judgement:
Appeal No. 690 of 1965.
Appeal from the judgment and order dated June 22, 1964 of the Gujarat High Court in Income tax Reference No. 10 of 1963.
B.Sen, T. A. Ramachandran and R. N. Sachthey, for the appellant.
section T. Desai and I N. Shroff, for the respondent.
The Judgment of the Court was delivered by Shah, J.
By a resolution dated August, 23, 1952, it was resolved to wind up the respondent company and to appoint a liquidator for that purpose.
The paid up capital of the assesses was Rs. 25 lakhs, and on the date of commencement of winding up it had an accumulated profit of Rs. 5,34,041.
From time to time the liquidator ,distributed the assets in his hands among the shareholders.
The following table sets out the distributions made by the liquidator: Assessment Year Distribution Date of Amount distribution distributed Rs. Rs. 1953 54 60 09 9 1952 15,00,000 Do 90 25 9 1952 2,25,000 1954 55 60 10 11 1952 1,50,000 Do 30 6 5 1953 75,000 Do 30 23 2 1953 75,000 1955 56 80 10 11 1953 2,00,000 Out of the distribution made on September 9, 1952, the Income tax Officer brought, in the assessment year 1953 54, to tax Rs. 52,400 779 as "dividend" within the meaning of section 2(6A)(c) of the Income tax Act, 1922, as it then stood.
On July 24, 1957, the liquidator distributed Rs. 30/ per share among the shareholders.
The Income tax Officer in the course of assessment for the year 1958 59 sought to bring the entire amount of Rs. 75,000/ distributed to tax as "dividend" within the meaning of s.2(6A)(c) of the Income tax Act as amended by the Finance Act, 1956.
The objections raised by the liquidator were rejected and the amount was brought to tax.
The Appellate Assistant Commissioner confirmed the order of the Income tax Officer.
In appeal to the Tribunal on behalf of the assessee, it was urged that the entire accumulated profit was exhausted when Rs. 17,25,000/ were distributed in the year 1952 and thereafter there were no accumulated profits in the hands of the liquidator which could be distributed: and that in any event whenever distribution is made of the assets in the hands of the liquidator, accumulated profits and the capital must be deemed to be distributed in the same proportion in which the accumulated profits and the capital stood at the date of liquidation.
The Tribunal rejected the first contention and did not consider the second.
The Tribunal referred the following question to the High Court of Judicature at Bombay under section 66(1) of the Income tax Act, 1922: "Whether on the facts and in the circumstances of the case the sum of Rs. 75,000/ or any part thereof could be treated as dividend under section 2(6A)(c) of the Indian Income tax Act, 1922?" The reference was transferred after reorganisation of the State under the Bombay State Reorganisation Act, 1960, to the High Court of Gujarat for hearing and disposal.
The reference was heard before a Bench consisting of Shelat, C. J. and Bhagwati J., The two learned Judges differed, and the case was referred to Bakshi, J. Bakshi, J., agreed with Bhagwati, J., and answered the question referred to in the negative.
To appreciate the arguments advanced at the Bar, it is necessary to notice the changes which were made from time to time in section 2(6A)(c) of the Indian Income tax Act, 1922, and the reasons for enacting and amending that clause.
Clause (6A) which defines 'dividend ' was inserted In the Indian Income tax Act by Act 7 of 1939.
As originally enacted, it provided insofar as it is material for the purpose of this appeal: ' " 'dividend ' includes: (a) (b) 780 .lm15 (c) any distribution made to the shareholders of a company out of accumulated profits of the company on the liquidation of the company: "Provided that only the accumulated profits so distributed which arose during the six previous years of the company preceding the date of liquidation shall be so included;" By section 3 of the Finance Act, 1955, the proviso to cl.
(c) was deleted and by section 3 of the Finance Act, 1956, with effect from April 1, 1956, the following clause (c) was substituted: "(c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution, is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not;" By section 17(2) of the Indian Companies Act, 1913, Reg.
97 of Table A was one of the obligatory regulations which had to be adopted in terms identical with or to the same effect in the Articles of Association of every Company.
Regulation 97 provided that "No dividend shall be paid, otherwise than out of profits of the year or any other undistributed profits.
" Distribution of the profits of the year or of accumulated profits was therefore "dividend" within ' the meaning of the Companies Act, 1913, and also of the Income tax Act,1922.
By Act 7 of 1939 an inclusive definition of 'dividend ' was devised, so as to include therein heads of distribution by a Company which may not normally be regarded as dividend: and one such head was in cl.
The reason for insertion of the clause was that on winding up of a company the distinction between the assets and undistributed profits disappears.
It is well settled that a Company as a going concern distributing profits of the year or accumulated profits is regarded as distributing dividend among the shareholders, but if the company is wound up before distributing its accumulated profits, any distribution of profits by the liquidator is not regarded under the Companies Act as dividend.
In Commisssioners of lnland Revenue vs George Burrell, Pollock, M. R., observed: " .
it is a misapprehension, after the liquidator has assumed his duties, to continue the distinction between surplus profits and capital.
Lord Macnaghten in Birch vs Cropper (14 App.
525, 546), the case which finally determined the rights inter se of the preference and ordinary shareholders in the Bridgewater Canal, said: 'I think it rather leads to confusion to speak of the assets which are the subject of this application as 'surplus assets ' as if they were an accretion or addition to the capital of the company capable of being distinguished from it and open to different (1) ,63.
781 considerations.
They are part and parcel of the property of the company part and parcel of the joint stock or common fund which at the date of the winding up represented the capital of the company.
The amounts distributed to the shareholders by a liquidator are therefore distributed as capital of the company, since the liquidator has no power to distribute dividend, and the sums received by the shareholders cannot be disintegrated into capital and profits, by examining the accounts of the Company when it was a going concern.
The scheme of the Indian Companies Act closely followed the English Companies Act and the view expressed in George Burrell 's case( ') applied to distributions made by liquidators, and those distributions were not liable to be taxed as dividend.
The Parliament with a view to avoid escapement of tax devised a special definition of the word 'dividend ' and incorporated it by Act 7 of 1939 as section 2(6A)(c).
The effect of the provision was to assimilate the distribution of accumulated profits by a liquidator to a similar distribution by a company as a going concern, but subject to the limitation that while in the latter the profits distributed will be dividend whatever the length of the period for which they were accumulated, in the former such profits may be dividend only insofar as they come out of profits accumulated within six years prior to liquidation.
It also appeared from the language used that profits of the current year during which the Company was ordered or resolved to be wound up could not be included in the expression "dividend": see Sheth Haridas Achratlal vs Commissioner of Income tax, Bombay North, Kutch and Saurashtra, Baroda(2).
By the Finance Act, 1955, the proviso to cl.
(c) was deleted and in consequence thereof the limitation relating 'to the period during which the profits were accumulated ceased to apply in the determination whether the amount distributed by the liquidator was dividend.
Even after the amendment by the Finance Act, 1955, the language of the clause was found to be somewhat inapt and the Legislature by the Finance Act 1956 recast cl.
The Tribunal was of the view that "if earlier any distribution has been made, but such distribution or part of such distribution has not been considered as dividend, then, any subsequent distribution, if it is capable of being considered as dividend must be so held to be so." Shelat C. J., opined that section 2(6A)(c) is not a charging section which levies tax on a particular fund from out of which a limited fund is carved out by the proviso.
The learned Chief Justice observed: "The legislative intent is clear, namely, to treat that portion of the amount distributed by the liquidator as chargeable as (1) L.R. (1924] 2 K.B. 52, 63.
(2) 782 dividend which the Income tax Department can trace to accumulated profits of the last six years and that portion only.
and therefore it is in respect of that limited fund only that the Department is permitted to go behind the liquidation proceedings and to disintegrate the assets lying with the liquidator".
The reasoning underlying these observations of the learned Chief Justice is that in the process of disintegration of an amount distributed, only the share which is brought to tax is dividend and the rest continues to bear the character of capital.
Bhagwati, J., observed "that what the Legislature intended to achieve by enacting section 2(6A)(c) was to bring within the ambit of taxation the fund constituted of what were accumulated profits at the date of liquidation when it reaches the hands of the shareholders in liquidation.
If a distribution in liquidation comes out of the source of accumulated profits and whether it comes out of that source or not is not a question dependent on section 2(6A)(c) section
2(6A)(c) declares that though under law, apart from the section, it would be capital and, therefore, not chargeable, it shall be regarded as dividend and taxed as such in the hands of the shareholders.
" Bakshi, J., substantially agreed with Bhagwati, J., and held that since the Tribunal had not disintegrated Rs. 75,000/ distributed, for ascertaining whether any part of it came out of the accumulated profits, no part of Rs. 75,000/ could be regarded as dividend.
