ORDER <NAME>, C.J.

1. These references made by Income-tax Appellate <ORG>, New Delhi (in short, the <ORG>) involve identical points for adjudication in relation to Sir Shri Ram Foundation, hereinafter referred to as assessed for the assessment years 1971-72, 1972-73 and 1974-1974. Following question has been referred under Section 256(1) of the Income-tax Act, 1961 (in short, the Act) "Whether on the facts and in the circumstances of the case the <ORG> was correct in law to give a finding that the assessed was not covered by section 13(2)(h) of the Income-tax Act or any other provision of Section 13 and thereby allowing its claim for exemption from tax of its dividend income u/s 11 of the Income-tax Act ."

2. Factual position in a nutshell is as follows:

assessed is a public charitable trust which was originally registered as a society under the name "<ORG>" under the Societies Registration Act , 1860 on 7-5-1941. Name of the trust was changed to its present name "Sir <NAME> Foundation" as per certificate of registration dated 30-5-1963 granted by the Registrar of Societies. There were seven subscribers to the Memorandum of Association of whom three, namely, Sir <NAME>, <NAME> and <NAME> constituted <ORG>. On 10-2-1955, <NAME> donated to the <ORG> 200 shares of <ORG> (hereinafter referred to as '<ORG>') of the face value of Rs. 100/- each. On the said date <NAME> also donated 90 shares of <ORG>. In respect of these 290 shares received as donation by the <ORG>, <ORG> issued 870 bonus shares and thus the <ORG> came to hold 1160 shares of <ORG>. The total shareholding of <ORG> consisted of 19,997 shares, of which 11359 shares were held by relatives of <NAME> and <NAME> who were the founder members of the <ORG> and were treated by the revenue authorities as "excluded persons" in terms of clause (b) of Section 13(3) of the Act. Thus the percentage of shares held by excluded persons came to 56.79% while that of shares held by the <ORG> worked out to 5.8%.

3. On being moved for reference, question, as set out above, has been referred for opinion of this Court. We have heard the learned counsel for revenue and for the assessed.

4. Stand of the learned counsel for the <ORG> is that there is scope for misuse and evasion of tax if interpretation given by the <ORG> is accepted. The language of the provisions, according to him, shows that the amount must have remained invested for a specific period and merely because, for the sake of argument, it can be said that originally the amount was not invested by the assessed yet when it remained invested subsequently, the provision of Section 13(2)(h) are applicable. The stress, according to him, is on the concern and not on the funds invested, except that it should remain invested in the concern. Learned counsel for the assessed, on the other hand, submitted that the language used as "funds" which must have been invested. If it was originally not invested the question of funds remaining invested in the manner suggested by the learned counsel for <ORG> is not borne out from the statute.

5. In order to appreciate rival submissions, the relevant provisions need to be noted. Sections 11 , 12 and 13(2)(h) at the relevant time read as follows:

"Section 11(1) Subject to provisions of sections 60 and 63 , the following income shall not be included in the total income of the previous year of the person in receipt of the income-

(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India, and, where any such income is accumulated or set apart for application to such purposes in India, to the extend to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property:

12. any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes ( not being contributions made with a specific direction that they shall form part of the corpus If the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and Section 13 shall apply accordingly.

13.(1) Nothing contained in Section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof-

(a) *** *** ***

(b) *** *** ***

(c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof-

(i) *** *** ***

(ii) if any part of such income or any property of the trust or the institution ( whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section(3) *** *** *** *** *** *** (2) Without prejudice to the generality of the provisions of clause (c) and clause(d) of sub-section (1) the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section(3),-

(h) if any funds of the trust or institution, are or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971) in any concern in which nay person referred to in sub-section (3) has a substantial interest."

6. A similar issue had come up before various High Courts and there is unanimity in the view, as that taken by the <ORG>. In construing the provisions of Section 13(2)(h) , the expression "funds" has to be understood in the context of the provision and not only with reference to dictionaries or to commercial parlance or to the principles of accountancy. It is to be noted that the expression used is "funds" and not "fund". "Funds" means money in hand or cash according to some dictionaries. This, according to us, would be the proper meaning to be attributed to the expression "funds" as appearing in the provision. The fundamental requirement of Section 13(2)(h) is that there must be investment of funds of a trust. If any expanded meaning is given to include assets other than money in hand or cash or credit balance in a bank account, it is evident that they are not capable of being invested as such. Other assets of the trust apart from money in hand or cash or balance in bank will have to be converted into money or cash before the same can be invested, as was observed by <ORG> in <CITATION> ,  170 ITR 150. The expression "invest" connotes a positive act on the part of the trust whereby the funds of the trust are laid out or committed in any particular property or business or transaction with the object of earning a profit or financial advantage or return. What is contemplated is that the trust having assets in the form of money or cash or balance in a bank or any other form capable of being invested or by a positive act and pursuant to a decision of the trust was laid out or committed in a concern of a nature specified before it can be held that such an investment comes within the mischief of Section 13(2)(h) .

7. The meaning of expression "funds" given in the standard dictionaries are as follows:

"Black's Law dictionary, Fifth Edition: 'Fund'...An asset or group of assets set aside for a specific purpose......

A generic term and all-embracing as compared with term 'money' etc which is specific. A sum of money or other liquid assets set apart for a specific purpose or available for the payment of debts or claims. In the plural, this word has a variety of slightly different meanings, as follows: moneys and much more, such a notes, bills, cheques, drafts, stocks and bonds, and in broader meaning may include property of every kind... Money in hand, assets, cash, money available for the payment of a debt, legacy, etc. Corporate stocks or government securities; in this sense usually spoken of as the 'funds'. Assets, securities, bonds or revenue of a <ORG> or <ORG> appropriated for the discharge of its debts. Generally, working capital, sometimes used to refer to cash or to cash and marketable securities."

"(b) Dictionary for Accountants, 4th Edn., by <NAME>:

"1.An asset or group of assets within any organisation, separated physically or in the accounts or both from other assets and limited to specific uses. Examples: a petty cash or working fund; a replacement and renewal fund; an accident fund; a contingent fund; a pension fund.

Example: a trust fund created by a will; an endowment fund; a sinking fund.

4.Pl. Current assets less current liabilities (on an accrual basis); working capital; a term used in cash flow statement.

5. Pl: cash (pp.204-208)."

Chambers' Twentieth Century Dictionary, New Edn.

'Fund: n.a sum or money or which some enterprise is founded or expense supported: a supply or source of money':

The Concise Oxford dictionary, 5th Edn.,:

'Fund n.1 Permanent stock of something ready to be drawn upon-stock of money- pecuniary resources'.

Webster's Seventh New Collegiate Dictionary--based on Webster's Third New International Dictionary (p.538) :

'Fund. 1 an available quantity of material or intangible resources; supply; 2. a sum of money or other resources the principal or interest of which is set apart for a specific objective.

The expression 'invest' in the said Section 13(2)(h) is used as a verb and the meaning of the said expression in the standard dictionaries is as follows:

<ORG>'s Twentieth Century dictionary, New Edn.

"...to lay out for profit as by buying property, shares, etc"

The Concise Oxford dictionary, 5th ed., '... lay out money on, as (invest) in a car'.

Webster's Seventh New Collegiate Dictionary:

'vb. Vt 1: to commit ( money) in order to earn a financial return; 2 to make use of for future benefits or advantage,-- vt. To make an investment."

"In general.--The word has a variety of meanings, but the sense in which it is employed must be gathered from the context. It is not a legal term with a settled meaning but it is a term in common use, suggesting money, in common speech, although technically it may be employed to cover other articles of value, for the term 'fund' or 'funds' is generic and all embracing as compared with the term money, etc which is specific..." In the plural. "Capital : cash, money or moneys; money and negotiable paper immediately or readily convertible into cash, available pecuniary resources; money in hand or available for the payment of a debt, legacy, etc.; specie, or a stock of convertible wealth; and 'funds' may mean or include not only money, as the term is generally understood, but other circulating medium or instrument or tokens in general use in the commercial world as the representatives of value, such as bank notes, bills, cheques, drafts, notes, stocks and bonds, deposits or certificates of deposit, evidences of money lent to the Government, constituting a national debt, for which interest is paid at prescribed intervals..."

