judgement:
Appeal No. 535 of 1958.
Appeal from the judgment and order dated March 29,1955, of the Assam High Court in I.T.R. No. 1 of 1954.
A.V. Viswanatha Sastri and D. N. Mukherjee, for the appellants.
Hardayal Hardy and D. Gupta for the respondent.
March 13.
The Judgment of the Court was delivered by HIDAYATULLAH, J.
This appeal which has been filed with a certificate under section 66(A)(2) granted by the High Court of Assam against its judgment and order dated March 29, 1955, concerns the assessment of the appellants, a Hindu undivided family, for the assessment years, 1945 1946 and 1946 1947.
The appellants owned a tea garden called the Sewpur Tea Estate in Assam.
They had on the Estate, factories, labour quarters, staff quarters etc.
On February 27, 1942, the Military authorities requisitioned all the factory buildings, etc., under R. 79 of the Defence of India Rules.
Possession was taken sometime between March land March 8, 1942.
The tea garden was, however, left in the possession of the appellants.
The possession of the military continued till the year 1945, and though the appellants looked after their tea garden the manufacture of tea was completely stopped.
Under the Defence of India Rules, the Military authorities paid compensation.
For the year 1944, corresponding to the assessment year, 1945 1946, they paid a total sum of Rs. 2,22,080 as compensation including a sum of Rs. 10,000 for repairs to quarters for labourers and Rs. 144 which represented the assessor 's fee.
For the year 1945, corresponding to the assessment year, 1946 1947, the Military authorities paid a sum of Rs. 2,46,794 which included a sum of Rs. 15,231 for other repairs.
The sums paid for repairs appear to have been admitted as paid on capital account, and rightly so.
The question was whether the two Sums paid in the two 259 years minus these admitted sums, or any portion thereof, were received on revenue or capital account.
The assessments for the two years were made by different Income tax Officers.
For the assessment year, 1945 1946, the Income tax Officer deducted from Rs. 2,22,080, a sum of Rs. 1,05,000 on account of admissible expenses.
He then applied to the balance Rs. 1,17,080, R. 24 of the Indian Income tax Rules, 1922, and brought to tax 40 per cent of that sum amounting to Rs. 46,832.
The assessment was made under section 23(4).
For the assessment year, 1946 1947, the assessment was made under section 23(3) of the Incometax Act.
The Income tax Officer excluded the sum paid on account of repairs and treated the whole of the amount as income taxable under the provisions of the Income tax Act, after deduction of admissible expenditure.
The appeals filed by the appellants to the Appellate Assistant Commissioner against both the assessments were unsuccessful.
On further appeal, the Income tax Appellate Tribunal (Calcutta Bench) was divided in its opinion.
The Judicial Member held that the receipts represented revenue but on account of "use and occupation" of the premises requisitioned.
He, therefore, computed the not compensation attributable to such use and occupation at 20 per cent of the total receipts in both the years.
He however, observed that if the receipts included income from the tea estate he would have been inclined to apply R. 24 in the same way as the first Income tax Officer.
The Accountant Member was of the opinion that the appellants were liable to pay tax on 40 per cent of their receipts in both the years after deduction of the sums paid for repairs of buildings and the admissible expenditure.
He accepted the estimate of expenditure for the account year, 1944,.
at RE;. 1,05,000, and directed that the admissible expenditure for the succeeding year be determined and deducted before the application of R. 24.
It appears that through some inadvertence these two orders which were not unanimous, were sent to the appellants and the Department.
The Commissioner of Income tax filed an application under section 66(1) for a 260 reference, while the appellants filed an application under section 35 for rectification of the orders, since many other matters in appeal were not considered at all.
When these two applications came before the Tribunal, it was realised that the matter had to go to a third Member for settling the difference.
The President then heard the appeal, and agreed with the Accountant Member.
Though he expressed a doubt whether the appellants were entitled to the benefit of rr. 23 and 24, he did not give an opinion, because this point was not referred to him.
The Tribunal then referred the case to the High Court of Assam on the following two questions: "(1).
Whether the sums of Rs. 2,12,080 and RE;. 2 31,563 paid by the Government to the assessee in 1945 and 1946 respectively (exclusive of the sums paid specifically for building repairs) were revenue receipts in the hands of the assessee comprising any element of income? (2).
If so, whether the whole of the said sums less the expenses incurred by the assessee in tending the tea bushes constituted agricultural income in his hands exempt from tax under the Indian Income tax Act, 1922?" The reference was heard by Sarjoo Prasad, C.J., and Ram Labhaya, J., along with two writ petitions, which had also been filed.
They delivered separate judgments, but concurred in their answers.
The High Court answered both the questions against the appellants.
The writ petitions were also dismissed.
Before we deal with this appeal, we consider it necessary to state at this stage the method of calculation of compensation adopted by the Military authorities.
It is not necessary to refer to both the years, because what was done in the first year was also done in the following year except for the change in the amounts.
This method of calculation is taken from the order of the Judicial Member, and is as follows: 261 Rs. A. P. Crop 211120 1bs.
at 17.85d (half) and at 18.35d (half) 2,12,292 14 0 15480 1bs.
at Rs. 0 11 10 11, 449 12 0 52600 1bs.
at Rs. 0 15 6 50,956 4 0 2,74, 698 14 0 Less Saving of plucking and manufacturing: Rs. (a) Expenses at annas 3 per lb.
49,209 (b) Sale of export rights, 1,32,935 1bs.
4,924 (c) Purchase of export rights 78,185 lbs.
at annas 4.
1,629 (d) Food and clothing concessions 7,000 62,762 0 0 2,11,9360 0 Add For fees of assessors, Rs. 144 Coolie lines repairs, Rs. 10,000 10,1440 0 Rs. 2,22,08000 From the admitted facts which have been summarised above, it is clear that the business of the appellants as tea growers and tea manufacturers had come to a stop.
The word "business" is not defined exhaustively in the Income tax Act, but it has been held both by this Court and the Judicial Committee to denote an activity with the object of earning profit.
To say that a business is being carried on, means no more than that profit is to be earned by a process of production.
The business of a tea grower and manu facturer is not merely to grow tea plants but to collect tea leaves and render them fit for sale.
During the years in question, the appellants were tending their tea garden to preserve the plants, but this activity cannot be described as a continuation of the business, 262 which had come to an end for the time being.
It would have hardly made any difference to the carrying on of business, if, instead of the factories and buildings, the tea garden was requisitioned and occupied, because in that event also, the business Would have come to a standstill.
The compensation which was paid in the two years was no doubt paid as an equivalent of the likely profits in those years; but, as pointed out by Lord Buckmaster in The Glenboig Union Fireclay Co. Ltd. vs The Commissioners of Inland Revenue (1) and affirmed by Lord Macmillan in Van Den Berghs Ltd. vs Clark (2), "there is no relation between the measure that is used for the purpose of calculating a particular result and the quality of the figure that is arrived at by means of the application of that test".
This proposition is as sound as it is well expressed, and has been followed in numerous cases under the Indian Income tax Act and also by this Court.
It is the quality of the payment that is decisive 1 of the character of the payment and not the method of the payment or its measure '.
and makes it fall within capital or revenue.
We are thus required to determine what was it that was paid for, or, in other words, what did the two payments replace, if they replaced anything.
The arguments at the Bar followed the pattern which has by now become quite familiar to Courts.
We were taken to the 12th Volume of the Tax Cases series, where are collected case,% dealing with Excess Profits Duty and Corporation Profits Tax in England follow ing the First World War, and to, other English case, , reported since.
These cases have been considered and applied on more than one occasion by this Court, and we were referred to those cases as well.
Now, it is necessary to point out that the English cases were decided under a different system of taxation and must be read with care.
A case can only be decided on its own facts, and the desire to base one 's decision on another case in which the facts appear to be near enough sometimes leads to error.
It is well to (1) (2) ; 263 remember the wholesome advice given by Lord Dunedin in Green vs Gliksten & Son Ltd. (1) that "in these Income Tax Act cases one has to try, as far as possible, to tread a narrow path, because there are quagmires on either side into which one can easily be led. . " The English cases to which we were referred, were used even in England by Lord Macmillan in Van Den Berghs ' case (2) as mere illustrations, and when cited before the Judicial Committee in Income Tax Commissioner vs Shaw Wallace & Co.(3) were put aside by Sir George Lowndes with this observation "their Lordships would discard altogether the case law which has been so painfully evolved in the construction of the English income tax statutes both the cases upon which the High Court relied and the flood of other decisions which has been let loose in this Board".
Most of the cases cited before us deal with Excess Profits Duty and Corporation Profits Tax.
In the former group, pre war profits had to be determined, so that they might be Compared with post war business for the purpose of arriving at the excess profits, if any.
In dealing with the pre war profits, diverse receipts were considered from the angle whether they formed capital or revenue items.
The observations which have been made are sometimes appropriate to the nature of the business to which the case related and the quality of the payment in relation to that business.
Similarly, the Corporation Profits Tax was a tax intended to be imposed upon the profits of British Companies (which included some other corporate bodies ' carrying on trade or business including the ' business of investments.
The profits which were taxed under section 52 of the English, Finance Act were required to be determind according to the principles laid down in that Act.
It is thus obvious that though the English cases may be of some help in an indirect way by focussing one 's attention on what is to be regarded as relevant (1) 384 (2) ; (3) (1932) L.R 59 J.A. 206.
264 and what rejected, they cannot be regarded in any sense as precedents to follow.
Since this Court on other occasions used these cases as an aid, we shall refer to them briefly; but we have found it necessary to sound a warning, because the citation of these authorities has occasionally outrun their immediate utility.