The Tribunal was therefore of the view that in a distribution by a liquidator in any year, only that amount which is brought to tax as dividend may be deemed to come out of the accumulated profits on disintegration of the two components, and that process will go on till the accumulated profit account in a notional sense is exhausted.
On this view the amount distributed is disintegrated, as if it came out of two funds nationally distinct to the extent to which any part bears tax, it is to be regarded as coming out of the accumulated profits, and the rest out of the capital.
Shelat, C. J., expressed substantially the same view.
Bhagwati & Bakshi, JJ., were of the view that since the enactment of section 2(6A)(c), in the hands of the liquidator, accumulated profits and capital may be deemed separate funds, and in the case of each distribution the source from which the amount is withdrawn should be determined.
If the source from which the amount is distributed is capital, the distribution is not taxable, if it is accumulated profit, it is taxable.
The language used by the Legislature in section 2(6A)(c) as amended by the Finance Act, 1956, is fairly clear.
There is in the hands of the liquidator only one fund.
When a distribution is made out of the fund, for the purpose of determining tax liability, and only for that purpose, the amount distributed is disintegrated into its compo nents capital and accumulated profits as they existed immediately 783 before the commencement of liquidation.
In any distribution made to the shareholders of a company by the liquidator, that part which is attributable to the accumulated profits of the company immediately before its liquidation, whether such profits have been capitalised or not, would be treated as dividend and liable to tax under the Act.
The provision was intended to supersede the application of the principle of George Burrell 's case( '), that is to enact that even though on a winding up of a company the distinction between the assets and the accumulated profits disappears, the taxing authority may disintegrate the amount distributed into its component parts and determine the share attributable to accumulated profits.
The amount distributed would therefore be deemed to be received by the shareholders partly as accumulated profits and the rest as capital, the proportion being the same which the accumulated profits bore to the capital in the accounts of the company at the commencement of winding up, and that part of the receipt which is attributable to the accumulated profits would be taxable.
The Income tax Officer has therefore in the first instance to determine the accumulated profits in the hands of the Company whether capitalised or not, and the rest of the capital immediately before the liquidation: he has then to determine the ratio between such capital and the undistributed profits and to apply the ratio to the amount distributed to determine the component attributable to accumulated profits.
There is in section 2(6A)(c) no warrant for the view that in the course of liquidation the accumulated profits exist as a separate fund even in a notional sense.
Each distribution is of a consolidated amount which re presents both capital and accumulated profits.
There is also nothing in the clause which supports the view that whatever is brought to tax by the taxing authorities in a given year is dividend, and the rest represents the assets of the company.
The fund in the hands of the liquidator is one: when the fund or a part of it is distributed, the distribution is deemed to take place in the same proportion in which the capital and accumulated profits stood in the accounts of the company immediately before the winding up.
We discharge the answer recorded by the High Court, and record the answer that "that part of Rs. 75,000/ which bears the same ratio to Rs. 75,000/ which the accumulated profits at the date of liquidation bore to the total assets of the company immediately before liquidation is dividend".
In the present case the Tribunal has not determined what part of Rs. 75,000/ represents accumulated profits.
But on the view we have taken of the true meaning of section 2(6A)(c) of the Act, the Tribunal was bound to do so.
The appeal is therefore partially allowed.
There will be no Appeal allowed in part.
order as to costs.
G. C. (1) L.R. (1924] 2 K.B. 52.

summary:
By a resolution dated August 23, 1952 it was resolved to wind up the respondent company and to appoint a liquidator for that purpose.
The paid up capital of the assessee was Rs. 25 lakhs, and on the date of commencement of winding up it had an accumulated profit of Rs. 5,34,041, From time, to time the liquidator distributed the assets in his hands among, the shareholders.
Out of Rs. 15 lakhs distributed on September 9, 1952 the Income tax Officer brought, in the assessment year 1953 54, to tax Rs. 52,400 as 'dividend ' within the meaning of section 2 (6A) (c) of the Income tax Act 1922 as it then stood.
By virtue of an amendment of the said clause as effected by the Finance Act 1956 dividend was to include any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation whether capitalised or no, On July 24, 1957, the liquidator distributed Rs. 75,000 among the shareholders.
The Income tax Officer in the course of assessment for the year 1958 59 sought to bring the entire amount so distributed to tax as 'dividend ' The Appellate Assistant Commissioner confirmed the order of the Income tax Officer.
In appeal to the Tribunal it was urged on behalf of the assessee that when Rs. 15 lakhs were distributed on September 3, 1952 and Rs. 2 lakhs 25 thousand on September, 25, 1952 the entire accumulated profit was exhausted and thereafter there were no accumulated profits which could be distributed, and that in any event whenever distribution is made of the assets in the hands of the liquidator, accumulated profits and the capital must be deemed to be distributed in the same proportion in which the accumulated profits and the capital stood on the date of the liquidation.
The Tribunal rejected the first contention and did not consider the second.
In reference the High Court held that since the Tribunal had not disintegrated Rs.75,000 distributed for ascertaining whether any part of it came out of theaccumulated profits, no part of Rs. 75,000 could be regarded as dividend.
The Revenue appealed.
HELD : The language used by the Legislature in section 2 (6A) (c) as amended by the Finance Act 1956, is fairly clear. 'Mere is in the bands of the liquidator only one fund.
When a distribution is made out of the fund, for the purpose of determining tax liability, and only for that purpose the amount distributed is disintegrated into its components capital and accumulated profits as they existed immediately before the commencement of liquidation.
In any distribution made to the shareholders of a company by the liquidator, that part which is attributable to the accumu lated profits of the company immediately before its liquidation, whether such profits have been capitalised or not, would be treated as dividend and liable to tax under the Act.
The amount distributed would therefore be deemed to be received by the shareholders partly as accumulated pro M17Stup.
CI/66 5 778 fits and the rest as capital, the proportion being the same which the accumulated profits bore to the capital in the accounts of the company at the commencement of winding up, and that part of the receipt which is attributable to the accumulated profits would be taxable.
The Income tax Officer has therefore in the first instance to determine the accumulated profits in the hands of the company whether capitalised or not, and the remaining capital immediately before the liquidation : he has to determine the ratio between such capital and the undistributed profits, and then to apply the ratio to the amount distributed to determine the component attributable to accumulated profits.
[782 H; 783 C] In the present case therefore the Income tax authorities had to determine what part of the sum of Rs. 75,000 distributed among the shareholders represented accumulated profits.
Only that part of Rs. 75,000 which bore the same ratio to Rs. 75000 which the accumulated profits at the liquidation bore to the total assets of the company immediately before liquidation was dividend.
[783 G] Commissioners of Inland Revenue vs George Burrell, L.R. , referred to.


judgement:
Appeal No. 235 of 1963 Appeal by special leave from the judgment and order dated August 26, 1963 of the Kerala High Court in Income tax Referred Case No. 29 of 1962.
G.B. Pai, T. A. Ramachandran and O. C. Mathur, for the appellant.
A. V. Viswanatha Sastri, N. D. Karkhanis, R. H. Dhebar and R. N. Sachthey, for the respondent.
322 The Judgment of the Court was delivered by Shah, J.
In computing the total earned income of the appellant Company for the calendar year 1959, the Income tax Officer, Trivandrum, disallowed a claim for deduction of Rs. 80,255/ in respect of liability for payment of tax under the Wealth Tax Act 27 of 1957 incurred by the Company for the calendar years 1957 and 1958.
The order was confirmed by the Appellate Assistant Commissioner and by the Appellate Tribunal.
On the following question referred by the Wealth Tax Appellate Tribunal, "Whether on the facts and circumstances of the case, the assessee Company is entitled to a deduction of Rs. 12,873/ being the wealth tax paid during the account year ended 29 2 1960.
against the profits and gains of its business for the assessment year 1960 61 under Sec.
10 (2)(xv) of the Indian Income tax Act ?" the High Court of Kerala recorded an answer in the negative.
The Company has appealed to this Court with special leave.
The Company claims that wealth tax paid by it represented expenditure laid out wholly and exclusively for the purpose of its business, and on that account is a permissible allowance under section 10(2)(xv) of the Income tax Act.
In determining the admissibility of this claim, it is necessary to ascertain the true character of the liability for payment of tax under the Wealth Tax Act.
Tax is charged under section 3 of the Wealth Tax Act, 1957, for every financial year in respect of the net wealth of every individual, Hindu undivided family and Company at the rate or rates specified in the Schedule to the Act; and 'net wealth ' under the Act means the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets belonging to the assessee on the valuation date is in excess of the aggregate value of all the debts owed by the assessee on that date other than the debts specified.
