ORDER The assessee who is a wealthy nobleman and a landed proprietor also carries on the business of money-lending. In connection with an assessment on the profits and gains of his money-lending business for the year 1931-32, the assessee claimed that he was entitled to deduct the sum of Rs. 2,07,018, the amount which he had paid as legal expenses in connection with a suit in which he had been substituted as defendant in place of his father, the late <NAME>. The latter had also carried on the business of money-lending during his life-time and had lent a sum of Rs. 10 lacs to <ORG>, in which company he was a shareholder. In 1926 a suit was instituted against the late <NAME> by certain shareholders of the Company. They alleged that the defendant had agreed to take over the management of the <ORG> and to finance it, but that in breach of this agreement the necessary finances had not been furnished by the defendant with the result that the shareholders of the Company had suffered heavy losses. The defendant denied that there was any such contract as alleged by the plaintiffs or that he was liable to them. He died during the pendency of the suit and his son, the present assessee, was substituted in his place. The suit was dismissed on the 26th of February, 1931. In the course of the assessment of the year 1930-31 the assessee claimed to deduct a sum of Rs. 1,17,275 on account of expenses incurred in connection with the suit in that year. This was disallowed by the Income-tax authorities on the ground that the suit did not arise in the course of any business of the assessee. In the present assessment year the assessee claims to deduct the sum of 2 lacs and odd already mentioned above as legal expenses incurred in connection with the suit during the year of assessment. The claim has again been disallowed by <ORG>, but having been requested by the assessee to state a case for the opinion of this Court, the Commissioner of Income-tax has referred to us the following question.

"Whether the cost in question is legally a business deduction or not ?"

In the order of reference the Commissioner refers to the findings of the court which tried the suit. These findings were that there was no agreement between the late Maharaja and the <ORG> to finance the latter and that the suit was the outcome of a conspiracy to defraud him of large sums. The Commissioners own finding was that the suit had no connection with any business of the assessee but that he was involved in it because he happened to be a very rich man and was therefore liable to attack by unscrupulous persons who desired to relieve him of part of his surplus cash. In the opinion of the Commissioner the expenses of defending such a suit are not expenses incurred for earning the profits of which the assessee has been assessed and therefore no allowance is permissible in respect of it.

It has been contended by the assessee that the transaction into which the late <NAME> was alleged, by the plaintiffs in the suit, to have entered with <ORG>, was a transaction of the kind which a person carrying on an extensive money-lending business like the late <NAME>, would sometimes find it necessary to enter, and that if the suit had succeeded the assessee would have been entitled to deduct from the profits of his money-lending business the expenses incurred in defending the suit.

On behalf of <ORG>, on the other hand, it was contended that as there was no contract between the late Maharaja and the <ORG> the suit had nothing to do with the Maharajas money-lending transactions and must be regarded merely as the kind of false suit to which a wealthy person is exposed by reason of his wealth. It appears to us that the question of law on which our opinion is sought is incapable of being adequately answered without a further statement of facts by the Commissioner.

We, therefore, require the Commissioner to state whether the money-lending business of the late Maharaja and the assessee is such as would have included transactions of the kind into which he was alleged to have entered with <ORG>

JUDGMENT <NAME>, J. - This reference under Section 66 (2) of the India Income Tax Act relates to the assessment on the <NAME> of Darbhanga, who besides being a wealthy nobleman and landed Proprietor, carries on an extensive money-lending business. In connection with the profits and gains of his business for the year 1931 to 1932 the assessee has been assessed on an income of Rs. 15,02,880. He claims to deduct from this amount a sum of Rs. 2,07,018. This amount has been expended in the year 1931-32 in a suit instituted against his father, the late <NAME> and others, by some of the shareholders of <ORG> On the 3rd of July, 1929, the late <NAME> died. The assessee and his brother were substituted in his place. The suit was eventually dismissed on the 22nd of February, 1931. The claim to deduct the sum referred to is found on clause (ix) of sub-section (2) of Section 10 of the Act. Sub-section (2) of Section 10 enacts that in computing the profits and gains of a business certain allowance shall be made. The allowance mentioned in clause (ix) is "expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of earning such profits or gains." It is contended that the sum claimed to be deducted is expenditure incurred solely for the purpose of earning the profits which have been assessed to tax.

The late <NAME> was a shareholder in <ORG>, and there is no dispute that in 1923 the <ORG> was in very serious financial difficulties. The late <NAME> advanced to the <ORG> a sum of 10 lacs of rupees. The plaintiffs in the suit against the <NAME> asserted that this was only a part of the money which the late <NAME> contracted to advance to the <ORG>. According to the allegations in the plaint in the suit the then managing agents of the <ORG> commenced negotiations with the late <NAME> for the purpose of obtaining his financial assistance in the affairs of the <ORG>. It was alleged that the late <NAME>, through his agents, consented to a scheme whereby he was to assume the managing agency of the <ORG> and advance whatever sums were necessary to put it on a sound financial basis. It was further alleged that in breach of this agreement the <NAME> had advanced nothing but the 10 lacs already referred to and that as a result the shareholders of the company had suffered considerable losses. The total amount of damages claimed by the plaintiffs amounted to about a crore of rupees. The amount for which it was sought to render the late <NAME> responsible was a sum of about 60 lacs of rupees. The plaintiffs alleged that the agents of the late <NAME> knew that the dismissal of <NAME> and Co., the former managing agents, which was then under contemplation, would destroy their plan of obtaining the managing agency for their master with the aid of <NAME> and that for this reason they allowed promises to be made to the shareholders which misled them into believing that the <NAME> would at all times, finance the <ORG> and would also provide <NAME> & Co., with funds to repay over 17 lacs of rupees which they were alleged to have embezzled, and that in consequence of the promises an enquiry relating to the amount said to have been embezzled by <NAME> & Co. was stifled; damages were, therefore, claimed against the late <NAME> not only for the breach of contract but for entering into a conspiracy with others as a result of which the sum embezzled by <NAME> & Co., was lost to the plaintiff company.

The defence to the suit was denial of the allegation in the plaint. It was asserted that the only contract between the late Maharaja and the company was for a loan of 10 lacs of rupees and that this in fact had been advanced. The suit was dismissed on the 26th of February, 1931. The Court which decided the suit held that there was no agreement by the late Maharaja to finance the company beyond the sum of Rs. 10 lacs and that the suit was the outcome of a conspiracy to defraud him of the large sums which were claimed.

The Income-tax authorities declined to allow the deduction claimed by the assessee in connection with the costs of this suit. In stating the case the Commissioner of Income-tax said that the Maharaja was involved in the suit because he happened to be a very rich man and was therefore liable to attack by unscrupulous persons to relieve him of part of his surplus cash and that the suit had nothing to do with his business operations. At the request of the assessee, however, the Commissioner referred to this Court the question whether the costs in question were legally a business deduction or not. This Court found itself unable to answer the question referred to it by the Commissioner without a further statement of facts. The Commissioner was, therefore, called upon to state whether the money-lending business of the late Maharaja and the assessee was such as would have included transactions of the kind into which he was alleged to have entered with <ORG> In response to an invitation by the Commissioner the assessee placed before him evidence of other transactions entered into by the late Maharaja which, it was said indicated that a transaction of the kind alleged in the suit against the late Maharaja was within the scope of his business. One of these was a loan to <ORG>. When the debtor defaulted in repayment of that loan the assessed sued him and in execution of the decree obtained in the suit he took possession of the debtors business and continued it. An advance to <ORG>, again resulted in the assessee acquiring the properties of the debtor and then continuing the debtors business. There was another transaction of the same kind with Dr. <NAME> of Bombay and with the same result. Three other transaction which have been referred to as the Lachmipur zarpeshgi loan, the Tikari loan and the <ORG> loan, were instances in which money was advanced on the security of zamindari property in which the assessee eventually acquired the property in execution of decrease for recovery of the loans. In the opinion of the Commissioner the last three instance were not analogous to the transaction under discussion because the assessee is himself a zamindar and his acquisition of more zamindari property in satisfaction of loans was merely an extension of his activities as a zamindar and had nothing to do with his business operations. The Commissioner also distinguishes the three first mentioned instances on the ground that in those instances the assessee acquired the business of the debtors whereas in the case under discussion he merely assumed the management of the debtors business. For these reasons the Commissioner came to the opinion that the money-lending business of the late Maharaja and the assessee did not include a transaction of the kind into which he was alleged to have entered with <ORG> The Commissioner having properly stated the facts on which he has based his opinion we have first to decide whether the conclusion of the Commissioner follows from the facts stated. The conclusion I have come to is that there is no essential difference between taking over the debtors property for the purpose of preventing the loss of sums advanced and the taking over of the management of the debtors business for the same purpose and I, therefore, hold that the alleged transaction with <ORG>, was not foreign to the money-lending business of the assessee and his father.

