judgement:
Civil Appeal Nos.
1491 and 1693 of 1971.
Appeals by Special Leave from the Judgment and order dated the 13th January 1971 of the Calcutta High Court in I.T. Reference No. 192 of 1966.
K. Kay and D. N. Gupta, for the Appellant in CA No. 1491/71 for respondent in C.A. 1693/71.
Hardayal Hardy, B. B. Ahuja and section P. Nayar for Respondent in CA1491/71 and for Appellant in 1693/71.
The Judgment of the Court was delivered by KHANNA, J.
This judgment would dispose of two cross civil appeals Nos. 1491 and 1693 of 1971 which have been filed by special leave by the assessee M/s Tea Estate India (P) Ltd. and the Commissioner of Income tax West Bengal respectively against the judgment of the Calcutta High Court answering the following question referred to it under section 66(1) of the Indian Income tax Act 1922 (hereinafter referred to as the Act) partly in favour of the assessee and partly in favour of the revenue: Whether on the facts and in the circumstances of the case the balances in the under noted accounts are includible in the accumulated profits within the meaning of section 2(6A)(c) and if so to what extent? 148 Dibru Darang Taikrong Tea Tea Co. Ltd. Co. Ltd. Rs. Rs. Land A/o 19,30,374, 10,11,216/ Profit & Loss Account 16,69,285/ 18,73,125/ General Reserves and liabilities for taxation 3,50,799/ 2,243/ Reserve created on writing up the value of the assets of the ten estates 15,69,828/ 58,772/ The matter relates to the assessment year 1956 57, the corresponding accounting year for which ended on June 30, 1955.
The assessee company held 52,350 shares out of the total issued shares of 54,600 in Dibru Darang Tea Co. Ltd (hereinafter referred to as DDT Co.) and 22,998 shares out of the total issued shares of 23,000 in Taikrong Tea Co. Ltd. (hereinafter referred to as TT Co.).
DDT Co. and TT Co. were tea companies growing, manufacturing and selling tea.
For this purpose, those two companies owned large tea estates consisting of land, building, plant and machinery.
On August 11, 1947 the said tea companies sold their entire lea estates, including all the assets, to Brooke Bond Estate India Ltd. As a result of these sales, DDT Co. received a surplus of Rs. 17,l8,081 over the book value of its assets.
Likewise, TT Co. received a surplus of Rs. 13,11,339 over the book value of its assets.
The amount relating to the land of the tea estate of DDT Co. was Rs. 19,30,374 and that relating to TT Co. was Rs. l0,11,216.
DDT Co. realized Rs. 2,12,313 less than their book value on the sale of the other assets.
It may also be mentioned that in 1936 the assets of the two companies were revalued.
On such revaluation the hook value of the assets of DDT Co. appreciated by an amount of Rs. l 5,69,828 and Those of TT Co. by an amount of Rs. 58,772.
These amounts were carried to the respective reserves of the two companies.
DDT Co. and TT Co. went into voluntary liquidation on october 29, 1954.
On account of the liquidation of the two companies, the assessee company became entitled to receive Rs. 57,69,186 out of the total distributable assets of DDT Co. and Rs. 36,53,453 out of the total distributable assets of TT Co. During the relevant accounting period the assessee received Rs. 52,23,786 and Rs. 34,15,500 (in all Rs. 86,39,286) from the liquidators of DDT Co. and TT Co. respectively.
On behalf of the assessee company, it was urged before the lncome tax officer that apart from Rs. 2,47,921 which had been assessed as capital gain under section 12B of TT Co. for the assessment year 1949 SO, no other amount could be included in the computation of the accumulated profits available for distribution under section 2(6A) (c) of the Act.
The Income tax officer rejected this 149 contention and allowed only a deduction of Rs. 27,000 being payment on share premium account and included the balance of Rs. 86,11,986 (grossed up to Rs. 91,64,075) as the assessees dividend income under section 2(6A)(c) of the Act.
On appeal the Appellate Assistant Commissioner allowed a further deduction of Rs. 1,77,964 representing pre incorporation advances in the case of TT Co. The Appellate Assistant Commissioner rejected all other contentions of the assessee including the contention that 60 per cent of the amounts appearing under the head balance of appropriation account in the balance sheets as also the general reserves and liabilities for taxation appearing in the books of the two tea companies should be excluded from the computation of accumulated profits.
On further appeal before the Tribunal two main contentions were raised on behalf of the assessee: (1) that in determining the quantum of the accumulated profits the surplus arising from sale of land of the two tea estates as also the reserves created on the revaluation of the agricultural assets should be left out and (2) that only 40 per cent of the balance in the profit and loss account and the general reserves of the two companies should be included as only 40 per cent of these amounts had been assessed under the Act.
Regarding the first contention the Tribunal observed: In the case before us since the lands of the two tea estates were utilised for producing and selling the tea it can not be said that the said assets could be termed as land from which the income derived was agricultural income.
At best what can be said is that barring 40% of such income the balance was agricultural income.
We must, therefore hold that only 40% of the profits derived on sale of the land of tea estates as also the reserves created on writing up the value of the assets of the land of the tea estates was referable to land from which income derived was agricultural income.
To that extent therefore the total of the profit on sale of the land of tea estates and reserves created on revaluation were to be excluded in computing the accumulated profits for finding out the section 2(6A) (c) dividend.
Dealing with the second contention of the assessee the Tribunal observed that the ratio of 60:40 as laid down in rule 24 of the Income tax Rules 1922 could not be applied for finding out the proportion of accumulated profits in a tea business and that profit whether capitalised or did not admit of such a bifurcation for determination of accumulated profits.
General and taxation reserves having been included in the pool of distributable surplus could.
in the opinion of the Tribunal only be held to be excess provisions out of the profit of the two tea companies which were not required to be paid out in discharge of any liability.
The Tribunal accordingly held that balance left over after making the deduction indicated above from the total distributable pool, was accumulated profits of the two tea companies 150 and the share received by the assessee on distribution of such accumulated profits was dividend within the meaning.
Of section 2(6A) (c) of the Act.
Accumulated profits in the case of two tea companies immediately before the liquidation were determined as under: "DDT Co. 40% of (Rs. 19,30,374+Rs.
15,69,828)+the whole of (Rs. 16,69,285+Rs.
3,50,799)=Rs.
34,20,165.
TT Co. 40% of (Rs. 10,11,216 Rs. 58,772) the whole of (Rs. 18,73,125 + Rs. 2,243)=Rs.
23,03,363".
The Tribunal accordingly came to the conclusion that out of the distributable surplus an amount of Rs. 57,23,528 was attributable to accumulated profits and hence was dividend within the meaning of section 2(6A) (c) of the Act.
The assessee s appeal was allowed to that extent.
Both the assessee company as well as the Commissioner applied to the Tribunal for reference of certain questions arising from the order of the Tribunal to the Court.
The Tribunal thereupon referred the question reproduced above in a composite reference to the High Court.
Dealing with items 1 and 4 mentioned in the question the High Court held as under: "As both the learned counsel agree that the same treatment should be given to the reserves created on writing up the value of the assets as to the excess and/or profit realised on sale either of the lands or of the assets or the tea estates it should be sufficient to consider the case of such excess arising from the sale and or transfer by the two tea companies.
Whether the excess of the price realised over the book value of the lands as shown in the land account balance and as envisaged in the question referred or whether the excess on the sale of the entire tea estates over the book value of the assets are to be considered for inclusion in the accumulated profits under section 2(6A)(c) there can be no doubt that such excess or profit is a realisation of capital rise and not profit of the business.
As according to the decision of the Supreme Court in Short Brothers '(1) case unless such appreciation has been included in capital gains distribution thereof by the liquidator will not be deemed to be divided for the purpose of the Income tax Act we have to find out how much of such excess or profit has been included in the computation of capital gains of the two tea companies on the transfer of the tea estates in 1947.
In his order the Appellate Assistant Commissioner has recorded that for the assessment year 1949 50 the assessment order on Dibru Darang Tea Company Ltd. showed that the com 151 pany was not liable to capital gains tax while the assessment order for that year of M/s.
Taikrong Tea Co. Ltd. showed that a sum of Rs. 2,47,921 was brought under tax under the head of Capital gains.
It must therefore be held that it is only the sum of Rs. 2,47,921 which could be included in accumulated profits for the purpose of determining the dividend under section 2(6A) (c).
Mr. B. L. Pal contended that there was no conclusive finding in the order of the Appellate Assistant Commissioner as to the capital gains of the two tea companies in respect of the transfer of the tea estates and the proper determination of capital gains payable in respect thereof had not been established.
We are unable to accept this contentions.
Accordingly so far as the first and last items in the referred question are concerned the answer would be that only the sum of Rs. 2,47,921 was includible in the accumulated profits within the meaning of section 2(6A) (c) .
Regarding items 2 and 3 in the question the finding of the High Court was as under: The balance in the profit and loss account is arrived at after deducting or providing for all out goings including the estimated liability for both income tax and agricultural income tax.
Therefore the balance carried to the balance sheet is pure profit that is to say the commercial profit of the undertaking.
We are unable to accept Mr. Rays contention that each item in the balance sheet contains in itself the proportion of the income attributable to the business activity and to the agricultural activity of the tea companies and must be distintegrated into its component parts at the time of inclusion in dividends.
Tea companies carry on a business activity though such activity may include agricultural operation as part thereof.
Overall excess of incomings over out goings as reflected in the balance of profit and loss account, would represent the commercial profits of the business undertaking of the tea companies and though a bifurcation is necessary for the purpose of assessment and imposition of tax no further bifurcation could be made once the balance of profit was finally determined of such balance it could not be said that a part represents agricultural income and the rest represents income from business.