Corpus Jurisdiction Secundum Vol. xxxvII "In General.--The word has a variety of meanings, but the sense in which it is employed must be gathered from the context. It is not a legal term with a settled meaning, but it is a term in common use, suggesting money, in common speech, although technically it may be employed to cover other articles of value, for the term "fund" or "funds" is generic and all embracing as compared with the term 'money', etc. which is specific..." in the plural, "capital: cash, money, or moneys; money and negotiable paper immediately or readily convertible into cash, available pecuniary resources; money in hand or available for the payment of a debt, legacy, etc specie, or a stock of convertible wealth; and 'funds' may mean or include not only money, as the term is generally understood, but other circulating medium or instrument or tokens in general use in the commercial world as the representatives of value, such as bank notes, bills, cheques, drafts, notes, stocks and bonds, deposits or certificates of deposit, evidences of money lent to the Government, constituting a national debt, for which interest is paid at prescribed intervals.."

<CITATION> , , it was observed that word "fund" may mean actual cash resources of a particular kind (e.g. money in a drawer or in a bank or it may be a mere accountancy expression used to describe a particular category which a person uses in making up his accounts. Similar view was expressed in <NAME> v. <NAME> (1942) 2 KB 228. The expression "fund" or "funds" has a variety of meanings but the sense in which it is employed must be gathered from the context. It would not be correct to adopt a strictly literal or technical meaning of this expression while construing section 13(2)(h) . In other words, we must not construe that provision mechanically. We must construe it having regard to the object which the <ORG> had in view in enacting it and in the context of the setting in which it occurs. That provision came to be inserted in the Act by the Finance Act , 1970. On a plain reading of that provision, it is clear that clause (h) of sub-section (2) of Section 13 covers investment of the trust funds in any concern in which any of the persons specified in sub-section (3) have substantial interest ("specified persons" in short) and if such investment of the trust funds is made after December, 31, 1970, it would result in forfeiture of exemption from tax. However, if the trust funds have already been invested in any concern as aforesaid before January 1, 1971 exemption would be forfeited if the funds continued to remain so invested even after December 31, 1970. The object of the above provision is to discourage investment of trust funds in the concerns in which specified persons have substantial interest and if an investment is already made in such concerns, to discourage continuance thereof after December 31, 1970. In order to attract the provisions of Section 13(2)(h) , what is essential is that the funds of the trust are invested in a concern covered by Section 13(2)(c) and if such investment is made prior to January 1, 1971, funds are continued to be not invested after December 31, 1970. It is only if the funds of the trust itself are under Section 11 . The funds have to be such as are capable of investment. Therefore, in order to attract Section 13(2)(b) , it has to be established that the funds of the trust which are capable of being invested have been utilised for making investment as provided therein. When the funds of the trust are so invested and such investment is continued after December 31, 1970, the trust whose funds are so invested will not be entitled to claim exemption under Section 11 . Above position has been elaborately dealt with by <ORG> in <CITATION> (1988) 173 ITR 248.

9. The word investment means to lay out money in business with a view to obtain income or profit. In order to constitute an investment the amount laid down should be capable of resulting in an income or return or profit to the investor and in every case of investment, the intention and positive act on the part of the investor should be to earn such income, return or profit to the investor. In order to constitute an investment, the money shall be laid out in such manner, as to acquire some species of property which bring in an income to the investor. An investment popularly means every application of money which is intended to fetch return by way of interest income or profit. This only employed as capital in a business is money invested in business. (<NAME>, in Tax Commissioner v. <ORG> (1902) 22 NZLR 445. In <NAME> v. <NAME> 21 WR Eng 155 it was observed that in its most comprehensive sense it is generally understood to signify the laying out of money in such a manner that it produces a revenue. An illuminating observation was made in IRC v. <ORG> (1946) 1 All ER 57(CA) about what "investment" means. It was observed that the word "investment" is not a word of art, but has to be interpreted in a popular sense. It is not capable of legal definition, but a word of current vernacular. The words "invest" and "investment" are to be taken in the business sense of laying out of money for interest or profit.

10. The plea similar to the one taken by the learned counsel for <ORG> was raised before <ORG> in <CITATION> trust, (1944) 207 ITR 108. There also it was pleaded that the expression 'continued to remain' qualifies the expression 'in any concern' whether it was an investment or not. The plea was rejected by <ORG>. It was observed that it would be doing violence to the plain language of the provision. Section 13(2)(h) requires that the funds of the trust are, or continue to remain invested in any concern of the nature mentioned therein.

(underlined for emphasis)

11. The interpretation suggested by learned counsel for <ORG> would do violence to the plain language used. The dictum of <NAME> as quoted with approval by <NAME> in <ORG> v. IR [1921] 1 KB 64, which has become locus classics can be aptly applied to the facts of the case. Following the illuminating words were used by the learned Judge: "In a taxing act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used" The position has been reiterated time and again by <ORG>. (See. <CITATION> , <CITATION> , <CITATION> , <CITATION> , ).

12. As indicated above, several High Courts have taken the view expressed by <ORG> in <ORG> case (supra). ( <CITATION> ; <CITATION> trust (2000) 240 ITR 513 (Cal); <CITATION> trust (1993) 203 ITR 349 (Guj); <CITATION> trust (1994) 209 ITR 865 (Guj). <CITATION> , (1994) 209 ITR 390 (Guj); <CITATION> trust, ; Trustees of Mangaldas N Verma Charitable trust v. CIT ; <CITATION> trust (1994) 207 ITR 1053 (Bom).

13. It appears that SLP'S filed against judgments of <ORG> and <ORG> in <ORG> (Supra) and <ORG> (supra) have been dismissed (See, (1995) 212 ITR (st) 369 (SC) and (1995) 212 ITR (St) 366 (SC) respectively).

14. The inevitable conclusion from the analysis made above is that the <ORG> was justified in its view. Accordingly, we answer the question referred in the affirmative in favor of the assessed and against revenue.


PETITIONER: COMMISSIONER OF <ORG>U.P., LUCKNOW. Vs. RESPONDENT: <ORG>, KANPUR. DATE OF JUDGMENT03/02/1987 BENCH: <NAME>, <NAME> (J) BENCH: <NAME>, <NAME> (J) NATRAJAN, S. (J) CITATION: 1987 AIR 798 1987 SCR (2) 133 1987 SCC (2) 96 JT 1987 (1) 328 1987 SCALE (1)221 ACT: Income Tax Act , 1922--s.10(2)(XV)--Assessee Company- Entering into agreement with another company appointing its nominee as distributors of assessee's products--In lieu of benefit of technical knowledge assessee paid to the distrib- utors for meeting initial expenses of establishment of distributorship--Assessee claiming deduction-Payment whether capital expenditure or revenue expenditure. HEADNOTE: The assessee-company entered into an agreement with <ORG>, London which, inter alia, stipu- lated that the latter would permit the use by the assessee of a number of registered trade marks specified in the agreement and disclose to the approved officers of the assessee the technique, practices and application of specia- lised tanning processes. Paragraph 7 of the agreement pro- vided that the assessee would appoint <ORG>, nominee of <ORG>, as its distributors for the sale of industrial leather manufactured by it in India and the assessee would pay Rs.50,000 to the distribu- tors for meeting the initial expenses of establishing the distributorship. This agreement was to be in force for a period of seven years. Simultaneously, another agreement was entered into between the assessee and <ORG> for a period of seven years, but no reference was made therein to the obligation of the assessee to pay Rs.50,000 to the distributors. For the assessment year 1959-60 the assessee claimed the payment of Rs.50,000 to <ORG> as a deduction permissible under s. 10(2)(XV) of the Income Tax Act, 1922, which was rejected by the Income Tax Officer, Appellate Assistant Commissioner and the <ORG> on the ground that the said payment was in the nature of a capital expenditure. In the Reference, <ORG> allowed the claim of the assessee holding that the payment in question was a revenue expenditure. Dismissing the Appeal of the Revenue, 134 HELD: 1. The real question is whether the payment that had been made by the assessee under the contract in question is a mere division of profits with another party or is it a payment to the other party, the amount of which is ascer- tained by reference to the profits. [138A-B] 2. No test of Universal application can be laid down. The aim and object of the expenditure was one of the guiding factors. The aim and object of incurring the expenditure in this case was the acquisition of the know-how. Rs.50,000 was really part of the price paid by the assessee to obtain the know-how. Pursuant to Paragraph 7 of the said agreement the assessee was bound to appoint <ORG>, nominee of <NAME>, as its distributor for the sale of leather manufactured by it in India. Paragraph 7 was an integral part of the agreement with <NAME> and was a part of the consideration for the receipt of the benefit. It was necessary condition of the agreement with <NAME> to appoint <ORG> as distributors of the assessee. It was perhaps done to protect the technical know-how which <NAME> was parting so that the dis- tributors would be a nominee of <NAME>. [138D; H; 139C-D] 3. Having regard to the nature of the agreement and having regard to the facts that the organisational set up under the distributorship agreement was to endure for seven years and upon the expiry of the period, the assessee had no relationship with the organisation and that the period of agreement between the assessee and the distributors was contemporaneous with the agreement between the assessee and <NAME> under which the assessee became entitled to use the registered trade marks, it must be considered to be a revenue expenditure, because it,was part of the price for the acquisition of technical know-how and the condition of appointment was a stipulation mentioned by <NAME>. [139D- <CITATION> ), 7 I.T.R. 101; Countess Warwick Steampship Co. Ltd. v. <NAME>,  2 K.B. 292 at 298; <CITATION> , 27 I.T.R. 34; Commissioner of Income-Tax, Bombay City Iv. Ciba of India Ltd., (and vice versa), 69 I.T.R. 692; <ORG> v. Commissioner of IncomeTax, Kerala, 62 I.T.R. 566; <CITATION> ., 82 I.T.R. 902; <CITATION> , 124 I.T.R. 1; <CITATION> ., 125 I.T.R. 293 and Commentry of Kanga and Palkhivala's Income Tax, Seventh Edition, Volume 1 page 484 to 488, referred to. 135 JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1163 (NT) of 1974.

