1 "REPORTABLE" IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 482-483 OF 2003 Commissioner of Income Tax, Ahmedabad .... Appellant Versus <ORG> .... Respondent JUDGMENT

<NAME>, J.

1. This Judgment will dispose of two Appeals, they being Civil Appeal Nos. 482 of 2003 and 483 of 2003. These Appeals are filed by the Commissioner of Income Tax, Ahmedabad (hereinafter referred to as "<ORG>"). In both the Appeals, the <ORG> challenges the common judgment passed by <ORG>, wherein, the High Court was considering Income Tax Reference (ITR) Nos. 56 of 1986, 58 of 1993, 220 of 1995 and 75 of 1987. These References were made out of the order of <ORG> (hereinafter referred to as "the Tribunal").

2. It is agreed before us that presently we would be concerned only with two References, they being Reference No. 56 of 1986 and Reference No. 220 of 1995. Insofar as Reference No. 75 of 1987 is concerned, though <ORG> had answered in favour of <ORG> and against the assessee, the assessee did not file any appeal and, therefore, that part of <ORG> Judgment dealing with Income Tax Reference No. 75 of 1987 becomes final. The learned Counsel for the assessee very fairly agreed with the same. As regards the Income Tax Reference No. 58 of 1993, the <ORG> had filed an appeal against the impugned judgment dealing with the same, however, this Court had dismissed the appeal filed by the <ORG> on the grounds of limitation. The learned Senior Counsel Mr. <NAME>, appearing on behalf of the <ORG> very fairly admitted this position. We are, therefore, left with only two References, which are as under:-

Income Tax Reference No. 56 of 1986 (which emanated from the quantum proceedings in respect of the Assessment Years 1979-80 and 1980-81):-

For the Assessment year 1979-80 - at the instance of the assessee:-

(i) Whether on facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest of Rs.66,29,236/- being the amount of interest as determined by the Income Tax Officer on a notional basis from 1.7.1977 to 30.6.1978 was liable to tax on accrual basis for the Assessment Year 1979-80?

(ii) Whether on the facts and in the circumstances of the case, the <ORG> was justified in law in holding that the interest accrued from day-to-day as a result of supplementary agreement and as such, the same was eligible to tax as income for Assessment Year 1979-80?

(iii) Whether on the facts and in the circumstances of the case, <ORG> was justified in law in holding that giving up of interest on the ground of commercial expediency was not justified as no direct or indirect benefit had accrued to the assessee?

For the Assessment Year 1980-81 - at the instance of the Revenue:-

(i) Whether <ORG> has not erred in law and on facts in holding that no income could be said to be accrued to the assessee as the interest would start accruing from 1.7.1979, i.e., after the end of the accounting year?

(ii) Whether the finding of the <ORG> that the interest could not be said to be accrued to the assessee during the accounting period in question and hence, question of relinquishment of any right does not arise is correct in law?

Income Tax Reference No. 220 of 1995:-

Income Tax Reference No. 220 of 1995 was filed at the instance of the assessee in respect of the penalty levied under Section 273 (2)

(a) of the Income Tax Act , 1961 (hereinafter referred to as "the Act") and the Reference was worded as under:-

"Whether on facts and in the circumstances of the case, the <ORG> was justified in law in confirming the penalty of Rs. 4 lakhs levied under Section 273 (2)(a) of the Act?"

3. Before we go further, it must be clarified that insofar as Assessment Year 1979-80 is concerned, <ORG> answered the Reference No. 56 of 1986 in favour of the <ORG>, while insofar as Assessment Year 1980-81 is concerned, <ORG> answered it in favour of the assessee and against the <ORG>. The assessee has not challenged the judgment of <ORG> insofar as Assessment Year 1979-80 is concerned, therefore, we need not consider that part of <ORG> judgment, though we might be required to incidentally refer to the same. Thus, we are left with Reference No. 56 of 1986 insofar as it pertains to Assessment Year 1980-81 and the Reference No. 220 of 1995. We must again clarify that though in Reference No. 220 of 1995, <ORG> found against the assessee in respect of Assessment Year 1979-80, the penalty, however, of Rs.4 lakhs was set aside. We are, therefore, concerned in Reference No. 220 of 1995, only with Assessment Year 1979-80.

4. Following factual panorama would have to be considered for properly considering the background.

5. The assessee herein indisputably, follows the Mercantile System of Accounting.

6. For Assessment Year 1979-80, the Accounting Year is 1.7.1977 to 30.6.1978, while for the Assessment Year 1980-81, the Accounting Year is 1.7.1978 to 30.6.1979.

7. The assessee, which was previously known as <ORG> has now become <ORG> They would be referred to as "assessee" for short.

8. There was an agreement on 28.2.1977, whereby, the assessee agreed to transfer its industrial undertaking and business activity known as <ORG>, which was its unit. This was to take place with effect from 1.3.1977. The unit was sold as going concern in favour of assessee's own subsidiary <ORG> for a total consideration of Rs.11,44,10,253/-.

9. Under this agreement, the amount of Rs.49 lakhs was to be paid by way of deposit/earnest money and Rs.4.41 crores was to be set off against the due amount from the respondent-assessee to <ORG> as consideration for equity shares in <ORG> held by the respondent- assessee. The balance sale consideration (approx. Rs.6.55 crores) was to be paid in eight equal annual installments, starting with 1.10.1979. Such installment was to become payable on the 1st of October each year.

10. A further agreement was entered into between the assessee and <ORG> on 4.3.1977. This agreement provided for an interest clause, which was agreed at the rate of 11% per annum and that it would be payable on balance sale consideration which would remain unpaid from time to time. In short, the earlier agreement dt. 28.2.1977 was varied/altered. The interest clause was as under:-

"The purchaser shall pay simple interest at the rate of 11% per annum on the balance of the unpaid purchase consideration remaining outstanding from time to time and, if the purchaser commits any default or delay in paying any installment or installments on the due date, the purchaser shall pay interest at such rate as is equal to the rate of interest which the vendor pays to its bankers in the ordinary course or business from the due date of payment of installment until the date of payment thereof."

There were some other changes made in the payment terms. However, it is again admitted that the amount covered by the installments was going to be Rs.4.54 crores approximately.

11. It may be incidentally mentioned here that <ORG>, in turn, transferred this industrial undertaking, purchased by it to its subsidiary <ORG> on 25.4.1978 vide the Assignment Deed of the even date. On 15.6.1978, <ORG> wrote to the respondent- assessee proposing modification in terms of payment and requested, inter alia, that the interest be charged on deferred sale consideration from 1.7.1979 instead of 1.3.1977. It was proposed by this letter, firstly, Rs.1.84 crores (approx.) will be payable as and when demanded by the respondent-assessee and will not carry any interest and secondly, Rs.4.7 crores will be payable in 5 annual installments, the first installment becoming payable on 1.3.1987 and the said amount shall carry simple interest at the rate of 11% per annum with effect from 1.7.1979. The <ORG> also offered to secure the amount of 4.7 crores to the satisfaction of the respondent-assessee.

12. On 30.6.1978, the proposal sent by <ORG> vide letter dt. 15.6.1978 was decided to be accepted by the assessee and a Resolution to that effect was passed in the meeting of <ORG>. The said Resolution is on record and the relevant portion reads as under:-

"....the Company doth hereby approve, accept and adopt the following revised mode of payment as contained in letter No. ELSCOPE/MC dt. 15th June, 1978 received from <ORG>"

It must be noted here that firstly, in keeping with its proposal, <ORG> furnished to the respondent-assessee secured bonds of <ORG> Secondly, it must be noted that as proposed in the letter dt. 15.6.1978, the interest was to start from 1.7.1979. While, before this interest was to start, the Resolution dt. 30.6.1978 was passed, doing away with the requirement of payment of interest in terms of the earlier agreement dt. 4.3.1977. So far so good.

13. The assessee received a notice under Section 210 of the Act on 17.10.1978, requiring it to pay the advance tax of Rs.1,22,22,757/-, while the second notice was served on 8.12.1978, asking the respondent- assessee to pay the advance tax of Rs.1,28,74,172/-.

14. On 14.12.1978, however, the respondent-assessee filed an estimate, showing NIL amount of advance tax payable for the Assessment Year 1979-80. It further filed the returns on 29.6.1979, declaring the total income of Rs.772/- for the Assessment Year 1979-80. Insofar as the Assessment Year 1980-81 is concerned, the assessee filed the returns on 27.6.1980, declaring a loss of Rs.17,345/-. The Assessing Officer passed an assessment order dt. 20.9.1982, determining the total income to be Rs.68,99,202/-, which included the amount of interest accrued on deferred sale consideration, receivable from <ORG>. The Assessing Officer also levied interest under Section 215 of the Act on a finding that the assessee had failed to pay advance tax. The Assessing Officer also directed that the penalty proceedings under Section 273(2)(a) and 271(1)(c) of the Act should be initiated against the assessee.

15. Insofar as Assessment Year 1980-81 was concerned, an addition of income by way of interest on the deferred sale consideration was taken into account and the amount of Rs.55 lakhs (approximately) was added to the taxable income of the assessee.

