judgement:
vil Appeal No. 369596 of 1988.
From the Judgment and Order dated 10.12.87 of Customs Excise and Gold Control Appellate Tribunal New Delhi in Appeal No. 1105/ 83 D (Order No. 961/87 B).
Soli, J. Sorabjee, section Ganesh, C.M. Mehta P.G. Gokhale and R.B. Hathikhanawala for the Appellants.
A.K. Ganguli, Mrs. Sushma Suri and K. Swami for the Respondent.
The Judgment of the Court was delivered by VENKATACHALIAH J.
These two appeals under Section 35 L of the (Act) by Messrs Mafatlal Fine Spinning & Manufacturing Co. Ltd., arise out of and are directed against the common appellate order dated 10.2.1987 of the Customs Excise & Gold (Control) Appellate Tribunal in Appeal Nos.
1105 of 1983 and 2540 of 1987 hold ing that in respect of the deferred duty on yarn appellant is liable to pay interest at 3 per cent of the duty under 207 Rule 49A(2) of the Central Excises & Salt Rules, 1944, as according to the Tribunal, the cotton fabric cleared is not 'Grey ' (unprocessed) cotton fabric.
Appellant is engaged in the manufacture of cotton fabrics in its composite mills and opted under Rule 49A for facility of payment of duty of excise payable on the yarn to be deleted until the clearance of the cotton fabrics manu factured therefrom.
The said Rule 49A provides for payment of interest on the excise duty payable on the yarn which is deferred till the manufacture and clearance of the fabrics made out of the dutiable yarn.
As such payment is deferred, at the instance of the option of the manufacturer, till completion of manu facture and clearance of fabrics out of the yarn and Rule 49A envisages that when cotton fabrics are cleared 'grey ' (unprocessed) the yarn duty shall be paid at the time of clearance of the fabrics along with 1 1/2% of the yarn duty, by way of interest.
But where the cotton fabrics are cleared after 'processing ', the interest payable on, and along with, the yarn duty would, however, be 3% of the yarn duty.
The question in these appeals is whether the inter est rate should be one & half per cent or three per cent which in turn depends upon whether the cotton fabrics cleared are 'grey ' (unprocessed) or they are cleared after 'processing '.
The cotton fabrics cleared in this case, admittedly, underwent the process of 'calendering ' and 'shearing '.
The cognate and sequential question is whether these processes render the 'grey ' fabric, a 'processed ' fabric within the meaning of Rule 49A(2).
The Appellate Tribunal has held that 'calendering ' and 'shearing ' are 'finishing processes ' and render the 'Grey ' fabrics to cease to be 'unprocessed ' so as to attract interest at 3%.
We have heard Sri Soli J. Sorabjee, learned Senior Counsel for the appellant and Sri A.K. Ganguly, learned Senior Counsel for the revenue.
There is no dispute that before clearance, the cotton fabrics were subjected to 'calendering ' and 'shearing ' which, in the jargon of the textile industry are 'finishing processes '.
The Tribunal, accordingly, held that the cotton fabrics cleared were not 'unprocessed ' for pur poses of Rule 49A(1)(b).
In regard to 'calendering ', the Tribunal relied upon the views expressed by it in the case of Siddeshwari Cotton Mills Ltd. and Anr.
vs Collector of Central Excise, Calcutta [1984] 18 The relevant part of Rule 49A provides: "(1) When the cotton fabrics are cleared grey (unprocessed), the yarn duty payable shall be (a) the appropriate duty payable on such cellulosic spun yarn or cotton yarn, or both, as the case may be; plus (b) one and a half per cent of the duty pay able on such cellulosic spun yarn or cotton yarn, or both, as the case may be, by way of interest on the amount of yarn duty; (2) When the cotton fabrics are cleared after processing, the yarn duty payable shall be (a) the appropriate duty payable on such cellulosic spun yarn, or cotton yarn, or both,.
as the case may be; plus (b) three per cent of the duty payable on such cellulosic spun yarn, or cotton yarn, or both, as the case may be, by way of interest on the amount of yarn duty: Explanation Omitted as unnecessary.
Sri Sorabjee contended that such controversy, as is raised, as to whether the fabric, after 'calendering ' and 'sheafing ' ceases to be 'unprocessed ' fabric would require to be resolved on the language of the Rule 49A itself and that the differentium for the attraction of the different rates of interest was whether the cotton fabrics cleared were 'grey fabrics ' as known and understood in the textile industry.
The learned counsel emphasised the distinction between the expressions in Rule 49A(1) which refer to the expression "cotton fabrics are cleared grey (unprocessed)" on the one hand and the expression "cotton fabrics are cleared after processing" in Rule 49A(2) on the other, to demonstrate that the condition for levy of 1 1/2 % is not whether some process or processes were applied to the 'grey fabrics ' but whether such process or processes to which the grey fabric was subjected had the effect of making such 'grey fabric ' cease to be 'grey fabric '.
209 6.
Sri Ganguly, for the revenue, urged that the condi tions for the choice of the different rates of interest are not envisaged in the context whether the process or process es amounted to 'manufacture ' within the meaning of Sec.
2(f)(v) of the Act, but only in the context of estimating the extent of time consumed by the process or processes as that is the criterion for the choice of the rate of inter est.
The purpose and intendment of the rule, says Sri Gan guly, is to provide for the rates of interest on the de ferred yarn duty depending on the time consumed by the processing.
If 'grey cloth ' directly obtained from the loom and that is what 'grey fabric ' or 'greige ' in textile parlance means is cleared then a lesser rate of interest is attracted.
But, where, as here, the 'grey fabric ' is sub jected to time consuming processes the rate of interest, says Sri Ganguly, would be the higher rate of 3 per cent, taking note of the delays consequential upon such processing occasioned in the recovery of yarn duty.
Sri Ganguly, ac cordingly, submitted that the test appropriate in this context is not whether the grey fabrics undergo any change in their nature or quality as a result of the processes but is whether any time consuming process, whatever be its nature, is resorted to by the manufacturer which will, in turn, occasion delays in the clearance of the cotton fabric and thereby delay payment of the yarn duty.
Sri Ganguly is right in his submission as to the objects of Rule 49A in prescribing differential rates of interest on deferred yarn duty.
But the standards for as sessment of the relative delays depending on which the different rates of interest are charged are themselves set by the rule making authority.
The measure of the delay so as to attract one or the other of the rates is not in terms of any period of time specified but is prescribed to be with reference to the nature of the processes.
The measure of the delay in deferment of yarn duty legislatively considered appropriate to attract higher rate of interest at 3%, is in terms of the processes that would be required to make the 'greycloth ' cease to be grey cloth.
That is why in Rule 49A(1) the expression 'grey ' is used while in Rule 49A(2) that word is omitted.
So the period of deferment of yarn duty to attract higher interest 3% would, according to the wisdom of the rule makers, be the delay incidental to con verting 'grey fabric ' into 'processed ' fabric which ceases to be 'grey fabric '.
With this legislative estimate of the period of deferment appropriate to a situation attracting 3% interest, the matter has necessarily to be examined by those standards, which in turn, bring in the idea whether the process or processes concerned are such as to change the nature of the 'grey fabric '.
This leads to the question whether 'calendering ' and 'shearing ', though by themselves are finishing processes, render the 'grey ' fabric cease to be so.
210 8.
Sri Sorabjee submitted that the process of calender ing is nothing more than mere pressing of the 'grey fabric ' by running it through plain rollers to impart a better finish, which is a mere temporary finish.
Sri Sorabjee referred to some of the notifications issued under Section 8(1) of the Act which say that calendering would not be treated as "processing".
Learned Counsel contended that having regard to the very nature, the calendering does not bring about any change in the quality of the goods.
In Siddeshwari Cotton Mills ' case, the Tribunal has referred to certain technical and scientific literature on the process of 'calendering '.
Sri Sorabjee referred to some of them.
In Modern Textiles (by Dorothy section Lyle John Welay & Sons, N. York) under the caption "Finishes that provide Asthethic Values", referring to "CALENDER FINISH" it is stated: "This is the simplest of all finishes used to give a good appearance to the finished fabric.
It consists of passing the fabric between the heated cylinders of a calendering machine.
It is simply ironing a fabric to make it smooth and give it a lustrous surface.
The round yarns are flattened, hence reflect more light.
It is a temporary finish, since the yarns revert to their round shape with steaming, laundering, and dry cleaning.
Examples of calendered fabrics the sheeting, poplin, and broadcloth, both cotton and wool".
Encyclopaedia Britannica has the following to say: "Calendering is a final process in which heat and pressure are applied to a fabric by pass ing it between heated rollers, imparting a flat, glossy, smooth surface, Lustre, in creases when the degree of heat and pressure is increased.