From the Judgment and Order dated 25.11. 1971 of <ORG> in Income Tax Reference No. 310 of 1968 <NAME>, <NAME> and Miss A. <NAME> for the Appellant.

<NAME> and <NAME> for the Respondent. The Judgment of the Court was delivered by <NAME> J. This is an appeal from the judgment and order of <ORG> dated 25th November, 1971.

<ORG> had referred to <ORG> the following question for its opinion: "Whether, on the facts and in the circumstances of the case, the expenditure of Rs.50,000 was a capital expenditure which could not be allowed as a deduction under section 10(2)(xv) of the Income-tax Act, 1922?"

The assessee carried on the business of manufacture and sale of woolen goods, cotton textiles and hides and leather products. The activity of tanning hides and manufacturing leather products was carried on under the name and style of <ORG> and <ORG> branches. For the as- sessment year 1959-60, under the Income-tax Act , the rele- vant accounting of which being the calender year ending on 31st December, 1958, the assessee had claimed a deduction of Rs.50,000 paid to Messrs <ORG> Bombay (hereinafter referred to as "<ORG>"). The assessee's claim was made on the basis that the assessee was bound under an agreement with Messrs <NAME> & Co., London to pay that amount to <ORG> for meeting the initial expenditure for establishing it as distributor of the assessee's products. The Income-tax Officer rejected the claim, and the Appellate Assistant Commissioner upheld that decision. The assessee went up in appeal before <ORG>. The <ORG> also rejected the claim of the assessee. At the instance of the assessee, the <ORG> made a reference on the aforesaid question to <ORG>.

The question is whether the assessee was entitled to claim deduction in the computation of its profits and gains of business in respect of the expenditure in question, not being in the nature of capital expenditure, laid out or expended wholly or exclusively for the purpose of such business. In other words, on the background of the facts in controversy in this case whether it was revenue expenditure or capital expenditure.

This question has been discussed in the various deci- sions. It is settled that the question must be viewed from the practical point of view. There are deluge of cases and no principle can be laid out with substantial accuracy which will be applicable in all the cases. The answer to the question must depend on the facts and circumstances of each case on the application of the principles of law as laid down by the courts. The agreement in question in this case between the assessee with <NAME> stipulated that <NAME> would permit the use by the assessee of a number of registered trade marks specified in the agreement and further disclose and make known to the approved officers of the assessee the technique, practices and application of specialised tanning processes. Besides providing for the provision of technical supervision by <NAME> and payment by way of salary, travelling expenses and mainte- nance to the personnel sent out by it to India, the agree- ment also provided that in the event of liberalisation of imports <NAME> would limit its export to India of certain products. The assessee undertook to pay to <NAME> technical fees calculated at 5% on the selling price of the products by the processes disclose to it. Paragraph 7 of the agreement was to the following offect:

"The Second participant (the assessee) agrees to appoint <ORG>, Army and Navy Buildings, Mahatma Gandhi Road, Bombay-1, India a nominee of the first participant (<NAME>) as distrib- utors of the second participant for the sate of industrial leather manufactured by the second participant in India for the period of this agreement at a discount of 15% (fifteen per cent) on the prices at which Industrial Leather covered by this agreement are sold to textile mills and other consumers. In addition the second participant will pay Rs.50,000 (Rs. Fifty thousand only) to the distributors for meeting the initial expenses of establishing the distributoship of the second participant on the express understanding that the first participant will not part with his interest in <ORG> with- out the prior approval in writing of the second participant."

Seven years was the period of the agreement as agreed. It is clear from paragraph 7 as aforesaid read in the background of the entire facts that the assessee was obliged to appoint <ORG>, nominee of <NAME>, as its distributors for the sale of industrial leather manufactured by it in India. The assessee was obliged by the aforesaid agreement to pay Rs.50,000 to the distributorship.

An agreement was entered into by the assessee with <ORG> in which after referring to the agreement with <NAME> it was stipulated that the distributors would receive a discount of 15% of the sale price fixed by the assessee and that the agreement would extend for the period of seven years. Significantly, no reference was made to the obligation of the assessee to pay Rs.50,000 to the distributors, a condition which was men- tioned in the agreement with <NAME> alone. The obligation to pay Rs.50,000 to the distributors was one of the conditions subject to which the assessee became entitled to the use of the registered trade marks and to the disclo- sure of the technical practices and application of the specialised processes to be supplied by <NAME>. This clause regarding appointment contained in paragraph 7 formed part and integral part of the agreement and was a considera- tion for the receipt of the benefit from <NAME> under the agreement.

It was a condition to get the technical knowledge of the know-how that their nominee should be appointed as distribu- tor and for the setting up of the distributor's business rupees fifty thousand was required to be paid. This was in essence an integral part of the bargain for the acquisition of the technical knowledge to have this particular distribu- tor.

Numerous decisions have dealt with this question. <CITATION> ), 7 I.T.R. 101 <ORG> in England dealt with this question and <NAME>, L.J. at page 108 of the report observed in dealing with the question which was similar to the present one that the real question is, is the payment that has to be made by the trader under the contract in question a mere division of profits with another party or it is a payment to the other party, the amount of which is ascertained by reference to the profits? The Lord Justice observed that it was a difficult question. In that case the Lord Justice held that the payment was made to earn the profit. It was condition precedent to the acquisition of the know how that the payment had to be made for installation of the set up of the distribution arrangement. <NAME>, J. in the case of Countess Warwick Steampship Co. Ltd. v. <NAME>, [1924] 2 K.B. 292 at 298 observed that it is very difficult to lay down any general rule which is both sufficiently accurate and sufficiently exhaustive to cover all or even a great number of possible cases. Only broad tests could be laid down. Some of such tests were laid down by this <ORG> in <CITATION> , 27 I.T.R. 34. This <ORG> discussed the broad principles at page 45 of the report. It is not neces- sary to reiterate all these principles but one of the tests was that the aim and object of the expenditure was one of the guiding factors. The aim and object of incurring the expenditure in this case was the acquisition of the know- how.

This Court again in the case of Commissioner of Income- Tax, Bombay City Iv. Ciba of India Ltd. (and vice versa), 69 I.T.R. 692 discussed the principles application in determin- ing whether the expenditure in such circumstances was a capital or a revenue in nature. See also <CITATION> , 62 I.T.R. 566; <CITATION> ., 82 I.T.R. 902; <CITATION> , 124 I.T.R. 1. This Court observed what was material to consider was the nature and the advantage in obtaining the asset in a commercial sense. Also see <ORG> v. Com- missioner of Income-Tax, U.P., 125 I.T.R. 293. These principles have been summarised in the Commentary of <NAME> and <NAME>'s Income Tax, Seventh Edition, Volume 1 page 484 to 488. But the cases referred emphasise that no test of universal application can be laid down. The question posed in this appeal has to be decided bearing the aforesaid principles in mind. It is clear that Rs.50,000 was really part of the price paid by the assessee to obtain the know-how. It is clear that pursuant to para- graph 7, the assessee was bound to appoint <ORG>, nominee of <NAME>, as its distrib- utor for the sale of leather manufactured by it in India. Contemporane- ously, an agreement was entered into by the assessee with <ORG> in which after referring to the agreement with <NAME> it was stipulated that the distributors would receive a discount of 15% of the sale price fixed by the assessee and that the agreement would extend for a period of seven years. Significantly, no refer- ence was made to the obligation of the assessee to pay Rs.50,000 to the distributors, a condition which was in the agreement with <NAME> alone.