16. Two separate appeals came to be filed at the instance of the assessee before Commissioner of Income Tax (Appeals) [CIT (Appeals)] in relation to the Assessment Years 1979-80 and 1980-81. The CIT(Appeals) upheld the assessment orders in both the Assessment Years and also confirmed the addition of interest amount to the income of the assessee. <ORG> refused to accept the plea of the assessee regarding the waiver of interest by the Resolution dt. 30.6.1978. Two appeals came to be filed before the <ORG>, they being ITA No. 1137/Ahd/84 concerning the Assessment Year 1979-80 and ITA No. 1138/Ahd/84 concerning the Assessment Year 1980-81 respectively.

17. The appeals were heard together and disposed of by a common order dated 15.2.1985. Insofar as Assessment Year 1979-80 is concerned, the <ORG> held that the interest had already accrued vide further agreement dt. 4.3.1977 and as such, the Resolution dt. 30.6.1978 was of no consequence, as there was no commercial expediency for making it retrospectively operative. However, it accepted the plea as regards the interest under Section 215 of the Act. The <ORG> viewed the question involved to be a highly complex issue and held that the mere fact that the decision had gone against the assessee could not be viewed as being determinative of the assessee's liability to pay advance tax. The <ORG> relied on <ORG> for that purpose.

18. However, insofar as the Assessment Year 1980-81 is concerned, the <ORG> held that the amount of interest could not be included in income of assessee, since the Resolution dt. 30.6.1978 was passed prior to the commencement of the relevant Accounting Year, which was 1.7.1978 to 30.6.1979 and, therefore, it could not be said that the interest income had acrrued.

19. The <ORG> also held that it was permissible for the parties to alter the agreement regarding the charging of interest in the wake of the fact that the said Resolution was found to be a genuine Resolution. The <ORG> came to the finding that the interest could not have accrued insofar as Assessment Year 1980-81 was concerned.

20. However, in 1988, the show Cause Notice came to be issued under Section 274 read with Section 273 (2)(a) of the Act as to why the penalty should not be levied for furnishing an untrue estimate of advance tax. Replies were given to this Notice. However, by order dt. 9.8.1988, the Assessing Officer imposed a penalty of Rs.4 lakhs upon the respondent- assessee under Section 273(2)(a) of the Act for knowingly furnishing wrong estimate of advance tax on 14.12.1978, which it had reason to believe to be untrue. An appeal came to be filed being Appeal No. CAB/IV-14/88-89, which appeal was dismissed by the CIT (Appeals), which confirmed the levy of Rs.4 lakhs as penalty. This order was challenged by way of an appeal before the <ORG> being ITA No. 2572/Ahd/1989. That appeal also came to be dismissed by the order of <ORG>. However, as stated earlier, four References came to be filed before <ORG>, arising from various orders of <ORG> with respect to the respondent- assessee for the Assessment Year 1979-80. In the earlier part of the judgment, we have already shown that there will be no question of considering the part of Reference No. 56 of 1986 relating to the Assessment Year 1979-80 and Reference No. 75 of 1987, which was at the instance of the <ORG>, as also the Reference No. 58 of 1993 for the reasons stated earlier. <ORG> heard four References together and delivered a common judgment dt. 6.2.2002. In Income Tax Reference No. 56 of 1986, insofar as it pertains to Assessment Year 1979-80, <ORG> held in favour of <ORG> and since there is no appeal by the assessee, we need not go into that aspect. Insofar as the said Reference pertains to Assessment Year 1980-81, <ORG> held in favour of the assessee and against <ORG>, which finding is in challenge by the <ORG>. Insofar as Income Tax Reference No. 75 of 1987 is concerned, that pertains to the levy of interest under Section 215 of the Act for the Assessment Year 1979-80, <ORG> held in favour of <ORG>. Again, we need not go into that question in this appeal. So also in Income Tax Reference No. 58 of 1993, the finding of <ORG> was in favour of the assessee, whereby, <ORG> did away with the penalty under Section 271(1)(c) of the Act for the Assessment Year 1979-80, the appeal against which is, dismissed by this Court on the ground of limitation on 4.10.2004 in SLP(C) No. CC 8632 of 2004. Therefore, even that need not deter us. The only remaining issue was in Income Tax Reference No. 220 of 1995, wherein, <ORG> held that though the finding was against the assessee for the Assessment Year 1979-80, still there would be no penalty under Section 273(2)(a) of the Act, was not justified. We would have to deal with that issue in this appeal.

21. The Learned Senior Counsel, appearing on behalf of the <ORG> very painstakingly, took us through all the findings of <ORG>, as well as the <ORG> and urged that both the <ORG> as well as <ORG> had erred in holding that there was no accrual of interest insofar as the Assessment Year 1980-81 was concerned. The learned Senior Counsel invited our attention to the basic agreement of transfer dt. 28.2.1977, as also to the subsequent agreement dt. 4.3.1977. We were also taken through the letter dt. 15.6.1978, as also the Resolution dt. 30.6.1978 and on that basis, the Ld. Senior Counsel urged that this was nothing, but an attempt on the part of the assessee to avoid payment of tax on the interest which it was bound to pay. The learned Senior Counsel urged that considering the whole transaction and the relations between the assessee Company and the transferee Company, the assessee Company tried to wriggle out the liability to pay the tax. The ld. Senior Counsel also urged that ordinarily the assessee Company could not be expected to defer the interest as it did vide Resolution dt. 30.6.1978. The Learned Senior Counsel, therefore, urged that <ORG> erred in confirming the order of the <ORG>, insofar as the tax liability pertaining to the Assessment Year 1980-81 is concerned. The Learned Senior Counsel, secondly, argued that at any rate, the <ORG> and <ORG> had erred in absolving the assessee of the penalty, when it was clear that the assessee had failed to furnish the true returns and also failed to pay the due advance tax.

22. As against this, <NAME>, learned counsel for the assessee, assisted by <NAME> and Ms. <NAME>, Advocates supported the judgment of <ORG> and urged that the finding in respect of the Assessment Year 1980-81 was correct finding, as in commercial transaction, the parties were free to negotiate to vary the terms of the commercial transactions. The learned counsel pointed out that the Resolution dt. 30.6.1978 was indisputably a genuine Resolution and though the said Resolution could not wipe out the interest already accrued for the Assessment Year 1979-80, it could defer the future liability of interest in the manner it did. The learned Counsel, therefore, supported the impugned judgment. It was further urged that once it was held that the assessee was justified in acting on the basis of the Resolution dt. 30.6.1978 and once it was held that there would be no liability on account of the interest as the interest had been accrued after that date, there would be no question of proceeding under the penalty provisions of Section 273 (2)(a) and 271(1)(c) of the Act. The learned Counsel also supported the finding of the <ORG> as confirmed by <ORG> in respect of the penalty under Section 271(1)(c) of the Act, being waived and pointed out that the reasons given by the <ORG> and <ORG> were absolutely justified.

23. We cannot understand the criticism of learned Senior Counsel appearing on behalf of the <ORG> that by Resolution dt. 30.6.1978, the assessee was avoiding the payment of tax on the interest which had accrued. The genuine nature of the Resolution was not and could not be disputed. When we see the letter dt. 15.6.1978 and also note that the letter was complied with by <ORG> in providing adequate security of the payable amounts, there is nothing to dispute or suspect the genuineness of the transaction. The whole transaction would have to be viewed on that backdrop. In the commercial world, the parties are always free to vary the terms of contract. Merely because by Resolution dt. 30.6.1978, the assessee agreed to defer the payment of interest, would not mean that it tried to evade the tax. What is material in the tax jurisprudence is the evasion of the tax, not the beneficial lawful adjustment therefor. Considering the genuine nature of the transaction based on the letter dt. 15.6.1978 and the Resolution dt. 30.6.1978, it cannot be said that the whole transaction was in order to evade the tax.

24. There is also no dispute that the assessee was following <ORG> and that the Accounting Year for the Assessment Year 1980-81 was 1.7.1978 to 30.6.1979. <ORG> has correctly held and confirmed the <ORG>'s finding that insofar as the accrued interest for the Assessment Year 1979-80 was concerned, since the interest had already accrued to the assessee, it cannot be wiped out later on by passing a Resolution dt. 30.6.1978. The interest, indeed had accrued in the Accounting Year which began from 1.7.1977 to 30.6.1978 and as such, the subsequent passing of the Resolution could not result into wiping out that accrual. The assessee could not have refused to pay tax on that. We are indeed not concerned with Assessment Year 1979-80, but insofar as the Assessment Year 1980-81 is concerned, the interest had not accrued and before it accrued, the assessee deferred the same by passing Resolution dt. 30.6.1978. Thus, there was a full scope to the assessee to adjust the interest or as the case may be to defer the same which it did. We, therefore, do not find any ill-intention on the part of the assessee to evade the tax.

25. At this juncture, we cannot forget that the assessment for the Assessment Year 1980-81 was finalized by the <ORG> by holding that the interest could not be included. We, therefore, fail to follow, as to how, the said interest could be treated as an income, so as to compel the assessee to pay advance tax on the same. We, therefore, do not see any justification for a Show Cause Notice under Section 274 read with Section 273 (2)(a) of the Act on the ground that the assessee had deliberately filed an untrue estimate of the advance tax which he had known or reason to believe to be untrue. In our opinion, the <ORG> as well as <ORG> were right in holding the transaction to be genuine.