The tax under the Act is payable by all individuals, Hindu undivided families ,and Companies on the value of taxable assets belonging to the taxpayer: it is charged on the net value of the assets, and not on the business or trading activity carried on by the taxpayer.
The rates of tax for companies as well as individuals and Hindu undivided families are prescribed by the Second Schedule.
The slabs on which the rate of tax is nil are not uniform in the case of different taxable entities and a special exemption is given to a Company which has incurred in any year loss computed in accordance with sections 8, 9, 1 0 and 12 of the Income tax Act without referring to depreciation allowances and development rebates and without taking into account the losses brought forward from the earlier years, and which has not declared any dividend on its equity capital in respect of that year.
It is also provided by r. 5 of the Schedule that where the profits of a company in respect of any year, before deducting any 32 3 of the allowances referred to in the second paragraph of Part 11, are less than the amount of wealth tax payable by it in respect of the relevant assessment year, the wealth tax payable by the company for such assessment year shall be limited to the amount of such profits provided that the company has not declared any dividend on its equity capital in respect of that year.
But by relating the quantum of liability of a company to wealth tax in these special cases to the profits earned, the character of the tax is not altered.
It is and remains a tax charged upon the net wealth, and it is not made a tax related to or incidental to the carrying on of a business.
The rules in the Schedule merely extend the exemption which is primarily declared in favour of a Company of which the net wealth does not exceed Rs. 5 lakhs, to a company which has in the previous year made a loss, and grant a partial exemption if the company has made profits which are inadequate to meet the wealth tax liability at the prescribed rate.
In computing the profits or gains of an assessee who carried on business, certain allowances are permitted under section 10(2) from the business profits, and one such head is: "(xv) any expenditure not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure for personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of such business, profession or vocation." An allowance permissible under cl.
(xv) in the computation of taxable income is therefore expenditure incurred in the year of account in respect of a business carried on by the assessee: the expenditure must not be in the nature of capital expenditure or personal expenses of the assessee and it must have been laid out or expended wholly and exclusively for the purpose of the business.
The argument for the Company in this case turns upon the meaning of the expression "for the purpose of such business." On behalf of the Company it is urged that for the purpose of its business, it holds assets and by the use of those assets profits are earned and therefore tax paid in respect of those assets is expenditure laid out for the purpose of the business.
Whether an item of expenditure falls within that description has of necessity to be determined having regard to the nature of the business, the nature of the expenditure and the relation between the business and the expenditure.
In adjudicating upon the claim that an outgoing is a permissible deduction under section 10(2)(xv) of the Income tax Act, the primary question is whether in the light of accepted commercial practice, trading principles and the relation between the business and the outgoing,the outgoing can be said to arise out of the carrying on of the business and to be incidental to that business.
In the context of a variety of 324 trading transactions and the relation between the transactions and the expenditure claimed as a permissible deduction, in the decisions of the courts under the Indian Income tax Act and of the courts in the United Kingdom under the English taxing statutes, different tests are suggested.
Those tests, though adequate for the specific problem under discussion, cannot be regarded as exhaustive or necessarily applicable to other problems.
When Rowlatt, J., in The Commissioners of Inland Revenue vs The Anglo Brewing Company Ltd.(1) said that the expression "for the purpose of the trade" meant for the purpose of keeping the trade going, and of making it pay, he was making that statement in relation to the facts of the case, and he did not intend to suggest a universal test.
Similarly when because of the special nature of the business, expenditure incurred for payment of rates, taxes and duties was held a permissible allowance in the computation of taxable income, it was not intended and could not be intended to be laid down that expenditure incurred for payment of rates, taxes or duties in respect of another business would be regarded necessarily as a permissible allowance.
Illustrations of this class are to be found in Smith vs Lion Brewery Company Ltd.(2) Usher 's Wiltshire Brewery Ltd. vs Bruce(3) and Harrods (Buenos Aires) Ltd. vs Taylor Gooby.(4) In the Lion Brewery Company 's case(2) a Brewery Company who were owners or lessees of licensed premises acquired as part of their business as brewers and as a necessary incident to profitable exploitation were held entitled to the allowance in the computation of their income under Sch.
D of Compensation Fund Charges imposed under the Licensing Act upon their tenants and which the tenants after paying recouped themselves by deduction from the rents payable to the Company.
In Usher 's Wiltshire Brewery Ltd. 's case(3) the claim of a Brewery Company as owners or lessees of licensed premises acquired in the course of and for the purpose of their business as brewers and as a necessary incident to the more profitable conduct of their business of certain expenses in connection with those licensed houses was allow ed in the computation of their profits.
In Harrods (Buenos Aires) Ltd 's case(4) Harrods (Buenos Aires)Ltd a company incorporated in the United Kingdom carried on business of a retail store in Argentina and was liable to pay a tax known as "substitute tax" which was levied on joint stock companies incorporated in Argentina and on companies incorporated outside but which carried on business in Argentina through an "empresa estable" (a "commercial establishment").
In proceedings for assessment of income tax of the business the claim of the Company to deduct the "substitute tax" paid to the Argentina Government was accepted, for it was an expenditure without paying which the assessee Company could not carry on its business at all.
In all the three cases the expenditure was directly related to the business Organisation of the taxpayer.
(1) (2)) (3) 325 But every item of expenditure merely because it is connected with the trade may not necessarily be treated as a permissible deduction.
A fairly reliable approach for determining what may be regarded normally as expenditure laid out or expended wholly and exclusively for the purpose of the business was suggested in Strong and Company of Romsey Ltd. vs Woodifield.(1) That was a case of a Brewery Company owning a licensed house in which it carried on the business of inn keepers.
The Company had to pay damages to a customer who was, when sleeping in the inn, injured by a falling chimney, the fall of the chimney being due to the negligence of the Company 's servants.
The Company was held disentitled to deduct the expenditure in computing its profits for income tax purposes.
Lord Loreburne, L. C., observed, in disallowing the claim as a permissible expenditure under the head expenditure laid out wholly and exclusively for the purpose of the business: "A deduction cannot be allowed on account of loss not connected with or arising out of such trade.
That is one indication.
And no sum can be deducted unless it be money wholly and exclusively laid out or expended for the purposes of such trade.
That is another indication .
connected with the trade, it must always be allowed as a deduction: for it may be only remotely connected with the trade or it may be connected with something else quite as much as or even more than with the trade.
I think only such losses can be deducted as are connected with it in the sense that they are really incidental to the trade itself.
They cannot be deducted if they are mainly incidental to some other vocation, or fall on the trader in some character other than that of trader.
" In the same case Lord Davey observed: "These words. . appear tome to mean for the purpose of enabling a person to carry on and earn profits in the trade, etc.
I think the disbursements permitted are such as are made for that purpose.
It is not enough that the disbursement is made in the course of, or arises out of, or is connected with, the trade or is made out of the profits of the trade.
" In Badridas Daga vs Commissioner of Income tax,(2) Venkatarama Aiyar, J., observed that whether the expenditure is admissible or not will depend upon whether it can be said to arise out of the carrying on of the business and be incidental to it, and this was reaffirmed by this Court in a later judgment in Commissioner of Income tax, Bombay vs Abdullabhai Abdulkadar.(3) (1) ; (2) ; I.T.R. 10 (3) ; 326 In a recent judgment of this Court Commissioner of Income tax, Kerala vs Malayalam Plantations Ltd.(1) certain amounts paid as estate duty under section 84 of the , by a resident company incorporated outside India on the death of shareholders not domiciled in India, were sought to be deducted under section 10(2) (xv) as expenditure laid out or expended wholly and exclusively for the purposes of the business.
Subba Rao, J., speaking for the Court observed at p. 705: "The expression "for the purpose of the business" is wider in scope than the expression "for the purpose of earning profits.
" Its range is wide: it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a precondition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business.
However wide the meaning of the expression may be, its limits are implicit in it.
The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business.
" The position may therefore be summarised thus: the nature of the expenditure or outgoing must be adjudged in the light of accepted commercial practice and trading principles.
The expenditure must be incidental to the business and must be necessitated or justified by commercial expediency.
It must be directly and intimately connected with the business and be laid out by the taxpayer in his character as a trader.
To be a permissible deduction, there must be a direct and intimate connection between the expenditure and the business ie.
between the expenditure and the character of the assessee as a trader, and not as owner of assets, even if they are assets of the business.
In the light of the principles the amount of tax paid on the net wealth of an assessee under the Wealth Tax Act is not a permissible deduction under section 10(2)(xv) of the Indian Income tax Act in his assessment to income tax, for tax is imposed under the Wealth Tax Act on the owner of assets and not on any commercial activity.
