawn up by <ORG> in its. reference to <ORG>, "money was needed by the executors of Lord <NAME>", and accordingly the administrator of the estate in India reached an agreement with the company on 9th February, 1937, the terms of which were as follows :-

The company agreed to reduce its share capital by Rs. 50 lacs and to do it by taking over from <NAME> the 50,000 shares mentioned above which stood in Lord <NAME>'s name at the rate of Rs. 100 a share. <NAME> on his part agreed to forego cash payment and agreed instead to receive debentures of the face value of Rs. 50 lacs carrying interest at 5 per cent. per annum "redeemable at the option of the registered holder at any time". The sanction of <ORG> was obtained in due course and the agreement was carried out by the parties.

The 5 per cent. interest paid to <NAME> on these deben- tures forms the subject-matter of the question before the Court. The company claims to deduct this from its income as part of its working expenses under section 12 (2) of the Income-tax Act , that is to say, to use the words of the section, as "expenditure (not being in the nature of capital expend- iture) incurred solely for the purpose of making or earning such income, profits or gains."

This contention failed before <ORG> and also before <ORG>. It was agreed all through that the expenditure was not in the nature of capi- tal expenditure, but the view of the Income-tax Commissioner is that (a) it is not expenditure incurred for the purpose of earning the income, profits and gains of the company and

(b) that even if it is, it is at any rate not expenditure incurred solely for that purpose. In general, <ORG> and <ORG> both took that view. The grounds on which these conclusions were based may be summarised as follows:

(1) the purpose of the agreement was to effect the conversion without in any way disturbing the holding of the investments of the company or interfering with the earning of its income;

(2) by this transaction the taxable income of the compa- ny was diminished;

(3) There was complete identity of the person who --

(a) brought about this transaction without disturbing the affairs of the company,

(b) to whom the share money was repaid. and

(c) who took up the debentures;

and (4) that the transaction was more in the interest of the shareholder <NAME> than that of the company. The decision of this appeal rests on the true construc- tion of section 12 (2). In our Opinion, the law on this point has been correctly summarised in the judgment of <ORG>. The following principles are relevant:

(a) though the question must be decided on the facts of each case, the final conclusion is one of law: <CITATION> - tax, Bombay(1) and <CITATION> (2);

(b) it is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned: Moore v. <ORG>) and <ORG>'s case(4);

(c) it is enough to show that the money was expended "not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency. and in order indirectly to facilitate the carrying on of the business": <ORG> v. Atherton(5); and

(d) beyond that no hard and fast rule can be laid down to explain what is meant by the word "solely"

A case somewhat similar to the present is <NAME> v. <ORG> (6) where it was held that interest paid on an overdraft required for purchasing shares (the shares purchased being retained as security for the overdraft) was an outgoing which could be deducted from the receipts to ascertain the taxable profits and gains Which were earned by them. In our opinion, the present case falls within these principles.

(1) 1937 I.T.R. 270 P.C. (2) 1937 I.T.R. 202 P.C. (3) 6 Tax Cases 501. (4) 1915 A.C. 433.

(5) 1926 A.C. 205 at 221 and 235. (6) 1912 A.C. 118.

One of the points which weighed with <ORG> and <ORG> was that though the conversion did not in any way disturb the holding of the investments of the company or interfere with the earning of its income, it had the effect of diminishing its taxable income. In our judgment, this is not a proper consideration when the transaction is not challenged on the ground of fraud. In the present case there is not even an allegation of fraud.

The next point on which some stress was placed was that there was complete identity of person between the person whose shares were sold and the person who took the deben- tures and that the transaction resulted in considerable benefit to him. In the absence of a suggestion of fraud this is not relevant at all for giving effect to the provisions of section 12(2) of the Incometax Act. Most commercial transactions are entered into for the mutual benefit of both sides, or at any rate each side hopes to gain something for itself. The test for present purposes is not whether the other party benefitted, nor indeed whether this was a pru- dent transaction which resulted in ultimate gain to the appellant, but whether it was properly entered into as apart of the appellant's legitimate commercial undertakings in order indirectly to facilitate the carrying on of its busi- ness.

<ORG> doubted whether the transaction could be brought within the functions of an investment company and found it difficult to reconcile it with the objects set out in the Memorandum of Association. But we see no such diffi- culty. Clause 5 empowers a reduction of capital of the company and clause 8(3) empowers the company to borrow or raise money by the issue of debentures. The matter is clear- ly "writ in the bond". Moreover, we do not think that this inquiry is relevant, for we are dealing with a question of income-tax and not judging the legality or propriety of the transaction on an application to reduce the capital of the company. The only question is whether this was done in the ordinary course of business for the purposes we have already pointed out, however mistaken the directors and shareholders of the company may have been.

Therefore, as stated by <ORG> in its statement of the case, the executors of Lord <NAME>'s estate needed money. In the next place, the transac- tion was brought about "at the instance of the holder of the majority of ordinary shares", and also that the shares were originally held by Lord <NAME> and his nominees. It seems evident therefore that <NAME> could have compelled the company to pay him cash for the shares. He seems to have had the whip hand. Instead of doing that he entered into an arrangement which, while giving him the necessary facili- ties, appears to have satisfied the company by allowing it to retain its investments without a precipitate liquidation of a large portion thereof. It does not matter whether the company was right in this view or wrong, and in any event we are in no position to judge of the soundness of its decision because we have not all the materials before us. It has to be remembered that considerations of this kind go deeper than the apparent profit or loss on an isolated transaction standing by itself. It is not enough to say that the 50,000 shares which were cancelled earned in the following year only 31/2 per cent. interest as against 5 per cent. on the debentures because we do not know to what extent the hold- ings of the company would have been disturbed if this had not been done. What we do know is what <ORG> has stated, namely, that--

"the change brought about had been so designed that the investments of the company were not to be disturbed and as a consequence the income accrued was in no way to be affected."

This has only to be stated to show the commercial nature of the transaction from the company's point of view. <ORG> considered that the capital of the compa- ny could have been reduced in other ways. But that again is not the point. There are usually many ways in which a given thing can be brought about in business circles but it is not for the <ORG> to decide which of them should have been employed when the <ORG> is deciding a question under section 12(2) of the Income-tax Act.

It was argued on behalf of the respondent (basing the same on paragraph 7 of the appellant's application to <ORG> dated 5th April, 1947) that the company had at the time sufficient liquid resources to effect the reduction of capital desired and so it was not necessary to resort to this process. But that again is not the point. The company chose to do it this way, and as there was not even a sugges- tion of fraud, the only question is whether it was gone through as an ordinary commercial proposition. But we doubt if that is what paragraph 7 meant because in paragraph 4 of the application to <ORG> dated 11th February, 1944, the petitioner stated that the money on hand and at short notice was only Rs. 8,94,379. That is a good deal short of 50 lacs. However, we need not enter into this in detail.

