judgement:
ivil Appeals Nos.
2075 & 2076 of 1968.
From the judgment and decree dated the 29th March & 1st April 1968 of the Gujarat High Court in First Appeals Nos. 769 and 1029 of 1960.
A.K. Sen, L.M. Singhvi.
section K. Bagga and Mrs. Bagga, for the appellant.
R.P. Bhatt, B.S. Trivedi H. section Parihar and I.N. Shroff, for the respondent.
The Judgment of the Court was delivered by KHANNA, J.
These two appeals on certificate by Mohatta Brothers plaintiff firm are directed against the judgment of Gujarat High Court whereby that court reversed on appeal the judgment of the trial court awarding a decree for recovery of Rs. 77,286/0 Anna/2 Pies in favour of the plaintiff appellant against the respondent company and dismissed the suit.
The plaintiff is a partnership firm doing business under the name and style of Mohatta Brothers.
The plaintiff firm carried on the business of managing agency of the defendant company up to September 4, 1950.
Sometime before that date, it appears the plaintiff firm expressed an intention of giving up the post of managing agents.
July 31, 1950 Chaturbhujdas on behalf of M/s. Chaturbhujdas, Kharawala Mohatta & Co. submitted scheme exhibit 168 in consultation with the plaintiff.
Paras 5, 6 and 7 of the scheme were as under: "(5) Before our this Scheme is approved by the Company the present Directors shall submit before the Company 1024 the Balance Sheets and the Profit and Loss Account upto the end of the year 1949 and get the same passed, and they shall get the Proforma Balance Sheet upto the date 31 7 50 prepared by the Auditors of the Company and shall hand over the same to us, and this Scheme has been given while understanding that at present everything is according to the list of machinery given to us by the present Agents.
And no one has any kind of charge or debt claimable from the Company till this day excepting the appropriate amount of Rs. 4,77,850/ due to the Agents and their kith and Kin till this day and the list of which is given to us.
We give this Scheme believing the said fact true.
(6) The amounts of the Agents of the Company and their kith and kin which may have been deposited in the Company on the day the date 31 7 50 and which come to about Rs. 4,77,850/ as told by the present Agents are to be kept credited in their accounts and interest thereon is not to be given from the date 1 8 50.
And when our Scheme is approved they have not to take any interest on the said amounts from the Company for five years from the date we start the work of the Mills and they have not to withdraw the said amounts for a period of ten years thereafter but the same are to be kept credited in the Company with interest at six per cent.
But the Company shall return the amount earlier if it so desires.
(7) At present the amount of Rs. 3,46,466 11 8 is due to the Punjab National Bank Ltd. by the Company and the demand of giving bonus to the workers for the year 1949 is outstanding from the Company.
The present Agent states that in both of the said matters payments can be made from the amounts obtained by selling the goods of stores, etc.
which is lying with the Company at present, the list of which is given to us by the present Agents, and from the amounts of E.P.T. deposit and advance payments of the income tax.
On making arrangement accordingly if the debt of the Bank is not fully paid or the liability of bonus is not fully fulfilled and if the Company is found responsible in any way, then the same is to be fulfilled by the present Agent.
But after fulfilling all liabilities accordingly if any amount remains in balance the same shall be treated as assets of the Company and half of the said amount shall be returned to wards the above mentioned amount deposited in the Company and which belongs to the present Agent and their kith and kin.
But on fulfilling completely the liability of the Bank from the sale of goods of the Stores, etc.
if there does not remain sufficient surplus or before getting the amount of E.P.T. deposit and income tax advance payment if the amount of bonus is required to be paid then the present Managing Agents has to give that amount first.
" 1025 On the following day, i.e. August 1, 1950, the following letter was addressed by the plaintiff firm to the Board of Directors of the defendant company : "We Messrs Mohatta Brothers, the Secretaries, Treasurers & Agents of the company hereby beg to tender our resignation as Secretaries, Treasurers and Agents of the Company on condition of the scheme of Sheth Chaturbhujdas Chimanlal dated 31 7 50 duly approved by the Board of Directors, being passed by the share holders of the company in the Extraordinary General Meeting of the company to be held on 4th September, 1950.
FOR MOHATTA BROTHERS Ahmedabad Shivaratan G. Mohatta Chandratan G. Moondhra D.R. Moondhra Brijratan section Mohatta S.R. Mohatta Satyavati Mohatta" A notice was then issued for convening a general meeting of the defendant company on September 4, 1950 for sanctioning the said scheme.
The said scheme was approved by the shareholders on September 4, 1950.
Accordingly, as from that date Messrs Chaturbhujdas Kharawala Mohatta & Co. took over as the new managing agents of the defendant company instead of the plaintiff firm.
The plaintiff 's case was that the liability of the Punjab National Bank was fully discharged by sale of the stores.
No bonus was held to be payable by the Industrial Court to the employees of the company for the year 1949.
It was stated that there was surplus left after discharging the liability of the Punjab National Bank from earmarked assets consisting of excess profit tax deposits, income tax advance amount and the amounts realised from the sale of the stores.
The plaintiff firm claimed half the surplus in terms of clause (7) of the scheme towards the deposit amounts of the plaintiff.
Prayer was made for accounts of the surplus and decree for the amount due as per terms of the scheme with 9 per cent interest.
It may be stated that the plaintiff firm with effect from April 1, 1949 consisted of five partners.
In addition to those five partners, Shashi Kumar, who was a minor and whose mother Satyavati was his guardian, was entitled to four Anna share in a rupee in the profits of the partnership but was not liable for its losses.
Partnership deed exhibit 116 was executed for this purpose on May 19, 1949 and was signed by the five partners and Satyavati.
On October 24, 1949 another partnership deed exhibit 116 was executed wherein Satyavati was shown as a partner of the plaintiff firm instead of her minor son Shashi Kumar.
1026 The suit was resisted by the defendant company.
Besides taking other pleas with which we are not concerned, the defendant contended that the plaintiff firm could not maintain the suit as the constitution of the old firm which acted as managing agents of the defendant company had been changed on October 24, 1949.
From that date, it was stated, the plaintiff firm consisted of six partners, including Satyavati.
The newly constituted firm, according to the defendant company, had not been registered and as such the suit was not maintainable.
The trial court held that the new partnership deed exhibit 116 by which Satyavati became a partner was not acted upon.
As the original partnership mentioned in the partnership deed dated May 19, 1949 had been registered, the plaintiffs suit was held to be not barred by section 69 of the Indian Partnership Act.
It is not necessary to refer to the other issues and the findings of the trial court on those issues.
Suffice it to say that the defendant was held entitled to deduct certain amounts from the amount claimed by the plaintiff.
The trial court accordingly passed the following order : "The plaintiff has filed this suit for account as the account was to be taken of the realisation and expenses of the stores.
But by pursis Exhibit 424 the parties have agreed about the net realisation of the stores and have therefore urged that no Commissioner be appointed and a final decree be passed.
The real account was to be taken of the actual receipts and expenses of the sale of stores.
But now nothing is required to be done and hence there is no necessity of passing any preliminary decree.
The plaintiffs as shown above are entitled to receive Rs. 77,286 0 2, from defendant towards their deposit amount being the net surplus which they are entitled.
Hence defendants are liable to pay the said amount to plaintiff.
The plaintiff should pay the remaining Court fee stamp within a month.
I, therefore, pass the following order.
ORDER Defendants do pay Rs. 77,286 0 2 and the cost of the suit to plaintiff with future interest at 6 per cent from 1st January, 1956.
The plaintiff should pay the remaining Court fees within a month.
Defendants to bear their own cost." Two cross appeals were filed against the judgment and decree of the trial Court.
One appeal was by the defendant company praying for the dismissal of the plaintiff 's suit.
The other appeal was by the plaintiff firm claiming for enhancement of the amount decreed by the trial court.
One of the contentions advanced by the defendant company was as under : "The plaintiff firm was not entitled to file a suit as the plaintiff firm was differently constituted from the firm of Mohatta Brothers as on 31st July 1950, and, in any event, as the minor Shashi kumar had become major in 1953 and had 1027 become a partner of the plaintiff firm Mohatta Brothers, Ahmedabad, and as even the name of Satyavati Devi who was the partner suing did not appear in the entry in the register of firms the present suit was barred under section 69(2) of the Act.