Calendering is applied to fab rics in which a smooth, flat surface is de sirable, such as most cottons, many linen and silks, and various man made fabrics . . . . .
Calendering is not usually a permanent process.
" In "Glossary of Terms relating to treated fabrics I.S. 2244 1972 published by the Indian Standards Institution it is stated: "Calender A machine comprised of at least three heated rollers, used to produce film and sheet material".
211 "Calendering A mechanical method done by rollers to provide glaze, glossiness, hard ness, lustre, shine and even embossed designs to fabrics.
Calendering is usually done to impart a special finish to fabrics.
" It is accordingly urged by Sri Sorabjee that calendering does not alter the nature of the 'grey fabric ' and would not take cotton fabric out of Rule 49(1)(b).
In regard to the process of "Shearing" Sri Sorabjee relied upon Fairchild 's Dictionary of Textiles which says: "SHEARING: 1.
A process of cutting fleece from sheep generally by power driven clippers or sometimes by hand shears.
Properly sheared fleece will be removed in one solid sheet, which is rolled into a compact bundle with the wool on the inside.
A finishing operation in which uneven threads are mechanically cut or trimmed from the face of the fabric.
Almost always employed for woollen and worsted and extensively employed on other fabrics.
The amount of shearing on napped and pile fabrics varies according to the desired height of the nap or pile; on clearfinish fabrics like gabardine, a very close shearing is given.
A finishing operation in which floating por tions of yarn are cut, e.g., in extra warp or extra filling figured fabrics.
The method is similar to that employed in para 2, above.
" In "Textile Terms and Definitions" 8th Edn. by the Textile Institute: "SHEAR: (1) To Cut the fleece from a sheep.
(2) . . . . . (3) To cut loose fibres or yarn from the surface of a fabric after weaving (also called crop).
" In Handbook on Glossary of Textile Terms (Bureau of Indian Standards): "SHEARING Shearing indicates: 212 (a) Cutting fleece from live sheep, (b)Trimming nap or pile to the required uniform height, and (c) Removing all protruding fibres from the surface of the fabric i.e. cropping.
Both 'calendering ' and 'shearing ' involve an assort ment and variety of processes, some of which might and some others might not affect or alter the nature of the fabric.
Both the expressions, 'calendering ' and 'shearing ' are collective expressions representing a number of sub species of operations which, depending upon the nature of the par ticular operation, may or may not alter the nature of the 'grey fabric ' as such.
Sri Sorabjee submitted that in the present case "calend ering" was not done by 'grooved ' rollers or cylinders but only by plain rollers and the "Shearing" operation was only to cut off protruding stray fibres from the 'grey fabric ', and that actual processes of 'calendering ' and 'shearing ' involved in the present case were amongst the simplest of the processes and did not have the effect of bringing about any change in the 'grey fabric '.
These matters depend on particularities of the facts of each case and are to be decided on a case by case basis, The Tribunal proceeded on the basis that "Calendering" and "Shearing" amounted to process of finishing and that by itself, without more, satisfied the conditions that would take the case out of Rule 49 A(1).
The test applied by the Appellate Tribunal, as well as by the authorities below, is not the appropriate one on the language of Rule 49A.
Any processing that can take a case out of Rule 49A(1)(b) must be a process which renders cotton fabric cease to be 'grey fabric ' as commercially known and understood.
The question whether 'calendering ' and 'shearing ', as actually carried out by the appellant has had the effect of taking the cotton fabric out of Rule 49A(1) should be decided in the light of this test.
In the present cases, the claim of the appellant before the authorities that the calendering process employed by them was such as to give temporary finish by pressing the fabric is not controverted.
No lasting change is brought about.
There is no finding to the contrary.
Likewise the claim as to the "Shearing" which was only to trim 213 protruding, stray fibres from the fabric.
If these are the nature of the operations, the 'grey ' fabric, in the facts of these cases, does not become new and commercially different commodity and cease to be 'Grey cloth '.
There is thus no justification to take it out of Rule 49A(1)(b).
Accordingly, these appeals are allowed, the appellate order, of the Tribunal and the decisions of the authorities below set aside and the liability for payment interest is directed to be computed under Rule 49A(1)(b).
No Costs.
N.P.V. Appeals allowed.

summary:
Rule 49A of the Central Excise Rules, 1944 provided for payment of different rates of interest on the excise duty on the yarn, payment of which was deferred at the option of the manufacturer till the manufacture and clearance of the fabrics made out of the dutiable yarn, depending on whether cotton fabrics were cleared 'grey ' (unproceased) or 'after processing '.
When the fabrics were cleared grey the interest payable was 1 1/2% of the yarn duty.
But where the cotton fabrics were cleared after 'processing ', it was 3% of yarn duty.
Appellant Company, engaged in the manufacture of cotton fabrics, in its composite mills, opted for such deferment of payment of duty of excise.
The cotton fabrics cleared admit tedly underwent the process of 'calendering ' and 'shearing '.
The Appellate Tribunal held that 'calendering ' and 'shear ing ' were 'finishing processes ' which rendered the 'grey ' fabrics to cease to be 'unprocessed ' and thus attracted interest at 3% of yarn duty.
In the appeal before this Court, it was contended on behalf of the appellant company that whether the fabric, after 'calendering ' and 'shearing ' ceased to be 'unproc essed ' fabric would require to be 'resolved on the language of the Rule 49A itself and that the differentium for the attraction of the different rates of interest was whether the cotton fabrics cleared were 'grey fabrics ' as known and understood in the textile industry, and that the condition for levy of 1 1/2% was not whether some process or processes were applied to the 'grey fabrics ' 205 but whether such process or processes to which the grey fabric was subjected had the effect of making such grey fabric ceased to be 'greyfabric ', and that actual processes or 'calendering ' and 'shearing ' involved in the present case were amongst the simplest of the processes and did not have the effect of bringing about any change in the 'greyfabric ', as to take it out of Rule 49A(1)(b).
On behalf of the Revenue it was contended that the conditions for the choice of the different rates of interest were not envisaged in the context whether the process or processes amounted to 'manufacture ' within the meaning of section 2(f)(v) of the Act, but only in the context of estimating the extent of time consumed by the process or processes and that the test appropriate in this context was not whether the greyfabrics under went any change in their nature or quality as a result of the processes but was whether any time consuming process, whatever be its nature, was resorted to by the manufacturer which, in turn, occassioned delays in the clearance of the cotton fabrics and thereby delayed payment of the yarn duty.
Allowing the appeals, HELD: 1.
Though the purpose of Rule 49A of the Central Excise Rules 1944, was to provide for rates of interest depending on the time consumed by the processing, the meas ure of the delay so as to attract one or the other of the rates is not in terms of any period of time specified, but is prescribed to be with reference to the nature of the processes.
The measure of the delay in deferment of yarn duty legislatively considered appropriate to attract higher rate of interest at 3%, is in terms of the processes that would be required to make the 'greycloth ' cease to be grey cloth.
Any processing that can take a case out of Rule 49A(1)(b) must be a process which renders cotton fabric cease to be 'grey ' fabric as commercially known and under stood.
That is why in Rule 49A(1) of the expression 'grey ' is used while in Rule 49A(2), that word is omitted.
[209E F] The matter has to be examined by those standards, which in turn, depends on the fact, whether the process or proc esses concerned were such as to change the nature of the 'grey fabric '.
[209G H] 2.1 There is no dispute that before clearance the cotton fabrics were subjected to 'calendering ' and 'shearing ' which in the jargon of the textile industry are finishing process es.
[207G] 206 2.2 Both 'calendering ' and 'shearing ' involve an assort ment and variety of processes, some of which might and some others might not affect or alter the nature of the fabric.
Both the expressions, 'calendering ' and 'shearing ' are collective expressions representing number of sub species of operations which, depending upon the nature of the particu lar operation, may or may not alter the nature of the 'greyfabric ' as such.
[212B C] 2.3 These matters depend on particularities of the facts of each case and are to be decided on a case by case basis.
[212E] In the present case, the claim of the appellant before the authorities that the 'calendering ' process employed by them was such as to give temporary finish by pressing the fabric is not controverted.
No lasting change is brought about.
There is no finding to the contrary.
Likewise the claim as to the "shearing" which was only to trim protrud ing, stray fibres from the fabric.
If these are the nature of the operations, the 'grey ' fabric, in the facts of these cases, does not become new and commercially different com modity and cease to be 'grey ' cloth.
There is thus no justi fication to take it out of Rule 49A(1)(b).
[212G H; 213A]


judgement:
: Civil Miscellaneous Petition No. 265 19 of 1988.
IN Civil Appeal No. 2632 of 1987.