26. We agree with <ORG> finding that the law permits the contracting parties to lawfully change their stipulations by mutual agreement and, therefore, the assessee and the vendee had no legal impediment in modifying the terms of their contract. We also agree with the further finding of <ORG> that the Resolution could not be given any retrospective effect so as to facilitate evasion of tax liability that had already arisen for the Assessment Year 1979-80. We further agree with <ORG> finding that it being a valid stipulation, changed the mode of payment from the date of the Resolution and, therefore, under the changed mode of payment adopted under the Resolution dt. 30.6.1978, no interest was to accrue during the Accounting period from 1.7.1978 up to 30.6.1979 and, therefore, the reasoning of the <ORG> on that count appeared to be correct as regards the Assessment Year 1980-81 is concerned. We further confirm the finding that since no interest had accrued in the Accounting Year 1.7.1978 to 30.6.1979, there could arise no question of relinquishment of interest for any commercial expediency. There was no such question because a party cannot relinquish income that has not accrued at all. We, therefore, accept the judgment of <ORG> insofar as it pertains to the Reference No. 56 of 1986. <ORG> has correctly found that in view of the categorical stipulation that interest will be payable on the deferred consideration amount in respect of the sale, which became effective from 1.3.1977, the interest started accruing on that time basis, from 1.3.1977 determined by the amount outstanding from time to time and the rate applicable which both were stipulated in clearest possible terms in the Deed of Assignment dt. 28.6.1977 and the agreements which preceded it. <ORG> has assessed the facts correctly and has further observed in para 14.7 that what already accrued during the Accounting Year 1.7.1977 to 30.6.1978 could not be nullified by the Resolution dt. 30.6.1978, however, the same rule could not be applicable to the subsequent Accounting Year, when the interest had not accrued. We, therefore, confirm the finding of <ORG> insofar as Reference No. 56 of 1986 is concerned and hold that <ORG> had correctly decided the Reference No. 56 of 1986 insofar as it pertains to Assessment Year 1980-81.

24. This takes us to the finding of <ORG> insofar as the Reference No. 220 of 1995 is concerned. In this case, the authorities below and the <ORG> had held that while filing the Nil estimate of advance tax on 14.12.1978, the appellant had full knowledge of the interest income of Rs.66,29,236/- which had accrued and though all this was known to the assessee, he had filed the Nil estimate knowingly or it had reason to believe that the Nil estimate was untrue. <ORG> while dealing with the issue, took the view that the burden was on <ORG> to establish under Section 273 (2)(a) of the Act that the assessee, when it filed the Nil estimate, knew or had reason to believe that it was not genuine and was spurious. <ORG>, however, took the view that the Resolution dt. 30.6.1978 was not doubted by the authorities to be spurious and under that Resolution, the date of accrual of interest was shifted to 1.7.1979 by substituting the mode of payment as was incorporated in the agreement and the Deed of Assignment. It was pointed out by <ORG> further that the Nil estimate, was filed on 14.12.1978, i.e., much after the said Resolution was passed. <ORG>, therefore, took the view that in the background of the said Resolution, by which the assessee intended to shift the accrual of interest to 1.7.1979, it is difficult to accept that the assessee had reason to believe that the Nil estimate was untrue. <ORG> further holds the possibility that the assessee reasonably believed that in view of the Resolution dt. 30.6.1978, it could legitimately file the Nil estimate, cannot be ruled out. Further, in view of the nature of the change in stipulation of mode of payment made by Resolution dt. 30.6.1978, no definite conclusion can be drawn that the assessee had reason to believe that the Nil estimate filed was untrue. Merely because on assessment, the assessee's stand that the Resolution which was passed on the last day of its Accounting Year, i.e., on 30.6.1978, was not accepted on the ground that the interest that had already accrued during the Accounting Year on the strength of the contractual terms, cannot be made `not to accrue after its actual accrual, it cannot be inferred with any certainty that the assessee had reason to believe that its Nil estimate was untrue'. <ORG> has then held that the penalty under Section 273  (2)(a) of the Act is not an automatic outcome of the addition of such income. It is on this ground that <ORG> has set aside the finding of the <ORG> confirming the penalty of Rs.4 lakhs levied under Section 273 (2)(a) of the Act on the assessee.

25. We must clarify here that insofar as Assessment Year 1980-81 is concerned, there will be no question of any penalty whatsoever and it had to go as it has been found on facts and law that the Resolution dt. 30.6.1978 had become effective and under the same, the interest was already deferred and, therefore, there was no accrual of interest in that year. However, the question is as to whether <ORG> was right in absolving the assessee of the penalty, which was inflicted even for the year 1979-80. The learned Senior Counsel, appearing on behalf of <ORG> very earnestly argued that once the interest was found to have been accrued for the Assessment Year 1979-80 and once on that count, the income of the assessee was held to be Rs.66,29,236/-, then the penalty under Section 273(2)(a) of the Act was a natural consequence and that <ORG> should not have put a specific burden on <ORG> to prove that the estimate of advance tax payable by it was not only untrue, but the assessee also knew and had reason to believe it to be untrue.

26. We do not agree, considering the specific language of the Section squarely. The Section runs as under:

"273(2) If the Assessing Officer, in the course of any proceedings in connection with the regular assessment for the assessment year commencing on the 1st day of April, 1970, or any subsequent assessment year, is satisfied that any assessee- (a) has furnished under sub-section (1) or sub-section (2) or sub-section (3) or sub-section (5) of  Section 209A , or under sub-section (1) or sub-section (2) of Section 212 , an estimate of the advance tax payable by him which he knew or had reason to believe to be untrue."

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

(c).............................................................................."

The specific wording would signify that there has to be a satisfaction of the Assessing Officer that the estimate of advance tax furnished by the assessee was not only untrue, but the assessee also knew or had reason to believe the same to be untrue. In the present case, there can be no dispute that the claim of the assessee in respect of the Assessment Year 1979-80 was not accepted. However, in our opinion, in the peculiar facts of this case, it cannot be said that the assessee had knowledge of its estimate of advance tax to be untrue or had reason to believe the same to be untrue. The assessee had, undoubtedly, claimed the waiving of that interest as a natural corollary of the Resolution dt. 30.6.1978. It was also claimed that the assessee had commercial expediency for doing the same. It was tried to show that such commercial expediency arose by the subsequent agreement, whereby, the <ORG> had agreed to provide the security for the amount due from it. Assessee had, therefore, furnished its estimate for the advance tax as Nil, as it claimed that it had the income of only about Rs.800/-. In the subsequent year, the assessee claimed the loss of about Rs.17,000/-. Though the attempt on the part of the assessee was to give up the accrued interest in the name of commercial expediency, there was no valid justification to relinquish the same, as has been found by <ORG>. <ORG> has also specifically found that the only aim was to avoid payment of tax which had become due on the basis of the accrual of interest and commercial expediency was only a dignified guard in which the arrangement made to evade the tax was sought to be covered. However, it was shown to <ORG> that the penalties levied under Section 273(2)(a) of the Act were determined in case of two companies of the same Group, they being, <ORG> and <ORG>, wherein, it was held that the Resolution passed on 30.06.1978 for the foregoing interest had become applicable from 1.7.1978. <ORG> took the view that the levy of interest under Section 215 of the Act and the levy of penalty under Section 273(2)(a) of the Act stand on different footings. We have no hesitation to accept this view of <ORG>. Indeed, while the levy of interest under Section 215 of the Act is automatic, that is not the case with the penalty under Section 273(2)(a) of the Act, where the mensrea on the part of the assessee would have to be shown to the extent, it has been indicated in the language of the Section, where, therefore, there was some scope for the assessee to justify the estimate given by it and that the penalty could not be inflicted. Indeed, if the assessee in this case proceeded on the basis of Resolution dt. 30.6.1978, it has to be held that the assessee had reasonably believed that the income of interest which was written off by the Resolution, could not be added to its income. If it genuinely proceeded under that bonafide impression, then in our opinion, <ORG> was right in writing off the penalty and upsetting the view of the <ORG>. We accept the finding of <ORG>, which is in the following words:

"....no definite conclusion can be drawn that the assesse had reason to belive that the <NAME> estimate filed by it was untrue....."

26. Considering the overall facts in this case, we are of the clear opinion that <ORG> was right in setting aside the penalty of Rs.4 lakhs inflicted against the assessee under Section 273(2)(a) of the Act. We answer the issue accordingly. In the result, the appeals filed by the <ORG> fail and the judgment of <ORG> is confirmed without any costs.

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

( <NAME> ) ..................................J.

( <NAME> ) New Delhi;

October 21, 2008


<NAME>, <ORG>., Ag. C.J.

1. His Lordship, after referring to certain preliminary matters, remarked : As this appears to be the first case of its kind, we may point out that the person, who is said to have caused the nuisance, should be made a party to the proceedings, both in the inquiry which may be made by the Magistrate under Section 515 of the Act, and on the appeal in this Court. As I have already pointed out, in the present case the formal absence of the owner from the record is not material. But ordinarily be should be treated as a necessary party to such proceedings. As regards the Crown I do not wish to be understood as holding that the Government Pleader is entitled to be heard a case of this kind. It may be a point to be dealt with when the rules contemplated by Sub-section (2) come to be framed, as I think they should be framed.