So far as the general and taxation reserve is concerned, Mr. Ray agrees that such reserve is usually built up out of the profits to meet future liabilities but contends that is in this case also such reserve had been built up of 60 per cent.
agricultural profit such reserve should again be disintegration into the component parts.
We are entirely unable to accept this contention As pointed out by Mr. Pal the Supreme Court in Girdhar das 's(2) case advocated disintegration of the amount distributed into two components namely, capital and accumulated profits.
There is no scope for further distintegration of profits into its component parts.
(1) 63 I.T.R.300 152 The amounts mentioned in terms 2 and 3 of the question were accordingly held to be wholly includible in the accumulated profits within the meaning of section 2(6A) (c) of the Act.
Before dealing with the contentions advanced by the counsel for the parties it would be convenient to set out the relevant provisions of the Act.
section 2(1) defines agricultural income to mean, inter alia "(a) any rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in the taxable territories or subject to a local rate assessed and collected by officers of the Government as such; (b) any income derived from such land by (1) agriculture or (ii) the performance by a cultivator or receiver of rent in kind of my process ordinarily employed by a cultivator or receiver of rent in kind to render the produce raised or received by him fit to be taken to market, or (iii)the sale by a cultivator or receiver of rent in kind of the produced raised or received by him in respect of which no process has been performed other than process of the nature described in sub clause (ii); (c). . "Capital asset in section 2(4A) means property of any kind held by an assessee whether or not connected with his business profession or vocation but does not include (1) . . . . (ii) . . . .
(iii)any land from which the income derived is agricultural income.
"Dividend" according to section ? (A) (c) includes any distribution made to the shareholders of a company on its liquidation to the extent to which the distribution is attributable to the accumulated pro fits of the company immediately before its liquidation whether capitalised or not.
The explanation to clause 2(6A) reads as under: "Explanation.
The expression `accumulated profits, wherever it occurs in this clause shall not include capital gains arising before the 1st day of April 1946 or after the 31st day of March 1948, and before the 1st day of April 1956.
"Income" has been defined in section 2(C6) to include dividend.
Total income has been defined in section 2(15) to mean the total amount of income profits and gains referred to sub section (1) of section 4 computed in the matter laid down in the Act.
Section 3 153 provides inter alia that income tax shall be charged for a year in respect of the total income of the previous year of every individual and company.
Section 4 relates to total income of a previous year of any person.
According to clause (8) of sub section (3) of that section agricultural income shall not be included in the total Income chargeable to tax under section 3 of the Act.
Section 6 enumerated the six heads of income to be: (1)salaries (ii) interest on securities (iii) income from property.
(iv) profits and gains of business profession or vocation (v) income from other sources and (vi) capital gains.
According to section 12(1A) income from other sources shall include dividends.
Under section 12B as it stood at the relevant time capital gains tax shall be charged in respect of any profits or gains arising from the sale exchange relinquishment or transfer of a capital asset affected after the 31st day of March 1946 and before the 1st day of April 1948 and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange relinqishment or transfer took place.
Section 59 empowers the Central Board of Revenue subject to the control of the Central Government to make rules for carrying out the purposes of the Act.
Indian Income tax Rules 1922 were framed in pursuance of that section.
Rule 23 of the said rules provides for assessment of income which is partly agricultural and partly income chargeable to income tax.
Rule 24 with which we are concerned reads as under: "Income derived from the sale of tea grown and manufactured by the seller in the taxable territories shall be computed as if it were income derived from business and 40 per cent.
Of such income shall be deemed to be income profits and gains liable to tax. " There is a proviso to this rule but it is not necessary to reproduced the same.
In appeal filed by the assessee company, its learned counsel Mr. Ray, has contended before us in respect of items 2 and 3 of the question that 60 per cent of the amounts mentioned in these items were agricultural income and as such were not income for the purpose of the Act.
To that extent it is urged the amounts did not constitute accumulated profits within the meaning of section 2(6A)(c) of the Act.
The High Court according to the contention was in error in holding to the contrary.
The above contentions has been controverted by Mr. Hardy on behalf of the revenue and in our opinion is not well founded.
In Inland Revenue Commissioners vs George Burrell(1) it was held that super tax was not payable on the undivided profits of past years and of the year in which the winding up of a company occurred were distributed among the shareholders, because in the winding up (1) 154 they had ceased to be profits and were assets only.
It was further observed in Burrell 's case that the only thing the liquidator of a company in liquidation may do is to turn the assets into money and divide the money among the shareholders in proportion to their shares.
Surplus of trading profit made in a particular year are distributable rateably among all the shareholders as capital and it is not right to built up the sums received by the shareholders into capital and income and thus disintegrate the sums received by the shareholders subsequently into component parts based on an estimate of what might possibly have been done but was not done.
As the Indian Companies Act 1913.
closely followed the scheme of the English Companies Act and the view expressed in Burrell 's case (supra) applied to the Indian Income tax Act a special definition of "dividend" was devised by the legislature by the enactment of the Income tax (Amendment) Act 7 of 1919 with a view to undo the effect of Burrell 's (supra) case.
Clause (c) of sub section (6A) as originally enacted stood as follows: " `Dividend ' includes (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 the Finance Act 1955 the proviso to sub clause (c) of clause (6A) was omited.
There was a further amendment made by the Finance Act,.
1956 and clause (c) to the amended section read as follows: " `Dividend ' includes (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.
As a result of the above distribution which is attributable to the accumulated profits of the company immediately before its liquidation is deemed to be dividend and as such liable to be taxed.
Sixty per cent of the profits made by DDT Co. and TT Co. by sale of tea grown and manufactured by them were not liable to be taxed under the Act in view of rule 24 of 19?.2 Rules because they were to be treated as agricultural income of these two companies.
The question with which we are concerned however is that even though 60 per cent of the said profits constitute agricultural income in the hands of DDT Co. and TT Co, once these profits got accumulated with those two companies did they answer to the description of accumulated profits as used in the definition of dividend in section 2(6A) (c) ? The answer to this question in our opinion should plainly be in the affirmative.
We were unable to accede to the contention of Mr. Ray that as only 40 per cent of the profits which got 155 accumulated were liable to be taxed in the hands of DDT and TT companies under the Act and 60 per cent were not liable to be so taxed only 40 per cent of the amount of accumulated profits should be treated as accumulated profits for the purpose of section 2(6A) (c).
The acceptance of the contention would necessarily postulate reading in section 2(6A) (c) the words accumulated profits as are liable to be taxed under the Act .
The words as are liable to be taxed under the Act are not there in the definition and it would not in our opinion be permissible to so construe the clause as if these words were a part of that clause.
There is also nothing in the language or context of that clause as would warrant such a construction.
Accumulated profits would remain their character as such even though a part of them were not taxed as profits under the Act.
It is pertinent to mention in this connection that we are concerned in the appeal of the assessee with items 2 and 3 of the question which relate to accumulated profits in the ordinary sense and not to accumulated profits arising out of capital gains which are dealt with by the explanation to section 2(6A) of the Act.
There can also be no doubt that whatever amount has been distributed to the assessee company and is attributable to accumulate profits in items 2 and 3 mentioned in the question would constitute dividend in the hands of the assessee and the whole of the amount so received would be liable to be taxed as such.
This is clear from the Constitution Bench decision of this Court in the case of Mrs. Bacha F. Guzdar, Bombay vs Commissioner of Income tax Bombay(1).
The assessee in that case was a shareholder in certain tea companies.
60 per cent of whose income was exempt from tax as agricultural income under section 4(3) (viii) of the Indian Income tax Act.
The assessee claimed that 60 per cent of the dividend income received by her on her shares in those companies was also exempt from tax as agricultural income.
This claim was rejected and it was held that the dividend income received by the assessee was not agricultural income but was income assessable under section 12 of the Act.
Agricultural income as defined in the Act according to that decision was intended to refer to revenue received by direct association with the land which is used for agricultural purposes and not by indirectly extending it to cases where that revenue or part thereof changes hands either by way of distribution of dividends or otherwise.
Mr. Ray has assailed the correctness of the view taken by the Constitution Bench of this Court in the above decision and has submitted that the matter should be reconsidered.
Apart from the fact that this Bench is bound by the decision of the Constitution Bench we find nothing in that decision as warrants reconsideration of the matter.
We would therefore uphold the answer given by the High Court in respect of items 2 and 3 of the question.
In appeal by the Commissioner of Income tax his learned counsel Mr. Hardy has submitted in respect of items 1 and 4 that as 60 per cent of the income from the land held by DDT Co. and TT Co. was to be treated as agricultural income in view of rule 24 of 1922 Rules (1) 156 the said land to the extent of only 60 per cent would not answer to the description of capital asset as defined in section 2(4A) of the Act.
As 40 per cent of the income derived from that land was not agricultural income 40 per cent interest in that land according to the submission should be held to be capital asset for the purpose of section 2(4A) of the Act.
Forty per cent interest in that land it is further submitted.
would not be taken out of the definition of capital by virtue of clause (iii) of section 2(4A) and any appreciation in the value of the land to the extent of 40 per cent would constitute capital gain.
As such gain arose during the period from April 1 1946 to March 31 1948 the same according to Mr. Hardy would answer to the description of accumulated profits as mentioned in the explanation to section (6A) of the Act.
The above contention of Mr. Hardy, in our opinion is not well founded.
Income which is realised by sale of tea by a tea company which grows tea on its land and thereafter subjects it to manufacturing process in its factory is an integrated income.
Such income consists of two elements or components.
One element or component consists of the agricultural income which is yielded in the form of green leaves purely by the land over which tea plants are grown.