From the Judgment and Order dated 10.6.1985 of the Kerala High Court in W.P. No. 210 of 1985 in O.P. No. 897 of 1984.
Mrs. Baby Krishnan for the Appellant.
A.K. Srivastava and C.V.S. Rao for the Respondent.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
This is an application for making the award dated 17th February, 1988 passed by Mr V. Khalid, a former Judge of this Court, in a dispute referred to him by this Court 's order dated 6th October, 1987, final and to give consequential directions thereupon. 117 On 7th April, 1979 there was a contract for construction of the building in question.
The contract consisted of two phases.
The date of commencement of both the phases was 10th March, 1979: the date of completion of phase l was 9th June, 1980 and for phase Il 9th November, 1980.
The dispute arose about the handing over of the site.
According to the appel lant, the site was not handed over to him as agreed upon and therefore, the work could not either be commenced or com pleted as stipulated.
He, therefore, accused the respondent of obstructionist tactics also.
According to the respondent, however, the claims put forward by the appellant were imagi nary excuses to gain time and that he put forward various demands for extension of time and for payment of compensa tion to which he was not entitled.
Clause 70 of the general conditions of the contract provided for settlement of disputes by arbitration.
The appellant resorted to this clause and addressed a letter dated 13th September, 1980 to the Chief Engineer, South West Zone, Cochin, informing him that if the said disputes were not settled to his satisfaction within 15 days from the date of receipt of the notice, he would be taking appropriate steps to refer the disputes to arbitration in accordance with the said clause.
This request of the appellant was turned down by the Chief Engineer, as according to him, work was in progress and the question of granting reasonable extension of time was under examination.
Dissatisfied with this, the appellant took the matter to the Engineer in Chief by his letter dated 14th October, 1980 calling upon him to appoint an Engineer Officer as the sole arbitrator to adju dicate upon the disputes between the parties.
This request was not acceded to.
The relationship between the parties became strained.
The respondent asserted that the appellant had abandoned the work and committed breach of contract.
Thereafter, the appellant vide a notice dated 4th October, 1982 called upon the Engineer in Chief to appoint an Engineer Officer as the sole arbitrator.
After further correspondence, the Engineer in Chief by his letter dated 9.6.1983 appointed one Mr. K.C.S. Rao, Chief Engineer, Poona Zone, as the arbitra tor in respect of the disputes.
Mr Rao, it is asserted, entered into reference.
The appellant asserted that Mr Rao was incompetent to function as arbitrator for it was he who had terminated the contract when he was officiating as the Chief Engineer of Sought West Zone.
Aggrieved by this appointment, he filed a suit in the Court of Subordinate Judge, Cochin, seeking leave to revoke the authority of the appointed arbitrator under section 5 of the . 118 (hereinafter referred to as 'the Act '), and for appointment of another person as arbitrator under section 12 of the Act.
It is not necessary to set out the various stages of litiga tion thereafter.
Ultimately, the matter came to this Court and by an order passed by this Court on 25th August, 1987 in Civil Appeal No. 2632/87, it was observed as follows : "Having regard to the facts and circumstances of the case, we are of the opinion that all the disputes mentioned in the Paper Book be arbitrated by a former retired Judge of this Court.
We accordingly appoint Mr. Justice vs Khalid (Retd.) a former Judge of this Court, as the Arbitrator.
The Arbitrator will decide his remuneration as he thinks fit and the parties will pay the same in equal shares.
The parties will also bear the costs and charges of holding the proceedings including the remuneration and other assistance of Stenogra phers etc.
Councel for both the parties have no objection to the aforesaid order.
The learned Arbitrator will enter into reference within a fortnight from the receipt of the copy of the order and will make the award within four months thereafter.
Costs of the parties in the Arbitration proceedings will abide by the decision of the Arbitrator".
The arbitrator entered upon the reference, examined the documents, heard the parties and considered the evidence.
He made his award after inspecting the sites on 20th December, 1987 and 21st January, 1988.
The claims of the appellants contractor were as follows: "1.
On account of losses caused due to increase in prices of materials and cost of labour and transport during the extended period of contract from 9.6.80 work for under phase I and from 9.11.80 for work under phase II.
5,47,612.15 2.
On Account of work done under the contract including fully executed and partly executed items at the origi nally agreed rates and for the cost of materials lying at site and taken over by the Department as well as for the value of machinery, tools and plants lying over the site and taken over by Department.
7,27,095.01 3.
On account of losses caused due to added and infructuous expenditure on overheads, establishments, and 119 supervision during the extended period of contract upto 3.12.81, the date of termination.
1,28,864.00 4.
On account of losses caused by way of gains prevented due to unlawful repudiation of the contract by the Depart ment and the consequent termination of the contract by the contractor.
1,04,424.58 5.
(a) Release of Bank Guarantee for Rs. 1,25.000 (Bank Guarantee No. G/19/80 dated 28.4.80 issued by the State Bank of India, Willingdon Island, Conchin 3).
(b) Refund of the retention amounts recovered by the Department from the Running Account Bills.
Amount not indicated 6.Interest on all the amounts due and payable.
@18% PA from 9.12.81 till actual date of payment or realisation".
The claims on behalf of the respondent, were as under: "1. Excess cost which had to be borne by the Department 19,16,198.82 on account of the defaults of the contractor and subsequent cancellation of the contract after adjusting other amounts due from the contractor under this contract.
Cost of reference to Arbitration 7,000.00" The arbitrator by his award asked the respondent to pay the following: "(a) On claim No. I, a sum of Rs.2,00,216.18 with interest at 10% from 9.12.1981 till the date of this Award.
(b) On claim No. 11, a sum of Rs.2,47,269.69 with interest at 10% from 9.12.1981 till the date of this Award.
(c) Claim No. III Disallowed.
(d) Claim No. IV Disallowed.
(e) On claim No. V(a), the respondent is directed to 120 refund the Bank Guarantee sum of Rs. 1,25,000 to the Cliamant with interest at 10% from the date of the encashment till the date of this Award.
The remuneration of the Arbitrator is Rs.75,000.
Rs.50,000 has already been deposit ed.
The claimant and the Respondent are di rected to.
remit the balance equally (Rs. 12,5000 each) to the Arbitrator to his Madras address by Account payee Draft within two weeks of receipt of the notice under Section 14 of the .
11I. The respondent is directed to pay to the Claimant by way of cost Rs. 17,500 to wards Arbitrator 's remuneration and Rs. 10,000 towards Advocates ' fees and cost.
The respondent is directed to suffer their cost.
The counter claims preferred by the Re spondent against the Claimant are disallowed.
" A petition was filed on behalf of the respondent, where in it was stated as follows: "Regarding petitioner 's claim No. 1, in the absence of any escalation clause, it is not permissible to the Arbitrator to grant any escalation price as sought by the petitioner.
On the other hand, if the work is not complet ed within the specified time, he has got right to ask for extension of time.
Failure to grant extension of time, the contractor can claim difference of prices.
That is not the case here.
Extension of time was granted and the Arbitrator after considering the contentions put forth before him has granted 20% of the escalation price which is not in accordance with the terms of the contract.
Though the term of the contract envisages that the entire site should be handed over in time for comple tion of the work entrusted to him as referred to above in civil works before starting of the work, the contractor is required to put up some preliminary work like construction of temporary store sheds, temporary office which requires sometime and within that time if the other area or the site is not handed over the contractor has got grievances to complain against the Department.
Further, by not hand ing over the site how much damage or loss is sustained has not been 121 apprised off.
Therefore, it is submitted that Claim No. 1 of the Contractor should have been considered as outside the scope of the con tract and hence the arbitrator has exceeded his jurisdiction." Mr Ashok Srivastava, counsel appearing for the Union of India, submitted before us that this is a reasoned award and the learned arbitrator had granted a sum of Rs.2 lakhs as escalation charges and costs.
Mr Srivastava tried to urge that the right to get escalation charges and costs in the absence of escalation clause was not a matter referred to the arbitrator.
In other words, it was urged that the arbi trator had travelled beyond his jurisdiction in awarding the escalation cost and charges.
It is difficult to accept this objection for reason more than one.
It is well settled that an award can only be set aside under section 30 of the Act, which enjoins that an award of an arbitrator/umpire can be set aside, inter alia, if he has misconducted himself or the proceeding.
Adjudicating upon a matter which is not the subject matter of adjudication, is a legal misconduct for the arbitrator.
The dispute that was referred to the arbitrator was, as to who is responsible for the delay, what are the repercussions of the delay in com pletion of the building and how to apportion the conse quences of the responsibility.
In the objections filed on behalf of the respondent, it has been stated that if the work was not completed within the stipulated time the party has got a right for extention of time.
On failure to grant extension of time, it has been asserted, the contractor can claim difference in prices.
