judgement:
ivil Appeal No. 2225 of 1966.
Appeal from the judgment and order dated August 6, 1965 of the Madras High Court in Writ Appeal No. 356 of 1964.
907 K.K. Venugopal and R. Gopalakrishnan, for the appellant.
Lily Thomas, for respondent No. 3.
section Govind Swaminathan, Advocate General for the State of Tamil Nadu, E.S. Govindan and A.V. Rangam, for respondent No. 8.
The Legislature of the State of Madras enacted the Madras Buildings (Lease and Rent Control) Act, 1960.
Section 4 of the Act (insofar as it is relevant) provides : "(1) The Controller shall, on application by the tenant or the landlord of a building and after holding such inquiry as the Controller thinks fit fix the fair rent for such building in accordance with the principles set out in sub section (2) or in sub section (3), as the case may be, and such other principles as may be prescribed.
(2) (3)(a) The fair rent for any non residential building shall be at nine per cent, gross return per annum on the total cost of such building.
(b) The total cost referred in clause (a) shall consist of (i) the cost of construction as calculated according to such rates for such classes of non residential building as may be prescribed less the depreciation at such rates as may be prescribed; (ii) the market value of that portion of the site on which the non residential building is constructed; and shall include such allowances as may be made for considerations of locality in which the non residential building is situated, features of architectural interest, accessibility to market, nearness to the railway station and such other amenities as may be prescribed and of the purpose for which the non residential building is used.
Provided that such allowances shall not exceed twenty five per cent.
of the cost of construction as calculated in the manner specified in sub clause (1)".
908 Section 34 confers upon the State Government power to make rules to carry out the purposes of the Act.
Pursuant to the authority conferred by the Act, the State Government has published rules.
Rules 11 to 14 deal with classification of nonresidential buildings, calculation of the cost of construction of the different classes of non residential buildings, allowance for amenities in respect of non residential buildings and calculation of depreciation of non residential buildings.
Rule 11 provides : r. 11 "(1) Non residential buildings shall be classified into two categories, namely : (i) Factories and godowns; and (ii) other non residential buildings.
(2) The non residential buildings belonging to the category specified in sub rule (1)(ii) shall be classified into four different classes according to the classifications laid down in rule 8 in respect of residential buildings".
r. 12 "(1) The cost of the construction of nonresidential buildings belonging to the category specified in rule 11(1)(i) shall be calculated at the rate of 62 naye Paise per cubic foot of the cubical content of the building.
(2) The cost of construction of the different classes of non residential buildings belonging to the category specified in rule 11(1)(ii) shall be calculated at the rates specified below : Class I Ground Floor .
Rs. 16 per square foot of plinth area.
First Floor .
Rs. 13 per square foot of plinth area.
Second Floor .
Rs. 12 per square foot of plinth area.
Class II Ground Floor.
Rs. 13 per square foot of plinth area.
First Floor .
Rs. 10 per square foot of plinth area.
Second Floor .
Rs. 9 per square foot of plinth area.
Class III Single Storeyed .
Rs. 10 per square foot of plinth area.
Class IV Single Storeyed .
Rs. 5 per square foot of plinth area.
In case of every additional floor higher up, the rate per square foot shall be one rupee less than the rate per square foot for the floor immediately below.
" r. 13 "When calculating the cost of construction of non residential buildings, allowances shall be made for the following amenities in addition to those specified in section 4(3) (1) air conditioning; (2) lifts; 909 (3) electric fans; (4) tube lights; (5) number of electric points; (6) fans; (7) ventilators; (8) electric pump for water; (9) flush outs; (10) fixed wash basins; (11) stair cases; (12) out houses; (13) cattle sheds; (14) garden or vacant ground appurtenant to the building enjoyed by the tenant; and (15) usufructs of trees, if any, enjoyed by the tenant".
r. 14 "The depreciation of buildings shall be calculated at the rates specified in Schedule II".
Dr. K.C. Nambiar is the tenant of 2/137, Purasawalkam High Road, Madras at a monthly rental of Rs. 187 50.
He conducts a nursing home in the premises.
The landlord of the premises applied to the Controller claiming that fair rent of the premises in the occupation of Dr. Nambiar be fixed at Rs. 2,575 per month.
Dr. Nambiar applied to the High Court of Madras for a writ of prohibition against the Controller from proceeding with the application for fixation of fair rent.
He pleaded that the "rules framed by the State Government in exercise of the power vested in them by section 4 were inconsistent with the intention and ambit of the Act" and were on that account invalid.
The petition was heard by a single Judge with several other petitions in which the validity of the rules was challenged.
The learned Judge passed an order dismissing the petition, and the order was confirmed in appeal by the High Court.
Dr. Nambiar has appealed to this Court with certificate granted by the High Court.
It was urged on behalf of Dr. Nambiar before the High Court that the expression "cost of production" in sub section
(3) of section 4 means the cost of the original construction and the landlord was not entitled to claim that the fair rent be fixed on the basis of cost which may be estimated to be incurred for reproducing a similar building at the date of the application or the date on which the Act was brought into force.
The learned Single Judge rejected the contention.
He observed that "the statutory sense in which the word 'cost ' or the phrase 'total cost ' is used in sub section (2)(a) is not the original cost or the original expenditure incurred for the construction of the building. 'Total cost ' 910 in section 4(2) is a composite concept consisting of three components out of which the cost of construction for the purpose of arriving at the total cost is to be calculated according to the rates prescribed for each class of building Prescribed and not the initial expenditure incurred in the construction".
The learned Judge proceeded then to observe : "Normally, the notion of depreciation is a subsequent fall in value or reduction of worth due to deterioration arising from age, use and other causes and it is.
deducted from the last value of the building as reduced by previous depreciation.
But the depreciation calculated at the prescribed rates is under section 4(2) (b) to be deducted from the cost of the construction as calculated according to the rates prescribed.
When the cost of construction is arrived at on such basis, the depreciation at the prescribed rate is to be deducted therefrom backwards.
This mode of deduction of depreciation is No. doubt a reverse process.
But there seems to be nothing strange in such a manner of arriving at the cost of construction. " The High Court in appeal observed: "In the first place we are of the opinion that the language of section 4 itself is clear that what the legislature has in mind on the question of the cost of construction, is what has been specified under the rules and Sch.
The very fact that section 4(2)(b)(i) provides that the cost of construction is to be according to such rates for such class of residential buildings as may be prescribed shows that it is not actual cost of construction, but it is the cost of construction which can be determined on the basis of rates as may be specified.
The words "such rates for such classes of residential buildings as may be prescribed" clearly carry with it the conception of the fixing of a statutory rate which may or may not have any relation to or connection with th e actual investment.
Again the provisions of allowance with regard to considerations of locality, features of architectural interest and such other matters for which allowance is made at a percentage not exceeding 10% of the cost of construction is to be determined as on the date when the Act came into force and not the actual original investment.
We seen no warrant to hold that the Legislature intended to make a vital difference between the valuation of the site, which is the market value, and the cost of construction of the building which is the original cost of construction or investment as contended for by Mr. Nambiyar.
" 911 These observations interpreting sub section
(2) of section 4 apply also to the interpretation of sub section
(3 ) of section 4, because the relevant provisions in regard to determination of the cost of construction of nonresidential buildings are identical.
By sub section
(1 ) of section 4 the Controller is invested with authority to fix fair rent of buildings in respect of which an application is made in accordance with the principles set out in sub sections
(2) & (3) and such other principles as may be prescribed.
Under sub section
(3 ) fair rent of any non residential building is to be computed at nine per cent of the gross return per annum on the total cost of such building and the total cost of the building is to consist of three components (1) the cost of construction; (ii) the market value of the portion of the site on which the non residential building is constructed; and (iii) such allowances not exceeding 25% of the cost of construction as may be made for locality, features of architectural interest, accessibility to market, nearness of a railway station and other amenities 'as may be prescribed.
On behalf of Dr. Nambiar it is urged that the "cost of construction" only means cost incurred for constructing the building when it was put up, and the cost of such additions as may have been subsequently made.
On behalf of the landlord 'and the State of Madras it is urged that the expression cost of construction means the cost of reproducing a similar building at the date on which the Act was brought into force and therefore in determining fair rent the Controller must determine for the purpose of section 4(3)(b)(i) the cost of such reproduced building according to rules in that behalf and deduct therefrom the depreciation at the prescribed rate.
In other words, it is intended to, determine under sub section
(3) (b) (i) the market value of the structure at the date of the enactment of the Act.
The Legislature has used in sub section (3) (b) (i) the expression "cost of construction" and in sub section
( 3 ) ( b ) ( ii ) "market value".
It is difficult to accept that the Legislature has used two different expressions for providing that the market value of the building and market value of the site shall form components of the total cost of a building.
In Black 'section Law Dictionary, 4th Edn.
at p. 415 "cost" it is stated "means the amount originally expended in performing a particular act or operation, or for production or construction, as of a building.
" There is, not infrequently great difference between the cost of an article and the value ' of an article.
Cost of an article in terms.
of money is what the owner has.
expended to obtain it; the value of the ,article is ordinarily its market value in a market actual or hypothetical.
It may be conceded that the expression "cost" is sometimes used as meaning the value of an article.
But the expression "cost of construction" in sub section 3 (b)(i) for determining the first component when used in juxtaposition with LI 5Sup.