We begin with the oft cited case of The Glenboig Union Fireclay Co. Ltd. (1).
That was a case under the Excess Profits Duty.
The facts are so well known that we need not linger over them.
A seam of fireclay could not be worked, and compensation was paid for it.
That the clay was capital asset was indisputable, and the portion lost was a slice of capital.
The hole made in the capital was filled up by the compensation paid.
It was said that a portion of the capital asset was sterilized and destroyed, and even though the business went on, the payment was treated as on capital account.
The case cannot be used as precedent, because here, no doubt, the factories and buildings were apart of fixed capital, but the payment was not so much to replace them in the hands of the appellants as to compensate them for the stoppage of business.
The Glenboig case (1) does not apply.
The case of Short Bros. Ltd. vs The Commissioners of Inland Revenue (2), another case under the Excess Profits Duty, illustrates a contrary principle.
The Company had agreed to build two ship;, 'but the contracts were cancelled and E. 100,000 were paid for cancellation of the contracts.
This was held to be a receipt in the ordinary course of the Company 's trade.
Rowlatt, J., said that it was "simply a receipt, in the course of a going business, from that going business nothing else".
In the Court of Appeal, Lord Hanworth, M.R., affirmed the decision, observing: "Looked at from this (business) point of view it appears clear that the sum received was received in ordinary course of business, and that there was not in fact any burden cast upon the company not to carry on their trade.
It was not truly compensation (1) (2) 265 for not carrying on their business; it was a sum paid in ordinary course in order to adjust the relation between the shipyard and their customers.
" The payment was by a customer to the shipyard.
Whether the amount was paid for ships built or because the contract was cancelled, it was a business receipt and in the course of the business.
In the present case, the payment is not of this character, and Short Bros. case (1) does not apply.
The next case also of Excess Profits Duty is The Commissioners of Inland Revenue vs Newcastle, Breweries, Ltd. (2).
In that case, the admiralty took over one third stock of rum of the Brewery, and paid to the Company the cost plus 1 section per proof gallon.
Later, the compensation was increased by an amount of E. 5,309 and was brought to tax in the earlier year, when the original compensation was paid.
The observations of Rowlatt, J., though made to distinguish the case from one in which the compensation is paid for destruction of business, are instructive.
We shall refer to them later.
The learned Judge held that this was a case of compulsory sale of rum, and that a compulsory sale was also a sale.
The receipt was held to be a profit.
The decision was affirmed by the Court of Appeal.
This case also, so far as its facts go, was very different, and the actual decision has no relevance.
The Commissioners of Inland Revenue, vs The Northfleet Coal and Ballast Co. Ltd. (3) was a case like Short Bros. case (1).
;E. 3,000 in a lump sum were paid to be relieved from a contract, and as the business was a going business, it was held to be profit.
In fact, Short Bros. case (1) was applied.
Ensign Shipping Co. Ltd. V. The, Commissioners of Inland Revenue 4 a case of Excess Profits Duty, is interesting.
During the Coal Strike of 1920, two ships of the Company were ready to sail with cargoes of coal.
They were detained for 15 and 19 days respectively by orders of Government.
In April 1924,pound 1,078/were paid as compensation, and were held to be (1) (3) 34 (2) (4) 266 trading receipts.
Rowlatt, J., laid down that if there was an operation which produced income, it was none the less taxable, because it was a compulsory operation.
The learned Judge then observed that he could not hold that this was a case of hire, like Sutherland vs The Commissioners of Inland Revenue (1), because the ships lay idle and their use was interrupted.
The learned Judge then concluded: "Now it is quite dear that if a source of income is destroyed by the exercise of the paramount right. and compensation is paid for it, that that is not income, although the amount of the compensation is the same sum as the total of the income that has been lost. but in this case I have got to decide the case of a temporary interference.
Here these ships remained as ships of the concern. they merely could not sail for a certain number of days, and in lieu of the value of the use which they would have been to their owners in their profit earning capacity during those days, in lieu of that receipt, this money was paid to the owners, although they were not requisitioned, as if requisitioned.
I think I ought to regard this sum, as the Commissioners have obviously regarded it, as a sum paid which to the shipowners stands in lieu of the receipts of the ship during the time of the interruption.
" This decision was approved by the Court of Appeal.
Now, the case was one of loss of time during which the ships would have been usefully and profitably employed.
It was argued in the Court of Appeal with the assistance of the Glenboig case (2), and it was suggested that the vessels, were `sterilised ' for the period of detention.
Lord Hanworth said that that was rather a metaphorical word to use, and that the correct way was to look at the matter differently.
The Master of the Rolls observed: "But in the present case it seems to me that, looked at from a business point of view, all that has happened is that the two vessels arrived much later at the ports to which they were consigned than they would have done, with the consequent result (1) (2) 267 that for the certain number of days which they were late they could not possibly make any earnings, and it is in respect of that direct loss by reason of the interference with the rights exercised on behalf of His Majesty that they made a claim and have been paid compensations This ruling was strongly relied upon by the Department as one which laid down a principle applicable here.
We do not agree.
The, payment there was made towards loss of profits of a going business, which business was not destroyed.
As a source of income, the business was intact, and the business instead of being worked for the whole period, was worked for a period less by a few days and the profit of that period was made up.
That may be true if one is going to determine standard profits of a particular period, because what is paid goes to profits in the period but is of no significance in a case like the present, where during the whole of the year no business at all was done nor profits made.
This case also does not help to solve the problem.
Charles Brown & Co. vs The Commissioners of Inland Revenue (1) is yet another case of Excess Profits Duty.
In that case, the business of the taxpayer was carried on under the control of the Food Controller from 1917 to 1921, and he was compelled to bay and sell at prices fixed by the Controller .
By agreement a 'mill standard ' was fixed, and the tax.
payer was allowed to retain profits up to that standard, and if there was a shortfall, it was to be made up by the Controller.
This amount which the taxpayer retained together.
with the amount paid towards shortfall was regarded as profits.
The principle applicable is easily discernible.
There can be little doubt that the trade was being carried on, and what was received was rightly treated as profits.
Howlatt, J., observed that this was a clearer case than the Ensign case (2).
The matter was covered by section 38 of the Finance (No. 2) Act of 1915, Fourth Schedule, Part 1(1), where the words were "The profits shall be taken to be the actual profits arising in the accounting period".
(1) (1) 268 In Barr Crombie & Co. Ltd. vs The Commissioners of Inland Revenue (1), the Company 's business consisted almost entirely of managing shipping for another Company.
When the shipping Company went into liquidation, a sum was paid as compensation to the managing Company.
It was held that this was a capital receipt.
The reason for holding thus was that the structure (if the managing Company 's whole business was affected and destroyed, and this was not profit but compensation for loss 'of capital.
Kelsall Parsons & Co. vs The Commissioners of Inland Revenue (2), to which we shall refer presently, was distinguished on the ground that, though in that case the agency was cancelled, the payment was for one year and that too, the final year.
This case is important in one respect, and it is that if the entire business structure is affected and destroyed, the payment may be regarded as replacing capital, which is lost.
These are cases of Excess Profits Duty where profits for a particular period had to be determined and also the character of the payments in relation to the kind of business, to determine whether to treat them as excess profits or not.
In the Glenboig case (1), the payment was not regarded as profit, because it replaced lost capital and so also, in Barr Crombie case(1).
These form the first group.
Short Bros. case Northfleet case (5) and Ensign Shipping CO 's case were of a going business, and what was paid was towards lost profits in a going concern.
These form the second group.
Newcastle Breweries case (7) and Charles Brown and 60 's case (3) were of business actually done and profits therefrom.
None of these rulings is directly in point.
In the case with which we are concerned, the payment was not towards any capital asset to attract the first group, there was no going business so as to attract the second, and nothing was bought nor any business done with the taxpayer to make the third group applicable.
(1) (2) ; (3) (4) (5) (6) (7) (8) 269 We shall next see some cases which involved Corporation Profits Tax.
In The Gloucester Railway Carriage and Wagon Co. Ltd. vs The Commissioners of Inland Revenue(1), the Company was doing business of selling wagons and of hiring them out.
The Company then sold all the wagons which it was using for purposes of hiring.
The receipt was treated as profit of trade, there being but one business and the wagons being the stock in trade of that business.
In Green vs Gliksten & Son Ltd.(2), stocks of timber were destroyed.
Their written down value was pound 160,824 but the Insurance Company paid :E. 477,838.
The Company credited E. 160,824 in its trading account but not the balance.
The House of Lords held that the timber, though burnt, was realised, and that the excess of the sum over the written down book value must be brought into account.
These two cases throw no light upon the problem with which we are faced, and any observations in them are so removed from the facts of this case as to be of no assistance.
The cases under Sch.
D of the Income tax Act like Burmah Steam Ship Co. Ltd. vs The Commissioners of Inland Revenue(3), a case of late delivery of ships sent for overhaul, Greyhound Racing Association (Liverpool) Ltd. vs Cooper(4), which was a case of surrender of an agreement in which the amounts were treated as trading receipts, are not cases of stoppage of a business and are not relevant.
Kelsall Parsons case(5), where one of the agreements of a commission agency which was to run for 3 years was terminated at the end of the second year and compensation of pound 1500/ was paid for the last and final year, was held on its special facts to involve taxable profits of trading.
Though the business came prematurely to an end, the struc ture of the business was not affected because the payment was in lieu of profits in the final year of the business as if business had been done.
The payment was held to be within the structure of the business in the same way as in Shove vs Dura Manufacturing Co. Ltd. (6).
