IN THE HIGH COURT OF <ORG> MACA.No. 1211 of 2005() 1. <NAME>, AGED 31 YEARS, ... Petitioner Vs 1. <NAME>, S/O. V.V. KOCHAPPU, ... Respondent 2. V.K. SHAJI, S/O.KOCHAPPU, 3. <ORG>, 4. <ORG>, For Petitioner :<NAME> For Respondent :SRI.P.JAYASANKAR The Hon'ble MR. Justice K.M.JOSEPH The Hon'ble MR. Justice M.L.JOSEPH FRANCIS Dated :12/06/2009 O R D E R K. M. JOSEPH & M. L. JOSEPH FRANCIS, JJ. -------------------------------------------------- M.A.C.A. NO. 1211 OF 2005 B --------------------------------------------------- Dated this the 12th June, 2009 JUDGMENT

<NAME>

Appellant is the claimant in a petition filed under Section 166 of the Motor Vehicles Act. The tribunal has awarded a total sum of Rs.2,75,000/=. The Appeal is filed complaining of inadequacy of the compensation. We heard the learned counsel for the appellant and also the learned counsel appearing on behalf of respondents 3 and 4.

2. Learned counsel for the appellant raised two contentions before us. In the first place, it is pointed out that the Certificate issued by the Medical Practitioner would show that the appellant has suffered permanent disability of 35 per cent and against the same, 25 per cent alone is taken. It is further contended that the multiplier is taken as 15, but actually, having regard to his age which was 23 years at the time of accident, the multiplier should have been 17. The third contention is that there is shortening of the right leg by two inches and that he suffered disfiguration and no amount was granted towards the same. Learned counsel for the third respondent supports the Award.

3. As far as the question of income is concerned, admittedly there is oral evidence of PW1. We note that the accident was in the year 1996. Appellant does not have a case that he was working on monthly salary under any particular employer. Therefore, we would not think that any further increase is warranted.

4. However, we feel that the appellant is entitled to higher compensation on two grounds which we consider together. Appellant has been granted a total sum of Rs.67,500/= towards loss of earning power. In arriving at the same, the tribunal has taken the multiplier of 15. Appellant has produced Ext.A10, which is an attested copy of the licence. From the same, it is discernible that the age of the appellant was 23 years. This means that the applicable multiplier should have been taken as

17. Further, we notice that there is some substance in the contention that the per centage of disability should not have been reduced from 35 to 25. But, we cannot also overlook the fact that the appellant has not examined <NAME>. We also cannot overlook the reasoning of the tribunal that there was no treatment after 2001, when the disability was assessed and there is some improvement in the condition of the right leg. But, at the same time, we also cannot lose sight of the fact that the appellant was a driver. Having regard to the profession as a driver, the shortening of the right leg would assume greater significance. Having regard to the totality of the facts, we would think that the per centage of disability should be taken as 27 per cent instead of 25. On the basis of these changes in the factors, we arrive at a sum of Rs.82,620/=. When deducting the amount already granted, the appellant would be entitled to an enhancement of Rs.15,120/= towards loss of earning power which is rounded off to Rs.15,000/=. We further notice that the appellant who was 23 years of age at the time of accident did suffer disfiguration as a result of the shortening of the right leg by two inches and we feel that the appellant should be granted a sum of Rs.5,000/= more towards disfiguration. But, we notice that the tribunal has wrongly awarded a sum of Rs.5,000/= towards disability. Having regard to the law laid down by this Court, a further sum may not be warranted. The upshot of this discussion is that we find that the appellant is entitled to a sum of Rs.15,000/= more with 7.5 per cent interest from the date of the petition till the date of realisation as against the third respondent. Accordingly, the Appeal is partly allowed and the appellant is allowed to realise a sum of Rs.15,000/= with 7.5 per cent interest more from the third respondent from the date of the petition till the date of realisation.

Sd/= K.M. JOSEPH, JUDGE Sd/= M. L. JOSEPH FRANCIS, JUDGE kbk.

// True Copy // PS to Judge


JUDGMENT <NAME>, J.

1. These are two connected suits filed for a declaration that the assessments of sales-tax made on the plaintiffs are illegal and void.

2. The facts are:- The plaintiffs Messrs. <ORG>, First Line Beach, Madras, are a firm of commission agents at Madras and other places. Their business consists of sales of tea in this State on behalf of the resident principals and foreign exports on behalf of non-resident principals. In these suits we are concerned only with the latter transactions, viz., foreign exports. The 'modus operand!' of the plaintiffs firm in regard to these foreign exports, is as follows: These commission agents have representatives at London and New York. These representatives enter into contracts with buyers for the supply of tea from particular tea estates and transmit their agreements to the commission agents. The buyers are enjoined to open invariably irrecoverable letters of credit with a bank at Madras. These commission agents then intimate their principals, viz., <ORG>, <ORG>, with a branch at Calicut, to despatch the goods. The goods are sent either C. I. F. or P. O. B. Mostly the despatch is on F. q. B. and presenting the bill of lading at the bank in which the credit has been opened the commission agents realise the full value of the tea exported.

3. In C. S. No. 51 of 1951 the case for the plaintitfs is as follows: During the year 1-4-1947 and 31-3-1948 the plaintiffs sold as commission agents tea and rubber of the total value of Rs. 43,03,172. Out of this sum a sum of Rs. 22,14,765 represented the price of goods sold on behalf of principals resident within the State; and the balance of Rs. 20,88,407 represented sales on behalf of foreign principals Rs. 19,68,065 being the price of goods exported outside India and Rs. 1,20,342 being the price of goods sold within the State. By his order dated 9-12-1949 the Deputy Commercial Tax Officer, <ORG>, Madras, assessed the plaintiffs to a tax of Rs. 44,855 on the aggregate amount of Rs. 43,03,172.

Against the said order the plaintiffs preferred an appeal 308 of 1949-50 on the file of <ORG>, Madras. That officer passed an order on 7-2-1950 wherein he validated the licence in favour pf the plaintiffs on payment of a penalty of Rs. 1000 and in consequence exempted the sum of Rs. 22,14,765 representing the value of the goods sold on behalf of the principals resident within the State, and confirmed the assessment in respect of the balance of Rs. 20,88,407 representing the price of goods exported outside India or sold locally on behalf of foreign principals. The tax payable by the plaintiffs under this order is Rs. 21,207. The plaintiffs preferred a revision to <ORG> against the order of the Commercial Tax Officer, North Madras, dated 7-2-1950. By an order dated 13-7-1950 the <ORG> confirmed the order of the Commercial Tax. Officer and dismissed the revision.

4. In C. S. No. 163 of 1951 the case for the plaintiffs is that in respect of sales effected, by them as commission agents during the year 1-4-1948 to 31-3-1949 the Deputy Commercial Tax Officer, <ORG>, passed an order on 7-3-1950 as-sessing them to a tax of Rs. 57,340, on a total turnover of Rs. 36,69,741. Against that order the plaintiffs preferred an appeal to the Commercial Tax. Officer, North Madras, in App. No. 24 of 1950-51. The said Officer passed an order on 20-6-1950 reducing the tax only by a sum of Rs. 700. In the result the plaintiffs were assessed to tax of Rs. 56,640. The plaintiffs took up the matter in revision to <ORG> and the Board passed an order exempting sales by the plaintiffs on behalf of principals resident within the State by validating the licence retrospectively for the entire period on payment of a penalty of Rs. 2000. With reference to sales other than those made on behalf of principals resident within the state the Board referred the plaintiffs to <ORG>, North Madras, by its order dated 26-12-1950. The Commercial Tax Officer, North Madras, in turn referred the plaintiffs to the Deputy Commercial Tax Officer by his order dated 5-1-1951 and eventually the Deputy Commercial Tax Officer passed an order on 24-1-1951 fixing the total turnover at Rs. 21,40,743 and assessed the plaintiffs to a tax of Rs. 33,449.