In the instant case, it is asserted that the extension of time was granted and the arbitrator has granted 20% of the escalation cost.
Escalation is a normal incident arising out of gap of time in this inflationary age in performing any contract.
The arbitrator has held that there was delay, and he has further referred to this aspect in his award.
The arbitrator has noted that Claim I related to the losses caused due to increase in prices of materials and cost of labour and transport during the extended period of contract from 9.5. 1980 for the work under phase I, and from 9.11.80 for the work under phase II.
The total amount shown was Rs.5,47,618.50.
After discussing the evidence and the sub missions the arbitrator found that it was evident that there was escalation and, therefore, he came to the conclusion that it was reasonable to allow 20% of the compensation under Claim I, he has accordingly allowed the same.
This was a matter which was within the jurisdiction of the arbitrator and, hence, the arbitrator had not mis 122 conducted himself in awarding the amount as he has done.
It was submitted that if the contract work was not completed within the stipulated time which it appears, was not done then the contractor has got a right to ask for extension of time, and he could claim difference in price.
This is precisely what he has done and has obtained a por tion of the claim in the award.
It was submitted on behalf of the Union of India that failure to complete the contract was not the case.
Hence, there was no substance in the objections raised.
Furthermore, in the objections raised, it must be within the time provided for the application under section 30 i.e., 30 days during which the objection was not specifically taken, we are of the opinion that there is no substance in this objection sought to be raised in opposi tion to the award.
Once it was found that the arbitrator had jurisdiction to find that there was delay in execution of the contract due to the conduct of the respondent, the respondent was liable for the consequences of the delay, namely, increase in prices.
Therefore, the arbitrator had jurisdiction to go into this question.
He has gone into that question and has awarded as he did.
Claim I is not outside the purview of the contract.
It arises as an incident of the contract and the arbitrator had jurisdiction.
In that view of the matter the objections raised against the award, cannot be sustained.
No other objection was urged before us.
The award, therefore, must be made the rule of the Court and there will be a decree in terms of the award, and the respondent is directed to pay Rs. 17,500 as the arbitrator 's remuneration and Rs. 10,000 as advocates ' fees and costs.
The Civil Miscellaneous Petition is disposed of accordingly.
N.V.K. Petition disposed of.

dataset_name: IN-Abs

summary:
The appellant, a contractor entered into a contract with the respondent for the construction of a building.
The contract consisted of two phases.
The date of commencement of both the phases was March 10, 1979, the date of comple tion of Phase I was June 9, 1980 and that of Phase II was November 9, 1980.
Dispute arose about the handing over of the site.
The appellant 's case was that the site was not handed over as stipulated and consequently the work could not either be commenced or completed as stipulated.
The respondent asserted that the appellant had abandoned the work and committed a breach of contract.
This was negated by the appellant.
As the contract provided for settlement of disputes by an arbitrator, the appellant filed a suit for the appoint ment of an arbitrator.
The matter came up in appeal to this Court, and one of its former Judges was appointed as an arbitrator.
The Arbi trator entered upon the reference, examined the documents, heard the parties, considered the evidence, and made an award after inspecting the sites.
The respondent aggrieved by the award filed a petition and contested the same.
It was contended that the arbitrator had travelled beyond his jurisdiction in awarding a sum of Rs.2 lakhs as escalation cost and charges in respect of claim I. Disposing of the Civil Miscellaneous Petition the Court, HELD: 1.
It is well settled that an award can only be set aside under section 30 of the , if the Arbitrator has misconducted himself or the proceeding.
[121C D] 116 2.
Adjudicating upon a matter which is not the subject matter of adjudication, is a legal misconduct for the Arbitrator.
[121D] 3.
Escalation is a normal incident arising out of gap of time in this inflationary age in performing any contract.
[121F] In the instant case, the dispute that was referred to the arbitrator was, as to who was responsible for the delay, what are the repercussions of the delay in completion of the building, and how to apportion the consequences of the responsibility.
After discussing the evidence and the sub mission of the parties to the contract, the arbitrator, found that it was evident that there was escalation and, therefore, he came to the conclusion that it was reasonable to allow 20% of the compensation under claim I, he accord ingly allowed the same.
This was a matter which was within the jurisdiction of the arbitrator, and the arbitrator had not misconducted himself in awarding the amount as he has done.
[121D E, G H; 122A] 4.
Once It was found that the arbitrator had jurisdic tion to find that there was delay In execution of the con tract due to the conduct of the respondent, the respondent was liable for the consequences of the delay, namely, in crease in prices.
[122C D]


judgement:
ON: Civil Appeal Nos. 156164 of 1989.
From the Judgment and Order dated 24.7.1987 and 7.4.1988 of the Patna High Court in C.W.J.C. Nos. 253, 266, 262,255,260 265, 555,254 of 1986 and C.W.J.C. No. 17 of 1988 respectively.
Dr. Y.S. Chitale and Pramod Swarup for the Appellants.
N.R. Choudhary and L.R. Singh for the Respondents.
The Judgment of the Court was delivered by OZA, J.
Leave granted.
These special leave petitions have been filed against the judgment of the High Court of Patna by which several writ petitions were disposed of.
All these special leave petitions have been preferred in this Court aggrieved by that judgment.
The common question which arises in all these SLPs is that under the agreement arrived at between the consumers and the Bihar State Electricity Board there is a clause 171 Of payment of minimum guarantee which indicates that even if the consumer does not consume electricity above the minimum guarantee that it will be incumbent upon the consumer to pay charges for energy which is the annual minimum guarantee provided in the agreement pertaining to Industrial units.
The relevant facts are that for the years 1973 74 to 1982 83 the bills for annual minimum guarantee were served on the appellants by the Electricity Supply Division, Forbesganj and on receipt thereto the appellants filed their claims as provided under clause 13 of the agreement on the ground that appellant was not liable to pay any such charges because the appellant did not supply constant electricity as provided in the agreement during the period in question and there were tripping, load shedding, and power cut which resulted in a great loss to the petitioners and as the supply was not in accordance with the agreement liability to pay annual minimum guarantee bills could not be fastened on the consumer.
The Chief Engineer who was the authority under the agreement negatived the claim and so they filed writ petitions in the High Court.
The High Court by the impugned judgment came to the conclusion that under clause 1 of the agreement it was incumbent for the Electricity Board to supply constant electricity and the consumer will be liable to pay annual minimum guarantee charges only if in spite of the fact that the Board supplies power as contemplated in the agreement and the consumer does not utilise the power then the liabil ity to pay annual minimum guarantee charges will arise and on this basis the High Court quashed the demands made for these years on the basis of annual minimum guarantee as it found that power was not supplied according to the agree ment.
Learned counsel appearing for the Electricity Board contended that clause 1 of the agreement does not in any manner mean that there should be a continuous supply.
The term used in clause 1 of the agreement only talks of con stant supply of electrical energy at the pressure of volts, cycles, 3 phase, 3 wire etc.
but it does not talk of contin uous supply without any break and it therefore could not be contended that if there was no supply for a few minutes it will amount to failure on the part of the Electricity Board to provide constant supply.
It was contended that the con stant supply cannot mean continuous supply.
It was also contended that clause 4 of the agreement clearly talks of the payment of annual minimum guarantee charges and there fore it could not be said that because of the power cut or situations beyond the 172 control of the Electricity Board if the power could not be supplied for all the 24 hours every day the respondent consumer can deny the liability to pay annual minimum guar antee bills.
It was also contended that in view of clause 13 of the agreement which provides that if there was shortage of supply and that shortage resulted in short supply then the consumer was entitled to a proportionate reduction of the annual minimum guarantee bill as determined by the Chief Engineer, Bihar State Electricity Board and consequently the respondent in this case went to the Chief Engineer who ultimately decided on the basis of facts that respondents were not entitled to any proportionate reduction and it was because of this that the petitions were filed before the High Court.
It was contended that the learned Judges of the High Court have failed to appreciate clause 13 of the agree ment.
Learned counsel also placed reliance on the decisions in Amalgamated Electricity Co. Ltd. vs Jalgaon Borough Municipality, ; ; M/s Northern India Iron & Steel Co. etc.
vs State of Haryana & Anr.
, ; M/s Man Industrial Corporation vs Rajasthan State Electrici ty Board and others, AIR and Mukand Iron and Steel Works Ltd. vs Maharashtra State Electricity Board and another, AIR 1982 Bombay 580.
Learned counsel for the respondents on the other hand contended that clause 1 provides for constant supply of power, the variations permitted have been indicated in this clause itself and it is contended that it is only where the electricity Board discharges its duty to supply power as contemplated in clause 1 and the consumer because of his difficulties is not able to utilise power even upto the level of minimum guarantee that the liability to pay annual minimum guarantee bills could be fastened on the consumer but if the Board fails to discharge its responsibilities as contemplated in clause 1 of the agreement it could not compel the consumer to pay the annual minimum guarantee.
