JUDGMENT <NAME>, Kt., C.J. and Banerji, J.

1. This is a somewhat peculiar case. The respondents in this appeal from an order on an application in the execution of a decree obtained in <ORG> on the 24th of December 1878, a decree, which was affirmed in this <ORG> in 1882, in a suit for possession of property. In 1883, on an application to execute that decree, possession was delivered to these respondents. In 1884 this <ORG> held, on appeal from the order putting the respondents in possession, that the decree as it stood was incapable of execution. The decree in question was the decree in appeal of this <ORG>. In 1884 an application was presented to this <ORG>, for the amendment of the decree by bringing it into accordance with the judgment. That application was refused in 1884. In 1885 these respondents applied to the <ORG> below to amend the decree. On that application an order to amend was made by the lower <ORG> in 1885, but that order was set aside on appeal to this <ORG> in 1889 on the ground that the decree in question being a decree by this <ORG>, this <ORG> was the only <ORG> which could amend it. Thereupon, on the 5th of March 1889, these respondents applied to have the judgment of this <ORG>, refusing the application to amend which was made in 1884, reviewed, and prayed that the decree might be amended. On the 6th of May 1890 the decree was amended on that application and brought into accordance with the judgment. On the 6th of May 1893, the application to execute the decree out of which this appeal has arisen was filed. The Subordinate Judge made an order for the execution of the decree.

2. It has been contended here, on behalf of the appellant, the judgment-debtor, that Article 179 of Schedule II of the Indian Limitation Act, 1877, applies, and that even if the proceedings taken by these respondents on and prior to the 5th of March 1889 might be regarded as applications to take steps in aid of the execution of the decree, yet that this application is time-barred as not having been made within three years of the 5th of March 1889. It was also contended on behalf of the appellant that an application to amend a decree is not an application to take a step in aid of the execution of the decree, and that, although the decree was amended as late as the 6th of May 1890, the "date of the decree" mentioned in Article 179 is the date which the Code of Civil Procedure enacts shall be the date of the decree, namely, the date of the judgment, which is that of the original judgment where there has been no review of judgment.

_______________________________________________________________________________________ Article 178.

_______________________________________________________________________________________ Period of Time from which period begins Description of Application. limitation. to run. ________________________________________________________________________________________ Applications for which no period Three years. When the right to apply acorues. of limitation is provided elsewhere in this schedule, or by the Code of Civil Procedure, Section 230. _________________________________________________________________________________________ 3. The following cases have been cited to us: <NAME> v. Fahiman I.L.R. 13 All. 124; <CITATION> . 8 All. 492; <CITATION> . 9 All. 364, and <NAME> v. Shadi Lal I.L.R. 8 All. 56.

4. The question is not devoid of difficulty. On the one hand we have Article 179 , which is the only article which apparently expressly relates to the period of limitation for applications for execution of decrees. On the other hand there are undoubtedly cases of applications to execute decrees to which Article 179 could not possibly apply. One such case was that of <NAME> v. <ORG> Weekly Notes 1894, p. 61. It appears to us that the first paragraph of the third column of Article 179 must necessarily apply only where there is a decree or order which can at its date be executed. It appears to us that that paragraph necessarily contemplates the existence of a decree capable of being executed at the date of the decree. In our opinion it would apply to a decree capable of being executed at its date, even though such decree might not be in accordance with the judgment, and although subsequently it might be necessary to make an application to bring the decree into accordance with the judgment. In our opinion, so long as there was, at the date of the decree, a decree capable of execution, the first paragraph of the third column of Article 179 would apply. This <ORG> in 1883 rightly or wrongly held that the decree of this <ORG> of 1882 on appeal was, by reason of a defect in it, incapable of execution. That decision is binding on us, and for present purposes we must assume that the decree passed in appeal in 1882 affirming the decree of the lower <ORG> of 1878 was, by reason of an infirmity in drawing it up, incapable of execution. Consequently it appears to us that until the 6th of May 1890, there was no decree in the suit between these parties which was capable of being executed. If Article 179 were to apply to such a case as this, the decree-holder's power to obtain the fruits of a judgment in his favor might be defeated through no fault of his own by a <ORG> delaying for more than three years from the date of its decree to bring the decree into accordance with its judgment and give the decree-holder a decree which he could execute. Article 179 applies not only to an application to execute an original decree, but it applies where there has been an appeal from that decree, and it applies also to a case in which there has been a review of judgment after decree. There is no provision in Article 179 to meet a case in which at the date of the decree, the decree through the fault of a <ORG> or the fault of an office in drawing it up or passing it, is incapable of execution. It appears to us that under these circumstances we must apply Article 178 , and we apply it because this <ORG> had decided that the decree of 1882 was absolutely incapable of execution. Under Article 178 the respondents' application now under consideration is within time, for it was made, although on the last day of limitation, within three years from the time when the right to apply to execute the decree accrued on the amendment of the decree. No doubt with regard to any future application paragraph 4 of the third column of Article 179 contains the limitation which will be applicable. We dismiss this appeal with costs.


<NAME> - The assessee in this reference application under section 66 of the Indian Income-tax Act is a registered firm of four partners carrying on business as manufacturers of stainless steel-ware, brass-sheets and circles. It maintains its books of accounts on the mercantile system. In the year of account ended April 12, 1956, the relevant "previous year" for the assessment year 1956-57, it credited a sum of Rs. 5,600 to a separate account called "gratuity reserve account". This amount represented approximately fifteen days wages of all its employees or workmen, who were in its service during the year of account. The stated object of the assessee in carrying this amount of Rs. 5,600 from and out of the profits of the year to the "gratuity reserve account" is to meet an eventual liability in case some of the workers happen to be retrenched at some point of time in future.

According to the assessee, this was a statutory obligation or burden imposed upon it under section 25F of the Industrial Disputes Act. We shall refer to the provisions of this Act and to the nature of the assessees liability a little later.

In the year of assessment 1956-57, the assessee claimed this amount of Rs. 5,600 as a permissible deduction in the computation of its profits chargeable to tax. The claim for deduction was apparently based on section 10 (2) (xv) of the Indian Income-tax Act , and presumably also on the principle of computation of the true profits of the business, allowing all legitimate costs incurred in earning the income. The Income-tax Officer, City Circle III, Madras, disallowed the claim, holding that the assessee would not be entitled to make a revenue charge on the income of the year of account against prospective liabilities of a contingent nature. The assessee went up on appeal to the Appellate Assistant Commissioner of Income-tax, B-Range, Madras. The appellate authority affirmed the view taken by the Income-tax Officer. He held that the provision made for payment in respect of a statutory obligation would not amount to an "expenditure", as the amounts had not been credited to the accounts of the respective employees, but were only placed under an account, the assessee still having domination and control over the fund. There was a further appeal by the assessee to <ORG>. This time it was successful. The <ORG> took the view that the assessee being under a statutory liability under section 25F of the Industrial Dispute Act to pay the employees "gratuity" at the rate of fifteen days wages for every completed year of service, there was nothing wrong for the assessee to make provision in each of the years, as the liability is an ascertained one. In the view of the <ORG>, it is an ascertainable liability of the assessee, in respect of which it made a provision in the year of account, and that, therefore, the claim for deduction on the basis of that provision would be permissible in law. The <ORG> failed to consider the question whether the assessee did was to credit the general reserve account with this sum of Rs. 5,600 and, though the assessee now asserts that this reserve is also intended for the purposes of meeting a future statutory liability in case of retrenchment, there is nothing on record to show that the segregation of this amount from the profit and loss account was made with the specific purpose and object of meeting that liability. The assessee having succeeded in establishing its claim for deduction, the department applied for a reference under section 66 (1) of the Act to the <ORG> and the <ORG> has referred the following questions :

"Whether the aforesaid sum of Rs. 5,600 or any part thereof can be said to be an ascertained liability in respect of gratuity to the assessees employees due under the provisions of the Industrial Disputes Act , as at the end of the aforesaid previous year so as to constitute a proper deduction in the assessment of the year 1956-57 ?"

We shall now refer to the provisions of the Industrial Disputes Act to ascertain the nature of the assessees liability in respect of which it desires to forearm itself by building up a reserve fund. The assessee points out to section 25F of the Act, which reads :

"25F. No workman employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until -

(a) the workman has been given one months notice in writing, indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid in lieu of such notice, wages for the period of the notice : . . . .