The charge of the tax is the same, whether the assets are" part of or (1) (1964] 7 S.C.R. 693=53 I.T.R. 140.
327 used in the trading Organisation of the owner or are merely owned by him.
The assets of the taxpayer incorporated or not become chargeable to tax because they are owned by him, and not because they are used by him in the business.
The appeal therefore fails and is dismissed with costs.
Appeal dismissed.

dataset_name: IN-Abs

summary:
In computing the total earned income of the appellant company for the calendar year 1959, the Income Tax Officer disallowed a claim for deduction of Rs. 80,255 in respect of liability for payment of tax under the Wealth Tax Act, 27 of 1957 incurred by the company.
The order of the Income Tax Officer was confirmed in appeal by the Appellate Assistant Commissioner, the Tribunal and, on a reference, by the High Court.
It was contended by the appellant company that since the company held the assets on which tax was levied for the purpose of its business and profits were earned by the use of those assets, tax paid in respect of those assets was expenditure laid out wholly and exclusively for the purpose of the business and on that account was a permissible allowance under section 10(2)(xv) of the Income tax Act, 1922, HELD:The amount of tax paid on the net wealth of an assesses under Wealth Tax Act is not a permissible deduction under section 10(2) (xv) of the Income tax Act, for tax is imposed under the Wealth Tax Act on the owner of the assets and not on any commercial activity.
The charge of tax is the same, whether the asset are part of or used in the trading organization of the owner or are merely owned by him.
[326 G H] For expenditure to be regarded as being for the purpose of the assessee 's business within the meaning of section 10 (2) (xv), the nature of the expenditure of outgoing must be adjudged in the light of accepted commercial practice and trading principles.
The expenditure must be incidental to the business and must be necessitated or justified by commercial expediency.
It must be directly and intimately connected with the business and be laid out by the tax payer in his character as a trader.
To be a permissible deduction, there must be a direct and intimate connection between the expenditure and the business i.e. between the expenditure and the character of the assessee as a trader, and not as owner of assets, even if they are assets of the business.
[326 F] Case law discussed.


judgement:
Appeal No. 751 of 1965.
Appeal from the judgment and order dated December 18, 1962 of the Madras High Court in Tax Case No. 143 of 1960.
A.K. Sen, K. Parasarn, K. Rajender Chaudhuri and K. R Chaudhuri, for the appellant.
B.Sen, T. A. Ramachandran, section P. Nayyar for R. N. Sachthey, for the respondent.
The Judgment of the Court was delivered by Ramaswami, J.
This appeal is brought, by certificate, against the judgment of the Madras High Court dated December 18, 1962 in T.C. No. 143 of 1960.
The appellant (hereinafter called the 'assessee ') was a firm called O.RM.M.SP.
Firm which was registered under section 26(A) of the Income tax Act, 1922 (hereinafter called the '1922 Act ').
Prior to the constitution of the firm, the partners were members of a Hindu undivided family.
The family which consisted of Meyyappa Chettiar and his two brothers carried on money lending business in India and in the former Federated Malaya States and it was assessed under the Indian Income tax Act, 1918 (hereinafter called the '1918 Act ').
There was a disruption of the joint family status on June 2, 1938, and thereafter the members of the family continued the business as partners.
In the course of the assessment for the year 1939 40 it was claimed by Meyyappa Chettiar, one of the members of the family that having regard to the severance of joint family status, the income of the family from April 13, 1938 to June 2, 1938 was not liable to be taxed by reason of the provisions of section 25(3) & (4).
The Income tax Officer accepted the fact of partition amongst the members of the family, but rejected the contention that the family was not liable to pay tax on the profits for the said period.
The High Court ultimately called for a reference on the following question: "Whether the income of the family from 13th April 1938 to 2nd June 1938 is not liable to be taxed by virtue of Section 25(3) of the Indian Income tax Act" After receipt of the reference the High Court held that there was no discontinuance of the business within the meaning of section 25(3).
The view taken by the High Court was that when a Hindu undivided 907 family carrying on a business, which was taxed under the 1918 Act, became disrupted and the members continued the business there.
after as partners, there could be no discontinuance but only succession by the firm of the business of the family.
It was held in that case that it was the assesse firm which took over the business of the Hindu undivided family.
The firm was dissolved on March 2, 1952.
In the assessment for the year 1952 53 the assessee applied for relief under section 25(3) of the 1922 Act.
The claim was rejected by the Income tax Officer on March 7, 1956.
The assessee preferred an appeal to the Appellate Assistant Commissioner who dismissed the appeal holding that in the case of business carried on in foreign territory the business as such is not assessed under section 3 of the 1918 Act but only receipt of the income in British India is assessed and it cannot therefore be held that the foreign business of the appellant was charged to tax under the 1918 Act.
The assessee took the matter in further appeal to the appellate Tribunal which considered that the assessee was entitled to relief under section 25 (3) of the 1922 Act except for the income received from the house properties in Malaya.
The appellate Tribunal accordingly allowed the appeal of the assessee in part.
Both the assessee and the Department applied to the appellate Tribunal for reference of the questions of law to the High Court.
The appellate Tribunal allowed the applications and stated a case to the High Court on the following questions of law: "(i) Whether the assessee is entitled to both the parts of the relief contemplated under section 25(3) of the Act in respect of foreign business at Penang, Ipoh and Kambar ? (ii)Whether the applicant is also entitled to relief under section 25 (3) of the Act with regard to rental income from house properties owned by the foreign firm which was discontinued in the year of assessment.
" The appellate Tribunal also referred another question for the opinion of the High Court but it is not the subject matter of the present appeal.
The High Court held that the assessee was not entitled to relief under section 25(3) of the 1922 Act and accordingly answered both the questions in favour of the Department.
The view taken by the High Court was that the foreign business of the assessee cannot be deemed to have been charged under the provisions of the 1918 Act because the assessee was only taxed on remittances received from the profits of the foreign business and there was no tax on the foreign business itself under the 1918 Act.
The High Court accordingly reached the conclusion that the assessee was not entitled to relief under section 25 (3) of the 1922 Act.
908 Section 25 (3) of the 1922 Act is to the following effect: "25.
(3) Where any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income tax Act, 1918 (VII of 1918), is discontinued, then, unless there has been a succession by virtue of which the provisions of sub section (4) have been rendered applicable no tax shall be payable in respect of the income, profits and gains of the period between the end of the previous year and the date of such discontinuance, and the assessee may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period.
Where any such claim is made, an assessment shall be made on the basis of the income, profits and gains of the said period, and if an amount of tax has already been paid in respect of the income, profits and gains of the previous year exceeding the amount payable on the basis of such assessment, a refund shall be given of the difference.
" Under this section exemption from liability to pay tax in respect of the income, profits and gains may be claimed by an assessee if the business is one in respect of which tax was charged at any time under the 1918 Act, and the business is discontinued there being no succession by virtue of which the provisions of subsection (4) of section 25 have been rendered applicable.
Section 25(3) however, applies even if the person assessed under the 1918 Act was different from the person who claims relief under that section provided the former was the predecessor in interest of such person in relation to the business.
The reason for enacting section 25(3) was that under the 1918 Act, income tax was levied by virtue of section 14(2) of the 1918.
Act, on the income of the year of assessment.
Tax was, therefore, levied in the financial year 1921 22 on the income of that year.
By the 1922 Act the basis of taxation was altered and by section 3 of that Act, charge for tax was imposed upon the income of the previous year.
When the 1922 Act was brought into force on April 1, 1922, two assessments in respect of the same income for the year 1921 22 had to be made.
The income for 1921 22 was accordingly charged to tax twice; it was charged under the 1918 Act and it was also charged to tax under section 3 of the 1922 Act read with the appropriate Finance Act, resulting in double taxation in respect of the income for that year.
But with a view to make the number of assessments equal, to the number of years during which the business was carried on, the legislature enacted the exemption prescribed by section 25(3).
This benefit was however restricted only to the income, profits and gains of business, profession or vocation on which tax had been charged under the provisions of the 1918 Act.
By enacting section 25(3) the legislature intended to exempt the income, profits and 909 gains resulting from the activity styled business, profession or vocation from tax when the business, profession or vocation is discontinued if tax was charged in respect thereof under the 1918 Act.
The first question to be considered in this appeal is whether the assessee is entitled to both parts of relief contemplated under section 25(3) of the 1922 Act in respect of the foreign business at Penang, lpoh and Kambar.
The controversy between the parties turns on the question whether the foreign business of the assessee was at any time charged under the provisions of the 1918 Act.
It has been found by the appellate Tribunal that the assessee was taxed on remittances received from and out of the profits of the foreign business.