" Dealing with the above contention, the High Court disagreed with the finding of the trial court that partnership deed exhibit 116 dated October 24, 1949 had not been acted upon.
The learned Judges of the High Court held so far as the first part of the above contention is concerned that when a firm is reconstituted by introduction of a new partner, it would remain the same registered firm, and there would be no necessity of fresh registration if the continuing firm was registered with the Registrar of the Firms under section 59 of the Indian Partnership Act.
Dealing with the contention that Shashi Kumar had become major, the High Court found that there was no evidence to show the age of Shashi Kumar and the whole argument in this respect was based on mere conjecture.
On the latter part of the submission, the High Court held that the mandatory condition under section 69(2) of the Indian Partnership Act was not fulfilled in the present case as the name of Satyavati who was a partner of the reconstituted firm and in whose favour a cause of action had accrued was not shown in the register of the firms.
This defect was held to be fatal.
The High Court in this context observed .
"In view of this legal position which we have discussed the second mandatory condition under section 69(2) is not fulfilled in the present case as the name of Satyavati who was partner of the reconstituted firm and in whose favour the cause of action had accrued is not shown in the register of firms.
This defect would be fatal as the first defect of want of registration of the firm itself and in both the cases we would have no option but to dismiss the suit.
In that view of the matter it would be wholly unnecessary to go into any of the other contentions which have been raised in these two appeals and to record any finding on the issues relating to the merits of the case or as regards the other appeal of the plaintiff as well.
Howsoever much we may regret to dismiss the plaintiff 's suit which apparently is well founded by up holding this technical objection of the defendant company, we are bound to dismiss this suit as in law a non compliance of this second mandatory condition is also equally fatal as the non compliance of first condition.
At the same time, however, in the circumstances of the cases while dismissing the plaintiff 's suit we would order both the parties shall bear their own costs all throughout.
" In appeal before us Mr. Sen on behalf of the appellants has assailed the judgment of the High Court in so far as it has disagreed with the finding of the trial court that Satyavati was not a partner of the plaintiff firm and the deed of partnership dated October 24, 1949 had not been acted upon.
Mr. Sen has also questioned the correctness of the view taken by the High Court regarding the construction of section 1028 69(2) of the Indian Partnership Act.
As against that, Mr. Bhatt on behalf of the respondents has canvassed for the correctness of the view taken by the High Court.
both on the question of fact as well as on the question of law.
After hearing the learned counsel for the parties and after having been taken through the relevant material on the record, we are of the opinion that the trial court took a correct view of the matter in so far as it has held that Satyavati did not become a partner of the plaintiff firm and that the deed of partnership dated October 24, 1949 was not acted upon.
The main consideration which prevailed with the High Court in holding that Satyavati became a partner of the plaintiff firm was the execution of deed of partnership dated October 24, 1949.
According to this deed, Satyavati became a partner to the extent of 4 Annas share out of 16 Annas, which had been previously held by her minor son Shashi Kumar.
Shashi Kumar under the deed of partnership of May 19, 1949 was entitled to the share of profits to the extent of four Annas in a rupee and was not liable for the losses which were to be borne by the other five partners.
Satyavati became entitled under the deed of October 24, 1949 not only to the share of profit to the extent of 4 Annas in a rupee but also became liable to share losses to that extent.
The other circumstance relied upon by the High Court was resolution dated January 21, 1950 passed by the Board of Directors of the defendant company.
That meeting was presided over by Shivratan G. Mohatta, partner of the plaintiff firm.
In that resolution there was reference to partnership deeds dated May 19, 1949 and October 24, 1949 which had been received along with letter dated December 1, 1949 from Mohatta Brothers.
The Board of Directors took note of the changes mentioned in the above two partnership deeds and agreed to accept the partners therein mentioned.
The third circumstance relied upon by the High Court is letter dated August 1, which was sent on behalf of the plaintiff firm, Mohatta Brothers, for the purpose of tendering resignation as Secretaries, Treasurers and Agents of the defendant company.
This letter was signed, besides the other partners, by Satyavati.
There was, however, no indication in the letter as to whether Satyavati signed it in her capacity as a partner or as the guardian of her minor son Shashi Kumar.
As against the circumstances relied upon by the High Court, we find that in the register relating to the registration of firms kept under the Indian Partnership Act, an entry was made on May 5, 1952 relating to the registration of the plaintiff firm.
The above entry was plainly in pursuance of application filed on behalf of the plaintiff firm shortly before the making of that entry.
The above entry shows that the position taken up on behalf of the plaintiff firm even in the year 1952 was that there were only five partners of the plaintiff firm and that in addition to that, Shashi Kumar minor was admitted to the benefit of partnership.
The entry thus reveals that even in the year 1952 the stand of the partners of the plaintiff firm was that Satyavati was not a partner of the plaintiff firm and that it was her minor son 1029 Shashi Kumar who was entitled to share in the profits of the partnership.
This entry would be inexplicable if Satyavati had become a partner of the plaintiff firm with effect from October 24, 1949.
Another circumstance which goes to show that Satyavati did not become a partner of the plaintiff firm is the entry in the registers of the defendant company.
According to section 87 of the Indian Companies Act 1913, which was the Act in force at the relevant time, every company shall keep inter alia at its registered office a register d managing agents containing with respect to each of them the following particulars, that is to say, in the case of a firm, the full name, address and nationality of each partner, and the date on which each became a partner.
The entry which was made in the register of the defendant company regarding the partners of its managing agents showed that after April 1, 1949 there were five partners besides Shashi Kumar minor under the guardianship of his mother Satyavati, of the firm of the managing agents Mohatta Brothers.
Although the above entry was made on October 6, 1949, no subsequent entry was made there after showing Satyavati as partner of the firm of Mohatta Brothers.
Had Satyavati in fact become a partner since October 24, 1949 of Mohatta Brothers, it seems unlikely that an entry to that effect would Not be made in the register of the defendant company.
It may also be mentioned in the above context that return has to be sent to the Registrar of Firms under section 87 regarding any change in the particulars required to be contained in the register.
Failure to comply with the above directions entailed imposition of fine.
The third significant circumstance which tends to show that Satyavati despite the execution of the deed of partnership dated October 24, 1949 did not become a partner of the plaintiff firm is evidenced by applications in connection with the registration of that firm which were presented to the income tax authorities under section 26A of the Indian Income tax Act, to 286 are the applications which were filed on behalf of the plaintiff firm for the years 1949 50 to 1956 57.
In all these applications, Shashi Kumar minor under the guardianship of Satyavati was shown entitled to 4 Annas share in a rupee in the plaintiff firm.
Satyavati was not shown in any of these applications as partner of the plaintiff firm.
All these applications which were signed by Satyavati clearly go to show that during these years she did not claim herself to be partner of the plaintiff firm.
on the contrary, she acknowledged that it was her minor son Shashi Kumar who was entitled to 4 Annas share in the profits of the partnership.
Documentary evidence which has been brought on the record, in our opinion, clearly lends support to the statement of Shivratan (PW 1) that partnership deed dated`October 24, 1949 was not acted upon and that Satyavati did not become a partner of the plaintiff firm.
Jivan Das PW, who was an employee or the defendant company, has likewise deposed that Satyavati was never a partner of Mohatta Brothers.
During the hearing of the appeal, affidavit of Satyavati has been filed stating that she was never a partner of Mohatta Brothers and it 1030 was her son Shashi Kumar who was at all material times admitted to the benefit of the partnership.
Mr. Bhatt has objected to this Court taking notice of the contents of the affidavit of Satyavati including her disclaimer of any interest in the plaintiff firm.
In this respect we are of the view that even without the above affidavit, the material on the record clearly goes to show that Satyavati was not a partner of the plaintiff firm.
In addition to what has been pointed out, we find that in the statement of accounts of the plaintiff firm it is Shashi Kumar and not Satyavati who is shown to have 4 Annas share in the plaintiff firm.
Entries show that Shashi Kumar shared the profits as well as the losses in that proportion.
The significant thing which emerges from the account books is that Satyavati was not shown as the person entitled to 4 Annas share in the partnership firm.
Soon after the present suit had been filed, on application filed on behalf of the defendants under order XXX, Rule 2 of the Code of Civil Procedure, names of the partners of the plaintiff firm were declared on behalf of the plaintiff firm.