(b) the workman has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days average pay for every completed year of service or any part thereof in excess of six months."

The word "retrenchment" has been defined under the Act as meaning the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but does not include voluntary retirement, retirement of the workman on reaching the age of superannuation or termination of the service of a workman on the ground of continued ill-health. <ORG> held in the <ORG> case that the word "retrenchment", as defined under the Act, has no wider meaning than the ordinary accepted connotation of the word, and that it means the discharge of surplus labour or staff by the employer for any reason whatsoever, in a continuing industry otherwise than as a punishment inflicted by way of disciplinary action, and it has no application where the services of all workmen have been terminated as a result of bone fide closure of business. Subsequent to this decision, <ORG> has introduced section 25FF and section 25FFF by Act XXIX of 1957. By these provisions compensation to workmen even in cases of transfer of undertakings and of closing down of undertakings has been provided for. Section 25F (b) is really mandatory in its terms. Retrenchment workmen are entitled to the compensation equivalent to the fifteen days average pay for every completed year of service. <CITATION> , <ORG> dealing with this provision observes as follows :

"On a plain reading of section 25F (b) it is clear that the requirement prescribed by it is a condition precedent for the retrenchment of the workman. The section provides that no workman shall be retrenched until the condition in question has been satisfied. It is difficult to accede to the argument that when the sanction imposes in mandatory terms a condition precedent, non-compliance with the said condition would not render the impugned retrenchment invalid."

Indeed, the condition of the payment of retrenchment compensation is an essential pre-requisite, which, if not complied with, would render the retrenchment itself illegal and improper : see <CITATION> court, Madras.

The real question in this case does not, however, turn upon the express mandatory provision of section 25F of the Act, but upon the nature of the employers liability at a given moment on the apprehension that at some future date, due to the vicissitudes of business, recourse may have to be had by way of retrenchment of some members of the staff who might be felt to be surplus, having regard to the then business exigencies. It is quite obvious that an evaluation of the employers liability in respect of an unforeseen and perhaps imaginary state of business compelling retrenchment of the surplus staff must depend upon several hypothetical contingencies.

Learned counsel for the department contends, firstly, that a provision for meeting a future liability, which is uncertain and contingent, cannot be a proper charge on the business income of an assessee even under the mercantile system of accounting and, secondly, that even in a case of definite future liability, making a provision by constituting a reserve in the assessees accounts would not amount to "expenditure", without which no deduction can be claimed. In our opinion, both these contentions are well-founded and we have only to see whether these principles apply to the present case and prevent the assessee from the deduction.

A traders profit and loss accounts, however much it may be in line with established accountancy and commercial principles, may not be sanctified for income-tax purposes by the department. In respect of costs allowable for earning income, standards of commercial men or qualified professional accountants cannot enlarge the statutory limits of proper and admissible debits. The opinion of the expert accountant and the accountancy usage or practice, must stand the scrutiny of the court, which is guided only by the statute. The angles of vision, of the department and the trading assessee, therefore, differ. A trader generally considers it to be sound business economy to build up a reserve fund to meet future liabilities or losses, and this fund is replenished annually by amounts drawn from the profits of the business. Amounts carried to the reserve fund for anticipated or even inevitable losses, or for contingent liabilities, are not permissible deductions in computing the business profits and they do not fall within section 10 (2) (xv) of the Income-tax Act . While it is true that the profits of a business have to be computed consistent with commercial sense and that the provisions under section 10 (2) of the Act are not exhaustive of all items of permissible deductions, there is no warrant for holding that every kind of prudential measure adopted by businessmen should earn allowance in taxation. The reason why claims for allowance are made by the assessee in the name of commercial expediency is not an unintelligible secret; the trade instincts of the assessee always try to get the better of the statute.

It is now settled law what a claim for deduction in respect of an anticipated, uncertain or contingent liability is not permissible. The question has been considered fully by this court in <CITATION> . The principle laid down in that case is that only an ascertained liability justifies an entry in the assessees accounts maintained on the mercantile basis and that deductions are not permissible for anticipated losses or contingent liabilities. The following passage extracted from Simons Income Tax II edition, vol. II, page 203, paragraph 230, has been quoted with approval as governing the interpretation of the Indian enactment :

"In computing the profits of a trade it is the normal accountancy practice to allow as an expense any sum in respect of liabilities which have accrued over the accounting period, and to make a deduction of such sums from the profits. Following the decision in Peter merchant <CITATION> ), however, it appears that the nature of liabilities which may be deducted on business and accountancy principles does not accord with the nature of liabilities deductible for income-tax purposes. For income-tax purposes it was held that a distinction must be drawn between an actual, i.e., legal liability, which is deductible, and a liability which is future or contingent and for which no deduction can be made."

The same principle has been upheld by <ORG> in <CITATION> . <NAME> observed thus at page 75 :

"The income-tax law does not allow as expenses all the deductions a prudent trader would make in computing his profits. The money may be expended on grounds of commercial expediency but not of necessity...... Thus, in finding out what profits there be, the normal accountancy practice may be to allow as expense any sum in respect of liabilities which have accrued over the accounting period and to deduct such sums from profits. But the income-tax laws do not take every such allowance as legitimate for purposes of tax. A distinction is made between an actual liability in praesenti and a liability de futuro which, for the time being, is also only contingent. The former is deductible but not the latter."

The contention on behalf of the revenue is that a provision by way of reserve by the assessee to meet the liability, if any, to which the assessee may become subject in the event of its sending away a few workmen because of retrenchment of surplus staff is not a liability in praesenti in the year of account, but a liability which may arise de futuro on the happening of a particular contingency; on the other hand, the contention of the assessee is that the possibility of a retrenchment in any running business is not very remote, but is something which is usual and ordinary incidental to the carrying on of business and that if the law of the land compels payment of compensation on a particular basis to the retrenched staff, a provision to enable payment thereof even by way of anticipation would only amount to a liability in praesenti and not a contingent liability. Mr. <NAME>, learned counsel for the assessee, relies upon the decision of <ORG> in <ORG> v. <NAME> (Inspector of Taxes) in support of his contention that the liability of the kind now in question is only a present liability. It is necessary to refer to this decision in some detail as, in fact, the whole of the learned counsels submission is based only on this decision. The facts, as can be gathered from the headnote itself, were as follows : An English company was operating a railway under the legislation of Peru. Under this legislation, the company was bound to pay its employees compensation on the termination of their services; the legislative provisions were deemed to be incorporated into all contracts of service entered into with the company. This right on the part of the employees to obtain payment of compensation arose on dismissal or on termination of the employment by the employee by proper notice or on such termination by the death of the employee or on the expiry of the term of employment. The compensation fixed was an amount equivalent to one months salary at the rate in force at the date of the termination for every year of service. The company claimed to be entitled to charge against each years receipts the cost of making provision for the retirement payments which would ultimately be thrown on it, calculating what sum would be required to be paid to each employee if he retired without forfeiture at the close of the year and setting aside the aggregate. The question was whether the company was entitled to make the deductions. <ORG> held that the company was not so entitled. The decision of <ORG> is that though the company was entitled to charge against each years receipts of the cost of making provision for the retirement payments which would ultimately be payable as it had the benefit of the employees services during the year, the claim could be sustained only if the present value of the future payments can be fairly estimated. The assessee failed on the ground that in calculating the amount which it claimed to deduct in each year it had ignored the factor of discount. The following observations of the learned Law Lords have been relied upon by Mr. <NAME>. At Page 751, Lord <NAME> observes thus :

"...... the true view is that the yearly increments by which a lump sum is built up ought to be reckoned for present purposes as remuneration in respect of the years in which they accrue."

In the same page, the learned Law Lord further observes :

".... I would hold that the appellant was right in contending that in principle it was entitled to make a deduction each year in respect of its prospective lump sum liabilities....."

Lord <NAME> observes thus a page 758 :

But, whatever the legal analysis, I think that for liabilities as for debts their proper treatment in annual statements of profit depends not upon the legal form but upon the traders answers to two separate questions. The first is : Have I adequately stated my profits for the year if I do not include some figure in respect of these obligations ? The second is : Do the circumstances of the case, which include the techniques of established accounting practice make it possible to supply a figure reliable enough for the purpose ?"