The second element or component consists of non agricultural income which is the result of subjecting green leaves which are plucked from the tea plants grown on the land to a particular manufacturing process in the factory of the tea company.
Rule 24 prescribes the formula which should be adopted for apportioning the income realised as a result of the sale of tea alter it is grown and subjected to the manufacturing process in the factory.
Sixty per cent is taken to be agricultural income and the same consists of the first element or component while 40 per cent represents non agricultural income and the same comprises the second element or component.
We are fortified in the above conclusion by two decisions of this Court in the cases of Karimtharuvi Tea Estates Ltd. vs State of Kerala(1) and Anglo American Direct Tea Trading Co. Ltd. vs Commissioner of Agricultural Income tax, Kerala(2).
In the case of Karimtharuvi Tea Estates Ltd. it was observed while dealing with the income derived from the sale of tea grown and manufactured by the seller in the context of rule 24: Of the income so computed 40 per cent is under rule 24 to be treated as income liable to income tax and it would follow that the other 60 per cent only will be deemed to be agricultural income within the meaning of that expression in the Income tax Act.
In the case of Anglo American Direct Tea Trading Co. Ltd. the Constitution Bench of this Court held that income from the sale of tea grown and manufactured by the assessee is derived partly from business and partly from agriculture.
This income Las to be computed as if it were income from business under the Central Income tax Act and the Rules made thereunder.
Forty per cent of the income or com (1) (2) 157 puted is deemed to be income derived from business and assessable to non agricultural income tax.
The balance of 60 per cent of the income so computed is agricultural income within the meaning of the Central Income tax Act.
So far as the lands held by DDT Co. and TT Co. were concerned they yielded purely agricultural income in the shape of green tea leaves.
Forty per cent of the income on sale of tea which was received by DDT Co. and TT Co. was not income from land.
It was income which should be ascribed to manufacturing process to which the green tea leaves were subjected in the factories of those companies.
As the lands held by DDT Co. and TT Co. yielded agricultural income it would allow that those lands did not constitute capital asset as defined in section (4A) of the Act.
Clause (iii) appended to section 2(4A) expressly states that capital asset does not include any land from which income derived is agricultural income .
Any gain arising from the transfer of such land would not constitute capital gain under the Act and consequently would not be liable to be taxed as such.
The distribution; of that amount on the liquidation of the companies would also not partake of the character of dividend.
It may be apposite in this context to refer to the case of First Income tax officer, Salem vs Short Brothers (P.) Ltd. (supra) wherein this Court dealt with the sale of a coffee estate by a company which went into liquidation was held by this Court that the capital appreciation ill respect of the lands for which the income was derived as agricultural income and was not to able in the hands of the company as capital gains would not of distribution be liable to be so taxed as dividend under section 12 of the Act.
We therefore see no reason to interfere in the appeal filed by the Commissioner of Income tax with the answer given by the High Court in respect of items 1 and 4 or the question.
It is the common case of the parties that items 1 and 4 share the same fate.
As a result of the above we dismiss both the appeals.
In view of the divided success we leave the parties to bear their own costs of the appeals.

summary:
The assessee company held certain shares in Dibru Darang Tea Co. Ltd. (D.D.T. Company) and Taikron Tea Company Ltd. (TT Company) .
Both the Companies were companies growing, manufacturing and selling tea and owned large tea estates consisting of land, building plant, machinery etc.
In 1947, both the said companies sold their entire tea estates including all assets to Brooke Bond Estate India Ltd. Consequently DDT Company received a surplus is Rs. 17,18,081/ over the book value of its assets.
The amount relating to the land of DDT Company was Rs. 19,30,374/ and that relaung to the T.T. company was Rs. 10,11,216/ .
Both the companies went into voluntary liquidation in 1954.
On account of the liquidation of the two companies the assessee company became entitled to receive Rs. 57,69,186/ out of the total distributable assets of DDT Company and Rs. 36,53,453/ out of the total distributable assets of T.T. Company.
Section 2(1) defines agricultural income.
Section 2(4A) defines capital asset to mean property of any kind held by an assessee whether or not connected with his business, profession or vocation but does not include any land from which the income derived is agricultural income.
It was defined 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 not.
Explanation provides that expression "accumulated profits" shall not include capital gain arising during certain periods.
The income has been defined by section 2(6C) to include dividend.
Section 2(3)(8) provides that; agricultural income shall not be included in the total income chargeable to tax under section 3 or the Act.
Rule 23 provides for assessment of income which is partly agricultural income and partly income chargeable to income tax.
Rule 24 provides that income derived from the sale of tea grown and manufactured by the seller in the taxable territories shall be computed as if it were income derived from business and 40 per cent or such income shall be deemed to be income, profits and gains liable to tax.
The assessee contended before the Income Tax officer that apart from Rs. 2,47,921/ which had been assessed as capital gain under section 12B of Income Tax Act 1922 in respect of T.T. company, no other amount could be included in the computation of the accumulated profits available for distribution under section 2(6A)(c) of the Act.
The Income Tax officer rejected the claim of the assessee.
On an appeal, the Appellate Assistant Commissioner rejected the main claim of the assessee.
On further appeal the Tribunal held as far as item 1 (land) and item 4 (reserve on revaluation) are concerned that since the lands of the two tea estates were utilised for producing and selling tea it cannot be said that the said assets were lands from which the income derived was agricultural income.
At best, what could be said is that barring 40 per cent of such income the balance was agricultural income.
As far as item 2 (profit and loss a/c) 12 833Sup CI/76 146 and item 3 (general reserve) are concerned, the Tribunal held that the ratio of 60 : 40 as laid down in rule 24 of the Income Tax Rules, 1922 could not be applied for finding out the proportion of accumulated profits in a tea business and that profits whether capitalised or not did not admit of such a bifurcation for the determination of accumulated profits.
The Tribunal held that the general and taxation reserves were accumulated profits and the share received by the assessee company on the distribution of such accumulated profits was taxable as dividend within the meaning or section 2(6A) (c) of the Act.
Both the assessee as well as Revenue approached the High Court in two references arising out of the judgment of the Tribunal.
The High Court held: (1) Regarding item No. 1 and 4 the excess of the prices is not profit of the business, unless such appreciation has been included in the capital gains.
The High Court arrived at certain figures of excess profit which was included in the computation of capital gains and held that only that figure was includible in the accumulated profits within the meaning of section 2(6A) (c).
(2) Regarding items 2 and 3 the High Court held that the balance in the profit and loss account is arrived at after deducting or providing for all out goings including the estimated liability for both the income tax and agricultural income tax.
Therefore, the balance carried to the balance sheet is pure profit, i.e. the accumulated profit.
The High Court negatived the contention that each item in the balance sheet contains in itself the proportion of the income attributable to business activity and to the agricultural activity of the companies or that they must be disintegrated into 6 components parts at the time of inclusion in dividends.
Tea companies carry on a business activity though such activity may include agricultural operation as part thereof.
Overall excess of incomings over out goings as reflected in the balance of profit and loss account would represent the commercial profits of the business undertaking and though in bifurcation is necessary for the purpose of assessment and imposition of tax no further bifurcation could be made once the balance of profit was finally determined.
In appeals filed by both the assessee and Revenue by special leave the assessee contended that 60 per cent of the amounts mentioned in items 2 and 3 were agricultural income and as such, were not income for the purpose of the Act.
To that extent the said amount did not constitute accumulated profits within the meaning of section 2(6A) (c).
Revenue contended that 10% of income derived in respect of item 1 not being agricultural should be held to be capital asset and, therefore, accumulated profits.
Dismissing both the appeals, ^ HELD: (1) Clause 2(6A) (c) provides that dividend shall 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 not.
The proviso is, however, to the effect that only the accumulated profits so distributed which arise during the 6 previous year of the company proceeding the date of liquidation shall be so included.
60 per cent of the profits made by both the companies by sale of tea grown and manufactured by them were not liable to be taxed in view of rule 24.
However, once those profits got accumulated with the two companies they became accumulated profits within the meaning of h. 2(6A)(c).
The contention of the assessee that only 40 per cent of the profits which got accumulated were liable to be taxed and therefore only 40 per cent should be treated as accumulated profit for the purpose of 147 section 2(6)A) (c) cannot be accepted.
I`he assessee wants to add to section 2(6A) (c) the following words: "as are liable to be taxed under the Act" It is not permissible for us to construe the clause by adding those words.
[152 F G, 154 G H, 155 A B] (2) The decision of the case in Mrs. Bacha F. Guzdar Bombay vs Commissioner of Income Tax Bombay 27 I.T.R. 1, followed with approval.
[155 E] (3) The contention of the Revenue that the land in question to the extent of 60 per cent would not answer the description of capital asset, and as 40 per cent of the income derived from that land was not agricultural income 40 per cent interest in that land should be held to be capital asset for the purpose of section 2(4A), is not well founded.
The income which is realised by sale of tea by a tea company which grows tea on its land and thereafter subject is to manufacturing process in its factory is an integrated income consisting of agricultural and non agricultural components.
Rule 24 prescribes the formula which should be adopted for apportioning the income realised as a result of the sale of tea after it is grown and subjected to manufacturing process in the factory.
So far as the lands held by the company were concerned they yielded purely agricultural income in the shape of green tea leaves.
40 per cent of the income on sale of tea which was received by both the companies was not income from land.
It was income which could be ascribed to manufacturing process to which the green tea leaves were subjected in the factories of those companies.
As the lands held by both the companies yielded agricultural income it would follow that those lands did not constitute capital asset as defined in section 2(4A).
Section 2(4A) expressly states that capital asset does not include any land from which income is derived as agricultural income.
Any gain arising from the transfer of such land would not constitute capital under the Act and consequently would not be liable to be taxed as such.