The converse of these cases is the well known (1) (3) (5) ; 270 Van Den Berghs Ltd. vs Clark (1), where mutual trade agreements were rescinded between two Companies and pound 450,000 were paid to the assessee Company as ",damages".
This was treated as capital receipt and not as income receipt to be included in computing the profits of trade under Sch.
D Case 1 of the Income tax Act of 1918.
Lord Macmillan observed: "On the contrary the cancelled agreements related to the whole structure of the appellants ' profitmaking apparatus.
They regulated the appellant 's activities, defined what they might and what they might not do, and affected the whole conduct of their business.
I have difficulty in seeing how money laid out to secure, or money received for the cancellation of, so fundamental an Organisation of a trader 's activities can be regarded as an income disbursement or an income receipt".
We have referred to these cases to show that none of them quite covers the problem before us.
The facts are very dissimilar, and the observations, though attractive, cannot always be used with profit and often not without some danger of error.
We shall now turn to the cases of this Court, which were referred to at the hearing.
The first case of this Court is The Commissioner Income Tax and Excess Profits Tax, Madras vs The, South India Pidures Ltd., Karaikudi (2).
The South India Pictures, Ltd., held distribution rights for 5 years of three films towards the completion of which they had advanced money to a film producing Company, called the Jupiter Pictures.
When the term had partially run out, the agreement for distribution was cancelled, and the South India Pictures, Ltd., received Rs. 26,000/ as commission.
The question was whether this sum was on capital or revenue account.
Das, C. J., and Venkatarama Aiyar, J., held that it was the latter, while Bhagwati, J., held that it was the former.
The learned Chief Justice came to his conclusion on four grounds: (i) that the payment was towards commission which would have been earned; (ii) that it was not the price of any capital (1) ; (2) ; 271 asset sold, surrendered or destroyed; (iii) that the structure of the business, which was a going business, was not affected; and (iv) that the payment was merely an adjustment of the relation between the South India Pictures, Ltd. and the Jupiter Pictures.
The learned Chief Justice thus rested his decision on, Short Bros '(1) and Kelsall Parsons '(2) cases and not upon Van den Berghs (3) or Barr Crombie 's case (4).
Bhagwati, J., who dissented, judged the matter from the angle of business accountancy.
He observed that money advanced to produce the cinema pictures, if returned, would have been credited on the capital side as a return of capital, just as expenditure for distribution work was revenue expenditure and the commission, a revenue receipt.
On a parity of reasoning, the learned Judge held that money spent in acquiring distribution rights was a capital outlay, and that when distribution rights were surrendered, it was capital which was returned, since the agreement was a composite one, the films were a capital asset and the payment for their release was a return of capital.
With due respect, it is difficult to see how the payment could be regarded as capital in that case.
The fact which seems to have been overlooked in the minority view was that the entire capital outlay had, in fact, been previously recouped and even the security held by the South India Pictures had been extinguished.
It was a portion of the running business which ceased to be productive of commission and by the payment, the commission which would have been earned and would have constituted a revenue receipt when so earned, was put in the pockets of the South India Pictures.
The business of the South India Pictures.
was still & going business, one portion of which instead of being fruitful by stages became fruitful all at once.
What was received was still the fruit of business and thus revenue.
The case, though interesting, is difficult to apply '.
in the present context of facts, where no business at all was done and what was received was not the fruit of any business.
(1) (3) ; (2) ; (4) 272 The next case of this Court, Commissioner of Income Tax vs Jairam Valji (1), may be seen.
The assessee there was a contractor, and received Rs. 2,50,000 as compensation for premature termination of a contract.
This was held to be a revenue receipt.
The assessee had many businesses including many contracts, and the receipt was considered as one in the ordinary course of business.
All the English decisions to which we have referred, were examined in search for principles, but the principle on which the decision 'was rested, was that the payment wag an adjustment of the rights under the contract and must be referred to the profits which could be made if the contract had instead been carried out.
The payment not being on account of capital outlay and the assessee not being prevented from carrying on his business, the receipt was held to be revenue, that is to say, related to income from a contract terminated prematurely.
In a sense, the case is analogous to The South India Pictures, Ltd. case which it follows.
In The Commissioner of Income tax, Hyderabad Deccan vs Messrs. Vazir Sultan & Sons (3), the assessee held the sole selling agency and distribution rights of a particular brand of cigarette, in the Hyderabad State on foot of a 2 per cent discount on all business done.
Subsequently, the area outside Hyderabad State was also included on the same terms.
Later still, the area was again reduced to the Hyderabad State.
Rs. 2,19,343 were paid by way of compensation "for loss of territory outside Hyderabad".
Bhagwati, J., and Sinha, J., (as he then was), held that the compensation was on capital account, while Kapur, J., held otherwise.
The reason given by the majority was that the agency agreement was a capital asset and the payment was in lieu of the loss of a portion of the capital asset.
Kapur, J., on the other Wand, held that the loss which was replaced was the loss of agency commission and bore its character.
The case furnishes a difficult test to apply.
If what was adjusted was the relationship between the parties and if (1) [1959] Supp. 1 S.C.R. 110.
(2) ; (3) [1959] SUPP.
2 S.C.R. 375.
273 there was a going business as, in fact, there was, the case comes within the dicta in The South India Pictures Ltd. case (1) and Jairam Valji 's case (2).
The case can only be a decision on the narrow ground that a portion of the 'fixed capital was lost and paid for.
In Godrej & Co. vs Commissioner of Income tax(3) the assessee firm, which held a managing agency, released the managed Company from an onerous agreement and inconsideration,, was paid Rs. 7,50,000.
It was held that the payment was not made to make up the difference in the remuneration of the managing agency firm bat to compensate it for the deterioration or injury of an enduring kind to the managing agency itself.
The injury being thus to a capital asset, the compensation paid was held to be on capital account.
The last case of this Court to which reference may be made is Commissioner of Income tax vs Shamshere Printing Press (4).
That 'was a very special case.
There, the premises of the Press were requisitioned by Government, but the Press was allowed to set up its business elsewhere, the charges for shifting the machines, etc., being paid by Government.
In addition, Government paid a sum claimed as loss of profits, which was expected to bring up the profits to the level of profits while the business was in its old place.
The ' assessee claimed that this sum was paid as compensation for loss of goodwill arising from its old locality.
There was however, nothing to show that the payment was goodwill and it was held that the compensation paid must be regarded as money arising as profits in the course of business.
It was like putting money in the till to bring the profits actually made by the level of normal profits.
All these cases were decided again on their special facts.
Though they involved examination of other decisions in search for the true principles, it cannot be said that they resulted in the discovery of any principle of universal application.
To summarise them: South India Pictures ' case (1) was so decided because (1) ; (2) [1959] SUPP.
1 S.C.R. 110.
(3) [1960] 1 S.C.R. 527.(4) [1960] 39 I.T.R. go.
35 274 the money received was held to be in lieu of commission which would have been earned by the business which was still going, and the receipt was treated as the fruit of the business.
The same reason was given in Jairam Valji 's case (1) and Shamshere Printing Press case (2).
In Vazir Sultan 's case (3), the compensation was held to replace loss of capital, and in Godrej 's case (4), the compensation was said not to have any relation to the likely income or profits but to loss of capital.
Each case was thus decided on its facts.
We have so far shown the true ratio of each case cited before us, and have tried to demonstrate that these cases do no more than stimulate the mind, but none can serve as a precedent, without advertence to its facts.
The nature of the business, or the nature of the outlay or the nature of the receipt in each case was the decisive factor, or there was a combination of these factors.
Each is thus an authority in the setting of its own facts.
Before we deal with the facts of this case and attempt to answer the question on which there is so much to guide but nothing to bind, we will refer to two cases of the Judicial Committee, one of which is Income Tax Commissioner vs Shaw Wallace & Co. (5), to which we have referred in another connection.
In that case, all the authorities prior to 1935 to which we have referred (and some more) were used in aid of arguments; but the Judicial Committee, for reasons which are now illustrated by this judgment, declined to comment on them.
Shaw Wallace and Co., did many businesses, and included in them was the managing agency of two oil producing Companies.
This agency wag terminated, and compensation was paid for it.
The usual question arose about capital or revenue.
The Full Bench of the Calcutta High Court related the payment to goodwill, but the Judicial Committee rejected that ground because no goodwill seemed to have been transferred.
The Judicial Committee also rejected the contention that it was compensation in lieu of notice under section 206, Indian (1) [1959] SUPP.
1 S.C.R. 110.
(3) [1959] SUPP.
2 S.C.R. 375.
(2) (4) [1960] 1 S.C.R. 527.
(5) (1932) L.R. 59 I.A. 206.
275 Contract Act, as there was no basis for it either.
The Judicial Committee held that income meant a periodical monetary return coming in with some sort of regularity or expected regularity from a definite source and in business was the produce of something "loosely spoken of as capital".
In business, income is profit earned by a process of production, or, in other words, by the continuous exercise of an activity.
In this sense, the sum sought to be charged could not be regarded as income.
It was not the product of business but some kind of solatium for not carrying on business and thus, not revenue.
The case is important, inasmuch as this analysis of 'income ' has been accepted by this Court and has been cited with the further remark made in Gopal Saran Narain Singh vs Income Tax Commissioner (1) that the words "profits and gains" used in the Indian Income tax Act do not restrict the meaning of the word "income" and the whole expression is 'income ', writ 'large.
From this case, it follows that the first consideration before, holding a receipt to be profits or gains of business within section 10 of the Indian Income tax Act is to see if there was a business at all of which it could be said to be income.