It is clear that paragraph 7 referred to hereinbefore was an integral part of the agreement with <NAME> and was a part of the consideration for the receipt of the benefit. It is ,not possible to find out the reasons which persuaded <NAME> to insist upon the appointment of <ORG> as distributors of the assessee. It was a necessary condition of the agreement with <NAME>. It was perhaps done to protect the technical know- how which <NAME> was parting so that the distribu- tors would be a nominee of <NAME>.

Having regard to the nature of the agreement and having regard to the facts that the organisation set up under the distributorship agreement was to endure for seven years and upon the expiry of the period, the assessee had no relation- ship with the organisation and that the period of agreement between the assessee and distributors was contemporaneous with the agreement between the assessee and <NAME> under which the assessee became entitled to use the regis- tered trade marks, it must be considered to be a revenue expenditure. Considerable emphasis has been laid by the revenue on the facts that in paragraph 7 of the agreement with <NAME>, it was mentioned that Rs. 50,000 would be paid to the distributors for meeting the initial ex- penses. We are of the opinion that in the facts and circum- stances of the case, this was a revenue expenditure because it was part of the price for the acquisition of technical know-how and the condition of the appointment was a stipula- tion mentioned by <NAME>. In the premises we are of the opinion that <ORG> was right in the view it took.

The appeal therefore fails and is accordingly dismissed with costs.

A.P.J. Appeal dis- missed.


JUDGMENT <NAME>, C.J.

1. <NAME> was working as a Missioner in <ORG>, Orissa, on a pay of Rs. 293 per month which included his salary, clearness allowance, house-rent, children's allowance etc. His headquarters was at Baptist Church Lane, Berhampur, in the district of Ganjam. He had gone to Rourkela in the district of Sundargarh on tour on 10-10-1963. At about 11-30 a. m. that day while he was going on a cycle, a Mercedes Benz Truck O. R. O. 2022 came at a very high speed and tan over him by rash and negligent driving. He died instantaneously on the spot as a result of the accident. The vehicle had been insured with <ORG>, Branch Janpath, New Delhi (hereinafter to be referred to as the Company) (<ORG>). The date of birth of the deceased was 13th April, 1905 and he was about 58 1/2 years old at the time of death. The ten claimants are the widow, sons and daughters of the deceased. An application for compensation was filed under Section 110-A of the Motor Vehicles Act, 1939 (hereinafter to be referred to as the Act) before <ORG> (hereinafter to be referred to as the <ORG>) wherein Rs. 59,772/- was claimed as the amount of compensation. It was stated in the application that the deceased was very healthy and was expected to survive till his 75th year. The ancestors of the deceased were said to have lived up to the 80th year and the normal expectancy of life in the family of the deceased was not less than the 75th year. The amount of compensation was calculated with an expectancy of life for 17 years more on the basis of Rs. 283/- as the monthly income of the de-ceased. <ORG> and 2 were des-called as the owners of the vehicle. <ORG> having purchased the vehicle from <ORG> on hire-purchase system and all the instalments not having been paid by then.

The defence was that the deceased was a workman under the Workmen's Compensation Act and as such the <ORG> had no jurisdiction to entertain the claim. The claim was barred by limitation and the expectancy of life of the deceased cannot be more than 55 years. The monthly income of the declared had been highly exaggerated and the claim was excessive.

Five witnesses were examined on behalf of the petitioners and sons on behalf of the opposite parties. No documents were put in evidence except the post-mortem report and the F. I. R.

2. The <ORG> recorded the following findings:

(i) The deceased was killed by the rash and negligent driving of the driver of O. R. O. 2022;

(ii) The deceased was not a workman and the Workmen's Compensation Act has no application to this case;

(iii) The claim was not barred by limitation;

(iv) The monthly income of the deceased was Rs. 283/-;

(v) The petitioners were entitled to compensation at a round figure of Rs. 40,000/-which is to be paid by <NAME> (<ORG> 1).

The appeal has been filed by <ORG> making the petitioners and <ORG> 1 and 2 as respondents.

The first four findings are not assailed in this appeal.

3. Mr. <NAME> challenges the quantum of compensation and the extent of liability of the appellant,

4. The judgment of the learned <ORG> is somewhat superficial and does not refer to the relevant law on the point. It is therefore necessary to first state and analyse the relevant law.

5. Claims Tribunals have been constituted under Section 110 of the Act.

An application for compensation is to be filed under Section 110-A within a period of six months of the occurrence of the accident.

Section 110-B speaks of the award of <ORG>. It runs thus:--

" Section 110-B . Award of <ORG>s. -- On receipt of an application for compensation made under Section 110-A , <ORG> shall, after giving the parties an opportunity of being heard, hold an inquiry into the claim and may make an award determining the amount of compensation which appears to it to be just and specifying the person or persons to whom compensation shall be paid; and in making the award <ORG> shall specify the amount which shall be paid by the insurer or owner or driver of the vehicle involved in the accident or by all or any of them, as the case may be."

Section 110-C deals with the procedurs and powers of Claims Tribunals.

Section 110-CC relates to award of interest where any chum is allowed. It lays down that where any <ORG> or <ORG> allows a claim for compensation made under Chapter VIII, such <ORG> or <ORG> may direct that in addition to the amount of compensation simple interest shall also be paid at such rate and from such date not earlier than the date of making the claim as it may specify in this behalf. This section has been newly added by Act 56 of 1969 with effect from 2-3-1970 and as such is not applicable to this case, the petition for compensation having been filed on 8-12-1963.

Section 110-D provides for appeals. Any person aggrieved by the award may prefer an appeal to <ORG> within 90 days from the date of the award.

Section 110-F bars the jurisdiction of <ORG>. It says that where <ORG> has been constituted for any area, <ORG> shall have jurisdiction to entertain any question relating to any claim for compensation which may be adjudicated upon by <ORG> for that area, and no injunction in respect of any action taken or to be taken by or before <ORG> in respect of the claim for compensation shall be granted by <ORG>.

6. The object of this group of Sections 110 to 110-F of the Act is to supply a cheap and expeditious mode of enforcing liability arising out of claims for compensation in respect of accidents involving the death of, or bodily injury to, persons arising out of the use of motor vehicles, or damages to any property of a third party so arising, or both as referred to in Section 110 . Prior to the constitution of the <ORG>, compensation could be claimed by institution of suits for damages only through the medium of <ORG> on payment of ad valorem court fee. This group of sections furnishes a self-contained Code that the claims can be lodged on the basis of an application without payment of ad valorem court-fee. By providing a direct appeal to <ORG> second appeals are also dispensed with. The <ORG> is to follow a summary procedure in determining compensation. Despite a self-contained Code of procedure for adjudication of claims being provided, the lections do not deal with the substantive law regarding determination of liability. They only furnish a new mode of enforcing liability. For determination of liability one has still to look to the substantive law in the law of torts and the Fatal Accidents Act , 1855 (hereinafter to be referred to as the 1855 Act) or at any rate to the principles thereof. Section 110-B merely says that the <ORG> may make an award determining the amount of compensation which appears to it to be just. The objective factors which would constitute the basis of compensation appearing as just have not been indicated in the section. The expression "which appears to it to be just" however vests a wide discretion in the <ORG> in the matter of determination of compensation. Despite the wide amplitude of such power, the determination cannot be arbitrary and must be based on certain data establishing reasonable nexus between the loss incurred and the compensation to be awarded.

7. The burden of proof is undoubtedly on the claimants to establish the necessary ingredients for obtaining compensation (See AIR 1962 SC 1 para 8, <CITATION> .) It is for them to plead and prove that there was an accident involving death arising out of the use of motor vehicles and the loss accruing to them in terms of money value.

8. The substantive law as to how such compensation is to be determined is found in <CITATION> of the 1855 Act. That section may be extracted:

" <CITATION> . Suit for compensation to the family of a person for loss occasioned to it by his death by actionable wrong--Whenever the death of a person shall be caused by wrongful act, neglect or default and the act, neglect or default is such as would (if death had not ensued) have entitled the party injured to maintain an action and recover damages in respect thereof, the party who would have been liable if death had not ensued shall be liable to an action or suit for damages, notwithstanding the death of the person injured, and although the death shall have been caused under such circumstances as amount in law to felony or other crime.