It was frankly conceded that in the petition itself originally relief sought was proportionate reduction of the annual minimum guarantee bills but in view of the interpretation of clauses 1, 4 and 13 the High Court came to the conclusion that there is no liability on the consumer to pay annual minimum guarantee bills as the Electricity Board has failed to supply power as contemplated in clause 1 of the agree ment.
Learned counsel however contended that the Chief Engineer in his order has misunderstood the whole situation but before the High Court the facts were not disputed and in each case average hours of supply per year during the dis puted period have been stated which have not been disputed by the Electricity Board and if at all the High Court judg ment is not maintained the respondents are entitled to 173 proportionate reduction of the annual minimum guarantee bills in the light of the hours of supply per year which have been stated in the High Court judgment and is not disputed.
Clause 1 of the agreement reads as under: "1.
(a) The Board shall furnish to the consum er and the consumer shall accept at the point of supply mentioned in the schedule hereto, on and from the date on which the said premises shall be connected with the supply Distribut ing mains and during the continuance of the agreement, a constant supply of electrical energy at the pressure of .
Volts, 50 cycles, 3 phases, 3 wires, alternat ing current system subject to standard varia tions as provided in Indian Electricity Rules, 1956 or any other statutory modifica tion thereof as may be in force from time to time for the purpose and upto the maximum specified (hereinafter referred to as the contract demand) and under the conditions laid down in the Schedule.
" This clause talks of constant supply of electrical energy providing for voltage, cycles, phases and wires.
It is clear that it does not talk of continuous supply nor does it talk of non continuous or intermittent supply.
In fact this clause in our opinion is not very material for the decision of the case as the sole controversy pertains to interpreta tion of clause 13.
Clause 4 of the agreement provides for the minimum guarantee and there is no dispute that if the consumer is not able to utilise electricity even upto the level of minimum guarantee.
This clause provides for payment of charges of minimum guarantee.
The real controversy pertains to the interpretation of clause 13.
In fact in Northern India Iron & Steel Co. case.
this Court had the occasion to consider a situation of this kind where this Court on this aspect of the matter has observed that where the Electricity Board fails to supply power because of shortage of energy, power cut or any other circumstances as per demand of the consumer according to the contract it will be considered as a circumstance beyond the control of the consumer which prevented it from consuming electricity as per the contract.
Their Lordships observed as under: 174 "We are, therefore, of the view that the inability of the Board to supply electric energy due to power cut or any other circum stance beyond its control as per the demand of the consumer according to the contract will be reflected in and considered as a circumstance beyond the control of the consumer which prevented it from consuming electricity as per the contract and to the extent it wanted to consume.
The monthly demand charge for a particular month will have to be assessed in accordance with subclause (b) of clause 4 of the tariff and therefore from a proportionate reduction will have to be made as per sub clause (f).
We hope, in the light of the judgment, there will be no difficulty in working out the figures of the proportionate reduction in any of the cases and for any period.
In case of any difference or dispute as to the quantum of the demand charge or the proportionate reduction, parties will be at liberty to pursue their remedy as may be available to them in accordance with law.
" It appears that reading clause 13 in the present case clear ly provides for the contingency and it provides for the failure on the part of the supplier and also failure on the part of consumer in the circumstances like strike, riot, fire, flood, explosion or act of God or any other reason beyond the control of either of the parties.
Clause 13 of the agreement reads: "If at any time the consumer is prevented from receiving or using the electrical energy to be supplied under this agreement either in whole, or in part due to strikes, riots, fire, floods, explosions, act of God or any other case reasonably beyond control or if the Board is prevented from supplying or unable to supply such electrical energy owing to any or all of the causes mentioned above then the demand charge and guaranteed energy charge set out in the schedule shall be reduced in pro portion to the ability of the consumer to take or the Board to supply such power and the decision of the Chief Engineer, Bihar State Electricity Board, in this respect shall be final." In view of this language of the clause clearly providing for the proportionate reduction of the annual minimum guarantee bills it could not be doubted that the High Court was not right in coming to the conclusion that the respondents were not liable to pay annual minimum 175 guarantee bills at all.
The judgment of this Court also clearly indicated that the respondents consumers.
are enti tled to a proportionate reduction of the minimum guarantee bills.
In clause 13 of the agreement this is clearly stated that the authority competent to determine the proportionate reduction is the Chief Engineer and it appears that it was because of this that the respondents consumers approached the Chief Engineer for consideration.
But it appears that the learned Chief Engineer also did not clearly understand the meaning of clause 13.
The judgment of the High Court on which reliance is placed have only followed the judgment referred to above.
In our opinion, therefore, the High Court was not right in coming to the conclusion that the respondents were not liable at all to pay annual minimum guarantee charges.
In fact they are only entitled to the proportionate reduction.
The judgment of the High Court clearly states the hours every year in dispute when the power was not supplied and on this basis the respondents consumers will be entitled to proportionate reduction as ordinarily the consumers are expected to have continuous power supply.
It is therefore directed that the Chief Engineer of the Electricity Board on the basis of hours of non supply as indicated in the High Court judgment and not disputed in the High Court will assess the proportionate reduction of the annual minimum guarantee bills in respect of disputed years indicated above and it is also directed that until this is not done the power supply will not be disconnected on the basis of fail ure to pay the annual minimum guarantee bills for the peri ods stated above.
However, after the proportionate reduction is made and fresh demand is made, Electricity Board will be entitled to take recourse to the normal procedure if the consumers fail to pay.
In the circumstances no order as to costs.
T.N.A. Appeals allowed.

summary:
Clause 1, of the agreement arrived at between the con sumerrespondents and the appellant Electricity Board, pro vided for constant supply of electrical energy to the con sumers.
Clause 4 provided that even if the consumer does not consume electricity above the minimum guarantee then it will be incumbent upon the consumer to pay annual minimum charges.
Clause 13 provided for the contingency that if the consumer is prevented from receiving or using the electrical energy due to strikes, riots, fire, floods, explosions, act of God or any other case reasonably beyond the control of the Board or if the Board is prevented from supplying such electrical energy owing to any of the causes mentioned then the consumer was entitled to a proportionate reduction of the annual minimum guarantee bill as determined by the Chief Engineer.
The respondents were served with the hills for annual minimum guarantee for the years 1973 74 to 1982 83 by the Electricity Supply Division.
The respondents filed their claims, under clause 13, with the Chief Engineer denying their liability to pay any such charges because the Board did not supply constant supply as provided in clause 1.
It was alleged that during the period in question due to trip pings, load sheding and power cut the respondents suffered a great loss.
The Chief Engineer negatived the claims of the respondents.
A batch of writ petitions was filed in the High Court, challenging the order of the Chief Engineer.
Although in these petitions relief sought was proportionate reduction of the annual minimum guarantee 169 bills but in view of the interpretation of clauses 1, 4 and 13 the High Court quashed the demand made by the Electricity Board by holding that under clause 1 it was incumbent for the Electricity Board to supply constant electricity supply and that the consumers will be liable to pay annual minimum guarantee charges only if the Board supplies the power as provided in the agreement but the consumer does not utilise the power.
In these appeals by Special Leave, it was contended on behalf of the appellants that the 'constant supply ' men tioned in clause I cannot mean 'continuous supply '.
The respondent consumers could not deny the liability to pay annual minimum guarantee bills if the Electricity Board could not supply power for all the 24 hours due to circum stances beyond the control of the Electricity Board.
In case of shortage of supply due to circumstances beyond the con trol of the Board the consumers were entitled to a propor tionate reduction under clause 13 of the agreement.
Allowing the appeals, the Court, HELD: 1.
The High Court was not right in coming to the conclusion that the respondents were not liable at all to pay the annual minimum guarantee charges.
[175C] 1.1.
The High Court in its judgment clearly stated the hours every year in dispute when the power was not supplied and on this basis the respondent*consumers will only be entitled to proportionate reduction as ordinarily the con sumers are expected to have continuous power supply.
Clause 13 clearly provides for the proportionate reduction of the annual minimum guarantee bills.
[175D] 2.
Clause 1 talks of constant supply of electrical energy providing for voltage, cycles, phases and wires.
It does not talk of either of continuous or non continuons or intermittent supply.
[173E] 3.
The Respondent consumers are entitled to a propor tionate reduction of the minimum guarantee bill.
The inabil ity of the Electricity Board to supply electrical energy due to power cut or any other circumstance beyond its control as per the demand of the consumer according to the contract will be reflected in and considered as a circumstance beyond the control of the consumer which prevented it from consum ing electricity as per the contract and to the extent it wanted to consume.