On a full review of the facts it is clear that this transaction was voluntarily entered into in order indirectly to facilitate the carrying on of the business of the company and was made on the ground of commercial expediency. It therefore falls within the purview of section 12(2) of the Income-tax Act, 1922 before its amendment in 1939. This being an investment company, if it borrowed money and utilised the same for its investments on which it earned income, the interest paid by it on the loans will clearly be a permissible deduction under section 12(2) of the Income- tax Act. Whether the loan is taken on an overdraft, or is a fixed deposit or on a debenture makes no difference in law. The only argument urged against allowing this deduction to be made is that the person who took the debentures was the party who sold the ordinary shares. It cannot be disputed that if the debentures were held by a third party, the interest payable on the same would be an allowable deduction in calculating the total income of the assessee company. What difference does it make if the holder of the debentures is a shareholder ? There appears to be none in principle in view of the fact that no suggestion of fraud is made in respect of the transaction which is carried out between the <ORG> and the Administrator and which has been sanctioned by the <ORG>. If the debentures had been paid for in cash by the same party, no objection could have been taken to allowing the interest amount to be deducted. In principle, there appears to us no difference, if instead of paying in cash the payment of the price is in the shape of giving over shares of the company, when the transaction is not challenged on the ground of fraud and is approved by the <ORG> in the re-organisation of the capital of the company. In our opinion, therefore, the ground on which <ORG> and the High <ORG> disallowed the claim of the assessee is not sound. In our opinion, the High <ORG> has failed to appreciate the true position and the question submitted for its opinion should be answered in the affirmative. The appeal is there- fore allowed. The respondent will pay the costs of the appeal in this <ORG> and of the reference in the High <ORG>.

Appeal allowed.

Agent for the appellant: <NAME>. Agent for respondent: <NAME>.


<NAME>, Judicial Member

1. This appeal is directed against the order of the Commissioner (Appeals) dated 7-10-1982 passed in Appeal No. 18/111. D/CIT. II of 1982-83. The assessment year involved in this appeal is 1978-79.

2. According to the facts arising in this case, the firm filed the original return for the assessment year 1978-79 on 31-3-1979, admitting a net income of Rs. 4,16,289 from its business in purchase and sale of yarn, fibre, etc. Subsequently, on 1-11-1980, the firm filed a revised return showing an income of Rs. 2,46,450. The difference between the income disclosed in the original return and the one returned in the revised return is on account of the claim made under the head bad debts. The <ORG> forwarded the draft order of assessment to the assessee on 29-10-1981, which was served on the assessee on the same date. On 8-12-1981, the <ORG> forwarded the draft assessment order under Section 144B of the Income-tax Act, 1961 ('the Act'), along with the objections of the assessee-firm to the <ORG> for further action. The <ORG> gave instructions by his order under Section 144B on 21-4-1982. The same day, the <ORG> completed the assessment. According to the Commissioner (Appeals), the <ORG> completed the assessment within 180 days from 29-10-1981 and, therefore, it is within the time limit.

3. Before us, the learned Counsel appearing for the assessee submitted that the order of the assessment dated 21-4-1982 is without jurisdiction inasmuch as it is barred by time and, hence, according to the assessee, the assessment is ab initio void. The crux of the submission made by the learned Counsel was that the original return, which was filed on 31-3-1979, was filed neither under Section 139(1) nor under Section 139(2) of the Act, being beyond the time limits prescribed by the aforesaid sections. The return was one filed under Section 139(4) . Therefore, the revised return filed on 1-8-1980 is non est in law, because a revised return under Section 139(5) can be filed only to rectify mistakes, etc., in a return filed under Section 139(1) or Section 139(2) . If that is so, according to him, the assessment completed on 21-4-1982 is barred by time since, for the assessment year 1978-79, two years' period ended on 31-3-1981.

4. The learned counsel appearing for the assessee, in support of his argument, relied upon the decision of <ORG> in the case of <CITATION>  136 ITR 559, wherein <ORG> was of the view that:

Different time limits for completion of assessments have been provided in respect of cases where a return has been filed under Sub-section (4) or a revised return has been filed under Sub-section (5). Sub-section (5) does not provide for any separate category of return. It only gives a right to an assessee to revise a return already tiled under Sub-section (1) or Sub-section (2). When a revised return is filed the original return stands supplanted or withdrawn. If the original return is under Sub-section (1), and a revised return is filed, then the revised return would be a return under Sub-section (1) and so will be the position if the original return was under Sub-section (2). Therefore, a return under Sub-section (4) stands in a category different from that provided in Sub-section (1) or Sub-section (2) and such a return cannot be revised under Sub-section (5). The revised return, being an invalid return, cannot extend the period of limitation for completing the assessment.

5. Yet another decision, relied upon by the learned Counsel for the assessee, was that in <CITATION> [l978] 113 ITR 830 (All.) (FB). This judgment was then followed in Dr. <NAME>'s case (supra). In Metal India Products case (supra), the Full Bench of the Allahabad High Court was of the view that where the assessee filed his return within the time prescribed by Section 139(1) and where no notice was issued by the ITO to the assessee under Section 139(2) , even if the assessee filed its return under Section 139(4) , within four years from the end of the assessment year and before the assessment order was passed, the assessee is liable to pay penalty under Section 271(1)(a) of the Act, for not having filed the return within the time prescribed in Section 139(1) or the time given under Section 139(2) . For the purposes of penalty, the filing of the return within the time prescribed by Sub-section (4) cannot be treated as a return filed within the time prescribed by Sub-section (1).

6. Reliance was also placed on the decision in <CITATION>  129 ITR 379 (Delhi). This judgment was also followed by <ORG> in Dr. <NAME>'s case (supra). In <NAME> case (supra), <ORG> was of the view that subsection (5) of section 139 applies only in a case where a person, having furnished a return under Sub-section (1) or Sub-section (2), discovered any omission or wrong statement therein. The sub-section does not refer to Sub-section (4) and, therefore, does not entitle an assessee to rectify or revise a return filed under Section 139(4) . Accordingly, <ORG> held that the return filed on 30-3-1965, being one under Section 139(4) , a revised return could not be filed under Section 139(5) and the return filed on 28-3-1966 was invalid in law.