This decision of <ORG> undoubtedly lays down the proposition that it is proper on the part of a businessman to estimate a future liability, which is almost definite and is certainly real, and make a provision each year to meet that liability and claim them as a proper charge on the revenue receipt. The legislation of Peru provided for payment of compensation to the employees on dismissal or on termination of the employment by the death of the employment by the death of the employee or by the expiry of the term of employment. These are all circumstances which can normally be expected to happen, and it cannot certainly be said that they depended upon any contingency. We must point out that the case dealt with by <ORG> is totally different from the present case where the businessman, the assessee, is seeking to make a provision in respect of a liability which may arise out of retrenchment, which, after all, is only an event of chance. The actual decision in the English case, which went against the assessee, was on the footing that there was no proper evaluation of that liability in the particular year of account. We would like to refer to the observations of the learned Law Lords in regard to this aspect of the matter. At page 751, Lord <NAME> observes :

".... the deduction sought be the appellant throughout has been the aggregate of the yearly increments by which the value of the future lump sum payments has been increased. That, I think, must be wrong as, apart from any adjustment to be made on account of possible forfeitures, this deduction makes no attempt to reflect the present value of payments which may not have to be made for anything up to the span of a mans industrial life. If the position is that no fair estimate or satisfactory computation of the provision to be made as respects the appellants prospective liabilities can be arrived at, then that is an end of the matter and the appeal must be dismissed."

Lord <NAME> dealt with this matter thus page 759 :

"When account is taken of all the circumstances, I should have though that the sums charged were a very long way from affording a scientific appraisement of the additional burden arising in respect of the years services; and were, therefore, in the nature of a rough reserve against the future rather than a measured provision. Because what the appellant has done is simply this. It has calculated what sum would be required to be paid to each employee in respect of retirement benefit if he retired, without forfeiture, at the close of the year : and the aggregate of what is required is set aside in so far as the year has contributed to the aggregate... But it seems to me to leave out of account several factors that are essential to the appraisement."

It is clear that the assessee must fail in this case even on the principle laid down by <ORG> in the English case referred to. It has certainly not approached the question of setting apart of funds to meet a future liability on any scientific basis. It is impossible to contend that fifteen days wages for each year in respect of all the employees in the staff would be a proper annual contribution to conserve a fund to answer the claim of retrenched staff or in other words would amount to the present equivalent of the future liability to pay retrenchment compensation as it is obvious that some discount has to be made. To put the matter quite shortly, fifteen days wages of employee A in the year 1956-57 will not be the sum that need be set apart in respect of an anticipated payment to A of compensation in the event of his being retrenched ten years thereafter. Learned counsel for the assessee frankly concedes that the assessee failed to make a proper evaluation in the matter, even assuming that it was entitled to have the deduction claimed as a matter of law. The question, therefore, boils down to this : whether the charge against the receipts of the trade is essential in order to enable the true profit to be stated for the year. Anticipated loss or contingent liability is disallowed either because it would not be a proper charge against the receipts for the ascertainment of the years profit or because the loss or liability is so much in the region of doubtful happening as to be chimerical. Broadly stated, the claim for allowance can be sustained only if three conditions are satisfied : (1) it should be a proper revenue expense; (2) it must be a fair and proper estimate of the amount accrued due; (3) it must be expended. Reserves for anticipated losses, contingent liabilities and expenses not actually incurred will be disallowed : <NAME> v. <ORG>; <CITATION> ; Young v. <ORG> Naval Colliery Co. v. <ORG>; <ORG> v. <ORG>.

Having regard to the principles of law adverted to above, we are of opinion that the liability of the assessee in respect of retrenchment compensation under section 25F of the Act is not a liability in praesenti, but is only a contingent liability, which cannot be taken into account as an accrued liability, even though the assessee has been maintaining his account books on the mercantile system. We are further of opinion that even if it is permissible to charge the years profits to built up the sinews to withstand the result of an uncertain event of retrenchment, the actual provision made is so over-generous, and is so improper an appraisement of the present value of a future liability that it has to be struck down as an over-reserve.

Mr. <NAME>, learned counsel for the department, is well-founded in his submission that there is no expenditure at all incurred by the assessee by the mere process of putting the amount under the "gratuity reserve fund". The decision of <ORG> in <CITATION> supports this contention. At page 78, <NAME> observes :

"But there is no case directly on what is expenditure, and if the authorities under the English statute were to be of real assistance, the whole of the matter should have been before us. The question, however, limits the approach to whether the payments made towards the policy were Expenditure within clause (xv). Expenditure is equal to expense and expense is money laid out by calculation and intention though in many uses of the word this element may not be present, as when we speak of a joke at anothers expense. But the idea of spending in the sense of paying out or away money is the primary meaning and it is with that meaning that we are concerned. Expenditure is thus what is paid out or away and is something which is gone irretrievably."

In the mercantile system of accounting, a debit of an accrued liability would be a proper charge on the revenue receipts. It is not necessary that there should have been any actual disbursement in such system of accounting to enable the assessee to make the claim for deduction. But, in the present case, the amount is credited only to the "gratuity reserve fund" account and not to the credit of each and every one of the employees concerned. The amount has been earmarked for the specific purpose for the payment of future retrenchment compensation under section 25F and of course no trust has been created in regard to this amount. The assessee has still the control and dominion over the reserve, and it would be strictly within its rights to recall the amount from the reserve account and use it for its own business purposes, if the exigencies of the business so require. There has been no transfer of the fund from the assessee to the employees, the contemplated beneficiaries. We are unable to understand how such a mere credit entry to a reserve account can at all be described as "expenditure" within the meaning of the Act.

In our opinion, the assessee is not entitled to claim the deduction and the decision of the <ORG> holding in its favour is erroneous in law.

The reference is answered in favour of the department. The assessee will pay the costs of the department. Counsels fee Rs. 250.

Reference answered in the negative.


JUDGMENT (Judgment of the Court was delivered by the Honble the Chief Justice.) The question which arises in this reference is really answered by our judgment delivered on the 16th February, 1945, in <CITATION> . 38 of 1944. The assessee is a partner in two firms. He has a son who is a minor and the minor has been admitted to the benefits of these partnerships. The share of the profits falling to the minor should have been included in the fathers assessment for the year 1938-39; but the Income-tax Officer, under a wrong conception of the law, did not include the minors share in calculating the income of the father, and the matter was left there. In the following year, the minors share was included. The assessee took objection to this course and carried the matter to this Court which on the 15th September, 1941, held that the minors share was properly included in the assessment for the year 1939-40. On the 14th March, 1940, that is eighteen months before this Court had given its decision in the respect of the assessment for 1939-40, the Income-tax Officer served a notice on the assessee under Section 34 in respect of the sons share of the profits which had escaped assessment in the year 1938-39. <ORG> held that the Income-tax Officer was not entitled to reopen the assessment for the year 1938-39 on this ground because he had already applied his mind to the question and had adjudicated upon it. At the instance of the Commissioner of Income-tax, the <ORG> has referred to this Court for decision under Section 66 (1) of the Act the following question :-

"Whether in the circumstances of this case, the notice by the Income-tax Officer under Section 34 dated 14th March, 1940, was incompetent by reason of the fact that an earlier notice dated 30th November, 1938, under Section 34 in respect of the identical item of escaped income, had been issued, considered, adjudicated upon and ultimately dropped by the Income-tax Officer."

<CITATION> , we had occasion to consider what was meant by the expression "definite information" which appears in Section 34 as amended in 1939. We said that the application of the section must depend on the particular circumstances of the case, but definite information with regard to the state of the law would bring the section into operation. The Income-tax Officer must be in receipt of some information. If the notice served on the assessee under Section 34 had been the result of this <ORG> decision on the 15th September, 1941, in respect of the order of assessment of 1939-40, we consider that it could be said that the Income-tax Officer had been in receipt of definite information as to the state of the law, but that was not the position on the 14th March, 1940. The question of law had not then been decided and therefore the Income-tax Officer could not say that definite information had come into his possession with regard to this matter.

In these circumstances we hold that <ORG> was right in holding that the assessment could not be reopened under Section 34. We do not base our decision on the reasoning of the <ORG>. Our decision is based on the fact that there was no "definite information" in the possession of the Income-tax Officer when he served the notice under Section 34 and the question referred will be answered in this sense.