5. With reference to the assessment for the year 1950-51 the Deputy Commercial Tax Officer, <ORG>, made an order on 8-2-1950 determining the turnover of the plaintiffs at Rs. 2,96,750 and assessed them to a tax of Rs. 4637 thereunder. The plaintiffs preferred an appeal to the Commercial Tax Officer, North Madras, in App. No. 359 of 1949-50 against the order of assessment made by the Deputy Commercial Tax Officer. On 4-4-1950 the Commercial Tax Officer, North Madras, passed an order exempting sales on behalf of the principals resident within the State by validating the licence retrospectively for the entire period on payment of a penalty of Rs. 200 and as a result of the said validation reduced the assessable turnover to Rs. 25,470 and assessed the plaintiffs to a tax of Rs. 398. Against the said order the plaintiffs preferred a revision to <ORG> and the <ORG> by its order dated 4-11-1950 confirmed the assessment made by the Commercial Tax Officer, North Madras (Note: I have rounded the figure to the nearest rupee for convenience).

6. The plaintiffs contend that they are not liable to be assessed for these amounts on the following five grounds: .

(a) The plaintiffs are commission agents and not dealers and the sales in question are sales . effected only as commission agents. As commission agents they are not dealers selling and purchasing on their own account; nor are they mere agents of the foreign principals because they are principals carrying on business for commission. The plaintiffs accordingly claim that they are not assessable either as dealers or as agents on behalf of foreign principals.

(b) In regard to the amounts representing the value of tea exported to foreign countries during the years under assessment these amounts cannot be assessed for the reason that the sales were not made within the State nor were the goods deliverable within the State. The contracts were concluded in foreign countries; the goods were shipped P. O. B. Cochin and Bombay and C and F foreign ports and were deliverable in foreign countries. These sales were not made within the State. The plaintiffs state that the fact that letters of credit were opened within the State does not convert the sales effected abroad into sales within the State. Moreover, all drafts drawn under the letters of credit are payable after 60 days of sight and therefore payment is not made immediately in the State.

(c) The amounts represent the sale of tea grown by the sellers on estates of which they are owners and as the sales were for delivery outside the State and deliveries were actually so made, they are exempted from assessment under Section 5, Clause (v) of the Madras General Sales-tax Act. The sum included in the total turnover representing the price of rubber sold in Madras cannot be made assessable as rubber is agricultural produce and therefore exempted from taxation.

(d) The plaintiffs, in any event, are entitled to the following deductions under Rule 5 (g) of the Turnover and Assessment Rules, viz., (i) export duty; (ii) cess; (iii) shipping dues and (iv) handling and other charges.

(e) The plaintiffs further claim that the Madras General Sales Tax Act is opposed to Article 286 of the Constitution in so far as it purports to authorise imposition of tax on the sale of goods outside the State and for this reason also the assessments for both the years aforesaid are invalid.

7. The contentions of the state of Madras are reflected in the following issues which have been framed in both the suits:

"C. S. No. 51 of 1951

1. Are the plaintiffs entitled to be both commission agents and principals in respect of the transactions entered into by them?

2. Are not the plaintiffs assessable to tax under Section 14-A of the' Madras General Sales Tax Act and Rule 5 (1) of the Madras General Sales-tax rules?

3. What part of the turnover of Rs. 20,88,407-3-10 refers to commission agency sales on behalf of non-resident principals?

4. What is the extent of local sales of tea effect-ed by the plaintiff on behalf of resident principals. Are not the plaintiffs liable to pay tax. in respect of such sales?

5. Are plaintiffs entitled to exemption in respect of Rs. 19,68,064-11-7 being the value of tea exported to foreign countries? 8. Are the sums of Rs. 16,62,293-8-4 and Rs. 3,03,771-3-3- representing the value of tea exported to foreign, countries from 1-1-1948 to 31-3-1949 not liable to assessment? 7. Are the local sales of tea from 1-4-1947 to 31-12-1947 amounting to Rs. 1,01,969-3-9 on behalf, of foreign principals not liable for assessment? 8. Are the Local sales from 1-1-1948 to 31-3-1948 amounting to Rs. 18,373-1-6 not liable to be assessed? 9. Are the plaintiffs entitled to exemption in respect of the sum of Rs. 1971-1-6 being the sale price of rubber? 10. Are the plaintiffs entitled to the deductions mentioned in paragraph 8 of the plaint? 11. Has this court no jurisdiction for the reasons, stated in paragraph 4 of the written statement? 12. Have the plaintiffs any cause of action against the defendant? B 13. To what relief are the plaintiffs entitled? 1 C. S. No. 163 of 1951 1. Are plaintiffs entitled to be both commission, agents and principals in respect of the transac-tions entered into by them? 2. Are not the plaintiffs assessable to tax under Section 14-A of the Madras General Sales Tax Act and Rule 5 (1) of the Madras General Sales-tax Rules? 3. What part of the turnover of Rs. 21,40,742-12-8-refers to commission agency sales on behalf of non-resident principals? 4. What is the extent of local sales of tea effect-ed by the plaintiffs on belialf of resident principals? Are not the plaintiffs liable to pay tax in respect of such sales? 5. Are plaintiffs entitled to exemption in respect of Rs. 19,75,078-1-8 being the value of tea exported to foreign countries? 6. Are not plaintifis liable to pay sales-tax on the sum of Rs. 95,104-8-0 being the price of rubber sold in Madras as turnover of sales of rubber? 7. Are the plaintiffs entitled to the deductions claimed in paragraph 4 (5) of the plaint? 8. Are the plaintiffs entitled to the exemption, claimed in paragraph 6 (1) of the plaint? 9. Are the sales of tea exported to foreign countries exempted from taxation as sales made outside the State? 10. Are the plaintiffs entitled to the deduction claimed in paragraph 6 (3) of the plaint? 11. Are the plaintiffs entitled to any of the overhead charges claimed in sub-para graph 4 of paragraph 6 of the plaint? 12. is the Madras General Sales Tax Act invalid and opposed to the provisions of the Constitution? 13. Docs the Act affect Article 286 of the Constitution? 14. Have the plaintiffs any cause of action against the defendant? 15. To which relief are the plaintiffs entitled?" 8. Before me both the parties adduced no oral evidence and filed in C. S. No. 51 of 1951 Exs. P, 1 to P. 7 and in C. S. No. 163 of 1951 Exs. P. 1 to P. 9.

9. On a review of the entire circumstances of the case, I nave come to the conclusion that the plaintiffs are dealers as the term "dealer" will take in a commission agent also; secondly the the sales in question were all effected within the State of Madras; thirdly, that the plaintiffs are not entitled to claim exemption from assessment under Section 5, Clause (v) of the Madras General Sales Tax Act whatever might be the position of the non-resident foreign principals; fourthly, that the plaintiffs are not entitled to the deductions claimed under Rule 5 (g) of the Turnover and Assessment Rules: and fifthly, that the Madras General Sales Tax Act is not opposed to Article 286 of the Constitution of India. Here are my reasons.

10. Point (a): "Dealer" has been generally defined as any person who carries on the busi-ness of selling goods. In Madras, Mysore, Travan-core-Cochin and Uttar Pradesli, the term includes a, person who carries on the business of purchasing goods. In almost all the Acts except the Madras, Travancore-Cochin, Mysore and Bengal Act s a "dealer" has been defined as a person who sells or supplies goods. There does not seem to tie any special significance for the word "supplies". If the supply of goods is for no consideration, then it cannot come within the sales-tax levy, as there is no element of sale. The transaction is essentially a gift. If the supply of goods is for consideration, then there can be no doubt that it is a sale. Hence the word "supplies" does not enlarge the scope of the definition. In all the definitions the following essential features are present (i) there must be a sale; (ii) in the course of carrying on the business of selling goods.