2. Coming now to the merits of the case, I shall deal first with the points of law which have been raised on behalf of the appellant. So far as I have been able to follow the arguments of Mr. <NAME>, the objection is that the order made by the Magistrate directing the Municipal Commissioner not to issue a licence under Section 394 of the Bombay Municipal Act is outside the scope of the authority of the Magistrate under Section 515. It is urged that it is not likely that the Legislature could have intended to confer such extensive powers upon the <ORG> under Section 515 of the Act, so as to enable them to regulate the discretion of the Municipal Commissioner under the Act.

3. This section enables any person who resides in the City to complain to a Presidency Magistrate of the existence of any nuisance, or that in the exercise of any power conferred by Sections 224, 244, 245, 246 or 367, more than the least practicable nuisance has been created. Sub-section (2) provides that upon receipt of any such complaint, the Magistrate, after making such inquiry as he thinks necessary, may, if he sees fit, direct the Commissioner to put in force any of the provisions of this Act or to take such measures as to such Magistrate shall seem practicable and reasonable for preventing, abating, diminishing or remedying such nuisance.

4. It is not suggested in the present case that the order, so far as it falls under Clause (6) of Sub-section (2) of Section 515, is not within the scope of the authority of the Magistrate.

5. Purely as a matter of construction there is nothing in the terms of the section to justify the contention that the second part of Clause (a) of Sub-section (2), which relates to the direction to the Municipal Commissioner to take such measures as to such Magistrate shall seem practicable and reasonable, applies only to the exercise of the powers under any one of the sections mentioned in Sub-section (1).

6. The scheme of the section clearly is to give the right to any person to make a complaint where there is any nuisance, or where the exercise of any of the powers conferred by the respective sections, more than the least practicable nuisance has been created. The extent of the power of the <ORG> is indicated in Sub-section (2), and, in my opinion, the whole of Clause (a) of Sub-section (2) applies both to the case of nuisance, as well as to the case where in the exercise of powers under certain sections of the Act more than the least practicable nuisance is created.

7. In the present case, we are not concerned with the second part of Sub-section (1) of Section 515, but we are concerned only with the case of a nuisance, and in such a case it is clear to my mind that after making such inquiry as the Magistrate thinks necessary, he may, if he sees fit, direct the Commissioner to put in force any of the provisions of the Act or to take such measures as may seem practicable and reasonable to the Magistrate for preventing, abating, diminishing or remedying any such nuisance. Looked at from that point of view, apart from the question of the propriety of the order, it is clear to my mind that the order made by the Magistrate is within the scope of his authority under Section 515.

8. As regards the argument that the legislature could not have contemplated that a <ORG> should control and regulate the discretion of the Municipal Commissioner as to matters, about which the Municipal Commissioner would possess special knowledge, I am quite unable to accept it. This section appears to me to have been enacted for the protection of persons residing in the City; and it provides a remedy which is open to any resident of the City. It provides that the measures for preventing, abating, diminishing or remedying the nuisance may be taken, by directing the Municipal Commissioner to do certain things, and the extent of the power of the <ORG> is to be found in the words of Clause (a) of Sub-section (2), namely, that the Magistrate may direct him to put in force any of the provisions of the Act or to take such measures as shall seem practicable and reasonable to the Magistrate for preventing, abating, diminishing or remedying the nuisance. That provision undoubtedly implies some limitation upon the powers of the Commissioner and some control over his acts where a proper case for giving directions to him in connection with a nuisance is made out. It is not for us to consider whether the legislature should have conferred such powers upon the <ORG> or not. It may be that the absence of proceedings under this section has tended to create an impression as to the meaning and scope of this section which is not accurate. I am quite satisfied that there is no substance in the arguments urged by Mr. <NAME> on behalf of the Municipal Commissioner as to the construction of the section. The section is fairly clear. It provides a special and expeditious remedy for the protection of the residents of the City. The exercise of the powers conferred upon the Magistrate is purely a matter of discretion; and the powers are confined to the giving of directions to the Municipal Commissioner to put in force any of the provisions of the Act or to take such measures as shall seem practicable and reasonable to the Magistrate for preventing, abating, diminishing or remedying the nuisance referred to in Sub-section (1). I am not speaking of the powers under Clause (b) of Sub-section (2) as to which no point is raised in appeal.

9. Addressing himself to the question of fact, his Lordship, after examining evidence in the case, remarked : I am, therefore, not prepared to treat this nuisance merely as a technical nuisance; but I consider it to be a nuisance which cannot be reasonably tolerated, if the protection which Section 515 of the Act is enacted to extend to the residents in the city is not to be illusory. I hold that it is a nuisance with reference to the residents of this house in relation to the particular circumstances of the case. I do not say generally that any stables properly licensed, and kept according to the terms of the licence, would necessarily be a nuisance. My finding has relation to the particular facts of the case including the situation of the stables and the extent to which the stabling accommodation is allowed on this land.

10. It is open to the <ORG> to consider whether the existence of these stables, having regard to all the facts, is or may be dangerous to life or injurious to health, even apart from the question of malaria.

11. As regards the order to be made under the section, the question is more difficult. It must be remembered in connection with this point that ever since it came to be known to the residents in the locality that stables were likely to be put up by the owner of this land, protests were sent to the Municipal Commissioner with a view to impress upon him the desirability of not licensing the stables. It is not necessary to detail the history of the different protests from time to time; but it may be mentioned that objections were raised so far back as June 1921. The owner commenced his work somewhere in 1921. and in August 1921 he entered into a contract for the purpose of letting out the stables. It appears that <ORG> favoured the view of those who were protesting against the putting up of these stables, and that <ORG> came to the conclusion in September 1922 that these stables should not be licensed. But the Municipality did not support the view of the Sanitary <ORG>, and decided, on November 9, 1922, not to take any action on the report of the Sanitary <ORG>. The residents then gave up all hope of relief from the Municipal authorities; and on November 24 the present complaint was made by Mr. <NAME>.

12. I may here refer to the consideration which has been adverted to more than once in the argument that after all the complainant is not a tenant, but he lives as a paying guest with <NAME> who is a tenant in the house. <NAME> is an employee of the Municipality and is under the Municipal Commissioner. I do not think there is any justice in the observation made by the learned Counsel for the appellant that he has not been examined as a witness. Under the circumstances of this case it appears to be quite natural that he would not like to be a witness. But whether the complainant is a paying guest or a tenant is not material. He resides in the house, and that is sufficient for the purposes of enabling him to complain of the nuisance.

13. As regards the owner, from the beginning he had knowledge of the fact that the residents in this house, which belongs to him, were opposed to the putting up of these stables. Before all the requirements of the <ORG> could be satisfied, he allowed these stables to be occupied as stables in February 1922. This was quite contrary to the provisions of Section 394, Sub-section (1)(c), of the Act. It is common ground that from March 1922 up to December 1922, the occupation of the stables was unauthorised, and, from the point of view of the <ORG> requirements as well as the requirements of the health of the residents in the locality, improper. It is common ground, however, that, on December 5, 1922, all the conditions laid down in the licence were satisfied. The <ORG> Commissioner was then prepared to grant a licence in pursuance of his previous assurance to the owner, and but for the pendency of these proceedings in <ORG> he would have done so.

14. The case has been considered in <ORG> on the footing that if these premises were properly licensed for stabling purposes, whether the stables would not amount to a nuisance. In the appeal before us, we are asked to consider the case on that footing, and we have considered the evidence on the basis whether the use of the premises for stabling purpose, if a proper licence according to the rules applicable to the licences for stables under Section 394 is granted, would constitute a nuisance within the meaning of the Act. These are the circumstances under which we have to consider now whether the directions given by <ORG> are practicable and reasonable for abating or remedying the nuisance, and if not, what directions we should give with a view to abate, diminish or remedy, this nuisance.

15. It has to be considered also that the owner has incurred very heavy expenses in putting up these stables. He is also the owner of the house in which the applicant lives, It may be said fairly on his behalf that when the matter has gone so far, whether any measures less drastic than those allowed by the lower Court would not be sufficient to meet the justice of the case. On the other hand, it has to be remembered that he acted throughout with his eyes open, and though he may have felt assured in his mind on account of the support which he had of the Municipal Commissioner, so far as the license was concerned, he was not absolved from the obligation to tee that no nuisance was caused by him to any residents in the locality. It has also to be remembered that while under the Rent Act he may not be able to eject his present tenants, this nuisance itself, if allowed to remain, may be an effective means of enabling him to get possession.

16. I have referred to these several considerations as bearing more or less on this question. It entirely depends upon the discretion of the <ORG> to be exercised with regard to all the circumstances of the case.

17. Some stress has been laid on the consideration that if the discretion of the Municipal Commissioner were interfered with in this manner, it would be impossible for him to satisfy the needs of the City as regards the accommodation for hack victorias. In the first place I am unable to hold on this record that that would be necessarily the result of the order that the learned Magistrate has made in this particular case. We are not directly concerned with general questions of policy as regards the stabling accommodation. I concede in favour of the appellant that it may be an element to be considered by the <ORG> in exercising its discretion under Section 515 . But such general considerations cannot be allowed to override the main purpose of the section in dealing with a particular nuisance.