We shall now take up for consideration the facts of our case and see how far any principle out of the several which have governed earlier cases can be usefully applied.
The assessee was a tea grower and tea.
manufacturer.
His work consisted in growing tea and in preparing leaves by a manufacturing process into a commercial commodity.
The growing of tea plants only furnished the raw material for the business.
Without the factory and the premises, the tea leaves could not be dried, smoked and cured to become tea, as is known commercially, and it could not be packed or sold.
The direct and immediate result of the requisition of the factories was to stop the business.
That the tea was grown or that the plants were tended did not mean that the business was being continued.
It only meant that the source of the raw material was intact but the business was gone.
(1) (1935) L.R. 62 I.A. 207.
276 Now, when the payment was made to compensate the assessee, no doubt the measure was the out turn of tea which would have been manufactured; but that has little relevance.
The assesee was not compensated for loss or destruction of or injury to a capital asset.
the buildings were taken for the time being, but the injury was not So much to the fixed capital as to the business as a whole.
The entire structure of business was affected to such an extent that no business was left or was done in the two years. ' This was not a case where the interruption was caused by the act of a contracting party so that the payment could be regarded as an adjustment of a contract by payment.
It was a case of compulsory requisition, but the requisition did not involve the buying of tea either as raw material or even as a finished product.
If that had been the case, it might have been possible to say that since business was done, though compulsorily, profits had resulted.
It ' was not even a case in which the business continued, and what was paid was to bring up the profits to normal level.
The observations of Rowlatt, J., in Newcastle Breweries case (1) distinguish a case where business is carried on and one in which business comes to an end.
The learned Judge observes: "Now I have no doubt that a Government re quisition, such as took place during the war, could destroy a trade, and anything which was paid would be compensation for such destruction.
I can understand, for instance, if they had requisitioned in this case the people 's building and stopped them either brewing and selling or doing anything else, and paid a sum, that could not be taken as a profit; they would have destroyed the trade pro tempore and paid compensation for that destruction; and in fact I daresay if they take the whole of the raw materials of a man 's trade and prevent him carrying it on, and pay a sum of money, that is to be taken, not as profit on the sale of raw materials, which he never would have sold,, but as compensation for interfering with the trade altogether." These observations, though made under a different (1) 277 statute, are, in general, true of a business as such, and can be usefully employed under the Indian Income tax Act.
Our Act divides the sources of income, profits and gains under various heads in section 6.
Business is dealt with under section 10, and the primary condition of the application of the section is that tax is payable by an assessee under the head profits and gains of a business ' in respect of a business carried on by him.
Where an assessee does not carry on business at all, the section cannot be made applicable, and the compensation that he receives cannot bear the character of profits of a business.
It is for this reason that the Judicial Committee in Shaw Wallace 's case (1) observed that the compensation paid in that case was not the product of business, or, in other words, profit, but some kind of solatium for not carrying on business and thus, not revenue.
It is to be noted that Das, C.J, in South India Pictures ' case (2), in distinguishing Shaw Wallace 's case (1), made the following observation: "In Shaw Wallace 's case the entire distributing agency work was completely closed, whereas the termination of the agreements in question, did not have that drastic effect on the assessee 's business at all. .
In Shaw Wallace 's case, therefore, it could possibly be said that the amount paid there represented a capital receipt.
" The observation is guarded, but it recognises the difference made in the Privy Council case and others between payment to compensate interference with a going business and compensation paid for stoppage of a business altogether.
This distinction was emphasised in the dissenting opinion in Vazir Sutltan 's case (3).
Though the payment in question was not made to fill a hole in the capital of the assessee, as in the Glenboig case (4), nor was it made to fill a hole in the profits of a going business as in Shamshere Printing Press case (5), it cannot be treated as partaking the character of profits because a business not having (1) (1932) L.R. 59 I. A. 206.
(3) [1959] Supp. 2 S.C.R. 375.
(2) ; (4) (5) 278 been done, no question of profits taxable under section 10 arose.
The Privy Council described such a payment as a solatium.
It is not necessary to give it a name; it is sufficient to say that it was not profit of a business.
Once it is held that this was not profit at all, it is clear that Rules 23 and 24 of the Indian Income tax Rules could not apply, and there was no question of apportioning the amount, as laid down in R. 24.
The whole of the amount received by the assessee was not assessable.
It remains to consider whether the payment could be treated as income from property under section 9 of the Income tax Act.
That this was never the case of the Department is clear from the fact that the income was not processed under that section, and even the Judicial Member of the Tribunal, who entertained this opinion, did not express it as his decision in the case.
This aspect of the matter not having been considered in the case before, we cannot express any opinion upon it.
In our opinion, the answers to the two questions ought to have been: Question (1) no Question (2) does not arise.
In the result, the appeal is allowed with costs here and in the High Court.
Appeal allowed.

summary:
The assessee, a Hindu undivided family, owned a tea estate in Assam comprising a tea garden, factories, labour, quarters, staff quarters etc.
On February 27, 1942, the military authorities requisitioned all the factory buildings etc., under the Defence of India Rules but the tea garden, however, was left in the possession of the assessee.
The possession of the military continued till the year 1945 and during that period, though the assessee looked after its tea garden, its business as tea growers and tea manufacturers could not be continued.
Under the Defence of India Rules, the military authorities paid the assessee as compensation a sum of Rs. 2,22,080 for the year 1944, which included Rs. 10,000 for repairs to quarters for labourers, and a sum of Rs. 2,46,794 for the year 1945, which included Rs. 15,231 for repairs.
For the assessment years 1945 1946 and 1946 47 the question arose as to whether the aforesaid sums or any portion thereof were capital receipts or were revenue receipts and liable to tax.
The facts showed that the business, which the assessee had been carrying on, consisted in growing tea plants and in making tea out of the leaves by a manufacturing process into a commercial commodity, that without the factory and the premises the tea leaves could not be dried, smoked and cured to become tea, and that the result of the requisition of the factories was to stop the business.
Held, that the amounts paid by the military authorities were received by the assessee not as compensation for the loss of profits of the business which it had been carrying on but for the injury to the business as a whole, because the entire structure of business was affected to such an extent that no business was carried on by the assessee during the two years in question.
Accordingly, the compensation could not bear the character of profits of a business and was not liable to tax under section Io of the Indian Income tax Act, 1922.
Income tax Commissioner vs Shaw Wiallace & CO., (1932) L.R. 59 I.A. 206, referred to and applied.
Case law reviewed.
33 258


judgement:
Appeal No. 424 of 1960.
Appeal from the judgment and order dated March 25, 1958, of the Madras High Court in case Referred No. 62 of 1957.
A.V. Viswanatha Sastri, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the appellant.
252 H. N. Sanyal, Additional Solicitor General of India, K. N. Rajagopala Sastri and D. Gupta, for the respondent.
March 13.
The Judgment of the Court was delivered by KAPUR, J.
This is an appeal against the judgment and order of the High Court of Judicature at Madras.
The assessee is the appellant and the Commissioner of Income tax is the respondent.
A partnership consisting of four persons was formed by a deed of partnership dated March 31, 1949.
On July 27, 1951 another partner was taken into partnership and a new deed was drawn up.
The previous partnership deed was considered as the principal deed.
The new partnership like the old one was to end on March 31, 1954.
On March 29, 1954, a new partnership was entered into and a sixth partner was taken and a new deed was executed.
The new partner contributed Rs. 40,000 as his share to the capital but in the partnership deed no express provision was made as to the manner in which profits and losses were to be divided between the partners.
In order to rectify this, a deed of rectification was executed on September 17, 1955, which was after the close of the account year 1954 55.
This deed recited that an error had crept in in typing the partnership deed dated March 29, 1954 by omitting to type el.
21 of the old partnership deed in the new deed.
The parties had therefore agreed to rectify the error by adding cl.
20 A as follows: "We hereby agree that for purpose of clarification the following clause shall be added as clause 20 A in the Partnership Instrument, dated 29th March, 1954: "The parties shall be entitled to shares in the profits and losses of the firm in proportion to the contribution of the capital of each of the partners and whenever fresh capital is required for the business, each partner shall be liable to contribute the additional capital in the same proportion as the 253 paid up capital referred to in clause 4 of the deed, dated 29th March 1954".
" This is signed by all the partners.
Up to the end of assessment year 1954 55 the old firms i.e., the one constituted of four partners and the other constituted of five partners were registered under section 26A of the Income Tax Act (hereinafter termed the 'Act ').
The appellant firm then applied for registration for the assessment year 1955 56.
The Income Tax Officer pointed out to the appellant firm that there was no specification of shares of the partners in the deed of partnership.
Thereupon the appellant submitted the deed of rectification dated September 17, 1955, above mentioned and submitted that the original deed did specify the shares of the partners and the deed of rectification only clarified the position.
But the registration was refused by the Income tax Officer and an appeal taken against that order to the Assistant Commissioner was dismissed.
Further appeal was taken to the Income tax Appellate Tribunal which also failed.
At the request of the appellant the following question was referred to the High Court for its opinion: "Whether the assessee firm is entitled to registration section 26 A of the Income tax Act for the assessment year 1955 56." The High Court held that under section 26 A of the Act the factual existence in the year of account of an instrument of partnership was necessary, a requisite which, in the present case, was lacking and therefore the provisions of section 26 A were not satisfied and that the specification of shares only took place on September 17, 1955 when the deed of rectification was executed.
The question was therefore answered in the negative.
Against this judgment and order the appellant has come in appeal to this Court by certificate of the High Court.
It was contended that cls.