11. The word "sale" is defined in all the Acts. The essential requisite of a sale is a "transfer of property" in goods and this requirement is set out in all the definitions. What is deemed to be a sale is enlarged by other explanations, but the main definition is the same in all the Acts. See Section 2 Cg) of the Bengal, Bihar, Madhya Pradesh, Orissa and U. P. Act s and Section 2 (h) of the Madras and Punjab Act s. <ORG> in - ' <CITATION> ) has set at rest the controversy whether the expression "sale" was used in any popular sense. In the words of <NAME> unmistakably the stress is laid in this definition on the element of transfer of property in a sale and no other. The language gives no indication of the popular meaning of "sale". The test, to find out whether transaction is ft sale assessable to tax in a State, is to take the definition and apply it with the aid of the Indian sale of Goods Act . The nature of the definition of "sale" in the various Acts has been set out thus by <NAME> in - ' <CITATION> .', AIR 1953 SC 253 at p. 256 (B):

"In exercise of the legislative power conferred upon them in substantially similar terms by the Government of India Act, 1935, <ORG> enacted sales-tax laws for their resective Provinces, acting on the principle of territorial nexus referred to above. That is to say, they picked out one or more of the ingredients constituting a sale and made them the basis of their sales-tax legislation. Assam and Bengal made among other things the actual existence of the goods in the Province at the time of the contract of sale the test of taxability. In Bihar the production or manufacture of the goods in the Province was made an additional ground. A net of the widest range perhaps was laid in Central Provinces and Berar where it was sufficient if the goods were actually "found" in the Province at any time after the contract of sale or purchase in respect thereo was made".

12. The word 'business' is a term of wide import. It is even wider than the word "trade"; - '<ORG> v. <NAME>,', (1942) 25 Tax Cas 1 at p. 7 (C). The habitual doing of an act capable of producing profits for the purpose of profits is trade or business: - 'Werle & Co. v. <NAME>', (1888) 20 Q B D 753 (D). <ORG> in - 'Commr. of <CITATION> .', AIR 1936 PC 1 (E) appears to consider that the essence of business consists in a course of dealings. The motive to make a profit is not a 'sine quo non' and if the characteristics of a business are discernible, the absence of profit motive will not take it out of the category of business. Whether a person carries on business or not is essentially a matter of inference. Even if a person is taken to be carrying on a business, the question that may still arise is whether his transactions are assessable in any particular State. For that the transaction will still have to be within the particular State.

It has been held that If all that a person does is to solicit orders in any particular place, he cannot be said to be reasonably carrying on a business in that place: - '<NAME> & Son v. <NAME>', 1896 AC 325 (F). What is done is only ancillary to the exercise of his trade in the place where he buys, or makes, stores and sells goods. The business must be in buying or selling the goods. The entering into contracts will only be incidental to the purchase or sale as a business. Except the States which have adopted the Madras definition of the word "dealer" in toto, the other States have made it clear in the definition itself that the dealer must be carrying on the business of selling in that State: See e.g., Section 2 (c) of the Bengal, Bihar, Madhya Pradesh, Orissa and U. P. Act s and Section 2 (d) of the Punjab Act . As it has now been held by <ORG> in - ' (A)', the sale must be within the State or Province so as to be taxable even under the Madras Act; the absence of the words, viz., "sales inside the State" found in the other Acts does not make a difference.

12A. It will be seen, from this discussion that the term "dealer" will take in a commission agent also. The question whether a commission agent will fall within the definition of a "dealer" has not had an uniform answer till the differences have been resolved by a Full Bench of this Court. In - 'Provincial Govt. of Madras v. <NAME>', (G), it was held that a commission agent who sold or bought on behalf of known principals in the sense that the principal was not a fictitious or non-existent principal, but one shown as such in the accounts, was not a dealer and was not liable to assessment under the Sales-tax Act , irrespective of the question whether or not he had obtained a licence under Section 8 . This Bench decision approves the decision by a single Judge in - ' <CITATION> ', AIR 1948 Mad 102 (1) (H). See also - ' <CITATION> ', AIR 1953 Mys 19 (I). But a different note was struck in 'In re Narasingamuthu Chettiar', AIR 1949 Mad 11C (J) and - 'Province of Madras v. Finn of Kanigolla Siva Lakshminarayana', AIR 1949 Mad 843 (K). Therefore, <ORG> was constituted to resolve these differences in - 'Radha-krinshna Rao v. Province of Madras', AIR 1952 Mad 713 (FB) (L) and it was held by the Full Bench as follows:

A commission agent as distinguished from a broker and who is in possession of the goods which he deals with on behalf of another will be a "dealer" within the definition of Section 2 (b) and can be assessed to tax unless he taxes a licence under Section 8 and that a broker is an agent employed to make a bargain for another and receives a commission on the transaction which is usually called brokerage. He has usually neither the custody nor the possession of the goods. It is the broker's duty to establish privity of contract between the principal and the third party. The broker cannot sell in his own name nor can he sue on the contract. A commission agent on the other hand has according to accepted mercantile practice, control over or possession of the goods, and has the authority from the owner of the goods to pass" the property in and title to the goods. When a commission agent sells goods belonging to his principal with his authority or consent, ana without disclosing the name of the owner, there is certainly a transfer of property in the goods from the commission agent to the buyer. A business which consists in, such transactions can properly be described as a business of selling goods. A similar position would arise even in the case of a commission agent buying for an undisclosed principal. A commission agent doing this kind of business is therefore a dealer as defined in Section 2 (b) of the Sales-tax Act which does not contemplate as a necessary condition that the goods sold should belong to the person selling or buying. See also - ' <CITATION> ). I have discussed the distinction between a broker and a commission agent and set out the entire English and Indian case-law. There I fore, applying these principles I find that these plaintiffs are dealers as defined in Section 2 (b) of the Madras Sales-tax Act.

13. Point (b): The contention of the <ORG> is that these sales took place within the <ORG> of Madras. The nature of the transactions relating to this turnover was as follows: The goods were shipped <ORG> and <ORG> foreign ports and the goods were deliverable in foreign countries. In respect of all such exports made by the plaintiffs, the documents of title relating to the goods were negotiated through banks in Madras under letters of credit opened by the foreign buyers. When full amounts were drawn by surrendering documents of title specific goods were thus unconditionally appropriated to the contracts and the sales were completed in Madras. Even if drafts payable after 60 days of sight were drawn, moneys were still drawn in Madras on the strength of the documents of title to the goods and it is therefore that these transactions are sales within the meaning of the Madras General Sales-tax Act, and the turnover with reference to such sales has thus become assessable turnover. The contention of the <ORG> is concluded by authority. It has been held in the Bench decision of - 'Commr. of <CITATION> ) following the 'Prinz Adalbert' 1917 AC 586 (O) and - '<ORG> y. T. D. Bailey Son & Co.', 1940-3 All ER 60 (P), that where a bill of exchange is accepted and the delivery of the bill of lading is obtained from the bank and irrevocable tetter of credit is drawn that place will be the place where the property in the goods would pass and that where property in the goods passed that place would be the place where the sale is effected. Subsequently another Bench of this court (<NAME> and <NAME>) applied the same principles to a case arising under the Sales-tax Act in - ' <CITATION> . <ORG>, Mangalore', (Q). Therefore the transactions in regard to which the exemption is asked for were transactions effected within the <ORG> of Madras.

14. Point (c) in regard to tea, Section 2 (a) lays down that agricultural or horticultural produce snail not be deemed to include tea. <ORG> held in - 'Kaju Mal v. Saligram', AIR 1924 PC 1 (R) that tea was an agricultural product. This definition has nullified the effect of that decision. This was done by means of an amendment of the General Sales-tax Act (Madras Act 25 of 1947) and which has apparently come into force under Part IV-b of the Fort St. George Gazette Extraordinary, dated 11-12-1947. The period for which exemption is now claimed is for a period of nine months prior to the coming into existence of this amendment. In regard to rubber no decided case has been brought to my notice. But the recent decision of <ORG> in - ' <CITATION> ', AIR 1049 PC 13 (S), has to some extent facilitated the evolving of clearer definition of the expression. In the above case Lord <NAME> observed :

"It is sufficient for the purpose of the present appeal to say (1) that in their opinion no assistance is to be got from the meaning ascribed to the word 'agriculture' in other statutes and (2) that, though it must always be difficult to draw the line, yet unless there is some measure of cultivations of the land, some expenditure of skill and labour upon it, it cannot be said to be used for agricultural purposes within the meaning of the Income-tax Act ." This Court had also held that the word "agriculture" implied something which is achieved with the aid of human agency. <CITATION> ', AIR 1947 Mad 157 (T) and this decision was approved by <ORG>. Following <ORG> decision this court held in - 'Commr. of Income-tax Madras v. <NAME>', (U) that irrespective of the nature of the pro-ducc or product of the land, whatever is grown on land aided by human labour and effort, whatever does not grow wild or spontaneously on the soil without human labour or effort would be an agricultural product.