7. On the other hand, the learned departmental representative pointed out that the assessee can file any number of returns under Section 139(4) . Therefore, according to him, the second return filed on 1-11-1980 is not invalid in law, and if that is so, according to him, the assessment order passed on 21-4-1982 is not barred by limitation. He relied upon a judgment of <ORG> in <CITATION>  137 ITR 722, wherein <ORG> was of the view that:

The Income-tax Act contemplates the filing by the assessee of a correct and complete return. The law gives him a right to substitute and bring on record a correct and complete return if he discovers any omission or wrong statement in the return originally filed by him. The law cannot content plate the making of an assessment on the basis of a return which even the assessee claims contains wrong statements. When an assessee files a revised return, he, in fact, admits that the original return filed by him was not correct or complete and substitutes the same by a revised return which, according to him, is correct and complete. The effective return for the purposes of assessment is thus the return which is ultimately filed by an assessee on the basis of which he wants his income to be assessed. Sub-section (5) is a part of Section 139 . The statute itself provides for the filing of a revised return. Section 143 does not specifically deal with the return filed either under Sub-section (1) or Sub-section (2) or Sub-section (4) of Section 139 . It deals generally with the return filed under Section 139 . It is true that Sub-section (5) specifically mentions Sub-section (1) or Sub-section (2) but does not mention the case of a return filed under Sub-section (4) of Section 132 . However, the true purport of a return filed under Sub-section (5) is that it substitutes the original return filed and Sub-section (4) specifically gives the assessee a right to file a return at any time before the assessment. Hence, where a voluntary return has been filed under Section 139(4) , a revised return can be filed in respect of it.

While coming to the aforesaid conclusion, <ORG> dissented from the view taken by <ORG> in <NAME> case (supra).

8. Yet another decision, relied upon by the learned departmental representative, was that of Mst. <CITATION>  129 ITR 560, wherein <ORG> was of the view that if an assessee, after having filed a return under Section 139(4) , files another revised return subsequently, it is to be assumed that he has given a go-by to the return filed previously and that so far as he is concerned, the return filed subsequently is the correct and proper return. Where the ITO allows the revised return to be filed and proceeds to assess thereunder without any objection from the assessee, it would not be open to the assessee to contend later that the return filed subsequently was invalid. Therefore, <ORG> held that the subsequent return filed by the assessee was a valid return under Section 139(4) and the assessment made thereunder was within the time prescribed under Section 153 of the Act.

9. Again, the learned departmental representative attempted to support his view by placing reliance on the judgment of <ORG> in <CITATION> .) Ltd.  77 ITR 518. In that case, <ORG> held by the majority judgment that Section 24(2) of the Indian Income-tax Act, 1922 ('the 1922 Act'), conferred benefit to the assessee, whereby losses incurred in a particular year could be set off and carried forward to a subsequent assessment year. There was no provision in Section 22 of the 1922 Act, under which losses had to be determined for the purpose of Section 24(2) . Section 22(2A) simply laid down that in order to obtain the benefit of Section 24(2) , the assessee must submit his return showing loss within the time specified by Section 22(1) . That provision, according to <ORG>, had to be read with Section 22(3) . It was held that a return showing a loss submitted at any time before the assessment was made was valid, as it could be contended that Section 22(3) was merely a proviso to Section 22(1) .

10. Therefore, it was submitted that inasmuch as the assessee itself filed two returns, the <ORG> was made to proceed on the second return wherein bad debt deduction was claimed. It was further submitted that the approach of any judicial authority must be to vest jurisdiction in the <ORG> and not to divest the jurisdiction which was already vested. On the other hand, the learned Counsel appearing for the asses see, relying upon the decision of <ORG> in <CITATION> .  88 ITR 192 contended that when there are two views possible on the same point, that which is in favour of the assessee should be followed.

11. We have heard the rival submissions. The original return was filed on 31-3-1979 and, subsequently, a revised return was filed on 1-11-1980. On 29-10-1981, draft assessment order was framed and on 21-4-1982, final order of assessment was passed. Section 139 particularly enables the filing of returns under Sub-section (1) suo moto within the statutory period provided under Sub-section (2), in response to a notice specifically issued as also under Sub-section (4), voluntarily. The issue before us is whether a return filed under Sub-section (4) could be considered to be a return filed under subsection (1) or Sub-section (2) of Section 139 , because only if the return filed under Sub-section (4) is so construed, the assessee would be entitled to file a revised return under Sub-section (5). The learned Counsel for the assessee had submitted that if two views are possible, as in the present case, then the view in favour of the assessee should be taken. This is not an instance where one of the two views will always be favourable to all the assessees. In <ORG> view, if an assessee makes a return even beyond the time limit allowed under Section 139(1) , or Section 139(2) , and discovers a mistake therein, he should always file a revised return. This view enables an assessee to set right any mistake even in returns, which were originally filed belated. In <ORG> view, such action is not possible. Merely because in the present case, if following <ORG> view, the revised return is held to be non est, limitation would have set in, it does not follow that this is the view which has to be construed as favourable to the assessees in general. The rule of interpretation canvassed for by the learned Counsel, therefore, does not help us in deciding the present case. We have to decide the case in the light of the judgments of the various <ORG> relied on by the parties. We have already set out the reasoning of <ORG> in the case of <NAME> (supra), which we repeat as under:

...Sub-section (5) is a part of Section 139 . The statute itself provides for the filing of a revised return. Section 143 does not specifically deal with the return filed either under Sub-section (1) or Sub-section (2) or subsection (4) of Section 139 . It deals generally with the return filed under Section 139 . It is true that Sub-section (5) specifically mentions subsection (1) or Sub-section (2) but does not mention the case of a return filed under Sub-section (4) of Section 139 . However, the, true purport of a return filed under Sub-section (5) is that it substitutes the original return filed and Sub-section (4) specifically gives the assessee a right to file a return at any time before the assessment. Hence, where a voluntary return has been filed under Section 139(4) , a revised return can be filed in respect of it.

<ORG> has given reasons why even where a voluntary return has been filed under Section 139(4) , a revised return could yet be filed to set right mistakes. In the present case, the assessee had filed a return showing an income of as much as Rs. 4,16,000 but, later in the return filed on 1-11-1980, the income shown was only Rs. 2,46,000. The difference of Rs. 1,70,000 was an amount claimed as bad debts. In the view of <ORG>, such action was clearly permissible. We have carefully considered the views expressed by the Delhi and the Allahabad <ORG>, but we would respectfully follow the reasoning of <ORG> and hold that merely because the first return filed on 31-3-1979 showing an income of Rs. 4,16,289 for the assessment year 1978-79 was a return under Section 139(4) , the assessee was not prevented from filing the revised return showing an income of Rs. 2,46,450 on 1-11-1980. That being so, the return filed on 1-11-1980 is not non est in law and the assessment as made is within the period of limitation. On this ground, the assessee, therefore, does not succeed.