The assessee is entitled to his costs Rs. 250.

Reference answered accordingly.


PETITIONER: <NAME> Vs. RESPONDENT: <NAME> & OTHERS DATE OF JUDGMENT: 17/10/1969 BENCH: ACT: Waiver-Need not be found on contract or agreement, Pre- emption Bengal Tenancy Act, s. 26(f). HEADNOTE: The appellant filed an application under s. 26(f) of the Bengal Tenancy Act claiming right of preemption over the land purchased by the respondent. The respondent took up the position that the appellant was not a co-sharer in the land which had been purchased by her and that he along with his uncle had acted as brokers in the transaction and received brokerage; the appellant had thus waived his right of preemption. The trial Judge allowed the application. The appeal Court held that the appellant's claim was barred owing to waiver on his part. A revision to <ORG> was unsuccessful. In appeal to this Court it was urged that waiver could be brought about only by a contract and since no consideration had passed it could not be said that there had been any waiver. HELD, : Under the Indian Law neither consideration nor an agreement would be necessary to constitute waiver. A waiver signifies nothing- more than an intention not to insist upon the right. It is well known that in the law of preemption the general principle which can be said to have been uniformly adopted by the Indian courts is that acquiescence in the sale by any positive act amounting to relinquishment of a preemptive right has the effect of forfeiture of such a right. So far as the law of preemption is concerned the principle of waiver is based mainly on Mohammedan Jurisprudence. The contention that the waiver of the appellant's right under s. 26F of the Bengal Tenancy Act must be founded on contrast or agreement cannot therefore be acceded to. [927 <CITATION> .,  Supp. 2, S.C.R. 217, 226 and Dawson's <CITATION> , 62 I.A. 100, 108 referred to. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2170 of 1967. Appeal from the judgment and order dated September 5, 1963 of <ORG> in Civil Rule No. 2864 of 1952. <NAME> and <NAME>, for the appellant.

<NAME> and <NAME>, for respondent No. 1. The Judgment of the Court was delivered by <NAME> This is an appeal by certificate from a judgment of <ORG> arising, out of a petition filed by the appellant under s. 26F of the Bengal Tenancy Act, 1885 claiming a right of preemption over certain lands purchased by respondent No. 1.

The facts may be briefly stated. On July 23, 1950, the ap- pellant purchased certain portion of land in C.S. <ORG> No. 3605 of Monza Kasba from the occupancy raiyats respondents Nos. 2 and 3 and one <NAME> deceased. By another deed the appellant purchased from the said vendors another plot of land measuring 31 acres. By a Kabala dated October 8, 1950 the said vendors sold 10 acres of land in the same <ORG> number to respondent No. 1 for Rs. 2,700. The appellant filed an application before the Second Subordinate Judge, <NAME> district 24 Parganas under s. 26F of the Bengal Tenancy Act claiming the right of preemption over the land purchased by respondent No. 1. The latter took up the position that the appellant was not a co-sharer in the land which had been purchased by her and that he along with his uncle <NAME> had acted as brokers in the transaction and received Rs. 300 as brokerage; the appellant had thus waived his right of preemption. The learned trial Judge disbelieved the case set up by respondent No. 1 and allowed the application of the appellant for preemption. Respondent No. 1 filed an appeal in the court of,the Additional District Judge, <NAME>. He held that the appellant's claim for preemption was barred owing to waiver on his part. The appellant filed a petition for revision in <ORG> but the same was dismissed on the ground that it was open to the appellant to waive his right and that there had been actual waiver.

The main point which was sought to be raised before us was that waiver could be brought about only by a contract and since no consideration had passed it could not be said that there had been any waiver in the present case. Moreover waiver could not be proved by estopped. Learned counsel for the appellant relied on the observations of Lord <NAME> of Killowen in <NAME>'s <CITATION> (1). While stating the distinction between estopped and waiver, it was said, that "waiver is contractual, and may constitute a cause of action; it is an agreement to release or not to assert a right." According to the appellant all that had been found was that by his act and conduct he had waived his right of preemption. It was pointed out that there was no evidence for any consideration having moved from respondent No. 1 in the matter of abandonment of the appellant's right of preemption. In the well-known work of Sir <NAME> "Principles of the English Law of Contract", 22nd Edn., it has been stated at p. 107 that at Common Law the waiver of existing obligations does not appear to require the presence of detriment in order to make it effective.

(1) 62 I.A. 100, 108.

In India the general principle with regard to waiver of contractual obligations is to be found in s. 63 of the Indian Contract Act. Under that section it is open to a promise to dispense with or remit, wholly or in part, the performance of the promise made to him or he can accept instead of it any satisfaction which he thinks fit. Under the Indian law neither consideration nor an agreement would be necessary to constitute waiver. This Court has already laid down in <CITATION> .(1) that waiver is the abandonment of a right which normally everybody is at liberty to waive. "A waiver is nothing unless it amounts to a release. It signifies nothing more than an intention not to insist upon the right." It is well known that in the law of preemption the general principle which can be said to have been uniformly adopted by the Indian courts is that acquiescence in the sale by any positive act amounting to relinquishment of a preemptive right has the effect of the forfeiture of such a right. So far as the law of preemption is concerned the principle of waiver is based mainly on Mohammedan Jurisprudence. The contention that the waiver of the appellant's right under s. 26F of the Bengal Tenancy Act must be founded on contract or agreement cannot be acceded to and must be rejected.

A faint attempt was made to assail the finding of <ORG> that on the facts which had been proved waiver had been established. We find no reason or justification for interfering with the conclusion of <ORG> on the point.

The appeal fails and it is dismissed with costs.

R.K.P.S. Appeal dismissed. (1) [1959] Supp. 2 S.C.R. 217, 226.


JUDGMENT <NAME>, J.

1. This petition has been filed by the petitioner against an order passed by the District Judge, Indore, directing the sale of the property of the petitioner and recovery of the amount due to the respondent No. 2.

2. Respondent No. 2 filed an application before the District Judge. <NAME>, under Section 31 of the State-Financial Corporations Act. 1951, (hereinafter called the Act), for the sate of the property of the petitioner which-was mortgaged as security for a loan advanced by the respondent to the petitioner. It was alleged that according to the terms of the agreement the petitioner was required to pay off this amount in five equal yearly Instalments starting from 1st March 1965. There was also a term for Payment of interest which was to be a half-yearly payment. and in case of default respondent No. 2 was entitled to recover the whole amount. It is alleged that after the payment of the first instalment, the petitioner paid some amount against the second instalment. But thereafter he failed to pay anything. Consequently the respondent-Corporation gave a notice on 17th September 1968 calling upon the petitioner to pay the whole amount with interest. As the petitioner did not pay the whole amount even after this notice, an application under Section 31 of the Act was filed before the District" Judge on 6th December 1968. In his reply to this application, the petitioner pleaded that he was regular in payment upto 30th June 1966. but later on account of acute shortage of water in <NAME> there was cut in electric supply and so the petitioner could not run his factory, and it was because of these circumstances that it became impossible for the petitioner to pay the instalments and interest as stipulated. It was also pleaded by the petitioner that as the factory had been closed for the last three years and it was not possible for him to pay the whole amount, he should be granted the facility of instalments.

3. On the pleadings of the parties, the learned District Judge framed various issues, and by his order dated the 6th September 1969 held that the petitioner could not be permitted to lead evidence to prove his bona fides and the circumstances in which it was not possible for him to pay the instalments. He also held that the petitioner could "not be permitted to lead evidence to establish circumstances justifying an order for instalments. After this order, there being no other dispute, the learned District Judge, by his order dated the 19th November 1968 confirmed the order of attachment, which was issued earlier, and directed that the amount due to the respondent No. 2 be recovered by sale of the property of the petitioner.