CI/69 14 912 the expression "market value" in sub section 3(b) (ii) is, in our judgment, used to denote not the market value but the cost of the original construction.
There are inherent indications in cls.
(i), (ii) and (iii) of sub section
(3) which go to prove that the expression "cost of construction" was no.t intended to.
mean the market value.
The expression "cost of building" includes not only the expenses incurred ,for constructing the building, but also the value of advantages which the site of the building offers, such as accessibility to markets, nearness to a railway station, special amenities, and features of 'architectural interest.
If the expression "cost of construction" is equated with the "market value", it would necessarily include the special advantages of its situation, amenities and its architectural features.
But the Legislature has provided for including in the cost of the building apart from the cost of construction, the value of allowances for favourable situation, amenities and architectural features.
That is a ground for holding that the value of allowances is not included in the cost of building.
Amenities such as air conditioning, lifts, electric fans, tubelights, number of electric points, fans, ventilators, electric pump for water, flush outs, fixed wash basins, stair cases, out houses, cattle sheds, garden or vacant ground appurtenant to the building enjoyed by the tenant and usufructs of trees, if any, enjoyed by the tenant will also be included in the cost of building as allowances.
But many of these amenities would be taken into account in determining the market value of the building.
The learned Advocate General appearing on behalf of the State of Madras was unable to explain why the Legislature in the determination of the cost of building for arriving at the fair rent, if the view expressed by the High Court is correct, enacted that these allowances should be included twice, once as part of component (i) and again as part of component (iii).
The learned Trial Judge has rightly pointed out that in determining the cost of construction, if the contention of the State be accepted in determining the first component of the cost of building will be the cost of reproducing the building at a given time reduced by the depreciation computed on the life of the building a process which reverses the normal method of making 'allowances for depreciation.
Again, if the meaning of the expression "cost of construction" were "market value" it would mean that the market value having regard to the market conditions of real property which may go on changing year after year.
But the State has accepted by r. 12 the cost of construction is a fixed quantity related to the date on which the Act was brought into force.
Therefore by prescribing the rate at which the cost of construction is to be determined under r. 12, the expression "cost of construction" is neither the original cost, nor the value of the building at a given time during the life of 913 the Act, but an artificial value related to the assumed cost of construction on the date on which the Act was enacted.
The Advocate General, however, submitted that in respect of old buildings it may not be possible to ascertain what the cost of construction of a particular building was.
But that argument cannot support an interpretation which the plain words used by the statute do not warrant.
Counsel for the appellant pointed out, that P.W.D. rates in respect of different classes of buildings for many years are available, and it should not be difficult for the Controller, having regard to.
the P.W.D. rates which would form a fairly reliable basis for determining, what the cost of construction of a particular type of building was.
The argument that the "cost of construction" of a building is to be such cost as may be prescribed, invites the answer that a provision which, without any guidance, leaves it to the executive authority to fix whatever that authority thinks is the cost of construction, is invalid on the ground of excessive delegation.
If the Legislature has sought to confer authority upon the executive to fix the rates and to call them cost of construction, the Legislature has abdicated its authority in favour of the executive which in law is not permissible.
This however was not the argument which was advanced before the High Court, for it was the case of the State that the rates specified in the rules were rates which were actually prevailing in 1961 in respect of different classes of buildings.
It was also urged that allowing depreciation at the rates prescribed in Sch.
II to.
the rules might unduly depreciate the value of the properties and the landlord may not get a fair return.
But it has been a common feature of rent restriction legislation all over India that the landlord is not allowed the benefit of unearned increment of the value of his construction.
That is why in practically every statute relating to rent restriction legislation rent is pegged down to either a fixed period or to standard rent which is generally related to the cost of construction originally incurred.
We are accordingly unable to agree with the High Court that the Legislature intended by the use of the expression "cost of construction" and "market value" used in cls.
(i) and (ii) of sub section
(3) the same concept of determining the value of a building reproduced at the date when the Act came into force and reduced by depreciation at the prescribed rates.
Some argument about the true meaning of Note (2) to.
II which provides for the standard rates of depreciation was raised before us.
The ,language used in that NOte, even as explained by the illustrations, is obscure.
We are in this case not called upon to determine the meaning of that clause.
if the expression "cost of construction" in sub section
914 (3) (b) (i) means the cost of construction of the building as originally erected with such additions as may be required to be made for subsequent improvements, r. 12 which prescribes the rates at which the cost of construction is to be computed plainly goes beyond the terms of the section.
The appeal is allowed.
The order dismissing the petition is discharged.
The Controller will determine the fair rent according to the provisions of the Act uninfluenced by r. 12.
The appellant will be entitled to his costs in this Court and the High Court.
R.K,P.S. Appeal allowed.

summary:
By section 4 of the Madras Buildings (Lease & Rent Control) Act, 1960 the fair rent for any non residential building is to be fixed on the total cost of such building and under sub section
3(b) the total cost is to consist of three components: (i) the cost of construction as calculated "according to such rates for such classes of non residential building as may be prescribed, less depreciation at such rates as may be prescribed"; (ii) the market value of that portion of the site on which the non residential building is constructed, and (iii) such allowances not exceeding 25% of the cost of construction as may be made for locality features of architectural interest, accessibility to market, nearness to a railway station other amenities as may be prescribed.
The State Government framed rules prescribing rates for the calculation of the cost of construction of different classes of non residential buildings.
The appellant, a tenant of a non residential building applied to the High Court of Madras for a writ of prohibition against the Controller restraining him from proceeding with an application for fixation of fair rent.
He contended that the expression "cost of construction" section 4(3)(b)(i) meant the cost of the original construction and not the market value of the structure at the date of enactment of the Act and therefore the rules were inconsistent with the intention and ambit of the Act: The High Court dismissed the application.
Allowing the appeal, HELD: The expression "cost of construction" in sub section
3(b)(i) when used in juxtaposition with the expression "market value" in sub section
3(b)(ii) is used to denote not the market value but the cost of the original construction.
The Legislature could not have used two different expressions for providing that the market value of the building and the market value of the site shall form components of the total cost of a building.
If the expression "cost of construction" is equated with the market value it would necessarily include the special advantages of the situation of the building, its amenities and architectural features and there is no reason why these allowances should be included twice.
once as part of component (i) and again as part of component, (iii).
Again, if the meaning of the expression "cost of construction" were "market value" ' it would mean the market value having regard to the market conditions of real property which may go on changing year after year.
But the 'State had accepted by r. 12 that the cost of construction was a fixed quantity related to the date on which the Act was brought into force.
[912 B C, G H]


judgement:
Civil Appeal No. 192 of 1952.
Appeal under article 132(1) of the Constitution of India from the Judgment and Order dated 24th August, 1951, of the Madras High Court in Civil Miscellaneous Petition No. 5744 of 1951.
Appellant in person.
C. K. Daphtary, Solicitor General for India (R. Ganapathy Iyer and P. G. Gokhale, with him) for the respondent.
C. K. Daphtary, Solicitor General for India (P.A. Mehta and P. G. Gokhale, with him) for the Intervener (Union of India).
October 1.
The Judgment of the Court was delivered by GHULAM HASAN J.
The appellant is the owner of a permanent cinema theatre called Sri Brahannayaki in Tiruthuraipundi, Tanjore District, and held a licence from the District Magistrate, Tanjore, in respect of the same with effect from September 5,1950, to September 4, 1951.
The licence is granted for one year at a time and is renewable from year to year.
He objected to certain conditions in the licence imposed by the District Magistrate, Tanjore, in pursuance of 2 notifications (G. O. Mis.
1054, Home, dated 28th March, 1948, and G. O. Mis. 3422, dated 15th September, 1948) issued by the State of Madras purporting to act in exercise of powers conferred by section 8 of the Cinematograph Act of 1918.
The impugned conditions may conveniently be set out here: "4(a) The licensee shall exhibit at each performance one or more approved films of such length and for such length of time, as the Provincial 688 Government or the Central Government may, by general or special order, direct.
(b) The licensee shall comply with such directions as the Provincial Government may by general or special order give as to the manner in which approved films shall be exhibited in the course of any performance." Explanation: " Approved Films" means a cinematograph film approved for the purpose of this condition by the Provincial Government or the Central Government.
Special condition 3.
The licensee should exhibit at the commencement of each performance not less than 2,000 feet of one or more approved films.
" The appellant moved the High Court of Judicature at Madras under article 226 of the Constitution for an ' order or direction to the District Magistrate, Tanjore, to delete the said conditions from his licence and to the State of Madras to rescind the notifications issued by it.
His contention was that the conditions imposed by the said notifications are ultra vires and beyond the powers of the licensing authority and that they are void inasmuch as they contravened his freedom of speech and expression under article 19(1)(a) and his right to carry on trade or business under article 19(1) (g) of the Constitution.
Both the contentions were rejected, the High Court holding that the conditions imposed were reasonable and were in the interests of the general public.
The High Court granted leave to appeal to this Court.
The appellant who argued the appeal in person raised 2 main contentions.
He argued firstly, that the notifications and conditions are beyond the competence of the Government of Madras and the District Magistrate, and secondly, that in any event the conditions do not, as being outside the scope of the Cinematograph Act, amount to reasonable restrictions imposed in the interest of the general public.
We are of opinion that this appeal can be disposed of on the second ground.
It may be stated that the Madras Cinematograph Rules, 1933, were amended by the notification G. O. Mis.