In the declaration the name of Satyavati was not mentioned as one of the partners of the plaintiff firm.
The question as to who should share the profits of the plaintiff firm and should be otherwise entitled to its assets is essentially a matter for the partners of the plaintiff firm.
The facts of the case disclose that the partners of the plaintiff firm have agreed between themselves that so far as the 4 Annas share in the profits and assets of the plaintiff firm are concerned, it would be Shashi Kumar who would be entitled to the same.
That position is also accepted by Satyavati in the applications in connection with the registration of the firm to the income tax authorities.
It would, in our opinion, be a wholly untenable plea for the defendant from whom money is claimed, to urge that even though Satyavati as well as the other partners claim that it is not she but her son Shashi Kumar who is entitled to 4 Annas share in the partnership, the court should hold that it is Satyavati who is entitled to that share.
The distinction between a plaintiff firm and a defendant firm in the above context should not be lost sight of.
So far as a defendant firm against whom a suit for recovery of money has been filed is concerned, it would be open to the plaintiff to prove that a person is a partner of the defendant firm despite the denial of that fact by that person as well as the other partners of the defendant firm.
The reason for that is that a creditor of a defendant firm can, except in some cases to which it is not necessary to refer, also proceed against the personal assets of each and every partner.
Such a consideration does not hold good when the dispute relates to the question as to who are the partners of the plaintiff firm.
It has been mentioned above that Shivratan stated in the course of his deposition that partnership deed dated October 24, 1949 had not been acted upon.
This statement is against the pecuniary interest of Shivratan.
It is plain that if Satyavati were a partner of the plaintiff firm, Shivratan and other partners would have to bear losses to the extent of 12 Annas in a rupee.
As against that, if Shashi Kumar be entitled to share profits to the extent of 4 Annas in a rupee and be not 1031 liable for the losses, in such an event Shivratan and other partners A would have to bear the losses to the full extent of 16 Annas in a rupee.
If despite that fact, Shivratan has deposed that Satayvati did not be come a partner of the plaintiff firm and the deed of partnership dated October 24, 1949 was not acted upon, his statement in this respect should not, in our view, be rejected, especially when there is over r whelming documentary evidence which lends support to the above statement.
The entire course of dealings shows that despite the execution of the deed of partnership dated October 24, 1949, the said partnership deed was not acted upon and the relations between the partners of the plaintiff firm continued to be governed by the deed of partnership dated May 19, 1949 according to which it was not Satyavati but her son Shashi Kumar who was entitled to four Annas share in the partnership.
The question, to which a reference has been made in the course of arguments, as to when it was decided not to act upon the deed of partnership dated October 24, 1949 is hardly of much importance, the material thing is that the said deed was not given effect to or acted upon by the parties concerned.
The firm which came into existence as per deed of partnership dated May 19, 1949 was admittedly registered under the Indian Partnership Act and its partners were shown in the Register of Firms.
Looking to all the facts we are of the opinion that the trial court took a correct view of the matter in so far as it held that Satyavati had not become a partner of the plaintiff firm and that the deed of partner ship dated October 24, 1949 had not been acted upon.
The High Court, in our opinion, was in error in reversing that finding of the trial court.
In view of this conclusion of ours, it is not necessary to go into the legal question as to, what should be the proper construction of section 69(2) of the Indian Partnership Act.
Learned counsel for the parties are agreed that such question would arise only in case we had marked the finding of the High Court that Satyavati had become a prtner of the plaintiff firm and that the deed of partnership dated October 24, 1949 had been acted upon.
F The High Court did not deal with the merits of the cross appeals filed by the parties in view of its finding on the point as to whether Satyavati had become partner of the plaintiff firm and the construction it placed upon section 69(2) of the Indian Partnership Act.
In the light of the conclusion we have arrived at, it becomes essential to remand the matter to the High Court so that the cross appeals filed by the parties may be disposed of on merits.
We accordingly accept the appeals, set aside the judgment of the High Court and remand the case to it for disposal of the appeals filed by the parties on merits Looking to all the circumstances, we leave the parties to bear their own costs of these appeals.
As the matter has been pending for a long time, the High Court may dispose of the appeals at an early date.
V.P.S. Appeals allowed.

summary:
The appellant, a registered partnership firm, was the managing agent of (he respondent.
After submitting its resignation to the board of directors of the respondent company, the appellant filed a suit claiming a sum of money in accordance with an agreed scheme.
The appellant firm consisted of 5 partners with effect from April 1, 1949, and in addition, a minor was entitled to a 4 anna share in the profits of the partnership but was not liable for the losses.
The minor was represented by his mother as guardian.
On October 24, 1949, another partnership deed was executed wherein the mother was shown as a partner of the appellant firm with a 4 anna share and the minor 's name was omitted.
The respondent contended that the suit was not maintainable.
because the constitution of the old firm had been changed on October 24, 1949, and that the newly constituted firm consisting of 6 partners had not been registered.
The trial court held that the new partnership deed was not acted upon and decreed the suit for a part of the amount claimed.
There were appeals by both sides.
The High Court disagreed with the finding of the trial court that the later partnership deed had not been acted upon and held that the mandatory condition of section 69(2), Indian Partnership Act, was not fulfilled as the name Of the mother.
who was a partner in the reconstituted firm and in whose favour cause of action had accrued, was not shown in the register of firms, and that this defect was fatal to the suit.
Allowing the appellant 's appeal to this Court and remanding the appeal to the High Court for disposal on merits, ^ HELD: The trial court took the correct view of the matter in so far as it held that the later partnership deed was not acted upon and that the mother did not become a partner of the appellant firm.
[1028B] (1) The question as to when it was decided not to act upon the later deed is not material.
The evidence of one of the partners of the appellant firm that it was not acted upon and that the mother was not a partner is admissible and is fully corroborated by the documentary evidence.
It is a statement made by him against his own Pecuniary interest, because, if the mother was a partner, the loss of the other partners would extend only to 12 anna share in the rupee; whereas if she was not a partner then they would have to bear losses to the full extent of 16 annas in the rupee.
[1029G H; 1030H 1031D] (2) In the register relating to the registration of firms kept under the Indian Partnership Act, an entry relating to the registration of the appellant firm dated May 5, 1952.
reveals that even in the year 1952, the stand of the partners of the appellant firm was that the mother was not a partner and that it was only her minor son who was entitled to a share in the profits of the partnership.
[1028G 1029A] (3) In the statement of accounts of the appellant firm it is only the minor that is shown to have a 4 anna share and not his mother.
[1030B C] (4) Applications in connection with the registration of that firm were pre rented to the Income Tax Authorities under section 26A, Indian Income Tax Act, 1922.
All there applications were signed by the mother and they show that the mother never claimed to be a partner of the appellant firm and that, on the contrary.
she acknowledged that it was her minor son who was entitled to the 4 anna share in the profits.
[1029E G] 1023 (5) The directors of the respondent company had passed a resolution in 1950 referring to the two partnership deeds.
But the entry which was made in the register of the respondent company regarding the partners of its managing agents as required by section 87, Indian Companies Act, 1913, shows that after April 1, 1949, there were only 5 partners, besides the minor under the guardianship of his mother of the appellant firm.
If the mother had become a partner since October 24, 1949, it is unlikely that an entry to that effect would not have been made in the register of the defendant company, because, under section 87, a return has to be sent to the Registrar of Firms regarding any change in the particulars required to be contained in the register and non compliance with the requirement would entail imposition of fine.
[1029A E] (6) The letter of resignation sent by the appellant firm was signed by the mother also, but there was no indication whether she signed in her capacity as partner or as the guardian of her minor son.
[1028F G] (7) Soon after the presentation of the suit, on an application under order XXX, r. 2, C.P.C., filed by the respondents, the appellant firm declared the names of its partners and the declaration did not show the mother as one of the partners.
The question as to who should share the profits of the appellant firm and should be otherwise entitled to its assets is essentially a matter for the partners of that firm.
Unlike the case of a defendant firm from which money is claimed where each partner may be personally liable, in the case of the plaintiff (appellant) firm claiming money, it would be a wholly untenable plea for the defendants, from whom money is claimed, to urge that even though the mother as well as other partners claimed that it was not she but her minor son that was entitled to the 4 anna share in the partnership, the Court should hold that it was the mother who was entitled to that share.