15. The following have been held to be agricultural products: Betel leaves: - ' <CITATION> ', 24 Mad 421 (V); Coffee: - ' <CITATION> ', 17 Mad 98 (W). The latter decision can no longer be good law in view of the test laid down by the <ORG> decision, Casuarina: - ' <CITATION> ', AIR 1922 Mad 351 (X); ' (U)'; - ' <CITATION> ', AIR 1946 Mad 143 (Y); Cardamom: - ' <CITATION> ', AIR 1917 Mad 160 (Z); Cocoanut: - 'Venkayya v. Ramasami', 22 Mad 39 (Zl); - ' <CITATION> ', AIR 1937 Mad 234 (FB) (Z2), - 'Milk: Venkata-swami Naidu v. Commr. of Income-tax Mad.', (Z3);-'Commr. of <CITATION> ', AIR 1938 Rang 260 (FB) (Z4);- Mango - 'Sarojini Devi v. Srikristna', AIR 1944 Mad 401 (Z5); - ' <CITATION> ', 1948 AC 210 (Z6). Forest is agriculture if growing was with the aid of human agency and not if growth was spontaneous - 'Secy, to the Chief Commr. of Income-tax Madras v. <NAME> of Singam-patti'. AIR 1922 Mad 325 (FB) (Z7); - 'Maharaja of Kapurthala v. Commr. of Income-tax Central & UP', AIR 1945 Oudh 35 (Z8); Fishery - Inland not agriculture - ' <CITATION> ', AIR 1924 Pat 474 (Z9); Toddy; cultivation is agricultural income: - 'Commr. of <CITATION> ", AIR 1927 Mad 1038 (FB) (Z10). Tne above does not, however, represent an exhaustive list.

16. The use of the word "horticulture" in juxtaposition with the word "agriculture" cannot be construed to mean, that the word "agriculture" is used in a narrow sense. The decisions under the Madras Estates Land Act in - 'Raja of Venka-tagiri v. Ayappa Reddi', AIR 1915 Mad 781 (2) ( <CITATION> ', AIR 1917 Mad 649 (Z12) cannot be pressed into service in construing this Act as in these cases the report of <ORG> omitting the words "siviculture" and ''pasturing" from the bill was taken to show that the <ORG> contemplated only a restricted interpretation of the word. Rubber on these principles may be construed as an agricultural produce. But the sale of agricultural or horticultural produce is exempt from the levy of sales-tax in the hands of a grower of such produce or a person having an interest in the land in which the produce is grown: See Section 2 (i).

17. Bearing these facts in mind let us examine the exemption claimed relating to tea for a period of nine months. The contention of the <ORG> is twofold, viz., that the exemption can be claimed only in the case of resident growers and cannot be claimed by non-resident growers; secondly, exemptions can be claimed by the non-resident principal and not by his commission agent - rcst-ing the former upon the language of Section 5 (5) and the latter upon the wording of Section 14-A of the Sales-tax Act.

18. Under Section 5 (v) of the Act sale of tea grown by the seller or grown on any land in which he has an interest, whether as owner, usufructuary mortgagee, tenant or otherwise, is exempt from levy of sales-tax on two conditions, viz., (i) the sale must be for delivery outside the State, that is to say, the terms of sale must provide for delivery outside the State; and (ii) must actually be so made. In such a case the sale of tea shall be exempt from tax under Section 3(1) . This is the taxing section on which the entire Act and the rules thereunder revolve. This section prescribes that a tax can be collected under the Act not from anybody and everybody, but only from a dealer whose turnover is Rs. 10,000 or above in the year of assessment. Who is a dealer has already been considered. It is clear that to be a dealer for attracting taxability, he must either be an owner of the goods or a person who has custody thereof with authority to transfer the property therein as in the case of a commission agent. Then there are two classes of persons under the term' "seller of the tea growing his own produce". He may be a resident or non-resident of the State who has no agent but comes into the State himself and sells and delivers goods or he may be a non-resident with a recognised commission agent here. But whatever be the class under which he falls as contended for by the State of Madras under Section 5 (v) exemption to sales tax for tea is limited to tea produced and sold by the resident estate owners and cannot be claimed in regard to tea produced out side the province by non-resident estate owners and sold within the Province by their accredited representatives or agents.

19. The other part of the contention of the State of Madras that even if the exemption can be claimed by the non-resident estate owner producing and selling tea in question this cannot be done by his commission agent inside the Madras State and can only be claimed by the principal is equally well-founded. Section 14-A as has been pointed out by <NAME> in his 'locus classicus' "Sales-tax in Madras" published by <ORG>, Madras, assisted by Sri <NAME> is designed to afford an easy method lor collection of taxes due in respect of transac-tions carried on by persons residing outside the State through agents residing inside the State The tax under the Act being one on dealings irres-pective of the person who deals, it is necessary that the taxes due in respect thereof should be made payable by the person immediately concern-ed in such transactions and since the principal in respect of those transactions when residing outside the State cannot be easily reached, his agent who puts through the transactions within the State and who ordinarily will not be liable he not being a dealer strictly so called, is statu-torily deemed to be dealer for the purposes of the Act. This has also been put effectively in another way by <NAME> in his comprehensive all India publication "The Law of Sales-tax in India (published by <NAME> Lodge" 11, McNichol Road, Chetput, Madras 10) as follows:

"The non-resident dealers by virtue of their absence from this State may escape assessment. If they do not have any property, then even if assessment were to be made it will be futile as recovery of the tax levied will be impossible. The non-resident dealers will then be at an advantage. This section, is designed to make them assessable and to collect the tax easily on such assessments".

A similar provision for taxing non-residents through their agents is also found in the Indian Income-tax Act . But this is only an enabling provision for facilitating collection where for instance the non-resident has no agent here. but comes into the State himself and sells and delivers, goods he is liable to tax because the sale has taken place in this State and the plea that there is no adequate machinery to levy and collect the tax from such a non-resident is not relevant as the difficulty in collection is not a bar to making the assessment. Secondly, Courts have held that-such a provision does not preclude a direct assessment. In - 'Public Prosecutor v. K. Sankunny', 1953-2-Mad LJ 48 (SN) (Z13) it was held that a non-resident dealer liable to tax under the Madras General Sales-tax Act cannot escape liability merely because the resident agent is also-liable. Similarly Courts have held that such a provision in the Indian Income-tax Act does not preclude a direct assessment: - ' <CITATION> .,' AIR 1921 Mad 212 (SB) Z14). This section provides two safeguards, first for the commission agent and secondly fort the principal.

20. In the case of non-resident buying or selling goods in the Province or State but residing outside, his agent shall be deemed to be the dealer. The agent will then be deemed himself to nave carried on the business. The agent if he carries on a separate business himself and is assessable, as a dealer under the Act, there will be two assessments on him: (i) in Ms name for his business and (ii) in his name as the agent of the nonresident dealer. If the non-resident's turnover is less than Rs. 10,000 then also the agent will be-taxed. There will be no exemption for the turnover being less than the assessable minimum. But. the agent is assessable only to the extent of the turnover of such non-resident with which he is concerned. If the non-resident has several agents in several places or even in each place, each of such agent will be assessable separately. The agent is safeguarded by being authorised under the Act to retain out of any amount payable to the non-resident an amount equal to the tax assessed on or paid by him in respect of the nonresident's turnover. This is without prejudice to his other rights like a right to file a suit. The non-resident is equally saieguarded because if he proves that his entire turnover in the State was less than the minimum assessable under Section 3 (3) he may apply to the assessing authority, if there has been only one assessment through his agent for refund 01 the tax, if any, paid on his behalf. If there has been more than one assessment then <ORG> is empowered to designate the authority to whom refund application will have to be made. The period within which application for refund has to be made is 12 months from the end of the financial year in which payment was made.