[155H, 156 A D, 157 B D]


judgement:
Appeal No. 42 of 1948.
Appeal against the judgment and decree dated the 21st April, 1943, of the High Court of Judicature at Patna (Fazl Ali C.J. and S.C. Chatterji J.) in First Appeal No. 17 of 1939 arising out of decree dated the 19th July, 1939, of the Subordinate Judge at Puri in Original Suit No. 62 of 1936.
Manohar Lal (G. P. Das, with him) for the appellant.
B.N. Das (Sri Kant Mahanti, with him) for the respond ents.
March 27.
The dispute in this appeal is between the fishermen residing in nine villages of Kills Marichpur, a permanently settled zamindari in the Puri Collectorate (Orissa State) and the Raja of Aul, the owner of seven annas, seven pies, and ten karants share in the zamindari.
The other sharers in the zamindari are defendants 19 to 29.
Within the ambit of the estate flows "Devi Nadi" with its several branches and tributaries.
Three fisheries ' 'Madhur dia, "Marichpurdia" and "Maladia" appertain to this es tate.
The controversy in this appeal concerns the fishery known as the "Madhurdia" fishery.
In the year 1936, three suits, Nos. 62, 63 and 64, were brought by the Raja of Aul against defendants 1 to 18 on behalf of themselves and other fishermen residing in the nine villages of Killa Marichpur for a declaration in re spect of his rights in the three above mentioned fisheries.
All these suits were decided in his favour by the trial court.
The defendants preferred no appeal in suits 63 and 64, with the result that the controversy regarding the two fisheries involved in these two suits stands concluded by the decision of the trial court.
In suit No. 62 of 1936, however, the 433 defendants preferred an appeal to the High Court and it was partially allowed.
The decree of the trial Judge in favour of the plaintiff was modified and it was held that the defendants had exclusive rights as tenants at will to fish in this fishery during the Hilsa season (Margasir to Bai sakh) and that the plaintiff was not entitled to a declara tion or an injunction in respect of that period.
The plain tiff thereupon obtained leave to appeal to His Majesty in Council and that appeal is now before us for decision.
It was alleged in the plaint that the proprietors of Marichpur zamindari are the exclusive owners of the fishery in question and have all along been exercising their right of catching fish in the same sometimes by employing fisher men and sometimes by letting out the fishery to them, that the plaintiff has ever since his acquisition of the zamind ari interest been the owner in khas possession of the fish ery right according to his share in the zamindari, that the defendants fishermen were never in possession of the said fishery, nor have they any right to it, that in the year 1918 they started proceedings under section 145, Criminal Procedure Code, to create evidence of their possession but in spite of those proceedings the plaintiff continued to be in possession of the fishery and has been catching fish by employing fishermen, that by taking advantage of the fact that there are several co sharers in the zamindari and there is mismanagement of the estate, the defendants wrong fully and unlawfully trespassed on the fishery from time to time between May, 1933, and November, 1933, and disturbed the plaintiff in the enjoyment of his right and have caused loss to him and his co sharers by catching large quantity of fish without any leave or licence.
On these allegations, the plaintiff claimed a declaration to the effect that defendants 1 to 18 in their personal and representative capacity have no right or title in the fishery known as "Madhurdia" fishery or to the fishery in the southern por tion of the area recorded as the river block, Risilo and Husgarh.
Prayer was also made for the grant of a perpetual injunction restraining the defendants from 434 fishing in the above fishery and in the above mentioned blocks and for the award of a sum of money by way of damages and on account of price of fish.
, The defendants contested the allegations made in the plaint and asserted that the fishermen of Killa Marichpur including the principal defendants and their ancestors, about 846 persons in all, have all along remained in undis turbed actual physical possession of the fishery known as "Charkhatia" alias "Madhurdia" fishery on a fixed annual rental of Rs. 135 7 0, and have a right to remain in posses sion in perpetuity on payment of that rent; that they have acquired this right in all possible ways, i.e., by grant, custom, adverse possession and easement.
On these pleadings of the parties the trial Judge framed as many as nine issues, the material ones being issues 6 and 7, which are in these terms : "6.
Has the plaintiff any title to the disputed fishery ? 7.
Have the defendants Nos. 1 to 18 acquired any right, by adverse possession, prescription or custom ?" The trial Judge on these issues held that the defendants neither in their personal nor in their representative capac ity had any right or title in the fishery in question and issued a permanent injunction against them from fishing in it.
The claim for damages was disallowed.
It was observed by the learned Judge that the defendants did not claim the right to catch all the fish found in the fishery but that they had confined their claim in respect to Hilsa fish only during the Hilsa season between the months of Margasir and Baisakh (November to April) and that as regards the other varieties of fish found in these waters during the rest of the year they did not assert any right to catch fish.
He also observed that 'the defendants did not deny that the plaintiff was the owner of the zamindari and as such owner of the soil and of the waters of the fishery, but that they claimed a subordinate right, i.e., the right of fishing in the 435 waters belonging to the plaintiff and his co sharers during the Hilsa season to the exclusion of the plaintiff and his co sharers.
In view of these contentions the onus was laid on the defendants to prove their permanent right of fishing in these waters by grant, custom, prescription or adverse possession and it was held that the defendants failed to discharge the onus that rested on them.
Acquisition of the right by grant, prescription and adverse possession was held not provable in law in favour of an indeterminate and fluc tuating body of persons.
The claim for permanent tenancy in the fishery was negatived on the ground that there was no evidence to show that the tenancy came by descent to these 846 persons from the persons who actually took it in the year 1842, or that it was obtained from all the sixteen anna landlords, or that there was any fixity of rent.
It was further said that there was no certainty as to who were the owners of the right, as to the local area over which the right was to be exercised, as to the measure of the right and of the periods during which the right could be exercised and that in these circumstances the defendants ' claim could not be upheld.
The defendants ' contention that under article 47 of the Indian Limitation Act the plaintiff had lost his right was held unsustainable and the plea of custom was ruled out on the ground that the custom alleged would be of an unreasonable kind.
All the questions raised in the trial court excepting the question of custom were canvassed by the defendants before the High Court.
The High Court in a judgment, by no means clear or satisfactory, reached the conclusion that the defendants since the time of their predecessors had all along been fishing in the disputed fishery as of right under a lost grant and that the plaintiff 's story that he had been in enjoyment of the fishery was not true and that the de fendants ' right to fish in the disputed fishery was estab lished.
One would have thought that in view of this finding the plaintiff 's suit would have been dismissed 436 but this did not happen.
The High Court proceeded to find that though from the evidence it appeared that the right was being exercised by the defendants or their predecessors from a very long time, that is to say, from the year 1842, yet there was no evidence to justify the inference that they had got a permanent right.
The defendants ' plea therefore that they were permanent tenants of the fishery in dispute was not upheld.
As regards the defendants ' contention that the plaintiff was bound by the order passed in proceedings under section 145, Criminal Procedure Code, it was found that he not having challenged that order within the prescribed period, his right to khas possession of the disputed fishery except to the extent of five pice share was extinguished under section 28 of the Limitation Act but that his proprie tary right subsisted as it was never denied.
It was further held that the plaintiff 's right to khas possession of this fishery was also extinguished by operation of article 144 of the Indian Limitation Act.
Plaintiff 's evidence that he had been catching fish during the Hilsa season by employing other fishermen was disbelieved and it was held that the defendants had been exercising exclusive right to fish in the disputed fishery during the Hilsa season adversely to the plaintiff and the other co sharers for more than twelve years.
In spite of these findings the High Court reached the somewhat strange conclusion that the defendants acquired by adverse possession a mere tenancy at will and that it could be determined by the entire body of landlords and the plain tiff being only a co sharer could not bring the present suit in his own behalf and it had not the effect of determining the tenancy and hence the plaintiff could not be granted the declaration and the injunction restraining the defendants from fishing during the Hilsa season.
As regards the point raised by the plaintiff that by reason of the change in the course of the river the fishery in dispute was not the same regarding which an order was made under section 145 proceed ings or in which the defendants have been exercising their right, it was held that this contention was without force because 437 the river was identical and the channels, whether old or new, which comprise the Madhurdia or Charikhati fishery, have always formed one connected sheet of water and that fishing in different parts of such a connected sheet of water comprised in the same fishery can hardly be said to be a separate act of aggression so as to disturb the continuity or extent of adverse possession and that the fishermen though a fluctuating body, have unity of interest and pos session and could not be described as several independent trespassers.
As a result of these findings the decree of the trial Judge was modified and the plaintiff was given a permanent injunction restraining the principal defendants from fishing in the disputed fishery except during the Hilsa season (Margasir to Baisakh) during which the defendants were declared to have exclusive right of fishing.
Against the decision of the High Court no appeal was pre ferred by the defendants though they had only been found to be in possession of the fishery in the status of mere ten ants at will.
The plaintiff challenged this decision and contested the finding that the defendants were lawfully in possession of the fishery and could exercise their right of fishing during the Hilsa season exclusively.
The real grievance of the plaintiff seems to be that by the decision under appeal the High Court has declared a fluctuating body of persons tenants at will, and that such a tenancy cannot be determined as its constitution is liable to vary with each birth and death and with influx or efflux of fishermen to and from these villages.
It was argued that the High Court has erroneously found that the defendants were in possession of the fishery and were in enjoyment of the fishing right under a lost grant and that the plaintiff 's right to khas possession of the fishery had been extin guished by operation of articles 47 and 144 of the Limita tion Act read with section 28 of the Act.