12. Insofar as merit is concerned, the learned Counsel for the assessee reiterated the same arguments as were advanced before the authorities below. In fact, the <ORG> has disallowed a sum of Rs. 1,69,840, being bad debts claimed in the business in purchase and sale of yarn. He observed that the amounts varying between Rs. 100 and Rs. 10,000 were being written off without any action being taken for recovery of the debts. Before the <ORG>, it was submitted that the firm incurred heavy losses and the business had come to an end. According to the assessee, the amounts written off represented interest charged but not accepted by the debtors and in some cases, they represented the difference in rates. It was further submitted that the firm did not have funds even to file a suit against these parties. However, the <ORG> refused to accept the contention put forward by the assessee.

13. In the original return filed by the assessee, there was no claim for deduction of bad debts. The original return declared an income of Rs. 4,16,289 and the <ORG> had initiated penalty proceedings for nonpayment of tax under Section 140A of the Act and levied a penalty of Rs. 50,000 by his order dated 20-9-1980. Subsequent to this, the firm filed a revised return claiming bad debts of Rs. 1,13, 274 in the accounts for the period 1-10-1976 to 30-6-1977 and Rs. 56,567 in the accounts for the earlier period 1-7-1976 to 30-9-1976. The details of bad debts were furnished before the <ORG>. It was represented before him that most of the amounts were less than Rs. 1,000 and in all those cases, either the party was disputing the charging of interest or was not traceable. The remarks made by the <ORG> on some of the items are as under:

Amount Name and address Remarks Rs. 10,900 <ORG>, Paid bank commission for Chirala hundi drawn on him for party not in existence. 6,969 <NAME>, Guravapalam 3,380 <NAME>, Chinna- Disputed amount. <NAME>, Narsannapet 18,385 <NAME>, <NAME>, Disputed amount. Narsannapet 18,932 <NAME> Rate difference debited not <ORG>, Secunderabad agreeing to pay. 10,840 <NAME>, Bangalore Your rate differences paid. 3,445 <ORG> Waived interest. Ltd., Cheekur 5,623 <NAME> Expired. 4,543 <NAME>, Nerada Expired. 3,591 <NAME>, Nerada Not available in his village do not know whereabouts. 9,715 The Andhra Co-operative Difference in accounts. Spg. <NAME>, Guntakal 5,000 <NAME>, Secunderabad Paid advance. Party not available.

The learned Commissioner (Appeals) pointed out that apart from the verbal observations of the assessee-firm, there is no other evidence to indicate that the debts had become bad. He has also pointed out that large amounts running to Rs. 80,000 and odd were written off without any effort being made for recovery. However, under these circumstances, he considered that amounts of less than Rs, 1,000 should be treated as bad and benefit should be given to the assessee on these amounts. The disallowance was restricted to amounts in excess of Rs. 1,000. Accordingly, he gave relief of Rs. 22,128 and confirmed the balance.

14. However, on a scrutiny of the items, as set out by the <ORG>, we found that two of the parties appear to have expired. They are V. Laxmaiah, Ramanpet and <NAME>, Nerada. In the circumstances under which the assessee was placed, we consider that these two items of debt have become irrecoverable looking to the amounts involved as taking legal action may not prove commensurate with expenses. Therefore, these two items of amounts can be considered as bad debts. Apart from what has been stated before the authorities below, the assessee has not produced any evidence before us afresh to consider the case of bad debts as argued by the learned Counsel appearing for the firm. Under such circumstances, apart from the two items of debts which we consider as having become irrecoverable, we are unable to interfere with the other items of bad debts as claimed by the assessee. Accordingly, to that extent, we allow the appeal in part.


JUDGMENT <NAME>, J.

1. These petitions raise a common question and may conveniently be decided by a common judgment.

2. The petitioners are public limited companies and manufacture sugar through vacuum pan process. <ORG> and <ORG> manufacture alcohol also in the distilleries ituate within the premises of the sugar mills. <ORG> manufacture sugar in Mawana Sugar Works, Mawana and Daurala Sugar Works, Daurala in the district of Meerut. <ORG> also has a distillery for manufacturing alcohol from molasses. Molasses produced at the Mawana and Daurala Sugar Factories is transferred to the distillery situate in the premises of the Daurala Sugar Works, in the petition filed by <ORG> it is not asserted that the petitioner manufactures alcohol also. In the process of manufacture of sugar molasses is produced as a bye-product which forms the basic material from which alcohol js manufactured. The molasses produced by the sugar mills is consumed in their distilleries. The State of Uttar Pradesh has passed an Act known as U.P. Sheera Niyantran Adhiniyam, 1964. Under the aforesaid Act the Excise Commissioner, U.P. is the Controller of Molasses, who exercises full power over the production, sale, preservation and price of molasses. On 1st March, 1975 <ORG> for the first time imposed excise duty on the manufacture and production of molasses under Item No. 68 of the Schedule to the Central Excises and Salt Act . On 30th April, 1975, however, <ORG> issued Notification No. 118/75-CE whereby it exempted molasses from payment of excise duty manufactured in a factory and intended for use in the factory in which it is manufactured or in any other factory of the same manufacturer. By Finance Act , 1980 the <ORG> introduced Tariff Item No. 15CC in the First Schedule to the Central Excises and Salt Act and imposed an excise duty at the rate of Rs. 30/- per metric ton. On 19th June, 1980 <ORG> issued Notification No. 86/80-CE exempting molasses from payment of excise duty which was not produced in the manufacture of sugar by the vacuum pan process.

3. The grievance of the petitioners is that they have been directed by the respondents to pay excise duty at the rate of Rs. 30/- per metric tonne plus special excise duty amounting to five per cent of the basic excise duty under Notification No. 86/80-CE dated 19th June, 1980 on the stock of molasses that the petitioners had in their factories on the date Item No. 15CC was introduced in the First Schedule to the Central Excises and Salt Act . The petitioners objected to this demand but without any success. They have prayed for quashing the demands raised by the respondents. <ORG>, which has paid the duty demand by the respondents, has prayed for refund of the excise duty paid by it. Certain other prayers have been made in these petitions but since no argument was addressed in support thereof, they need not be set out here.

4. It was urged that since excise duty is essentially a tax on production and manufacture of excisable goods, no duty could be levied in respect of goods manufactured and produced during the period when excise duty was not leviable. According to the petitioners molasses produced prior to the date when Item No. 15CC was introduced in the Schedule to the Central Excises and Salt Act was exempt from excise duty under the notification dated 30th April, 1975. The demands made by the respondents are illegal. We find no merit in the contention. It is true that an excise duty by its very nature is on the production or manufacture of goods but as pointed out by <ORG>,in <CITATION> (A.I.R. 1977 S.C. 1459) the excise duty can be levied at a convenient stage so long as the character of the impost, i.e., 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. Laws are to be found which impose a duty on excise at stages subsequent to the manufacture or production.