[1030C G]


judgement:
Civil Appeal No. 1512 of 1971.
Appeal by Special Leave from the Judgment and order dated the 8th/9th December, 1970 of the Gujarat High Court in Sales Tax Reference No. 3/70.
section T. Desai and M. N. Shroff for the Appellant.
V. section Desai, Vimal Dave and Miss Kailash Mehta, for the Respondent.
The Judgment of the Court was delivered by GOSWAMI, J.
This is an appeal by special leave against the Judgment of the Gujarat High Court dated 8th/9th December, 1970.
The respondent (hereinafter to be described as the assessee) entered into a contract with the Public Works Department of the Government of Gujarat on September 6, 1965 for manufacture and supply of kiln burnt bricks to the said Department for the construction of the Capital Project, Ghandhinagar.
Large quantities of bricks were manufactured and supplied under the contract and the applicant received payment for the same in accordance with the agreed rates.
The assessee made an application under section 52 of the Bombay Sales lax Act, 1959, on November 19, 1967, to the Deputy Commissioner of Sales Tax, to determine the question whether the said supplies of bricks by the assessee to the Public Works Department were sales or works contract.
The Deputy Commissioner held the supplied of bricks by the assessee as sales.
The assessee then appealed to the Tribunal against that order.
The Tribunal following the ratio of the decision of this Court in Chandra Bhan Gosain vs The State of orissa and others(1) came to the conclusion that the supplies of bricks were sales.
At the instance of the assessee, the Tribunal referred the following question of law to the High Court: "Whether on the facts and in the circumstances of the case the transaction envisaged by the contract entered into by the applicant with the Public Works Department of the Govern (1) 14 S.T.C. 766: 119641 2 S.C.R. 879.
160 ment of Gujarat on 6th September 1965 for the manufacture and supply of kiln burnt bricks to the said Department and the supply of bricks to the said Department in terms of their running Bill No. XI dated 28th October 1967 is a sale or a works contract ? The High Court answered the question in favour of the assessee holding that the transaction was a works contract.
In coming to that conclusion the High Court hold as follows: In our opinion the decision of the Supreme Court in Chandra Bhan Gosai 's case (supra) is clearly distinguishable on facts.
The contract in that case though prima facie word cd as regards the relevant clauses in similar fashion as the contract in the instant case is in fact cast in a different mould and it would be difficult to hold in the light of the special features and characteristics of the contract with which we are concerned that the decision of the Supreme Court in that case would completely govern the facts of this case.
" Mr. section T. Desai, the learned counsel for the appellant submits that the present case is squarely governed by the decision in Chandra Bhan Gosain 's case (supra) and the High Court is wrong in holding to the contrary.
Mr. V. section Desai learned counsel appearing on behalf of the assesee, on the other hand submits that the High Court is right in distinguishing the present case in view of certain distinguishing features of the contract With which we are concerned.
It is well settled that whether a particular transaction is a contract of sale or works contract depends upon the true construction of all the terms and conditions of the document when there is one.
The question will depend upon the intention of the parties executing the contract.
As we have observed ill our judgment in State of Gujarat vs Variety Body Builders(1) which we have just delivered there is no standard formula by which one can distinguish a contract of Sale from contract for work and labour.
The question is not always easy and has for all time vexed jurists all over.
The distinction between a contract of sale of goods and a contract for work and labour is often a fine one.
A contract of sale is contract whose main object is the transfer of the property in and the delivery of the possession of a chattel as a chattel to the buyer.
(Halsbury 's Laws of England Third Edition Volume 34 page 6.) The contract with which we are concerned in this appeal is found in a tender for the supply of materials containing a memorandum of the conditions.
The nature of work is described as manufacturing and supplying kiln burn bricks for construction of Gandhinagar .
The question will depend upon the true construction of the tender which on acceptance is treated here as the contract containing all the terms and conditions agreed upon between the two parties.
In the tender the assessee stated I/We chairman Sabarmati Rati Udyog Sahakari Mandi (1) 161 Ltd., the undersigned do hereby tender for the supply of the materials described in the Schedule attached herewith subject to the conditions annexed.
The schedule described materials as bricks and also stated quantities to be delivered", and "rate at which to be supplied".
The tender is described as "Supply of Materials Tender".
Although the above nomenclature, by itself, is not decisive, we find that the same is justified by the principal terms governing the contract to which we will presently refer. ` "Clause 6:The contractor shall give notice to the Executive Engineer or his Assistant of his intention of making delivery of materials and on the materials being approved, receipt shall be granted to him by the Executive Engineer or by his Assistant and no materials which is not so approved shall be considered to have been delivered.
Clause7: on the completion of the delivery of materials, the contractor shall be furnished with a certificate to that effect, but the delivery shall not be considered to be complete until the contractor shall have removed all rejected materials, and shall have the approved materials, stacked or placed in such position as may be pointed out to him.
Clause 8: The materials to be supplied shall be of the best quality and in strict accordance with the specification and the contractor shall receive payment for such materials only as are approved and passed by the Executive Engineer or his Assistant .
Should the Executive Engineer consider that any of the materials delivered are not of the best quality are not in strict accordance with the specification but that they may be accepted and made use of it shall be within his full discretion to accept the same at such reduced rates as he may fix thereon.
Clause 9: In the event of the material being considered by the officer in the charge OF the work to be inferior to that described in the specifications, the contractor shall on demand in writing, forthwith to remove the same at his own cost and in the event of his failure to do so, within such period as may be named by the Executive Engineer or his Assistant, the said officer may have such reject ed material removed at the contractor 's risk and expense, the expense so incurred being deducted from any sums due or which may become due to the contractor.
13 833 Sup.
C1/76 162 Clause 11: The contractor shall supply at his own expense all tools, plants and implements required for the due fulfilment of his contract, and the materials shall remain at his risk till the date of final deli very, except such portion as shall have been in the meantime removed for use by the Executive Engineer or his Assistant.
Clause 13:This contract shall not be sublet without the written permission of the Executive Engineer.
In the event of the contractor subletting his contract without such permission he shall be considered to have thereby committed a breach of the contract and shall forfeit his security deposit, and shall have no claim for any compensation for any loss that may accrue on account of the collection of the materials or engagements entered into.
Clause 16:No guarantee can be given that the total number of quantities of material indicated in the Schedule of the contract will be ordered during the period of the contract.
But, the Executive Engineer shall purchase from the contractor all such materials as are detailed in the Schedule which he may require to purchase during the period of the contract.
Clause 17:No claim or claims made by the contractor for increased rates on the grounds that the market or other rates included in the contract, have risen during the period of his contract, will be recognized that is to say, the contractor is bound to complete the work and or to supply materials at the rates mentioned in the contract.
Clause 22:ALL rates quoted by the contractors arc inclusive of sales tax and the contractor will pay the same himself, Clause24: The contractor hereby declares that the articles sold to the buyer under this contract shall be of the best quality (and workmanship) and shall be strictly in accordance with the specifications and particulars contained in the Schedule and accompaniments hereof and the contractor hereby guarantees that the said articles would continue to conform to the description and quality aforesaid for the period shown in the Schedule from the data of delivery of the said articles to the purchaser and that notwithstanding that fact that 163 the purchaser may have inspected and approved, the said articles if during the aforesaid period stated in the Schedule the said articles be discovered not to conform to the description and quality aforesaid or have deteriorated and the decision of the purchaser in that behalf shall be final and conclusive.
The purchaser will be entitled to reject the said articles on such portion thereof as may be discovered not to conform to the said description and quality on such rejection the articles will be at the sellers ' risk and all the provisions herein contained relating to rejection of goods, etc.
shall apply.
The cont tractor shall if so called upon to do, replace the articles etc.
Or such portion thereof as is rejected by the purchaser otherwise the contractor shall pay to the purchaser such damages as may arise by any of the breach of the condition herein contained, nothing herein contained shall prejudice any other right of the purchaser in that behalf under this contract or otherwise.
" Amongst some of the general conditions of the contract, we find the following: "Clause3: All the necessary arrangements of raw materials, equipment water, coal, labour etc.
required for supply and manufacture of bricks shall have to be made by the contractor at his own cost.