1054, Home, dated 689 March, 28, 1948, in exercise of the powers conferred by section 8 of the (Central Act II of 1918), and in place of condition 4 of the licence in Form A, the impugned conditions were inserted.
Section 8 empowers the State Government to make rules for the purpose of carrying into effect the provisions of the Act.
The object of the Act as stated in the preamble is to make provisions for regulating" exhibitions under the .
Without going into the question whether it is within the ' contemplation of the Act that educational and instructional films should be shown and whether the holder of a cinema licence may be compelled to exhibit such films as falling within the scope of the Act, the question which still arises for consideration is whether the impugned conditions amount to "reasonable restrictions" within the meaning of article 19(6).
Approved 'films are those films which are either produced by the Government or are purchased from the private producers.
As the private producers do not possess any machinery for marketing their films the Government purchases them from such producers and charges hire from the cinema licensees for showing such films.
Condition 4(a) compels a licensee to exhibit at each performance one or more approved films of such length and for such length of time as the Provincial Government or Central Government may direct.
Neither the length of the film nor the period of time for which it may be shown is specified in the condition and the Government is vested with an unregulated discretion to compel a licensee to exhibit a film of any length at its discretion which may consume the whole or the greater part of the time for which each performance is given.
The exhibition of a film generally takes 2 hours and a quarter.
Now if there is nothing to guide the discretion of the Government it is open to it to require the licensee to show approved films of such great length as may exhaust the whole of the time or the major portion of it intended for each performance.
The fact that the length of the time for which the approved films may be shown is also unspecified leads to the same conclusion, in other 690 words, the Government may compel a licensee to exhibit an approved film, say for an hour and a half or even 2 hours.
As the condition stands, there can be no doubt that there is no principle to guide the licensing authority and a condition such as the above may lead to the loss or total extinction of the business itself.
A condition couched in such wide language is bound to operate harshly upon the cinema business and cannot be regarded as a reasonable restriction.
It savours more of the nature of an imposition than a restriction.
It is significant that the condition does not profess to lay down that the approved films must be of an educational or instructional character for the purpose of social or public welfare.
We think therefore, that condition 4(a) as it stands at present amounts to an unreasonable restriction on the right of the licensee to carry on his business and must be declared void as against the fundamental right of the appellant under article 19(1)(g).
Among the special conditions, condition No. 3 which requires the licensee to exhibit at the commencement of each performance not less than 2,000 feet of one or more of the approved films is open to similar objection.
This condition lays down the minimum length of the film to be shown as 2,000 feet and gives no indication of the maximum.
We are informed that the showing of a film of 2,000 feet will take about 20 minutes.
This will work out to about 1/7th of the total time of each performance if it is taken to last for 2 1/4 hours.
Whether a maximum of 2,000 feet would be reasonable is a matter we need not consider but as this is mentioned as the minimum it is obvious that the Government may compel the licensee to exhibit a film of 10,000 or 12,000 feet which in effect will amount to pushing out of the film intended to be shown by the licensee during the time allotted.
Here again no maximum limit having been imposed it follows that the discretion of the authority is unrestrained and unfettered and must lead to an unjustifiable interference with the right of the licensee to carry on his business.
We hold, therefore, that this condition is equally obnoxious and must be deleted.
We accordingly allow the appeal and hold 691 that condition 4(a) and special condition 3 expressed as they are at present are void and have no legal effect as against the fundamental right of the appellant under article 19(1)(g) of the Constitution.
We express no opinion upon the first contention advanced by the appellant.
The appellant will get his costs from the respondent in this Court and in the Court below.
Appeal allowed.

dataset_name: IN-Abs

summary:
The appellant, the owner of a permanent cinema theatre in the Tanjore District, was granted a license by the District Magistrate, Tanjore, subject to certain conditions imposed by him in pursuance of 2 notifications (G. 0.
1054, Home, dated 28th March, 1948, and G. O. Mis. 3422 dated 15th September, 1948) issued by the State of Madras purporting to act in exercise of powers conferred by section 8 of the Cinematograph Act (II of 1918).
The impugned conditions inter alia were as follows: " 4(a) The licensee shall exhibit at each performance one or more approved films of such length and for such length of time, as the Provincial Government or the Central Government may, by general or special order, direct.
687 special condition 3.
The licensee should exhibit at the commencement of each performance not less than 2,000 feet of one or more approved films.
" Held, that condition No. 4(a) and special condition No. 3, imposed unreasonable restrictions on the right of the licensee to carry on his business and were void as they infringed the fundamental right of the appellant guaranteed to him under article 19(1) (g) of the Constitution.


judgement:
Civil Appeal No. 851 of 1966.
Appeal by special leave from the judgment and order dated December 20, 1963 of the Allahabad High Court, Lucknow Bench in First Civil Appeal No. 28 of 1954.
Jagdish Swarup, Solicitor General, Yogeshwar Prasad, C.M. Kohli and G.R. Chopra, for the appellant.
L.M. Singhvi and S.P. Nayar, for the respondent.
C.J. Maula Bux hereinafter called the plaintiff entered into a contract No. C/74 with the Government of India on February 20, 1947, to supply potatoes at the Military Headquarters, U.P. Area, and deposited an amount of Rs. 10,000 as security for due performance of the contract.
He entered into another contract with Government of India on March 4, 1947 No. C/120 to supply at the same place poultry, eggs and fish for one year and deposited an amount of Rs. 8,500/ for due performance of the contract.
Clause 8 of the contract ran as follows: "The officer sanctioning the contract may rescind his contract by notice to me/us in writing : (i) (ii) (iii) (iv) If I/we decline, neglect or delay to comply with any demand or requisition or in any other way fail to.
perform or observe any condition of the contract.
(v) (vi) In ease of such rescission, my/our security deposit (or such portion thereof as the officer sanctioning the contract shall consider fit or adequate) shall stand forfeited and be absolutely at the disposal of Government, without prejudice to any other remedy or action that the Government may have to take. 930 In the case of such rescission, the Government shall be entitled to recover from me/us on demand any extra expense the Government may be put to in obtaining supplies/services hereby agreed to be supplied, from elsewhere in any manner mentioned in clause 7(ii) hereof, for the remainder of the period for which this contract was entered into, without prejudice to any other remedy the Government may have.
" The plaintiff having made persistent default in making "regular and full supplies" of the commodities agreed to be supplied, the Government of India rescinded the contracts the first on November 23, 1947, and the second on December 2,1947, and forfeited the amounts deposited by the plaintiff.
The plaintiff commenced an action against the Union of India in the Court of the Civil Judge, Lucknow, for a decree for Rs. 20,000/ being the amounts deposited with the Government of India for due performance of the contracts and interest thereon at the rate of 6 per cent.
per annum.
The Trial Court decreed the suit.
The Court held that the Government of India was justified in rescinding the contracts, but they could not for left the amounts of deposit, for they had not suffered any loss in consequence of the default committed by the plaintiff.
The High Court of Allahabad in appeal modified the decree, and awarded Rs. 416.25 only with interest at the rate of 3 per cent from the date of the suit.
The plaintiff has appealed to this Court with 'special leave.
The trial Court found in decreeing the plaintiff 's suit that there was no evidence at all to prove that loss, if any, was suffered by the Government of India in consequence of the plaintiff 's default, and on that account amounts deposited as security were not liable to be forfeited.
In the view of the High Court, to for feature of a sum deposited by way of security for due performance of a contract, where the amount forfeited is not unreasonable, section 74 of the Contract Act has no application.
The Court observed that the decision of this Court in Fateh Chand vs Balkishan Dass(1) did not purport to overrule the previous "trend of authorities" to the effect that earnest money deposited by way of security for the due performance of a contract does not constitute penalty contemplated under section 74 of the Indian Contract Act, that even if it be held that the security deposited in the case was a stipulation by way of penalty, the Government was entitled to receive from the plaintiff reasonable compensation not exceeding that amount, whether or not actual damage or loss was proved to have been caused, and that even in the absence of evidence to prove the actual damage or loss caused to the Govern ; 931 ment "there were circumstances in the case with indicated that the amount of Rs. 10,000 in the case of potato contract and Rs. 8,500/ in the case of poultry contract may be taken as not exceeding the reasonable compensation for the breach of contract by the plaintiff.
" The High Court further observed that the contract was for supply of large quantities of potatoes, poultry and fish, which would not ordinarily be available in the market, and "had to be procured in case of breach of contract everyday with great inconvenience," and in the circumstances the Court "could take judicial notice of the fact that 1947 48 was the period when the prices were rising and it would not have been easy to procure the supplies at the rates contracted for".
The High Court concluded: " . taking into consideration the amount of inconvenience and the difficulties and the rising rate of prices, it would not be unfair if in case of such breach for the supply of such huge amounts of potatoes and poultry, we consider an amount of Rs. 18,500/. by way of damages as being not unreasonable." Under the terms of the agreements the amounts deposited by the plaintiff as security for due performance of the contracts were to stand forfeited in case the plaintiff neglected to perform his part of the contract.
The High Court observed that the deposits so made may be regarded as earnest money.
But that view cannot be accepted.
According to Earl Jowitt in "The Dictionary of English Law" at p. 689: "Giving an earnest or earnest money is a mode of signifying assent to a contract of sale or the like, by giving to the vendor a nominal sum (e.g. a shilling) as a token that the parties are in earnest or have made up their minds.