5. Rule 9 of the Central Excise rules provides that no excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf, whether for consumption, export, or manufactures or any other commodity in or outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in the rules or as the Collector may require. Rule 9-A provides that the rate of duty and tariff valuation, if any, applicable to any excisable goods shall be the rate and valuation in force (i) in the case of goods cleared from the premises of a curer on payment of duty on the date on which the duty assessed ; and (ii) in the case of goods cleared from a factory or a warehouse, subject to certain other rules, which are not relevant for our purpose, on the date of the actual removal of such goods from such factory or warehouse. Rule 49 also makes it clear that excise duty is chargeable on removal of the goods from the factory premises or from an approved place of storage. It clearly provides that payment of duty shall not be required in respect of excisable goods made in a factory until they are about to be issued out of the place or premises specified under Rule 9 or are about to be removed from a store-room or other place of storage approved by the Collector under Rule 47. These rules leave no room for doubt that excise duty is leviable not with reference to the date of manufacture of the excisable goods but at the time and at the rate on the date of removal of goods from the place of manufacture or from the approved place of storage. Thus the duty is linked in point of a time to the date of removal and not to the date of manufacture. The fact that in the present cases molasses was produced prior to 18th June, 1980 would not affect the liability of the petitioners for excise duty on the stock of molasses available with the petitioners when excise duty was levied on the molasses under the Finance Act , 1980.

6. It was urged that molasses manufactured by the petitioners was exempt from excise duty under the Notification dated 30th April, 1975 and since that notification has not been withdrawn, the petitioners were entitled to claim exemption from excise duty. The argument is untenable. By the aforesaid notification <ORG> exempted goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act in certain circumstances. At that stage molasses was not listed as a separate item in the Schedule but was treated to fall under residuary Tariff Item No. 68 of the Schedule. When the Finance Act , 1980 brought molasses under a specific item (No. 15-CC) it ceased to fall under the residuary Tariff Item No. 68 with the result that the notification dated 30th April, 1975 ceased to apply to molasses. No advantage can, therefore, be taken of the exemption granted under the aforesaid notification which has ceased to cover molasses now.

7. <NAME> appearing for <ORG> contended that since molasses in question was produced at the time when it was exempt from excise duty and the Finance Act of 1980, under which molasses was introduced as a specific item in the Schedule, did not give retrospective operation, this stock could not be subjected to excise duty. Learned counsel, however, could not point out any provision in the Act or the Rules that excise duty was leviable with reference to the date of production. As pointed out earlier, although excise duty is on the production or manufacture of goods, it can be imposed at a stage subsequent to the manufacture or production as held in <CITATION> (A.I.R. 1976 S.C. 182). This dictum has been approved in the case of <ORG> (supra).

8. In the result the petitioners are not entitled to any relief. The petitions are accordingly dismissed with costs.


PETITIONER: M/s. SAINIK MOTORS, JODHPUR AND OTHERS Vs. RESPONDENT: THE STATE OF RAJASTHAN DATE OF JUDGMENT: 28/03/1961 BENCH: <NAME>, M. BENCH: <NAME>, M. AIYYAR, T.L. VENKATARAMA DAS, S.K. KAPUR, J.L. SHAH, J.C. CITATION: 1961 AIR 1480 1962 SCR (1) 517 CITATOR INFO : R 1966 SC 764 (3) R 1974 SC 436 (28) R 1981 SC 774 (11) F 1983 SC1283 (5) RF 1984 SC 420 (15) R 1990 SC1637 (48) ACT: Tax-Levied on Passengers and goods carried by road in motor vehicles-Lump sum in lieu of _tax optionally -payable under the Act but mandatory under the Rules and notification The word "shall", if mandatory or directory-Discrimination, if any between operators using roads-Rajasthan Passengers and Goods Taxation Act, 1959 (18 of 1959), ss. 3, 4-Rajasthan Passengers and Goods Taxation Rules, 1959, Yr. 8,8-A, Notification issued under Y. 8-Constitution of India, Sch. VII, State List, Entry 56. HEADNOTE: The petitioners who were partners of a-registered firm hold- ing public carrier and stage carriage permits challenged the constutionality of certain provisions of the Rajasthan Passengers and Goods Taxation Act, 1959, the Rajasthan Passengers and Goods Taxation Rules, 959, and a notification issued under r. 8. The Act was passed for levying a tax on passengers and goods 518 carried by road in motor vehicles the power to enact being derived from Entry 56 of the State List in Sch. VII of the Constitution. Section 3(4) of the Act prescribed the method of collection of the tax and provided that the State Government may accept a lump sum in lieu of the tax chargeable". Rule 8(i) prescribed the method of payment and provided that the tax "shall be paid in lump sum" and the notification in question prescribed the rates of the tax. Held, that the incidence of the tax was upon "passengers and goods" and not upon income of the petitioners though the amount of the tax was measured by the fares and freights. The charging section, namely, s. 3 did not go outside Entry 56. <NAME> v. State of Madras, I.L.R. (1954) Mad. 867, <CITATION> , (1952) I.L.R. 31 Pat. 493, referred to. The tax did not offend Arts. 301 and 304 of the Constitution and no inter-State trade, commerce or intercourse was affected by it. Although the tax fell upon passengers and goods proceeding to or from an extra-State point, it was limited only to the fare and freight proportionate to the route within the State. The word "shall" is ordinarily mandatory but it is sometimes interpreted as directory, and in the present case the word "shall" used in rr. 8 and 8A and the notification should be interpreted as directory as s. 4 of the Act from which the Rules and the notification derive their authority, creates an option by using the words "may accept". The Act, the Rules and the notification must be read harmoniously. The mandatory language was used to fix peremptorily the amount of the lump sum if paid in lieu of the tax. In Re Lord Thurlow Ex Parte Official Receiver, (1895) 1 Q.B. 724, <NAME> v. <NAME>, (1928) M.W.N. 441, In re <NAME>,  I.L.R. 26.8om. 369, <ORG> v: <NAME>, (1929) I.L.R. 52 Mad. 648 and <ORG> v. <NAME>, (1883) L.R. II I.A. 7, followed. The lump sum figure was based on averages and could not be impeached by reference to a possibility that on some days no business might be done. Comparison with <ORG> which is a union subject was not admissible. There was no discrimination between operators of public motor vehicles using roads all of whom were affected by the Act, There could be no comparison between persons using better kind of roads and those using roads which were not so good. All operators using better kind of roads had to pay heavier tax, and there was no discrimination between them as a class. JUDGMENT:

ORIGINAL JURISDICTION: Petition No. 82 of 1959. Petition under Art. 32 of the Constitution of India for enforcement of Fundamental Rights.