The Government shall give only land for excavating soil for manufacture of bricks to the contractors free of rent from the land reserved by the.
Government for this purpose.
The land shall have to be handed over back to the Government after the manufacturing of the brick work is completed.
* * * * Clause 10:The contractor shall have no right to sell these bricks, brick bats, chharas or any other mate rials manufactured on this site to any other private parties.
If, however, it is found that the materials have been sold by him to private parties or other bodies, he shall have to pay to Department at the rate of 10% of the value of materials at the tender rates.
" While giving the specifications Item No. l herein refers to "manufacturing and supplying of 1 Class kiln burnt bricks of standard size including stacking in regular consignments etc.
as directed".
164 Mr. V. section Desai brings to our notice the common as well as the distinguishing features of this case and of Chandra Bhan Gosain 's case (supra).
According to him the common features are the following: The land was given free for manufacture of bricks in both the cases.
The materials shall remain at the contractor`s risk till the date of final delivery.
in Chandra Bhan Gosain`s case (supra) the contractor could not sell the bricks to third parties without previous permission of the company .
Here also the contractor has no right to sell the bricks etc.
but if he does sell he will have.
to pay 10 percent of the value of the materials at the tender rates.
Both the Clauses are, therefore, permissive Clauses and are substantially the same.
In both the contracts the contracting parties have used the words such as sell, purchase, deliver or rate of supply etc.
in the contract.
In Chandra Bhan Gosain`s case (supra) dealing;, with those very common features this Court observed as follows: "lt may be presumed that it was understood that in quoting his rate for the bricks, the appellant would take into account the free supply of earth for making the bricks.
Again what was supplied to the company by the appellant was not the earth which he got from it but bricks, which, we think, are something entirely different.
It could not have been in intended that the property in the earth would continue in The company in spite of its conversion into such a different thing as bricks.
Further we find that the contract provided that the bricks would remain at the appellant`s risk till delivery to the company.
Now, obviously bricks could not remain at the appellants risk unless they were his property.
Another Clause provided that the appellant would not be able to sell the bricks to other parties without the permission of the company.
Apparently, it was contemplated that without such a provision the appellant could have sold the bricks to others.
Now he could not sell the bricks at all unless they belonged to him.
Then we find that in the tender which the appellant submitted and the acceptance of which made the contract, he stated, "I/we hereby tender for the supply to the Hindus than Steel Private Ltd.
Of the materials described in the undermentioned memorandum.
The memorandum described the materials as bricks, and also stated the 'quantities to be delivered ' and the 'rate at which materials are to be supplied '.
All these provisions plainly show that the contract was for sale of bricks.
If it were so, the property in the bricks must have been in the appellant and passed from him to the subject matter.
From the above extract, it is clear.
that the decision in Chandra Bhan Gosain 's case (supra) will govern the present case where terms and conditions are almost identical so far as relating to the relevant subject matter.
165 Mr. Desai, however, took pains to point out certain distinguishing features of the present case such as maintenance of qualified Executive Engineer for supervision of work subject to removal at the instance of the Government; restriction on employment of children under 12 years; labour welfare provisions regarding wages; workmen 's compensation, etc.; provisions in relation to prevention of cruelty to animals; non payment of royalty for excavating earth; use of tube wells standing on the Government site manner of execution of the work regarding moulding and drying and provision against subletting which shall constitute a breach of the contract resulting in forfeiture of security deposit.
All the above terms relate to a stage in the process of proper and efficient manufacturing of bricks and are not inconsistent in a contract of sale.
These terms do not appear to impinge on the character of the contract as one for sale of the bricks manufactured.
The Government in its overall interest and anxiety for general welfare could insist on compliance with certain beneficial legal measures.
It could also insist on certain terms which will ensure efficient production of the material.
Provision against subletting when the land was given free by Government is also understandable.
All the above features do not negate the concept of a contract of sale of the bricks that are ultimately manufactured.
The true test in this case is whether in making the contract to brick produced was transferred as a chattel for consideration and we are clearly of opinion that this has taken place in this case.
The property in the bricks was entirely of the assessee.
He had not only to manufacture that but also to stack them for facilitating delivery.
The essence of the contract was, therefore.
the delivery of the bricks after manufacture.
The present case cannot be distinguished from the decision of the Chandra Bhan Gosain`s case (supra).
We are, therefore, clearly of opinion that the contract in this case is a contract of sale and not a works contract.
The assessee is, therefore liable to sales tax.
The question is answered accordingly.
The High Court was not right in answering the question in favour of the assessee.
The decision of the High Court is set aside.
The appeal is allowed with costs.
S.R. Appeal allowed.

dataset_name: IN-Abs

summary:
The respondent manufactured and supplied kiln burnt bricks to the appellant as per the works contract dated 8/9th December, 1970, which provided (1) that land would be given free, (ii) that the material shall remain at the contractor 's risk till the date of final delivery: and (iii) that the contractor had a right to sell to the third parties bricks subject to payment of 10 of the value of materials at the tender rates of the appellant.
the respondent was assessed to sales tax under the Bombay Sales Tax Act, 1959, on the basis that these supplies were sales.
The Deputy Commissioner of Sales Tax on an application under section 52 of the Bombay Sales Tax Act held the supplies as sales on appeal the Sales Tax Appellate Tribunal confirmed it, following the ratio of the decision in 1964 (2) SCR p. 879 (C. B. Gosain vs State of Orissa and Ors.) But, the High Court, on a reference answered it in favour of the assessee and against the revenue.
Allowing the Revenue 's appeal by special leave the Court, ^ HELD: (1) It is well settled that whether a particular transaction is contract of sale or a works contract depends upon the true construction of the terms and conditions of the document, when there is one.
The question will depend upon the intention of the parties executing the contract.
There is no standard formula by which one con distinguish a contract of a contract from the contract for work or labour.
The question is not always easy and has always easy jurists all over.
The distinction between contract of sale of goods and a contract for work and labour is often a fine one.
A contract of sale is a contract whose main object is the transfer of property in and the delivery of the possession of, a chattel as a chattel to the buyer.
[160 E G] State of Gujarat vs Variety Body Builders applied.
Halsbury 's Laws of England, referred to.
(2) As per terms and conditions of contract, the land was given free for manufacture of bricks; the materials remained at the risk of the contractor till the date of final delivery; the respondent could not sell the bricks to third d parties but could do so under certain restrictions; the contracting parties have used the words as sale, purchase, delivery or rates of supply etc.
in the contract.
All these terms and conditions are almost identical to the conditions in Chandra Bhan Gosailn 's case and hence the decision in that case will govern the present case as well .
The various other terms in the contract, namely, maintenance of a qualified executive engineer for supervision of work, restriction on employment of children under 12 years of age, labour welfare provisions regarding wages, workmen 's compensation etc., provision relating to cruelty to animals, non payment of royalty for excavating earth etc.
relate to 159 a process of proper and efficient manufacturing of bricks and are not inconsistent in a contract of sale.
These terms do not appear to impinge on the character of the contract as one for sale of bricks manufactured.
The Government in its overall interest and anxiety could insist on compliance of certain beneficial legal measures.
Provision against sub letting when the land was given free by the Government was also understandable.
All these features do not negate the concept of a contract of sale of bricks that are ultimately manufactured.
The true test in this case is whether in making the contract, brick produced was transferred as a chattel for consideration and this has taken place in this case.
The essence of the contract was, therefore, the delivery of the bricks after manufacturing.
[164 A H, 165 A D] (3) The contract in this case is contract of sale and not a works contract and the assessee is liable to sale tax.
[165 E] C. B. Gosain vs State of Orissa and Ors. ; , followed.


judgement:
Civil Appeals Nos. 669 and 670 of 1971.
Appeal by Special Leave from the Judgment and order dated the 11th June, 1970 of the Calcutta High Court in Sales Tax reference No. 395 of 1969.
section T. Desai, H. section Parihar and 1.
N. Shroff, for the Appellant.
E L. N. Sinha, Solicitor General, Sukumar mar Basu and G. 5.
Chatterjee for respondent in C.A. 669/71.
Leila Seth, Sukumar Basu, G. section Chatterjee, for Respondent in C.A. 670/71.
The Judgement of the Court was delivered by JASWANT SINGH, J.