The finding of the Appellate Assistant Commissioner is stated in these terms: "The entire profits of the foreign business came to be assessed in the hands of the appellant under the 1918 Act, not because it was a business income but because such income had been remitted into British India.
Therefore, in fact also it is not the foreign profits of a business that has been charged to tax but only the remittance which in the particular case was not less than the profits of the year.
" We have therefore to proceed on the footing that the assessee received the entire profits of the foreign business in British India and the entire profits were assessed to income tax in the hands of the assessee under the 1918 Act.
It is necessary, at this stage, to set out the relevant provisions of the 1918 Act.
Section 3, the charging section stated as follows: "3.
(1) Save as hereinafter provided, this Act shall apply to all income from whatever source it is derived, if it accrues or arises or is received in British India, or is, under the provisions of this Act, deemed to accrue or arise or to be received in British India.
Section 5 mentioned the classes of income chargeable to income tax and reads as follows: "5.
Save as otherwise provided by this Act, the following classes of income shall be chargeable to income tax in the manner hereinafter appearing, namely (i) Salaries.
(ii) Interest on securities.
(iii)Income derived from house property.
(iv) Income derived from business.
910 (v) Professional earnings.
(vi) Income derived from other sources.
" Section 9 of the 1918 Act enumerated the permissible deductions in the computation of the profits of the business.
The question for determination is whether the foreign business of the assessee was at any time charged under the provisions of section 3 of the 1918 Act.
It has been found in this case that the entire income of the foreign business was remitted to the assessee and tax imposed on that income under the 1918 Act.
We are of the opinion that in the context of these facts the foreign business of the assessee must be held to be charged under the provisions of the 1918 Act within the meaning of section 25(3) of the 1922 Act.
It is manifest that by section 3 of the 1918 Act the charge was made on the receipt of income in British India and as the income received by the assessee was derived from the foreign business and was in relation to the foreign business it must be taken that there was an assessment to tax on the foreign business within the meaning of section 25(3) of the 1922 Act.
In other words, the tax under the 1918 Act was charged upon the assessee in respect of his activity styled ,foreign business ' and in relation to it and it must hence be taken, upon the facts found by the appellate Tribunal in this case, that the foreign business of the assessee was charged under the 1918 Act within the meaning of section 25(3) of the 1922 Act.
The High Court has taken the view that the foreign business of the assessee was not charged under the 1918 Act because what was taxed was the remittances received by the assessee from the foreign business and not the foreign business itself.
In taking this view, the High Court has followed its previous decision in Commissioner of Income tax, Madras vs section V.R.M. Palaniappa Chettiar and Others(1) in which it was held that the words "on which" in section 25(4) of the 1922 Act cannot be interpreted as meaning "with reference to which" and that in order to claim and avail the benefit under section 25(4) the tax clearly should be charged on the business as such under the 1918 Act.
At page 173 of the Report Satyanarayana Rao, J. stated as follows: "The relief under sub clause (4) is permissible only if the tax on the business was charged under the provisions of the Indian Income tax Act, 1918.
If the foreign business at Muor was not and could not have been charged under the Act and the share in the profits of the family from that foreign business was charged under section 3 only on the receipt in British India, can it be said that the charge so made was a charge of a tax on the foreign business.
The income received by the joint family could not have been charged under the head 'income derived from business ' but only as a receipt under section 3.
The argument, however, on behalf 1 911 of the assessee by his learned Advocate Mr. Rajah Iyer was that the words "on which tax was at any time charged" should be construed as meaning "with reference to which tax was at any time charged.
" In other words, the conten tion is that the income derived by the assessee was in relation to a business and therefore the assessment of the income must be treated as an assessment of the business.
No doubt, under the provisions of the Income tax Act, the tax is payable by an assessee but the assessment of the tax is on the basis of various heads of income derived by the assessee one of which is business.
It cannot, therefore, be said that because tax was payable by the assessee on the profits rec eived from a business in a foreign territory such assessment is an assessment of the business.
" In our opinion, the view adopted by the High Court in Commissioner of Income tax, Madras vs section V.R.M. Palaniappa Chettiar and Others( ) must be taken to be impliedly over ruled by the recent decision of this Court in Commissioner of Income tax.
Bombay City 1 vs Chugandas & Co.(2) in which the question was whether the interest on securities formed part of the assessee 's business income for the purpose of the exemption from tax under section 25(3) of the 1922 Act.
It was held by this Court that the assessee was entitled to exemption under section 25(3) in respect of interest on securities as well, and there was no reason to restrict the condition of the applicability of the exemption under section 25(3) only to income on which the tax was payable under the head "Profits and gains of business, profession or vocation".
It was further observed in that case that tax is charged under the Income tax Acts on specific units, such as, individuals, Hindu undivided families, companies, local authorities, firms and associations of persons etc.
and business, profession or vocation is not a unit of assessment.
When, therefore, section 25(3) enacts that tax was charged at any time on any business, it is intended that the tax was at any time charged on the owner of any business.
If that condition be fulfilled in respect of the income of the business under the 1918 Act, the owner or his successor in interest in relation to the business, will be entitled to get the benefit of the exemption under it if the business is discontinued.
We are accordingly of the opinion that the High Court was in error in holding that the foreign business of the assessee was not charged under the provisions of the 1918 Act.
The first question must therefore be answered in favour of the assessee and it must be held that the assessee is entitled to both parts of relief contemplated under section 25(3) of the 1922 Act in respect of the foreign business at Penang, lpoh and Kambar.
(1) (2) 912 The second question of law arising in this appeal is whether the assessee was entitled to relief under section 25(3) of the 1922 Act with regard to the rental income from house properties owned by the foreign firm which was discontinued in the year of account.
A similar question was the subject matter of consideration in Commissioner of Income tax, Bombay City , vs Chugandas and Company(1) which has already been referred to.
In that case, the assessee firm, a dealer in securities holding securities as its stock in trade, had been charged to tax under the 1918 Act, in respect of business.
It received Rs. 4,13,992 and Rs. 1,01,229 as interest on securities in the years 1946 and 1947 respectively.
The firm discontinued its business on June 30, 1947.
The question at issue was whether the interest on securities formed part of the assessee 's business income for the purpose of the exemption from tax under section 25(3) of the 1922 Act.
It was held by this Court that the assessee was entitled to exemption under section 25(3) in respect of interest on securities as well.
It was pointed out that there was no reason to restrict the condition of the applicability of the exemption under section 25(3) only to income on which the tax was payable under the head "Profits and gains of business, profession or volcation".
The exemption under section 25(3) is general.
It was explained by this Court that the heads of income described in section 6 of the 1922 Act, and further elaborated for the purposes of computation in sections 7 to IO and 12, 12A, 12AA and 12B, are intended merely to indicate the classes of income.
The heads do not exhaustively delimit sources from which income arises.
Business income is broken up under different heads only for the purpose of computation of the total income.
By that breaking up the income does not cease to be the income of the business, the different heads of income being only the classification prescribed by the Incometax Act for computation.
The ratio of this decision applies to the present case and it must accordingly be held that the assessee is entitled to relief under section 25(3) of the 1922 Act with regard to the rental income from the house properties owned by the foreign firm which was discontinued in the year of account.
For these reasons the judgment of the Madras High Court is set aside and this appeal must be allowed with costs.
R.K.P.S. (1) ; Appeal allowed.

summary:
Prior to the constitution of the assessee firm, its partners were members of a Hindu undivided family which carried on money lending business in India and in Malaya and which was assessed to tax under the Income Tax Act, 1918.
There was a partition in the family on June 2, 1938, and thereafter its members continued the business as partners in the assessee firm.
The firm was dissolved on March 2, 1952.
In the assessment for the year 1952 53, the assessee applied for relief under section 25(3) of the Income Tax Act., 1922.
This claim was rejected by the Income Tax Officer and an appeal to the Appellate Assistant Commissioner was dismissed on the view that in the case of business carried on in foreign territory, the business as such was not assessed under section 3 of the 1918 Act and only income received in India was so assessed; consequently, no relief could be claimed under section 25(3) of the 1922 Act.
A further appeal to the Appellate Tribunal was partly allowed as the Tribunal considered that the assessee was entitled to relief under section 25(3) except in respect of the income received by the assessee firm from certain house properties in Malaya.
The High Court, upon a reference, disagreed with the Tribunal and held in favour of the department.
On appeal to this Court, HELD : (1) The High Court was in error in holding that the foreign business of the assessee was not charged under the provisions of the 1918 Act.
The assessee was therefore entitled to relief under section 25(3).
When section 25(3) refers to tax charged on any business, it is intended to refer to tax charged on the owner of any business.