<NAME>

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

<NAME>, Solicitor-General of India, <NAME>, Advocate-General, Rajasthan and <NAME>,' for the respondent.

1961. March 22. The Judgment of the Court was delivered by HIDAYATULLAH, J.-This is a petition under Art. 32 of the Constitution. The petitioners, who are seven in number, challenge as unconstitutional and ultra vires certain provisions of the Rajasthan Passengers and Goods Taxation Act, 1959, the Rajasthan Passengers and Goods Taxation Rules, 1959, and a notification issued under R. 8. For brevity, we will refer to them in this judgment, as the Act, the Rules and the notification respectively. The first petitioner is a registered firm, petitioners Nos. 2 to 6 are the partners of that firm, and petitioner No. 7 is the General Manager of the firm. Petitioner No. 7 holds a public carrier permit for the whole of Rajasthan in his individual name. The petitioners also hold 59 stage carriage permits from <ORG>, Jodhpur, for diverse routes over roads which have different kinds of surfaces, some being sandy or katcha and others, metalled., tarred, etc. The Act was passed in 1959 for levying a tax on passengers and goods carried by road in motor vehicles. The power to enact the Act purports to be derived from Entry No. 56 of the State List in Sch. VII to the Constitution, which reads:

"156. Taxes on goods and passengers carried by road or on inland waterways."

The Act received the assent of the President on April 27, 19.59, and was published in <ORG> on April 30, 1959. The same day, the Rules framed in exercise of the powers conferred by s. 21 of the Act were also published, and the notification was also issued. The Rules were subsequently amended, and we are concerned with the Rules, as amended.

Before we deal with the case further, it is convenient to see how the Act is constructed and what the Rules and the notification provide. The Act, which consists of 21, sections, came into force in the whole of the State of Rajasthan on May 1, 1959. The Act contains the usual provisions to be found in all taxing statutes about appeals, revision, offences and penalties, power to compound offences, recovery of tax as arrears of land revenue, bar of proceedings, exclusion of the jurisdiction of Civil Courts, refunds and power to make rules, to which detailed reference need not be made.' We are only concerned with the imposition of the tax and the mode of its recovery, and will refer to- those provisions which are relevant. Section 3 is the charging section, and s. 4 deals with the method of collection of the tax. Since these sections are the main subject of attack, we quote them in full:

"3. Levy of tax.-(1) There' shall be levied, charged and paid to <ORG>, a tax on all fares and freights in respect of all passengers carried and goods transported by motor vehicles 'at such rate not exceeding one-eighth of the value of the fare or freight, in the case of cemented, tarred, asphalted, metalled, gravel and kankar roads and not exceeding one-twelfth of such value in other cases, as may be notified by <ORG> from time to time subject to a minimum of one naya paisa in any one case, the amount of tax being calculated to the nearest nays paisa.

Explanation.-When passengers are carried and goods are transported by a motor vehicle, and no fare or freight has been charged, the tax shall be levied and paid as if such passengers were carried or goods transported at the normal rate prevalent on the route.

(2) Where any fare or freight charged is a lump sum paid by a person on account of a season ticket or as subscription or contribution for any privilege, right or facility which is combined. with the right of such person being carried or his goods transported by a motor vehicle without any further payment or at a reduced charge, the tax shall be levied on the amount of such lump sum or on such amount as appears to the prescribed authority to be fair and equitable having regard to the fare or freight fixed by a competent authority under the Motor Vehicles Act , 1939 (Central Act 4 of 1939).

(3) Where passengers are carried or goods transported by a motor vehicle from any place outside the State to any place within the State, or from any place within the State to any place outside the State, the tax shall be payable in respect of the distance covered within the State at the-rate laid down in sub-section (1) and shall be calculated on such amount as distance covered in the State bears to the total distance of the journey:

Provided that where passengers are carried or goods transported by a motor vehicle from any place within the State to any other place within the State through the intervening territory of another State, the tax shall be levied on the full amount of the fare or freight payable for the entire journey and the owner shall issue a single ticket or receipt, as the case may be, accordingly. (4) Method of collection of tax.-The tax shall be collected by the owner of the motor vehicle and paid to <ORG> in the prescribed manner:

Provided that in case of public carriers <ORG> may accept a lump sum in lieu of the tax chargeable on freight in the manner prescribed: Provided further that in case of contract carriages <ORG> may accept a lump sum in lieu of the tax chargeable on fare in the manner prescribed." Section 5 lays down the method of levy, and enjoins the issuance of a ticket showing the tax paid of a receipt showing the freight charged and the tax paid. It includes a proviso that in the case of passengers the tax becomes chargeable only on entry in the State, if the journey began outside the State. Section 6 requires the owner to keep accounts and to submit periodic returns and provides for levy of penal ties in case of failure, which penalties are laid down in s. 8 . Section 7 deals with the appointment of taxing authorities, and a. 12 gives the power of entry the officers into vehicles, garages, and offices for inspection and checking. Section 10 enjoins upon the owners the duty of furnishing tables of fares and freights, time-tables,, etc. Section 9 enables <ORG> to grant to any person or class of persons,. exemption from all or any of the provisions of the Act.

The Rules prescribe those matters which are required under the Act to be prescribed by the Rules. It is not necessary to refer to them beyond Rules 8 and 8-A, which have been challenged. Rule 8(i) prescribes the method of payment of tax by means of stamps to be affixed to the tickets, and the second proviso is to the following effect:

"Provided further that the tax payable under the Act on fare by the owner of a motor-cycle, rickshaw or a motor cab shall be paid to <ORG> in lump sum, of which the amount shall be fixed by <ORG> from time to time by, Notification in this behalf."

Rule 8(ii) then provides:

"The owner of a public carrier shall pay to <ORG> a lump sum in lieu of the tax ,chargeable under the Act on freight and the amount of such lump sum shall be fixed by <ORG> from time to time by Notification in this behalf."