These two appeals Nos. 669 and 670 of 1971 by special leave from the common judgment dated June lt, 1970 of the High Court at Calcutta in Sales Tax References Nos. 395 of 1965; and 521 of 1967 which raise important questions as to the scope and extant of the revisional power of the Commissioner, Commercial Taxes, under section 20(3) of the Bengal Finance (Sales Tax) Act;, 1941 (Act VI of 1941) (hereinafter referred to as the Act '), and shall be disposed of by this judgment.
The facts giving rise to these appeals are: The appellant which is a Private Limited Company, incorporated under the Indian Companies Act, 1913, and is registered as a dealer under the Act submitted a return for 4 quarters ending with the last date of Chaitra, 1364 B.S. (corresponding to the period commencing with April 14, 1957, And ending with April 13, 1958) showing a gross turnover of 112 sales of Rs. 35,93,402/ By his order dated December 7, 1959, the Commercial Tax officer, Rajakatra Charge, rejected the appellant 's books of accounts on the ground of absence of purchase and sale vouchers and of stock statements and enhanced the gross turnover shown by the appellant by Rs. 50,000/ and charged the entire enhanced amount to tax subject to deduction under section 5(2)(be of the Act.
He also imposed a penalty of Rs. 1,000/ under section 11(1) of the Act.
On appeal under section 20(1) of the Act, the Assistant Commissioner, Commercial Taxes, Burrabazar Circle, by his order dated September 10, 1960, reduced the enhancement of gross turnover from Rs. 50,000/ lo Rs. 25,000/ and the penalty from Rs. 1,000/ to Rs. 500/ .
Not satisfied with this reduction, the appellant moved The Commissioner, Commercial Taxes, West Bengal, in revision under section 20(3) of` the Act on November 10, 1960.
I before the filing of the said revision petition, the Commercial Tax officer, Central Section, to whom power under section 14(1) of the 11 Act has been duly delegated started an enquiry on January 20, 1960 to the and served on the appellant a notice dated October 25, 1960 to the following effect: "You are hereby directed to furnish the undersigned with the serial Nos. Of the cash memos printed by you in 1363 B.S., 1364 B.S., 1365 B.S., 1366 B.S. and 1367 B.S.
The names of the suppliers of these memos relevant bills Nos.and dates, amount, dates of payment and modes of l payment also are to be indicated.
I The information may be supplied to the undersigned on 31st October, 1960 at 4 p.m. positively.
" In response to the notice, the appellant appeared before the Commercial Tax Officer, who after hearing the former and examining the cash memos and other material submitted a report of the investigation made by him to the Assistant Commissioner, Central Section observing inter alia that two original cash memos issued by the appellant bearing serial No. 30727 26 dated January 24 for Rs. 69.50 in respect of sale of Banarsi Saree and No. 31310 37 dated December 25, 1966 for Rs. 62.20 in respect of sale of ready made garments were not properly recorded in the appellant 's books of accounts and records and that on reference to the appellant 's books of accounts and cash memos, it had been found that cash memo No. 30727 26 was issued in respect of mill made cloth for Rs. 11.75 on August 18, 1964 and not in respect of Banarsi saree for Rs. 69.50 an January 24 and cash memo No. 31310 37 was issued in respect of sale of mill made cloth for Rs. 9.37 and not in respect of sale of already made garments for Rs. 62.20 on December 25, 1966.
He also observed in his report that in cash memo No. 31310 37, the date appeared to have been tampered with by subsequent insertion of the numerals "66" after the date of issue and that the actual date appear ed to be December 25 and that the appellant had not been able to furnish a satisfactory explanation with regard to these discrepancies.
The Commercial Tax officer further stated in his report that his investigation revealed that the appellant got duplicate sets of 1,00,000 113 cash memos bearing serial Nos. 2850 to 29500 and 30501 to 31500 printed and supplied by M/s Blackwoods India Limited and did not record sales to the extent of Rs. 30,00,000/ which in the absence of any evidence to the contrary appeared to be entirely taxable.
This report was received by the Additional Commissioner, Commercial Taxes, while the aforesaid revision petition was still pending before him.
he, thereupon gave the following notice to the appellant: "on discovery of fresh materials, as reported by the Commercial Tax officer, Central Section, in his report dated 27 12 60 (copy enclosed), it appears that you have suppressed sales "estimated to be Rs. 30,00,000 in respect of the assessment of four quarters ending Chaitra 1364 B.S.
The above revision petition which has been filed before me is against the appellate order in respect of the assessment for the said period.
It also appears that sales to the extent of Rs. 30,00,000 (estimated) escaped taxation from the original assessment and consequently from the Assistant Commissioner 's appellate order.
The above revision petition will be heard by me on 5 10 61 at 11.30 a.m. and the report dated 27 12 60, submitted by the Commercial Tax officer, Central Section, will be considered at the time of hearing of the revision petition.
You should, therefore, appear before me on that date at the hour fixed either in person or by a duly instructed agent to represent your case, failing which the matter will be decided ex parte without any further reference to you.
" In reply to the notice, the appellant wrote back denying that it had any transaction with M/s Blackwoods India Ltd. in relation to the printing of the duplicate sets of the cash memos in question and stating inter alia that on the matter being referred to the later, they could not say from whom actually, the order in question was received nor could they give any relevant particulars.
It was further added by the appellant that the proposed enhancement of gross and taxable sales by Rs. 30,00,000/ was unjustified and unwarranted.
The Additional Commissioner disposed of the revision petition be enhancing the assessment by Rs. 20,00,000/ as against the admitted gross turnover of Rs. 35,93,402/ and charged the entire enhanced amount of Rs. 20,00,000/ to tax subject to deduction under section 5 (2) (b) of the Act, The appellant thereupon took the matter in further revision to the Board of Revenue, West Bengal contending that the conclusions arrived at by the Additional Commissioner, Commercial Taxes were wholly unwarranted and that while exercising his power of revision under section 20(3) of the Act, the Commissioner had to confine himself to the examination of the material before the Assessing officer and could not take additional facts into consideration.
The Board negatived both the contentions and rejected the revision application.
Thereupon the appellant made an application to the Board under section 21(1) of the Act requesting that the points of law arising 10 833SCI/76 114 from its decision be referred for decision to the High Court.
Although at the hearing of the application, the appellant stressed that reference be made on three points, the Board allowed the application in part and referred only the following question of law for decision to the High Court:
Whether on the facts and circumstances of the case, in 5 exercise of his powers under section 20(3) of the Bengal Financc (Sales Tax) Act, 1941, the Additional Commissioner was competent to reassess the gross turnover of the petitioner by taking into consideration additional material which had not been made available to the assessing officer".
The appellant did not rest content with this limited reference and made an application under sub sections 2(b) and (3) of section 21 of the Act to the High Court which directed the Board to submit for its decision.
The following further question of law: "Whether on the facts admitted or found by the Tribunals below, the Additional Commissioner of Commercial Taxes was vested with the authority or jurisdiction, under sub section (3) of section 20 of the Bengal Financc (Sales Tax) Act, 1941, read with rule 80A of the Rules framed thereunder to admit or rely on the purported report, dated December 27, 1960, of The Commercial Tax officer of the Central Section, pursuant to the enquiry, under subsection (1) of section 14 of the said Act, initiated long before.
The filing of the revision petition in question by the petitioner before the Commissioner of Commercial Taxes, West Bengal ?".
The Board thereupon referred the above quoted second question of law as well to The High Court for its decision.
After hearing The appellant and the Revenue, the High Court by its common judgment dated June 11, 1970 answered both the aforesaid questions in the affirmative.
Aggrieved by this judgment of the High Court, the appellant applied for and obtained special leave to appeal to this Court.
Appearing for the appellant, Mr. Desai has strenuously urged that the revisional power of the Additional Commissioner under section 20(3) of the Act was a limited one and he was not competent to act as an original assessing authority and reassess the gross turn over by taking into consideration the additional material comprising fresh sources of revenue which was not available to the Assessing officer.
He has further urged that the Additional Commissioner, could not admit or rely on the report dated December 27, 1960, of the Commercial Tax officer, Central Section, based on the enquiry under section 14(1) of the Act which was initiated long before The filing of The revision application before the Commissioner, Commercial Taxes,West Bengal.