If tax is shown to have been charged in respect of the income of the business under the 1918 Act, the owner or successor in interest in relation 'to the business will be entitled to get the benefit of the exemption under section 25(3) if the business is discontinued.
In the context of the finding by the lower courts that the entire income of the foreign business was remitted to the assessee and tax imposed on that income under the 1918 Act, the foreign business of the assessee must be held to have been charged under the provisions of the 1918 Act within the meaning of section 25(3) of the 1922 Act.
[911 F H] (ii)The assessee was also entitled to relief under section 25(3) on the rental income from the house properties owned by the foreign firm which was discontinued in the year of account.
M17Sup C.I./66 12 906 Business income is broken up under different heads only for the purpose of computation of the total income.
By that breaking up the income does not cease to be the income of the business.
[912 E F] Commissioner of Income tax, Madras vs S.V.R.M. Palaniappa Chettiar A Others. , disapproved, Commissioner of Income tax, Bombay city 1 vs Chugandas & Co., ; , referred to.


judgement:
Appeal No. 733 of 1964.
Appeal by special leave from the judgment and decree dated August 1,1960 of the Assam and Nagaland High Court in F.A. No. 33 of 1955.
Naunit Lal, for the appellants.
R. Gopalakrishnan, for the respondents.
The Judgment of the Court was delivered by Wanchoo, J.
This is an appeal by special leave against the judgment of and decree of the Assam High Court and arises in the following circumstances.
The Gauhati Bank Limited (hereinafter referred to as the bank) brought a suit against the appellants for the recovery of Rs. 40,000/ .
Its case was that appellant No. 1 had been dealing with the bank for the needs and business of the family consisting of himself and the other appellants as karta of the family, and in that connection he had an open, mutual and current account with the bank.
In that connection moneys were borrowed from the bank and moneys were also paid into the bank and a current account had been opened in the name of appellant No.1.
On March 1, 1947, a sum of Rs. 15,956/7/ was due to the bank from the appellants.
In order to pay off that amount, a mortgage deed was executed by the appellants in favour of the bank for Rs. 15,956/7/ , and some land, a house, a fixed deposit and three policies were given as security thereunder.
The mortgage deed also provided that the bank would advance money up to Rs. 16,000/to the appellants as and when they required it.
Interest would be payable at Rs. 6/ per cent per annum with monthly rests.
It was also provided that the entire amount due including any further advances taken upto the limit of Rs. 16,000/ and interest would be realised from the securities in certain order which was mentioned in the mortgage deed.
It was further provided that if the entire amount due could not be recovered from the property given in security, it would be recoverable personally from the appellants.
The case of the bank was that after the execution of this mortgage deed, a further sum of Rs. 10,000/ was borrowed by the appellants from the bank, on March 19, 1947.
Thereafter two amounts were paid into the bank, one on May 14,1948 and the other on November 900 24, 1949.
Nothing was paid thereafter and eventually on October 31, 1952 the amount due to the bank was Rs. 39,496/8/ .
The suit was filed on April, 9, 1953 for the sum of Rs. 40,000/ , and the usual prayer for sale of the mortgaged properties was made.
The suit was resisted by the appellants and a number of defences were taken on their behalf.
One of the defences with which we are now concerned was that the allegation of the bank that any money was taken as loan after March 1,1947 was in correct.
Another defence was that the allegation that on November 24, 1949, Rs. 100/ were repaid was untrue.
Further the appellants contended generally that the accounts of the bank were not kept correctly and in regular course of business and were fraudulent and were therefore not relevant and not admissible in evidence.
Two main questions arose on the pleadings, namely (i) what was the amount due to the bank from the appellants, and (ii) whether the suit was within limitation.
Seven issues were framed by the trial court of which issue No. 3 related to the amount due to the bank from the appellants and issue No.4 related to the question ,of limitation.
Other issues related to other points to which no reference is necessary to be made now, for we are not concerned with them.
Issue No. 3 relating to the total amount due to the bank appears to have been overlooked by the trial court, though when dealing with the seventh issue relating to relief to which the bank was entitled, the trial court said that the bank was entitled to Rs. 15,956/7/ , which were due on March 1, 1947 and Rs. 16,000/ which were to be further advanced under the mortgage deed of 1947, thus holding that Rs.32,000/ were due to the bank excluding interest.
The way the trial court dealt with this matter clearly shows that it did not understand what it had to find on the issue relating to the total amount due to the bank.
It seems to have treated the amount of Rs. 16,000/ (which was the limit of the advance to be made to the appellants) as if it was an actual advance made to them on March 1, 1947, even though the case of the bank was that that amount was not actually advanced.
The copy of accounts filed by the bank showed that Rs. 10,000/were advanced out of this limit of Rs. 16,000/ .
Further on the question of limitation, the trial court held that the suit was within time in view of the payment of Rs. 100/ on November 24, 1949.
It therefore decreed the suit after making a small deduction because interest had been calculated at Rs. 9/ per cent per annum instead of Rs. 6/ per cent per annum which was provided in the mortgage deed.
The appellants then went in appeal to the High Court.
The mortgage deed of March 1, 1947 was not disputed in the High Court, and the two main questions raised in the High Court were, namely 901 (i)that the sum of Rs. 10,000/ said to have been advanced on March 19, 1947 had not been proved to have been advanced in view of the fact that no evidence was produced besides the copy of the accounts to substantiate it, and in this connection reliance was placed on section 34 of the , No. 1 of 1872, and (ii) that the amount of Rs. 100/ had not been paid on November 24, 1949 and therefore the suit was barred by limitation.
The High Court seems to have held that the advance of Rs. 10,000/ had been proved on the basis of the copy of the account produced by the bank and the reason given for this was that there was no specific challenge to the correctness of any of the entries in the account, particularly to the specific entry relating to Rs. 10,000/ The contention as to limitation was also rejected by the High Court, and the appeal was dismissed.
Thereupon the appellants obtained special leave, and that is how the matter has come up before us.
The main question urged before us is that there is no evidence besides the certified copy of the account to prove that a sum of Rs. 10,000/ was advanced to the appellants and therefore in view of section 34 of the Evidence Act the appellants cannot be saddled with liability for that amount.
Section 34 is in these terms: "Entries in books of account, regularly kept in the course of business, are relevant whenever they refer to a matter into which the court has to inquire, but such statements shall not alone be sufficient evidence to charge any person with liability.
" It is clear from a bare perusal of the section that no person can be charged with liability merely on the basis of entries in books of account, even where such books of account are kept in the regular course of business.
There has to be further evidence to prove payment of the money which may appear in the books of account in order that a person may be charged with liability thereunder, except where the person to be charged accepts the correctness of the books of account and does not challenge them.
In the present case, however, the appellants did not accept the correctness of the books of account.
We have already indicated that they went to the.
length of saying that the accounts were not correctly kept, and were fraudulent.
They also said that no money had been taken by them after March, 1, 1947.
This being their pleading, the trial court rightly framed the third issue relating to the total amount due from the appellants to the bank.
But unfortunately it overlooked to go into that issue specifically and we have already indicated how it made a mistake in arriving at the amount due when considering the issue relating to relief.
In any case as the appellants had not admitted the correctness of the accounts filed by the bank, particularly after March 1, 1947, the bank had to prove payment of Rs. 10,000/ on March 19,1947 if it wanted to charge the appellants, 902 with liability for that amount, But all that the bank did was to produce a certified copy of account under section 4 of the Bankers ' Books Evidence Act, No. XVIII of 1891.
Section 4 of that Act reads thus "Subject to the provisions of this Act, a certified copy of anyentry in a banker 's book shall in all legal proceedingsbe received as prima facie evidence of the existence ofsuch entry, and shall be admitted as evidence of the matters, transactions and accounts therein recorded in every case where, and to the same extent as, the original entry itself is now by law admissible, but not further or otherwise".
It will be clear that section 4 gives a special privilege to banks and allows certified copies of their accounts to be produced by them and those certified copies become prima facie evidence of the existence of the original entries in the accounts and are admitted as evidence of matters, transactions and accounts therein, but such admission is only where, and to the same extent as, the original entry itself would be admissible by law and not further or otherwise.
Original entries alone under section 34 of the Evidence Act would not be sufficient to charge any person with liability and as such copies produced under section 4 of the Bankers ' Books Evidence Act obviously cannot charge any person with liability.
Therefore, where the entries are not admitted it is the duty of the bank if it relies on such entries to charge any person with liability, to produce evidence in support of the entries to show that the money was advanced as indicated therein and thereafter the entries would be of use as corroborative evidence.