The next and more difficult question is whether the costs of defending the suit can be regarded as expenditure incurred solely for the purpose of earning the profits of the business so as the attract the provisions of clause (ix) sub-section (2), of Section 10 of the Act. On behalf of the <ORG> it is contended that the expenditure was not for the purpose of earning the profits of the assessees business at all and even if it can be so regarded it was not solely for that purposes but mainly for repelling allegations affecting the late Maharajas honour and for protecting his business against loss of capital. It is argued that had the suit succeeded the assessee would have had to part with a large part of his capital and that his primary object in defending the suit was to prevent this loss of capital. Hence it is contended that the expenditure was in the nature of capital expenditure and was excluded from the operation of clause (ix). The line between what is capital expenditure is one of considerable difficulty as has been pointed out in a number of English cases to which we have been referred. Examination of the facts of those cases only leads to the conclusion that the line of demarcation is so tenuous as to be almost imperceptible. What clearly emerges is that no general or comprehensive rule can be laid down but that each transaction must be judged in relation to its own circumstances. Reference was made to the case of Strong & Co. v. <NAME> (1906 A.C. 448). That was a case in which an inn-keeper was held not to be entitled to an allowance on account of damages which he had been compelled to pay to a guest who had been injured by a defective chimney in the premises. That decision has no application to the facts of the present case. The library for damages arose not by reason of the assessee being an inn-keeper but by reason of his being a house-holder. The case Countess of Warwick State ship Co. Ltd. v. <NAME> (1924, 2 K.B. 292) is also distinguishable. There a company who owned ships which they used in their business as carries entered into a contract with a firm of shipbuilders for the construction of a vessel for Pounds 2,24,000. Later, by arrangement with builders, it was agreed that the contract should be cancelled, the builders being permitted to retain a sum of Pounds 30,000 which they had already received as an advance, and it being further agreed that they should also receive a further sum of Pounds 30,000. The company claimed an allowance in respect of the Pounds 60,000 which was thus lost to them. The claim was disallowed on the ground that the loss was of a capital nature. The money which a banker or a money-lender employs in his business, while it is in one sense capital, is also his stock-in-trade. There can, I consider, be no doubt that money expended for the purpose of insuring the stock-in-trade of a business must be considered expenditure in the nature of revenue expenditure and incurred solely for earning the profits of the business. The fact that one of the allowances mentioned in sub-section (2) of Section 10 is money spent in insuring against risk of damage or destruction of buildings, machinery, plant, furniture, stocks or stores used for the purposes of business does not imply that but for this express provision the premium paid for such insurance would not be deductible under clause (ix). I think it follows as a consequence that if expenditure incurred for securing the assessee against possible loss of his business stock and stores (that is, his stock-in-trade) is allowable, expenditure should not be disallowed when it is incurred for the purpose of repelling an actual attack on the assessees stock-in-trade. To hold otherwise would mean that while a trader would be entitled to deduct the cost of insuring his stock-in-trade against, e.g., loss by the fire, he would not be entitled to deduct the expenses of fighting a fire that has actually occurred and which threatened destruction of the stock-in-trade. That conclusion seems to me to be so illogical that it should not be adopted even in construing a statute the provisions of which, as has frequently been observed, are not designed or intended to lead to logical conclusions.

The contention that the suit against the late <NAME> was instituted against him not because he was a money-lender but because he was a wealthy nobleman is not, in my opinion acceptable. It was because the late <NAME> lent money to the Company that an opportunity was afforded to the plaintiffs to allege that the advance of 10 lacs of rupees actually made was only a part performance of a contract the scope of which was very much wider. It was the relationship of money-lender and borrower which provided a foundation on which the allegations against the late <NAME> were based and the main purpose of the suit was to obtain damages for the breach of an alleged money-lending transaction. Taking all the circumstances into consideration I would therefore hold that the deduction claimed falls within Section 10 , sub-section (2), clause (ix) of the Act and would answer the reference accordingly. The assessee is entitled to his costs and to the refund of the one hundred rupees deposited for the reference. Hearing fee 10 (ten) gold mohurs.

<NAME>, <NAME> - I agree with the view taken by my learned brother. The late <NAME> brought a suit for recovery of 10 lacs of rupees advanced to the Mill, a decree was obtained in 1927, and the assessee was allowed to deduct the expenses incurred in this suit as expenses incurred in his money-lending business. If spending money to recover this ten lacs is treated as not being in the nature of capital expenditure, and incurred solely for the purpose of earning the profits or gains of the money-lending business, then I cannot see why money spent in defending a false claim arising out of the same transaction is not to be treated upon the same basis. Both suits were bases upon the same transaction, namely, the advancing of the ten lacs, though no doubt very different versions of that transaction were given by the plaintiffs in each of the suits the version of the plaintiffs in the suit against the <NAME> being almost completely false. That version might have been an almost completely false version of what took place but it cannot be denied that it was built up upon the transaction in which the loan of ten lacs was made. If the <NAME> was to show a profit upon this transaction, it was not only necessary for him to sue for recovery, but also to defend any false claims which might have been based on the transaction. Defence of such suits must be regarded, in my view, as a necessary though unpleasant part of the business of money-lending. I am satisfied that the suit was primarily against the <NAME> in his capacity as moneylender and not merely as a rich nobleman, and it was based primarily too upon breach of contract by the money-lender.

The instances put before the Commissioner do show that the Maharaja was in the habit of running business, to which he has advanced money. If it seemed to be the best way of protecting his invested interest he might well therefore have entered into a transaction of the kind alleged in the plaint, either to safeguard his ten lacs, on his prior interest as a shareholder. The expenditure in defending the suit was not capital expenditure any more that the advancing of the ten lacs or spending money in suing to recover that loan was capital expenditure, for only floating capital and not fixed capital was involved. In the case of a money-lender the money used in loan transactions forms his stock-in-trade, and the advancement of a loan, though in one sense a temporary disbursement of capital, is not capital expenditure. The distinction can be clearly illustrated by an example. If a firm of ship carriers buys a ship to add to its fleet, that is capital expenditure; but if a firm, whose business is the buying and selling of ships for profit, buy a ship, that is not capital expenditure, but normal trading. In the one case the ship represents stock-in-trade, in the other it does not. Similarly, owning to the peculiar nature of the money-lenders business his money itself becomes his stock-in-trade.

Having regard to this principle the ruling in In re <ORG>, (3 I.T.R. 324; I.L.R. 16 Lah. 479) is easily distinguishable. In that case expenses incurred in defending a suit were disallowed as capital expenditure, but it was a suit, the success of which would have involved not merely trading loss, but would have put an end to the entire business, and the very existence of the company was affected.

Another ruling, <ORG> v. <NAME> (5 Tax Cas. 215; 1906 Appeal Cases 448) relied on by the learned Advocate for the Income Tax authorities is really in my opinion in favour of the assessee in so far as it does lay down a principle. The principle laid down was, with some hesitation, held not applicable to that particular case, where an inn-keeper had incurred expenses in defending a suit brought by a guest who had been injured by a defective chimney in the premises, as the loss was found to have been incurred not as an inn-keeper but as a house-holder, and the implication was that had the loss been held to have arisen out of the business of inn-keeping, the expenditure would have been deductible. It was observed as an illustration that losses sustained by <ORG> in compensating passengers for injuries received as the result of an accident in travelling might be deducted. It seems to me that there is little distinction between expenses incurred by <ORG> in defending such a suit for compensation, based as it would be upon the implied contract for safe carriage, and the expenses incurred by a money-lender in defending a false claim based upon one of his money-lending contract.