4. Learned counsel for the petitioner contended that the jurisdiction of the learned District Judge while deal-ins with an application under Section 31 of the Act is wide enough and he was hound to investigate into the facts and circumstances pleaded by the petitioner, It was contended that the learned District Judge after investigation into the facts alleged by the petitioner, was even competent to set aside the attachment or also to grant instalments which the Court could do under Order 20, Rule 11, Civil P. C. Learned counsel also contended that Sub-section (6) of Sec. 32 of the Act clearly lays down that the provisions contained in the Civil Procedure Code would be applicable so far as they are not inconsistent with the provisions of the Act. He placed reliance on the decision in <ORG> v. <ORG>.. AIR 1972 SC 801 and <CITATION> . AIR 1972 Pat 83. Learned counsel also contended that although an appeal under Sub-section (91 of Section 32 of the Act could be filed, still on account of some ailment in the petitioner's family no appeal could be filed but on that ground the petition could not be thrown out as apparently the learned District Judge has refused to exercise jurisdiction vested in him by law. In support of his contention, learned counsel relied on <CITATION> , AIR 1971 SC 33.

5. <NAME> appearing for the respondent-<ORG> contended that in view of the provisions contained in Section 30 of the Act it could not be doubted that the <ORG> gets a right for recovery of the whole amount, and once that right vested in the respondent-<ORG> the learned District Judge could not go into the matter except to investigate into the claim of the respondent-<ORG>. According to the learned counsel, the claim would only be pertaining to the demand made by respondent No. 2 and as in the present case the amount claimed was not disputed, the learned District Judge was right in refusing to investigate into the reasons for non-payment. He also contended that although the Code of Civil Procedure has been made applicable still it would only be applicable to the extent of procedure pertaining to enquiries before <ORG>.

6. Section 30 of the Act no doubt provides that <ORG> may by notice in writing demand the payment of full amount advanced to any industrial concern in the event of the happening of certain events, and the clauses of this section provide for all those circumstances which will entitle the <ORG> to demand the whole amount. Section 30 . therefore confers power on the <ORG> to recover the whole amount in addition to the term of the contract itself. Section 31 of the Act provides the procedure for the recovery of the amount. It was contended, on reference to the statement of objects and reasons which was attached to the Bill of this Act when it was presented for enactment, that the scheme of Section 31 provides a special procedure for recovery of the amounts due to a <ORG>. It may not be necessary to go into the obiects and reasons stated when the Bill was introduced. But a perusal of Section 31 itself clearly indicates that instead of the <ORG> being called upon to file a regular civil suit, a special procedure has been prescribed for enforcement of the claims. Section 31 provides for an application by the <ORG> on the basis of which proceedings for recovery can bp launched. Section 31 is as under:--

"31. (1) Where an industrial concern, in breach of any agreement makes any default in repayment of any loan or advance or any instalment thereof or otherwise fails to comply with the terms of its agreement with <ORG> or where <ORG> requires an industrial concern to make immediate repayment of any loan or advance under Section 30 and the industrial concern fails to make such repayment, then, without prejudice to the provisions of Section 29 of this Act and of Section 69 of the Transfer of Property Act. 1882. any officer of <ORG>, generally or specially authorized by the Board in this behalf may apply to the District Judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the following reliefs, namely:--

(a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to <ORG> as security for the loan or advance; or

(b) for transferring the management of the industrial concern to <ORG>; or

(c) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended.

(2) An application under Sub-section (1) shall state the nature and extent of the liability of the industrial concern to <ORG>, the ground on which it is made and such other particulars as may be prescribed." The three clauses of Sub-section (1) provide for various reliefs which the <ORG> can seek when it makes an application under this section. Clauses (a) and (b) of Sub-section (11 are the two reliefs which a <ORG> may claim as final reliefs in the application, where-as Clause (c) provides for certain interim orders in the nature of attachment or injunction. Section 32 of the Act prescribes the procedure after such an application has been filed before the District Judge. Sub-sections (1) and (2) of Section 32 pertain to Passing of interlocutory orders. Sub-section (3) provides that if the District Judge so thinks fit he may even examine the officer who makes the application, before the issue of an interlocutory order, Sub-section (4) of Section 32 and the rest of its sub-sections provide for the procedure for final determination Subsections (4), (5) and (6) of Section 32 are as under :

"32. ..................

(4) At the same time as he passes an order under Sub-section (1). the District Judge shall issue to the industrial concern a notice accompanied by copies of the order, the application and the evidence, if any. recorded by him calling upon it to show cause on a date to be specified in the notice why the ad interim order of attachment should not be made absolute or the injunction confirmed.

(5) If no cause is shown on or before the date specified in the notice under Sub-sections (2) and (4). the District Judge shall forthwith make the ad interim order absolute and direct the sale of the attached property or transfer the management of the industrial concern to <ORG> or confirm the injunction, (6) If cause is shown, the District Judge shall proceed to investigate the claim of <ORG> in accordance with the provisions contained in the Code of Civil Procedure. 1908. in so far as such provisions may be applied thereto."

Sub-section (4) of Section 32 provides that a notice shall be issued to the industrial concern to show cause why the order passed should not be made absolute, and along with this notice a copy of the order will also be sent. Subsection (51 provides that if no cause is shown, the District Judge shall forthwith make the interim order absolute. Sub-section (6) provides for the procedure in case cause is shown and it is provided that the District Judge shall proceed to investigate the claim of <ORG> in accordance with the provisions contained in the Code of Civil Procedure. It is on the basis of Sub-section (6) of Section 32 that it is contended that the District Judge was bound to investigate the defence set up by the petitioner because in absence of any investigation about it it could not be said that the claim of the <ORG> has been investigated. The word 'claim', used in Sub-section (6), cannot be said to mean only the monetary part of the claim which the <ORG> is entitled to recover. Section 31 refers to the word 'claim' stating "Special provisions for enforcement of claims by Financial <ORG>." Consequently the word "claim" has been used in these provisions to mean the sum-total of the facts alleged by the <ORG> with demand for a relief under any of the three clau-es of Sub-section (1) of Section 31 . Consequently the question of default and the justification sought by the petitioner would also fall within, the ambit of investigation into the claim. This sub-section also brings in the Code of Civil Procedure, and it has been provided that the District Judge shall proceed to investigate the claim of <ORG> in accordance with the provisions contained in the Civil P. C,

7. A similar language has been used in Sub-section (8) of Section 32 , which is as under :

"(8) An order of attachment or sale of property under this section shall be carried into effect as far as practicable in the manner provided in the Code of Civil Procedure, 1908, for the attachment or sale of property in execution of a decree as if <ORG> were the decree-holder." This language was considered by <ORG> in AIR 1972 SC 801 where it was held as under-

"The question which really arises is whether by using the words "in the manner provided in the Code of Civil Procedure" in Section 32(8) the <ORG> intended to include the provisions in the Code dealing with appeals. There is no doubt that under the Code of Civil Procedure an order setting aside or refusing to set aside a sale in execution of a decree is appealable under O. XLIII, Rule 1 (i). It is difficult to understand why the scope of the language should be cut down by not including appeals provided tinder the Code of Civil Procedure within the ambit of the words 'in the manner provided in the Code of Civil Procedure'. 'Manner' means method of procedure and to provide for an appeal is to provide for a mode of procedure. <ORG> lends huge amounts and we cannot for a moment imagine that it was the intention of the <ORG> to make the order of sale of properly, passed by the District Judge, final and only subject to an appeal to <ORG> under Article 136 of the Constitution.'' It cannot, therefore, be doubted that when the <ORG> used this language to bring in the Code of Civil Procedure, the relevant provisions of the Code were made applicable. In AIR 1972 Pat 83 a question arose about the jurisdiction of the District Judge under Section 30 of the Industrial Finance Corporation Act, 1948, which is more or less analogous to Section 32 of the present Act, and it was observed as under-

"The question, therefore, that arises for our consideration, is whether the proceedings under Section 30 of the Act are the proceedings contemplated by Section 141 of the Code. In the proceeding under Section 30 of the Act, the <ORG> in the circumstances mentioned therein has to apply to the District Judge for the relief or reliefs stated above. In a suit also, a party has to make out a cause of action and has to claim a certain relief and, after the trial, the Court passes a decree in favour of the plaintiff or dismisses the suit. Therefore, the special provisions for enforcement of claims by the <ORG> are very similar to the proceedings in the nature of the suit. I am, therefore, of opinion that a proceeding under this section is a proceeding of the kind contemplated by Section 141 of the Code, and, as such, the District Judge, while acting under that section, had the power to appoint a receiver under Order 40, Rule 1 of the Code." Consequently it cannot be doubted that while enquiring into the claim as provided in subsection (6), the District Judge ought to have investigated into the circumstances pleaded by the petitioner as he had jurisdiction under Order 20, Rule 11, Civil P. C. to consider the case of the petitioner.