Every such action or suit shall be for the benefit of the wife, husband, parent and child if any, of the person whose death shall have been so caused, and shall be brought by and in name of the executor, administrator or representative of the person deceased;

and in every such action the <ORG> may give such damages as it may think proportioned to the loss resulting from such death to the parties respectively, for whom end for whose benefit such action shall be brought; and the amount so recovered, after deducting all costs and expenses, including the costs not recovered from the defendant, shall be divided amongst the before-mentioned parties, or any of them, in such shares as the <ORG> by its judgment or decree shall direct".

On analysis of the aforesaid section it is clear that to determine compensation the <ORG> has to first find out the income of the deceased while he was alive. It must further find out as to what portion out of this income he used to contribute or spend for his family.

The claim for compensation shall be only for the benefit of the family members, the representatives of the person deceased. As the contribution by the deceased of a portion of his income for the benefit of his family members could be made only during the life time the expectancy of living of the deceased must be determined. In other words the <ORG> has to find put the span of life of the deceased. This would depend upon various factors such as the age, the bodily health and the possibility of premature determination of his life by later accidents. The 1855 Act is modelled on Fatal Accidents Act as in force in the United Kingdom. A masterly exposition of law is given by Viscount <NAME> in 1951 AC 601. (<NAME> v. <ORG>). At page 615 his Lordship observed thus:

"it is necessary first to estimate what was the deceased man's expectation of life if he had not been killed when ho was; (let this be "x" years) and next what sums during these x years he would probably have applied to the support of his wife. In fixing x, regard must be had not only to his age and bodily health, but to the possibility of a premature determination of his life by a later accident. In estimating future provision for his wife, the amounts he usually applied in this way before his death are obviously relevant, and often the best evidence available; though not conclusive, since if he had survived, his means might have expanded or shrunk, and his liberality might have grown or wilted. In the present case it is known that in the years 1945-1948 which immediately preceded his death, his "drawings" from his business averaged $ 2,600 per annum. His wife's maintenance was derived from, and could not have exceeded these drawings. What proportion of such amount he in fact contributed to her support is a matter of guess-work, but both his widow and her sister give him a good character for generosity. He was a "good provider". Supposing, by this method an estimated annual sum of $ y is arrived at as the sum which would have been applied for the benefit of the plaintiff for x more years, the sum to be awarded is not simply $ y multiplied by x, because that sum is a sum spread over a period of years and must be discounted so as to arrive at its equivalent in the form of a lump sum payable at his death as damages. Then a deduction must therefore be made for the benefit accruing to the widow from the acceleration of her interest in his estate on his death intestate in 1949 (She came into $ 6.500 one-third of his estate, x years sooner than she would otherwise have done) and of her interest in sums payable on a policy of $ 1,000 on his life; and a further allowance must be made for a possibility which might have been realised if he had not been killed but had embarked on his allotted span of x years, namely, the possibility that the wife might have died before he did. And there is a further possibility to be allowed for -- though in most cases it is incapable of evaluation -- namely, the possibility that in the events which have actually happened, the widow might re-marry, in circumstances which would improve her financial position". This decision was approved and followed in AIR 1962 SC 1. The same view has been taken in AIR 1966 SC 1750. ( <CITATION> ); AIR 1970 SC 376, (C.K. Subra-monia Iyer v. <NAME>); AIR 1971 SC 1624 ( <CITATION> .) & AIR 1967 Orissa 116, ( <CITATION> ). It is not necessary to refer to a large many decisions of the different <ORG> in the same line.

9. In this case the factors to be taken into consideration for determining the quantum of compensation are few. There is no evidence that the deceased had estate which his heirs would inherit. The only features relevant for consideration in this case are the income of the deceased while he was alive, his expectancy of living and the portion out of the income which he was spending on account of the claimants. It is not disputed that the monthly income of the deceased was Rs. 283/-. The constituents of this Rs. 283/- were his pay and D. A. of Rs, 195/-, house-rent of Rs. 40/- and children's allowance of Rs. 48/-. House-rent of Rs. 40/- and children's allowance of Rs. 48/- were being definitely spent by the deceased for the members of the family. Out of the paltry amount of Rs. 195/- as pay and D. A. the maximum that the deceased could spend for himself would be estimated at Rs. 90/-. He is to be taken to be spending the balance of Rs. 105/- for the benefit of the claim-ants. Thus, out of the total monthly income of Rs. 283/- the deceased is likely to have been spending Rs. 193/- for the benefit of his family members.

The expectancy of life of the deceased has been estimated at 70 years; the deceased, however, died at the age of 58 1/2 years. Accepting the expected span of life to be 70 years he had a further span of Hi years. During this period he would have contributed Rs. 26,634/- at the rate of Rs. 193/- per month.

10. As has already been discussed, the claimants could not have been entitled to this lump sum if the deceased had been alive. The sum to be awarded is to be spread over a period of years and must be discounted so as to arrive at its equivalent in the form of a lump sum payable at the time of death as damages. Ordinarily one-sixth of the total amount is deducted for fixing the lump sum (see 1970 Acc CJ 84 ( <CITATION> ), If l/6th is deducted. Rs. 26,634/- come to Rs. 22,195/-.

The determination of the question of compensation depends upon several imponderables. In making such assessment there is likely to be a margin of error, Taking this margin of error into consideration it would be just if the claimants are awarded a round sum of Rs. 21,000/-as compensation.

11. The next question for consideration is how this liability would be apportioned between the owner respondent No. II and the appellant.

Section 95 (2) of the Act runs thus "95(2). Subject to the proviso to Sub-section (l) a policy of insurance shall cover any liability incurred in respect of any one accident up to the following limits namely:--

(a) where the vehicle is a goods vehicle, a limit of twenty thousand rupees in all, including the liabilities, if any, arising, under the Workmen's Compensation Act , 1923 in respect of the death of, or bodily injury to employees (other than the driver), not exceeding six in number being carried in the vehicle".

It is to be noted that Rs. 20,000/- has now been enhanced to Rs. 50,000/- in Act 56 of 1969. We are however con-cerned with the limit of Rs. 20,000/- as it was prior to the amendment.

The vehicle being a goods vehicle the liability of the appellant is limited to Rs. 20,000/- under Section 95 (2) (a). The language of Section is clear (see however 1970 Acc CJ 451 = (AIR 1971 Mad 143). <CITATION> . Co. Ltd. and AIR 1971 SC 1624.) Out of the compensation of Rupees 21,000/- awarded against the owner <NAME> (respondent No. II) the appellant would pay a sum of Rupees 20,000/-.

12. The last question for consideration is whether the claimants are entitled to any interest on the compensation awarded. As has already been stated. Section 110-CC providing for award of interest where any claim is allowed was incorporated into the statute by Act 56 of 1969 which was to be effective from 2-3-1970. Prior to that there was no statutory provision for awarding interest. The question for consideration is whether in the absence of positive statutory provision interest cannot be awarded. No decision under the Act has been brought to our notice wherein this question was discussed and a conclusion was reached one way or the other. Guidance must, therefore, be sought from decisions under Other statutes where interest was granted on compensation awarded in the absence Of statutory provision. AIR 1963 SC 1171, ( <CITATION> ) dealt with a case of grant of compensation under the Life Insurance Corporation Act , 1956. Their Lordships allowed interest even in the absence of statutory provision. They said that the Life Insurance Corporation Act and the Rules made thereunder do not contain any express provisions for grant of interest on the delayed payment of compensation. The principle applicable in respect of such a matter is that on entering possession the purchaser becomes entitled to the rents but if he has not paid the price, interest in equity is deemed payable by him on the purchase price which belongs to the seller. The claim for interest proceeds on the assumption that when the owner of immovable property loses possession of it he is entitled to claim interest in place of the right to retain possession.

In this case the claimants have been deprived of the compensation to which they were entitled from the date of the award. If the compensation amount would have been paid forthwith they could have deposited it in the bank and could have secured interest or could have utilised it much more usefully. Applying the principles of natural justice, there is, therefore, no reason why they should be deprived of interest. Similar view was taken in AIR 1967 SC 1030. ( <CITATION> ) and AIR 1967 SC 1032, ( <CITATION> .) where interest was awarded under the Arbitration Act even in the absence of any specific provision. The same view was also taken by this Court in (1971) 2 Cut WR 524, ( <CITATION> ).