Rule 8-A, in so far as material to this case, reads:

"Provisions for payment of lump sum in lieu of tax on fare or freight.((1) In cases covered by the second. proviso to sub<ORG>rule (1) of rule 8 and by subrule (ii) of that rule the lump sum fixed by <ORG> as payable in lieu of the tax on fare or freight, as the case may be, shall be deposited in cash into a Government <ORG> or a <ORG><ORG><ORG> in equal quarterly instalments payable within 15 days from the 31st day of March, the 30th day of June, the 30th day of September and the 31st day of December every year; and in case of such vehicles not registered in Rajasthan to the incharge of the check post or barrier at the time of their entry into the State of Rajasthan or to the officer of <ORG> nearest to the point of entry into the State and having jurisdiction over that area: Provided that<ORG>

Provided that

(a) for the quarter ending on the 30th day of June', 1959, such payment shall be made for the months of May and June, 1959, at the rate of 1/12 of the said sum for each month,

(b) where the owner has not plied his vehicle for the entire quarter immediately preceding any of the aforesaid dates a proportionate decrease in the amount due for that quarter may be made,

(c) if the owner ceases to ply his vehicle on a date preceding any of the aforesaid dates, the proportionate amount for the quarter shall be paid by him immediately upon such cessation, and

(d) where the owner has not plied his vehicle for a continuous period of not less than three months and produces a certificate from the authority competent under the Rajasthan Motor Vehicles Taxation Act, 1951, or the rules made thereunder to the effect that he has been refunded the tax for that period under section 7 of the said Act, no amount by way of tax under the Act shall be payable for such period.

(2) The owner shall inform <ORG> as soon as his vehicle goes out of use. When the vehicle is again put on the road, an intimation to that effect shall be sent to <ORG> immediately." The notification which was issued under R. 8 prescribing lump sum rates, is as follows:

"Jaipur, April 30, 1959 No. F. 15(5) E & T/59. III-.-In pursuance of rule 8 of the Rajasthan Passengers and Goods Taxation Rules, 1959, the Government of Rajasthan hereby directs that the tax chargeable on fare or freight in respect of the following cl. was of Motor Vehicles, shall be paid in lump sum of which the amount is mentioned opposite each such class:-

3. Public carriers (Goods Vehicles):-

(a) Holding a general permit under the Motor Vehicles Act , 1939, to use all roads in Rajasthan;-

(i) Load carrying capacity below 5 Tons Rs. 420 per annum.

(ii) Load carrying capacity 5 Tons and above ... Rs. 540 per annum.

(b) Holding a permit under the Motor Vehicles Act , 1939, for plying within the limits of any region or on fixed routes in any one region:-

(i)Load carrying capacity below 5 Tons ... Rs. 360 per annum.

(ii) Load carrying capacity 5 Tons and above Rs. 480 per annum.

"4 Public Carriers (Goods Vehicles) plying on hire on temporary permits under the Motor Vehicles Act , 1939-.-

(b) Public Carriers (Goods Vehicles)-- d(i) Load carrying capacity below 5 Tons ... Rs. 2 for each calendar day

(ii) Load carrying capacity 5 Tons and above... Rs. 4 for each calendar day This shall have effect on and from the 1st May, 1959"

The petitioners challenged the Act, the Rules and the notification from many angles, in the petition; but at the hearing before us, the arguments were more restrained. The main objection to the Act is that the tax has not been laid upon "passengers and goods" as authorised by Entry No. 56 but upon "fares and freights", which are different entities, and in support of the contention that there is a difference, reference is made to Entry No. 89 of the Union List, where power is conferred to tax "fares and freights". It is submitted that a tax on fares and freights being a different tax, cannot be levied under the Entry, and thus, the tax is without authority of law.

The Act and the Rules are further challenged on the grounds that they are repugnant to Arts. 301 and 304 as being a restriction upon inter-State trade, commerce and intercourse, to Art. 19 as involving an unreasonable restriction upon the business of the petitioners, and also to Art. 14 as discriminating between this mode of transport and the <ORG>. The Act is further challenged on the ground that it concedes to <ORG> the power to fix the amount of lump sum payment without guidance. The rates and lump sum payment are challenged because they involve discrimination between routes involving roads of different surfaces. Rules 8 and 8-A and the notification are challenged as, it is submitted, they go beyond the Act by making the lump sum payment compulsory, even though under the Act it is optional, and involve payment of tax even when no passengers or goods are transported. Lastly, it is said that by making tax payable even though the route between two intra-State point passes outside the State, the Act has an extra-territorial operation which is ultra vires the legislature. The first-and the 'Main-contention is that the Act in the guise of taxing passengers and goods, taxes really the income of the petitioners, or, at any rate, fares and freights, and is thus unconstitutional. It is argued that the tax is borne by the operators because of competition with the <ORG>. That the petitioners are required to bear the tax themselves to stand competition with the <ORG> is a matter of policy', which the petitioners follow and is not something which flows inevitably from the provisions of the Act. We do not agree that the Act, in its pith, and substance, lays the tax upon income and not upon passengers and goods. Section 3 , in terms, speaks of the charge of the tax "in respect of all passengers carried and goods transported by motor vehicles", and though the measure of the tax is furnished by the amount of fare and freight charged. it does not cease to be a tax on passengers and goods. The Explanation to s. 3(1) lays down that even if passengers are carried or goods transported without the charge of fare or freight,, the' tax has to be paid as if fare or freight has been charged. This clearly shows that the incidence of the tax is upon passengers and goods, though the amount of the. tax is measured by the fares and freights. A similar argument was not accepted by <ORG> in <CITATION> (1), and the same view was expressed in <CITATION> (2). In our opinion, the charging section does (1) I.L.R.  Mad. 867. (2) (1952) I.L.R- 31 Pat- 493 (S.B.).

<NAME>

not go outside Entry No. 56. The tax is still on passengers and goods, though what it is to be is deter,mined by the amount of fare or freight. It is clear that if the tax were laid on passengers irrespective of the distance travelled by them, it would lead to anomalies if the amount charged be the same in every case. This if; additionally clear in the case of goods where the weight, bulk or nature of the goods may be different, and a scale of payments must inevitably be devised. Though the tax is laid on passengers and goods, the amount varies in the case of passengers according to the distance travelled, and in the case of goods because the freight must necessarily differ on account of weight, bulk and nature of the goods transported. The tax, however, is still a tax on passengers and goods, and the argument that it is not so, is not sound.

We are also of opinion that no inter-<ORG> trade, commerce or intercourse is affected. The tax is for purposes of <ORG>, and falls upon passengers and goods carried by motor vehicles within the <ORG>. No doubt, it falls upon passengers and goods proceeding to or from an extra-<ORG> point but it is limited only to the fare and freight proportionate to the route within the <ORG>. For this purpose, there is an elaborate scheme in R. 8-A to avoid a charge of tax on that portion of the route which lies outside the <ORG>. There is thus no tax on fares and freights attributable to routes outside the <ORG> except in one instance which is contemplated by the proviso to sub-a. (3) of s. 3 and to which reference will be made separately. In our opinion, the levy of tax cannot be said to offend Arts. 301 and 304 of the Constitution.

