judgement:
iminal Appeal No. 16 of 1959.
Appeal from the judgment and order dated November 18, 1958, of the Allahabad High Court in Criminal Reference No. 452 of 1956.
B. V. section Mani, for the appellants.
G. C. Mathur and C. P. Lal, for the respondent.
January 20.
The Judgment of the Court was delivered by AYYANGAR, J.
Having heard the learned Counsel for the appellants in full we did not consider it necessary to call on the respondent since, we were clearly 565 of the opinion that the contentions raised in the appeal possessed no merit.
The legality of a prosecution for contravention of the notification fixing the maximum prices at which certain categories of iron & steel could be sold is the subject matter of this appeal.
The appellants are two in number, related to each other as husband and wife.
The second appellant Sushila Devi is " a Registered Stockholder " and is stated to be the proprietor of the firm " Balwanta Devi Sushila Devi " situated in Sultanpur in Uttar Pradesh and the first appellant Bhagwati Saran, her husband, the manager of the said firm.
There has been some previous history before the present prosecution was initiated but it is sufficient for the purposes of this appeal to start with the report to the Judicial Magistrate, Amathi, by the officer incharge of the Police station, Sultanpur, dated August 20,1955.
It was headed " Offence Section II B Iron &Steel Control Order, 1941" and set out the following facts: " Bhagwati Saran used to work as a Karinda in the firm of Balwanta Devi Sushila Devi and had all along been doing sales and purchases at the shop, and also issued receipts under his signatures.
Shrimati Sushila Devi is the wife of accused Bhagwati Saran and she was the proprietor.
Balwanta Devi has died.
Hence she alone is the proprietor.
In the course of investigation it was also revealed that Bhagwati Saran had from time to time sold some iron bark; on behalf of this firm after receiving price more than the control rate, which he had all along been getting printed, and ' had been getting some other receipts checked fictitiously under the Control Act from the office of the Supply Officer.
An information relating to it was given to Shri P. N. Kapoor, the then D. M., Sultanpur by his munim Kalapnath and on it a case was registered at this police station and the investigation was made. . . .
On the report of the P.P. the S.P. ordered another charge sheet to be submitted under section 8 of Essential Commodities Ordinance of 1955.
Hence this charge sheet under section 11 B 566 (III) Iron and Steel Control of Production and Distribution Order, 1941, read with s ' 8 of Essential Commodities Ordinance of 1955 is sent against both the accused.
The accused persons after being arrested were released on bail.
It is, therefore, prayed.
that the accused persons after being summoned may be punished.
" The report further stated that 4 volumes of cash memos, and 5 volumes of register of Permits were deposited in the Malkhana and would be produced in evidence and followed it with a list of 13 prosecution witnesses.
The Judicial Magistrate registered the case and issued summons to the accused on September 16, 1955, the case being directed to be called on September 30, 1955.
The accused were thereafter examined before the Magistrate under section 364 of the Criminal Procedure Code on March 23, 1956, and on the next day the Magistrate framed a charge against them which read as follows: " That you between 10th January 1952 and 27th February 1952 in Sultanpur sold 11 Cwt.
12 lb.
iron bars on 11th January 1952 %ad 3 Cwt.
iron bars on 18 2 52 and Cwt.
iron bars on 26th February 1952 at the rate of Rs. 21 13 9 per Cwt.
though the controlled rate as notified in Government of India Gazette dated 1st July 1952 for the commodity was Rs. 21 2 4 per Cwt.
and thus you charged Rs. 1 15 0, Rs. 2 2 3 and Rs. 4 4 6 respectively excess and more than the controlled price and thereby committed an offence punishable under section 7 E. section Temp.
P. Act 1946 read with section 1 1 B (iii) of Iron and Steel Control of Production and Distribution Order of 1941 and I hereby direct that you be tried by the said Court on the said charge.
" The two appellants thereupon moved the.
Court of the Sessions Judge, Sultanpur, to revise the order of the Magistrate dated March 24, 1956, framing charges against them under section 7 of the Essential Supplies (Temporary Powers) Act, 1946 Act XXIV of 1946 (referred to hereafter as the Act).