In my opinion the deduction claimed clearly falls within Section 10 , sub-section (2), clause (ix), of the Indian Income-tax Act .

Reference answered accordingly.


<NAME>, J.

1. This appeal raises a question as to the validity of the provisions for the shebaitship of certain Hindu idols made by the will of <NAME>, who was a Hindu governed by <ORG> of Hindu law, and who died on March 26, 1927. The following genealogical table will show the relationship of the parties :-

<NAME> - Kadammoni Dasi |

| | | <NAME>) <NAME> | | | <NAME> | | -------------------------------------------------------- | | | | <NAME> Rash Behary Banku Behary 2. The testator was survived by his widow and by his three sons. 3. The material clauses of the will, which was made and published on November 18, 1923, and under which his sons <NAME> and <NAME> were appointed executors, are as follows :-

9. Subject to the payments aforesaid I give the rest and residue of my estate unto my executors and trustees upon trust to pay the balance of the income of my said estate to the <NAME> for the time being of the Thacoors Netai Gour and etc., established by me and located at my family dwelling house No. 23, Sankaritola Lane to be applied by the said <NAME> for the time being for the expenses of daily Sheba and periodical festivals and ceremonies of the said Thacoors as are usually observed and performed in Hindu families of my caste and I direct that after the death of all the legatees under this my will my executors and tustees shall make over the whole of the corpus and undrawn income of my said estate upto the <NAME> or <NAME> for the time being of my said Thacoors upon the trusts as aforesaid.

10. It is my will and I direct that the said house and premises No. 23, Sankaritola Lane shall always remain for the location and use of the said <NAME>s and my Executors and Trustees or the <NAME> shall have no power or authority to sell, mortgage or dispose of or deal with the said premises in any manner whatever and if at any time the said house and premises is acquired for any public purposes under any enactment for the time being in force them (sic) 1 direct that my executors and trustees shall with the money received for such acquisition purchase or build a suitable house in Calcutta or its suburbs for the location and use of the said <NAME>s. The <NAME> for the time being of the said <NAME> shall be entitled to live with their family in the said house and premises No. 23, Sankaritola Lane or in any other house or premises where the said <NAME>s may for the time being be located and my executors and trustees shall also allow my daughter <NAME> to reside in the said premises No. 23, Sankaritola Lane during her life.

11. I appoint my sons <NAME> and <NAME> to be the <NAME>s of the said Thacoors and I direct that upon the death retirement or refusal to act of any of them or any of the future <NAME>s the then next eldest male lineal descendant of <NAME> or <NAME> shall act as a <NAME> in place of the deceased or retiring <NAME> or <NAME>s refusing to act as such-it being my intention that the eldest for the time being in the male line of my said sons <NAME> and <NAME> shall always remain as joint <NAME>s and in the event of the death or refusal to act of any <NAME> the then next male member of the branch to which the <NAME> dying or refusing belonged shall act as a <NAME> in his place and stead.

4. The testator's son <NAME> died on May 24, 1927, leaving his son <NAME>, and the testator's son <NAME> died on October 17, 1928, leaving four sons as shown in the pedigree.

5. On April 25, 1929, letters of administration de bonis non were granted to the Administrator-General of Bengal, whereupon disputes arose as to which descendants of the testator were entitled to act as shebaits and to receive payment of the income of the estate, and the present suit was by originating summons taken out by the Administrator-General on August 1, 1933, for determination of the following questions :-

1. On a true construction of the Will of Luckey Narain Dhur is the appointment of Shebaits after the death of <NAME> and <NAME> (since deceased) and the line of succession to Shebaitship created by Clause 11 of the said Will valid?

2. If not, who are the persons at present entitled to act as Shebaits to the deities mentioned in the said Will in the events which have happened ?

3. In the events which have happened, to whom is the income of the residuary estate to be made over ?

6. It is agreed that there was a valid gift for life to the testator's sons <NAME> and <NAME> respectively, but it is maintained by the appellant that the rest of the clause is invalid in respect that it attempts to lay down a line of succession which is not permissible under the Hindu law, and that the persons entitled to act as shebaits are the heirs of the testator, including the appellant.

7. The respondents maintain that <NAME> and <NAME>, who were in life at the testator's death, and were respectively the next eldest male lineal descendants of <NAME> and <NAME> respectively on their deaths, were entitled to act as shebaits and to the income of the estate, by virtue of a gift for life to them, which was independent of the line of succession otherwise invalidly sought to be laid down by the testator.

8. <NAME>, who tried the case, upheld the contention of the present appellant, by a judgment dated January 10, 1934. On appeal, this judgment was reversed by <NAME> and <NAME>, who held that Clause 11 can be construed " as an intention to make an independent gift of the office for life to such person as happened to answer the description of ' eldest male lineal descendant' at the date of the death, retirement or refusal to act of <NAME> or <NAME>."

9. Their Lordships apprehend that the law applicable to the present case is well settled, and that the question is one of construction of the will.

10. The well known Tagore case : <CITATION> (1872) L.R.I.A. Sup. Vol. 47 laid down two separate principles :-(a) that a person capable of taking under a will must be such a person as could take a gift inter vivas, and therefore must either in fact or in contemplation of law be in existence at the death of the testator, and (b) that all estates of inheritance created by gift or will, so far as they are inconsistent with the general law of inheritance, are void as such, and that by Hindu law no person can succeed thereunder as heir to the estates described in the terms which in English law would designate estates tail. As <NAME> and <NAME> were in being at the testator's death, the first of these principles presents no difficulty.

11. In <NAME> <NAME> v. <NAME> (1899) L.R. 27 I. A. 69 : s.c. 2 Bom. L.R. 597 it was held by this Board that the second ruling in the <NAME> case above referred to is. applicable to an hereditary office and endowment as well as to other immoveable property. This decision was followed in <CITATION> (1932) I.L.R. 60 Cal. 452.

12. On the question of construction, Section 87 of the Indian Succession Act, 1925, provides, " The intention of the testator shall not be set aside because it cannot take effect to the full extent, but effect is to be given to it as far as possible." This reproduces, almost verbatim, Section 74 of the Indian Succession Act of 1865.

13. Their Lordships do not find it possible, as matter of construction of the clause here in question, to find a separable gift in favour of the persons who were to take respectively on the death, retirement or refusal to act of <NAME> and <NAME>. The testator combines the whole series of changes in the succession in one sentence, " upon the death, retirement or refusal to act of any of them (<NAME> or <NAME>) or any of the future shebaits," and additional force is given to this observation by the terms of the declaration of the testator's intention in the later part of the clause, which also covers the whole series of changes in the succession.

14. As is not unusual in such questions of construction, other cases are of little assistance, but the decision of this <ORG> in <CITATION> (1927) L.R. 55 I. A. 74 : s.c. 30 Bom. L.R. 282 may be cited by way of contrast. In that case a Hindu conveyed property to trustees upon trust to pay the income to the settlor during his life and after his death, as to one-fourth share, to the settlor's married daughter <NAME> " for her sole and separate use and after her death in trust for the male heirs of the said <NAME> share and share alike." <ORG> held, on the death of <NAME>, leaving six sons all of whom were alive at the date of the deed, that the intention was to create an estate descendible to male heirs only, and that the provision was invalid as an attempt to create an estate unknown to Hindu law. That decision was reversed by His Majesty in Council, and, in delivering the judgment of the <ORG>, Lord <NAME> said (p. 79) :-

Their Lordships are of opinion that the true interpretation is that the persons who answer the description of male heirs at the date of <NAME>'s death were the persons in whose favour an independent gift was made, but that by operation of the Hindu law there would be excluded from that class people who were not living when the deed was executed. There is nothing whatever in the words of the grant to show that the estate so conferred was anything but an absolute estate upon such persons. For there is nothing to suggest, on the one hand, that such estate was limited to their life or, on the other, that any line of descent was marked out after their death. It is true that the gift is in the form of a gift of income, but it is a gift unlimited in point of time, and if there be no restriction in the gift and no limitations beyond the actual beneficiaries at <NAME>'s death such a gift carries the whole estate.