115 Though both these contentions are inextricably linked up, we shall deal with them separately.
Turning to the first contention, we wish to make it clear that the scope and ambit of the revisional jurisdiction varies from statute to statute and it is difficult to make general observations in regard thereto.
For ascertaining the true scope, content and ambit of the revisional jurisdiction of the Commissioner or the Additional Commissioner, as the case may be, of Commercial Taxes under the Act, it is necessary to notice section 20 thereof which in so far as is material for the purpose of these appeals stood thus at the relevant time: "20(3).Subject to such rules as may be prescribed and for reasons to be recorded in writing, the Commissioner upon application or of his own motion may revise any assess made or order passed under this Act or the rules thereunder by a person appointed under section 3 to assist him, and subject as aforesaid, the Board of Revenue may, in like manner, revise any order passed by the Commissioner : Provided that before rejecting g any application for the revision of any such order the Commissioner or the Board of Revenue, as the case may be, shall consider it and shall record reasons for such rejection.
: Provided further that no application for revision shall lie to the Commissioner in respect of any assessment if an appeal lies under sub section (1) to the Commissioner in respect of such assessment (5) Before any order is passed under this section which is likely to affect any person adversely, such person shall be given reasonable opportunity of being heard.
" The section as extracted above is very widely worded.
The word 'revise ' occurring therein (which in dictionary is describe as meaning to 'reexamine, to review, to correct, or to amend the fault ') is not hedged or qualified by any condition or limitation.
The controlling expressions like 'for the purpose of satisfying himself as to the legality Or ' propriety of the order passed ' or 'regularity of the proceeding ' which are susceptible of being construed as restricting the reversional power to rectification of an illegality or impropriety of the order or of irregularity in the proceeding are also not to be found therein.
There is also nothing in the Bengal Sales Tax Rules, 1941 (hereinafter called 'the Rules ') to circumscribe or limit the power.
It is not, therefore, unreasonable to infer that the amplitude of the power conferred on the Commissioner or the Additional Commissioner is more extensive than the power exercisable by the High Court under section 115 OF the Code of Civil Procedure.
In fact, it can be easily equated with the power exercisable by the appellate authority in an appeal under sub section (2) of section 20 of the Act.
We are fortified in this view by the following observations made by this Court in Indira Sohanial vs custodian of Evacuee Property Delhi and others(1).
(1) A T R. 116 "Section 27 is very wide in its terms and it cannot be construed as being subject to any limitation such as filing of an appeal.
Nor can the scope of revisional powers be confined only to matters of jurisdiction or illegal lithe, because under section 27 the Custodian General, can exercise revisional powers for the purpose of satisfying himself as to "the legality or propriety" of any order of the Custodian The following observations made by Ramaswami, J. in East Asiatic Co. (India) Ltd. vs The State of Madras(1) are also relevant : "The purposes of this Act are two fold, viz., the levy of a general tax on the sale of goods to supplement the lost revenues and for promoting the general public good; and secondly, to see that this is done under the provisions of the Act and not by carrying out in a capricious or arbitrary manner.
Therefore, a revisional authority has to be created.
What is revision ?
The essence of revisional jurisdiction lies in the duty of the superior tribunal or officer entrusted with such jurisdiction to see that the subordinate tribunals or officers keep themselves within the bounds prescribed by law and that they do what their duty requires them to do and that they do it in a legal manner.
This jurisdiction being one of superintendent and correction in appropriate cases, it is exercisable even suo motu as is clear from the numerous statutory provisions relating to revision found in various Acts and Regulations such as the Civil Procedure Code, Criminal Procedure Code, Income Tax Act, etc.
The jurisdiction of suo motu revision is not cribbed and cabined or confined by conditions and qualifications.
The purpose of such an amplitude being given Suo motu revisions appears to be as much to safeguard the interests of the exchequer as in the interests of the assesses.
The State can never be the appellant and if there is an order against the State to its prejudice, and naturally the assesses in whose favour the order is passed does not prefer an appeal, the State would suffer unless its interests are safeguarded by the exercise of such supervisory jurisdiction as the one given to the authorities above mentioned."
Thus the Commissioner or the Additional Commissioner can, in exercise of his revisional power, re assess the turnover and while doing so rope in escaped items of turnover and thereby enhance the gross turnover.
Having found that the power of revision exercisable by the Com missioner, Commercial Taxes is not tramelled by any limitation, let us now see whether the commissioner while exercising the revisional power is confined to the order of assessment and the record of pro T.C. 299 117 ceedings of the Assessing officer or can he travel outside the same and re assess the gross turnover by taking additional material under consideration.
The following observations made in the majority judgment of this Court in the State of Kerala vs K. M. Cheria Abdulla Co.(1) are helpful in deciding this matter: "The words of section 12(2) of the Madras General Sales Tax Act, 1939, that the Deputy Commissioner 'may pass such order with respect thereto as he thinks fit ' means such order as may in the circumstances of the case for rec rectifying the defect be regarded by him as just.
Power to pass such order as the revising authority thinks fit may in some cases include power to make or direct such further enquiry as the Deputy Commissioner may find necessary for rectifying the illegality or impropriety of the order, or irregularity in the proceeding.
It is therefore not right baldly to propound that in passing an order in the exercise of his revisional jurisdiction, the Deputy Commissioner must in all cases be restricted to the record maintained by the Officer subordinate to him, and can never make enquiry outside that record.
Therefore, conferment of power under rule 14 A of the Madras General Sales Tax Rules, 1939, to make further enquiry in cases where after being satisfied about the illegality or impropriety of the order or irregularity in the proceeding, the revising authority thinks it just for rectifying the defect to do so does not amount to enlarging the jurisdiction conferred by section 12(2)."
It will also be apposite in this connection to refer to the following operations made by the Madras High Court in State of Madras vs The Madras Knitting Co. Ltd.(2) "The powers given to the revising authority under section 12(2) were not confined to errors patent on the face of the record but would extend to probing further into the records like calling for despatch registers and other evidence."
It will also be useful in this connection to refer to the decision of this Court in Swastik oil Mills Ltd. vs H. B. Munshi, Deputy Cont missioner of Sales Tax, Bombay(3) where this Court did not accept the principle laid down by the Andhra Pradesh High Court in State of Andhra Pradesh vs T. G. Lakshmaiah Chetty & Sons(4), that the Deputy Commissioner of Sales Tax while exercising revisional powers under the Sales Tax Act of 1946 or of 1953 or of 1959 could not travel beyond the material or record that is available to the assessing authority and was not entitled to find data to institute an enquire so as to include additional material in order to judge the correctness of the order sought to be revised and held: "Whenever a power is conferred on an authority to revise an order, the authority is entitled to examine the correctness, legality and propriety of the order and to pass such suitable orders as the authority may think fit in the circumstances of the particular case before it.
When exercising such powers, there is no reason why the authority should not be entitled, to hold an enquiry or direct an enquiry to be held and, for that purpose, admit additional material.
The proceedings for revision, if started suo motu, must not of course be based on a mere conjecture and there should be some ground for invoking the revision powers.
Once these powers are invoked, the actual interference must be based on sufficient grounds, and, if it is considered necessary that some additional enquiry should be made to arrive at a proper and just decision, there can be no bar to the revising authority holding a further enquiry or directing such an enquiry to be held by some other appropriate authority.
'This principle has been clearly recognised by this Court in the State of Kerala vs Abdullah and Company (1965) 16 S.T.C. 875."
" The decisions of this Court in Deputy Commissioner of Agricultural income tax and Sales Tax, Quilon and Anr.vs Dhanalakshmi Vilas Cashew Co.(1) the State of Kerala vs V.M. Appukutty and Commissioner of Income tax, Bombay vs Shapoorji Pallonji Mistry(3) relied upon by Mr. Desai in support of his contention that while exercising his revisional power under section 20(3) of the Act, the Com Commissioner cannot travel outside the return made by the assessee and the assessment order passed by the Sales Tax officer with a view to finding out suppressed or escaped items of turnover and enhance the assessment are distinguishable as in all those cases there were specific and separate provisions which enabled escaped turnover or income being brought to tax after following a special procedure.