18. From the arguments it has become quite clear that no middle course is reasonably possible under the circumstances of this case. Neither party suggested it although invited by the <ORG> to do so. I am satisfied that this nuisance cannot be justly allowed to continue. In view of the fact that no license has yet been granted, the terms of the order made by the lower <ORG> are proper. If the license had been granted the order could have been differently worded so as to secure the same result. As it is, I would affirm the order made by the lower <ORG> subject to the alteration that I would give two months from this date instead of four weeks mentioned in the order.

19. The appellant to pay Rs. 500 (five hundred) by way of costs to the respondent.

20. We have fixed the amount of costs in this particular case after hearing the parties without attempting to lay down any general rule as to the scale of costs awardable under Section 4 of Act XII of 1888.

<NAME>, <NAME>

21. The short facts of this matter are as follows:

22. His Lordship first briefly summarised the facts and thus dealt with the law point : The legislature has enacted Section 515 of the Act. The words used are in no way ambiguous or difficult to construe. "The first and most elementary rule of construction, it is to be assumed...is that the phrases and sentences are to be construed according to the rules of grammar. From this presumption it is not allowable to depart where the language admits of no other meaning...If there is nothing to modify, nothing to alter, nothing to qualify the language which the statute contains, it must be construed in the ordinary and natural meaning of the words and sentences." (Maxwell on Interpretation of Statutes, 5th Edn., p. 2).

23. I have read and re-read Section 515 and I find no difficulty in understanding it. For the purposes of the present case what is enacted is as follows.

(1) Any person who resides in the City may complain to it Presidency Magistrate of any nuisance.

(2) Upon receipt of such complaint the Magistrate, after making such inquiry as he thinks fit, may direct the Commissioner to put in force any of the provisions of this Act or to take such measures as to such Magistrate may seem practicable and reasonable for preventing, abating, diminishing or remedying such nuisance. Those are the plain provisions of the section.

24. As to nuisance the definition in Section 3(2) of the Act makes no distinction between "public" and "private" nuisances. I see no ground of policy which would justify a <ORG> in holding that any such distinction was intended. I have referred to similar legislation elsewhere and I find no such distinction in The Public Health Act 1875 (vide Section 91 ). By that Act also a <ORG> of summary jurisdiction is empowered to deal with nuisance of either sort on information given by any person aggrieved thereby (vide Section 93 ). In view of the plain language used it is not possible to attribute any other intention to the local legislature, nor can I follow the argument that any assistance is to be derived from the other sections of the local Act which were brought to our notice.

25. The second question is whether the existence of a nuisance is established. It has been conceded before us,and in my opinion very properly conceded,that in point of noise and smell these stables must constitute a nuisance within the meaning of Section 3(2) of the Act. It is only necessary to look at the place to see that this must be so. One may say "res ipsa loquitur." The proximity of stables has been held to constitute a nuisance on these very grounds in more than one case [ <NAME> v. <NAME> (1873) L.R. 8 Ch. 467, <NAME> v. <NAME> (1876) 2 Ch. D. 692 and <NAME> v. London Tramway Company (1893) 2 Ch. 287, 316]; and the circumstance that the wrongdoer is in some sense a public benefactor has never been considered a sufficient reason for refusing to protect by injunction an individual whose rights are being persistently infringed: <NAME> v. <ORG> (1895) 1 Ch. 287, 316. The suggestion that the smell of stables is after all a pleasing smell need not be seriously considered. A nuisance plainly exists. The stables surround the bungalow on three sides and the shortest distance between the two is twenty-four feet. They are intended to accommodate 400 horses and 200 victorias. There must be a large number of syces. The victorias go in and out at all hours. In my opinion it is impossible to avoid the conclusion that the noise would render life unbearable to those living in the bungalow, and though careful management may do something towards diminishing the smell that too must inevitably cause serious annoyance or offence to the sense of smell. The evidence in the point is considerable and must be accepted.

26. But it has been strenuously urged that this nuisance is not dangerous to life or injurious to health. The words used in Section 3(2) are ''which is or may be dangerous to life or injurious to health." It is not, therefore, necessary to establish positively such danger or injury. It is enough to make out a reasonable probability. The point to which the evidence has been largely directed is the danger of malaria. We had the benefit of an elaborate argument displaying much learning upon this matter. The only evidence which is of any value on the point is that of three expert witnesses, Col. <NAME> and Dr. <NAME> for the applicant, and Dr. <NAME> for the Municipality. Their conclusions, as is not uncommon in such cases, cannot be reconciled. But there is one salient fact upon this matter, and that is that there is no proof that a single "anopheles" mosquito, either larva or perfect insect, has been traced to these stables. I doubt whether any elaborate analysis of this evidence will assist a conclusion. In the absence of the definite proof which I have indicated I am not convinced that a stable, if properly managed, is necessarily a source of danger on this score, The evidence of the other witnesses on this matter is plainly of negligible importance. The conjectures of laymen as to the sources of disease are more curious than instructive.

27. But there is one further source of danger which is disclosed by the evidence which demands consideration. It is a reasonable inferenceindeed a matter of common knowledgethat stable litter is likely to cause a large increase in the number of flies in a neighbourhood. There is evidence that this is so were evidence required and Dr. <NAME> says "Flies are commonly said to be carriers of a number of diseases. In the city flies are carriers of diseases where they have access to human excreta otherwise not". It is in the conditions which prevail in this country highly probable that flies in such a place as this will have access to human excreta....

28. I find myself somewhat embarrassed by the unfamiliar procedure in this case. Were this a, civil litigation between the parties the question would be on the facts found whether the case is one for damages or for an injunction or for both. But here the relief by way of damages is not within our power, and unfortunately there has been no serious disposition to settle the matter by any amicable arrangement. Were this matter before & Court in the exercise of its ordinary civil jurisdiction the judgment of <NAME> in <CITATION> (1915) I.L.R. 40 Bom. 401 : 17 Bom. L.R. 1040 would be a valuable guide. Much of that judgment might be applied totidem verbia to the case before us though in two important particulars the facts here are different. The nuisance here is more formidable for we have a stable of 400 horses as against one of 75, and the neighbourhood here is of a better class and approximates more closely to those ' select residential quarters' outside what may be called the native limits, which, in the opinion of the learned Judge in <NAME> case, stand on a somewhat different footing. No doubt then that in a civil Court the applicant would get relief. I have already indicated that the supposed utility of these stables is not a matter which we can consider, a view which is also emphatically expressed by <NAME> in the judgment cited. Here we are bound by the terms of the special legislation but within the four corners of the Act considerations appropriate to the general law on the question of nuisance are no doubt relevant, and as the Act gives a remedy the applicant is entitled to seek that remedy upon principles so applicable.

29. It is to be regretted that either party insists upon the extreme view. For the Municipal Commissioner it is urged that this is a fit and proper place for these stables, and that the conditions of the license which it is proposed to issue contain the maximum of what need be conceded. The applicant on the other hand urges that nothing will give him relief but the total abolition of these stables. In such a case it is extremely difficult for this tribunal, which can hardly be said to be specially fitted to deal with questions of stable management, to discharge the duty which the legislature has imposed on us, viz., to contrive "reasonable and practicable measures" for dealing with a nuisance such as this. We did indeed tentatively put forward certain suggestions as a basis for discussion but it was apparent that neither party at heart desired anything but the extreme limit of his claim.

30. After a full consideration of the history of this matter and of the evidence and of the arguments advanced before us I think the case is one in which we should exercise our discretion to make an order for the prevention of this nuisance. I am further of opinion that the only appropriate order in the case is that directed by the learned Chief Justice in the judgment just delivered.


PETITIONER: M/S. MATHRA PRASHAD AND SONS. Vs. RESPONDENT: STATE OF PUNJAB DATE OF JUDGMENT: 05/12/1961 BENCH: <NAME>, M. BENCH: <NAME>, M. <NAME>, BHUVNESHWAR P.(CJ) <NAME>, J.L. SHAH, J.C. MUDHOLKAR, J.R. CITATION: 1962 AIR 745 1962 SCR Supl. (1) 913 ACT: Sales Tax-Exemptions-Notification issued after commencement of financial year-Whether effective from date of notification or from commencement of financial year-East Punjab General Sales Tax Act, 1948 (E. P. of 1948). ss. 4,5,6,10,11-Notification dated September 27, 1954. HEADNOTE: Section 6(1) of the East Punjab General Sales Tax Act, 1948, provided that no tax shall be payable on the sale of goods specified in the Schedule to the Act and that no dealer shall charge sales tax on the sale of goods which were "declared tax-free from time to time". Sub-section (2) of s. 6 empowered <ORG> by notification to add or to delete from the Schedule. On September 27, 1954, <ORG> issued a notification under s. 6 (2) 914 adding item 51 relating to manufactured tobacco to the Schedule. The appellant contended that sales tax was a yearly tax and hence the exemption, whenever given during the financial year, became operative as from the beginning thereof. ^ Held, (per <NAME>, <NAME>, <NAME>, <NAME> and <NAME>, <NAME>, J., dissenting) that the exemption operated for the entire financial year. The tax was a yearly tax levied on the taxable turnover of a dealer every year though it was collected in some cases at the end of the year, in some cases quarterly and in other cases monthly. If the exemption operated for the period for which the tax was payable according as it was annually, quarterly or monthly the tax would be different for different persons; those paying annually would get exemption for the whole year but those paying quarterly or monthly would get the benefit in the quarter or month of the notification and not for earlier quarters or months. This could not have been intended. The exemption whenever it came in, in the year for which the tax was payable, exempted sales throughout the year, unless the notification fixed the date for the commencement of the exemption. <CITATION> .,  2 S.C.R. 189, referred to. Per <NAME>, J.-The exemption became operative only from the date of the notification. The tax was not a yearly tax. The use of the words "tax- free from time to time" in s. 6 (1) showed that the exemption could be given at any time during the year and that it would operate from the date of the notification and not from the beginning of the financial year. Otherwise, an exemption given or an imposition made near the end of the year will both operate from the beginning of the year. This was never intended JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9 of 61.