In the present case the very elements are to be found, the absence of which were founded on in the above case as justifying the reversal of the decision of <ORG>.

15. It was further argued for the respondents that, even if no separable and independent gift to those who would take on the death, retirement or refusal to act of <NAME> and <NAME> respectively, it was still the duty of the <ORG> to give effect to the scheme of succession in so far as the person entitled to take under the scheme was in fact also the person who would take under the Hindu law of succession, this being true in the case of <NAME> and <NAME>. But this contention is the same as a contention which was rejected by the <ORG> in the <NAME> case, in the following passage, at p. 76 :-

Accordingly it has been argued in support of the will, that as it shews an intention to give an estate of inheritance of some sort, all the machinery by which that estate was to be governed and dealt with after it was created ought to be rejected, and such an estate of inheritance as the law would uphold and sanction ought to be read out of the will and conferred either upon <NAME> whose family was intended, so long as it produced males descended of males, to represent the estate described by the <NAME>, by treating his life estate as converted or expanded into an estate of inheritance, according to Hindu law, or at least upon his son to be begotten or adopted, as the first tenant in tail male, whereby the persons designated as heirs could take, though not in the fashion of the <NAME>, at least somehow and to some extent. In order however to arrive at this conclusion, we must find a general and prevailing intention of the <NAME>,'. expressed by the words of his will, which will be advanced by this process; and we are not at liberty to invent for him a will which will have the effect of creating an estate at variance not merely in details but in substance and effect with what he has said .... There is no trace to be found in the will of an intention to create any other sort of estate; and the will, as clearly as language can speak without express words, declares that it was not the intention of the <NAME> that any person to take thereunder should have the estate of inheritance defined by the ordinary law. If the <NAME> had used language to describe, however imperfectly or obscurely, such an estate as within his intention, effect ought to be given to that intention, when once arrived at by a fair and liberal interpretation of his language. To create such an estate by judicial construction of this will would be something worse than guesswork as to what the <NAME> might have said if he could be asked his meaning; for it would be to contradict in every article what he has intelligibly expressed.

The intention of the testator in the present case not to create an estate of inheritance as denned by the ordinary law is at least as clear as in the <NAME> case.

16. Their Lordships are accordingly of opinion that the decision of the trial Judge was right, and that, on the deaths of <NAME> and <NAME> respectively, the succession to the office of shebait and the income of the estate must be according to the ordinary Hindu law of succession, the provisions of Clause 11 of the will, in so far as it relates to the holding of the office of shebait after the respective deaths of <NAME> and <NAME>, constituting an invalid attempt to lay down a line of succession which is not permissible under the Hindu law.

17. Their Lordships will therefore humbly advise His Majesty that the appeal should be allowed, that the decree of <ORG> in its appellate jurisdiction dated July 20, 1934, should be set aside except as to the costs in that appeal, and that the, decree of <ORG> in its original jurisdiction dated January 10, 1934, so far as set aside by the above-mentioned decree, should be restored. The costs as between solicitor and client of all parties to this appeal, including the Administrator-General, to be paid out of the estate.


PETITIONER: <ORG>, <NAME> (M.P.) Vs. RESPONDENT: UNION OF INDIA AND ORS. DATE OF JUDGMENT10/03/1992 BENCH: YOGESHWAR DAYAL (J) BENCH: YOGESHWAR DAYAL (J) RANGNATHAN, S. RAMASWAMI, V. (J) II CITATION: 1992 AIR 1324 1992 SCR (2) 81 1992 SCC (2) 658 JT 1992 (2) 286 1992 SCALE (1)599 ACT: <ORG>s and Salt Act , 1944: Section 4- Explanation (prior to Amendment) and Section 36(2) . Excise Duty-Central Government's Notification No. 84/72-CE dated 17.3.72 as amended by Notification No. 113/72 dated 22.3.72-Power driven and monoblock pumps-<ORG> purchased and used in manufacture of pumps-Excise duty paid on <ORG>-Whether deductible in arriving at assessable value. Trade discount-Discount given to distributors providing after sales service-Also discount given to wholesalers not providing after sales service-Whether entitled for deduction from excise value. HEADNOTE: The appellant-Company was manufacturing power-driven pumps and monoblock pumps. It was purchasing electric motors from another company and using them in the manufacture of these pumps. The Superintendent of <ORG> issued show cause notice to the appellants for recovery of short levy of duty relating to the period from 17th March, 1972 to 31st March 1973 stating that (1) there was less determination of the assessable value of pumps due to non-inclusion of <ORG> duty paid on electric motors used in the manufacture of pumps and that (2) there was deduction of irregular trade discount on wholesale cash price while determining the assessable value of the articles in question. The Assistant Collector directed the appellant to pay the duties short levied holding that the excise duty paid by the appellant on electric motors fitted to the pumps could not be deducted while computing the assessable value of the pump sets for purposes of assessment and that the wholesale cash price minus the trade discount, which is uniformly given to all wholesale dealers, would represent the assessable value for assessment purposes. 82 Against the orders of the Assistant Collector the appellant preferred an appeal before the Appellate Collector who allowed the appeal and quashed the demand notice holding (i) that the assessable value of the pumps had to be arrived at after deduction from the wholesale cash price of the excise duty payable not only on the pumps which are manufactured but also the excise duty paid on the electric motors which were used as a component of the pumps and (ii) that in determining the assessable value of the PD pumps a discount of 30 per cent declared by the appellant and allowed to wholesale dealers was liable to be deducted from the wholesale cash price of the pumps under the provisions of the section 4 of the <ORG>s and Salt Act , 1944. In exercise of the powers conferred on it under section 36(2) of the Act <ORG> suo moto issued a show cause notice dated 21st June, 1976 to the appellant proposing to set aside the order of the Appellate Collector and restore the orders of the Assistant Collector stating that the Appellate Collector has erred in his decision. The appellant filed its reply to the notice and also made its submissions during the course of personal hearing. After considering the appellant's reply as well as points urged by it during the course of personal hearing <ORG> set aside the Appellate Collector's order and restored the Assistant Collector's orders. The appellant filed a writ petition in <ORG> challenging <ORG>'s order contending that <ORG> erred in setting aside the order of the Appellate Collector and in restoring the orders of the Assistant Collector. <ORG> held that the Explanation to Section 4 of the Act provides for deduction of trade discount and the amount of duty payable at the time of removal of the article from the factory. The 'duty' referred to in the explanation is the duty payable on the product which is manufactured and does not refer to the duty paid on the raw material or the component of the product manufactured. <ORG> agreed with the order of <ORG> on the deduction on trade discount and rejected the appellant's contention that the excise duty paid on the component parts could not be treated as manufacturing cost and that it was not competent for the Government to levy excise duty on excise duty paid. In appeal to this <ORG> it was contended on behalf on the appellant 83 (1) that while computing the assessable value the duty paid on electric motors for purposes of manufacturing monoblock pumps was also liable to be excluded; (2) that <ORG> ignored the Notification No. 84/72-CE dated 17.3.1972 as amended by Notification No. 113/72 dated 22.3.72; and (3) that besides the depots of the appellant there are other five independent wholesalers and <ORG> should not have ignored the trade discount allowed to them. Dismissing the appeal, this <ORG>, HELD: 1.It is clear from the Explanation to Section 4 of the <ORG>s and Salt Act , 1944 that while computing the assessable value the deduction has to be allowed apart from trade discount to the amount of duty payable at the time of removal of the article chargeable with duty from the factory. Here the article concerned was the 'pump' which had an electric motor which was duty paid. But what was deductible while assessing the assessable value was merely the excise duty payable on the 'pump' and not the excise duty already paid on the electric motor which was merely a component. [98C- <CITATION> ,  1.S.C.C. 172, referred to. 2. It is clear from the Government Notification that while charging duty after computing the assessable value, the appellant will be entitled to reduction of duty paid on the electric motors from the over all excise duty payable on the 'pump'. The value of the excise duty paid on the electric motor is not deductible while arriving at the assessable value under Section 4(a) of the Act. This becomes further clear from the wording of the second proviso to the Notification which contemplates where the duty of excise on power driven pumps becomes less than the excise duty paid on the electric motor then no part of the excise duty is liable to be refunded to the manufacturer. Therefore the purpose of the first proviso and the second proviso of the Notification is only to the calculation of excise duty payable and has no relevance to the calculation of assessable value of the articles manufactured when it is cleared from the factory. [100C-E] 3. It is clear from the submission made by the appellant itself before <ORG> that the discount to area distributors was also in consideration for providing after sales service which is not required to be 84 taken into account while dealing with trade discount within the meaning of explanation to Section 4(a) of the Act. Therefore <ORG> rightly did not take into account such area distributors who may have to provide after sales service. The trade discount given to such wholesalers who were under no obligation to provide after sales service is the relevant trade discount given to the wholesalers. [96E- <CITATION> .,  2 SCR 1089, referred to. JUDGMENT:

CIVIL APPELLATE JURISDICTION :Civil Appeal No. 1773 of 1981.

From the Judgment and Order dated 27.11.1980 of <ORG> in M.P.No. 134 of 1977.

<NAME> and <NAME> for the Appellant. <NAME>, Add1. Solicitor General, <NAME> and <NAME> for the Respondents.

The Judgment of the Court was delivered by YOGESHWAR DAYAL, J. This Civil Appeal arises from the order dated 27th November, 1980 passed by <ORG> of Madhya Pradesh High Court in proceedings under Article 226 of Constitution of India. The proceedings under Article 226 of the Constitution were directed against an order dated 19th January, 1977 passed by <ORG> in exercise of the powers conferred upon them under Section 36 of the Central Excises and Salt Act , 1944 (hereinafter called 'the Act').

The proceedings before <ORG> arose out of the review of an order in appeal passed by the Appellate Collector of <ORG>, New Delhi dated 14th July, 1975. The appellate Collector by the aforesaid order had accepted various appeals filed by <ORG>, appellant before us against various order passed by the Assistant Collector <ORG>, Indore.

The material facts giving rise to this litigation are as follows :-

The appellant carries on business of manufacturing power-driven pumps and monoblock pumps at <ORG>. For manufacturing mono block type P.D. pump sets and power driven pumps, the appellant purchases electric motors from another company <ORG> <ORG> issued eight show cause notices to the appellant calling upon them to show cause why the short levy as mentioned in the notices should not be recovered from the appellant. The period to which the alleged short levy related was from 17th March, 1972 to 31st March, 1973.

The grounds on which the amount referred to in the notices issued was proposed to be recovered were (i) less determination of the assessable value of pumps due to non- inclusion of <ORG> duty paid on electric motors used in the manufacture of pumps and (ii) deduction of irregular trade discount on wholesale cash price while determining the assessable value of the articles in question.

The Assistant Collector of <ORG> held that the excise duty paid by the appellant on electric motors fitted to the pumps could not be deducted while computing the assessable value of the pumps sets for purposes of assessment under the Act.

With regard to the question of trade discount the Assistant Collector held that in terms of explanation to Section 4 of the Act deduction in respect of trade discount on wholesale cash price of the articles to be removed from the factory has to be allowed; the trade discount allowed has to be at uniform rate as held by <ORG>; once the wholesale price is fixed and the quantum of trade discount is decided it must be given uniformly to all wholesalers irrespective of their relations with the manufacturers. The Assistant Collector observed :- "The party had admitted that they have three types of wholesale dealers and each of them allowed trade discount at different rate. The first category of wholesale dealers numbering about 15 got the maximum trade discount. A perusal of the list of these 15 wholesale dealers reveal that most of them are merely selling Depots of the party who get the maximum trade discount in comparison to other types of wholesale dealers of the party. The Hon'ble Supreme Court has held that the wholesale price has to be ascertained only on the basis of transactions at 'arms length'. Their Lordships have further opined that if there is relative of the manufacturer and if he is charged specially low price, the price charged would not constitute the wholesale cash price for levying the excise duty. The maximum trade discount allowed to a particular class of wholesale dealers which is mostly consisted of their own selling depots, therefore, does not represent the trade discount in its true sense in terms of Section 4 according to which the trade discount has to be allowed at a uniform rate and not arbitrarily. Therefore, the fixation of wholesale cash price after allowing the maximum trade discount to a particular type of wholesale dealers cannot be treated as a transaction made at arms length in an ordinary course of business and, therefore, not in keeping with provisions of Section 4 of the Act and consequently cannot represent the correct wholesale cash price in terms of Section 4 the Act for assessment purposes.".

The Assistant Collector held that the wholesale cash price minus the trade discount, which is uniformly given to all wholesale dealers, would represent the assessable value for assessment purposes. Accordingly the Assistant Collector directed that duties short levied, as pointed out in the show cause notices, should be paid by the appellant.

Aggrieved by the orders of the Assistant Collector the appellant preferred an appeal before the Appellate Collector who held that the assessable value of the pumps had to be arrived at after deduction from the wholesale cash price of the excise duty payable not only on the pumps which are manufactured but also the excise duty paid on the electric motors which were used as a component of the pumps. The Appellate Collector further held that in determining the assessable value of PD pumps a discount of 30 per cent declared by the appellant and allowed to wholesale dealers was liable to be deducted from the wholesale cash price of the pumps under the provisions of Section 4 of the Act. In this view of the matter the Appellate Collector allowed the appeals and quashed the demand notices. While allowing the appeals the Appellate Collector, dealing with the deduction of trade discount observed as follows:-

"With regard to the second issue i.e.

admissibility of trade discount of 30% declared by the appellants and approved by the jurisdictional <ORG> officer, it was contended by the appellants that according to the pattern of their sale they had appointed 16 area dealers for sales of their products over a particular area. These area dealers had also appointed subdealers within their respective jurisdiction. Thus where the sales were made by the area dealer himself the full discount of 30% was allowed to him while if the goods were despatched on the advice of the area dealer to any of his sub-dealers was passed on to the sub-dealers while the discount remaining out of the 30% was passed on by a credit voucher to the area dealer. In either case the full discount of 30% was being passed on to the trade on all wholesale transactions. The above contention of the appellants was verified from the sales invoices produced by them in respect of wholesale transactions and it was noticed that the above contention of the appellants is correct. It was also noticed that some sales were also made in small lots by the appellants to the dealers falling outside the jurisdiction of the area dealers. These sales represented 1% to 9.7% of the total sales and could be regarded as sales to retailers. In their case the discount passed on was less than 30% discount allowed in the case of wholesale dealers. It was explained that in view of the fact that such dealers did not have the facility and the technical know-how for providing after sale service, the discount allowed to them was lesser than that allowed to the dealers (wholesale dealers) who were required to afford the services after sales. However, in view of the fact that such sales are meager and are in much smaller lots, they did not materially change the situation."

(emphasis supplied) When this order came to the notice of <ORG> <ORG> suo moto issued show cause notice to the appellant proposing to set aside the order of the Appellate Collector, which appeared to it to be not correct in law, and restore the order passed by the Assistant Collector of Central Excise, Indore. The reasons for the proposed revision were contained in the show cause notice dated 21st June, 1976, the relevant part of which, for facility of understanding, is reproduced hereunder:-

"6. In terms of the explanation to Section 4 of the Central Excise and Salt Act , 1944 in determining the price of any article under that section a deduction is admissible from the wholesale cash price towards the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises. It appears to <ORG> that the deduction contemplated therein is in respect of the duty leviable on the article which is being cleared from the factory and not the duty paid or leviable on the raw materials or component which went into the manufacture of that excisable article. In other words what is allowed deduction is only that duty leviable on the finished excisable article and not the total duty incidence. To held otherwise appears to be repugnant to the correct construction of the expression "amount of duty payable at the time of removal of the article chargeable with duty from the factory".