" As observed by the Judicial Committee in Kunwar Chiranjit Singh vs Har Swarup(1): "Earnest money is part of the purchase price when the transaction goes forward: it is forfeited when the transaction falls through, by reason of the fault or failure of the vandee.
" In the present case the deposit was made not of a sum of money by the purchaser to be applied towards part payment of the price when the contract was completed and till then as evidencing an intention on the part of the purchaser to buy property or goods.
Here the plaintiff had deposited the amounts claimed as security for guaranteeing due performance of the contracts.
Such deposits cannot be regarded as earnest money.
Section 74 of the Contract Act provides: "When a contract has been broken, if a sum is named in the contract as the amount to be paid in case (1) A.I.R. 1926 P.C. 1 932 of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for. . . . . . " There is authority, no doubt coloured by the view which was taken in English cases, that section 74 of the Contract Act has no application to cases of deposit for due performance of a contract which is stipulated to be forfeited for breach: Natesa Aiyar vs Appavu Padayachi(1); Singer Manufacturing Company vs Raja Prosad(2); Manian Patter vs The Madras Railway Company(a).
But this view is no longer good law in view of the judgment of this Court in Fateh Chand 's case(4).
This Court observed at p. 526: "Section 74 of the Indian Contract Act deals with the measure of damages in two classes of cases (i) where the contract names a sum to be paid in case of breach, and (ii) where the contract contains any other stipulation by way of penalty.
The measure of damages in the case of breach of 'a stipulation by Way of penalty is by section 74 reasonable compensation not exceeding the penalty stipulated for.
" The Court also observed: "It was urged that the section deals in terms with the right to receive from the party who has broken the contract reasonable compensation and not the right to forfeit what has already been received by the party aggrieved.
There is however no warrant for the assumption made by some of the High Courts in India, that section 74 applies only to cases where the aggrieved party is seeking to receive some amount on breach of contract and not to cases whereupon breach of contract an amount received under the contract is sought to be forfeited.
In our judgment the expression "the contract contains any other stipulation by way of penalty" comprehensively applies to every covenant involving a penalty whether it is for payment on breach of contract of money or delivery of property in future, or for forfeiture of right to money or other property already delivered.
Duty not to enforce the penalty clause but (1) [1913] LL.R. 38 Mad.
(2) Cal.
(3) Mad.
(4) ; 933 only to award reasonable compensation is statutorily imposed upon courts by section 74.
In all cases,.
there fore, where there is a stipulation in the nature of penalty for forfeiture of an amount deposited pursuant to the terms of contract which expressly provides for forfeiture, the court has jurisdiction to award such sum only as it considers reasonable but not exceeding the amount specified in the contract as liable to.
forfeiture.", and that, "There is No. ground for holding that the expression "contract contains any other stipulation by way of penalty" is limited to cases of stipulation in the nature of an agreement to.
pay money or deliver property on breach and does not comprehend covenants under which amounts paid or property delivered under the contract, which by the terms of the contract expressly or by clear implication are liable to be forfeited.
" Forfeiture of earnest money under a contract for sale of property movable or immovable if the amount is reasonable, does not fall within section 74.
That has been decided in several cases: Kunwar Chiranjit Singh vs Hat Swarup (t); Roshan Lal vs The Delhi Cloth and General Mills Company Ltd., Delhi(2); Muhammad Habibullah vs Muhammad Shafi(3); Bishan Chand vs Radha Kishan Das(4); These cases are easily explained, for forfeiture of a reasonable amount paid as earnest money does not amount to.
imposing a penalty.
But if forfeiture is of the nature of penalty, section 74 applies.
Where under the terms of the contract the party in breach has undertaken to pay a sum of money or to forfeit a sum of money which he has already paid to the party complaining of a breach of contract, the undertaking is of the nature of a penalty.
Counsel for the Union, however, urged that in the present case Rs. 10,000/ in respect of the potato contract and Rs. 8,500 in respect of the poultry contract were genuine preestimates of damages which the Union was likely to suffer as a result of breach of contract, and the plaintiff was not entitled to any relief against forfeiture.
Reliance in support of this contention was placed upon the expression (used in section 74 of the Contract Act), "the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused there by, to receive from the party who has broken the contract reasonable compensation".
It is true that in every case of breach of contract the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree, and the Court is competent to award reasonable compensation in (1) A.I.R. 1926 P.C. 1.
(2) I.L.R. 33 All.
(3) I.L.R. 41 All.
490. 934 case of breach even if no actual damage is proved to have been suffered in consequence of the breach of contract.
But the expression "whether or not actual damage or loss is proved to have been caused thereby" is intended to cover different classes of contracts which come before the Courts.
In case of breach of some contracts it may be impossible for the Court to assess compensation arising from breach, while in other cases compensation can be calculated in accordance with established rules.
Where the Court is unable to assess the compensation, the sum named by the parties if it be regarded as a genuine preestimate may be taken into consideration as the measure of reasonable compensation, but not if the sum named is in the nature of a penalty.
Where loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by him.
In the present case, it was possible for the Government of India to lead evidence to prove the rates at which potatoes, poultry, eggs and fish were purchased by them when the plaintiff failed to deliver "regularly and fully" the quantities stipulated under the terms of the contracts and after the contracts were terminated.
They could have proved the rates at which they had to be purchased and also the other incidental charges incurred by them in procuring the goods contracted for.
But no such attempt was made.
Counsel for the Union, however, contended that in the Trial Court the true position in law was not appreciated and the parties proceeded to trial on the question whether the Government was entitled in the circumstances of the case to forfeit under cl. 8 the terms of the contracts the deposits made for securing due performance of the contracts.
Since there was no pleading and no issue on the question of reasonable compensation, an opportunity should be given to the parties to lead evidence on this point.
But with the suit out of which this appeal arises was tried another suit filed by the plaintiff Maula Bux against the Union for a decree for Rs. 53,000 odd being the price of goods supplied under the terms of another contract with the Government of India.
In that suit the Union claimed that it had set off the amount due to the plaintiff, amounts which the plaintiff was liable to pay as compensation to the Union for loss suffered because of the plaintiff 's failure to carry out the terms of the contracts C/74 and C/120.
The Trial Court held in that case that the Union failed to prove that any loss was suffered by it in consequence of the default by Maula Bux to supply potatoes, poultry, eggs and fish as stipulated by him.
Against the judgment of that Court Appeal No. 2001 of 1966 is filed in this Court and is decided today.
The High Court of Allahabad having confirmed the decree passed by the Trial Court, no useful purpose will be served by directing a fresh enquiry into the question whether the Union 935 of India is entitled to recover from the plaintiff any reasonable compensation for breach of contracts and whether that compensation is equal to or exceeds the amounts deposited.
Evidence on that question has already been led and findings have been recorded.
In dealing with the Appeal No. 2001 of 1966 we have held that the Union has failed to establish by evidence that any damage or loss was suffered by them which arose out of the default committed by the plaintiff.
We decline therefore to afford another opportunity for leading the evidence as to the loss suffered by the Union on account of the failure on the part of the plaintiff to carry out the contracts.
On the view taken by us it must be held that the High Court was in error in disallowing the plaintiff 's case.
The High Court has held that the plaintiff is not entitled to any interest prior to the date of the suit.
No argument has been advanced before us challenging that view.
Since interest was not recoverable under any contract or usage or under the provisions of the Interest Act, 1838 the High Court allowed interest at the rate of 3% per annum on Rs. 416.25 from the date of the suit, the rate of interest allowed on the claim decreed also should not exceed 3 per cent per annum.
We set aside the decree passed by the High Court and substitute the following decree: "The Union of India do pay to the plaintiff Rs. 18,500/ with interest at the rate of 3% per annum from the date of the suit till payment.
" The plaintiff was guilty of breach of the contracts.
Considerable inconvenience was caused to the Military authorities because of the failure on the part of the plaintiff to supply the food stuff contracted to be supplied.
Even though there is no evidence of the rates at which the goods were purchased, we are of the view, having regard to the circumstances of the case, that the fairest order is that each party do bear its own costs throughout.
Appeal allowed.

summary:
The appellant entered into a contract with the respondent to supply some goods and deposited a certain amount as security for due performance of the contract.
It was stipulated that the amounts we 're to stand forfeited in case the appellant neglected to perform his part of the con tract.
When the appellant made defaults in the supply, the respondent rescinded the contract and forfeited the amount deposited.
The appellant filed a suit for recovery of the amount with interest.
The trial court decreed the suit, holding that the respondent was justified in rescinding the contracts, but could not 'forfeit the deposit, for, it had not suffered any loss in consequence of the default committed by the appellant.
The High Court modified the decree and awarded the 'respondent a major portion of the amount deposited as damages.
The High Court took the view that the forfeiture of a sum deposited by way of security for due performance of a contract, where the amount forfeited was not unreasonable section 74 of the Contract Act had No. application and that the deposits so made could be regarded as earnest money.
HELD: The High Court was., in error in disallowing the appellant 's claim.
(i) Earnest money is a deposit made by a purchaser to be applied towards part payment of the price when the contract is completed and till then as evidencing an intention on the part of the purchaser to buy property or goods.
Forfeiture of earnest money under a contract for sale of property, if the amount is reasonable, does not fall within section 74 of the Contract Act.
[933 D].
Kunwar Chiranjit Singh vs Har Swarup, A.I.R. 1926 P.C. 1, relied on.