Appeal from the judgment and order dated May 7, 1959, of <ORG> in L.P.A. No. 86 of 1956.

<NAME>, Attorney-General of India, <NAME>, <NAME> and <NAME>, for the appellants.

<NAME>, Advocate-General, Punjab, <NAME> and <NAME>, for the respondents.

1961. December, 5. The Judgment of <NAME> <NAME>, <NAME>, <NAME> and <NAME>, was delivered by <NAME>, <NAME>, J., delivered a separate judgment.

HIDAYATULLAH, J.-The appellants are a firm of general merchants which sells, among other goods manufactured tobacco as defined in the Punjab Tobacco Vend Fees Act, 1954 (12 of 1954), which came into force in the State of Punjab from April 1, 1954. The firm is also a registered dealer under s. 7 of the East Punjab General Sales Tax Act, 1948 and till the end of March, 1954, was paying sales tax on manufactured tobacco also. Indeed, the firm paid sales tax on manufactured tobacco, also for the next quarter ending on June 30, 1954, but did not pay in the succeeding quarter in view of certain events, to which a detailed reference will be made presently. On September 27, 1954, <ORG> issued a Notification (No. 4556-E & T (Ch)-54/957) by which the schedule of exemptions under s. 6 of the Sales Tax Act was amended by the inclusion of item 51, which reads as follows:

"51. Manufactured tobacco as defined in the Punjab Tobacco Vend Fees Act, 1954." This Notification was preceded by a Notification of May 7, 1954 (No. 427-E & T (Ch)-54/369), by which <ORG> had given notice, as required by law, of its intention to add the said item in the schedule of exemptions. In June, 1954, <ORG> issued a Press Note by which it was intended to convey to the dealers that though the Tobacco Vend Fees Act had come into force from April 1, 1954, it was not intended to levy both the sales tax as well as the fee for any period. The Press Note reads as follows:

"There is some misapprehension in the minds of dealers in manufactured tobacco as to whether sales tax is also chargeable in respect of manufactured tobacco after the 1st April, 1954, in addition to the license fees under the Tobacco Vend Fees Act. Government would like to make it clear that although the Tobacco Vend Fees Act has come into force with effect from 1st April, 1954, no license fees for dealers have yet been prescribed under the Act. Therefore, the levy of sales tax continues till the Vend Fee licences come into operation. It is to be clearly understood that the Vend Fee will be proportionately reduced for the current financial year to adjust the period for which sales tax will have been charged. Manufactured tobacco will be exempted from sales tax simultaneously with the enforcement of the Vend Fees."

On August 2, 1954, <ORG> issued another Press Note, in which the decision was altered. The Press Note said:

"Government recently announced through a press note that the levy of Sales Tax on manufactured tobacco would be continued till the Vend Fee Licences came into operation and that the Vend Fee would be proportionately reduced for the current financial year in respect of the period for which Sales Tax would have been charged. In order to avoid double taxation, Government have since reconsidered the matter and have, in supersession of the previous decision, decided that the Sales Tax, if any, recovered from the dealers would be refunded and that no Sales Tax would be charged during the current financial year in respect of sales of tobacco which fall under the Tobacco Vend Fees Act. Tobacco Vend Fees will be recovered at full rates for the whole year as and when rules under the Punjab Tobacco Vend Fees Act are finalised."

It appears that the Rules under the Tobacco Vend Fees Act were not promulgated; nor were the forms and licences prescribed during the financial year ending on March 31, 1955. In the meantime, the appellants, as already stated, paid sales tax on sales of manufactured tobacco for the first quarter ending June 30, 1954, and the Notification exempting manufactured tobacco from sales tax was issued on September 27, 1954. The appellants had made enquiries from <ORG>, Punjab, about the Press Note of August 2, 1954, and had been assured that the Notification as printed in the Newspapers was accurate, and that Government intended implementing the Press Note.

On January 23, 1956, the appellants received a notice from <ORG>, Rohtak, calling upon them to produce their account books. The appellants as well as other dealers of manufactured tobacco similarly affected, made representations on the basis of the Press Note of August 2, 1954, but without success. The appellants then filed on February 8, 1956 a petition under Art. 226 of the Constitution for substantially three reliefs. They were: (a) a declaration that the levy of sales tax on manufactured tobacco upto September 26, 1954 was illegal; (b) refund of the sales tax paid by it for the quarter ending June 30, 1954; and (c) an order in the nature of a writ of <ORG> against the proposed levy of sales tax till September 26, 1954. It remains to mention that the sales tax authorities were acting in conformity with a Press Note issued in August, 1955, by which the State Government went back upon the policy declared in August, 1954 and reaffirmed the policy stated in the Press Note of June, 1954. The following extract from the Press Note of August, 1955 may be read here:

"2. In conformity with the press note issued in June, 1954, and in view of the facts explained above, Government have now decided that sales tax on tobacco shall be levied for the year 1954-55 before the 27th September,  only, the date on which tobacco was included in the schedule of exemptions appended to the General Sales Tax Act . This amounts to a handsome concession to the dealers and Government except that, in return, every cooperation shall be shown by the dealers of the assessing authorities in the matter of the assessment of the tax."

The petition under Art. 226 was heard by a learned Single Judge of <ORG>, who held that the orders of Government were entirely in accordance with law, that the East Punjab Sales Tax Act, in so far as it related to the sale of manufactured tobacco was not repealed by the Tobacco Vend Fees Act, and that sales tax on manufactured tobacco was payable from April 1, 1954 to September 26, 1954, in view of the fact that the exemption was made on September 27, 1954, and would operate from the latter date. Against the decision of the learned Judge dismissing the writ petition, an appeal under Letters Patent was filed. <ORG>, which heard the appeal, agreed with the judgment appealed from, and dismissed the appeal. A certificate was, however, granted to the appellants and the present appeal has been filed.

Two contentions were raised in the forefront before <ORG>, by the appellants. The first was that the Punjab Tobacco Vend Fees Act had pro tanto repealed the East Punjab General Sales Tax Act, and that sales tax on manufactured tobacco could not be levied after April 1, 1954. The second was that <ORG> by its assurance in the Press Note of August, 1954, had estopped itself from reversing its policy and claming the sales tax up to the date of the Notification. These points were not seriously pressed upon us, because there can be two taxes on the same commodity or goods without the one law repealing the other. No repeal can be implied, unless there is an express repeal of an earlier Act by the later Act, or unless the two Acts cannot stand together. The first argument was, therefore, rightly rejected in <ORG>. The second argument is also without force. There can be no estoppel against a statute. If the law requires that a certain tax be collected, it cannot be given up, and any assurance that it would not be collected, would not bind <ORG>, whenever it choose to collect it.

The question which is now raised, and of which there is but a trace in <ORG> is the real one to decide, and it may be formulated thus; Did the exemption in the Notification issued on September 27, 1954 have effect from that date, or from the beginning of the financial year ? We are not concerned with the question whether, in the absence of rules and forms, the Punjab Tobacco Vend Fees Act, 1954 could operate from April 1, 1954. Whether it did or did not, can make no difference to the sale tax, because the Punjab Tobacco Vend Fees Act, 1954 did not abrogate the Sales Tax Act . If sales Tax was not payable, it would be because of the exemption, and the only question thus is when the exemption began to operate. The Notification does not say from what date the exemption operates. Taking the Notification by itself, it cannot be said that it comes into force from an earlier date. Both sides have thus called in aid provisions of the East Punjab General Sales Tax Act and the Rules to determine the date from which the exemption can be said to operate. Reference was made by the appellants to a decision of this Court in <CITATION> .(1), where a notification increasing sales tax on edible oils issued in the middle of the year 1948 was held not to apply to the assessee in that year, inasmuch as its liability to tax had become fixed on April 1, earlier, as it had elected to pay tax on the turnover of the previous year. The scheme of taxation under the U.P. Sales Tax Act, 1948 (15 of 1948) and the Rules under that Act is so vastly different from the East Punjab General Sales Tax Act and the Rules under it, that a detailed reference to that case may not be necessary.

The question thus must be viewed in the setting of the East Punjab Sales Tax Act and the Rules under it. We shall refer to them shortly as the Act and the Rules in the rest of this judgment. The Act was passed in 1948, and came into force on November 15, 1948. Previous to this, sometimes licence fee under an earlier Tobacco Vend Fees Act and sometimes sales tax also under an earlier Sales Tax Act had been levied but not side by side in the Province. The history of these earlier Acts was brought to our notice during the course of the argument, but nothing turns upon it.