[173G] 170 Northern India Iron & Steel Co. etc.
vs State of Haryana 4.
The Chief Engineer of the Electricity Board shall accordingly assess the proportionate reduction of the annual minimum guarantee bills in respect of disputed years on the basis of non supply as indicated in the High Court Judgment.
[175D E] 4.1.
Pending assessment, the power supply of the consum ers will not be disconnected on the ground of failure to pay the annual minimum guarantee bills.
[175E] 4.2.
The Electricity Board will be entitled to take recourse to the normal procedure if the consumers fail to pay after the proportionate reduction is made and fresh demand is made.
[175E F] Amalgamated Electricity Co. Ltd. vs Jalagaon Borough Municipality, ; ; M/s. Man Industrial Corpo ration vs Rajasthan State Electricity Board and others, AIR and Mukand Iron and Steel Works Ltd. vs Maharashtra State Electricity Board and another, AIR 1982 Bombay 580, referred to.


judgement:
Civil Appeal No. 11 IS(NT) of 1975.
WITH Civil Appeal Nos, 1226 & 1227(NT) of 1975.
From the Judgment and Order dated 18.9.1974 and 11.10.74 of the Andhra Pradesh and Calcutta High Court.
In case referred No. 15 of 1973 and matter No. 7 10 of 1970 respec tively B.B. Ahuja, Ms. A. Subhashini, K.C. Dua for the Appel lant in C.A. No. 1118 of 1975.
159 Harish N. Salve, Vivek Gambhir and Preveen Kumar for the Appellant in C.A. No. 1226 27 of 1975.
A. Subba Rao for the Respondent in C.A. No. 1118 of 1975.
B.B. Ahuja, K.C. Dua and Miss. A. Subhashini for the Re spondent in C.A. Nos.
1226 27 of 1975.
1226 & 1227/NT/1975, on a certificate, under Sec.
29(1) of the , (Act) by the assessee raise a question as to the proper construction of the proviso to Sec.
4(1)(a) of the Act, which provides for exemption respecting transferred assets which would other wise be includible in the wealth of the assessee under sec.
4(1)(a) of the Act.
The condition for the grant of the exemption under the proviso is that the transfer of the asset is either charge able to gift tax or is not chargeable under sec.
5 of the .
The particular point for consideration is whether, on the language of the proviso, the exemption is attracted only to such gifts as were chargeable to tax for any assessment year commencing "after the 31st day of March, 1964," as understood by the Revenue or whether the gifts even made earlier would attract the benefit of the exemption as claimed by the assessees.
There appears a divergence of judicial opinion on the point in the High Courts.
In C.W.T. vs Smt.
Sarala Debi Birla, ; T. Saraswathi Achi vs C.I.T., ; C.W.T. vs Seth Nand Lal Ganeriwala, ; M.G. Kollankulam vs C.I.T., Malti Harseey vs C.W.T., and C.W.T. vs Rasesh N. Mafatlal, several High Courts have construed the provision in the manner suggested by the Revenue.
C.W.T. vs Hashmatunnisa Begum, has taken the opposite view extending a wider benefit of the exemption.
The opinion of the Calcutta High Court in 1011TR 488, which is representative of the view in favour of Revenue, is under appeal in CA 1226 and 1227 of 1985 and the opinion of the Andhra Pradesh High Court in which is favour able to the assessee is under appeal 160 No. CA 1118 of 1975 preferred by the Revenue.
In CA 1118 of 1975 the assessee Smt.
Hashmatunnisa Begam, the legal representative of the late Nawab Zabeer Yar Jung Bahadur, claimed in respect of the assessment year 1967 68, that the value of the immovable properties gifted by the late Nawab to his wives before 1.4.
1964 should not be included in the net wealth of the Nawab as on the valua tion dated 31.9.1966.
The Nawab under three deeds of gift one dated 25.5.1962, in favour of Smt.
Hashmatunnisa Begum, his first wife, and two other deeds dated 17.8.1962 and 26.4.1962, in favour of Smt.
Fareed Jehan Begum his second wife, gifted in their favour certain lands and buildings of a total value of Rs. 1,96,950.
The gifts were chargeable to gift tax and were accordingly assessed to gift tax in the assessment year 1963 64.
On behalf of the estate of the Nawab who later dies on 16.12.1968 it was claimed in the proceedings for assessment to wealth for the Assessment Year 1967 68.
That though the gifts were otherwise includible as belonging to the Nawab under sec.
4(I)(a)(i), as the trans fers made to the spouses otherwise than for adequate consid eration, however, as the gifts were chargeable to gifttax, the proviso to sec.
4(I)(a) was attracted and that the assets so transferred were not includible in the net wealth of the Nawab "for any assessment year commencing after the 3 1st day of March 1964".
The Wealth tax Officer rejected this claim.
The Appellate Asst.
Commissioner, in the assessee 's appeal, confirmed the assessment.
In the assessee 's further appeal before the Appellate Tribunal, the Tribunal, on a particular construction of the proviso, allowed the appeal and held that the assets transferred, which had attracted gift tax, were not includible in the net wealth of the Nawab for the assessment year 1964 65 onwards.
At the instance of the Revenue, the following question of law was referred to the High Court for its opinion: "Whether, on the facts and in the circum stances of the case, the assessee was entitled to exclude, under the proviso to section 4(1)(a) of , the value of the assets gifted to his wives in the Wealth tax assessment for the assessment year 1967 68?" The High Court agreed with the construction placed on the proviso by the Tribunal and answered the question in the affirmative and against the revenue.
The revenue has come up in appeal by special leave.
In CA 1226 and 1227 of 1975 the assessment years concerned are 1964 65 and 1965 66 corresponding to the valuation dates 161 31.3.
1964 and 31.3.1965.
On 7.10.1959 Smt.
Sarladevi Birla, the assessee, made a gift of Rs.l,O0,011, to her minor daughter Smt.
Manju Rani Birla.
The assets so transferred were included in the assessee 's wealth for the two assess ment years 1964 65 and 1965 66 under sec.
4(I)(a)(ii) of the .
The claim of the assessee that the proviso to sec.
4(I)(a) operated to exclude the asset from the net wealth of the assessee as the transfer was chargeable to gift tax was not accepted by the Wealth tax Officer, who completed the assessment including the transferred asset in the assessee 's net wealth.
The assessee 's appeal before the Appellate Asst.
Commissioner was unsuccessful.
However, the Appellate Tribunal accepted the contention of the assessee and by its appellate order dated 11.5.1970 allowed the assessee 's appeal holding that on a true con struction of the proviso, so long as the gift was chargeable to or exempt under sec.
5 from gift tax to that extent sec.
4(I)(a) ceased to have operation and the statutory fiction embodied in it was not attracted and that as at the relevant time the gift was chargeable to gift tax.
The exemption was to operate from the assessment year commencing after 31.3.1964.
At the instance of the revenue, the Appellate Tribunal referred the following question of law for the opinion of the High court: "Whether on the facts and in the circumstances of the case and on a proper interpretation of section 4(1)(a) of the as amended by the Wealth tax (Amendment) Act, (Act 46) of 1964, the sum of Rs. 1,00,011 gifted by the assessee to her minor daughter could be included in computing her net wealth"? The High Court of Calcutta in reversal of the view taken by the Tribunal answered the question in the affirmative and against the assessee.
The assessee has come up in appeal by certificate.
We have heard Shri B.B. Ahuja, learned counsel for the revenue and Shri Harish Salve and Shri Subba Rao, for the assessees.
The controversy generated on the point leading to the divergence of the judicial opinion on the point is at tributable to the somewhat inelegant and inappropriate phraseology of the provision.
To appreciate the relevant contentions it is necessary to notice the words of the proviso: 162 "Provided that where the transfer of such assets or any part thereof is either charge able to gift tax under the (18 of 1958), or is not chargeable under Section 5 of that Act, for any assessment year commencing after the 3 1st day of March, 1964, (but before the 1st day of April, 1972), the value of such assets or part thereof, as the case may be, shall not be included in comput ing the net wealth of the individual;" The words "but before the 1st day April 1972" was later introduced by the Financee (No. with effect from 1.4.
This was introduced by the amending Act of 1964, but given effect to from 1.4.1965 by the notification.
Under the various clauses of Sec.
4(1)(a) certain transfers of assets made by an individual in favour or for the benefit of the spouse or a minor child, not being a married daughter, of such individual, are required to be ignored and the trans ferred assets included in the wealth of the assessee, as belonging to him.
Section 4(1)(a) aims at foiling an indi vidual 's attempt to avoid or reducing the incidence to wealth tax by transferring the assets to or for the benefit of the spouse or the minor child of the individual by re quiring the inclusion of such transferred assets in comput ing the net wealth of the individual.