8. Sub-section (7) of Section 32 , which provides the reliefs which the District Judge can grant, is as under-

"(7) After making an investigation under Sub-section (6), the District Judge may-

(a) confirm the order of attachment and direct the sale of the attached property;

(b) vary the order of attachment so as to release a portion of the property from attachment and direct the sale of the remainder of the attached property;

(c) release the property from attachment;

(d) confirm or dissolve the injunction; or

(e) transfer the management of the industrial concern to <ORG> or reject the claim made in this behalf;

Provided that when making an order under Clause (c), the District Judge may make such further orders as he thinks necessary to protect the interests of <ORG> and may apportion the costs of the proceedings in such manner as thinks fit:

Provided further that unless <ORG> intimates to the District Judge that it will not appeal against any order releasing any property from attachment, such order shall not be given effect to, until the expiry of the period fixed under Sub-section (9) within which an appeal may be preferred or, if an appeal is preferred, unless <ORG> otherwise directs until the appeal is disposed of."

These reliefs which a District Judge can grant while deciding an application under Section 31 of the Act clearly go to show that the District Judge can also release a property from attachment, and while so doing he can also pass orders for protecting the interests of <ORG>. This also shows that the District Judge can even pass orders which do not fall within any one of the reliefs that may be claimed by the <ORG>. As already discussed, the application of the provisions of the Code of Civil Procedure has already been discussed by <ORG> in the decision referred to above. In this view of the matter, it cannot be doubted that the District Judge ought to have investigated the objections raised by the petitioner to the claim of the respondent <ORG>.

9. It was contended that as the alternative remedy of appeal, which was available to the petitioner, was not availed of by him, relief under Article 226 of the Constitution could not be granted. In AIR 1971 SC 33, this question was considered by <ORG> and it was observed that-

"An order under Section 35 of the Income-tax Act is not appealable. It is true that a petition to revise the order could be moved before the Commissioner of Income-tax. But <NAME> moved a petition in <ORG> and <ORG> entertained that petition. If <ORG> had not entertained his petition, <NAME> could have moved the Commissioner in revision, because at the date on which the petition was moved the period prescribed by Section 33A of the Act had not expired. We are unable to hold that because a revision application could have been moved for an order correcting the order of the Income-tax Officer under Section 35 , but was not moved, <ORG> would be justified in dismissing as not maintainable the petition, which was entertained and was heard on the merits."

In this view of the matter, it would not be right to reject this petition at this stage. <NAME>, appearing for the respondent-Corporation, contended that in the <ORG> case referred to above on the date, on which the writ petition was filed in <ORG> a revision could be filed, and as <ORG> admitted the petition the <ORG> felt that thereafter the petition could not be dismissed on that ground alone. But, according to the learned counsel, in the present case the time for appeal had already run out, and, therefore, the alternative remedy having not been availed of, this petition could not be entertained. It is no doubt true that the time provided for an appeal had run out when this petition was filed. But if the petitioner had so chosen, he could have preferred an appeal and sought condonation. In that view of the matter, the principles laid down by the <ORG> will fully apply to the present case also, and no distinction can be drawn only on that ground. It appears that what the <ORG> felt was that if at the time of motion hearing the petition had not been entertained, the petitioner could have sought the alternative remedy, but that not having been done, after lapse of long time it would not be fit to refuse to grant relief as now it would not be possible for the petitioner to avail of the alternative remedy also. Apart from that, the question involved in the present case is about the jurisdiction of the District Judge, and by refusing to investigate into the objections raised by the petitioner the District Judge had refused to exercise jurisdiction in him by law. Consequently this is a ground on which a petition under Article 226 or even under Article 227 of the Constitution would be maintainable. Consequently the petition cannot also be thrown out on the objection of maintainability.

10. The petition is, therefore, allowed, the order passed by the District Judge, <NAME>, is set aside, and the case is sent back to him for investigating into the objections raised by the petitioner and their disposal in accordance with law. The order of attachment passed shall, however, continue, until the disposal of the matter by the District Judge. In the circumstances of the case, the parties are directed to bear their own costs. The outstanding amount of security deposit shall be refunded to the petitioner.


ORDER <NAME>, J.

1. This application in revision arises out of a proceeding under Section 145 of the Code of Criminal Procedure. This proceeding was started at the instance of Mt. Pancho Gaunjhin, opposite first party. Notices were issued to the parties concerned in the dispute as provided in Section 145 of the Code, and both parties appeared, filed written statements, affidavits of evidence and documents in support of their respective claims. By his order dated 18-2-1958, the Sub-divisional Magistrate attached the properties in dispute under Section 146(1) of the Code of Criminal procedure, and forwarded the record of the proceedings to <ORG> having jurisdiction to decide the question whether any and which of the parties was in possession of the subject of the dispute. His order is in the following terms :

"There is no sufficient or reliable evidence before me to decide as to which party was in actual physical possession of the lands at the time this proceeding was started, I am, therefore, unable to decide the issue of possession over the disputed lands. The lands are, therefore, attached under Section 146 (1) Cr. P. C. and the case is referred to <ORG> to decide the question of possession."

The records were accordingly placed before the <NAME>, Ranchi but the parties did not appear before him on the date fixed. The learned <NAME> gave them several adjournments but of no avail. The parties failed to appear before the learned <NAME>. In these circumstances, the learned <NAME> returned the records to the Sub-divisional Magistrate on 17-3-1959, with the following observation :

"Neither party takes any steps even today. Several dates have been given to the parties but no one turns up on their behalf. I have no alternative but to return the record to the learned Magistrate concerned for the needful. The miscellaneous case is accordingly disposed of."

Having come to know of the reference being returned to the learned Sub-divisional Magistrate, the petitioner made an application to the learned Sub-divisional Magistrate on 30-5-1959, praying for appointment of a receiver till the decision of the case and also for suitable action for decision in accordance with law. The learned Sub-divisional Magistrate declined to pass any order and disposed of this application with the following observation:

"Heard. The party can go in revision if he so desires against the order of the <NAME>. File." It is this order for the revision of which the parties have moved this Court.

2. Learned counsel appearing for the petitioner put forward the argument that after the receipt of the reference under Section 146(1) of the Code of Criminal Procedure, the <NAME> is bound to give a decision on the question of possession, and that it was incompetent for the <NAME> to return the records back to the Magistrate. Learned counsel pointed out that under Section 146 or for the matter of that under any other section of the Code of Criminal Procedure, there is no provision for return of the reference by the <NAME> to the Magistrate concerned. His further contention was that if the parties did not choose to adduce any evidence in, spite cf the opportunity being afforded to them, the proper course for the <NAME> was to decide the question of possession on the materials already on the record, and deliberate refusal by the parties to contest before the <NAME>, or default of their appearance before him will not involve either rejection of the reference or its return to the Magistrate concerned.

3. Mr. <NAME>, appearing for the opposite party, however, contended that in the circumstances the course adopted by the learned <NAME> was the only proper course that could have been adopted, and the <ORG> should not be kept at the mercy of the parties. If the parties did not choose to adduce any evidence, it was not necessary for the <NAME> to record any decision on the reference made to him by the learned Magistrate. He further submitted that the primary object of the proceedings under Section 145 of the Code of Criminal Procedure was prevention of the breach of the peace, and this object was amply fulfilled in view of the attachment of the disputed properties and accordingly the Magistrate should have left the parlies to seek their remedy in Civil <ORG>. On the plain language of Section 146 , the contention of Mr. <NAME> does not appear to be sustainable. Section 146 of the Code of Criminal Procedure is as follows :

"146(1) If the Magistrate is of opinion that none of the parties was then in such possession, or is unable to decide as to which of them was then in such possession, of the subject of dispute, he may attach it, and draw up a statement of the facts of the case and forward the record of the proceeding to a Civil Court of competent jurisdiction to decide the question whether any and which of the parties was in possession of the subject of dispute at the date of the order as explained in Sub-section (4) of Section 145 ; and he shall direct the parties to appear before <ORG> on a date to be fixed by him :

Provided that the District Magistrate or the Magistrate who has attached the subject of dispute may withdraw the attachment at any time, if he is satisfied that there is no longer any likelihood of a breach of the peace in regard to the subject of dispute.