21. But this does not mean, as has been well put by <NAME> in his Sales-tax in Madras, that Section 14-A (iv) is expressly restricted to an application for refund being made on the ground of the turnover being less than Rs. 10,000. By reason of the provision in the opening paragraph of Section 14-A making the rest of the Act applicable to the transactions of nonresident dealers it is perfectly clear that Sub-section (iv) also covers cases of exemption contemplated in respect of agricultural or horticultural produce. So, though initially the agent of a non-resident principal is assessed on a turnover it is open to the non-resident principal to make an application to the assessing authority and establish to his satisfaction that the produce assessed in the hands of the agent was agricultural produce grown by the principal himself or grown on any land in which such non-resident principal has an interest and therefore exempt from assessment.

22. To postulate otherwise would lead to absurdities because first of all under the Act whenever any exemption is claimed the burden of proof is upon that person claiming that exemption, viz., the grower and seller of tea outside the State. It has been well laid down in <NAME> on "Construction of Statutes", Section 258 is as follows:

"Provisions providing for an exemption may be properly construed strictly against the person who makes the claim of an exemption. In other words, before an exemption can be recognised, the person or property claimed to be exempt must come clearly within the language apparently granting the exemption. The reason for requiring a strict construction of statutes in favour of the State where a person claims immunity from the common burden of taxation, has been ably stated by Mr. Justice <NAME>, as appears from the quotation from his opinion in - '<NAME> v. <ORG>', 54 Kan 542 (Z15);

'All property receives protection from the State. Every man is securedin the enjoyments of his own, no matter to what use he devotes it. This security and protection carry with them the corresponding obligation to support. It is an obligation which rests equally upon all. It may require military service in time of war, or civil service in time of peace. It always requires pecuniary support. This is taxation. The obligation to pay taxes is co-extensive with the protection received. An exemption from taxation is a release from this obligation. It is the receiving of protection without contributing to the support of the authority which protects. It is an exception to a rule, and is justified and upheld upon the theory of peculiar benefits received by the state from the property exempted. Nevertheless it is an exception; and they who claim under an exception must show themselves within its terms. Moreover, exemption laws are in derogation of equal rignts, and this is an equally important reason lor construing them strictly. And a third reason appears from the court's language in - 'Bank of Commerce v. Tennessee', 1896) 161 US 134 at p. 145 (Z16)'. Taxes being the sole means by which sovereignties can maintain their existence, any claim on the part of any one to be exempt from the full payment of his share of taxes on any portion of his property must on that account be clearly defined and founded on plain language. There must be no doubt or ambiguity used upon which the claim to the exemption is founded. It has been said that a well lounded doubt is fatal to the claim, no implications will be indulged in for the purpose of construing the language used as giving the claim for exemption, where such claim is not founded upon the plain and clearly expressed intention of the taxing power.

See also - 'Commr. of Income-tax B & O v. <NAME>', AIR 1935 Pat 342 (SB) (Z17); - 'Commr. of <CITATION> ', AIR 1935 Pat 8 (Z18). Secondly, the commission agent is constituted as agent, only for the purpose of selling and by a fiction of law he is treated as a dealer for a limited purpose, i. e., assessability on the first instance. Such a person with limited rights to act on behalf of the principal cannot be looked upon as the person who would be entitled to claim exemption on behalf of the principal. So far as this agent is concerned, whether the assessment is levied or whether exemption is granted, his liability 'vis-avis' the principal is not in any way affected and a safeguard is provided in his retaining moneys in his hands to reimburse himself of the assessment paid out to the Government, His business is to pay up leaving it open to the affected nonresident principal to claim exemption and refund. That is the scheme of this fiscal enactment. Thirdly it is easy to envisage conflicting claims of principal and commission agent in regard to a matter in which the latter is not an agent for the former over exemptions the former possibly asserting that he is not entitled to exemption and the latter asserting that he is entitled to exemption. It will be easy to multiply other complications of this nature if we are to restrict Section 14-A (iv) expressly to application for refund in regard to turnover being for less than Rs. 10,000 only.

22A. This point is concluded by authority also. In - 'Messrs. <CITATION> . 121 to 126 of 1953 (Mad) (Z19) ), a Bench of this Court has held that the tax is collected on the turnover of the agent without reference to facts like the turnover exceeding the statutory minimum or not and that thereafter it is open to the non-resident principal to move in the matter and get such refund as is permissible under the Act. In other words, the business of the commission agent is to pay the tax assessed on him and keep a lien on the moneys acquired by him on behalf of the principal and leave it open to that principal to make applications to the assessing authorities and establish to their satisfaction that either the turnover was less than the minimum prescribed or that the agricultural produce assessed in the hands of the agent was grown by himself or grown on any land in which such a non-resident principal has an interest.

23. I therefore accept the contention of the <ORG> that the commission agent is not a person who can claim the exemption and refund and it is tne non-resident principal who should do so if he is entitled to any <ORG> exemption and refund. Therefore, loosed at from any point of view this point (c) has to be decided against the claim of the piainiffs in its entirety.

24. Point (d): The claim for deductions cannot be supported because the items referred to in the plaint reproduced above are not admissible deductions under Rule 5 (1) of the Turnover and Assessment Rules. Tne sales-tax has been levied on tne price of the goods and it has no concern with tne overhead expenses incurred by the dealer as the deductions were not charged for separately, without including them, in the price of the goods and the prices, which were either F. O. B or C and F, could not be split up for purposes of deduction. To complete this I must explain the terms if. O. B. or F. O. R., C. I. F. and C and F.

25. The words F. O. B. and F. O. R stand for Free on Board and Free on Kail respectively. Where tne seller agrees to sell goods on F. O. B. or F. O. R. terms at means the seller will bear all the expenses prior to the putting on board or rail. As soon as the goods are put on board or rail the responsibility of the seller ceases and the risk as well as property vests in the buyer. Prior to the putting on board a ship or rail of the goods, the seller alone must bear the damages to the goods: - '<ORG> v. <ORG>', 1922-1 KB 343 (Z20) and - '<NAME> v. <ORG>', 1921-3 KB 302 (Z21). (26) The words C. I. P. stand for Costs, Insurance and Freight. The meaning of a contract of sale upon cost, freight and insurance is so well established that it is unnecessary to refer to the authorities' upon the subject. A seller under a contract of sale containing such terms has firstly, to ship at the port of shipment goods of the description contained in the contract; secondly, to procure a contract of affreightment under which the goods will be delivered at the destination contemplated by the contract; thirdly, to arrange for an insurance upon the terms current in the trade which will be available for the benefit of the buyer; fourthly, to make out an invoice; and finally, to tender these documents to the buyer so that he may Know what freight he has to pay and obtain delivery of the goods if they arrive or recover their loss if they are lost on the way: - 'Biddell Bros. v. E. Clemens Horst Co.', 1911-1 KB 834 at p. 940 (Z22); - '<NAME> v. 3. Behrens & Sons', AIR 1930 Lah 640 (223); - Girdharilal v. <ORG>', AIR 1037 Lah 566 (Z24); - 'Johnson v. <ORG>', 1920 AC 144 (Z25). The essential feature of an ordinary C. I. F. contract for the sale of goods rests in the fact that performance ot the Bargain is to be fulfilled by delivery of documents and not by the actual physical delivery of the goods by the vendor. All that the buyer can call for is the delivery of the customary documents. This represents the measure of the buyer's right and extent of the vendor's duty. The buyer cannot refuse the documents and ask for actual goods nor can the vendor withhold the documents and tender the goods they represent. It is in short a transfer of symbols rather than physical property : - ' <CITATION> .', 1919-1 KB 198 (Z26). Property passes to the buyer as soon as the documents are delivered to him.