(ii) Where under the terms of the contract the party in breach has undertaken to pay a sum of money or to forfeit a sum of money which he has already paid to the party complaining of a breach of contract, the undertaking is in the nature of a penalty and, section 74 applied thereto.
[933 E F] Fateh Chand vs Balkishan Dass, ; , relied on.
Contrary view in Natesa Aiyar vs Appavu Padayachi, (1913) LL.R. 38 Mad.
178, Singer Manufacturing Co. vs Raja Prosad, Cal.
960 and Manian Patter vs Madras Railway Company, Mad. 188, disapproved.
The expression "whether or not actual damage or loss is proved to have been caused thereby" in section 74 is intended to cover different classes of contracts which come before the courts.
In ease of breach of some contracts.
it may be impossible for the court to assess compensation arising from breach, while in other cases, compensation can be calculated in 929 accordance with established rules.
Where the court is unable to assess the compensation, the sum named by the parties, if it be regarded as a genuine preestimate, may be taken into consideration as the measure of reasonable compensation, but not if the sum named is in the nature of a penalty.
[934 A C] In the present case it was possible for the respondent Government to lead evidence to prove the loss suffered but it did not attempt to do so.


judgement:
l Appeals Nos. 2129 to 2132 of 1968.
Appeals from the judgment and order dated December 4, ' 1964 of the Calcutta High Court in Tax Matters Nos. 69, 62 and 64 of 1963.
A.K. Sen, S.K. Hazare and P.K. Mukherjee, for the appellants (in all the appeals).
B. Sen, section A. L. Narayana Rao and R.N. Sachthey, for the respondent (in 'all the appeals).
The Judgment of the Court was delivered by Groper, J.
These appeals by certificate from a judgment of the Calcutta High Court involve a common but important question, namely, whether the right of an assessee to receive a specified share of the net income from an estate in respect of which Wekf alal aulad has been created is an asset assessable to Wealth Tax.
By a deed dated November 19, 1928 as modified by a deed of rectification dated July 5, 1930 one Golam Hossain Kasim Ariff, a muslim governed by the Hanafi School of the Mohammadan Law created a wakf in respect of his properties in Noormul Lohia Lane and Armenian Street in Calcutta.
The settler appointed himself as the sole Mutwalli for the term of his life and provided that after his death his widow Aisha Bibi and his sons would act as Mutwallis jointly.
The settler died on January 1, 1937.
He left behind his widow Aisha Bibi and three tons who are the appellants before this Court.
The wakf created was of the nature of Wakf alal aulad for the benefit of the settler 's wife, 21 children and their descendants.
The extent of the benefit conferred on them would appear from clause 5 of the deed of wakf as modified: "5.
After payment of all necessary out goings such as establishment charges, collections charges, revenue taxes, costs of repairs, law charges and other expenses for the upkeep and management of the said Wakf property, the Mutwalli or Mutwallis shall apply the net income of the said Wakf property as follows, viz.: (a) In payment to me during the term of my life of one fifth of the said net income by monthly instalments.
(b) In payment to each of my sons during the respective terms of their lives one sixth of the said net income by monthly instalments.
(c) In payment to my wife Aisha Bibi during the term of her life one tenth of the said net income by monthly instalments.
The moneys payable as aforesaid to such of my sons as are minors shall until they attain the age of majority be respectively invested (after defraying the expenses of their maintenance and education) in proper securities or in landed property in Calcutta and such securities or property shall be made over to the said sons on their respectively attaining the age of majority.
" The ultimate benefit in the case of complete intestacy of the descendants of the settlor was reserved for poor musalmans of Sunni community deserving help.
The appellants who are the beneficiaries under the deed of wakf were paying income tax on the amount which was being received by them in terms of that deed from the Mutwalli.
In the year 1957 the Wealth Tax Act 27 of 1957, hereinafter called the Act, came into force.
During the assessment years 1957 58 and 1958 59 the appellants were not only assessed to income tax in respect of the income received by them from the wakf estate but were also assessed to Wealth tax by the Wealth Tax Officer on the basis that they had a share in the wakf estate.
The total value of the immovable property belonging to the wakf estate was valued at 20 times the annual municipal valuation and 16th of the value of the immoveable property along with other properties was taken to be the net wealth of each assessee.
Appeals were taken to the Appellate Assistant Commissioner of Wealth Tax but these were dismissed.
There were further appeals to the Income tax Appellate Tribunal where no dispute was raised as indeed it could not be raised with regard to the validity of the deed of wakf.
22 It was held that the right of the sons of the wakf to receive a share of the rents and profits of the wakf property was property or an interest in property and as it was not limited in enjoyment to a period of six years it fell within the definition of the term "assets" as defined by section 2(e) of the Act.
The contention of the appellants that the right of the beneficiaries under the deed of wakf was a mere right to an annuity as mentioned in section 2(e)(iv) and was, therefore, not an asset assessable to wealth tax was rejected.
The third argument which had been raised before the Tribunal that the allowances under assessment were payable to the beneficiaries by way of maintenance were not transferable under section 6(dd) of the Transfer of Property Act and therefore they had no market value, for inclusion in the net wealth was also refuted.
It was pointed out that the right to maintenance was not one of the assets mentioned in section 5 which alone entitled an assessee to claim exemption in respect of certain assets.
The Tribunal did not find it possible to hold on the facts of the case that the amounts in dispute were receivable by the beneficiaries as maintenance under the terms of the wakf.
As regards the quantum of valuation a direction was made that the value of the assessee 's life interest may be capitalised on the basis of the valuation table set out in Park 's Principles and Practice of Valuations taking the rent security at 6%.
On applications for referring the question of law, the following common question was referred to the High Court under section 27 of the Act: "Whether on the facts and circumstances stated the right of the assessee to receive a specified share of the net income from the Wakf Estate is an asset the capitalised value of which is assessable to Wealth tax?" The High Court negatived the contentions of the appellants that the right to receive a definite share of the net income from wakf property did not fall within the meaning of the word "assets" as defined by section 2(e) of the Act or that it was a mere right to an annuity which under the Mohammedan Law could not be commuted into a lumpsum.
It was held that the fight of each assessee was to receive an aliquot share of the net income of the properties which were made the subject matter of the wakf and there was a clear distinction between an aliquot share of income and an annuity.
The High Court was of the view that even if the asset of the nature under consideration was non transferable and could not be sold in the open market it could not be said that such an asset had no value.
For the purpose of the Act the Wealth Tax Officer must proceed to value it as if it was an asset which was saleable in the market and that would depend on actuarial valuation.
The question was consequently answered in the affirmative and in favour of the revenue.
23 The definition of the word "assets" as given in section 2 (e) of the Act to the extent it is material is in the following terms: (e) "assets" includes property of every description, movable or immovable but does not include (iv) a right to any annuity in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant; (v) any interest in property where the interest is available to an assessee for a period not exceeding six years ;" "Net wealth" is defined by section 2(m).
Section 3 is the charging valuation date of every individual etc.
Section 4 gives the financial year a tax in respect of the net wealth on the corresponding valuation date of every individual etc.
Section 4 gives the assets which have to be included in computing the net wealth.
Section 5 gives those assets which are exempt from and are not to be included in the net wealth of the assessee.
Section 7 (1) provides that value of any asset other than cash shall be estimated to be the price which, in the opinion of the Wealth Tax Officer,, it would fetch, if sold in the open market, on the valuation date.
It is to be essentially decided whether the right to receive an aliquot share of the net income of the properties which were made the subject matter of the wakf would be covered by the definition of "assets" within the meaning of section 2(e) of the Act.
There can be no difficulty if such a right can be regarded to be property giving that word the widest meaning as is contemplated by the language employed in the aforesaid clause.
The principal argument of Mr. A.K. Sen for the appellants is that the right to receive a share of the income under a deed creating wakf alal aulad can, by no stretch of reasoning, be regarded to fall within the meaning of the word "property" even in its wide and extended sense.
He has referred to the incidents of such a right with particular reference to the Mohammedan Law relating to wakf.
That law owes its origin to a rule laid down by the Prophet of Islam; and means "the tying up of property in the ownership of God the Almighty and the devotion of the profits for the benefit of human beings.
" Once it is declared that a particular property is wakf, the right of the wakf is extinguished and the ownership is transferred to the Mutawalli (vide Vidya Varuthi vs Balusami Ayyar(1).
Wakfs could be divided into two classes: (i) public and (ii) private.
A private wakf is one for the benefit of the (1) 481.A. 302 atp.
24 settlor 's family and his descendants.
It is called Wakf alal aulad.
Before the enactment of the , a wakf, exclusively for the benefit of the settlor 's family, children and descendants in perpetuity, was invalid.
It was, however, valid if the property was given in substance to charitable uses.
Section 3 of the aforesaid Act declared it lawful for a person professing the Mussalman faith to create a wakf which in all other respects was in accordance with the provisions of the Mussalman law, for the following among other purposes : "(a) for the maintenance and support wholly or partially of his family, children or descendants, and (b) where the person creating a wakf is a Hanafi Mussalman, also for his own maintenance and support during his lifetime or for the payment of his debts out of the rents and profits of the property dedicated; Provided that the ultimate benefit in such cases expressly or impliedly reserved for the poor or for any other purpose recognised by the Mussalman law as a religious, pious or charitable purpose of a permanent character." As mentioned before, the moment a wakf is created, all rights of property pass out of the Wakif and vest in the Almighty.