It was contended that from the evidence placed on the record the only correct conclusion to draw was that from time to time some fishermen were allowed tot fish in these waters by a number of land lords 438 on payment of rent but that the present defendants were not the descendants of those fishermen who were occasionally granted leave to fish and that those isolated acts of letting the fishery were not connected with one another and from these it could not be inferred that the defendants or their predecessors were in continuous possession of the fishery on payment of a fixed rent and that the present defendants were mere trespassers and had no right to fish in the disputed fishery.
It was further contended that no title of any kind could be presumed to exist in the defend ants to the fishery in suit and on the basis of a lost grant as in this case there was no capable grantee and that even title by adverse possession or prescription could not be acquired by them as they form an indeterminate and fluctuat ing body of persons.
As regards the finding of the High Court that the plaintiff 's suit was barred by article 47 of the Limitation Act and his title to khas possession was extinguished by operation of the provisions of section 28 of the Indian Limitation Act, it was contended that the pro ceedings that took place in the year 1918 were wrongly labelled under section 145, Criminal Procedure Code, and that in substance the order made in those proceedings fell within the ambit of section 147 of the Code and therefore article 47 had no application to the case and the plaintiff was not bound to bring his suit within three years of that order to enforce his right.
It was further contended that the order could only benefit the parties impleaded in those proceedings and the other defendants could not derive any assistance from it, that in any case the order could not bind the plaintiff to the extent of the share purchased by him from co sharers not made parties in those proceedings and that the river having changed its course in the year 1925, the fishery as it stood in 1918 was no longer in existence and in ,the substituted fishery the plaintiff 's right could not be held to have been extinguished by the effect of the order made in section 145, Criminal Procedure Code, proceedings.
The learned counsel for the respondents contended that the defendants had in the status of 439 tenants an exclusive right to fish in the fishery 'and were entitled to remain in enjoyment of it on payment of a fixed rent of Rs. 135 7 0 in perpetuity, that the plaintiff 's right of fishing in the fishery during Hilsa season had become extinguished by operation of article 47 and article 144 of the Indian Limitation Act.
It was denied that by a change in the course of the river, if any, the defendants ' right had in any way been affected.
In order to appreciate the respective contentions of the parties it is necessary to state a few facts which emerge from the documentary evidence produced in the case.
The State of Orissa came under the British rule in the year 1803.
A revenue settlement of the State was made in 1904 05.
From the village note prepared during the settle ment, it appears that Killa Marichpur was Originally owned by one Padmalav Mangaraj and that during the time of his great grandson Balabhadra Mangaraj the estate was sold in auction for satisfaction of debts incurred by him and was purchased by (1) Mohan Bhagat, (2) Chakradhar Mahapatra, and (3) the ancestors of one Haziran Nisa Bibi in equal shares.
From the jamabandi of the year 1842 (Exhibit C) it appears that the jalkor income of Killa Marichpur zamindari at that time was Rs. 135 7 0, and this was being realised from Hari Behera and Brundu Anukul Singh, two fishermen.
It is not clear from this document in what status they were paying this amount and what was the nature of their tenancy.
Exhibit A is a kabuliyat of the year 1845 by Brundu Anukul Singh and Hari Behera in favour of Babu Mohan Bhagat and Bibi Mobarak Nisa, and it shows that these two fishermen took a lease of the fishing right in Devi river on payment of Rs. 135 as rent, from the landlords.
It was stated there in that these fishermen will catch fish from these waters according to former custom and will pay "machdia sarbara" of Rs. 135 in accordance with the instalments.
There is no indication in the kabuliyat that these two persons were executing it in a representative capacity or that the lease taken by them was of a permanent character or 440 that the rent payable was not liable to enhancement in the future.
It was contended on behalf of the defendants that these two persons executed the kabuliyat in a representative capacity and on behalf of all the fishermen who originally resided in four villages of Killa Marichpur and who subse quently came to reside in the nine villages mentioned in the plaint.
The only evidence placed on the record in support of the suggestion and relied upon by the High Court is the statement of D.W. 11 who was born some time in the year 1873, about 28 years after the execution of the kabuliyat and who has no special means of knowledge to depose as to the relationship of persons mentioned in the kabuliyat with the defendants in the present case or to know the capacity of persons who executed the kabuliyat.
It is not possible therefore to hold that the kabuliyat was executed in a representative capacity by these two persons and on behalf of all the persons interested in the present controversy.
There is no evidence on the record to prove the state of affairs of this fishery between the years 1845 and 187 a Reliance was placed by the defendants on a number of rent receipts produced by them in evidence.
The first of these is dated 30th 'March, 1873, and was executed by one of the Mahapatra co sharers on account of the instalment of fishery rent of "Charkhati" paid through Hari Behera and Rama Behera in the sum of Rs. 8 12 0.
All the co sharers were not par ties to this receipt and it is not stated what was the total rent payable for the whole fishery.
On the 11th May, 1875, another receipt was executed by Bibi Masudannisa and Others, co sharers of five anna four pies in the zamindari in favour of Hari Behera and Ananta Behera and others for a sum of Rs. 18.
It seems that different co sharers were giving permis sion to different persons to fish in the fishery on payment of certain sums of money.
There is no evidence whatsoever connecting the receipt of 1873 given by two co sharers to two persons with the receipt given by another set of co sharers to these two persons and it is not possible to say that these payments were made towards a fixed 441 rent of Rs. 135 7 0 payable for the whole fishery.
The state of affairs of this fishery between 1876 to 1893 remains shrouded in mystery as no evidence for that period has been filed on the record.
On the 1st May, 1894, Mohan Bhagat 's descendant gave a receipt to Pandab Behera and Phagu Behera for Rs. 10, which was to be set off against fishery rent.
It is difficult to connect this receipt with the other receipts or to treat it as evidence in support of the de fendants ' case of a permanent tenancy.
Similar receipts by different co sharers in favour of different persons were executed on the 1st May, 1895, 5th May, 1896, 9th May, 1897, and 22nd October, 1899; but in none of those receipts is any mention made of any fixed rental of Rs. 135 7 O for the fishery in respect of the whole year and payable to all the landlords.
A printed rent receipt on behalf of one of the proprietors to Hurshi Behera and Agani Behera of village Alsahi was given on the 22nd October, 1899.
The receipt relates to payment of twelve annas as arrears of fishery rent and in the receipt it is stated that the cash rent payable was Rs. 150.
This receipt, if it relates to the rent payable to all the co sharers, is inconsistent with the defendants ' case that the fishery had been leased out from time immemorial on a fixed rent of Rs. 135 7 0.
On the 23rd August, 1902, a receipt was given on behalf of nine anna seven pie co sharers in the zamindari to Maguni Behera and Ram Behera of Kalia Kona and to Sapani Behera of some other village in the sum of Rs. 83 12 11 stating that the amount of total rent of which Rs. 83 12 11 was the fractional share of these landlords was a sum of Rs. 135 7 0.
It was contend ed on behalf of the defendants that the sum of Rs. 135 7 0 mentioned in this receipt was the identical amount that was mentioned in the jamabandi of 1842 as payable to the zamin dars as income of the jalker and from this entry an infer ence should be drawn that the fishery had been continuously leased for this sum from 1842 to the date of this receipt.
The coincidence relied upon undoubtedly exists, but on that basis it is not possible to draw the reference suggested as such an inference would be 442 of a conjectural nature.
All these receipts are consist ent with the contention of the plaintiff that from time to time different co sharers permitted different fishermen to fish in the fishery on payment of a certain rental.
A re ceipt similar to the one above mentioned was also executed on the 5th March, 1906, by certain co sharers owning eight pies in the zamindari in favour of some fishermen, the annual rent being Rs. 135 7 0.
The "Remarks Column" states that if the rent is more than mentioned therein, the further amount due would be made good.
Same remarks are applicable to this receipt as to the previous one.
The next rent re ceipt is dated 19th April, 1907, and is for a sum of Rs. 168 6 0.
No inference either way can be drawn from this receipt.
On the 21st June, 1912, a receipt was given in favour of twelve persons in respect of rent for the year 1317.
The receipt was given by the nine anna seven pie co sharer in the zamindari but it is not clear how this amount was made up.
On the 4th February, 1914, a receipt was given by an eight pie co sharer in the zamindari to 174 persons, described as tenants and residing in different villages of the zamindari for a sum of Rs. 5 13 6 as rent for the year 1319.
The entry in the "Remarks" column is similar to the receipt above mentioned.
The amount of annual rent is mentioned as Rs. 135 7 0 and it is stated that it is being paid in accordance with a decree of court No. 181.
It is difficult to connect this receipt with the other documents previously discussed.
Another receipt dated 30th March, 1914, was given by nine anna seven pie co sharers in the fishery to twelve persons for the year 1320.
It seems to us that these occasional receipts given to different persons by different sets of co sharers can lead to no definite conclu sion in regard to the rights of the parties.
They are con sistent with the case argued on behalf of the plaintiff that by leave and licence a number of fishermen used to fish in ' the waters from time to time and they do not necessarily lead to the inference of the existence of a permanent tenan cy of the fishery in favour of the defendants on a fixed rent of Rs. 135 7 0.
443 By a registered deed dated 24th May, 1914, the plaintiff for the first time acquired an eight pie interest in the zamindari in the name of Smt.
Mahisthali Patamahadei, his wife, from one Balaram Das Bhagat, a descendant of Mohan Bhagat.
Subsequently he in his own name and sometimes in the name of the Rani purchased some further shares in the za mindari and eventually became the owner of seven anna seven pie and ten kranth share in it.
The acquisition of interest by the plaintiff (Raja of Aul) in the zamindari coincides with the period of the first world war, the aftermath of which was a rise in prices.
Fish which was a cheap commodity and brought no appreciable income to the fishermen or to the owners became a source of considerable income and this circumstance led to disputes between the owners of the fishery and the fishermen.