9, 11, 34 and 41(a) sufficiently specified the shares of the partners and satisfied the requirements of the law.
These clauses were as follows: 254 Cl.
9 "Such extra contribution made by the partners shall be credited to the respective partners under an account called "Extra Capital Subscription Account" and for the period of the utilisation of the whole or part thereof during the course of the year or years, it shall be treated as capital con.
tribution only for the purpose of dividing profit but it shall otherwise in no circumstances be added to the paid up capital.
" Cl. 11.
"In addition to the shake of profits in proportion to the contribution to the extra, capital subscription account, the amount, so advanced shall carry an interest equal to the highest rate at which the company may have to pay in the event of borrowing the same from Multani money market and shall carry twice the said rate of interest in the year or years of loss.
" Cl. 34.
"The senior partner may at any time during the subsistence of the partnership bring in one or more of his other sons other than partners of the 5th and the 6th part herein to the partnership and in the event of their so becoming partners they will be liable for the same duties as the other partners herein and shall be entitled to remuneration and profits in proportion to their capital contribution.
41(a).
"In the event of the dissolution of partnership the capital available for distribution as per the balance sheet, except for debts outstanding for collection and reserve fund, shall be paid off to the outgoing partner in proportion of the capital contribution of the outgoing partner to the total contribution of all the partners, including extra capital subscription paid, if any, under clause 9.
" None of these clauses specify the shares of the partners.
Clause 9 has reference to extra contribution made by the partners which was to be treated as capital contribution for the purpose of dividing profits but was not otherwise taken to be paid up capital.
Clause 11 provides for interest on the extra capital subscribed .
Clause 34 authorises the senior partner during the subsistence of the partnership to bring in 255 one or more of his sons as partners who on being so brought in were entitled to remuneration and profits in proportion to their capital contribution.
Clause 41(a) provides that in the event of dissolution of partnership the capital available except for debts etc.
was to be paid to the outgoing partners in proportion to the capital contribution of the outgoing partner.
But in none of these clauses is it stated what the shares of the partners in the profits and losses of the firm were to be and that in our opinion was requisite for registration of the partnership under section 26 A of the Act and as that was wanting, registration was rightly refused.
Registration under section 26 A of the Act confers a benefit on the partners which the partners would not be entitled to but for section 26 A.
The right can be claimed only in accordance with the statute which confers it and a person seeking relief under that section must bring himself strictly within the term of that section.
The right is strictly regulated by the terms of that statute: Ravula Subba Rao vs The Commissioner of Income tax, Madras Section 26 A provides: S.26A(1) "Application may be made to the Income tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners for registration for the purpose of this Act and of any other enactment for the time being in force relating to income tax or super tax.
" For the purpose of this case the relevant words of that section are "constituted under an instrument of partnership specifying the individual shares of the partners".
Therefore unless the instrument of partnership specified the individual shares of the partners the instrument of partnership does not conform to the requirements of the section.
In B. C. Mitter & Sons V. Commissioner of Income tax (2) it was held that the instrument of partnership to be registered should have been in existence in the accounting year in respect of which an assessment is being made.
At page 202, Sinha J., (as he then was) said: (1) [1956] S.C.R. 577,588.
(2) 256 "It is, therefore, essential, in the interest of proper administration and enforcement of the relevant provisions relating to the registration of firms, that the firms should strictly comply with the requirements of the law, and it is incumbent upon the Income tax authorities to insist upon full compliance with the requirements of the law." In the present case an instrument of partnership was in existence but it did not specify the shares which was one of the requirements for registration and that condition was fulfilled by the deed of rectification dated September 17, 1955.
Therefore it cannot be said that there was the requisite instrument of partnership specifying the individual shares of the partners during the year of account.
The High Court, in our opinion, was right in answering the question in the negative.
We therefore dismiss this appeal with costs.
Appeal dismissed.

dataset_name: IN-Abs

summary:
A partnership consisting of four persons was formed on March 31, 1949, which was to come to an end on March 31, 1954.
On July 27, 1951, a fifth partner was taken into the partnership.
On March 29, 1954, a new partnership was entered into taking in a sixth partner will) contributed Rs. 40,000 as his share to the capital.
In the partnership deed no express provision was made as to the manner in which profits and losses were to be divided.
A deed of rectification was executed on September 17, 1955, after the close of the account year 1054 5 5, adding a clause to the partnership deed that the partners shall share in the profits and losses in proportion to their contributions to the capital.
Upto the end of the assessment year 1954 55, the old firms were registered under section 26A of the Income tax Act.
The new firm applied for registration for the assessment year 1955 56, but registration was refused on the ground that there was no specification of shares of the partners.
Held, that registration was rightly refused.
Section 26A requires that for registration in a particular year there must be an instrument of partnership specifying the shares of the partners in the profits and losses.
Though in the present case there was an instrument of partnership in the year of assessment 1955 56, it did not specify the shares.
The right of registration can be claimed only in accordance with section 26A and the assessee must bring himself strictly under the terms of that section.
Ravula Subba Rao vs The Commissioner of Income tax, Madras, [1956] S.C.R. 577 and R. C. Mitter & Sons vs Commissioner of Income tax, E1959] , referred to.


judgement:
12 of 1959.
Petition under article 32 'of the Constitution of India for enforcement of fundamental rights.
R.Gopalakrishnan, section N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the petitioners.
C.K. Daphtary, Solicitor General of India, B. Ganapathy Iyer and T. M. Sen, for the respondents.
March 14.
The Judgment of the Court was delivered by VENKATARAMA AIYAR, J.
The petitioner is a joint Hindu family firm carrying on business at Berhampur in the State of Orissa, and registered as a dealer under the provisions of the Orissa Sales Tax Act, 1947, hereinafter referred to as the Act.
Its business consists in the purchase of castor seeds, turmeric, gingili and other commodities locally, and selling them to demlers outside the State.
The Sales Tax Officer, Berhampur, included in the taxable turnover of the petitioner the purchase of goods made by it inside the State but sold, as aforesaid, to dealers outside the State and imposed a tax of Rs. 27,161 13 0 on account of such sales during the sixteen quarters commencing from April 1, 1952, and ending with March 31, 1956.
In the present application filed under article 32, the petitioner challenges the validity of the tax on the ground that the purchases in question were made in the course of inter State trade, and that a tax thereon was in contravention of article 286(2) The impugned tax has be en levied under section 5 of the Act, which, omitting what is not relevant, runs as follows: 5.
(1) The tax payable by a dealer under this 316 Act shall be levied at the rate of one quarter of an anna in the rupee on his taxable turnover: . . . . . . (2) In, this Act the expression "taxable turnover" means that part of a dealer 's gross turnover during any period which remains after deducting there from: (a) his turnover during that period on . . . . . . (ii) sales to a registered dealer of goods specified in the purchasing dealer 's certificate of registration as being intended for resale by him in Orissa or for use by him in the execution of any contract in Orissa, and on sales to a registered dealer of contai ners or other materials for the packing of such goods: Provided that when such goods are used by the registered dealer for purposes other than those specified in his certificate of registration the price of goods so utilised shall be included in his taxable turnover.
It will be seen that under this section when a sale takes place, the seller has to include it in his taxable turnover; but when the sale is to a registered dealer who declares that his purchases are for resale in Orissa, then it is excluded from the seller 's turn.
If the registered dealer purchaser sells the goods outside the State in breach of the condition, the purchases by him are liable to be included in his turnover, and assessed to sales tax.
That precisely is what has happened in this case.
The sales to the petitioner were not included in the taxable turnover of the sellers by reason of the registration certificate which the petitioner had obtained on a declaration that the goods were to be resold in 'Orissa.
But in violation of this declaration he sold the goods to dealers outside the State, and so he became liable to be taxed under section 5(2)(a)(ii) of the Act.
The contention of the petitioner is that these purchases were made in the course of inter State trade, and that the imposition of sales tax thereon is, in 317 consequence, ultra vires The provision applicable is article 286(2), as it stood prior to the sixth amendment, and it ran as follows: "Except in so far as, Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter State trade or commerce.
" The argument on behalf of the petitioner is that as the goods were purchased for the purpose of being sold to dealers outside the State, and they were in fact so sold, the purchases were in the course of inter State trade, and the levy of tax thereon was within the prohibition enacted by article 286(2).
We do not agree with this contention.
The transactions of sales which have been taxed were wholly inside the State of Orissa.
They were sales by persons in the State of Orissa to persons within the State of Orissa, of goods which were in Orissa.
The fact that the purchaser sold those very goods to dealers outside the State is not relevant, as those sales are distinct and separate from the sales on which the taxes in question have been imposed.
The present levy is not on the sales by the petitioner to persons outside the State, but on the purchases by him inside the State.
The former sales are in the course of inter State trade, and are not taxable under article 286(2), but the latter are purely intrastate sales, and a tax imposed thereon does not offend article 286(2).
In support of his, contention that the purchases are hit by Art 286(2), the petitioner relies on the, decision of this Court in Messrs. Mohanlal Hargovind Das V.
The State of Madhya Pradesh (1).
In that case, the petitioners who were registered dealers under the Central Provinces and Berar Sales Tax Act, 1947, were carrying on business in the manufacture and sale of bidis in Madhya Pradesh.
For the purpose of their business, they imported processed tobaco from the State of Bombay in large quantities, rolled them into bidis and sold them to dealers in other States.
(1) ; 318 The sales tax authorities imposed a tax on the purchases made by them, on the ground that they had, in breach of the declaration in the registration certificate, sold them to merchants outside Madhya Pradesh.