The sales tax under the Act continued to be levied up to April 1, 1954, and none has disputed that it could be levied. On that date, the Punjab Tobacco Vend Fees Act came into force. We have already said that the latter Act did not repeal pro tanto the earlier. The liability for sales tax in this appeal is for two quarters ending June 30, 1954, and September 30, 1954. There is no dispute that after September 27, 1954 sales tax could not be levied, in view of the inclusion of item 51 in the schedule exempting manufactured tobacco from the operation of the Act. We must now examine those provisions of the Act which are claimed by the rival parties to indicate the moment of time from which the exemption granted by the Notification began to operate. "Turnover" has been defined in the Act to include the aggregate of the amounts of sales and parts of sales actually made by any dealer during the given period, less certain allowances, and "year" means the financial year. Sections 4 and 5 read together are the charging sections, the first dealing with the incidence of the tax, and the second, with its rate. Section 6 (1) provides for exemptions on the sale of goods which are specified in schedule to the Act. Under s. 6 (2), <ORG> has been given the power to add to or delete from that schedule. Section 10 deals with the making of returns and payment of the tax. Section 27 empowers <ORG> to make rules for carrying out the purposes of the Act. This is the general scheme of the Act, in so far as we are concerned; but a somewhat detailed examination of these sections is necessary to understand the rival contentions.

Section 4 consists of five sub-sections. Sub Section (1), which is a subject to the provisions of ss. 5 and 6 , says that every dealer, except one dealing exclusively in goods declared tax-free under s. 6 , whose gross turnover during the year immediately preceding the commencement of the Act exceeded the taxable quantum, shall be liable to pay tax under the Act on all sales effected after the coming into force of this Act. A proviso is added, which is not relevant. Sub-section (2) says that every dealer who is liable to pay tax under the first sub-section shall be liable to pay it on the expiry of 30 days after the date on which his gross turnover first exceeds the taxable quantum. Sub-sections (3) and (4) deal with the continuance of the liability of the dealer under certain circumstances, and are not relevant here. Sub- section (5) then defines "taxable quantum" in relation to different kinds of dealers, and fixes a certain amount as the lowest limit. Since, in the present case, the taxable quantum is above the limit applicable to the appellants and they are also admittedly dealers, a detailed reference to the provisions of sub-s. (5) is unnecessary. Section 5 , which deals with the rate of tax, is made subject to the other provisions of the Act, and the first sub-section says that there shall be levied on the taxable turnover every year of a dealer a tax at such rates (not exceeding two pice in a rupee) as <ORG> may by notification direct. "Taxable turnover"

is then defined by the second sub-section to mean that part of a dealer's gross turnover during any period which remains after deducting therefrom, inter alia his turnover during that period of tax- free sales, sales to registered dealers, sales to any undertaking supplying electrical energy, sales to dealers outside Punjab and other sales, as may be prescribed. With none of these deductions we are concerned in this case.

Now, the appellants emphasise the words "gross turnover during the year" in s.4 (1) and the words "taxable turnover every year of a dealer" in s. 5 (1), and argue that the tax is computed year-wise, and the exemption must, therefore, operate for the whole of the year in which it is made, irrespective of the date on which the Notification is made. The respondents, on the other hand, emphasise the words "gross turnover during any period" and "his turnover during that period" occurring in s. 5 , and contend that the tax is not year-wise but accrues, so to speak, from day to day or at least from period to period within a year, and the exemption thus operates not from the whole of the year, but for the period within which it is granted, and refer in aid of this argument, to ss. 6 and 10 . Sections 4 (1) and 5 (1) are subject to s. 6 , s. 5 (1), to other sections of the Act and so, s. 10 , and we have to see what they provide. Section 6 (1) is brief, and may be quoted in extenso. It reads:

"6 (1). No tax shall be payable under this Act on the sale of goods specified in the first column of the Schedule, subject to the conditions and exceptions, if any, set out in the corresponding entry in the second column there of and no dealer shall charge Sales Tax on the sale of goods which are declared tax-free from time to time under this section."

The respondents emphasise the words "from time to time" in the first sub-section, and say that they also show that exemptions may be given, withdrawn, or given again and again several times during the year in respect of the same goods, and the exemptions, therefore, begin to operate when they are given and cease, when they are withdrawn. But, the appellants contend that these words merely indicate that the power may be exercised as often as needed, and do not indicate the time from which the operation of the exemption commences and the period during which it lasts. Section 10 (1) provides that the tax payable under the Act shall be paid in the manner provided at such intervals, as may be prescribed. Two Rules framed under s. 27 provide for such intervals. Rule 20 reads:

"Every registered dealer other than those referred to in rules 17, 18 and 19, shall furnish returns in Form S.T.VIII or S.T. XXIII, if so permitted quarterly within thirty days from the expiry of each quarter." (words underlined were introduced on June 28, 1955).

Rule 23:

"Notwithstanding the provisions of rules 20 and 21, the appropriate <ORG> may, for reasons to be recorded in writing, fix monthly returns for a dealer, who would otherwise be required to furnish quarterly or annually under these rules."

Section 10 and Rules 20 and 23 clearly provide that returns may be made annually, quarterly or monthly. The forms, S. T. VIII and S.T. XXIII, also are forms of returns of sales tax payable for the year, quarterly or monthly. It is thus possible that some dealers pay tax annually some, quarterly, and some, monthly.

The contention of the appellants is that s.10 read with Rules 20 and 23 merely provides for making of returns at prescribed intervals and the collection of tax is for a period falling between those intervals, but the tax is the tax appropriate to the whole year's result. The respondents contend that the effect of the section and the two Rules is that the tax due for the period of the return is separate from any other tax for any other period. Each period, according to them, must be viewed separately and not as part of a year. Thus, if exemption is granted during the second quarter, according to the respondents it affects that quarter and subsequent quarters but not the first quarter, because tax is payable on the turnover of a period and at such intervals, as may be applicable to an assessee.

We cannot help saying that the Act and the Notification could have been framed to obviate such unnecessary questions by providing clearly in them the time from which such exemptions would begin to operate. Similarly, if the rules under the Punjab Tobacco Vend Fees Act had been framed in time and the Tobacco Vend Fees Act together with the Rules under it and the exemptions under the Sales Tax Act were brought into force together, a considerable amount of time to the <ORG> and the <ORG> would have been saved, as also trouble to the tax-payer. The Rules under the Punjab Tobacco Vend Fees Act were not framed during the whole of the financial year, 1954-55. Contradictory Press Notes were issued, which showed that the State Government itself was not sure of the true legal position, thus causing great confusion and distrust in the minds of the tax-payers.

There is no doubt that the tax is a yearly tax. It was payable, in the first instance, by a dealer whose gross turnover during the financial year immediately preceding May 1, 1949, was above the taxable quantum. The tax is to be levied on the taxable turnover of a dealer every year. The difference between gross turnover and taxable turnover is this, that to arrive at the taxable turnover of any period some deductions have to be made for the same period. This clearly shows that the tax is for a year. The method of collection allows collection of tax at intervals; in some cases, the tax is collected at the end of the year; in some others, the tax is collected quarterly and in still other cases, even monthly. If the exemption can be said to operate for that period for which the tax is payable according as it is annually, quarterly or monthly, the tax would be different for different persons. Those who are paying the tax annually would get exemption for the whole year; but those who are paying it quarterly or monthly would get benefit in the quarter or the month of the Notification but not for earlier quarters or months. It could not have been intended that the exemption was to operate differently in the case of dealers with different intervals of assessment.

The exemption thus must operate either from the date of the Notification or from the commencement of the financial year. Here, the nature of the tax, as disclosed in ss. 4 and 5 , is decisive. In s. (5), the tax is made leviable "on the taxable turnover every year of a dealer". The divisions of the year and the taxable turnover into different parts are to make easy the collection of tax, and form part of the machinery sections. If the tax is yearly and is to be paid on the taxable turnover of a dealer, then the exemption, whenever it comes in, in the year for which the tax is payable, would exempt sales of those goods throughout the year, unless the Act said that the Notification was not to have this effect, or the Notification fixed the date for the commencement of the exemption. In the present case, the Notification did not fix the date from which the exemption was to operate, probably because the Act omitted to make such provision, enabling the <ORG> to do so, and the exemption must, therefore, operate for the whole year, during which it was granted.

The case of this Court, to which we have referred earlier, dealt with an Act under which the taxpayer could elect to pay the tax on the turnover of either the previous year or the year of assessment. A notification in the middle of the assessment year was considered, and was held inapplicable in those cases where a dealer had elected to pay tax on the turnover of his previous year. The majority view on that occasion pointed out that it was not possible to divide the assessment year in two portions, in which the tax was levied at one rate in one part and another rate in another part. The case was confined to a dealer who had elected to pay the tax for a year different from that in which the exemption was granted. Those facts do not exist here; but if the case is considered at all relevant, it supports the appellants rather than the respondents.

In the result, the appeal succeeds, and is allowed with costs.