(1A) On receipt of any such reference, <ORG> shall peruse the evidence on record and take such further evidence as may be produced by the parties respectively, consider the effect of all such evidence, and after hearing the parties, decide the question of possession so referred to it.

(1B) <ORG> shall, as far as may be practicable, within a period of three months from the date of the appearance of the parties before it, conclude the inquiry and transmit its finding together with the record of the proceeding to the Magistrate by whom the reference was made, and the Magis-trate shall, on receipt thereof, proceed to dispose of the proceeding under Section 145 in conformity with the decision of <ORG>.

(1C) The costs, if any, consequent on a reference for the decision of <ORG>, shall be costs in the proceedings under this section.

(1D) No appeal shall lie from any finding of <ORG> given on a reference under this section nor shall any review or revision of any such finding be allowed, (1E) An order under this section shall be subject to any subsequent decision of a Court cf competent jurisdiction."

It would be observed that under the amended provision of Section 145 the parties are not required to adduce any oral evidence in support of their respective possessions unless the Magistrate wants it. Subsection (1) of Section 145 requires the parties to put in such documents, or to adduce, by putting in affidavits, the evidence of such persons, as they rely upon in support of such claims. Therefore, under the amended provision of Section 145 the decision may be given purely on evidence by means of affidavits and oral evidence is not absolutely essential. Section 146 of the Code of Criminal Procedure provides for cases where the Magistrate is of opinion that none of the parties wag in possession or is unable to decide as to which of them was in possession on the date of the initiation of the proceeding under Section 145 of the Code of Criminal Procedure.

In case of such uncertainty or 'inability of the Magistrate to come to any precise conclusion about possession, a reference to <ORG> for the limited purpose of deciding the question of possession becomes necessary. In all cases where the Magistrate is unable to give any definite decision about possession on the evidence in the record or considers the evidence insufficient to establish the possession of either party, he will require the help of <ORG> in deciding the question of possession and refer the dispute for that limited purpose to <ORG> of competent jurisdiction. Sub-section (1A) of Section 146 lays down the procedure which <ORG> will adopt on receipt of auy such reference from the Magistrate.

<ORG> on receipt of such reference shall peruse the evidence on record and take such further evidence as may be produced by ihe parties respectively. Thereafter, it will hear the parties. After hearing the parties the decision will be given upon the evidence that is on the record as also on the evidence that the parties adduce before the learned <NAME>. The question that falls for consideration is--what <ORG> will do in case the parties do not appear before him. It will be recalled that under Section 146 , while making a reference to <ORG>, the Magistrate shall fix a date for the appearance of the parties before <ORG>. It is not necessary for <ORG> to issue any summons for the appearance of the parties or their witnesses.

That preliminary work has been done by the Magistrate himself and the date has already been fixed. Now, on the date fixed by the Magistrate the parties do not appear. What <ORG> in the circumstances will do? Will <ORG> issue processes for the appearance of the parties and their witnesses or <ORG> will decide the question of possession on the evidence on record. The further question that arises in this connection is whether it is incumbent oh <ORG> to take fresh evidence before deciding the question, of possession. The answer of these questions is in the negative. Under Sub-section (1A) of Section 146 it is not open to <ORG> to call for further evidence.

The initiative under Section 146 (1A), after the reference has been received in <ORG> is with the parties and they have to decide whether or not they would adduce further evidence in support of their respective possessions. If, however, they choose not to adduce any evidence, it is not necessary for the <ORG> to call for additional evidence, I do not mean to suggest that <ORG> is powerless and cannot call for further evidence, if it considers necessary in the interest of justice. It is, however, not obligatory upon <ORG> to insist upon further evidence being adduced in support of possession of the parties. This position is made perfectly clear by the opening words of Section 146 (1A):

"On receipt of any such reference, <ORG> shall peruse the evidence on record and take such further evidence as may be produced by the parties respectively."

The production of further evidence, according to the above provision, is, therefore, discretionary. It is obvious that after a reference is made to <ORG>, when the Magistrate finds it difficult to decide the question of possession on the materials as required by Section 145 of the Code of Criminal Procedure, there is always some evidence of possession before <ORG>. In my judgment the provisions of Section 146 are clear. On receipt of the reference <ORG> shall peruse the evidence on record and take such further evidence as may he produced by the parties.

If the parties do not choose to produce any evidence, there is no obligation upon <ORG> to take that evidence. If the parties, however, produce evidence and <ORG> refuses to accept the evidence, it will be an illegality. Where, however, the parties do not choose to adduce any evidence, it is, in my opinion, competent for <ORG> to give a decision on possession on the evidence which is already on record after hearing the parties. Here also the parties may choose not to address the <ORG> on the evidence on record. All that is necessary under Section 146 is that the parties ittusl be given ample opportunity to place their respec-tive cases before <ORG>.

If, however, they do not avail of this opportunity and do not address the <ORG>, the Civil <ORG> is, in my opinion, within the jurisdiction in giving a decision upon the question of possession on the evidence that is already on the record. I do not find any warrant for the contention that on failure of the parties to adduce evidence before the Civil <ORG>, the latter will return the record to the Magistrate concerned. If that contention were to prevail, the proceedings of the <ORG> will depend, therefore, on the sweet will of the parties which, in my opinion, could, not be in contemplation of the <ORG>.

The provisions of Section 146 make it rather obligatory upon <ORG> to give a decision on the evidence that is on record, and as will appear from Sub-section (1D) of Section 146 of the Code of Criminal Procedure, no appeal lies from any finding of <ORG> given on a reference under that section nor any review or revision of any such finding is allow-able under the law. Therefore, it is obligatory on <ORG> to give a decision. It is not obligatory to require further evidence. The position is, therefore, perfectly clear on refusal of the parties to adduce further evidence, <ORG> must proceed at once to decide the question of possession on the evidence on record. The course adopted by the learned <NAME> has no support either on principle or on merit.

The contention that the existence of the attachment excluded the possibility of a breach of the peace has no relevancy at all. It is not required by Section 146 that after attachment no action should be taken either by the Magistrate or by the <NAME>, and the only course open to the parties was to take recourse to <ORG>. Even after the attachment some decision about possession has to be given under the amended provisions of Section 146 .

If an attachment alone were sufficient to entitle the parties to seek the help of <ORG>, it was not at all necessary for the provision under Section 146 to seek the decision of <ORG> on the question of possession. Therefore, this contention in my opinion is not tenable. In my opinion, the contention of the learned counsel for the petitioner is right and must be accepted as correct. It must be held, therefore, that the order of the learned <ORG> returning the record to the Magistrate concerned was wholly illegal and without jurisdiction. The <ORG> has to decide the question of possession in accordance with the provisions of Section 146 .

4. In the result, this application is allowed, the order of the Magistrate dated 30-5-1959, and the order of the <NAME> dated 17-3-1959, returning the record to the Magistrate are set aside. The case will go back to <ORG> concerned for deci sion in accordance with law.