Therefore, the Mutawalli has no right in the property belonging to the wakf.
He is not a trustee in the technical sense, his position being merely that of a superintendent or a manager.
A Mutawalli has no power, without the permission of the court, to mortgage, sell or exchange wakf property or any part thereof unless he is expressly empowered by the deed of wakf to do so: (sections 202 and 207, Mulla 's Principles of Mahomedan Law, 16th Edn.) In Abdul Karim Adenwalla vs Rahimabai(1), a distinction was made between a settlor belonging to the Hanafi sect reserving for his own maintenance and support during his lifetime the income of the trust property and has reserving for his absolute use income of the whole of the property during his lifetime.
It was 'pointed out that a Hanafi Mussalman was not permitted to follow the latter course and it was only when he reserved the income for his maintenance and support that the provisions of the would not be offended, There would be a difference in law between these two provisions; if a settlor reserved to himself income for his own maintenance and support that would not be transferable as property under the Transfer of Property Act nor would it be attachable under the provisions of the Civil Procedure Code.
If he, however, reserved for himself a life interest, section 6 of the Transfer of Property Act (1) 25 and section 60 of the Code with regard to the non transferability and non liability to an attachment would nor be attracted.
The crux of the matter, according to Mr. Sen, is that the aliquot share of income under the deeds executed in the present case was reserved for the maintenance and support of the wakf and other beneficiaries during their lifetime.
It is pointed out that if the provisions contained in cl.
(5 ) of the deed of wakf were not to be read in that manner,.
the deed would be rendered void a result which has to be avoided by the courts.
It is thus contended that the right, in question, is a right to future maintenance measured by the aliquot part of the income and it is neither partible nor alienable, and is one which is wholly personal to the beneficiary.
It lacks the basic attributes of property.
Now "property" is a term of the widest import and subject to any limitation which the context may require, it signifies every possible interest which a person can clearly hold or enjoy.
The meaning of the word "property" has come up for examination before this Court in a number of cases.
Reference may be made to one of them in which the question arose whether Mahantship or Shebaitship which combines elements of office and property would fall within the ambit of the word "property" as used in Article 19(1)(f) of the Constitution.
It was observed in the Commissioner, Hindu Religious Endowments, Madras vs Shri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt(1) that there was no reason why that word should not be given a liberal and ' wide connotation and should not be extended to those well recognised types of interests which had the insignia or characeristics of proprietary right.
Although Mahantship was not heritable like the ordinary property, it was still held that the Mahant was entitled to claim protection of article 19(1) (f) of the Constitution.
It is stated in the Halsbury 's Laws of England, Vol.
32 3rd Edn.
page 534 that an annuity (which is a certain sum of money payable yearly either as a personal obligation of the grantor or out of property not consisting exclusively of land) can be an item of property separate and distinct from the beneficial interests therein and from 'the funds and other property producing it is property capable of passing on a death and can be separately valued for the purpose of estate duty.
The only direct case on the point under consideration is a decision of the Bombay High Court in Commissioner of Wealth Fax, Bombay City vs Purshottam N. Amersey and Another(2).
There the deed of settlement provided that the trustees shall apply he net income from the fund for the support, maintenance and advancement in life and otherwise for the benefit of the settlor and is wife etc.
It was held that the definition of "assets" in section 2(e) and that of "net wealth" in section 2(m) were comprehensive provi (1) ; , 1019.
(2) CI/70 3 26 sions and all assets were included in the net wealth by the very definition.
Therefore, when section 3 imposed the charge of wealth tax on the net wealth it necessarily included in it every description of property of the assessee, movable and immovable, barring the exceptions stated in section 2 (e) and other provisions of the Act.
We are in entire concurrence with that view.
There is no reason or justification to give any restricted meaning to the word "asset" as defined by section 2(e) of the Act when the language employed shows that it was intended to include property of every description.
On a proper construction of the relevant clauses in the wakf deed we are not satisfied that the aliquot share of the income provided for the beneficiaries was meant merely for their maintenance and support.
But even on the assumption that it was so intended or to preserve the validity of the deeds it should be so construed the right to the share of the income would certainly be an asset within the meaning of section 2(e) and would be liable to be included in the net wealth of the assessee.
Mr. Sen has laid emphasis on the language of section 7 (1 ) of the Act and has contended that the right to a share in the income is not capable of any valuation and the price which it would fetch if sold in the open market, could not possibly be ascertained.
Such an argument was fully examined in the Bombay case(1) in which the High Court referred to the provisions of the English statutes, which were in pari materia as also decisions given by the English Courts including the one by the House of Lord, ' (Commissioner of Inland Revenue vs Crossman) (2).
It has beet rightly observed by the High Court that when the statute uses the words "if sold in the open market" it does not contemplate actual sale or the actual state of the market, but only enjoins that I should be assumed that there is an open market and the property can be sold in such a market and on that basis, the value has to be found out.
It is a hypothetical case which is contemplated and the Tax Officer must assume that there is an open market it which the asset can be sold.
A faint attempt was made to invoke the exception contained in section 2(e) by suggesting that the right to receive a share of the income was a mere right to an annuity where the terms and conditions relating thereto precluded the commutation of any portion into a lump sum grant.
The High Court in the judgment under appeal dwelt at length on the true meaning and import of the expression "annuity" and negatived that suggestion.
The burden of the argument was and is that the word "annuity" should be given its popular and dictionary meaning and not the signification which it has assumed as a legal term owing to judicial inter pretation.
Such a contention has only to be stated to be rejected (1) 71 I.T.R.180.
(2) (1937) A.C. 26.
27 because it is well settled that where the legislature uses a legal term which has received judicial interpretation, the courts must assume that the term has been used in the sense in which it has been judicially interpreted.
For the reasons given above, the appeals fail and are dismissed with costs.
(One hearing fee.) Y.P. Appeals dismissed.

summary:
A hanafi Muslim created a wakf alal aulad and appointed himself as the sole Mutwalli and provided that after his death his widow and sons would act as Mutawallis jointly.
The wakf was for the benefit of the settler 's wife, children and their descendants, and they were each to be paid a specified share of the net monthly income of the property.
The ultimate benefit in the case of complete intestacy of the descendants of the settler was reserved for poor musalmans of sunni community deserving help On the question whether the right of the assessee who were the beneficiaries under the deed of wakf, to receive a specified share of the net income from the estate, was an asset assessable to weath tax, this Court, HELD: (i) The right in question was assessable to wealth tax.
(i) "Property" is a term of widest import and subject to any limitation which the context may require, it signifies every possible interest which a person can clearly hold or enjoy.
[25 C D] The definition of "assets" in section 2(e) and that of "net wealth" in section 2(m) of the Wealth Act were comprehensive provisions and all assets were included in the net wealth by the very definition.
Therefore, when section 3 imposed the charge of wealth tax on the net wealth it necessarily included in it every description of property of the assessee movable and immovable, barring the exceptions stated in section 2(e) and other provisions of the Act.
There is no reason or justification to give any restricted: meaning to the word "assets" as defined by section 2(e) of the Act when the language employed shows that it was intended to include property of every description.
[25 H; 26 A B] On a proper construction of the relevant clauses in the wakf deed, it must be held that the aliquot share of the income provided for the beneficiaries was not meant merely for their maintenance and support.
But even on the assumption that it was so intended or to preserve the validity of the deeds it should be so construed the right to the share of the income would certainly be asset within the meaning of section 2(e) and would be liable to be included in the net wealth of the assessee.
[26 B C] Vidya Varuthi vs Balusami Ayyar, 48 I.A. 302, 312, Abdul Karim Adenwalla vs Rahimabai, , Commissioner, Hindu Religious Endowments, Madras vs Shri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt. ; , 1019 and Commissioner of Inland Revenue vs Crossman, , referred to. 20 Commissioner of Wealth Tax, Bombay City vs Purshottam N.Amersey & Anr. , approved.
(ii) When the statute uses the words "if sold in the open market" it does not contemplate actual sale or the actual state of the market, but only enjoins that it should be assumed that there is ' an open market and the property can be sold in such a market and on that basis the value has to be found out.
It is a hypothetical ease which is contemplated and the Tax Officer must assume that there is an open market in which the asset can be sold.
[26 E F] (iii) The contention, that the right to receive a share of the income was a mere right to an annuity where the terms and conditions relating thereto precluded the commutation of any portion into a lump sum grant must be rejected.
The word "annuity" could not be given its popular and dictionary meaning, but should be given the signification which it has assumed as a legal term owing to judicial interpretation.
Where the legislature uses a legal term which has received judicial interpretation courts must assume that the terms has been used in the sense in which it has been judicially interpreted.
[26 G H; 27 A B]


judgement:
Appeal No. 1789 of 1966.
Appeal from the judgment and decree dated May 24, 1961 of the Allahabad High Court in Second Appeal No. 1302 of 1952.
B.C. Misra, G.S. Chatterjee and M.M. Kshatriya, for the appellants.
J.P. Goyal and G.N. Wantoo, for the respondents.
The Judgment of the Court was delivered by Hegde, J.
The scope of section 9 of the U.P. Zamindari Abolition and and Reforms.
Act, 1950 (U.P. Act 1 of 1951) (to be hereinafter referred to as the Act) comes up for decision in this appeal by certificate.