A number of letters of the years 1914 to 1918 have been proved on behalf of the plaintiff showing that he was deriving income from this fishery.
Similar letters for subsequent periods have also been proved but no regular accounts of the income so realized were produced in the case.
The enhanced income of the fishery created a scramble for its possession between the landlords and the fishermen and there was an apprehension of a breach of peace which resulted in proceedings under section 145, Criminal Procedure Code.
A report was made to the police on the 11th February, 1918, that a dispute had arisen which was likely to cause a breach of the peace between the landlords of Killa Marichpur and twelve fishermen in regard to the possession of Charikhati fisheries in Debi river.
The Magis trate on receipt of the police report issued notice to the parties for the 10th February, 1018, and decided the case on the 10th June, 1918.
From his order it appears that notice was given to all concerned and they were invited to put their respective claims as regards the facts of the actual possession of the fishery in dispute before him.
On behalf of certain co sharers evidence was led to prove that they were in possession of the fishery through one Sundari Behera and other fishermen numbering about 100.
The Rani 444 of Aul who had then eight pie interest in the zamindari as benamidar of her husband led evidence to establish that she was in possession of the fishery through fishermen employed by her agent.
Ram Behera, Hrushi Behera and other fishermen of the second party, twelve in number, led evidence to show that they were in possession of the fishery on payment of rent and that the owners of the zamindari had never been in actual possession of the fishery.
The Magistrate found that this contention was true.
He disbelieved the story of the witnesses produced by the Rani of Aul, and also rejected the testimony of the witnesses produced by other owners.
Some Aul fishermen were produced on behalf of the Rani but their evidence was also not accepted.
The same kind of documentary evidence that has been placed on this record on behalf of the plaintiff was also placed before the Magistrate but it was not accepted by him.
From these proceedings, it further appears that all the sixteen anna owners of Killa Marichpur issued a notice to the second party, the fishermen, for surrendering possession of the fishery with effect from September, 1917, but after service of notice they took no legal steps to eject them from possession of the fishery; on the other hand, they took the law into their own hands and made attempts to take forcible possession of the fishery.
These attempts, however, were unsuccessful.
The result of these proceedings was that the Magistrate found that the fishermen (the second party) were in possession of the disputed fishery and he directed ' the issue of an order declaring their possession until evicted therefrom in due course of law and forbidding all disturbance of such posses sion until such eviction.
This order indicates that though all the landlords were not named as parties in the case, yet all of them had notice of the proceedings and all of them were actually interested in turning out the fishermen from possession by forcible means, and notice had been given to them on behalf of all of them.
It also appears from those proceedings that though one dozen people were named as second party in the case, there were certain other persons also interested in the 445 fishery along with them, but it is difficult to ascertain their number, names and addresses from these proceedings.
Evidence has been led on behalf of the plaintiff to prove that after the determination of these proceedings the plain tiff has been deriving income from this fishery by leasing his right through the agency of fishermen of Aul.
The High Court has not placed any reliance on this evidence and, in our opinion, rightly.
It is not possible to believe that after a successful fight in the criminal court, the fisher men would have allowed the men of the Raja or of the Rani to fish in these waters during the Hilsa season.
Both parties led oral evidence to prove that each party exercised exclu sive right of fishing during Hilsa season in the fishery.
We have been taken through the evidence and after examining it, have reached the conclusion that it is of an unsatisfactory character and valuable rights cannot be decided on its footing.
No steps were taken by the landlords to question the order of the Magistrate within three years from its date as required by article 47 of the Limitation Act.
The land lords, however, refused to receive any rent from these persons after the termination of the proceedings and they have been depositing it in court under the provisions of the Orissa Tenancy Act.
The last purchase by the Raja of Aul of some interest in the zamindari was made in the year 1935 and having acquired by this date a substantial interest in it and having discov ered that the fishery was a paying proposition, he brought this suit in the year 1986 on the allegations set out above and asserted that since about three years the defendants had started disturbing his possession of the fishery in dispute.
In the circumstances mentioned above this assertion cannot be taken seriously.
In order to get out of the effects of the proceedings under section 145, Criminal Procedure Code, he alleged that he had been in possession of the fishery in spite of the proceedings taken under that section and that his possession had only been disturbed recently.
The evi dence on this point was 446 rejected by the High Court and we see no reason to disagree with that finding.
It is now convenient to consider the different points canvassed before us by the learned counsel appearing on behalf of the parties.
We find it difficult to uphold the view of the High Court that the defendants were in posses sion of the disputed fishery under a lost grant.
This doc trine has no application to the case of inhabitants of particular localities seeking to establish rights of User to some piece of land or water.
As pointed out by Lord Rad cliffe in Lakshmidhar Misra vs Rangalal(1) the doctrine of lost grant originated as a technical device to enable title to be made by prescription despite the impossibility of proving immemorial user and that since it originated in grant, its owners, whether original or by devolution, had to be such persons as were capable of being the recipients of a grant, and that a right exercisable by the inhabitants of a village from time to time is neither attached to any estate in land nor is it such a right as is capable of being made the subject of a grant, there being no admissible grantees.
Reference in this connection may be made to a Bench decision of the Calcutta High Court in Asrabulla vs Kiamatulla(2), wherein the law on this subject has been examined in some detail.
In that case the question arose whether the right of pasturage claimed by a whole body of villagers could be acquired by grant, express or presumed.
After an examination a number of English and Indian cases it was held that no lost grant could be presumed in favour of a fluctuating and unascertained body of persons who constitute the inhabitants of a village and that such a right could only be acquired by custom.
The defendants in this case are a fluctuating body of persons and their number increases or decreases by each birth or death or by influx or efflux of fishermen to or from these villages.
From the evidence of D.W. 11 it appears that formerly the Kouts (fishermen) claiming the right to fish were residents of four villages, then some of them shifted to other villages on account of their (1) A.I.R. 1950 P.C. 56.
(2) A.I.R. 1937 Cal.
447 houses being washed away, and settled themselves in other villages.
At the time of the suit they were residing in nine villages.
He further deposed that during the last ten or twelve years there were 600 bohanias and that their families increased, their present number being 846.
It is in evidence that since this evidence was given their number has gone up to 1500.
From the documentary evidence it appears that up to the year 1918 their number was not very large.
Only twelve persons were impleaded in the section 145, Criminal Procedure Code, proceedings and it was said that there were some more interested.
The maximum number given in one or two receipts is 174.
It is again not possible to hold that the fishermen residing in these villages are a corporate body and that being fishermen by profession it has the effect of incorpo rating them.
We find ourselves unable to subscribe to the view of the High Court that the defendants constitute some kind of a unit simply because they are a body having a common interest to fish in this fishery; unless the defend ants fishermen form a corporate body, or it is found that a trust was created for their benefit, such a body of persons could acquire no right by the doctrine of lost grant.
A right to fish from the fishery based on mere inhabitancy is capable of an increase almost indefinite and if the right exists in a body which might increase in number, it would necessarily lead to the destruction of the subject matter of the grant.
Moreover, there could not be a valid grant to a body so incapable of succession in any reasonable sense of the word so as to confer a right upon each succeeding inhab itant.
For the reasons given above, the defendants ' right to remain in possession of the fishery on the basis of a lost grant or on the basis of prescription or adverse possession stands negatived.
All that appears from the evidence is that a number of fishermen from time to time have been exercising the right of fishing with the leave and licence of some of the owners.
This is not sufficient for the acquisition of the right either by 448 adverse possession or by prescription.
Further, no finding can be given in their favour as the evidence does not estab lish that they have been paying uniformly the same amount of rent.
The next finding of the High Court that the landlords have lost their right to khas possession of the fishery in dispute by reason of the operation of article 47 of the Indian Limitation Act is, in our opinion, sound.
The High Court, however, was not right in holding that the order made in the section 145, Criminal Procedure Code, proceedings was not binding on the plaintiff to the extent of five pies share.
Its true scope and effect do not seem to have been fully appreciated.
The order appears to have been made after notice to all the landlords and was brought about by reason of the action of all of them and binds the full sixteen anna interest in the zamindari.
In clear and unambiguous terms the Magistrate declared that the second party were in exclu sive possession of the disputed fishery and that the land lords had no right to disturb their possession and they were directed to bring a suit to establish their right to posses sion.
This they failed to do with the result that the order became final and the right of the landlords to get into possession of the fishery became extinguished.
This order therefore affirmed the defendants ' possession of the fishery on payment of a certain rental.
This right, however, can only be exercised by those who were parties to the section 145, Criminal Procedure Code, proceedings or their succes sors in interest.
It was argued by the learned counsel for the appellant that the proceedings that took place in the year 1918 were in substance under section 147, Criminal Procedure Code, and were wrongly labelled under section 145 of the Code.
We are not able to accede to this contention because the dispute raised in the year 1918 related to possession of the fishery itself and was a dispute ,concern ing any water or the boundaries thereof in the language of section 145, Criminal Procedure Code.
Sub section 2 of section 145 provides that for the purpose of the section the expression "land or water" includes fisheries.
It 449 was then argued that in any case the benefit of the order made under section 145, Criminal Procedure Code, could only be taken by the persons in whose favour that order was made and that it could not operate for the benefit of all the 846 fishermen represented by the eighteen defendants or in favour of all fishermen who would come to reside in these nine villages in times to come.
In our opinion, this con tention has force and the High Court was in error in holding otherwise.
There is no evidence whatsoever to show that besides the twelve persons mentioned as second party in the section 145, Criminal Procedure Code, proceedings who else was represented by them and we are therefore bound to hold that the benefit of that order can only be given to those defendants who are represented by those twelve persons.