On the aforesaid analysis we are satisfied that the claimants are entitled to interest. In view of the fact that they made a fabulous claim which has been almost reduced to half and for that reason the litigation was unnecessarily protracted, we would allow interest at 6% per annum from the date the award was made by the <ORG> as was done in 1970 Ace CJ 189 = (AIR 1970 Madh Pra 172), ( <CITATION> ).

13. To sum up-

(i) The claimants are entitled to a compensation of Rs. 21,000/- out of which the appellant is liable to pay Rs. 20,000/-

(ii) The compensation is payable with interest at 6 per cent per annum with effect from 15-10-1966 when the award was made by the <ORG>.

14. In the result the appeal is allowed in part as indicated above. As success is partial, parties are to bear their own costs.

<NAME>, <NAME>

15. I agree.


CASE NO.: Appeal (civil) 12795 1996 PETITIONER: <ORG> Vs. RESPONDENT: <NAME> SINGH DATE OF JUDGMENT: 29/11/2000 BENCH: D.P.Mohapatro, S.N.Phukkan JUDGMENT:

L.....I.........T.......T.......T.......T.......T.......T..J J U D G M E N T RAJENDRA BABU, J. :

The respondent challenged the order of termination effected by means of striking out his name from the muster roll of the appellant-<ORG> by a writ petition filed in <ORG>. The respondent had joined the service of the appellant-<ORG> at Gwalior on 18.04.1978 as Apprentice and was regularly appointed as Clerk-cum-Cashier with effect from 18.12.1978. He claimed that on account of very serious eye ailment he had been taking leave often and on and he had such ailment even in the year 1993-94 and after obtaining a fitness certificate from a doctor he submitted his joining report to the Branch Manager on 04.04.1994 which was not accepted by him and, therefore, he submitted an application to the higher authorities of the <ORG>. In the meanwhile, however, by a notice dated 12.03.1994 the respondent was asked to explain his unauthorised absence after the expiry of sanctioned leave. The respondent, however, claimed to have appeared before the competent authority to permit him to join duty but no order was passed. On the other hand, an order dated 18.04.1994 came to be passed informing him of the termination of his services in the manner stated earlier. In answer to the writ petition filed the appellants justified their action by stating that the respondent after proceeding on leave for three days commencing on 16.08.1993 did not report for duty although communications dated September 4, 1993, December 17, 1993 and April 15, 1994 were sent to him and he was called upon to resume his duty. The appellants pleaded that the respondent had remained unauthorisedly absent for a period of 190 days and, therefore, made himself liable to be removed from the rolls of the <ORG> in terms of Para 17 of the Bipartite Settlement and Para 522 of the Sastri Award. <ORG> took the view that the respondent had put in 16 years of service and his services could not have been dispensed with except after inquiry consistent with the principles of natural justice and the appellants action in terminating the services of the respondent is based on a mis-conduct in respect of which no inquiry has been held though it was imperative for the appellants to have served a charge-sheet to him with an opportunity to file his reply, to appoint an Inquiry Officer, to permit the respondent to adduce evidence in support of the allegations of mis-conduct and to give opportunity to him to refute such evidence. <ORG> relied upon certain decisions of this Court. <ORG>, therefore, declared that the order striking out the name of the respondent from the rolls of the <ORG> is a nullity due to the patent violation of the principles of natural justice and the appellants order also suffered from many defects such as non-application of mind to the matter. For the aforesaid reasons, <ORG> quashed the orders made on 18.04.1994 and 12.09.1994, however, making it clear that it was open to the appellants to take action in accordance with the provisions of law and the principles of natural justice. As regards wages <ORG> directed that appropriate application could be made to the appellants under the Industrial Disputes Act , 1947. Hence this appeal. <NAME>, the learned Senior Advocate appearing for the appellants, submitted that under clause XVI of IV Bipartite Settlement the appellants may put to an end to the services of the respondent even without an inquiry and this clause had come up for consideration before this Court in <CITATION> ., 2000 (5) SCC 65, when on a similar charge a bank employee unauthorisedly absented himself from work for a period exceeding the prescribed limit of 90 days and the bank having served a notice upon him requiring to submit his explanation to join work within the prescribed period of 30 days as otherwise he would be deemed to have retired, was held to be good and such action is not violative of principles of natural justice and, therefore, he submitted that the view taken by <ORG> is not justified. The learned counsel for the respondent, while supporting the view taken by <ORG>, submitted that a workman should know the nature of the complaint or the accusation against him and should have opportunity to put forth his case in the absence of which there cannot be any fair or just decision on the matter. Even Syndicate <ORG> case (supra), he submitted, was decided on the facts of that case and there is no similarity between two matters and hence he submitted that this appeal deserved to be dismissed. A reading of clause XVI of IV Bipartite Settlement will make it clear that in the event an employee absents himself from duty for 90 or more consecutive days beyond the period of leave originally sanctioned or subsequently extended the Management may, at any time thereafter, give a notice to the employee at the last known address calling upon him to report for duty within 30 days of notice stating, inter alia, the grounds for the Management coming to the conclusion that the employee has no intention of joining duty and furnishing necessary evidence wherever relevant and unless the employee reports for duty within 30 days of the notice or gives an explanation for his absence satisfying the Management that he has not taken up another employment or avocation and he has no intention of not joining the duty, the employee will be deemed to have voluntarily retired from the banks service on the expiry of the time fixed in the said notice. In the event of the employee giving a satisfactory reply, he will be permitted to report for duty thereafter within 30 days from the expiry of the aforesaid notice without prejudice to the banks right to take any action under the law or rules of service. Under this Rule the employee is given an opportunity to rejoin duty within a stipulated time or explain his position to the satisfaction of the Management that he has no intention of not joining duty, and a presumption will be drawn that the employee does not require the job any more and will stand retired from service. Thus, there is no punishment for mis- conduct but only to notice the realities of the situation resulting from long absence of an employee from work with no satisfactory explanation thereto. The principles of natural justice cannot be examined in vacuum without reference to the fact-situation arising in the case. This Rule has been incorporated in an agreement where representatives of employees unions were party. They also realised the futility of continuing a situation when an employee without appropriate intimation to the management is playing truant. If the respondent had submitted an explanation regarding his unauthorised absence or placed any material before the court that he did report for duty but was not allowed to join duty, inquiry may have been necessitated but not otherwise. In this case, the employee-respondent had defaulted in not offering any explanation regarding his unauthorised absence from duty nor did he place any material to show that he reported for duty within 30 days of notice as required by clause XVI of IV Bipartite Settlement. Thus we think that the contention put forward on behalf of the respondent that he was suffering from serious eye ailment at the relevant time is difficult of acceptance. In the writ petition filed before <ORG> the respondent had stated that in the year 1980 he had a serious eye ailment and he had been taking leave from the bank often and on and he had taken leave from 16.08.1993 to 18.08.1993 to attend some urgent work which was duly sanctioned but he was struck by eye ailment and, therefore, he could not join his duty as is clear from the medical certificate issued to him. In reply thereto the stand taken by the appellants is that the record of the respondent does not disclose that he had proceeded on leave on medical advice for an eye ailment at any time. Even in the present leave application submitted by him he had stated that he was proceeding on leave to attend some urgent work at Chandigarh while the medical certificate produced before the court shows that the same had been issued by a doctor at Amritsar. There is dispute as to when he made available this material. The stand of the appellants is that this material was also produced only after the order of termination had been made and in seeking a review of the said order. The respondent claimed that he had sent several communications regarding his illness or to extend his leave or to rejoin duty but there does not appear to be any record with the bank nor the respondent is in a position to produce any proof of his having sent such letters. We do not also find any material on record to show that he had reported for duty within the period indicated in the notice issued in terms of clause XVI of IV Bipartite Settlement. In the circumstances, we find <ORG> had proceeded on an erroneous basis of non- compliance with the principles of natural justice, whereas the true content of the principles of natural justice should have been borne in mind, particularly when there was an agreement between the parties as to the manner in which the situation should be dealt with and the consequence that would ensue thereof.

In the circumstances, we allow this appeal, set aside the order made by <ORG> and dismiss the writ petition filed by the respondent. However, in the circumstances of the case, the parties are directed to bear their respective costs.