The facts relevant for deciding this appeal are no more in dispute.
The respondents were Ryots under the appellants in village Nagli Abdulla, a hemlet of village Machhra.
The site of the building in dispute in this appeal had been taken by the father of the respondents from the appellant 's ancestors over 60 years ago and thereafter the respondents put up some buildings on that site for their residential purposes.
During the communal disturbances in 1947 they left the village temporarily as a measure of safety and took shelter with some of their relations in some other village at a distant place.
They came back to their village in the year 1949 when the conditions improved.
At that time they found the appellants occupying that site after putting up a cow shed on the site in which their residential buildings stood.
Those residential buildings had been demolished and the site in question included as a part of the house of the appellants.
As the appellants refused to deliver possession of the suit property, the respondents instituted a suit for possession of the same on January 9, 1951.
On January 26, 1951, the Act came into force.
Section 4 of the Act provided for the vesting of the Estates in the State.
It prescribes that as soon as may be after the commencement of the Act, the State Government may, by notification, declare that as from a date to be specified, all Estates situate in Uttar Pradesh shall vest in the State and as from the beginning of the date so specified, all such Estates shall stand transferred to and vest, except as otherwise provided in the Act, in the State free from all encumbrances.
Section 6 of the Act enumerates the consequences of the vesting of an Estate in the State.
Section 9 deals with the buildings in the abadi.
Reading sections 4, 6 and 9 together, it follows that all Estates notified under s.4 vest in the State free from all encumbrances.
The quondam proprietors or tenure holders of those Estates lose all interests in those Estates.
As proprietors ' 13 or tenure holders they retain no interest in respect of them whatsoever.
But 'in respect of the land or buildings enumerated in section 6 and section 9, the State settled on the person who held them certain rights.
Though in fact the vesting of the Estates and the deemed settlement of some rights in respect of certain classes of land or buildings included in the Estate took place simultaneously, in law the two must be treated as different transactions; first there was a vesting of the Estates in the State absolutely and free of all encumbrances.
Then followed the deemed settlement by the State of some rights with the persons mentioned in sections 6 and 9.
Therefore in law it would not be correct to say that what vested in the State are only those interests not coming within sections 6 or 9; see Rana Sheo Ambar Singh vs Allahabad Bank Ltd., Allahabad(1).
In this connection reference may also usefully be made to the decision of this Court in Shivashankar Prasad Shah and Ors.
vs Vaikunth Nath Singh and Ors.(2), a decision rendered under the Bihar Land Reforms Act, 1950, the relevant provisions of which are similar to the provisions of the Act.
In this case notification under s.4 of the Act was issued on July 1, 1952.
Hence the vesting contemplated under section 4 took place on that date.
Section 9 of the Act, the section with which we are concerned in this case, reads thus: "All wells, trees in abadi, and all buildings situated within the limits of an estate, belonging to or held by an intermediary or tenant or other persons, whether residing in the village or not, shall continue to belong to or be held by such intermediary or tenant or person as the case may be, and the site of the wells or the buildings within the area appurtenant thereto shall be deemed to be settled with him by the State Government on such terms and conditions as may be prescribed.
" In view of that provision all buildings situate within the limits of an Estate held by an intermediary or tenant or other person, whether residing in the village or not continues to be held by him and the site: of the buildings within the area appurtenant thereto should be deemed to have been settled with him by the State Government on such terms and conditions as may be prescribed.
As seen earlier till about 1947, the respondents were lawfully holding the buildings and the site with which we are concerned in this case as Ryots.
They never gave up their possession of (1) ; (2) Civil Appeal No. 368/66 decided on 3 7 1969.
14 the buildings voluntarily.
The fact that they vacated those buildings and took shelter with their relations during the time of the communal disturbances cannot be considered as abandonment of the buildings.
In law they continued to be in possession of the buildings.
Hence the appellant 's entry into the suit site was an unlawful act.
In the eye of law they were trespassers.
In demolishing the buildings put up by the respondents, they, committed the offence of mischief.
The fact they had put up new structures cannot under the Transfer of Property Act, enhance their rights to the property.
We have no material before us from which we can find out the value of the buildings.
demolished by them and the value of the buildings put up by them unlawfully.
From the description of the buildings given in evidence, it appears that the newly put up building is only cattle shed.
We are not satisfied that the newly put up building is worth more than the buildings that had been demolished by the appellants.
In the the circumstances of the case all that can be said is that the old buildings have been substituted by the new building.
Therefore the owners of the old buildings continue to be the owners of the new building.
In that view of the matter it is not necessary to consider whether if a stranger builds a building on the land of another, the true owner of the land is entitled to recover the land with the building on it.
Equitable considerations persuade us to hold that when the respondents came back to their village in 1949, they were entitled to recover not only the site but also the building constructed on it by the appellants.
Hence it should be held that on the date of vesting, the respondents were the owners the building in question.
In law they were holding the same.
The controversy between the parties in this appeal is as to the meaning to be attached to the word "held" in s.9 of the Act.
Is the holding contemplated therein 'lawful holding" or a mere holding lawful or otherwise.
It is contended on behalf of the appellants that the dictionary meaning of the word "held" merely means 'to have a possession of s 9 merely contemplates Physical possession and nothing more; on the date of the vesting they were in physical possession of the site as well as the building; therefore the building must be deemed to have been settled with them.
On the other hand it is contended on behalf of the respondent that the word "held" in section 9 of the Act means "lawfully held" and that section does not confer any benefit on a trespasser.
The meaning of the word "held" in s.9 came up for consideration before a Division Bench of the Allahabad High Court consisting of Agarwala and Chaturvedi, JJ.
in Pheku Chamar and Ors.
vs Harish Chandra and Ors.(1).
In that case the learned 1) A.I.R. 1953 All. 406. 15 judges held that the legislature has deliberately used the word "held" and that word connotes the existence of a right or title in the holder.
They further opined that section 9 does not confer a right on the persons having no title to the land.
The settlement contemplated by the section is confined in its application to the case where the building is lawfully held by the person in possession.
The learned judges also observed that in enacting s.9, the legislature never meant to deprive the citizens of their lawful rights over the lands merely because a trespasser has succeeded in making some construction on it.
Section 9 does not mean that if a person has made some construction whatsoever over any land lying within the limits of an estate, however wrongful or recent the possession might be, that construction must be deemed to have been settled with him by the State Government.
The meaning of the word "held" in s.9 again came up before another Division Bench of the Allahabad High Court consisting of Desai and Takru, JJ.
in Bharat and anr.
vs Ch.
Khazan Singh & ant.(1) The learned judges declined to follow the decision in Pheku Chamar 's case(2).
They came to the conclusion that the legislature used a wide language in s.9 and it covers the case of buildings belonging to persons who constructed them lawfully or unlawfully.
It is unfortunate that the latter.
Division Bench should have thought it proper to sit in judgment over the correctness of a decision rendered by a Bench of co ordinate jurisdiction.
Judicial propriety requires that if a bench of High Court is unable to agree with the decision already rendered by an other coordinate bench of the same High Court, the question should be referred to a larger bench.
Otherwise the decisions of High Courts will not only lose respect in the eyes of the public, it will also make the task of the sub ordinate courts difficult.
The question of law referred to hereinbefore again arose for decision in this case.
When this case came up in the second appeal before Sahai, J. he referred it to a Full Bench in view of the conflict of opinion noticed earlier.
The Full Bench was presided over by Dasai, C.J. who was a party to the decision in Bharat 's case(1).
The other members of the bench were Mukerji and Dwivedi, JJ.
Mukerji and Dwivedi, JJ.
agreed with the view taken in Pheku Chamar 's case(2).
Desai, C.J. in his dissenting judgment did not deal with the meaning of the word "held" in section 9 but on the other hand opined that the suit should have been dismissed because of the fact that the buildings put up by the respondents were not there on the date of vesting and hence the respondents were not entitled to the benefit of s.9.
Before considering the meaning of the word "held" in section 9, it is necessary to mention that it is proper to assume that the lawmakers who are the representatives of the people enact laws (1) A.I.R. 1958 All.
(2) A.I.R.1953 All. 406 which the society considers as honest, fair and equitable.
The object of every legislation is to advance public welfare.
In other words as observed by Crawford in his book on Statutory Constructions the entire legislative process is influenced by considerations of justice and reason.
Justice and reason constitute the great general legislative intent in every piece of legislation.
Consequently where the suggested construction operates harshly,.
ridiculously or in any other manner contrary to prevailing conceptions of justice and reason, in most instances, it would seem that the apparent or suggested meaning of the statute, was not the one intended by the law makers.
In the absence of some other indication that the harsh or ridiculous effect was actually intended by the legislature,, there is little reason to believe that it represents the legislative intent.
We are unable to persuade ourselves to believe that the legislature intended to ignore the rights of persons having legal title to possession and wanted to make a gift of any building to a trespasser howsoever recent the trespass might have been if only he happened to be in physical possession of the building on the date of vesting.
We are also unable to discern any legislative policy in support of that construction.
It was urged before us by the learned Counsel for the appellants that the legislature with a view to put a stop, to any controversy as to any rights in or over any building directed that whoever was in physical possession of a building on the date of vesting shall be deemed to be the settle of that building.
He further urged that it would have been a hard and laborious.
task for the State to investigate into disputed questions relating to title or possession before making the settlement contemplated by section 9 and therefore the legislature cut the Gordian Knot by conferring title on the person who was in possession of the building.