However, the proviso makes the provision inoperative where and in so far as the transferred asset is either chargeable to gift tax under or is exempt under sec.
5 of the .
The controversy surrounds the question whether the expression "for any assessment year commencing after 31st day of March 1964", occurring in the proviso should be read with the first part and as referring to the eligibility of the gifts for exemption with reference to the point of time at which the gifts were made or whether that expression does not condition the identity of the eligible gifts but only signifies the starting point for the exemp tion from wealth tax.
Assessees contend that the date of the gift is immaterial and as long as the transfer is chargeable to gifttax or is exempt under sec.
5, whatever may be the year in which the gift was made, the exemption from gift tax must commences "for any assessment year commencing after the 31st day of March 1964".
If the expression "for any assessment year commencing after the 31st day of March, 1964" is intended to qualify and determine the gifts, the subject matters of which are eligible for exemption, then the literal construction, would be that the gifts made earlier to that period, 163 though chargeable to gift tax would not attract the benefit of exemption.
But the assessees say that the clause must be read as part of the second part of the proviso which contem plates the exemption.
So read, the clause would qualify the commencement of the benefit of the exemption and not the point of time when the Gift is required to be made to be eligible for the exemption from wealth tax.
The learned Judges of the High Court of Andhra Pradesh in the course of the Judgment under appeal in CA 1118 of 1975 observed: " . .
The words 'for any assess ment year commencing after the 31st day of March, 1964 ' are referrable to the assessment to be made under the .
They render the provisions of section 4(1)(a) inoperative irrespective of the fact whether the transferred asset was chargeable to gift tax or not chargeable to gift tax.
The proviso specifies the period of exemption upto 31st March, 1964.
Irrespective of the year of the gifts when the assets were gifted, they will not be included in the computation of the net wealth of the individual till the assessment year 1964 65.
We are, therefore, of the view that the intention of Parliament was to exempt transfers made under clauses (i) to (iv) of section 4(1)(a) from being computed in the net wealth of the individual upto the wealth tax assessment year commencing after 3 1st day of March, 1964 . . " 7.
Sri Ahuja submitted that the words "for any assess ment year commencing after the 31st day of 1964" could, in the context, only refer to the gift and gift tax assess ments.
The proviso, he said, which was introduced by way of an amendment, was brought into force with effect from 1.4.1965 by a notification which specified the commencement of the operation of the proviso and that, quite obviously, it would be redundant to read the clause under consideration as again referring to the commencement of the operation of the proviso.
While the clause under consideration related to and qualified the Gift tax assessments, the commencement of the exemption of the subjectmatter of the Gifts for purposes of wealth tax was controlled and determined by the commence ment of the operation of the proviso, which, by notification was specified as 1.4.1965.
Sri Ahuja submitted that the proviso was intended to effectuate the legislative policy that in respect of certain gifts made in favour of a spouse or a minor child, during a specified period, the assets transferred under the Gifts would have the benefit of exemption from the 164 operation of Section 4(1)(a).
This was because the legisla ture took into consideration that from 1.4.1964 onwards there was a sharp ascent in the rates of gift tax and that the assets which constituted the subject matter of such gifts attracting such high rates of gift tax should not also be included in the net wealth of the donor for wealth tax purposes which would otherwise be the consequence under Section 4(1)(a) of the Act.
As the proviso originally stood, gifts chargeable to gift tax for any assessment year com mencing after 3 1st March, 1964, attracted the benefit of exemption.
The outer limit for the period of such eligible gifts was later fixed by the amendment made by Finance (No. , w.e.f. 1.4.1972 which introduced the words 'but before the 1st day of April, 1972 '.
Accordingly, Sri Ahuja contends that only that class of gifts that were chargeable to gift tax for any assessment year 1964 65 or thereafter (but subject to the limit fixed by the 1971 amendment) which would otherwise fall under Section 4(1)(a) were eligible for the benefit of the exemption.
According to Sri Ahuja the plain words of the proviso leave no room for doubt and where the enactment is clear and admits of only one meaning and does not admit of two or more meanings, it would be the plain meaning that should be given effect to.
When the meaning is plain, says counsel, no resort could be had to any rules of construction which would denude the provision of its plain and ordinary meaning.
Sri Harish Salve presenting the case of the assessees sought to point out the intrinsic anomaly of the cases between a gift made, say, on 3 1st of March 1963 and one made the very next day i.e. 1st of April, 1963 on the other, to show that while in the first case even for the assessment year 1965 66 the transferred asset is includible in the wealth of the assessee, in the latter case it is exempt for all time to come thereafter.
Learned counsel pointed out that the criterion of higher rates of Gift tax as a justifi cation supporting the classification also fails in view of the fact that under the proviso it is not only the gifts chargeable to tax but also those exempt under sec.
5 that attract the exemption with the result that between two gifts which are both exempt under sec.
5 of the , one is for ever exempt from wealth tax in the hands of the donor while the other is includible in his wealth for purposes of wealth tax depending solely on the criterion of the date of gift whether the gift was made prior to 31st March 1963 or thereafter.
Here the criterion of classification of gifts on the basis of the exigibility for higher rates of tax, says Sri Salve, collapses and the cut off date determining the difference in consequences in the two different class of cases become wholly arbitrary.
Shri Salve submitted that a construction which promotes its constitutionality has to be pre 165 ferred to the one which, if accepted, would expose the provision to the vice of discrimination and unconstitution ality.
The essential basis of Sri Salve 's suggested construc tion rests on the requirement that the words "for any as sessment year commencing after the 31st day of March 1964" should not be read as part of the first part of the proviso relating to gift tax assessments but as part of the second part denoting the commencement of the operation of exemption from wealth tax.
This, we are afraid, will imboggle itself in the quagmire of irreconcilable constructional contradictions.
The amendment introducing the proviso was brought about by an amending Act of 1964; but the date of the commencement of its operation was left to be fixed by a Notification.
The effect of the Notification issued bringing the proviso into effect from 1.4.1965 would be wholly ignored by the con struction suggested by Sri Salve.
Secondly, the introduction of the words "but before the 1st day of April, 1972" would, if the construction suggested by Sri Salve is accepted, operate to take away the benefit of the exemption after 1.4.1972 and the exemption confined only to the assessment years between 1964 65 and 1972 73.
On a reading of the plain words of the proviso, the clause "for any assessment year commencing after 31st day of March, 1964" can only be read as relating to gift tax assessments and not to the wealth tax assessments.
But, Sri Salve contends that this literal construc tion would expose the provision to an attack on its consti tutionality on the ground that it brings about a discrimina tion between two classes of assessees on nothing more than an arbitrary cut off date.
The cases of gifts exempted under sec.
5, he says, illustrate the point as according to Sri Salve there could be no rational basis for discriminating between a gift exempted under sec.
5 made on 31.3.1963 on the one hand and 1.4.1963 on the other.
One of the pillars of statutory interpretation viz., the literalrule, demands that if the meaning of the Statuto ry Interpretation is plain and the Courts must apply regard less of the result.
The very concept of interpretation connotes the introduction of elements which are necessarily extrinsic to the words in the statue.
Though the words "interpretation" and "construction" are used interchangeably, the idea is somewhat different.
Dr. Patrick Devlin says: 166 " . .
A better word, I think, would be construction, because construction, although one often used it alternatively with interpre tation, suggests that something more is being got out in the elucidation of the subject matter than can be got by strict interpreta tion of the words used.
In the very full sense of the word 'construction ' the judges have set themselves in this branch of the law to try to frame the law as they would like to have it . . ".
[See: Samples of Law Making Oxford University Press p.70 71] "A statute" says Max Radin "is neither a literary text nor a divine revelation.
Its effect is, therefore, neither an expression laid on immutable emotional over tones nor a permanent creation of infallible wisdom.
It is a statement of situation or rather a group of possible events within a situation and as such it is essentially ambiguous.
" [See "Statutory Interpretation" 43 Har.
L.R. 863 (868)].
The observations of Lord Russel of Killowen in Attorney General vs Carlton Bank, though an early pronouncement, is refreshing from its broad common sense: "I see no reason why special canons of construction should be applied to any Act of Parliament, and I know of no authority for saying that a Taxing Act is to be construed differently from any other Act.
The duty of the Court is, in my opinion, in all cases the same, whether the Act to be construed relates to taxation or to any other subject, namely to give effect to the intention of the Legisla ture, as that intention is to be gathered from the language employed, having regard to the context in connection with which it is em ployed . .
Courts have to give effect to what the Legislature has said.
" The rule of construction that if the statutory provision is susceptible or admits of two reasonably possible views then the one which would promote its constitutionality should be preferred on the ground that the legislature is presumed not to have intended an excess of its own jurisdic tion, is subject to the further rule that it applies only where two views are reasonably possible on the statutory language.