7. It, therefore, appears to <ORG> that in holding that the deduction was admissible not only in respect of the duty leviable on the PD Pumps but also in respect of the duty paid on the electric motor the Appellate Collector has in his decision.

8. The second question to be determined by the Appellate Collector was the admissibility of a trade discount of 30% which the party was granting in respect of sales to their area dealer or through area dealers to sub-dealers which to another category of dealers called independent dealers a less amount of trade was granted. The case records reveal that the party had three types of wholesale dealers namely the following:-

(a) Area dealers which number about 15 get the maximum trade discount.

(b) The sub-dealers of these area dealer. These sub-dealers usually get the goods from the area dealers at the particulars. discount and can also get the goods directly from the party on a discount advised by the area dealers and the balance discount out of the total 30% discount is passed on thereafter to the areas dealers and;

(c) The lst category of dealers who operate in area covered by the area dealers and get a less amount of discount.

9.It also appears that approximately 90% of the goods are sold through the area dealers or their sub-dealers and only the rest through other independent dealers.

10.The Appellate Collector held that the sales to dealers other than the area area dealers were only upto 10% of the total sales and as such these could be regarded as a sales to retailers. Accordingly the Appellate Collector held that since a substantial quantity of goods was sold through the area dealers or their sub-dealers the price charged to them was the correct wholesale cash price and that the 30% trade discount given to them was admissible and sales to other dealers which were in small quantity could be ignored and could be treated as sales to retailers.

11.It appears to <ORG> that the Appellate Collector failed to take note of the fact that the sales to these independent dealers in their respective areas, however, small in quantity were nonetheless sales to wholesale dealers. These could not be categorised as retail sales which are essentially different from wholesales sales. These independent dealers were as much wholesale dealers as the areas dealers. Further the Appellate Collector also failed to take note of the fact that the so-called area dealers in a large number of cases were no other than the party's own selling depots and the price charged to them could not prima facie be accepted as genuine unless there was compelling evidence to establish that the transaction was at arm's length. It accordingly appears to <ORG> that the wholesale cash price charged to the independent dealers and discount given to them is along a genuine wholesale cash price and that the genuine whole sale cash price is ascertainable the quantum of sale however meagre is irrelevant. By holding that the discount given to the area to the area dealers was admissible and that sales to independent dealers being meager could be treated as retail sales and thus ignored, it appears to <ORG> that the Appellate Collector has erred in his decision.".

The appellant filed a reply dated 30th August, 1976 and inter alia contended :-

"We deal with these two points separately as below :-

(i) ASSESSABLE VALUE OF MONOBLOCK PUMPS;

At the outright we wish to state that the grounds of appeal advanced, against the various orders in appeal issued by the Assistant Collector, <ORG>, Indore before Appellate Collector, <ORG> and Customs, New Delhi, will form part of our reply and we would rely on them. We presume that the records of the case are already with you and there is no need of reproduce here our arguments.

However without prejudice to whatever stated in above referred Appeal Memo we wish to state as under :-

(A) Central Excise duty is an indirect tax and this tax is not taken into consideration for assessment purposes. In accordance with the explanation given in section 4 it is true that what is clear by us is a Monoblock Pump and not electric motor alone and not a mere pump. Since we are paid Central Excise duty to our suppliers of electric motor, we have to recover the same from the parties to whom monoblock pumps are sold.

(B) Had we sold only an Electric motor, the same recovery to duty would have been made separately by us and our cost would have been the price paid to supplier exclusive of central excise duty. (C) Just because the motor is used in the manufacture of <ORG> Pumps, it does not deprive us of our right to recover the duty on the Electric Motor paid by us when this is ascertainable. (D) The same would be the case in respect of other components of <ORG> pumps, viz. Steel, paint, shafting, material etc. However, we are not in a position to ascertain the duty paid on these Raw Materials. That is why we have to recover the total amount including the cost and Central Excise duty paid on the Raw Material, so that the Central Excise duty paid on them will automatically be recovered. Such an amount has to go into the total value. But in respect of the items of the raw materials if we can ascertain the central excise duty paid, we can certainly recover the same in from of duty and not by way of the cost of the material.

(E) The whole principle of costing is to see what an article produced by any manufacturer has cost him. If the duty is ascertainable, there is no reason as to why it should be go into the cost necessarily. There is no law to warrant such a procedure.

(F) The inclusion of Central Excise duty as the cost of <ORG> pumps, it would further complicate the matters. In that event we will not be in a position to recover the full duty paid on electric motor as we have to allow the proportionate trade discount on the duty elements. This would tantamount depriving us of our right to recover the full amount of Central Excise duty paid by us.

(G) Further without prejudice, if the duty is so included what would be the amount to be included and at what stage. It will have to be decided whether the whole of the duty on electric motor i.e. 15% is to be included in the cost or the balance available from the said duty amount after availing of the set off admissible under Notification No. 84/72 as amended by No.113/72.

Under these circumstances, we would request you not to force us to include the element of Central Excise duty paid on Electric motors, in the value of our Monoblock Pumps for purpose of assessments.

(ii) WHOLESALE CASH PRICE AND QUANTUM OF DISCOUNT At the outsight we wish to state that the grounds of appeal advanced against the various order in appeal issued by the Assistant Collector, <ORG>, Indore before the Appellate Collector, <ORG> and Customs, New Delhi will form part of our reply and we would rely on them. We presume that the records of the case are already with you and there is no need to reproduce there our arguments.

However, without prejudice to whatever, stated in above referred appeal memos we would like to state as follows:-

ii(A) It is contended in the Show Cause Notice that the wholesale cash price, charged to the independent dealers and the discount given to them is alone a genuine wholesale cash price and that once the wholesale cash price is ascertainable the quantum of the sale, however meagre, is irrelevant. Further it is also contended that the so called dealer in a large number of cases were no other than parties own selling depots and the price charged to them could not prima facie be accepted as genuine. Unless there was compelling evidence to establish that the transaction was at arms length.

In this connection we would like to submit as follow:

ii(C) The <NAME> Brother's depots are being treated on par with these area dealers and the dealings are from principle to principle. Simply because they are depots of <NAME> Brothers it cannot be presumed that the dealings are not at arms length.

ii(D) It is not the case of department that the goods are sold to these area dealers at a specially low rate. The facts that there are 5 independent dealers alongwith depots goes to prove that no special treatment is accorded to the depots.

ii(E) We would insist with all force that these transactions are at arms length and these represents the normal trade practice. The sales to independent dealers may not be treated as retail sales but there is no reason as to why the price charged to these few so called independent dealers should be preferred to the price charged to independent area dealers.

ii(F) The whole idea of assessment seems to have been mis-conceived. Now it is an established law that "EXCISE IS A TAX ON THE PRODUCTION AND MANUFACTURE OF GOODS (SEE UNION OF INDIA VS. DELHI CLOTH AND GENERAL MILLS 1963) SECTION 4 ACT THEREFORE PROVIDES THAT THE REAL VALUE SHOULD BE FOUND AFTER DEDUCTING THE SELLING COST AND THE SELLING PROFITS AND THE REAL VALUE CAN INCLUDE ONLY THE MANUFACTURING COST AND THE MANUFACTURING PROFIT".

ii(G) The section also makes it clear that the excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit, and the excludes post manufacturing costs and the profit arising from the post manufacturing operation.

ii(H) In our case the amount charged by giving lesser discount to the so called independent dealers represents the selling profits and cannot be attributed to the manufacturing activity. Under these circumstances the value that could be approved for our assessment would be the list price less maximum and this will represent the manufacturing cost plus the manufacturing profit.

ii(I) Under the circumstances it is abundantly clear that the price cannot be loaded with any kind of selling cost or selling profit irrespective of whether the same is of the wholesellers or of the manufacturer, the reason being that neither it is attributable to manufacturing activity.

ii(J) After the decision in <ORG> case there have been a number of cases both the <ORG> and <ORG>, wherein the decision in <ORG> case have been followed meticulously.