27. There is generally another type of contract called C and F contract. In such contracts, the buyer undertakes to insure the goods while in transit. A. C. & P. contract is for all practical purposes and F. O. B. contract. It was held by this Court in an unreported case - 'Commr. of <CITATION> . Case No. 61 of 1946 (Mad) (227) that in the case of such contracts property passes not when the goods are ascertained but subsequently. As to when property passed, <NAME> observed that it was unnecessary in that case to determine the point of time when property passed while <NAME> said "The time of shipment is the time of passing of tne property to the buyer".

28. Therefore point (d) has got to be decided against plaintiffs.

29. Point (e): The validity of the several State Sales-tax Act s imposing a tax on sales had come up for consideration both before the Republican India and after the Republican India. (For a lucid discussion of this subject, see the comprehensive survey made by Mr. <NAME> and <NAME> in their excellent treatise Law of Sales-tax in India, 1954, published by the <ORG> office pages 36-50). In regard to the former class of cases it is enough, to mention Tn re C. P. & Berar Sales of Motor Spirit & Lubricants Taxation Act, 1938', AIR 1939 F. C. 1 (Z23); - ' <CITATION> .', AIR 1941 Mad 913 (229) and on appeal - ' <CITATION> .', AIR 1942 FC 33 (Z30); - 'Governor-General in Council v. Province of Madras', AIR 1945 PC 93 (Z31). Then in Republican India the validity of the Sales-tax Act has been impeached as being opposed to Article 14 of the Constitution of India and unconstitutional delegation of the taxing power by the <ORG> to the Executive and as violating Article 286 of the Constitution. In regard to Article 14 and unconstitutional delegation, these have been set at rest by - ' <CITATION> ); - ' <CITATION> ). In regard to Article 286 this has been the subject-matter of three decisions by <ORG>, - ' (B)'; - ' <CITATION> ) and - ' <CITATION> .', AIR 1952 SC 336 (Z35). The above decisions of <ORG>: upheld the contention of the Madras State that! the Madras Sales-tax Act does not offend Article 286 of the Constitution. Secondly in any event as Article 286 of the Constitution of India came into force on or after 26-1-1950, this Article would not affect the assessments objected to relating to 1947 to April-May 1949.

30. It is quite true that these decisions of <ORG>, as pointed out by Sri <NAME> on page 21 of his Law of Sales-tax in India, have given rise to fresh problems such as where does a delivery take place, how is consumption to be proved, what happens in a case where delivery takes place in one State and consumption in another, etc. The solutions of the problem appear, to be more with the <ORG> and possibly by a suitable amendment to Article 286 of the Constitution. But as the appropriate quotations with which Sri <NAME> and <NAME> begin their excellent treatise Law of Sales-tax In India (<ORG> publication): "Whoever hopes a faultless tax, to see, Hopes, what never was, or is, or ever shall be (<NAME> Adaptation of Pope") "To tax and to please, no more than to love and to be wise, is not given to men" (<NAME>).

31. In the result, I find in both the suits that the plaintiffs are commission agents and not principals; that the plaintiffs are assessable to tax under Section 14-A of the Madras General gales-tax Act and R. 5 (1) of the Madras Turnover and Assessment Rules; that the sale transactions in dispute took place within the state of Madras; that the plaintiffs are not entitled to the deductions asked for; that the plaintiffs are not entitled to claim exemptions on behalf of the non-resident principals; that the Sales-tax Act is not invalid as opposed to the provisions of the Constitution of India; and that the plaintiffs are entitled to no relief. The issues in both the suits are found accordingly. The suits are dismissed with costs. I certify for two counsel.


JUDGMENT <NAME> - The first of the questions that was referred to this court under section 66(2) of the Indian Income-tax Act, 1922, ran :

"Whether, on the facts and in the circumstances of this case, the sums of Rs. 20,555, Rs. 32,554 Rs. 33,180 laid out by the assessee during the previous years for the assessment years 1948-49, 1949-50 and 1950-51 respectively, in prospecting for raw materials for floating new companies can constitute admissible deductions either under section 10(2) (xv) or under section 10(2) (xi) of the Act ?"

The assessee company had as one of its objects promotion of new companies and obtaining the managing agency of the companies so promoted. The claim of the assessee was that it incurred preliminary expenditure to promote a cement company to be known as <ORG>, and in the three years of account in question expended large sums to explore possibilities for successfully launching that contemplated cement company. Eventually the cement company was never formed. The moneys had been spent by the assessee. The assessee claimed these sums as lawful admissible deductions in computing its profits in the relevant assessment years.

There was really a paucity of material upon a consideration of which the question whether it is a lawful deduction can be answered. Certainly there is no scope for invoking section 10(2) (xi), because neither when the moneys were expended nor at any time thereafter was there a contract between the assessee company and any other person that the assessee should get back the money; in other words, that there came into existence a debtor with a liability to pay the debt.

Whether the requirements of section 10(2) (xv) are satisfied is the next question. Here again there is paucity of material. No doubt, the department and the <ORG> took the view that the expenditure was of a capital nature. Even if that conclusion was not warranted fully by the material on record, that does not help the assessee because the burden lay upon the assessee to establish that the amount should be deducted on the application of section 10(2) (xv). Merely to illustrate the point, we can point out that if the assessee expended these amounts to promote <ORG> with a view to get the managing agency of the company, the acquisition of managing agency would be acquisition of a capital asset, and any money expended even as preliminary to such acquisition would partake of an outlay on the acquisition of a capital asset. That the contemplated company was never formed and there was no occasion therefore to obtain the managing agency would not make any difference in principle or alter the character of the expenditure when the money was expended. If, however, the assessee expended the moneys with the expectation, even if there was no specific contract with anyone, of recovering those moneys, the position would obviously be different. If, for example, the assessee had produced evidence that in the past when it had incurred such preliminary expenses for promoting a company it got back the amount so expended from the companies as they were formed, the assessee could claim that they were expenses incurred by it in the normal course of conducting its own business, part of which was promoting new companies. But there was no such evidence in this case. We are referring to this aspect independent of the position whether the claim could be brought under section 10(2) (xi), because we have already pointed out that on the material on record there is no scope for invoking section 10(2) (xi). Though the <ORG> stated, "if the companies had in fact been formed following such investigations, the advances in question are recoverable from the assets of such companies after formation", there was really no material placed by the assessee either before the <ORG> or before us to justify the finding that that was the normal course of its business, or even the finding that in expending monies for promoting <ORG> the assessee had every expectation of getting a reimbursement of the moneys so expended, quite independent of the question whether the managing agency of the proposed company should be secured or not.

Thus, if the money had been expended to facilitate obtaining the managing agency of the contemplated <ORG> the expenditure would have been capital in nature. If the claim was that the money was expended in the usual course of its business, with the hope of being reimbursed after the proposed company was formed, there was really no material on which such a claim could be founded.

As we said, it is really paucity of material that hampers the assessee from pressing his claim that these are allowable items of expenditure. The <ORG> pointed out that the claim had not been proved in full, and with that statement we are in entire agreement. The claim was, therefore, rightly rejected.

The second question was : "Whether, on the facts and in the circumstances of this case, the sums of Rs. 95,860, Rs. 2,835 and Rs. 3,143, spent by the assessee in improving the guest house during the previous years for the assessment years 1948-49, 1949-50 and 1950-51 respectively can be allowed as a proper deduction in computing the profits assessable to income-tax under section 10(2) of the Act ?"

Obviously, the claim was considered under section 10(2) (ii) of the Act.