The learned counsel for the appellant gave us a list of the persons who were parties in section 145 proceedings and of those out of the defendants who stand in their shoes.
According to this list, defendants 1, 2, 3, 5, 6, 7, 9 and 12 are the persons who themselves or through their predeces sors in interest were parties in the former case and are entitled to the benefit of the result of those proceedings.
All the other defendants, whether impleaded personally in this suit or in a representative capacity, or those whom they represent, are not entitled to take advantage of those proceedings.
The result therefore is that the defendants above mentioned only are entitled to remain in possession of the fishery on payment of a rent of Rs. 135 7 0 per annum till it is enhanced in due course of law or for good cause they lose their right to remain in possession of the fish ery.
In an earlier litigation it has been decided that the right to possession of the fishery for fishing during Hilsa season is not assignable or transferable, it however can be enjoyed by the heirs and successors.
The contention that there has been a change in the course of the river and that the fishery now in dispute is not the same fishery which was in dispute in the proceedings of 1918 cannot be sustained.
We see no reason to differ from the view of the High Court 450 that the change in the course of the river has not in any way affected the defendants ' possession, as the channels, whether old or new, which comprise the Madhurdia or Chark hati fishery form one connected sheet of water.
It is well settled that the fish follow the course of the river and the fishermen follow the fish.
It was then argued that an exclusive right of fishing could not be acquired in respect of a particular kind of fish and during any particular season.
This argument is not tenable in view of section 145, Criminal Procedure Code, proceedings.
Moreover an exclusive right of fishing in a given place means that no other person has a coextensive right with the claimant of the right.
The mere fact that some other person has a right to a particular class of fish in the fishery or that another person is entitled to fish at a certain time of the year does not destroy the right of exclusive fishing in any manner (Vide Halsbury 's Laws of England, Hailsham Edn., Vol. 15, para. 59).
The result is that the appeal is allowed partially, the decree of the High Court is modified and the plaintiff 's suit for a declaration and injunction is decreed as follows: (i) It is declared that the plaintiff is entitled to fish in the disputed fishery except during the Hilsa season (Margasir to Baisakh) during which season defendants 1, 2, 3, 5, 6, 7, 9 and 12 have an exclusive right of fishing in the fishery in respect to Hilsa fish which right they can exercise either personally or with the help of other fisher men, on payment of a rent of Rs. 135 7 0 per year till it is enhanced in due course of law or for good cause they lose their right to remain in possession of the fishery; (ii) The defendants are restrained from interfering with his right of fishing during the months during which the defendants named above have not the exclusive right of fishing; (ii) That defendants other than defendants 1,2, 3, 5, 6, 7, 9 and 12 have no right of any kind whatsoever 451 in this fishery and cannot interfere with the plaintiff 's right.
In the circumstances of the case we will make no order as to costs of the appeal.
Appeal allowed in part.

dataset_name: IN-Abs

summary:
A right exercisable by the inhabitants of a village from time to time is neither attached to any estate in land nor is it such a right as is capable of being made the subject of a grant, there being no ascertainable grantees.
The doctrine of lost grant originated as a technical device to enable title to be made by prescription despite the impossibility of proving immemorial user and since it originated in grant, its owners, whether original or by devolution, had to be such persons as were capable of being the recipients of a grant.
Where all that appeared from the evidence was that the fishermen who were residents of certain villages had been for a long time exercising the right of fishing in certain rivers which flowed through a zemindari with the consent of some of the zemindars: Held, that the fishermen residing in these villages cannot be treated as a corporate body or a kind of unit in whose favour a lost grant could be presumed or who could acquire a right to fish either by adverse possession or by prescription.
Where, however, there were proceedings under section 145 of the Criminal Procedure Code between the zemindars and certain fishermen and the Magistrate found that the fisher men were in possession of the disputed fishery and he di rected the issue of an order declaring their possession until evicted therefrom in due course of law and forbidding all disturbance of such possession until such eviction, and no steps were taken by the zemindars to set aside the order of the Magistrate within three years as required by article 47 of the Limitation Act: Held.
, that so far as the fisher men who were parties to the proceedings under section 145, the order of the Magistrate had become final and they were entitled to remain in possession of the fishery.
An exclusive right of fishing in a given place means that no other person has a co extensive right with the claimant of the right.
The mere fact that some other person has a right to a particular class of fish in the fishery or that another person is 56 432 entitled to fish at a certain time of the year does not destroy the right of exclusive fishing in any manner.


judgement:
iminal Appeal No. 9 of 1955.
Appeal by special leave from the Judgment and Order dated the 26th September, 1951, of the Hyderabad High Court in Criminal Confirmation No. 638/6 of 1951 and Criminal Appeal No. 770 of 1951, arising out of the Judgment and Order dated the 27th June, 1951, of the Court of the Sessions Judge, Osmanabad, in Criminal Case No. 12/8 of 1951.
525 R. Patnaik for the appellant.
Porus A. Mehta and P. G. Gokhale for the respondent.
September 27.
The Judgment of the.
Court was delivered by BOSE J. This is another of those cases in which Courts are compelled to acquit because Magistrates and Sessions Judges fail to appreciate the importance of section 342 of the Criminal Procedure Code and fail to carry out the duty that is cast upon them of questioning the accused properly and fairly, bringing home to his mind in clear and simple language the exact case he has to meet and each material point that is sought to be made against him, and of afford ing him a chance to explain them if he can and so desires.
Had the Sessions Judge done that in this case it is possible that we would not have been obliged to acquit.
The facts are simple.
The appellant Machander was charged with the murder of one Manmatb.
Machander 's brother Gona was also challaned but as he absconded he could not be tried.
The appellant and the deceased and Gona reside in the same village.
There was some ill feeling between the appellant and the deceased and it can be accepted that Gona shared his brother 's sentiments because, so far as the latest cause for enmity goes, Gona is equally concerned; and this also applies to Pandu, the appellants father, and Bhima, another brother.
The causes for enmity are the following.
In or about the year 1947 the appellant appears to have stolen a pair of bullocks and a cart belonoing to the deceased.
The deceased prosecuted him for the theft and also instituted a civil suit for the price of the cart 'and bullocks.
He succeeded in both cases.
The appellant was convicted of the theft and sent to jail.
A decree was also passed against him for Rs. 520 and that decree was duly executed.
We now come to the events immediately preceding the murder.
The appellant and his family took forcible possession of some land belonging to the 526 deceased 's sister Parubai.
She sued the whole family for possession of this land, that is to say, she impleaded the appellant 's father Pandu, the appellant and his two brothers Bhima and Gona.
The last hearing was on 15 12 1950 and the decision was announced on 16 12 1950.
It was in Parubai 's favour.
The deceased conducted this litigation on behalf of his sister.
He was present in Court on the 15th and was present at Parenda, where the Court is situate, up to 3 P.m.
on the 16th, the day the decision was announced.
That was the last that was seen of him.
These facts are said to be the cause of the ill feeling.
But, as the facts themselves indicate, a similar cause for enmity (though not to the same degree) could be assigned to the father and the other brothers; equally, they had similar opportunities.
The movements of the appellant have been traced to Parenda and back but not the movements of the rest of the family.
So it is not shown that they had no similar opportunity to murder.
It can however be accepted that cause for enmity on the appellant 's part is established.
It is proved that the deceased went to Parenda on the 15th for the last hearing of the case and that he was also there on the 16th up to 3 p.m.
It is also proved that the appellant was in Court on the 15th and that he was in Parenda on the following day.
It can be accepted that both the deceased and the appellant were present in Court at the same time on the 15th and that therefore the appellant knew that the deceased had attended the Court that day.
But there is no proof that the two met each other or that either knew about the movements of the other on the 16th.
All we know is that both went to see their respective pleaders at different places and times and learned the result of the case.
Four or five days after the case, the appellant came home but not the deceased.
The deceased 's son Shantiling (P.W. 10), who knew that the appellant bad also gone to Parenda for the case, asked him where his father was.
The appellant said that the father had not attended court.
This made the son 527 anxious, 'so he went to Parenda to make enquiries.
The pleaders there told him that his father had attended court on the 15th and that he was in Parenda till,3 P.m. on the 16th.
Shantiling (P.W. 10) immediately informed the police that his father was missing and gave them a description of him and also a list of the things he was wearing and a description of the horse he was riding.
This was on the 26th.
Three days later, on the 29th, he lodged a regular complaint and said that he was afraid his father had been murdered and said that he suspected the appellant and his brother Gona.
The appellant was arrested the same day and after his arrest he led the police and Panchas to a place where blood stained earth and grass were found and a bloo dstained stone, also some of the articles which Shantiling (P.W. 10) had described to the police on the 26th, namely pieces of a silver linga, two silver kadas, a silver spike and a white gilt button.
All except the kadas were found to be stained with human blood.
About 25 paces from here the appellant pointed out another place where the corpse of the deceased was found to be buried.
Pearl ear rings and a kardoda of yarn with three iron keys were still on the body.
They were all stained with human blood and are proved to have belonged to the deceased.
On the 1st of January 1951 the appellant took the police and the Panchas to a place where two saddle straps and two iron stirrups were buried.
One of the stirrups was stained with human blood.
On the 3rd the reins of the horse and the horse itself were discovered but this discovery was not at the instance of the appellant.
Except for the confession, which has been excluded, this is all there is against the appellant.
The question is whether that is enough to bring guilt home to him.
Stated briefly, the circumstances are 1.
That the appellant knew that the deceased had attended the Court at Parenda on the 16th and that he had seen him there but when questioned about it he told a lie.
67 528 In passing it is to be observed that this is not the .lass of case in which an accused person is last seen with a murdered man within a few hours of the murder.