The next contention is that the Act allows an option to pay a lump sum in lieu of the tax, but Rules 8 and 8-A and the notification make the payment of the lump sum compulsory. There is no doubt that ex facie the two provisos to a. 4 employ language which is permissive, while the two Rules and the notification employ language which is imperative. The two provisos to a. 4 are enabling, and thereby authorise <ORG> to accept a lump sum payment in lieu of the tax actually chargeable. The word "accept" shows that the election to pay a lump sum is with the taxpayer, who may choose one method of payment or the other. The inclusion of such a provision is designed to promote easy observance of the Act and also its easy enforcement. The charge of tax calculated on fares and freights involves difficulties for the operators who have to keep accounts and also difficulties for the taxing authorities, who have to maintain constant checks and inspections. The lump sum payment is a convenient mode by which an amount is payable per year irrespective of whether the tax would be more or less if calculated on actual fares or freights. The operators pay the lump sum if they so choose, to avoid having to maintain accounts and to file returns, and the Government accepts it to avoid having to inspect accounts and to keep a check. The rates which are prescribed for a lump sum payment per year are for those who wish to avail of them.

It is, however, contended that though the section creates an option, the Rules and the notification make the payment compulsory, and attention is drawn to the word "shall" used both in Rules 8 and 8-A and the notification, whereas the words in the two provisos to s. 4 are "may accept". The word "shall" is ordinarily mandatory, but it is sometimes not so interpreted if the context or the intention otherwise demands. In re Lord Thurlow Ex Parte Official Receiver (1), Lord <NAME>, M. R., observed at p. 729 that "the word 'shall' is not always obligatory. It may be directory", and <NAME>, at p. 731 added:

"It is clear that the word 'shall' is not always used in a mandatory sense. There is abundance of authority to the contrary in cases where it has been held to be directory only".

It was thus that the word 'shall' was held to be directory only, in that case, by Coutts Trotter, C. J., in <CITATION> (2), by <NAME>, J., in In re Rustom (3), by <NAME>, J., (1) (1895) 1 Q.B- 724-

(2) (1928) M.W.N. 441.

(3) (1901) I.L.R. 26 Bom. 396; 3 Bom. L.R 653.

in <CITATION> (1) and by <ORG> in Burjore and <NAME> (2).

Now, Rules 8 and 8-A and the notification only lay down what lump sum payment has to be in each case, if a lump sum is being paid. The mandatory language is used to fix peremptorily the amount of the lump sum. Rules 8 and 8-A and the notification cannot be said to overreach the section to which they are subordinate and from which they must take their colour and meaning. If the Act creates an option, it cannot be negatived by the Rules. The Act and the Rules must be read harmoniously, and reading them so, it is plain that the apparent mandatory language of the Rules and the notification still retains the permissive character of the section, but only lays down what the amount of the lump sum must be, if lump sum payment is made in lieu of payment of the tax calculated on actual fares and freights. If the two Rules and the notification are read in this way, the mandatory language is limited to the prescribing of the lump sum rates. In our opinion, the two Rules and the notification are not void and contradictory of the Act. It is contended that the power to fix lump sums in lieu of tax has been conferred upon Government without guidance, and is, therefore, unconstitutional. It is also urged that the levy of a lump sum leads to the result that even if passengers or goods are not transported, the tax is still payable. These arguments, in our opinion, cannot be

-accepted. The learned Advocate-General pointed out that the lump sum rates work out at a very low figure, the minimum being less than Re. 1/- per day and the maximum, Rs. 1.50 nP. per day. The rates are no doubt very reasonable, but this hardly meets the argument of the petitioners. There are, however, good reasons for upholding the fixation of lump sums. The payment of the lump sum is not obligatory, and a person can elect to pay tax calculated on actual fares and freights.

(1) (1929) I.L.R- 52 Mad. 648, 656.

(2) (1883) L.R. 11 I. A. 7.

The fares and freights are fixed by competent authority under the Motor Vehicles Act , and that takes into account the average earnings, and the lump sum is fixed as an average of what tax would be realised if calculated on actual fares and freights. There is no compulsion for any operator to elect to pay a lump sum if he does not choose to do so. Nor is the argument that there may be. vacant periods when no passengers or goods are transported but the tax is payable, is of any force, because there may be days when the business done might result in tax in excess of the lump sum payable. The lump sum figure is based on averages, and cannot be impeached by reference to a possibility that on some days no business might be done.

The next contention that there is discrimination between road transport and rail transport is also without force. The entry in the State List is limited to a tax on passengers and goods transported by road or inland waterways., The comparison with <ORG> is not admissible, because tax on railway fares and freights is a <ORG> subject, and is not available to <ORG>. There is thus a clear classification made by the Constitution itself. No discrimination between operators of public motor vehicles using roads has been pointed out, and all operators are equally affected by the, Act. Some manner of support for the argument was sought from s. 9 , where <ORG> is empowered to grant exemption from the Act by general or specific order to any person or class of persons. But we were informed that no exemption has been granted except to hospitals or charities. It is next urged that the imposition of a higher rate of tax for cemented, tarred, asphalted, metalled, gravel and kankar roads than that for other roads discriminates between operator, This argument overlooks the very object and purpose of a tax. As is well known, taxes are burdens or charges imposed by legislative power upon persons or property to raise money for public purposes. The power to tax is thus  indispensable to any good government, and the imposition of the tax is justified on the assumption of a return in the shape of conveniences. If this be the true import of a tax, it is but natural that taxes will be graded according as they involve more or less of such conveniences. They will be heavy in case of roads requiring greater expenditure to construct and to maintain, than in case of roads not requiring such expenditure. All operators using the better kind of roads have to pay the heavier tax, and there is no discrimination between them as a class. Discrimination can only be found if it exists between persons who are comparable, and there is no comparison between persons using the better kind of roads and those who use roads which are not so good. It is the cost of construction and maintenance which makes the difference in the tax, and no case of discrimination can be said to be made out. The last contention is that the proviso to sub-s. (3) of s. 3 is extra territorial in nature, because it makes the tax payable on fares and freights attributable to the territory of another State when the route passes through such territory, even though the journey starts and ends in Rajasthan. We were informed that now there are no such routes, but even otherwise, such portions must have been very short and negligible. No affidavit was sworn to show how many such routes were involved and what their extent was, and in view of lack of adequate averments, we must reject the contention.

In the result, the petition fails, and is dismissed with costs.

Petition dismissed.