No doubt, the assessee expended the moneys on two buildings of which he was a tenant. Having taken the buildings on lease, the assessee expended moneys to make them fit for use as guest house to accommodate the guests of the assessee company at Madras. Section 10(2) (ii) could apply only to repairs, and even then the requirement is that the assessee as a tenant must have undertaken to bear the cost of the repairs. Even the question as framed refers to the moneys being expended to improve the guest house. The finding of the <ORG> was that the assessee expended the moneys for additions and alterations to the premises. No doubt, annexure "B" was filed showing some of the details for the moneys expended. But even annexure "B" does not explain what were the items on which moneys were expended. In deciding whether the expenditure was on repairs or whether the expenditure was incurred to effect improvements of a capital nature to the building, the <ORG> was of the view that the outlay was clearly capital in nature. Even if the material on record was not enough to sustain that finding, the assessees claim has to fail, because he did not place material to sustain his claim that the moneys had been expended on current repairs. Learned counsel for the assessee relied upon the observations in <CITATION> . But that in no way helps the assessee. It is no doubt true that, even if the need for repairs had arisen in the previous years and repairs were carried out subsequently, they would still be repairs and still be within the scope of section 10(2) (ii). But that decision relied upon by the learned counsel does not help us to answer the question whether the expenditure incurred by the assessee in this case was expenditure on current repairs or was expenditure in effecting improvements which was of a capital nature. It is for the assessee to prove that he was entitled to the deduction under section 10(2) (ii), and once again we have to point out that the material the assessee placed before the <ORG> was not enough to sustain that claim either in whole or in part. Learned counsel suggested that a further investigation and a further statement of the case might be called for; but unless the assessee could satisfy us that material was placed before the <ORG> on which the <ORG> could have found that at least a part of the claim was well founded there can be no justification for a further statement of the case. Obviously, the assessee is not entitled to a further opportunity of placing fresh material for answering the question.

The <ORG> was not in error in negativing the claim of the assessee under this head.

The third of the questions referred of this court ran :

"Whether, on the facts and in the circumstances of the case, the sum of Rs. 6,240 being the outlay incurred by the assessee in connection with the promotion of <ORG> during the previous years to the assessment year 1948-49 is a permissible deduction from the profits assessable to income-tax under section 10(2) of the Indian Income-tax Act ?"

The claim before <ORG> was that it was a debt recoverable from <ORG> The assessee held the managing agency of those mills. The claim put forward before the <ORG> as set out by the <ORG> in paragraph 5 of its judgment was :

"It is, however, stated that as the company was in bad straits and was not a financial success, the assessee company thought it fit and proper to waive its claim thereof."

On that submission, the <ORG> was right in pointing out that there was no proof that the alleged waiver was for adequate business consideration. What the assessee had to prove to bring the claim under section 10(2) (xi) was that the debt was irrecoverable. Such evidence the assessee failed to furnish. If a claim properly arising under section 10(2) (xi) cannot be upheld under that sub-section, it cannot be brought again under section 10(2) (xv). Apparently, the <ORG>, when it referred to the absence of adequate business consideration, had section 10(2) (xv) in view. But independent of what the <ORG> said, the assessees claim has to fail, because there was no material placed to show that the debt was in fact irrecoverable.

All the three questions are answered against the assessee. As the assessee has failed, it will pay costs of this reference. Counsels fee Rs. 250.

Questions answered accordingly.


JUDGMENT <NAME>, J.

1. The only question in this appeal is as to the date upon which the principal money became due under a mortgage of certain immovable property in the Lucknow District. Upon this hangs an important question of limitation, and. the issue of the appeal.

2. The mortgage is dated July 26, 1912, and purports to be for six years from that date. Apart, therefore, from the provisions of a particular clause in the deed, to be presently referred to, the mortgage money would have become due on July 26, 1918, and under Article 132 of the first schedule to the Indian Limitation Act , 1908, the mortgagee would have a further twelve years in which to bring his suit. The Article runs as follows:

__________________________________________ Description Period of Time from which of suit. limitation. periodbegins to run __________________________________________ 132.-To enforce Twelve When the money payment of yeara.... sued for money charged becornes due. upon immovable property. _____________________________________________

3. The appellant is the mortgagee. He brought a suit praying for a mortgage decree in the usual form on February 28, 1928, i.e., within twelve years from July 26,1918. He joined as defendants the widow of the mortgagor, who was then dead, and certain puisne encumbrancers, who alone defended the suit. They are respondents to this appeal, but have not been represented before the <ORG>.

4. The main defence was limitation. The Subordinate Judge of Lucknow, in whose Court the suit was instituted, held that it was out of time, and this decision was affirmed on appeal, first by the District Judge and then by <ORG>, The appellant comes before the <ORG> upon special leave. Other issues raised at the hearing of the suit in <ORG> have not been tried.

5. By the mortgage deed the mortgagor covenanted to pay interest yearly at twelve percent., and that if the interest for any year was not paid, it should be added to the principal and carry interest at the same rate. Then followed the clause upon which the defence was founded :-

In case of default, the said creditor shall, at all times, within and after the expiry of the stipulated period of six years aforesaid, have the power to realise the entire mortgage money and the remaining interest and compound interest due to him, in a lump sum, through <ORG>, by attachment and sale of the said mortgaged share, as well as from my person and all other kind of my property, both movable and immovable, together with costs of <ORG>, and I, my heirs, relations and representatives shall have no occasion for objection and refusal; that the aforesaid rate of interest, fixed by me, shall stand within and after the stipulated period and after the decree till payment of the entire demand hereunder and that I shall at no time demand reduction in interest.

6. The mortgagor defaulted in the payment of interest for the first year, and it was contended for the defendants that immediately upon this default the principal moneys became due within the meaning of the Article of the Indian Limitation Act set out above, and consequently that the statutory period of twelve years had expired before the institution of the suit. The question their Lordships have to determine is whether this view, upon which the judgments under appeal are all based, is correct.

7. Clauses of this nature in mortgage deeds have been before <ORG> in many cases, and there has been a considerable divergence of judicial opinion as to their effect upon limitation. <ORG>, following a majority decision of the Allahabad full bench in 1915, had more than once held that in such cases time ran against the mortgagee from the date of the first default, and the judgments in the present case add little to the elucidation of this problem. The Subordinate Judge thought it clear that the clause gave the mortgagee an option either to sue at once or to wait till the expiry of the mortgage term, but he held himself concluded by authority on the question of limitation. The District Judge thought there was no option, and that the mortgagee " was bound to sue." immediately upon default. In <ORG>, <NAME>, noted the conflict of authority, and certain observations of this <ORG> in a recent case, which seemed to throw donot upon the soundness of the Allahabad decision, but thought it his duty to adhere to the decisions of his own <ORG> so long as they were not delinitely overruled. <NAME> agreed, but expressed himself rather more confidently on the principle involved. In his opinion, the right of the mortgagee to enforce payment on default made the principal money immediately payable within the meaning of a. 60 of the Transfer of Property Act , 1882, and therefore entitled the mortgagor to redeem regardless of the six years' term.

8. The principal authority in favour of the view taken by <ORG> is the full bench case already referred to, <CITATION> (1915) I.L.R. 37 All. 400, F.B. in which the opinions of <NAME> and <NAME> prevailed over that of <NAME> The gist of the majority judgments was that the money became " due " as soon as it could be legally demanded, i, e,, upon the first default. The Chief Justice fortified himself by extracts from the judgments of <ORG> in this country in <NAME> v.

Butcher [1891] 2 Q. B. 509. which he seems to have regarded as decisive. <NAME> took the opposite view. He thought the clause in question was clearly inserted for the benefit of the creditor, and that it was at his option to treat the money as being immediately due or not. He referred to previous Allahabad decisions which seem to support his argument, and in particular to a dictum of this <ORG> in a case decided under the Indian Limitation Act (XIV of 1859) which will be noted presently.

9. <NAME> case seems to have been doubted in subsequent cases in <ORG>, but was affirmed by another full bench in 1922, <NAME> v.

<NAME> (1922) I.L.R. 45 All. 27, F.B.

10. The authority of these cases is, however, in their Lordships' opinion, weakened by a more recent decision of the same <ORG>, <NAME> v.

<NAME> (1927) I.L.R. 50 All.

328 in which Sir <NAME> C.<NAME> and Sen <NAME> refused to extend the principle beyond the the limits of the decided cases. Their Lordships think that if, under a clause of this nature, the principal money "becomes due" within the meaning of Article 132 immediately upon default by the mortgagor in payment of interest or of any instalment, it must equally become due upon the breach of any other condition to which a similar provision is attached.