The contention of the petitioners was that the purchases by them were in the course of inter State trade, and that the imposition of tax thereon was therefore repugnant to article 286(2).
It was this contention that was accepted by this Court.
It will be noticed that the in this case the assessment of sales tax was on very purchases from dealers in Bombay, under which the goods were transported from the State of Bombay to Madhya Pradesh.
In the present case, the purchases which are sought to be assessed involved no movement of the goods outside the State of Orissa.
In order that a sale or purchase might be inter State, it is essential that there must be transport of goods from one State to another under the contract of sale or purchase.
In the Bengal Immunity Company Limited vs The State of Bihar (1) occur the following observations which are apposite: "A sale could be said to be in the course of interState trade only if two conditions concur: (1) A sale of goods and (2) a transport of those goods from one State to another under the contract of sale.
Unless both those conditions are satisfied, there can be no sale in the course of interstate trade.
" With reference to the analogous provision under article 286(1)(b) prohibiting the imposition of tax on the sale or purchase of goods in the course of import or export, it has been field by this Court that it is only a sale or purchase which occasions the export or import of the goods out of or into the territory of India or a sale in the State by the exporter or importer by transfer of shipping documonts, while the, goods are beyond the customs barrier, that is within the exemption, and that a sale which precedes such export or import or follows it is not exempted, vide State of Travancore.
Cochin vs Shannugha Vilas Cashew Nut Factory (2).
On the same principles, a purchase, made inside a State, for sale outside the State cannot itself be held (1) 784 785.
(2) ; 319 to be in the course of inter State trade, and the imposition of a tax thereon is not repugnant to article 286(2) of the Constitution.
In the result this petition is dismissed with costs.
Petition dismissed.

summary:
The petitioner who was a, registered dealer under the Orissa Sales Tax Act, 1947, was carrying on the business of purchasing and reselling castor seeds, etc., in the State of Orissa.
Under a declaration given by him for the purpose of obtaining his registration certificate the goods purchased by him in Orissa were to be resold in that State.
He purchased certain commodities inside the State but in contravention of his declaration sold, the goods to dealers outside the State.
The Sales Tax Officer included in the taxable turnover of the petitioner the purchase made by him inside the State in accordance with section 5(2)(a)(II) of the Act.
The contention of the petitioner was that the purchase was in course of inter State trade and was exempted under article 286(2) of the Constitution of India.
Held, that the transaction of sale which has been taxed was wholly inside the State of Orissa and was distinct and sepa rate from the sale made by the purchaser to dealers outside the State.
The former transaction was taxable under section 5(2)(a)(II) of the Act while the latter was exempted under article 286(2) of the Constitution.
Messrs. Mohanlal Hargovind Das vs The State of Madhya Pradesh, ; , distinguished.
In order that a sale or purchase might be inter State, it is essential that there must be transport of goods from one State 315 to another under the contract of sale or purchase.
A purchase made inside a State, for sale outside the State cannot itself be held to be in the course of inter State trade and the imposition of tax thereon is not repugnant to article 286(2) of the Constitution.
Bengal Immunity Company Limited vs The State of Bihar, and State of Travancore Cochin vs Shanmugha Vilas Cashew Nut Factory; , , followed.


judgement:
Appeal No. 754 of 1957.
Appeal by special leave from the judgment, and order dated September 29, 1954, of the Deputy Custodian General, Evacuee Property, in Revision Petition No. 321 R/ADCG/53.
Achhru Ram and K. L. Mehta, for the appellant.
Bishan Narain, T.N. Sethia A. N. Arora and K. R. Choudhury, for respondent No. 1 1961.
March 14.
The Judgment of the Court was delivered by SUBBA RAO, J.
This appeal by special leave is directed against the order of the Additional Deputy Custodian General of Evacuee Property, New Delhi, dated 'September 29, 1954, setting aside the order dated August 25, 1952 of the Additional Custodian, Rural, Jullundur, confirming that of the Deputy Commissioner, Ambala, dated May 12, 1951.
The appellant belongs to a group of evacuees which may for convenience be described as Dhawan Group.
Diwan Chaman Lal, respondent No. 1, was a displaced person from West Pakistan where he owned considerable properties.
On September 1, 1949, in lieu of land left behind in Pakistan, he was allotted 152.9 acres of land in village Kharwan in Tehsil Jagadhri, District Ambala.
The appellant and his 299 group also owned large extents of properties in West Pakistan.
Each one of that group was allotted different extents of land in the same village.
Before possession was taken by the allottees, two persons, namely, Hari Chand and Khilla Ram, filed applications dated November 14, 1949, and November 11, 1949, respectively for re allotment on the ground that the soil of the village was not of uniform quality and the allotment on the basis of blocks was not justified.
The Additional Deputy Commissioner, Ambala, re commended the splitting of the land into four blocks and the said recommendation was accepted by the Director General, Rural Rehabilitation, by his order dated December 2, 1949.
Thereupon the village was divided into four blocks and was re allotted.
On account of the re allotment, the 1st respondent could not get his entire allotment in village Kharwan in one block and he was given instead land in different blocks and different villages.
Aggrieved by this order, the first respondent filed a review application before the Deputy Commissioner, Ambala, on September 27, 1950, praying for the restoration of his original allotment made on September 1, 1949.
The Deputy Commissioner, Ambala, rejected that application on May 12, 1951.
Against that order the first respondent preferred a revision to the Additional Custodian, who dismissed the same on August 25, 1952.
Against that order of dismissal, the first respondent filed a revision to the Custodian General on October 30, 1952.
To that revision only the Custodian was made party; but the appellant and the members of his group were subsequently made parties by an order of the Deputy Custodian General dated August 25, 1953.
Thereafter notices were issued to them.
The appellant and others on their being made parties raised various contentions.
The Deputy Custodian General cancelled the allotment made in favour of the Dhawan Group in respect of the excess area allotted to them and directed the land obtained by means of this cancellation to be utilised for the consolidation of the allotment of the first respondent in village Kharwan.
He also gave further consequential directions.
The present 300 appeal is preferred by Purshotam Lal Dhawan, a member of the Dhawan Group, against the said order.
Learned counsel for the appellant raised before us the following two points: (1) The revision to the Deputy Custodian General was barred by time.
(2) On the date when the allotment made to the appellant was cancelled, the Deputy Custodian General had no power to cancel the allotment.
To appreciate the first contention some relevant dates may be given.
The order of the Additional Custodian was passed on August 25, 1952.
The said order was communicated to the first respondent on September 11, 1952.
The revision was filed on October 10, 1952.
On the date of the filing of the revision only the Deputy Custodian was made a party,, but later on the Dhawan Group was impleaded in the revision in October 1953.
No application for excusing delay in preferring the revision against the said persons was made.
It was contended before the Deputy Custodian General that the revision petition was barred by time against the Dhawan Group, but the Deputy Custodian General rejected that argument and disposed of the petition on merits.
The first question for consideration is whether the revision was barred by limitation in so far as the Dhawan Group was concerned.
Some of the relevant provisions regulating the power of revision of the Custodian General may be noticed.
Section 27 of the Act says, "The Custodian General may at any time either on his own motion or on application made to him in this behalf call for the record of any proceedings in which any Custodian has passed an order for the purpose of satisfying himself as to the legality or propriety of any such order and may pass such order in relation thereto as he thinks fit".
Under the proviso to that section, "the Custodian General shall not pass an order under the sub section prejudicial to any person without "giving him a reasonable opportunity of being heard.
In exercise of the powers conferred by section 56 of theAct, the Central Government made the following rules among others: 301 Rule 31.
(5) Any petition for revision when made to the Custodian General shall ordinarily be made within sixty days of the date of the order sought to be revised.
The petition shall be presented in person or through a legal practitioner or a recognized agent or may be sent by registered post.
The petition shall be accompanied by a copy of the order sought to be revised and also by a copy of the original order unless the Revising Authority dispenses with the production of any such copy.
In contrast to the said provisions, rule 31(1) dealing with appeals says, "All appeals under the Act shall when they lie to the Custodian, be filed within thirty days of the date of the order appealed against and when they lie to the Custodian General, within sixty days of such date".
Section 27 of the Act confers a plenary power of revision on the Custodian General and it empowers him to exercise his revisional powers either suo motu or on application made in that behalf at any time.
The phrase "at any time" indicates that the power of the Custodian General is uncontrolled by any time factor, but only by the scope of the Act within which he functions.
The Central Government cannot obviously make a rule unless section 56 of the Act confers on it an express power to impose a time fetter on the CustodianGeneral 's power.
We do not find any such power conferred on the Central Government under section 56 of the Act.
So the rule can only be read consistent with the power conferred on the Custodian General under section 27 of the Act.
That must have been the reason why rule 31(5) does not prescribe any limitation on the Custodian General to exercise suo motu his revisional power.
Even in the case of an application for revision filed before him it is said that ordinarily it shall be filed within sixty days.
The use of the word "ordinarily" indicates that the period of sixty days is not a period of limitation but only a rule of guidance for the petitioners as well as for the CustodianGeneral.
It is within the discretion of the CustodianGeneral to entertain revision petitions after sixty days, 302 but the rule indicates to him that the reasonable period for entertaining a revision is sixty days.
The difference in the phraseology of sub rules (1) and (5) of rule 31 of the Rules also leads to the same conclusion, for in the matter of appeals a period of limitation of thirty days when made to the custodian and sixty days when it lies to the Custodian General is prescribed whereas no such rigid period has been laid down in the case of a revision.
If rule 31(5) is so read, its provisions will not conflict with those of section 27 of the Act; and in that event they would be valid.