PETITIONER: COMMISSIONER OF INCOME-TAX, ANDHRA PRADESH,HYDERABAD Vs. RESPONDENT: JAYALAKSHMI RICE AND <ORG>. DATE OF JUDGMENT15/01/1971 BENCH: <NAME>, A.N. BENCH: <NAME>, A.N. SHAH, J.C. HEGDE, K.S. CITATION: 1971 AIR 1015 1971 SCR (3) 365 1971 SCC (1) 280 CITATOR INFO : E 1984 SC 684 (34) ACT: Income-tax Act , 1922, s. 26A -Income-tax Rules, r. 2(b)-- Indian Partnership Act , 1932, ss. 58 , 59 , 69-Rule  2(b) providing that in respect of firms registered under Partnership Act the application for registration of firm u/s 26 A of the Income-tax Act shall be made before the end of the previous year-Firm can be said to be registered under Partnership Act nor on date of receipt of application under ss. 58 but when entry is made in register of firms under s. 59-If such an entry is made after end of 'previous year' firm is not registered under the Partners-ship Act for the purpose of r. 2(b). HEADNOTE: The assessee firm was constituted under a deed of partnership dated October 6, 1955. It was to come into existence with effect from November 5, 1954. The assessee filed an application under s. 26 A of the Act for registration of the firm for the assessment year 1956-57. The previous year of the firm was shown as the year ending October 26, 1955. The application was received by the Income-tax Officer on October 14, 1955. On October 20, 1955 the assessee filed before <NAME> a statement under s. 58 of the Indian Partnership Act, 1932. On November 2, 1955 <NAME> filed the statement of the assessee and made entries in the register of firms. On March 23, 1961 the Income-tax Officer passed an order refusing to register the firm under s. 26-6A . inter-alia for the reason that the application had not been made in time. The appeal taken to the Appellate Assistant Commissioner failed. The <ORG> also upheld the order of the authorities below. In reference <ORG> answered the question in favour of the assessee holding that the partnership should be deemed to have been registered on the date when the application was presented and that the requirement of r. 2(b) of the Rules would be satisfied if it became registered under the Partnership Act even after the 'application under s. 26A was filed. in appeal by the <ORG>. HELD : (i) The view taken by <ORG> was not correct. Under the Partnership law it can be taken to have been settled by decision,-, of <ORG>, from a long time that the registration of firm takes place only when necessary entries are made in the register of firms under s. 59 of the Partnership Act by the Registrar. Section 58 of the Act no doubt employs language which, without anything more may appear to lend support to the view that the registration of a firm may be effected merely by sending an application which would mean that as soon as an application is sent and if entry is made under s. 59 pursuant to it the registration would be effective from the date when the application was presented. But s. 58(2) is not to be read in isolation and has to be considered along with the scheme of the other provisions of the Act viz. ss. 59 and 69. The latter section which deals with the effect of non-registration throws light on what was contemplated by the <ORG> with regard to the point of time when the firm could be regarded as registered. [368 <CITATION> , A.I.R. 1935 All. 898, <NAME> v. <NAME>, I.L.R.  58 All. 495 and <CITATION> - tax, Kerala 51 I.T.R. 711, approved. 366 (ii) The views expressed by <ORG> appointed by <ORG> in respect of the Bill which came to be passed by <ORG> as the Partnership Act were irrelevant for the purpose of construing the provisions of the Act. [1369B] JUDGMENT:

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 545 of 1967.

Appeal from the judgment and order dated April 15, 1966 of <ORG> in Case Referred No. 40 of 1963.

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

<NAME>, for the respondent. The Judgment of the Court was delivered by <NAME>, J. This is an appeal from a judgment of <ORG> arising out of a reference made under S. 66(1) of the Income-tax Act, 1922, hereinafter called the 'Act' of the question whether on the facts and in the circumstances of the case the application under s. 26A of the Act was filed out of time The facts are not in dispute. The assessee firm was consti- tuted under a deed of partnership dated October 6, 1955. It was to come into existence with effect from November 5, 1954. The assessee filed an application under S. 26A of the Act for registration of the firm for the assessment year 1956-57. The 'previous year' of the firm was shown as the year, ending October 26, 1955. This application was received by the Income-tax Officer on October 14, 1955. On October 20. 1955 the assessee filed before <NAME> a statement under s. 58 of the Indian Partnership Act 1932. On November 2, 1955 <NAME> filed the statement of the assessee and made entries in the registrar of firms. On March 23, 1961 the Income-tax Officer passed an order refusing to register the firm under s. 26A inter alia, for the reason that the application had not been made in time. The appeal taken to the Appellate Assistant Commissioner by the assessee failed. <ORG> also upheld the order of the Income-tax Officer and the Appellate Assistant Commissioner. On that a reference was sought and <ORG> answered the question-referred in favour of the asses,see on the ground that the application had been filed in time. Section 26A of the Act provides that an application may be made to the Income-tax Officer on behalf of any firm constituted under an instrument of partnership specifying the individual shares of the partners for registration for the purposes of the Act. The application has to be made by such person or persons and at such time and has to contain such particulars etc. as may be prescribed. Rules 2 to 6(b) of the Rules made under s. 59 of the Act deal with registration of firms. We are concerned with the following material portion of Rule 2.

"Such application shall........ be .... made ....

(a) Where the firm is not registered under the Indian Partnership Act , 1932 (IX of 1932) or or where the deed of Partnership is not registered under the Indian Registration Act, 1908 (XVI of 1908), and the application for registration is being made for the first time under the Act,

(i) Within a period of six months of the constitution of the firm or before the end of the 'previous year' of the firm whichever is earlier, if the firm was constituted in that previous year,

(ii) before the end of the previous year in any other case;

(b) Where the firm is registered under the Indian Partnership Act , 1932 (IX of 1.932) or where the need of partnership is registered under the Indian Registration Act (XVI of 1908) before, the end of the previous year of the firm........"

Now it is common ground that the application for registration was not made within the period prescribed by rule 2(a). What has been urged throughout on behalf of the assessee is that the application to the Income-tax Officer was governed by rule 2(b) and was in time as the firm should be deemed to have been registered not on the date on which it was actually registered by <NAME> but with effect from the date on which the application for registration was presented to the Registrar. In other words the firm should be considered to have been registered on October 20, 1955 on which date the statement under s. 58 of the Partnership Act was filed by the assessee before <NAME>.

The real question which has to be determined is whether the registration of a firm under the Partnership Act takes place with effect from the date on which the application for registration is made in accordance with s. 5  8 of that Act. Section 5  8 ( 1 ) provides that the registration of a firm may be effected at any time by sending by post or delivering to the Registrar of the area in which any place of business of the firm is situated or proposed to be situated a statement in the prescribed form and accom-

panied by the prescribed fee stating........ Under S. 59 when the Registrar is satisfied that the provisions of S. 58 have been duly complied with he shall record an entry of the statement in a registrar called the "register of firms' and shall file the statement. <CITATION> (1) it was laid down that the registration of a firm under the Pertnership Act takes place only when the necessary entry is made in the register of firms, Even under s. 69 of the Partnership Act which deals with the effect of non- registration it has been consistently held that the registration of a firm subsequent to the filing of the suit did not cure the defect; See <NAME> v. <NAME>). Thus under the Partnership law it can be taken to have been settled by decisions of <ORG> from a long time that the registration of a firm takes place only when the necessary entry is made in the register of firms under s. 59 of the Partnership Act by the Registrar. It is true that sub-section (1) of s. 58 employs language which without anything more may land support to the view that the registration of a firm may be effected merely by sending an application which would mean that as soon as an application is sent and if entry is made under s. 59 pursuant to it the registration would be effective from the date when the application was presented. But s. 58(1) is not to be read in isolation and has to be considered along with the scheme of the other provisions of the Act, namely, s. 59 and s. 69 . The latter section may not have a direct bearing on the point under our consideration but it throws light on what was contemplated by the legislature with regard to the point of time when the firm could be regarded as registered. <ORG> has in <CITATION> (1), clearly expressed the view that reading ss. 58 and 59 of the Indian Partnership Act together a firm cannot be said to be registered when the statement prescribed by s. 58 and the required fee are sent to the Registrar and that the registration of the firm is effected only when the 'entry of the statement is recorded in the registrar of firms and the statement is field by the Registrar as provided in s. 59 . In that case also an identically similar question arose in respect of registration of a firm under s. 26A of the Income-tax Act. <ORG> in the judgment under appeal referred to the statement extracted from the report of <ORG> which had been appointed by <ORG> to examine the provisions of the Bill before it came to be passed by <ORG> as the Partnership Act and reference was made in particular to the statement relating to clause 58 corresponding (1) AIRAl1.898. (2) I.L.R. 58ALL.495. (3) 51 I.T.R. 71 1.

to S. 59 of the Partnership Act to the effect that the Registrar was a mere recording officer and that he had no discretion but to record the entry in the registrar of firms. We are unable to see how that statement, can be taken into consideration for the purpose of interpreting the relevant provisions of the Partnership Act .. We Also cannot concur with the other reasoning of <ORG> for coming to the conclusion that the partnership should be deemed to have been registered on the date when the application was, presented and that the requirement of rule 2(b) would be satisfied if it became registered under the Partnership Act even after the: application was filed.

For the reasons given above the appeal is allowed and the judgment of <ORG> is set aside. The answer to the question referred must be given in the affirmative and against the, assessee. The appellant shall be entitled to costs in this Court.

G.C. Appeal allowed'. 10-L807Sup. CI/71