11. Turning now to the other <ORG>, their Lordships find a Calcutta decision of 1896, which adopts the same line of reasoning as Allahabad: <CITATION> (1896) I.L.R.24 Cal. 281. It has been suggested that the same <ORG> ten years later in <NAME> v. <NAME> (1906) 11 C.W.N. 903. followed a different principle, which would favour the appellant, but this decision was given with reference to another Article of the Indian Limitation Act, and is, their Lordships think, of no assistance in the present case. <NAME> case was no doubt decided under Act XV of 1877, but the wording of the Article in that Act was the same as in the Act of 1908.

12. No authority has been cited from Bombay, but <ORG> of Madras ( <CITATION> (1916) I.L.R. 39 Mad. 981.), following the judgment of <NAME> in the first of the Allahabad full bench cases, and <ORG> of Patna ( <CITATION> (1930) I.L.R. 10 Pat. 173.) have taken the opposite view.

13. Similar questions have been discussed on two occasions before this <ORG>, but in neither case was it necessary to decide the point, though fairly definite indications were given in each of the view the <ORG> was inclined to take.

14. In <NAME> v. <NAME> (1875) L.R. 3 I.A. 1. a case falling under Act XIV of 1859, a similar argument was put forward for the appellant to that which has prevailed in <ORG> and Allahabad, though it was based upon the application of a six years' pariod of limitation, The decision was against the appellant on the ground that the period was twelve years and not six, But Sir <NAME>, who delivered the judgment of the Board, after expressing himself to this effect, continued (p. 6) :-

Their Lordships must not be supposed, in coming to this decision, to give any countenance to the argument of Mr. <NAME> [for the appellant] that this suit would have been barred if the limitation of six years under clause 16 had been applicable to it. They think, upon the construction of this bond, there would be good reason for holding that the cause of action arose within six years before the commencement of the suit.

15. It is, their Lordships think, worth noticing that this case was not referred to is <CITATION> (supra). The dictum cited was, however, much relied upon by <NAME>, in his dissenting judgment in <CITATION> .

16. The question came up for consideration again before the <ORG>, half a century later: <CITATION> (1926) L.R. 53 I.A. 187. In this case <ORG> had, following the decision in <NAME> case, dismissed a mortgagees' suit as out of time, It; not having been brought within twelve years of the mortgagor's default in payment of an instalment, which gave the mortgagees the right (as in the present case), without waiting for the expiry of the stipulated period, to enforce their security.

17. The judgment of the Board was delivered by Lord <NAME> and the material portion of it runs as follows (p. 193):-

Applying certain previous decisions of that Court, and in particular a <ORG> decision in <CITATION> , <ORG> held that under a clause in the above form a siugle default on the part of the mortgagors, without any act of eleotion, cancellation or other form of response or acceptance on the part of the mortgagees, and even, it would appear, against their desire, operates, eo instanti, to make the money secured by the mortgage 'become due', so that all right of action in respect of the security is finally barred twelve years later, that is, in the present case, on February 21, 1909. All this <ORG> held, notwithstanding that the mortgage is fora term certain, a provision which may be as much for the benefit of the mortgagees as of the mortgagors, and notwithstanding that the proviso is exclusively for the benefit of the mortgages. The decision also apparently proceeds upon the view that the words of the English Limitation Act and the English decisions thereon apply without question to the words of Article 132 of schedule to the Indian Act - a conclusion which, as it seems to their Lordships, may involve, and, on the critical point when applied to such a proviso as the present, a large assumption.

Their Lordships are fully alive to the seriousness of the view so taken by <ORG>, emphasized and perhapa extended as it has been by a later <ORG> decision to the same effect: see <CITATION> . Moreover, upon the correctness of it there has been in different <ORG> a sharp conflict of judicial opinion. It is accordingly manifestly desirable that, so soon as may be, this Board should finally pronounce not only upon the question whether the principle of the two Allahabad decisions above referred to is correct, but also upon the further question whether, even if it is these decisions have any application to a proviso framed as is that now in suit. Their Lord, ships would be reluctant, however, to pronounoe on either question in the absence of full argument, and it is accordingly a satisfaction to thorn to find that, the present case, in which they have had no assistance from the respondents, can, as they think, regardless of the general question, be decided on its own special circumstances, which, apparently, <ORG> was not concerned to note.

18. The judgment then proceeds to deal with the " special circumstances " upon which the actual decision turned; they have no relevance to the present case.

19. It is no doubt true that the question now before the <ORG> was advisedly left open for future discussion, but the considerations referred to by Lord <NAME> are of great weight, and it is difficult to find an answer to them. They clearly affected the decision in the latest Allahabad case, but though the judgment in <NAME>'s case was cited in <ORG>, the learned Judges of that Court would make no further attempt at the solution of the problem.

20. Under these circumstances, it is a matter of great regret to their Lordships that they should now have to pronounce upon these important and difficult questions without the assistance of counsel for the respondents. But the case has been placed before them very fully and with conspicuous fairness by Mr. <NAME>, who appeared for the appellant, and they have given their most anxious consideration to all the judgments which have been referred to.

21. Their Lordships think that no valid distinction can be drawn between the material provisions of the deed in the present case and those upon which the judgments in the Allahabad cases were founded, and that the question to be decided is one of principle.

22. There can be no doubt that, as pointed out by Lord <NAME>, a proviso of this nature is inserted in a mortgage deed " exclusively for the benefit of the mortgagees," and that it purports to give them an option either to enforce their security at once, or, if the security is ample, to stand by their investment for the full term of the mortgage. If on the default of the mortgagor-in other words, by the breach of his contract-the mortgage money becomes immediately " due," it-is clear that the intention of the parties is defeated, and that what was agreed to by them as an option in the mortgagees is, in effect, converted into an option in the mortgagor. For, if the latter, after the deed has been duly executed and registered, finds that he can make a better bargain elsewhere, he has only to break his contract by refusing to pay the interest, and instanti, as Lord <NAME> says, he is entitled to redeem. If the principal money is "due," and the stipulated term has gone out of the contract, it follows, in their Lordships' opinion, that the mortgagor can claim to repay it, as was recognised by <NAME> in his judgment in <ORG>. Their Lordships think that this is an impossible result. They are not prepared to hold that the mortgagor could in this way take advantage of his own default: they do not think that upon such default he would have the right to redeem, and in their opinion the mortgage money does not " become due" within the meaning of Article 132 of the Indian Limitation Act until both the mortgagor's right to redeem and the mortgagee's right to enforce his security have accrued, This would, of course, also be the position if the mortgagee exercised the option reserved to him.

23. Their Lordships are not greatly oppressed by the authority of <NAME> v. <NAME> (supra), It is, they think, always dangerous to apply English decisions to the construction of an Indian Act . The clause there under consideration differed widely from that now before their Lordships, and indeed from the clauses with which <ORG> had to deal; the question for decision would have fallen in India, not under Article 132 , but under Article 75 , which is in very special terms; and a. 3 of the statute of James, with which the <ORG> was concerned, made the time to run, not from the date when the money became due, but from the date when the cause of action arose. If in the Indian cases the question were " When did the mortgagee's cause of action arise?"-i.e., when did he first become entitled to sue for the relief claimed by his suit-their Lordships think that there might be much to be said in support of the Allahabad decisions, Judged by the Indian criterion, " when the money sued for became due," upon the best consideration their Lordships have been able to give to this difficult question, they think that the decision of the Chief <ORG> of Oudh was wrong, and that they should have held that the appellant's suit was within time.

24. For these reasons their Lordships will humbly advise His Majesty that this appeal should be allowed; that the decrees of all the <ORG> should be set aside; and that the suit should be remitted to <ORG> for trial of the other issues which have not been decided. The respondents Nos. 2-6 must pay the costs of the appellant in both <ORG> and <ORG>;, and before this <ORG>. All other costs of the suit will be dealt with upon the further trial.