But no person can be charged with liability on the basis of mere entries whether the entries produced are the original entries or copies under section 4 of the Banker 's Books Evidence Act.
We cannot 'agree with the High Court that the mere fact that the appellants did not specifically mention the sum of Rs. 10,000/ as not having been advanced to them in their written statement would make any difference on the facts of the present case.
We have already pointed out that the appellants did not admit the correctness of the accounts produced specially after March 1, 1947.
We have also pointed out that it was stated on their behalf that nothing was borrowed after March 1, 1947.
The main appellant in whose name the account was, appeared as a witness and stated that so far as he remembered he only borrowed Rs. 8,000/ from the bank and nothing thereafter.
He also stated that he did not remember to have borrowed any sum from the bank after the execution of the mortgage deed.
In the face of this pleading of the appellants and the statement of one of them, the bank had to prove that the sum of Rs. 10,000/ was in fact advanced on March, 19,1947 and could not rely on mere entries in the books of account for that purpose.
This is clear from the provision in section 34 of the Evidence 903 Act.
No attempt was made on behalf of the bank to prove by any evidence whatsoever that a sum of Rs. 10,000/ was advanced on March 19, 1947.
The entry in the account books in that connection is to the effect: "To amount paid to Gauhati branch as per D/advice, dated 6th March, 1947".
If this amount of Rs. 10,000/was paid by the bank on the order of the appellants or any one of them that order should have been produced in support of the entry, and then the entry would have been helpful to the bank as a corroborative piece of evidence.
But the bank did nothing of the kind.
The only witness produced on behalf of the bank was an officer who had nothing to do with the Tezpur branch where the transactions were entered into.
We are therefore of opinion that in view of section 34 of the Evidence Act the appellants cannot be saddled with liability for the sum of Rs. 10,000/ said to have been advanced on March, 19,1947 on the basis of a mere entry in the amount.
Section 34 says that such entry alone shall not be sufficient evidence, and so some indepen dent evidence had to be given by the bank to show that this sum was advanced.
What would be the nature of such independent evidence would certainly depend upon the facts of each case; but there can be no doubt that some independent evidence to show that advance had been made has to be given.
Further, as in this, case the dispute was with respect to one entry of Rs. 10,000/ it should not have been difficult for the bank to produce evidence with respect thereto.
We cannot therefore agree with the High Court that the advance of Rs. 10,000/ on March 19, 1947 has been proved in this case.
It is urged on behalf of the bank that we might give opportunity now to the bank to prove that the money was in fact paid.
We are of opinion that it is too late now after 13, years to give a further opportunity to the bank to prove what should have been proved by it in the very beginning in view of the denial of liability for anything after March 1,1947 in the written statement of the appellants.
In this view of the matter, the appeal must be allowed with respect to this sum of Rs. 10,000/ Then we come to the question of limitation.
The suit is clearly within time insofar as the liability for sale under the mortgage deed is concerned as it was filed within 12 years of the execution of the mortgage (see article 138 of the Limitation Act of 1908).
As to the personal liability under this deed, that is beyond time as the suit was filed more than six years after the execution of the mortgage (see article 116 ibid).
Nor does the entry of payment of Rs. 100/in the accounts help the bank in this behalf.
That entry is of no value under section 19 or section 20 of the Limitation Act for neither a writing signed by the appellants nor an acknowledgement of payment in the handwriting of the appellants or in a writing signed by them has been proved.
Nor does article 85 of the Limitation Act of 1908 help the bank.
Assuming this Is a case of an open, current and mutual 904 account, the last payment was made in November 1949.
Article 85 gives limitation of three years from the close of the year in which the last item admitted or proved is entered in the accounts (such year to be computed as in the account).
The account in this case shows that the year was calendar year.
The mutuality in this case came to an end in 1949 for we find from the account that thereafter there are only entries of interest due to the bank upto October 31, 1952.
So the bank would get three years from the end of 1949 under article 85 and as the suit was filed on April 9, 1953, this entry will be of no help to the bank.
We are therefore of opinion that the bank cannot get a decree fixing personal liability on the appellants and all that it is entitled to is a decree for sale of the mortgaged property.
We therefore partly allow the appeal and declare that the amount due to the bank on April 9, 1953, the date of the suit, would be Rs. 15,956/7/ plus compound interest at the rate of Rs. 6/ per cent per annum with monthly rests up to that date minus the two sums, namely, Rs. 1,498/10/3 and Rs. 100/ shown as paid on May 14, 1948 and November 24, 1949, and thereafter Rs. 6/ per cent per annum simple interest will run.
The trial court will modify the preliminary decree passed by it accordingly and give the appellants three months ' time after the preliminary decree has been so modified to pay the amount failing which the bank would be entitled to pray for a final decree for sale of the properties mortgaged. 'Mere will be no personal decree.
The bank will get proportionate costs in the two courts below.
As the defence of the appellants has failed on the main question, they will bear their own costs throughout.
G.C. Appeal allowed in part.

summary:
The appellants through their karta had an open mutual and current account with the respondent bank.
They borrowed from the bank and also paid monies into it.
On March 1, 1947 a sum of Rs. 15,956/7 was due to the bankfrom the appellants.
In order to pay off that amount a mortgage deedwas executed by the appellants in favour of the bank.
Under that deedfurther amounts up to a limit of Rs. 16,000 could be advanced to the appellants against the security mentioned therein.
According to the bank, under the said provision of the deed a further sum of Rs. 10,000 was advanced to the appellants on March19, 1947.On April 9, 1953 the bank filed a suit for the recovery ofsums due to it from the appellants and the suit was claimed to be withinthe period of limitation on the allegation that on November 24, 1949, the appellants had repaid a sum of Rs. 100 to the bank.
The appellants denied that they had borrowed Rs. 10,000 as alleged or that they had repaid Rs. 100.
The trial court decreed the suit of the bank and the High Court upheld the decree.
The appellants then came to this Court by special leave.
The questions that fell for determination were (i) whether by producing a copy of the entry relating to the loan of Rs. 10,000 in these account books the bank had proved the said loan, (ii) whether the suit was within time.
HELD : (i) In view of section 34 of the Evidence Act the appellants could not be saddled with liability for the sum of Rs. 10,000 said to have been advanced to them on March 19.
1947 on the basis of a mere entry in the account.
Section 34 says that such entry alone shall not be suffi cient evidence and so some independent evidence had to be given by the bank to show that this sum was advanced.
Such evidence not having been given the claim could not be upheld.
[903 C] (ii)Section 4 of the Bankers ' Books Evidence Act (18 of 1891) certainly gives a special privilege to banks and allows certified copies of their accounts to be produced by them and those certified copies become prima facie evidence of the existence of the original entries in the accounts and are admitted as evidence of matters, transactions, and accounts therein.
But such admission is only where and to the extent as the original entry itself would be admissible by law and not further or otherwise.
Original entries alone under section 34 of the Evidence Act would not be sufficient to charge any person with liability and as such, copies produced under section 4 of the Bankers ' Books Evidence Act could not charge any person with liability.
[902 C E] (iii)The suit was clearly within time insofar as the liability for sale under the mortgage deed was concerned as it was filed within 12 years of the execution of the mortgage as allowed by article 138 of the Limitation Act of 1908.
[903 G] 899 As to the personal liability under the deed that was beyond time as the suit was filed more than six years after the execution of the mortgage allowed by article 116.
The entry of the payment of Rs. 100 in the accounts also did, not help the bank in this behalf.
That entry was of no value under section 19 or section 20 of the Limitation Act for neither a writing signed by the appellants nor an acknowledgement of payment in the handwriting of the appellants or in a writing signed by them had been proved.
Nor did article 85 help the bank in fixing personal, responsibility on the appellants as the time of three years allowed by that Article had ended before the filing of the suit.
[903 G H]


judgement:
Appeal No. 1109 of 1966.
Appeal by special leave from the judgment and order dated December 17, 1964 of the Punjab High Court (Circuit Bench) at Delhi in Civil Revision No. 159 D of 1963.
M. C. Setalvad, Veda Vyasa and K. K. Jain.
for the appellants.
section G. Patwardhan, K. L. Hathi and R. H. Dhebar, for the respondent.
844 The Judgment of the Court was delivered by Wanchoo, J.
This is an appeal by special leave against the judgment of the Punjab High Court and arises in the following circumstances.
The appellant entered into a contract with the Union of India, respondent herein, for construction of certain highway bridges.
In connection with the execution of the contract, some disputes arose between the parties and were referred to the joint arbitration of Sri B. K. Guha and Sri N. P. Gurjar.
As there was difference of opinion between the two arbitrators, the matter was referred to an umpire, namely, Sri Dildar Hussain, retired Chief Engineer, Hyderabad.