The points urged at that stage were mainly two: (1) That the notification by the Controller under 567 cl.
11 B(1) fixing the maximum prices which were stated to have been contravened not having been filed before the Court, the Magistrate erred in framing a charge, and (2) that the report of the police was not in conformity with the provisions of section 11 of the Act.
The learned Sessions Judge upheld the second of the above contentions which was, that the report made by the police officer did not set out " the facts constituting the offence" as required by section II of the Act.
He rejected the other point put forward by the appel lants but in view of his conclusion that there was a defect in the report which went to the root of the jurisdiction of the Magistrate to take cognizance of the case, he made a reference to the High Court with a recommendation that the charge framed against the appellants be quashed.
This reference was heard by a Single Judge of the High Court, who disagreed with the learned Sessions Judge in his view that the report did not satisfy the requirements of section 11 of the Act.
Before the learned Judge, however, a further point was urged, that section 11 B of the Iron & Steel Control of Production and Distribution Order, 1941 (which will be referred to hereafter as the Control Order) was itself ultra vires.
This further objection was referred to a Division Bench for decision.
The point urged before the learned Judges of the Division Bench was that the power to fix prices vested in the Steel Controller by cl. 11 B of the Control Order was unconstitutional, as violative of the right to carry on business guaranteed by article 19(1) (g) of the Constitution.
The learned Judges answered this point against the appellants and the case thereafter came back before the learned Single Judge for final disposal of the reference by the Sessions Judge.
The learned Counsel for the appellants once again made a submission to the learned Judge regarding the report of the police officer dated August 20, 1955, not satisfying the requirements of section 11 of the Act and pressed before him the view which found favour with the learned Sessions Judge.
In a more detailed judgment, the learned Judge again rejected this contention and dismissed the reference and directed the prosecution to continue.
It is this 73 568 order of the High Court.
of Allahabad that is the subject matter of appeal now before us.
on a certificate granted by that Court.
It would be seen that the only two points in controversy before the High Court were: (1) whether the report of the police officer dated August 20, 1955, contained " the facts constituting the offence " with which the appellants were charged, as to satisfy the requirements of section 11 of the Act, and (2) whether el. 11 B of the Control Order, violated the fundamental right to carry on business guaranteed by article 19(1)(g).
In the grounds of appeal to this Court and in the statement of case, however, the appellants have raised various other grounds and have also filed a petition for leave to urge these additional grounds, We desire to make it clear that grounds additional to those urged before the High Court would not be permitted to be raised before this Court as a matter of course and that petitions for such purpose would not be granted save in exceptional cases.
It has to be noticed that in hearing and dealing with such additional grounds the Court is handicapped in not having the advantage of the opinions of the High Court on the points urged.
It is the correctness of the decisions of High Courts that are sought to be challenged in appeals and it is but proper that the correctness of these judgments should, save in exceptional cases like for instance subsequent legislation or questions of fundamental and general importance etc., be assailed only on grounds urged before such Courts.
Besides, when among the grounds thus urged as in this case is includ ed a violation of article 14, the handicap is accentuated, since the material facts on which the classification might rest could not be properly, investigated or evaluated on the basis of the affidavits filed in this Court without a careful sifting of the facts which a consideration by the High Court would afford.
If in the appeal now before us, we have departed from this rule, and permitted the appellants to urge the additional grounds it was because of the circumstance that the prosecution was pending and learned Counsel submitted that he would seek to sustain his contention 569 regarding the violation of fundamental rights on the materials already on record.
The ground regarding the constitutionality of el.
11 B of the Control Order has been the subject of elaborate consideration by this Court in Union of India vs Messrs. Bhana Mal Oulzari Mal (1) and is, therefore, no longer open to argument.
Learned Counsel for the appellant therefore did not challenge the correctness of the judgment of the High Court upon this point.
Besides the ground based on a non compliance with section 11 of the Act which we shall consider later, learned Counsel urged before us two points with reference to the notification issued by the Steel Controller fixing the maximum prices at which the several categories of iron and steel could be sold by producers and stockholders.