Though the deceased and the appellant were both in Court at the same time, they were not there "together" and in view of the ill will between them and in view of the fact that the deceased went on a horse it is unlikely that they travelled together either going or coming; and the appellant was not with the deceased when he was last seen at 3 P.m. on the 16th.
But it is clear that the appellant wanted to hide something.
2.That thirteen days after the murder he knew that Manmath had been murdered.
He also knew where the murder had been committed and where the body and certain articles belonging to the deceased were hidden.
3.That there was ill will between them, but an ill will that other members of the appellants family might be expected to share.
4.That he had full opportunity to commit the crime, but the same kind of opportunity that the other members of his family also had.
The question is whether these four circumstances, regarded in the background of this case, are sufficient to warrant a conclusion of murder by the appellant.
In our opinion, they are not because the same circumstances could be said to point with equal suspicion at other members of the appellant 's family.
It has to be remembered that the brother Gona was also suspected and that he absconded and could not be traced.
We do not say that he was the murderer and it would be wrong to suggest that in his absence, but if he was, then the appellant 's knowledge of the murder and of the concealment, thirteen days later, might have been derived from Gona, or it might even be that he saw his brother commit the crime and hide the corpse and the articles.
Those are hypotheses that are not unreasonable on the facts of this particular case and they have not been reasonably excluded.
Consequently, we are unable to bold that mere knowledge thirteen days later, coupled with a motive which three others 529 share, and a lie about the deceased 's movements told four or five days after the murder, are enough; and, as that is all that the High Court has based on, the conviction must be set aside.
We have assumed throughout that the identity of the corpse that was discovered on the 29th and the fact of murder have been established.
Those facts were not admitted before us but we need not discuss the point.
It is enough to say that, in our opinion, both facts are satisfactorily proved.
We referred, earlier in our judgment, to a confession which the High Court has excluded.
This was excluded from evidence because the appellant was not questioned about it under section 342, Criminal Procedure Code.
We gather that the High Court thought that that occasioned prejudice though the learned Judges do not say so in so many words.
The appellant was arrested on the 29th and he made many discoveries on the 29th December 1950 and on the 1st, 2nd and 3rd January 1951 but did not confess till the 6th.
Much might have happened in the eight days between his arrest and the 6th, so the High Court was not unjustified in refusing to take that into consideration without bearing the appellant 's side of the story.
We were asked to reopen the question and, if necessary, to remand the case.
But we decline to do that.
Judges and magistrates must realise the importance of the examination under section 342 of the Criminal Procedure Code and this Court has repeatedly warned them of the consequences that might ensue in certain cases.
The appellant was arrested in December 1950 and has been on his trial one way and another ever since, that is to say, for over 4 1/2 years.
We are not prepared to keep persons who are on trial for their lives under indefinite suspense because trial judges omit to do their duty.
Justice is not one sided.
It has many facets and we have to draw a nice balance between conflicting rights and duties.
While it is incumbent on us to see that the guilty do not escape it is even more necessary to see that persons accused 530 of crime are not indefinitely harassed.
They must be given a fair and impartial trial and while every reasonable latitude must be given to those concerned with the detection of crime and entrusted with the administration of justice, limits must be placed on the lengths to which they may go.
Except in clear cases of guilt, where the error is purely technical, the forces that are arrayed against the accused should no more be permitted in special appeal to repair the effects of their bungling than an accused should be permitted to repair gaps in his defence which he could and ought to have made good in the lower courts.
The scales of justice must be kept on an even balance whether for the accused or against him, whether in favour of the State or not; and one broad rule must apply in all cases.
The error here is not a mere technicality.
The appellant appears to have been ready to disclose all on the 29th and make a clean breast of everything and yet the police waited eight days before getting a confession judicially recorded.
That may be capable of explanation but the difficulty of asking an accused person to establish facts of this kind in his favour four and a half years later is obvious.
Without therefore attempting to lay down any general rule, we are not prepared to order a retrial in this case because of the facts that appear here.
The appeal is allowed.
The conviction and sentence are set aside and the appellant is acquitted.

summary:
The appellant was put up on his trial on a charge of murder.
The trial continued for 41/2 years.
His brother who was a co accused absconded.
The evidence against the appellant was circumstantial.
His confession, made 8 days after his arrest, led to certain discoveries but he was never questioned about it by the trial court under section 342 of the Code of Criminal Procedure.
The High Court excluded the confession from the evidence, upheld the conviction but altered the death sentence to one of rigorous imprisonment for life.
The Supreme Court took the view that the High Court was right in excluding the confession from the evidence and the conviction was unsustainable on the evidence on record.
Held, that in the particular facts of the case the omission to examine the accused under section 342 of the Code was no more technicality and it would be unjust to the accused to remand the case for a retrial and the order of conviction and sentence passed on him must be set aside.
That while it is no doubt incumbent on the court to see that no guilty person escapes, it is still more its duty to see that justice is not delayed and accused persons indefinitely harassed.
The scales must be held even between the prosecution and the accused.
That it is imperative that Magistrates and Sessions Judges should remember the duty that section 342 of the Code of Criminal Procedure imposes on them of questioning the accused person fairly and properly telling him in clear and simple language the case he has to meet and the material points made against him so that he can, if he so desires, explain and meet them.


judgement:
Civil Appeal No. 325 of 1970.
From the Judgment and order dated 28th March 1969 of the Madras High Court in Writ Appeal No. 490/68.
K. section Ramamurthy, K. Jayaram and R. Chandrashekhar for the Appellant.
L. N. Sinha, Solicitor General of India, section N. Prasad and Girish Chandra for the Respondents.
The Judgment of the Court was delivered by RAY J.
This appeal is by certificate from the judgment dated 28 March 1469 of the High Court of Madras.
The question in this appeal is whether the appellant in a writ petition can challenge the telephone rates and charges and obtain any relief in that behalf.
The appellant is a retired District Manager (Telephones), Madras.
He filed a writ petition in the High Court for a writ of prohibition, directing the General Manager (Telephones), Madras to forbear from preferred to the Appellate Tribunal but that too proved abortive.
The Tribunal, however, referred the following question of law for the opinion of the High Court: (1).[1966] 487 enforcing the revised Telephone Tariff as per the Indian Telegraph Amendment Rules, 1966.
Under the rules, the rental and call charges were increased by 50 per cent and Trunk call charges by about 30 to 35 per cent.
The petitioner alleged that the telephone system is a public utility service and not a Revenue earning establishment and the charges can be only in the nature of a fee which must be commensurate with the cost of rendering the service.
The petitioner further alleged that the loss incurred by the Government in another establishment service is not a legitimate ground for raising telephone rates.
The Trial Court held that Telephone Tariff was unjust and unreasonable.
The Trial Court allowed the writ petition.
The High Court on appeal held that the High Court could not interfere with the Tariff.
The High Court said that the principal upon which public utility rates regulation as has developed in the United States is not applicable here in our country.
It should be said at the outset that there was some discussion in the judgment on Article 19 but counsel for the appellant properly abandoned any reference to Article 19.
The appellant 's contentions are three.
First, the expression.
"rates" in section 7(2) of the Indian Telegraph Act means rates which are to be determined should be fair, just and reasonable from the point of view of both the consumer and the producer.
Second, the Court has jurisdiction to determine whether the rates filed by the Government are reasonable.
Third, the rates are increased expressly for the purpose of off setting the E losses in the Post and Telegraph Services.
If a proper allocation.
is made according to proper commercial accounting it will be found that there is a wrongful deduction of crores of rupees as revenue expense and unlawful debit.
These errors in the accounting have resulted in reducing the profits earned by the Telephones.
There are three principal reasons why the writ petition is incompetent and not maintainable and the appeal should fail.
First, when any subscriber to a telephone enters into a contract with the State, the subscriber has the option to enter into a contract or not.
If he does so, he has to pay the rates which are charged by the State for installation.
A subscriber cannot say that the rates are not fair.
No one is compelling one to subscribe.
Second.
Telephone Tariff is subordinate legislation and a legislative process.
Under Indian Telegraph Act, section 7 empowers the Central Government to make rules inter alia for rates.
These rules are laid before each House of Parliament.
The rules take effect when they are passed by the Parliament.
Third, the question of rates is first gone into by the Tariff Enquiry Committee.
The Committee is headed by non officials.
The Tariff rates are placed before the House in the shape of Budget proposals.
The Parliament goes into all the Budget proposals.
The rates are sanctioned by the Parliament.
The rates.
therefore, become a legislative policy as well as a legislative process.
488 The Courts have no jurisdiction under Article 226 to go into reasonableness of rates.
These rates are decided as policy matter in fiscal planning.
There is legislative prescription of rates.
Rates are a matter for legislative judgment and not for judicial determination.
The appeal is dismissed.
There will be no order as to costs.
S.R. Appeal dismissed.

summary:
The appellant challenged under article 226 the reasonableness of the increase in the telephone rental and call charges brought about by the Indian Telegraph Amendment Rules.
1966 on the ground that (1) The telephone system is a public utility service and the charges can be only in the nature of a fee which must be commensurate with the cost of rendering the service; and (2) The loss incurred by the Government in another establishment service is not a legitimate ground for raising the rates.
The writ petition was accepted and on appeal the judgment was reversed holding that (1) the High Court could not interfere with the tariff.
and (2 ) the principle upon which the public utility rates regulation as developed in the United States is not applicable in our country.
Dismissing the appeal by certificate, the Court, ^ HELD: (I) The courts have no jurisdiction under Article 226 to go into the reasonableness of rates.
These rates are decided as policy matters in fiscal planning.
There is legislative prescription of rates.
Rates are a matter for legislative judgment and not for judicial determination.
[488A]