In Dhanalakshimi Vilas Cashew Co`s case (supra), there was rule 33 of Kerala General Sales Tax Rules, 1950, in M. Appukutty case (supra), there was rule 17 of the Madras General Sales Tax Rules, 1939; and in Shapoorji Pallonji Mistry`s case (supra) there were sections 34 and 33B of the Income Tax Act, 1922 which enabled escaped turnover or escaped income to be brought to tax.
In the Act before us, however there are no separate or specific provisions for assessment of` escaped turnover which may, by implication, be said to exclude from the ambit of the revisional jurisdiction of the Commissioner the taking of additional facts into consideration and enhancing the gross turn over.
In view of the foregoing discussion we have no hesitation in repelling the first contention raised on behalf of the appellant by Mr. Desai and in holding that the High Court was right in answering the First question referred to it by the Board of Revenue in the affirmative.
This takes us to the second contention advanced on behalf of the appellant which is covered by the second question referred by the Board of Revenue at the requisition of the High Court.
For effectively dealing with this contention, it is necessary to advert to the following two previsions viz. section 14 of the Act and rule 80A of the Rules: "14.(1) The Commissioner may, subject to such conditions as may be prescribed, require any dealer (a) to produce before him any accounts, registers or documents, (b) to furnish any information, relating to stock of goods of, or purchases, sales or deliveries of goods by, the dealer or relating to any other matter, as may be deemed necessary for the purposes of this Act.
(2) (a) All accounts, registers and documents relating to the stocks of goods of, or purchases, sales and deliveries of goods by any dealer; and (b) all goods kept in any place of business of any dealer shall at all reasonable times be open to inspection of the Commissioner.
(3) If the Commissioner has reason to suspect that any dealer is attempting to evade payment of any tax under this Act, he may, for reasons to be recorded in writing, seize such accounts, registers or documents, of the dealer as may be necessary, and shall grant a receipt for the same, and shall retain the same only for so long as may be necessary for examination thereof or for a prosecution. "
Rule 80A. The appellate or revisional authority may, before finally disposing of the matter, make such inquiry or cause such inquiry to he made by such officer as it may think fit." A combined reading of the provisions of Section 20(3) of the Act and rule 80A of the Rules would show that the., Commissioner, Commercial taxes is empowered to make or cause to be made such enquiry as he may think fit for proper exercise of the revisional jurisdiction conferred on him under section 20(3) of the Act.
It would be further noticed that the Commissioner can, under; section 14 of the Act, call upon dealer to produce any accounts, registers or documents or to furnish any information relating to his business as may be deemed necessary for the purpose of the Act which include the exercise of recessional jurisdiction.
It would also be noticed that the powers under section 14 of the Act have been duly delegated to the Commercial Tax Officer.
In this state of affairs, it is immaterial whether the Commissioner proceeds to make the enquiry before or after filing of a revision petition so long as he affords to the person likely to be adversely affected by his action, an opportunity of being heard.
In the instant case, the whole thing was duly processed s already stated the Commercial Tax officer, Central Section, by his notice dated 120 October 25, 1960 gave adequate opportunity to the appellant to explain the discrepancies in its cash memos and books of accounts.
Another opportunity to explain the suspicions circumstances relating to the alleged suppression of the turnover as also to refute the material collected by the Commercial Tax officer, Central Section, as a result of the investigation made by him and to show cause why action to subject the escaped turnover to tax be not taken was afforded to the appellant by the Additional Commissioner, Commercial Taxes, when on receipt of the ,aforesaid report dated December 27, 1960 of the Commercial Tax officer, Central Section, he gave a notice to the former and furnished him with a full copy of the report.
It cannot therefore, be maintained with any show of force that, in admitting and relying, on the aforesaid report dated December 27, 1960 of the Commercial Tax officer, Central Section, the Additional Commissioner, Commercial Taxes committed any illegality or breach of any statutory provision or rule or transgressed the limits of his jurisdiction.
It will also not be out of place to mention that the contention which is the subject matter of the second question was never raised before the Board or Revenue as appears from the statement of the case drawn by it.
We are, therefore, clearly of the view that the High Court was right in answering the second question also in the affirmative.
In the result, the appeals fail and are hereby dismissed but in the circumstances of the case without any order as to costs.
P.B.R. Appeals dismissed.

summary:
Section 20(3) of the Bengal Finance (Sales Tax) Act, 1941 provides that the Commissioner, Upon application or of his own motion, may revise why assessment made or order passed under the Act or the Rules thereunder by a person appointed under section 3 to assist him and the Board of revenue may, in like manner, revise any order passed by the Commissioner.
At the time of assessment of the appellant 's sales tax return the Commercial Tax officer enhanced the gross turnover and charged the enhanced amount to tax and in addition imposed a penalty.
On appeal under section 20(1) of the Act, the Assistant Commissioner reduced the enhancement of gross turnover is as well as the penalty.
The appellant filed a revision application before the Commissioner of Commercial Taxes.
Before the filing of revision application, under orders of the Additional Commissioner an enquiry was conducted by a Commercial Tax officer who detected numerous discrepancies of a serious nature in the accounts.
On the basis of this report, the Additional Commissioner enhanced the assessment by a huge sum and charged the entire enhanced amount to tax.
On further revision to the Board of Revenue, the appellant contended that while exercising his power of revision under section 20(3) of the Act, the Commissioner had to confine himself to an examination of the mate rial before the assessing officer and could not take additional facts into consideration which plea was rejected by the Board.
The High Court held that (1) under section 20(3) the Additional Commissioner as competent to reassess the gross turnover by taking into consideration additional material which had not been made available to the assessing officer and (ii) the Additional Commissioner was vested with authority under.
section 20(3) read with r. 80A to rely on the report under section 14(1) initiated long before the filing of the revision petition.
Dismissing the appeal, ^ HELD: The Commissioner or Additional Commissioner can.
in exercise of his revisional power, re assess the turnover and while doing so, rope in the escaped items of turnover and thereby enhance the gross turnover [116G] (1) The word "Revise", the dictionary meaning of which is 'to re examine, to review, to correct or to amend the fault", is not hedged or.
qualified by any condition or limitation.
The controlling expressions like "for the purpose of satisfying himself as to the legality or propriety of the order passed ed" or "regularity of flue proceedings" which are susceptible of being construed as restricting the revisional power to rectification of an illegality or impropriety of the order or of ' irregularity in the proceeding are also not be found therein There is also nothing in the Bengal Sales Tax Rules.
1941 to cir circumscribe or limit the power.
It is not, therefore, unreasonable to infer that the amplitude of the power conferred on the Commissioner or the Additional Commissioner is more extensive than the power exercisable by the High Court under section 115 of the Code of Civil Procedure.
It can be eerily equated with the power exercisable be the appellate authority in an appeal under sub.
2 of section 20 of the Act.
[115F H] 111 Indira Sohanlal vs Custodian of Evacuee Property Delhi and Others ; East Asiatic Co. (India) Ltd. vs The State of Madras 7 S.T.C. 299, State of Kerala vs K. M. Cheria Abdulla & Co. [1965] 16 S.T.C. 875, Swastik.
Oil Mills Ltd. vs H. B. Munshi Deputy Commissioner of Sales Tax.
Bombay ; , State of Madras vs The Madura Knitting Co Ltd. (1959) 10 S.T.C. 155, referred to.
Deputy Commissioner of Agricultural Income Tax and Sales Tax , Quilon and Anr.
vs Chanalakshmi Vilas Cashe w Co. (1969) 24 S.T.C. 491, The State of Kerala vs M. Appukutty (1963) 14 S.T.C. 242 and Commissioner.
(of income.
tax, Bombay vs Shapoorji Pallonji Mistry (1962) 44 I.T.R. 891, distinguished.
(2) on a combined reading of section 20(3) and rule 80A of the Rules it is immaterial whether the Commissioner proceeds to make the enquiry before or after tho filing of a revision petition so long he affords to the person likely to be adversely affected by his action an opportunity of being hearer [119 H] In the instant case, the Commercial Tax officer called upon to make on enquiry, gave adequate opportunity to the appellant to explain the discrepancies And the suspicious circumstances, relating to the alleged suppression bn of the turnover and the Additional Commissioner gave notice to the former and furnished him with a full copy of the report.
It cannot be said that the Commercial Tax officer and Additional Commissioner committed any illegality or breach of any statutory provision or rule or transgressed the limits of their jurisdiction.
1120 A C