We see no merit in this argument.
The settlement contemplated by section 9 is a deemed settlement.
That settlement took place immediately the vesting took place No inquiry was contemplated before that settlement.
If there is any dispute as to who is the settle, the same has to be decided by the civil courts.
The State is not concerned with the same.
Section 9 merely settles the building on the person who was holding it on the date of vesting.
It is true that according to the dictionary meaning the word "held" can mean either a lawful holding or even a holding without any semblance of a right such as holding by a trespasser.
But the real question is as to what is the legislative intent? Did the legislature intend to settle the concerned building with a person who was lawfully holding or with any person holding lawfully or otherwise? Mr. Misra contended that there is no justification for us to read into the section the word "lawfully" before the word "held".
According to him, if the legislature intended 17 that the holding should be a lawful one, it would have said"lawfully held".
He wanted us to interpret the section as it stands.
It is true that the legislature could have used the word "lawfully held" in place of the word "held" in section 9 but as mentioned earlier one of the dictionary meanings given to the word "held" is, "lawfully held".
In Webster 's New Twentieth Century Dictionary (Second Edition), it is stated that in legal parlance the word "held" means to possess by "legal title".
In other words the word "held" is technically understood to mean to possess by legal title.
Therefore by interpreting the word "held" as "lawfully held", we are not adding any word to the section.
We are merely spelling out the meaning of that word.
It may further be seen that the section speaks of all buildings . within the limits of an Estate, belonging to or held by an intermediary or tenant or other person" .
The word "belonging" undoubtedly refers to legal title.
The words "held by an intermediary" also refer to a possession by legal title.
The words "held by tenant" also refer to holding by legal title.
In the sequence mentioned above it is proper to construe the word "held" in section 9 when used in relation to the words "other person" as meaning "lawfully held" by that person.
That interpretation flows from the context in which the word "held" has been used.
We have earlier mentioned that the said interpretation accords with justice.
The expression "held" has been used in the Act in various other sections see sections 2(1)(c), 13, 17, 18, 21, 144, 204, 240A, 298, 304, and 314 to connote possession by legal title.
Mr. Misra, learned Counsel for the appellants does not deny that the expression "held" in those sections means held lawfully.
But according to him that is because of the context in which the word is used.
Mr. Misra is right in saying so but he overlooks the context in which that expression is used in section 9.
We have already made reference to that context.
He failed to point out to us any section in the Act, leaving aside section 9 for the time being where the word "held" has been used as meaning mere holding, lawful or otherwise.
In K.K. Handique vs The Member, Board of Agricultural Income Tax, Assam(1) this Court was called upon to consider the meaning of the word "holds" in sections 12 and 13 of ' the Assam Agricultural Income Tax Act.
Subba Rao, J. (as he then was ) speaking for the Court observed that the expression "holds" includes a two fold idea of the actual possession of a thing and also of being invested with a legal title though some times it is used only to mean actual possession.
After reading sections 12 and 13 together he observed that the word "holds" in those sections means holding by legal title.
In Eramma vs Verrupanna & Ors.(2), this Court considered the meaning of the word (1) A.I.R. 1966 S.C. 1191.
(2) [1966] 2, S.C.R. 626. "possessed" in section 14 (1 ) of the Hindu Succession Act which laid down that "any property possessed by a female Hindu whether acquired before or after the commencement of this Act shall be held by her as full owner thereof and not as a limited owner".
It held that the property possessed by a female widow, as contemplated in the section, is clearly a property to which she has acquired some kind of title whether before or after the commencement of the Act.
It is true that in arriving at that conclusion the Court took into consideration the language of the provision as a whole and also the explanation to the section.
The scheme of the Act is to abolish all Estates and vest the concerned property in the State but at the same time certain rights were conferred on persons in possession of lands or buildings.
It is reasonable to think that the persons who were within the contemplation of the Act are those who were in possession of lands or buildings on the basis of some legal title.
Bearing in mind the purpose with which the legislation was enacted, the scheme of the Act and the language used in section 9, we are of opinion that the word "held" in section 9 means "lawfully held".
In other words we accept the correctness of the view taken by Mukerji and Dwivedi, JJ.
For the reasons already mentioned we are unable to agree with Desai, C.J. that the fact that the appellants had demolished the buildings put up by the respondents and put up some other building in their place had conferred any rights on them under section 9.
In the result the appeal is dismissed with costs.
G.C. Appeal dismissed.

summary:
The respondents being Ryots of the appellants were granted over sixty years ago a village site by the ancestors of the appellants on which they built their residential houses.
During the 1947 riots the respondents in order to seek safety fled from the village temporarily and came back in 1949.
They found that their residential buildings on the aforesaid site had been demolished and that in their place the appellants had raised a cow shed.
The appellants refused to give back possession of the site and building to the respondents whereupon on January 9, 1951 the respondents filed a suit for possession.
The appellants based their defence on the provisions of the U.P. Zamindari Abolition and Land Reforms Act, 1950 (Act 1 of 1951) which came into force on January 26, 1951.
According to section 4 of the Act, with effect from the notified date i.e. July 1, 1952, all Estates became vested in the State of Uttar Pradesh.
The lands and buildings enumerated ' in sections 6 and 9 were however settled on the persons who 'held ' them.
The contention of the appellants was that they 'held ' the buildings on the relevant date and therefore the buildings were deemed to be settled on them by the State Government.
In the Allahabad High Court there was conflict of opinion as to the meaning of the word 'held ' in section 9.
In Pheku Chamar 's case a Division Bench of the Court held that the word 'held ' in section 9 connotes the existence of a right or title in the holder.
However in Bharat 's case another Division Bench of the Court declined to follow Phekhu Chamar 's case and came to the conclusion that the legislature used wide language in section 9 and it covers the case of buildings belonging to persons who constructed them whether lawfully or unlawfully.
When the present case came up in second appeal before the High Court it was referred to a Full Bench.
The majority of judges adopted the view taken in Phekhu Chamar 's case and decided against the appellants; the dissenting judge took the view that since the buildings constructed by the respondents did not exist on the date of vesting they were not entitled to the benefit of section 9.
In appeal to this Court by certificate, HELD: (1) Though in fact the vesting of the Estate and the deemed settlement of some rights in respect of certain classes of lands or buildings included in the Estate took place simultaneously, in law the two must be treated as different transactions; first there was a vesting of the Estates in the State absolutely and free of all encumbrances.
Then followed the deemed settlement by the State of some rights with the persons mentioned in sections 6 and 9.
Therefore in law it would not be correct to say that what vested in the State are only those interests not coming within sections 6 or 9.
[13 B C] Rana Sheo Ambar Singh vs Allahabad Bank Ltd. Allahabad, ; and Shivashankar Prasad Shah & Ors.
vs Vaikunth Nath Singh & Ors., C.A. No. 368/66 decided on 3 7 1969, referred to.
(ii) It was unfortunate that the Division Bench in Bharat 's case should have thought it proper to sit in judgment over the correctness of a decision rendered by a Bench of co ordinate jurisdiction.
Judicial propriety requires that if a bench of a High Court is unable to agree with the decision already rendered by another co ordinate bench of the same High Court the question should be referred to a larger bench.
Otherwise the decisions of High Courts will not only lose respect in the eyes of the public, it will also make the task of the subordinate courts difficult.
[15 E] (iii) Justice and reason constitute the great general legislative intent in every piece of legislation.
Consequently where the suggested construction operates harshly, ridiculously or in any other manner contrary to prevailing conception of justice and reason in most instances it would seem that the apparent or suggested meaning of the statute, was not the one intended by the law makers.
[16 B] In the present case it was hard to believe that the legislature in enacting section 9 intended to ignore the rights of persons having legal title to possession and wanted to make a Rift of any building to a trespasser howsoever recent the trespass might have been if only he happened to be in physical possession of the buildings on the date of vesting.
It is difficult to discern any legislative policy in support of that construction.
[16 D] According to Webster 's New Twentieth Century Dictionary the word 'held ' is technically understood to mean to possess by legal title.
Therefore by interpreting the word 'held ' as 'lawfully held ' there was no addition of any word to the section.
According to the words of section 9 and in the context of the scheme of the Act it is proper to construe the word 'held ' in the section as 'lawfully held '.
The appellants contention in this regard must be rejected.
[17 B D] Pheku Chamar & Ors.
vs Harish Chandra &, Ors.
A.I.R. 1953 All. 406, approved.
Bharat and Anr.
vs Ch.
Khazan Singh & Anr.
A.I.R. 1958 All. 332, disapproved.
K.K. Handique vs The Member, Board of Agricultural Income tax Assam, A.I.R. 1966 S.C. 1191 and Eramma vs V, Verrupanna & Ors. , applied.
(iv) When the respondents left the village owing to communal disturbances they could not be said to have abandoned their residential buildings.
The appellants unlawfully demolished them and entered the land as trespassers.
The cow shed they erected on the land was not greater in value than the respondents residential buildings.
On equitable considerations it must be held that when the respondents came back to their village in 1949, they were entitled to recover not only the site but also the building constructed on it by the appellants.
Hence it should be held that on the date of vesting, the respondents were the owners of the building in question for in law they were holding the same.
[14 A E] [Question whether if a stranger constructs a building on the land of another, the true owner of the land is entitled to recover the land with the building on it, left open.] [14 D] 12