If the words of the statute, on a proper construc tion, can be read only in a particular way, then it cannot be read in another way by a court of construction anxious to avoid its unconstitutionality.
In a case, as here, 167 a reference arises under 'Act ', the question of the consti tutionality of the 'Act ' cannot be examined and pronounced upon.
In State of Punjab vs Prem Sukhdas, ; this Court made the point clear: " . .
This amounts to nothing short of legislation.
We think that the view is an impossible one.
The principle that, where a provision is capable of one of two interpretations, the interpretation which validates rather than one which may invalidate a provision applies only where two views are possible.
It cannot be pushed so far as to alter the meanings of the clear words used in an enactment and to, in effect, repeal statu tory provisions by making them useless without holding them to be void." [p. 410] (Emphasis Supplied) Even in regard to constitutionality of the classifica tion, it is not possible to rule out arguments as to the validity of classification as wholly unstateable.
In a taxing measure the legislature enjoys a wider latitude and its dispensations are based on an interaction of diverse economic, social, and policy considerations.
Further, if the proviso is bad for discrimination, it would follow that the converse situation brought about by the later amendment, a discrimination as between gifts made as between the 31st of March 1972 and on 1st April, 1972 might also become bad.
It is true that we are required to notice the provision as it stood at the relevant time.
We, however, should not be understood to have pronounced on the question of constitutionality.
That is the task of the Court in judicial review but the rule of preference of a particular construction amongst the alternatives, in order to avoid unconstitutionality is unavailable here.
Accordingly, while Civil Appeal No. 1226 and 1227 of 1975 preferred by the assessee are dismissed, CA No. 1118 of 1975 of the revenue is allowed and in reversal of the order dated 18.9.1974 of the Andhra Pradesh High Court the ques tion referred is answered in the negative and in favour of the revenue.
In the circumstances, the parties are left to bear and pay their own costs in these appeals.
N.P.V. C.A. Nos.
1226 & 1227/75 are dismissed C.A. No. 1118/75 is allowed.

summary:
In Civil Appeal No. 1118 of 1975 the respondent asses see 's husband gifted certain lands and buildings to his two spouses by three gift deeds dated 26.4.1962, 26.5.1962 and 17.8.1962.
The gifts were chargeable to gift tax and were accordingly assessed to gift tax In the assessment year 1963 64.
In the proceedings for assessment to wealth for the assessment year 1967 68, it was claimed on behalf of the estate of the assessee 's husband, who had later died on 16.12.1968 that as the gifts were chargeable to gift tax, the proviso to section 4(1)(a) was attracted and the assets so transferred were not includible in the net wealth of the deceased for any assessment year commencing after the 31st day of March, 1964.
The Wealth Tax Officer rejected this claim.
On appeal, the Appellate Assistant Commissioner confirmed the assessment.
Allowing the assessee 's further appeal, the Appellate Tribunal, on a particular construction of the proviso, held that the assets transferred, which had attracted gift tax, were not includible in the net wealth of the deceased for the assessment year 1964 65 onwards.
On a reference made at the Instant of the Revenue, the High Court agreed with the construction placed on the provi so by the Tribunal.
The Revenue filed an appeal, by Special leave In this Court.
156 The appellant assessee in Civil Appeal Nos.
1226 and 1227 of 1975, made a gift of certain amount to her minor daughter on 7.10.1959.
The assets so transferred were in cluded in the assessee 's wealth for the two assessment years 1964 65 and 1965 66 under section 4(1)(a)(ii) of the Wealth tax Act.
The claim of the assessee that the proviso to section 4(I)(a) operated to exclude the asset from the net wealth of the assessee as the transfer was chargeable to gift tax was not accepted by the Wealth tax Officer.
The Appellate As sistant Commissioner rejected the assessee 's appeal.
However, the Appellate Tribunal, accepting the conten tion of the assessee, allowed the assessee 's appeal and held that, on a true construction of the proviso, so long as the gift was chargeable to or exempt under section 5 from gift tax, to that extent section 4(1)(a) ceased to have operation and the statutory fiction embodied in it was not attracted and that since, the gift was chargeable to gift tax, at the relevant time, the exemption was to operate from the assessment year commencing after 31 3 1964.
The High Court, on a reference made at the instance of the Revenue reversed the Tribunal 's view.
Hence, the asses see filed the appeal, by certificate, in this Court.
In the appeals before this Court, it was submitted on behalf of the Revenue that the words "for any assessment year commencing after the 31st day of March, 1964" could, in the context only refer to the gift and gift tax assessments, that only that class of gifts which were chargeable to gift tax for any assessment year 1964 65 or thereafter (hut subject to the time limit fixed by the 1971 amendment) which would otherwise fail under section 4(1)(a) were eligible for the benefit of exemption, and that where the enactment was clear and admitted of only one meaning, and did not admit of two or more meanings, it would be the plain meaning that should be given effect to and no resort could be had to any rules of construction which would denude the provision of its plain and ordinary meaning.
On behalf of the assessees, it was contended that the date of the ' gift was immaterial and as long as the transfer was chargeable to gift tax or was exempted under section 5 what ever may be the year in which the gift was made, the exemp tion from a gift tax must commence for any assessment year commencing after the 31st day of March 1964", that these words should not be read as part of the first part of the proviso relating to gift tax assessments but as part of the second part denoting the commencement of the operation from Wealth tax, and that a construction which promoted its constitutionality has to be preferred to the 157 one which, if accepted, would expose the proviso to the vice of discrimination and unconstitutionality.
Allowing the appeal of the Revenue and dismissing the appeal of the assessee.
HELD: 1.
On a reading of the plain words of the proviso to section 4(1)(a) of the , the clause "for any assessment year commencing after 31st day of March, 1964" can only be read as relating to gift tax assesssments and not to the wealth tax assessments.
[165E] The amendment introducing the proviso was brought about by an amending Act of 1964, but the date of the commencement of its operation was left to be fixed by a Notification.
If the construction that the clause should be read as part of the second part, denoting the commencement of the operation of exemption from Wealth tax is accepted, effect of the Notification issued bringing the proviso into effect from 1.4.1965 would be wholly ignored, and the introduction of the words "but before the 1st day of April, 1972", by a later amendment would operate to take away the benefit of the exemption after 1.4.1972 and the exemption confined only to the assessment years between 1964 65 and 1972 73.
[165C D] Therefore, the gifts in question though chargeable to gift tax would not attract the benefit of exemption and would be liable to be included in the net wealth of the assessees.
[163A] T. Saraswathi Achi vs C.I.T., ; C.W.T. vs Seth Nand Lal Ganeriwala, ; M.G. Kol lankulam vs C.I.T., ITR 160 (Kerala), Malti Harseey vs C.W.T., and C.W.T. vs Rasesh N. Mafatlal, approved.
2.1 One of the pillars of statutory interpretation viz., the literalrule, demands that if the meaning of the Statuto ry Interpretation is plain, the Courts must apply regardless of the result.
[165G] 2.2 The very concept of interpretation connotes the introduction of elements which are necessarily extrinsic to the words in the statute.
Though the words "Interpretation" and "construction" are used interchangeably, the idea is somewhat different.
[165H] 2.3 The rule of construction that if the statutory provision is susceptible or admits of two reasonably possi ble views, then the one 158 which would promote its constitutionality should be pre ferred on the ground that the legislature is presumed not to have intended an excess of its own jurisdiction, is subject to the further rule that it applies only where two views are reasonably possible on the statutory language.
If the words of the statute, on a proper construction, can be read only in a particular way, then it cannot be read in another way by a court of construction anxious to avoid its unconstitu tionality.
[166G H] 2.4 In a case, as here, where a reference arises under 'Act ', the question of the constitutionality of the Act cannot be examined and pronounced upon by this Court.
That is the task of the Court in judicial review.
However, the rule of preference of a particular construction amongst the alternatives, in order to avoid unconstitutionality, is unavailable in the instant case.
[166H; 167A, F] 3.
In a taxing measure, the legislature enjoys a wider latitude and its dispensations are based on an interaction of diverse economic, social and policy considerations.
Further, if the proviso is bad for discrimination, it would follow that the converse situation brought about by the later amendment, a discrimination as between gifts made as between the 31st of March, 1972 and on 1st April, 1972 might also become bad.
This Court is required to notice the provi sion as it stood at the relevant time.
[167D E] State of Punjab vs Prem Sukhdas, ; and Attorney General vs Carlton Bank, , re ferred to.
Dr. Patrick Devlin: Samples of Law Making Oxford Uni versity Press, p. 70 71 and Max Radin "Statutory Interpreta tion" 43 Hat.
L.R. 863 (868), referred to.