..J. [ S. RAJENDRA BABU ]


REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. OF 2011 (Arising out of Special Leave Petition (C) No.8939/10 Dev Sharan & Ors. ...Appellant(s) - Versus - State of U.P. & Ors. ...Respondent(s) With CIVIL APPEAL NO. OF 2011 (Arising out of Special Leave Petition (C) No.10993/10 <NAME> ...Appellant(s) - Versus - State of U.P. & Ors. ...Respondent(s) J U D G M E N T

GANGULY, J.

1. Leave granted.

2. These appeals have been preferred from the judgment and order of <ORG> dated 25.11.2009 in Writ Petitions (Civil) No.46457/2009.

3. The appellants challenge the acquisition of their agricultural lands by the State of Uttar Pradesh for the construction of the district jail of Shahjahanpur. The appellants themselves are bhumidar with transferable rights and are residents of village Murchha, tehsil Puwayan in the district of Shahjahanpur, Uttar Pradesh.

4. The State of Uttar Pradesh vide its office memorandum dated 25.10.2004 constituted a committee under the Chairmanship of the Hon'ble Minister of Revenue to suggest its recommendations for transfer of prisons situated in the congested areas of various districts. After conducting its second and final meeting on 10th January, 2005, the said committee recommended to <ORG> the shifting of the district jails from congested areas to outside the city limits within the district. As per the schedule, this shifting was to be done in two phases:

st phase

1. <ORG>, Shahjahanpur;

2. <ORG>, Azamgarh;

3. <ORG>, Jaunpur; and

4. <ORG>, Moradabad.

nd phase

1. <ORG>, Badaun;

2. <ORG>, Varanasi;

3. <ORG>, Barielly; and

4. <ORG>, Muzaffarnagar.

5. The existing district jail of Shahjahanpur, constructed in 1870, was one of the oldest and required shifting to a new premises.

The Government case is that the district jail is located in a densely populated area of the city and is overcrowded, housing as many as 1869 prisoners, while having a capacity of only 511.

6. Thereafter, <ORG> constituted a committee under the Chairmanship of Chief Secretary, <ORG> vide office memorandum dated 12.9.2007 to evaluate and consider the shifting of prisons identified to be shifted in the first phase. Prisons in the districts of Lucknow, Moradabad were added to the list. This committee was also to evaluate and recommend the means for modernisation of existing old prisons. In its meeting dated 10.10.2007 the committee recommended that a Detailed Project Report (DPR) be prepared by <ORG>, and that acquisition of lands for shifting of the prisons be done on a priority basis.

7. These recommendations were accepted by <ORG> vide the approval of the cabinet dated 7.12.2007. Following this decision, the Director General of Prisons (Administration and Reforms), Uttar Pradesh, vide letter dated 04.06.2008, requested the District Magistrate, Shahjahanpur to send all the relevant records to <ORG> for publication of notification under Sections 4(1) and 17 of the Land Acquisition Act, 1894 (hereinafter `the Act'). The land suggested for such acquisition by <ORG> was one admeasuring 25.89 hectares (63.93 acres) in village Morchha, tehsil Puwayan in the district of Shahjahanpur.

8. Thereafter, the District Magistrate, Shahjahanpur forwarded the proposal to the Commissioner and Director, <ORG> (<ORG>, Uttar Pradesh), for the issuance of notifications under Sections 4(1) and 17 of the Act, which in turn approved of it and further forwarded the recommendation to <ORG>, vide letter dated 2.07.2008.

9. Thus, <ORG> issued notifications under Sections 4(1) and 17 on 21.08.2008. However, the provisions of Section 5A inquiry were dispensed with. <ORG> explained that this was done in view of the pressing urgency in the matter of construction of the jails.

10. Being aggrieved by the aforesaid notifications, the appellants moved a writ petition before <ORG> under Article 226 of the Constitution of India.

<ORG> in its decision dated 25.11.2009 refused to interfere with the selection of the site for the construction of the jail premises on the ground that it was not required to do so unless it found the selection of the site was wholly arbitrary. <ORG> also approved the invoking of emergency provisions under Section 17 of the Act as per the guidelines given in <CITATION> . Having thus stated, <ORG> dismissed the writ petition.

11. Before this <ORG> the appellants broadly raised the following arguments:

1. Whether or not the State Government was justified in acquiring the said pieces of fertile agricultural land, when there were alternative sites of unfertile banjar land available?

2. Whether or not the State Government was justified in dispensing with the inquiry which is mandated to be conducted under Section 5A of the Act, especially when one year elapsed between the notifications under Section 4 and the one under Section

6. They further stated that <ORG> had erred insofar as it upheld the factum of urgency in the absence of a categorical finding, an enquiry under Section 5A would have been detrimental to public interest.

12. It was urged that it was clear from the counter of the respondent that the contemplation of a new prison was under consideration of <ORG> for several years. Committee was formed, matter was discussed at a leisurely pace at various levels and there is no material fact to justify the abridgement of the appellants' right of raising an objection to acquisition and of a hearing under Section 5A of the Act.

13. This <ORG> finds a lot of substance in the contentions of the appellants.

14. In connection with land acquisition proceeding whenever the provision of Section 17 and its various sub-sections including Section 17(4) is used in the name of taking urgent or emergent action and the right of hearing of the land holder under  Section 5A is dispensed with, the <ORG> is called upon to consider a few fundamentals in the exercise of such powers.

15. Admittedly, the Land Acquisition Act , a pre-Constitutional legislation of colonial vintage is a drastic law, being expropriatory in nature as it confers on the <ORG> a power which affects person's property right. Even though right to property is no longer fundamental and was never a natural right, and is acquired on a concession by the <ORG>, it has to be accepted that without right to some property, other rights become illusory.

This Court is considering these questions, especially, in the context of some recent trends in land acquisition. This Court is of the opinion that the concept of public purpose in land acquisition has to be viewed from an angle which is consistent with the concept of a welfare State.

16. The concept of public purpose cannot remain static for all time to come. The concept, even though sought to be defined under Section 3(f) of the Act, is not capable of any precise definition. The said definition, having suffered several amendments, has assumed the character of an inclusive one. It must be accepted that in construing public purpose, a broad and overall view has to be taken and the focus must be on ensuring maximum benefit to the largest number of people. Any attempt by the <ORG> to acquire land by promoting a public purpose to benefit a particular group of people or to serve any particular interest at the cost of the interest of a large section of people especially of the common people defeats the very concept of public purpose. Even though the concept of public purpose was introduced by pre-

Constitutional legislation, its application must be consistent with the constitutional ethos and especially the chapter under Fundamental Rights and also the Directive Principles.

17. In construing the concept of public purpose, the mandate of Article 13 of the Constitution that any pre-constitutional law cannot in any way take away or abridge rights conferred under Part-III must be kept in mind. By judicial interpretation the contents of these Part III rights are constantly expanded. The meaning of public purpose in acquisition of land must be judged on the touchstone of this expanded view of Part-III rights. The open-ended nature of our Constitution needs a harmonious reconciliation between various competing principles and the overhanging shadows of socio-economic reality in this country.

18. Therefore, the concept of public purpose on this broad horizon must also be read into the provisions of emergency power under Section 17 with the consequential dispensation of right of hearing under Section 5A of the said Act. The <ORG> must examine these questions very carefully when little Indians lose their small property in the name of mindless acquisition at the instance of the <ORG>. If public purpose can be satisfied by not rendering common man homeless and by exploring other avenues of acquisition, the <ORG>, before sanctioning an acquisition, must in exercise of its power of judicial review, focus its attention on the concept of social and economic justice. While examining these questions of public importance, the <ORG>, especially the Higher <ORG>, cannot afford to act as mere umpires. In this context we reiterate the principle laid down by this <ORG> in <CITATION> reported in , wherein this <ORG> held:

"......It is true that Judges are constitutional invigilators and statutory interpreters; but they are also responsive and responsible to Part IV of the Constitution being one of the trinity of the nation's appointed instrumentalities in the transformation of the socio-

economic order. The judiciary, in its sphere, shares the revolutionary purpose of the constitutional order, and when called upon to decode social legislation must be animated by a goal-oriented approach. This is part of the dynamics of statutory interpretation in the developing countries so that courts are not converted into rescue shelters for those who seek to defeat agrarian justice by cute transactions of many manifestations now so familiar in the country and illustrated by the several cases under appeal. This caveat has become necessary because the judiciary is not a mere umpire, as some assume, but an activist catalyst in the constitutional scheme."

19. In other words public purpose must be viewed through the prism of Constitutional values as stated above.

20. The aforesaid principles in our jurisprudence compel this Court to construe any expropriartory legislation like the Land Acquisition Act very strictly.