The construction suggested by learned counsel for the appel lant may lend scope to the argument that the rule is ultra vires the statute, for when a section says that there is no time limit for entertaining a revision, section rule cannot say that it shall be filed within a particular time.
The argument that the principle underlying section 5 of the Limitation Act applies to a petition for revision under section 27 of the Act has no force.
Section 5 of the Limitation Act applies to an appeal for which a period of limitation is prescribed and it empowers the court to admit the appeal after the period of limitation, if the applicant satisfied it that he has sufficient reason for not preferring the appeal within the prescribed time.
The principle thereunder cannot be made applicable to a revision petition under section 27 of the Act in respect of which no period of limitation is prescribed.
At the same time we must make it clear that the powers of the Custodian General under section 27, read with rule 31(5), are not intended to be exercised arbitrarily.
Being a judicial power, he shall exercise his discretion reasonably and it is for him to consider whether in a particular case he should entertain a revision beyond the period of sixty days stated in rule 31(5).
In this case we cannot say that the Custodian General had acted perversely or unreasonably in entertaining the revision.
The revision was filed in time.
The Dhawan Group was made party at the subsequent stage as the Custodian General rightly thought that any order he would make in favour of the appellant might prejudice the Dhawan Group.
After giving them a reasonable opportunity 303 of being heard within the meaning of the proviso to section 27(1) of the Act, he made the order.
The CustodianGeneral, therefore, acted reasonably within his powers.
This objection is overruled.
The second contention of learned counsel for the appellant is that the Custodian General had no power to cancel an allotment made on or before July 22, 1952.
Let us recapitulate the relevant facts.
The original order of allotment was made in favour of the appellant 's group and of the first respondent on September 1, 1949.
There *as re allotment on December 2,1949.
There allotment was cancelled by the Deputy Custodian General by his order dated September 29, 1954.
The question is whether the Deputy Custodian General can set aside the allotment made on December 2, 1949.
The question raised falls to be decided on the relevant provisions of the Act and the rules made thereunder.
Section 11 of the Act confers on the Custodian the power to cancel any allotment made by him, whether such allotment was made or entered into before or after the commencement of the Act.
Rule 14 of the Rules narrates the grounds on which an allotment can be cancelled and also the procedure to be followed for cancelling such an allotment.
If a custodian makes an order either cancelling or refusing to cancel an allotment, the Custodian General can, under section 27 of the Act, set aside that order, if he is satisfied that it is not legal or proper, and he may pass such order in relation thereto as he thinks fit.
But it is said that rule 14(6) limits the power of the Custodian General in respect of allotments made under the Act.
As the argument turns upon that rule, it would be convenient to read the material parts of it.
Rule 14.
(6) "Notwithstanding anything contained in this rule, the Custodian of Evacuee Property in the State of Punjab shall not exercise the power of cancelling any allotment of rural evacuee property on a quasi permanent basis, or varying the terms of any such allotment, except in the following circumstances:. . . . . . ).
After narrating the circumstances, with which we are 304 not now concerned, the sub.rule contains a proviso which reads, "Provided further nothing in this sub rule shall apply to any application for revision, made under section 26 or section 27 of the Act, within the prescribed time, against an order passed by the lower authority on or before 22nd July, 1952.
" Under this sub rule there is a ban on the exercise of the power of the Custodian to cancel an allotment of a rural evacuee property on a quasi permanent basis except under certain circumstances.
his sub rule was substituted for the old sub rule by S.R.O. 1290 of July 22, 1952.
A Custodian under the Act cannot set aside an allotment except under the.circumstances mentioned in the sub rule.
But the second proviso to that sub rule lifts the ban in the case of an application made for revision under section 26 or section 27 of the Act.
It may be mentioned that the words "or section 27" after the words "section 26" were added in the sub.
rule on August 26, 1953 i.e., before the order of the Custodian General in the present case.
Section 26 of the Act, as it then stood, conferred revisional jurisdiction on the Custodian, Additional Custodian or Authorized Deputy Custodian against the orders of subordinate officers.
Section 27, as we have already noticed, confers a similar power of revision on the CustodianGeneral.
By reason of the proviso, the CustodianGeneral can, in exercise of his powers under section 27 of the Act, cancel an allotment made by a lower authority on or before July 22, 1952.
The only limitation on that power is that he must do so in a revision filed within the prescribed time.
What is the prescribed time for a revision under section 27 of the Act? "Prescribed" has been defined in the Act to mean " prescribed by rules made under this Act".
Rule 31(5) prescribes that a revision to the Custodian General shall ordinarily be made within sixty days of the order sought to be revised.
In considering the first point, we have explained the scope of the rule and we have held that the said rule is only a rule of guidance and that in law a revision can be entertained at any time even after sixty days if the Custodian General in his discretion thinks fit to entertain it.
The prescribed time in 305 the context of a revision to the Custodian General can only mean sixty days or such other time within which the Custodian General in his discretion thinks fit to entertain the revision.
As the allotment in the present case was made before July 22, 1952, the Custodian General was within his rights in cancelling the same.
Before we close, it is necessary to notice another contention raised by learned counsel for the respondents.
The argument was that there was no allotment made in favour of the appellant and, therefore, there was no scope for invoking the provisions of rule 14 of the Rules.
The basis of the argument is the following observations of the Deputy Custodian General in his order dated September 29, 1954: "The petitioner has rightly contended that the Dhawan Group had no verified claim for the allotment of this excess area and in spite of an opportunity afforded by me to them to produce the copies of their Parcha Claim, they have failed to do so.
The reports of the Land Claims Officer dated 7th August 1952, and 11th August 1952, on pages 147 and 151 of the record, show that although the allotment had been made to Dhawan Group but a search had been made for their claims which were not traceable.
On page 129 of the record, a report by the Department dated 21st August, 1952, shows that no order of allotment to Dhawan Group was forthcoming." These observation do not record a clear finding that there was no allotment in favour of the appellant.
Indeed the factum of allotment to the appellant was never questioned throughout the proceedings.
In the circumstances, we must dispose of this appeal on the basis that there was an allotment in favour of the appellant.
This contention, is, therefore, rejected.
No other point was raised before us.
In the result, he appeal fails and is dismissed with costs.
Appeal dismissed.

summary:
The appellant and the respondent, who were displaced persons from West Pakistan, were allotted lands in the same village.
At the instance of certain persons, the first allotment was cancelled and there was a re allotment.
The respondent was aggrieved by this order and on September 27, 195o, he filed a review application before the Deputy Commissioner for restoration of the original allotment but it Was dismissed on May 12 , 1951 Against this order the respondent preferred a revision application to the Additional Custodian.
who dismissed the same on August 25, 1952.
Thereupon, the respondent filed a revision application before the Custodian General on October 30, 1952.
To this revision on the Custodian was made a party; but the appellant was made a party by order of the Custodian General on August 25, 1953.
After bearing the parties the Custodian General on September 29, 1954, cancelled part of the re allotment made in favour of the appellant.
appellant contended: (i) that the revision application to the Custodian General was barred by time, and (ii)that the ' Custodian General had no power to cancel the allotment.
Hold, that the revision application was not barred by time.
Rule 31(5) provides that :a revision petition to the Custodian General "shall ordinarly be made within sixty days of the 38 298 order sought to be revised".
This rule is only a rule of guidance and not one of limitation and in law a revision can be entertained even after sixty days if the Custodian General in his discretion thinks fit to entertain it.
In the present case the revision was filed within the time but the appellant was impleaded after the period of sixty days had expired.
But it could not be said that the Custodian General acted perversely or unreasonably in entertaining the revision.
Held, further, that the Custodian General had the power to cancel the allotment made on December 2, 1949.
Under r. 14(6) the Custodian could not, after July 22, 1952, cancel an allotment except under certain specified circumstances; but the second proviso to r. 14(6) permitted the Custodian General, in exercise of his powers of revision under section 27 , to cancel an allotment made by a lower authority on or before July 22, 1952.


judgement:
Appeal No. 119 of 1957.
Appeal by special leave from the judgment and decree dated March 3, 1955, of the Orissa High Court in Appeal No. 593 of 1950.
B. Patnaik, for the appellants.
D. N. Mukherjee, for the respondents.
March 14.
The Judgment of the Court was delivered by SUBBA RAO, J.
This is an appeal by special leave against the judgment of the High Court of Judicature for Orissa dated March 3, 1955, setting aside the judgment of the Court of the District Judge, Mayurbhanj, and restoring that of the Subordinate Judge, Baladore.
The facts leading up to this appeal may be briefly stated.
The land in dispute originally belonged to one Bhagaban Parida.
On July 16, 1924, he executed a registered kabala 'for a ' consideration of Rs. 2,000 in favour of one Priyanath Sasmal.
On June 2, 1928, Priyanath Sasmal executed a usufructuary mortgage bond (exhibit B) for Rs. 1,500 in favour of 292 Lakshminarayan Pani, the father of the appellants herein.
Under the terms of the said usufructuary mortgage, the mortgaged property was put in possession of the mortgagee.
One of the terms of the mortgage deed was that the initial responsibility for the payment of rent was that of the mortgagor and that, if for any reason he did not pay the arrears of rent, the mortgagee was under an obligation to pay off the arrears to the landlord and to obtain a receipt acknowledging the payment.
The mortgagee did not pay the arrears of rent, with the result that for arrears of rent the said property was brought to sale and ultimately purchased by the mortgagee for a sum of Rs. 300 on September 22, 1936.
The sale was confirmed on November 4, 1936, and the mortgagee took possession through Court on December 21, 1938.