The umpire recorded evidence of the parties and gave his award on May 27, 1961.
It appears that the award was made in duplicate and one copy was sent to each party.
On August 4, 1961, the appellant made a petition before the Subordinate Judge First Class, Delhi under sections 14 and 17 of the , No. 10 of 1940, (hereinafter referred to as the Act).
it was prayed that the umpire be directed by the court to cause the award or a signed copy thereof together with any depositions and documents which might have been taken and proved before him to be filed in court (section 14).
It was further prayed that a judgment be passed in terms of the award (section 17).
It appears that on this petition the court issued notice to the umpire to file the award and the arbitration proceedings.
On September 13, 1961, the umpire wrote to the court that he was forwarding along with that letter the award in the case duly signed and certified by him.
On November 1, 1961, an objection was taken on behalf of the respondent that the award said to have been filed by the umpire had not been validly and legally filed under section 14 and as such no proceedings in pursuance of the said filing could be taken in court.
This objection was considered as a preliminary objection by the Subordinate Judge.
He came to the conclusion that the document filed in court was neither the original award nor a signed copy thereof, and as such the court could not take any action on that document.
He therefore allowed the objection and dismissed the application under section 17 for passing a judgment in terms of the award.
The appellant then went in revision to the High Court.
The High Court dismissed the revision application holding that the document filed in court was admittedly not the original award and that it was clear from a perusal of the document itself that it was not a signed copy thereof.
Certain alternative arguments were submitted to the High Court which were rejected and the revision application thus failed.
Thereupon the appellant obtained special leave, and that is how the matter has come up before us.
The main question that has been argued on behalf of the ap pellant is that the document in question is a signed copy of the 845 award within the meaning of those words in section 14(2) and therefore further proceedings should have been taken under section 17 of the Act.
Now the relevant part of section 14 (2) reads thus : "(2) The arbitrators or umpire shall, at the request of any party to the arbitration agreement or any person claiming under such party or if so directed by the court. cause the award or a signed copy of it, together with any depositions and documents which may have been taken and proved before them, to be filed in court. . ." Therefore when a notice is issued by a court to the arbitrators or umpire it is their duty to file in court either the award in original or a signed copy thereof as directed by the court.
It is not in dispute that in the present case the original award has not been filed.
The dispute is whether the document filed is a signed copy of the award.
The main contention on behalf of the appellant is that the document is a signed copy of the award within the meaning of those words in section 14(2), and thus should have been acted upon by the court.
On the other hand, it is contended on behalf of the respondent that what has been filed is a certified copy of the award and not a signed copy thereof, and therefore it cannot be acted upon.
The High Court has accepted the contention of the respondent and all that it has said in that behalf is that it is clear from a perusal of the award that it is not a signed copy of the award but it is certified as correct copy of the award dated the 27th May, 1961.
Unfortunately, the High Court has not considered what exactly the words "signed copy of the award" mean, and it is to this problem that we must now turn.
Now the word "copy" as such is not defined in the Indian Evidence Act, of 1872.
But we get an idea of what a copy is from the provisions of section 63 of the Evidence Act.
That section inter alia defines what secondary evidence means and includes namely (i) certified copies as provided, in section 76 of the Evidence Act, (ii) copies made from the original by mechanical processes which in themselves insure the accuracy of the copy, and copies compared with such copies, and (iii) copies made from or compared with the original.
Obviously, therefore a copy means a document prepared from the original which is an accurate or true copy of the original.
In Webster 's New World Dictionary, the word "copy" means "a thing made just like another ; full reproduction or transcription".
What the word "copy" in section 14(2) therefore requires is that it must be a full reproduction of the original and that it should be accurate or true.
When a document is an accurate or true and full reproduction of the original it would be a copy.
In the present case it is not in dispute that what was produced by Sri Dildar Hussain was a true or accurate and full reproduction of the original.
It was therefore a copy of the original, and the 846 only question that remains is whether it was signed, for if it was signed, it would be a signed copy.
This brings us to the meaning of the word "sign" as used in the expression "signed copy".
In Webster 's New World Dictionary, the word "sign" means "to write one 's name on, as in acknowledging authorship, authorising action etc.
" To write one 's name is signature.
Section 3(56) of the General Clauses Act, No. 10 of 1897, has not defined the word "sign" but has extended its meaning with reference to a person who is unable to write his name to include "mark" with its grammatical variations and cognate expressions.
This provision indicates that signing means writing one 's name on some document or paper.
In Mohesh Lal vs Busunt Kumaree(1), a question arose as to what "signature" meant in connection with section 20 of the Limitation Act, No. IX of 1871.
It was observed that "where a party to a contract signs his name in any part of it in such a way as to acknowledge that he is the party contracting, that is a sufficient signature".
It was further observed that the document must be signed in such a way as to make it appear that the person signing it is the author of it, and if that appears it does not matter what the form of the instrument is, or in what part of it the signature occurs.
or?,, We accept these observations and are of the opinion that so long as there is the signature of the arbitrator or umpire on the copy of the award filed in court and it shows that the person signing authenticated the accuracy or correctness of the copy of the document would be a signed copy of the award.
It would in such circumstances be immaterial whether the arbitrator or umpire put down the words "certified to be true copy" before signing the copy of the award.
If anything, the addition of these words (namely, certified to be true copy) would be the clearest indication of the authentication of the copy as a true copy of the award, which is what section 14(2) requires, so long as the authentication is under the signature of the arbitrator or the umpire himself.
In the present case, the document was sent by the umpire along with a letter forwarding it to the court.
In the letter it was stated that he was sending the award only signed and certified by him.
Then turning to the document we find that it begins with the words "now I hereby reproduce a true copy of the said award which is as follows" and this is signed by Sri Dildar Hussain, the umpire.
Then follows the copy of the award, at the end we find the words "certified as correct copy of the award dated the 27th May, 1961 ".
Underneath appears the signature of Sri Dildar Hussain, the umpire.
Clearly therefore the document filed is a true or accurate and full reproduction of the original award and it bears the signature of the umpire, Sri Dildar Hussain, and thus is a signed copy of the award.
(1)(1881)1.L.R.6Cal.340.
847 The fact that the umpire wrote the words "certified as correct copy of the award dated the 27th May, 1961" above his signatures does not in our opinion make any difference and the document it still a signed copy of the award.
If anything, these words show that document filed is a true copy of the award and as it bears the signature of the umpire, it is a signed copy thereof.
It may be added that the words "now I hereby reproduce a true copy of the said award which is as follows" which appear at the beginning of the document and which are signed by the umpire Sri Dildar Hussain also in our opinion are sufficient to show that what was produced in court was a signed copy of the award as required by section 14(2).
In this view of the matter, it is unnecessary to consider the alternative argument raised on behalf of the appellant.
We therefore allow the appeal and set aside the orders of the courts below and, holding that a signed copy of the award has been filed as required by section 14(2), direct that further proceedings will be taken in the matter as required by law by the Subordinate Judge in whose court the signed copy of the award was filed.
Costs of this Court will abide the final result.

summary:
The appellant entered into a contract with the, Union of India for the construction of certain railway bridges.
On disputes arising the matter went to arbitration and then to an umpire.
After the umpire had made his award the appellant filed an application under section 14 of the Indian , praying that the umpire be directed to file the award or a signed Copy thereof in the terms of section 14(2).
The umpire filed in the Court a copy at the top of which he wrote : "now I hereby reproduce a true copy of the said award which is as follows.
" At the end of the copy of the award he wrote : "Certified as correct copy of the award dated 27th May 1961.
" Under this the umpire 's signature appeared.
It was objected by the Union of India before the court that the copy of the award so filed was not a "signed copy" of the award as required by section 14(2) but only a "certified copy".
The objection was upheld by the court and the appellants application for passing a judgment in terms of the award was dismissed.
A revision petition before the High Court failed.
The appellant then came to this Court by special leave.
HELD : When a document is an accurate or true, and full reproduction of the original it would be a copy.
In the present case what was produced by the umpire was a true accurate and full reproduction of the original.
It was therefore a copy of the original.
[845 H] It was also a signed copy because it bore the signature of the umpire.
A document must be signed in such a way as to make it appear that the person signing it is the author of it, and if that appears it does not matter what the form of an instrument is, or in what part of it the signature occurs.
The fact that the umpire wrote the words "certified as correct copy of the award dated the 27th May 1961" above his signature did not make any difference and the document was still a signed copy of the award.
If anything these words showed that the document filed was a true copy of the award.
[846 D, H; 847 A B] Mohesh Lal vs Busunt Kumaree, I.L.R. (1881) VI Cal.
340, relied on.