21. The judicial pronouncements on this aspect are numerous, only a few of them may be noted here.

22. <CITATION> . - , this Court construed the statute on Town Planning Law and held "Expropriatory statute, as is well known, must be strictly construed." (See para 41 page 635).

23. The same principle has been reiterated subsequently by a three-Judge Bench of this Court in <CITATION> . -  in the context of ceiling law. (See para 22 at page 347 of the report).

24. These principles again found support in the decision of this Court in <CITATION> . - , wherein this Court construed the status of a person's right to property after deletion of Article 19(1)(f) from Part III. By referring to various international covenants, namely, the Declaration of Human and Civic Rights, this Court held that even though right to property has ceased to be a fundamental right but it would however be given an express recognition as a legal right and also as a human right .

25. While discussing the ambit and extent of property right, this Court reiterated that expropriatory legislation must be given strict construction. (See para 53 to 57 at pages 731 to 732 of the report)

26. In the background of the aforesaid discussion, this Court proceeds to examine the scope of a person's right under Section 5A of the Act.

27. Initially, Section 5A was not there in the Land Acquisition Act , 1894 but the same was inserted long ago by the Land Acquisition (Amendment) Act , 1923 vide Section 3 of Act 38 of 1923.

28. The history behind insertion of Section 5A , in the Act of 1894 seems to be a decision of the Division Bench of Calcutta High Court in <NAME> vs. <NAME> for India and ors reported in 7 C. W.

N. 249. In that case, the properties of <NAME> were sought to be acquired under the pre amended provision of the Act for expansion of the offices of <ORG>. In challenging the said acquisition, it was argued that the person whose property is going to be taken away should be allowed a hearing on the principles of natural justice. However the judges found that there was no such provision in the Act. (see p. 269)

29. In order to remedy this shortcoming in the Act of 1894, an amendment by way of incorporation of Section 5A was introduced on 11th July, 1923. The Statement of Objects and Reasons for the said Amendment is as follows:

" The Land Acquisition Act I of 1894 does not provide that persons having an interest in land which it is proposed to acquire, shall have the right of objecting to such acquisition; nor is Government bound to enquire into and consider any objections that may reach them. The object of this Bill is to provide that a Local Government shall not declare, under section 6 of the Act, that any land is needed for a public purpose unless time has been allowed after the notification under section 4 for persons interested in the land to put in objections and for such objections to be considered by <ORG>."

(Gazette of India, Pt. V, dated 14th July, 1923, page 260)

30. The said amendment was assented to by the Governor General on 5th August, 1923 and came into force on 1st January, 1924.

31. The importance and scheme of Section 5A was construed by this Court in several cases.

As early as in 1964, this Court in <CITATION> .

Government and Ors. Etc. - AIR 1964 SC 1217 speaking through Justice <NAME> (as His Lordship then was) held "...The right to file objections under Section 5A is a substantial right when a person's property is being threatened with acquisition and we cannot accept that that right can be taken away as if by a side-wind....." In that case the Court was considering the importance of rights under Section 5A vis-`-vis Section 17(1) and Section 17(1)(A) of the Act. (See para 13 at page 1222 of the report).

32. The same view has been reiterated by another three-Judge Bench decision of this Court in <CITATION> - . In para 7 of the report this Court held that Section 5A embodies a very just and wholesome principle of giving proper and reasonable opportunity to a land loser of persuading the authorities that his property should not be acquired. This Court made it clear that declaration under Section 6 has to be made only after the appropriate Government is satisfied on a consideration of the report made by the Collector under Section 5A . The Court, however, made it clear that only in a case of real urgency the provision of Section 5A can be dispensed with (See para 7 page 342 of the report).

33. <CITATION> ., , this Court held that the right which is conferred under Section 5A has to be read considering the provisions of Article 300-A of the Constitution and, so construed, the right under Section 5A should be interpreted as being akin to a Fundamental Right. This Court held that the same being the legal position, the procedures which have been laid down for depriving a person of the said right must be strictly complied with.

34. In a recent judgment of this <ORG> in <ORG> (supra), (2009) 2 SCC 377, this <ORG>, after considering previous judgments as also the provisions of Section 17 of the Act held:

"41. Whereas sub-section (1) of Section 17 deals with cases of "urgency", sub-section (2) of the said section covers cases of "sudden change in the channel of any navigable river or other unforeseen emergency". But even in such cases i.e. cases of "urgency" or "unforeseen emergency", enquiry contemplated by Section 5-A cannot ipso facto be dispensed with which is clear from sub-section (4) of Section 17 of the Act."

35. This <ORG>, therefore, held that once a case is covered under sub-section (1) or (2) of Section 17 , sub-section (4) of Section 17 would not necessarily apply.

"54. In our opinion, therefore, the contention of learned counsel for the respondent authorities is not well founded and cannot be upheld that once a case is covered by sub-

sections (1) or (2) of Section 17 of the Act, sub-section (4) of Section 17 would necessarily apply and there is no question of holding inquiry or hearing objections under Section 5-A of the Act. Acceptance of such contention or upholding of this argument will make sub-

section (4) of Section 17 totally otiose, redundant and nugatory."

36. This Court also held that in view of the ratio in <CITATION> , , sub-section (4) of Section 17 cannot be pressed into service by officers who are negligent and lethargic in initiating acquisition proceedings.

37. The question is whether in the admitted facts of this case, invoking the urgency clause under Section 17 (4) is justified.

In the writ petition before <ORG>, the petitioners have given the details of the land holding, and it has also been stated that the entire holding of petitioners 2, 5, 7, 9, 10, 11 and 13 have been acquired, and as a result of such acquisition, the petitioners have become landless. From the various facts disclosed in the said affidavit it appears that the matter was initiated by the <ORG>'s letter dated 4th of June, 2008 for issuance of Section 4(1) and Section 17 notifications. A meeting for selection of the suitable site for construction was held on 27th June, 2008, and the proposal for such acquisition and construction was sent to the Director, Land Acquisition on 2nd of July, 2008. This was in turn forwarded to the State <ORG> by the Director on 22nd of July, 2008. After due consideration of the forwarded proposal and documents, the State <ORG> issued the Section 4 notification, along with Section 17 notification on 21st of August, 2008. These notifications were published in local newspapers on 24th of September, 2008.

Thereafter, over a period of 9 months, <ORG> deposited 10% of compensation payable to the landowners, along with 10% of acquisition expenses and 70% of cost of acquisition was deposited, and the proposal for issuance of Section 6 declaration was sent to the Director, Land Acquisition on 19th of June, 2009. The Director in turn forwarded all these to <ORG> on 17th July, 2009, and <ORG> finally issued the Section 6 declaration on 10th of August, 2009. This declaration was published in the local dailies on 17th of August, 2009.

38. Thus the time which elapsed between publication of Section 4(1) and Section 17 notifications, and Section 6 declaration, in the local newspapers is of 11 months and 23 days, i.e. almost one year. This slow pace at which the government machinery had functioned in processing the acquisition, clearly evinces that there was no urgency for acquiring the land so as to warrant invoking Section 17 (4) of the Act.

39. In paragraph 15 of the writ petition, it has been clearly stated that there was a time gap of more than 11 months between Section 4 and Section 6 notifications, which demonstrates that there was no urgency in the <ORG> action which could deny the petitioners their right under Section 5A . In the counter which was filed in this case by the <ORG> before <ORG>, it was not disputed that the time gap between Section 4 notification read with Section 17 , and Section 6 notification was about 11 months.

40. The construction of jail is certainly in public interest and for such construction land may be acquired. But such acquisition can be made only by strictly following the mandate of the said Act. In the facts of this case, such acquisition cannot be made by invoking emergency provisions of Section

17. If so advised, Government can initiate acquisition proceeding by following the provision of Section 5A of the Act and in accordance with law.

41. For the reasons aforesaid, we hold that <ORG> was not justified, in the facts of this case, to invoke the emergency provision of Section 17(4) of the Act. The valuable right of the appellants under Section 5A of the Act cannot flattened and steamrolled on the `ipsi dixit' of the executive authority. The impugned notifications under Sections 4 and 6 of the Act in so far as they relate to the appellants' land are quashed. The possession of the appellants in respect of their land cannot be interfered with except in accordance with law.

42. The appeals are allowed. No order as to costs.

.......................J.

(G.S. SINGHVI) .......................J.

New Delhi (<NAME>) March 07, 2011