KAPUR, J.-The facts of this case have been set out in the judgment of my learned brother <NAME>, which I have had the advantage of reading and as I am unable to agree with the conclusion that the effect of the exemption given by Notification No. 34556-E & T. (CH)54/957 dated September 27, 1954, issued under s.6(2) of the Punjab General Sales Tax Act (Act 16 of 1948), hereinafter called the "Act", on unmanufactured tobacco becomes effective as from the beginning of the financial year, I proceed to give my reasons for the same.

The period in regard to which the disputed amount of sales tax is sought to be levied was from April. 1, 1954 to September 27, 1954. Previous to the issuing of the notification of September 27, 1954, <ORG> issued a notification required under s.6(2) of the Act for the purpose of information of persons likely to be affected thereby and to give them an opportunity to file any objections or suggestions in regard to the same. A press note was issued on August 4, 1954 stating that no sales tax will be leviable on manufactured tobacco for the financial year 1954-55.

In order to resolve the controversy as to whether the exemption is effective from the commencement of the financial year or from the date of the notification it is necessary to refer to the scheme of the Act and the rules made thereunder. The East Punjab General Sales Tax Act (Act 46 of 1948) as amended, made provision for the levy of general sales tax on the sale of goods in the Punjab and repealed the General Sales Tax Act of 1941. Section 2 of the Act gives definitions and cl.(d) defines a "dealer" as a person.. engaged in the business of selling or supplying goods. In cl.(i) "Turnover" was defined to include-

"the aggregate of the amount of a sale and parts of the sale actually made by any dealer during the given period less any sum allowed as cash discount according to ordinary trade practice...."

Sections 4 and 5 are the charging sections, the former makes the tax leviable prospectively and the latter prescribes the rate of tax. The relevant portions of these sections when quoted are as follows:

S.4(1) "Subject to the provisions of sections 5 and 6 , every dealer except one dealing exclusively in goods declared tax-free under section 6 whose gross turnover during the year immediately preceding the commencement of this Act exceeded the taxable quantum shall be liable to pay tax under this Act on all sales effected after the coming into force of this Act.

(2) Every dealer to whom sub-section (1) does not apply or who does not deal exclusively in goods declared to be tax-free under section 6 shall be liable to pay tax under this Act on the expiry of 30 days after the date which his gross turnover first exceeds the taxable quantum."

"Taxable quantum" mentioned in sub-section (2) is defined in sub-section (5) of s. 4 .

Thus a dealer is liable to sales tax if his sales in the year preceding the commencement of the Act are more than the taxable quantum (s.

4.(1) or subsequently becomes so during any year. S. 5.(1) "Subject to the provisions of this Act, there shall be levied on the taxable turnover every year of a dealer a tax at such rates not exceeding two pice in a rupee as the State Government may by notification direct:

Provided that Government may by notification in the Official Gazette declare that in respect of any goods or class of goods the dealer may pay such lump-sum by way of composition of the tax payable under this Act as the Government may notify from time to time.

(2) In this Act the expression "taxable turnover" means that part of a dealer's gross turnover during any period which remains after deducting therefrom.

(a) his turnover during that period on

(i) the sale of goods declared tax-free under section 6 ;

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

(iii).............................. "

Section 6 which makes provision for giving exemption is as follows:-

S.6(1) "No tax shall be payable under this act on the sale of goods specified in the first column of the Schedule subject to the conditions and exceptions, if any, set out in the corresponding entry in the second column thereof, and no dealer shall charge Sales Tax on the sale of goods which are declared tax- free from time to time under this section. (2) The State Government, after giving by notification not less than three months' notice of its intention so to do, may by like notification add to or delete from the Schedule and thereupon the Schedule shall be deemed to be amended accordingly." Section 10 deals with payment of taxes of returns. Clause (1) of s. 10 provides:-

S.10 (1) "Tax payable under this Act shall be paid in the manner hereinafter provided at such intervals as may be prescribed."

Section 11 is the section dealing with assessments. It provides that if <ORG> is satisfied that the returns furnished are correct and complete he shall assess the amount of tax due and if he is not so satisfied he can require the production of evidence which may be necessary and provision is also made for default in carrying out the notice issued. Section 27 gives the <ORG> the power to make rules. The relevant portions of this section are clauses

(h) and (i) which were as follows:-

(h) "the return to be furnished under sub- section (3) of section 10 , and dates by which and the authority to which, such returns shall be furnished;

(i) the date by which returns for any period are to be furnished and the procedure to be followed for assessment under section

Under the rule making power rules have been framed by <ORG> and reference may be made to Rules 20 and 23. Under the former rule every registered dealer is required to furnish returns in Form ST-VIII or ST-XXIII if so permitted quarterly within thirty days from the expiry of each quarter. Under the latter <ORG> is given the power to tax the returns to be made monthly in the case of a dealer who would otherwise be required to furnish them quarterly or annually.

It was argued that the tax under s.5 was a yearly tax and therefore whenever the exemption may be given during a financial year the effect of the exemption will become operative as from the beginning of the financial year and emphasis was laid on the words "there shall be levied on the taxable turnover every year of a dealer a tax.." The argument was that it was a yearly tax on the turnover and not that every year a tax was to be levied on the taxable turnover i.e. aggregate of the sales made during a given period. It was also argued that if the exemption of the turnover was to operate for the quarter in which the exemption was notified, the consequence will be absurd as those who pay the tax on quarterly returns or monthly returns will not be able to get the advantage of the exemption whereas those who pay on yearly returns will be so entitled.

I am unable to agree that the effect of the collection of the words in s. 5 and particularly of the words "shall be levied on the taxable turnover every year...... a tax" is what was argued by the appellants i.e. it was a yearly tax like the income tax. Section 6 which provides for exemption specifically envisages the declaration from time to time of exemption of goods which are to be tax-free. The use of the words "tax-free from time to time", in my opinion, means that the exemption may be given at any time during the year but it does not suggest that the exemption will operate from the beginning of the year and not from the time that the exemption is given. If this were not so the the imposition of sales tax by excluding an article exempt from tax from the schedule say about the end of the financial year would render the dealer liable to sales tax for the whole year even though he may not have collected any sales tax from his customers which under the law he would be entitled to do if the article is not in the schedule. It will be an imposition which is not envisaged by the general scheme of the Sales Tax Act because the tax is exigible on taxable turnover in every return made monthly or quarterly or yearly as the case may be. It appears that it is for that reason that in the definition of the word "turnover" the legislature has chosen the word "during the given period" i.e. the period for which the tax is leviable and is levied. Similarly in subsection (2) of s. 5 where sales tax is levied on the taxable turnover of a dealer the use of the word "during any period" is again repeated and in cl.(a) of that section reference is made to deduction from his turnover during that period of the sale of goods declared tax-free under s. 6 and that is for a good reason because s. 6 itself mentions the declaration of tax-free goods from time to time indicating that whenever during the year or at any time during the year when goods are notified to be tax-free.

That the intention of the legislature was to give exemption from the date of the notification or such date as is mentioned in the notification is further supported by the provisions of ss. 10 and 11 of the Act. Under s. 10 a dealer may be required to furnish his return at such intervals as may be prescribed and when he makes a return it must necessarily be of the goods on which during that period sales tax was exigible. Under sub- s.(4) of s.10 the dealer is required to pay into the <ORG> treasury the full amount of tax according to his return. Under s. 11 the assessment of the tax either on the acceptance of the return or after production of such evidence as may be required is to be made. From the provisions of a 11, it does not appear that returns are to be scrutinised at the end of the year like in income tax cases and assessment made on the income of the year preceding the assessment year. It is to be made in regard to each return whenever according to the rules the return has to be and is made. The tax is also paid for that period i.e. on the taxable turnover for the period for which the return is made and which becomes the subject matter of assessment. When the assessment has been made and the tax assessed is paid the assessment for that period is completed and all proceedings and liabilities and subjected to what is stated as to escaped periods.

This is further clear from the rules which have been made in regard to registration and furnishing of returns. In the registration certificate it has to be mentioned as to what goods are free of tax. Returns are required to be made in the Forms which are given i.e. Form VIII or Form XXIII. A return under Form VIII may be monthly, quarterly or yearly. A return to be made also provides for mentioning the turnover of tax- free goods and goods which are exempted from sales tax. If the contention of the appellants is correct, then after all the returns have been filed, the amount of sales tax according to the returns assessed and payments made, there will have to be proceedings for reassessment, remission or refund as the case may be in regard to those periods, if any goods are added to the schedule exempting them from sales tax after the assessment or any goods are deleted from the schedule thus making them liable for sales tax and that will be for the periods of which the assessment had already been completed and finished. That does not seem to be the scheme of the Act. It does not envisage reassessment for the purpose of refunding the tax assessed and paid on articles which were assessable at the time the assessment was made but became exempt later nor is it envisaged in the case of articles excluded from the schedule. Section 11(6) which deals with reassessments at the relevant time provided:

"If upon information which has come into his possession <ORG> is satisfied that any dealer has been liable to pay tax under this Act in respect of any period has failed to apply for registration, <ORG> shall.........assess to the best of his judgment the amount of tax.......due from the dealer."

The scheme of the Act and the rules made thereunder do not, in my opinion, show that the exemption becomes operative for the whole year whenever during the year the notification of exemption is issued even though it may be on the last day of the financial year.

I would therefore dismiss this appeal with costs.

By <ORG>. In accordance with the judgment of the majority, the appeal stands allowed with costs.