The mortgagor filed a suit against the mortgagee in the Court of the Subordinate Judge, Balasore, for redemption of the mortgage and for possession.
As the mortgagor died after the filing of the suit, his widow and son were brought on record as his legal representatives.
The defence of the appellants to that suit was that possession was not delivered to their father, the mortgagee, under the terms of the mortgage deed, that the debt was discharged, that their father had purchased the equity of redemption in execution of the rent decree, and that the mortgagor had no longer any right to sue him for redemption.
The learned Subordinate Judge and, on appeal, the District Judge concurrently found that in fact possession was delivered to the mortgagee on the basis of the mortgage deed and that the plea of discharge was not true; but, while the trial court held that after the purchase of the property by the mortgagee in execution of the decree for rent he was holding the, property only on behalf of the mortgagor, the appellate court came to the conclusion that after the said purchase the relationship of mortgagor and mortgagee came to an end; with the result the trial court decreed the suit and the appellate court, setting aside that decree, dismissed the suit.
The legal representatives of the mortgagor preferred a second appeal to the High Court against the judgment and 293 decree of the District Judge.
A division bench of the High Court agreed with the conclusion of the trial court, set aside the decree of the District Court and restored that of the trial court.
Hence the present appeal.
Learned counsel for the appellants i.e., the legal representatives of the mortgagee, contended that in execution of the rent decree the mortgagee became the purchaser of the equity of redemption, with the result that the relationship of mortagor and mortgagee ceased to exist and, therefore, the respondents could not sue for redemption and their remedy, if any, was to sue for setting aside the sale on the ground of fraud or otherwise.
On the other hand, learned counsel for the respondents contended that, as the sale was the result of manifest dereliction of duty imposed upon the mortgagee by the terms of the transaction, the purchase by the mortgagee would only be in trust for the mortgagor and, therefore, the suit for redemption was maintainable.
To appreciate the rival contentions it is necessary to notice briefly the law on the subject.
The relevant section governing the facts of the case is section 90 of the (2 of 1882).
The material portion of the section reads, "Where a mortgagee by availing him,self of his position as such, gains an advantage in derogation of the rights of the other persons interested in the property he must hold, for the benefit of all persons so interested, the advantage so gained, but subject to the repayment by such persons of their due share of the expenses properly incurred, and to an indemnity by the same persons against liabilities properly contracted, in gaining such advantage.
" Illustration (c) to that section says, "A mortgages land to B, who enters into possession.
B allows the Government revenue to fall into arrears with a View to the land being put up for sale and his becoming himself the purchaser of it.
The land is accordingly sold to B. Subject to the 294 repayment of the amount due on the mortgage and of his expenses properly incurred as mortgagee, B holds the land for the benefit of A." The following three conditions shall be satisfied before section 90 of the can be applied to a case: (1) the mortgagee shall avail himself of his position as mortgagee; (2) he shall gain an advantage; and (3) the gaining should be in derogation of the right of the other persons interested in the property.
The section, read with illustration (c), clearly lays down that where an obligation is cast on the mortgagee and in breach of the said obligation he purchases the property for himself, he stands in a fiduciary relations ship in respect of the property so purchased for the benefit of the owner of the property.
This is only another illustration of the well settled principle that a trustee ought not to be permitted to make a profit out of the trust.
The same principle is comprised in the latin maxim commodum ex injuria sua nemo habere debet, that is,,convenience cannot accrue to a party from his own wrong.
To put it in other words, no one can be allowed to benefit from his own wrongful act.
This Court had occasion to deal with a similar problem in Sidhakamal Nayan vs Bira Naik (1).
There, as here, a mortgagee in possession of a tenant 's interest purchased the said interest in execution of a decree for arrears of rent obtained by the landlord.
It was contended there, as it is contended here, that the defendant, being a mortgagee in possession, was bound to pay the rent and so cannot take advantage of his own default and deprive the mortgagors of their interest.
Bose, J., speaking for the Court, observed at p. 337 thus: "The position, in our opinion, is very clear and in the absence of any special statutory provision to the contrary is governed by section 90, Trusts Act.
The defendant is a mortgagee and, apart from special statutes, the only way in which a mortgage can be terminated as between the parties to it is by the act of the parties themselves, by merger or by an order of the Court.
The maxim "once a mortgage always (1) A.I.R. 1954 S.C. 336.
295 a mortgage" applies.
Therefore, when the defendant entered upon possession he was there as a mortgagee and being a mortgagee the plaintiffs have a right to redeem unless there is either a contract between the parties or a merger or a special statute to debar them." These observations must have been made on the assumption that it was the duty of the mortgagee to pay the rent and that he made a default in doing so and brought about the auction sale of the holding which ended in the purchase by him.
The reference to section 90 of the supports this assumption.
Learned counsel for the appellants relied upon the decision of the Judicial Committee in Malkarjun Bin Shidramappa Padare vs Narhari Bin Shivappa (1) in support of his contention that a mortgagor cannot seek the relief of redemption without first getting the sale set aside.
There, a mortgaged property was sold in execution of a decree against the mortgagor and the plaintiff neglected or refused to pray that it might be set aside.
The Judicial Committee held that an execution sale could not be treated as a nullity if the court which sold it had jurisdiction to do so; and it could not be set aside as irregular without an issue raised for that purpose and investigation made with the judgment creditor as a party thereto.
That was not a case where the mortgagee who had an obligation to discharge under the mortgage deed made a default with the result the.
property was sold and purchased by the mortgagee himself.
The proposition enunciated by the Judicial Committee would apply to a case where the equity of redemption was extingui shed by the court sale.
This may apply to a case, where the mortgagee, after obtaining leave to bid., purchases at a sale in execution of his decree or a decree obtained by a third party.
In such a case there may be scope for the argument that the equity of redemption is extinguished and, therefore, the mortgagor cannot get relief till the sale is set aside in the manner known to law.
But when the sale is (1) (1900) L.R. 27 I.A. 216.
296 brought about by the default of the mortgagee, the mortgage is not extinguished and the relationship of mortgagor and mortgagee continues to exist and, therefore, there will not be any necessity for setting aside the sale.
The legal position may be stated thus: (1) The governing principle is "once a mortgage always a mortgage" till the mortgage is terminated by the act of the parties themselves, by merger or by order of the court.
(2) Where a mortgagee purchases the equity of redemption in execution of his mortgage decree with the leave of court or in execution of a mortgage or money decree obtained by a third party, the equity of redemption may be extinguished; and, in that event, the mortgagor cannot sue for redemption without getting the sale set aside.
(3) Where a mortgagee purchases the mortgaged property by reason of a default committed by him the mortgage is not extinguished and the relationship of mortgagor and mortgagee continues to subsist even thereafter, for his purchase of the equity of redemption is only in trust for the mortgagor.
Let us now apply the aforesaid principles to the concurrent findings arrived at by the courts below.
All the courts concurrently found that in fact possession was delivered to the mortgagee on the basis of the mortgage deed, exhibit B. They have also found that the plea of discharge taken by the appellants was not true.
The High Court found that under the mortgage deed the mortgagee had a duty to pay the arrears of rent to the landlord, but he made a default in paying the said arrears.
The High Court farther held that the sale was the result of manifest dereliction of the duty imposed upon the mortgagee by the very terms of the transaction.
The said findings clearly attract the provisions of section 90 of the .
In view of the aforesaid principles, the right to redeem the mortgage is not extinguished and in the eye of law the purchase in the rent sale must be deemed to have been made in trust for the mortgagor.
In the promises, the High Court was right in holding that the suit for redemption was maintainable.
297 No other point was raised before us.
The appeal fails and is dismissed with costs.
Appeal dismissed.

summary:
Usufructuary mortgage bond was executed in favour of the father of the appellant who was put in possession of the mortgaged property.
One of the terms of the usufructuary mortgage was that in case of failure of payment of rent by the mortgagor, the mortgagee was to pay off the arrears of rent to the landlord, which obligation the mortgagee did not honour as a result of which the property was brought to sale and ultimately purchased by the mortgagee.
The mortgagor filed a suit against the mortgagee, the appel lant 's father, for redemption of the mortgage and !or possession.
, The defence inter alia was that the mortgagee had purchased equity of redemption in execution of the rent decree and that the mortgagor had no longer any right to sue him for redemption and their remedy, if any, was to sue for setting aside the sale on the ground of fraud or otherwise.
Held, that section go of the Trusts Act read with the illustration (c) lays down the principle that no one can be allowed to benefit for his own wrongful act.
Held, further, that the legal position with regard to mort gagor and mortgagee was that: (1) the governing principle is that "once mortgagee 291 always a mortgagee" till the mortgage is terminated by the act of the parties themselves, by merger or by order of the Court; (2)where a mortgagee purchases the equity of redemption in execution of his mortgage decree with the leave of court or in execution of a mortgage or money decree obtained by a third party, the equity of redemption may be extinguished; and, in that event, the mortgagor cannot sue for redemption without getting the sale set aside; and (3)where a mortgagee purchases the mortgaged property by reason of a default committed by him the mortgage is not extinguished and the relationship of Mortgagor and mortgagee continues to subsist even thereafter, for his purchase of the equity of redemption is only in trust for the mortgagor.
In the instant case the right to redeem the mortgage was not extinguished and in the eyes of law, the purchase in the rent sale was deemed to have been made in trust for the mortgagor and the suit for redemption was maintainable.
Sidhakamal Nayan vs Bira Naik, A.I.R. 1954 S.C. 336, relied on.
Malkarjun Bin Shidramappa Pasare vs Narhari Bin Shivappa, (1900) L.R. 27 I.A. 216, distinguished.