Under these circumstance there are no reason to reopen the matter and given an adverse decision."

An opportunity of personal hearing was also granted. It is noticed in the order of <ORG> that : "During the course of personal hearing on 19.10.1976 various contentions were reiterated and it was emphasised that the manufacturers had two patterns of sales, namely - (i) through area distributors who are given exclusive rights of sale within their respective areas and who were further authorised to appoint sub-distributors, and (ii) some 10% sales were to other dealers to whom a less percentage of discount was given. It was emphasised that the discrimination between the two patterns of sales was on account of the fact that area distributors provided after sales service etc. which could be treated as post manufacturing operations. It was pointed out to them during the course of personal hearing that majority of the so- called area distributors were depots of <ORG>, only. They contended that though the over-all controlling authority was <ORG>, yet these depots were independent entities by themselves. They were asked to submit detailed information about the composition of all the Directors of <ORG> Bangalore, the Directors of <ORG> factory and their agreements with various area distributors with their sub-distributors. The information was to be submitted by November 16, 1976 but could not be received within the time stipulated.".

<ORG> after considering the points raised by the appellant in its written reply to the show cause notice as well as points urged during the course of personal hearing took the view that under Section 4 of the Act the abatement of duty is admissible only in respect of the article in question and not the duty paid on the raw material or the component which had gone into its manufacture, and accordingly held that the view of the Appellate Collector is incorrect. Regarding the question of discount <ORG> took the view that the independent wholesale dealers are those who are other than the depots of <ORG>. The view of the Appellate Collector treating sales to these dealers as retail sales is incorrect. <ORG> held that once the wholesale cash price is ascertainable the quantum of sales to such wholesale dealers is irrelevant and in the instant case even the quantum of sale to the independent wholesale dealers is 10%. The wholesale cash price is thus ascertainable. In this view of the matter <ORG> in exercise of the powers conferred in it under sub-section (2) of Section 36 of the Act set aside the impugned order passed by the Appellate Collector and restored all the orders passed by the Assistant Collector of Central Excise.

Before <ORG> the above referred order of <ORG> was impugned in the aforesaid circumstances. It was contended on behalf of appellant before <ORG> that <ORG> erred in holding that the duty paid on the electric motors was not deductible in computing the wholesale cash price under the provisions of Section 4 of the Act. It was also contended that <ORG> erred in restoring the orders of the Assistant Collector whereby only 25 per cent discount was held to be deductible by way of trade discount in computing the wholesale cash price of the pumps in question. <ORG> held that the explanation to Section 4 of the Act provides for deduction of trade discount and the amount of duty payable at the time of removal of the article from the factory. The 'duty' referred to in the explanation is the duty payable on the product which is manufactured and does not refer to the duty paid on the raw material or the component of the product manufactured. Faced with this difficulty before <ORG> the counsel for the appellant stated that he was not relying on the explanation to Section 4 of the Act for contending that the duty paid on electric motors fitted to the pumps was liable to be deducted from the wholesale cash price of the article in question. It was urged before <ORG> that the excise duty paid on the component parts could not be treated as manufacturing cost and that it was not competent for the Government to levy excise duty on excise duty paid. <ORG> rejected the contention. As regards the deduction of trade discount <ORG> agreed with the order of <ORG>.

Before us learned counsel for the appellant has submitted that <ORG> erred in disturbing the appellate order of the Collector and submitted - (1) that beside the depots of the appellant there are other five independent wholesales and <ORG> should not have ignored the trade discount allowed to them; (2) that <ORG>, though has passed the impugned order only on 14th April, 1977, did not refer to the information which was submitted after 16th November, 1976; (3) that <ORG> ignored by Notification No.84/72- CE DT 17.3.1972 as amended by Notification No. 113/72 dated 22.3.1972 and (4) that while computing the assessable value the duty paid on electric motors for purposes of manufacturing monoblock pumps was also liable to be excluded.

It will be noticed that we are concerned with old section 4 of the Act as operative during the relevant time.

<CITATION> ,  2 S.C.R. 1089, <ORG> emphasised at page 1097 that there can be no doubt that the 'wholesale cash price' has to be ascertained only on the basis of transactions at arm's length. Once wholesale dealings at arm's length are established, the determination of the wholesale cash price for the purpose of Section 4(a) of the Act may not depend upon the number of such wholesale dealers. Before <ORG> it was emphasised by the appellant itself that the discrimination between the two patterns of sales was on account of the fact that area distributors provided after sales service etc. which could be treated as post manufacturing operation. It is thus clear from the submission made by the appellant itself before <ORG> that the discount to area distributors was also in consideration for also providing after sales service which is not required to be taken into account while dealing with trade discount within the meaning of explanation of Section 4(a) of the Act. Therefore <ORG> rightly did not take into account such area distributors who may have to provide after sales service. The trade discount given to such wholesalers who were under no obligation to provide after sales service is the relevant trade discount given to the wholesalers.

In view of our conclusion on the first point itself no useful purpose would be served in examining the second question as the appellant himself had given the reasons before <ORG> as to why they gave higher trade discount to their depots and other area distributors.

We may take point Nos. 3 and 4 together. <CITATION> ,  1 S.C.C. 172, <ORG> had the occasion to deal with somewhat similar situation as in the present case. <NAME>, J. (as His Lordship then was) speaking for the Court observed :-

"The activity carried out by the appellant of assembling the three components of the weighbridge brings into being complete weighbridge which has a distinctive name, character or use. As a result of the work of assembling a new product known in the market and known under the excise item "weighbridge" comes into being. The appellant will become a manufacturer of that product and as such liable to duty".

His Lordship further observed thus :

"A part may be goods as known in the excise laws and may be dutiable. If the indicator system is a separate part and a duty had been paid on it and if the rules so provide then the appellant may be entitled to abatement under the rules. But if the end product is a separate product which comes into being as a result of the endeavour and activity of the appellant then the appellant must be held to have manufactured the said item. When parts and the end product are separately dutiable - both are taxable."

Section 4(a) of the Act read with its explanation reads as under :-

"4. Determination of value for the purposes of duty

- Where, under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall be deemed to be-

(a) the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of the removal of the article chargeable with duty from the factory or any other premises of manufacture of production, or if a wholesale market does not exist for such article at such place, at the nearest place where such market exists, or

(b)..... ....... ....... .......

Explanation - In determining the price of any article under this section, no abatement or deduction shall be allowed except in respect of trade discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid.".

It is clear from the explanation itself that while computing the assessable value the deduction has to be allowed apart from trade discount to the amount of duty payable at the time of removal of the article chargeable with duty from the factory. Here the article concerned was the 'pump' which had an electric motor which was duty paid. But what was deductible while assessing the assessable value was merely the excise duty payable on the 'pump' and not the excise duty already paid on the electric motor which was merely a component.

The relevant part of the Notification No.84/72-CE dated 17.3.1972 as amended by Notification No. 113/72 dated 22.3.1972 reads as follows:-

"In exercise of the powers conferred by rule 8(1) of the Central Excise Rules, <ORG> hereby exempts power driven pumps falling under tariff item no. 30a of the first schedule to the Central Excise and Salt Act , 1944  and specified in column (2) of the table annexed hereto from so much of duty of the excise leviable thereon as in excess of the duty specified in the corresponding entry in column (3) of the said table.

S.No Description Duty (1) (2) (3)

1. POWER DRIVEN PUMPS PRIMARILY DESIGNED 10% FOR HANDLING WATER NAMELY ADVALOREM

i) CENTRIFUGAL PUMPS (HORIZONTAL OR VERTICAL PUMPS)

ii) DEEP WELL TURBINE PUMPS

iii) SUB MERSIBLE PUMPS AND

iv) AXIAL FLO AND MIXED FLOW NIL VERTICAL PUMPS.

2. OTHERS NIL

------------------------------------------------------------ PROVIDED THAT

(i) Where the aforesaid pumps on which the duty of excise is leviable are fitted with duty paid internal combustion engine falling under sub-item

(ii) of item no. 29 or Electric motors falling under sub-item(ii) of item no.30 of the first schedule to the aforesaid Act such power driven pumps shall also be exempted from so much of the duty of excise leviable hereon as is equivalent to the duty of excise leviable thereon as is equivalent to the duty of excise or the additional excise duty under section 2A of the Indian Tariff Act 1934 (32 of 1934) the case may be already paid on such internal combustion engine or <ORG>.

(ii) ..... .... ... ... ...

Provided further that where the duty of excise leviable on power driven pumps is less than the amount of duty of excise or the additional duty under section 2A of the Indian Tariff Act aforesaid specified in clause (i) or as the case may be calculated under clause (ii) of the first proviso with respect to internal combustion engine, elect. motor, rotors or stator then no part of the duty so specified or calculated shall be refunded to the manufacturer.

It will be noticed that first part of the Notification exempts the 'Power Driven Pumps' falling under Tariff Item No. 30A of the first schedule to the Act and reduces the duty to 10% advalorem.

To understand more conveniently the meaning and scope of provisos, the provisos shorn of unnecessary words may read as under :-

"PROVIDED THAT :-

(i) Where the aforesaid pumps on which the duty of excise is leviable are fitted with duty paid...Electric motors....Such power driven pumps shall also be exempted from so much of the duty of excise leviable thereon ...as is equivalent to the duty of excise ......paid on such .....electric motors.

(ii) .... ...... ..... .......

Provided further that where the duty of excise leviable on powers driven pumps is less than the amount of duty of excise or the additional duty under section 2 A of the Indian Tariff Act aforesaid specified in clause (i) or as the case may be calculated under clause (ii) of the first proviso with respect to internal combustion engine electric motor, rotors or stator then no part of the duty so specified or calculated shall be refunded to the manufacturer."

It is thus clear from the proviso that while charging duty after computing the assessable value, the appellant will be entitled to reduction of duty paid on the electric motors from the over all excise duty payable on the 'pump'. The value of the excise paid on the electric motor is not deductible while arriving at the assessable value under Section 4(a) of the Act. This becomes further clear from the wording of the second proviso which contemplates where the duty of excise on power driven pumps become less than the excise duty paid on the electric motor then no part of the excise duty is liable to be refunded to the manufacturer. Therefore the purpose of the first proviso and the second proviso is only to the calculation of excise duty payable and has no relevance to the calculation of assessable value of the articles manufactured when it is cleared from the factory.

There is thus no merit in this appeal and the same is accordingly dismissed with costs.

T.N.A. Appeal dismissed.


PETITIONER: BALMOKAND KHATRI EDUCATIONAL ANDINDUSTRIAL TRUST, AMRITSAR Vs. RESPONDENT: STATE OF PUNJAB & ORS. DATE OF JUDGMENT: 14/02/1996 BENCH: RAMASWAMY, K. BENCH: RAMASWAMY, K. AHMAD SAGHIR S. (J) CITATION: 1996 AIR 1239 1996 SCC (4) 212 JT 1996 (3) 60 1996 SCALE (2)577 ACT: HEADNOTE: JUDGMENT:

O R D E R Notification under Section 4 [1] of the Land Acquisition Act , 1894 [for short, the "Act"] was published in <ORG> on February 26, 1976. Dispensing with the enquiry under Section 5-A , declaration under Section 6 was published on the same day. Notice under Section 9 was served on March 3, 1976. The appellant filed Writ Petition No.1359 of 1976 on March 7, 1976. On March 19,1976, <ORG> ordered stay of dispossession. After the counter- affidavit was filed by the respondents, <ORG> dismissed the writ petition on April 4, 1976. In the meanwhile, award enquiry was conducted and the award under Section 11 was made on March 18, 1976. Possession of the land was taken on April 17,1976. It would appear that the Land Acquisition Officer [LAO] had deposited the compensation on May 18, 1976. Record has been placed before us to show that the land was earmarked and distributed to 592 landless workers on April 22, 1976. On December 11, 1979, the appellant again filed Writ Petition No.4460 of 1979 which came to be dismissed by <ORG> on February 7, 1980. Thus this appeal by special leave. Interim stay granted on May 8, 1980 was modified by this <ORG>, maintaining status quo, by order dated September 13, 1981.

It is clear from these facts that after dispensing with the enquiry under Section 5-A , immediate action was taken by issuance of the notice under Section 9 and award enquiry was conducted since dispossession was ordered by <ORG>. After the dismissal of the writ petition, possession was taken on April 17, 1976. Thus the process of the requisition was completed and the acquisition became final. What remained to be done was only the determination of the compensation in respect of the acquired land. In this case, the land acquired is of the extent of 121 canals 10 marlas. <NAME>, learned counsel appearing for the appellant with his thorough preparation, has contended that dispensing with enquiry under Section 5 A is bad in law. However, we find no force in the contention. <ORG> has amended the Central Act by Amendment Act s II/1954, XVII/6 and XLVIII/1956 whereunder an explanation has been added to sub-section  of Section 17 of the Act. Sub-section  was also added in which clause [b] of the sub-section envisages thus:

"(b) whenever in the opinion of the Collector it becomes necessary to acquire the immediate possession of any land for the purpose of any library or educational institution or for the construction, extension or improvement of any building or other structure in any village for the common use of inhabitants of such village, or any godown for any society registered under Co- operative Societies Act , 1912, or any dwelling house for the poor, or the construction of labour colonies or houses for any other class of people under a Government sponsored housing scheme, or any irrigation tank, irrigation or drainage channel, or any well, or any public road;"

Thus the <ORG>, by virtue of State Amendment is empowered to exercise the urgency clause under sub-section [4] of Section 17 and to dispense with the enquiry under Section 5-A of the Act. <NAME> has contended that mere existence of the power is not sufficient. The urgency should be such as would not brook delay of 30 days in conducting the enquiry contemplated under Section 5-A . In this case, allotment of the house sites to the poor is not such an urgency which cannot wait for conducting the enquiry. Therefore, exercising the power under Section 17  is bad in law. He seeks to place reliance on the decision of this Court in <ORG> v. State of Maharashtra [(1977) 1 SCR 763]. In a recent decision in <ORG> v. State of U.P. & Anr. [[(1996) 1 SCALE 101], this Court considered the entire case law and held that providing house sites to the poor is an urgent necessity and exercise of the power under Section 17  to dispense with the enquiry under Section 5-A would be justified. The reasoning of this Court in <NAME>'s case also was considered and it was held that exercising the power under Section 17  cannot be struck down when the <ORG> was of the opinion that it urgently required the possession of the land for providing house sites to the poor.

It is seen that the entire gamut of the acquisition proceedings stood completed by April 17, 1976 by which date possession of the land had been taken. No doubt, <NAME> has contended that the appellant still retained their possession. It is now well-settled legal position that it is difficult to take physical possession of the land under compulsory acquisition. The normal mode of taking possession is drafting the Panchnama in the presence of <NAME> and taking possession and giving delivery to the beneficiaries is the accepted mode of taking possession of the land. Subsequent thereto, the retention of possession would tantamount only to illegal or unlawful possession.

Under these circumstances, merely because the appellant retained possession of the acquired land, the acquisition cannot be said to be bad in law. It is then contended by <NAME> that the appellant-Institution is running an educational institution and intends to establish a public school and that since other land was available, the Government would have acquired some other land leaving the acquired land for the appellant. In the counter-affidavit filed in <ORG>, it was stated that apart from the acquired land, the appellant also owned 482 canals 19 marlas of land. Thereby, it is seen that the appellant is not disabled to proceed with the continuation of the educational institution which it seeks to establish. It is then contended that an opportunity may be given to the appellant to make a representation to <ORG>. We find that it is not necessary for us to give any such liberty since acquisition process has already been completed.

Pursuant to the directions issued by this <ORG>, the Chief Secretary himself has conducted an enquiry and identified the officer who was responsible for the lapses in omitting to instruct the counsel and for not producing the record as part of the record of the <ORG>. We accept the report submitted by the Chief Secretary. It would be open to him to pursue further action to reach a logical conclusion.

The appeal is dismissed accordingly. No costs.