These were: (1) that the notification of the Controller dated July 1, 1952, for the contravention of which the appellants were being prosecuted, was ultra vires the rule making power conferred upon him by el. 11 B(1) of the Control Order, (2) if, however, the notification was held to be within his power, the same was unconstitutional in that it was discriminatory and violated article 14 of the Constitution.
As we have indicated earlier, these grounds of challenge to the validity of the notification were not made in any of the Courts below including the High Court, but for the reasons indicated we permitted learned Counsel to argue them before us.
In order to appreciate the contention presented in the two forms, it is necessary to set out the terms of el. 11 B(1) which conferred power upon the Controller to fix the maximum base prices at which the several varieties of iron and steel could be sold.
Clause 11 B(1) runs: " 11 B. Power to fix prices. (1) The Controller may from time to time by notification in the Gazette of India fix the maximum prices at which any iron or steel may be sold (a) by a Producer, (b) by stockholder including a Controlled Stockholder and (c) by any other person or class of persons.
Such price or prices may differ for iron and steel obtainable from (1) ; 570 different sources and may include allowances for contribution to and payment from any equalization fund established by the Controller for equalising freight, the concession rates payable to each producer or class of producers under agreements entered into by the Controller with the producers from time to time, and any other disadvantages.
" Clause (2) of the Control Order defines " producer as " a person carrying on the business of manufacturing iron or steel ", and " registered producer " as " a producer who is registered as such by the Controller ".
The same clause defines " stockholder " as " a person holding stocks of iron or steel for sale who is registered as a stockholder by Controller " and " Controlled stockholder " as " a stockholder appointed by the Con.
troller to hold stocks of iron or steel under such terms and conditions as he may prescribe from time to time ".
The notification of the Controller dated July 1, 1952, impugned in these proceedings runs in these terms, quoting only the material words: " Under Ministry of Commerce and Industry Notification. . the prices of all items of steel under columns 1, 11 and III in the schedule of Base Prices of the attached price circular No. 1 of 1951 have been increased by Rs. 50/ per ton with effect from 1st July, 1952, except item 19(b), i.e., Billets which has been increased by Rs. 45/ per ton. .
The other General and Special Conditions of sale mentioned in the attached Price circular remain the 571 The price circular dated July 1, 1951, referred to here consisted of eight columns which ran thus: (Price in rupees per ton) Maximum Base Prices at Calcutta, Bombay and Madras Base Materials Column I Column II Column III Price Item For sales by For sales by For sales by Registered controlled all persons No. Producers.
stockholders.
other than Registered Producers and controlled stockholders.
Untested Untested Untested Untested Untested Te sted Rs. Rs. Rs. Rs. Rs. Rs. A Bars, Structural and plates etc.
Bars and Rods 303 333 328 363 348 383 (Rounds and squares below 3" and flats up to and including 5" wide) 2 to 42. . . . . . .
This was followed by General Conditions and Special Conditions which inter alia made provision for the purpose of rounding off inequalities in freight caused by places being situated at varying distances from the place of production etc.
It was the operation of some of these conditions that was urged as giving rise to the discrimination complained of, but it will, however, be convenient to deal with them later, after disposing of the argument regarding the notification not being within the powers of the Controller under cl. 11 B (1).
The 'ground urged in support of the contention that the notification by the Controller was not in conformity 572 with cl. 1 1 B (1) was this: Whereas under cl. 1 1 B (1) the Controller was directed to fix the maximum prices which could be charged by three different classes, viz., (a) Producers, (b) Stockholders including Controlled stockholders, and (c) Other persons, the impugned ,notification departed from this scheme in two respects: (1) The clause contemplated that the notification should apply to all " producers " whereas " producers " other than " Registered producers " were wholly left out by the Controller with the result that no limitation was placed upon the price they could charge, (2) Whereas the clause directed the Controller to include both the types of stockholders" Registered " as well as " Controlled " within the same class and make the same limit of prices applicable to both, the notification had included only " Controlled stockholders " as the second category of dealers and " registered stockholders " had not been specified eo nomine by him.
This meant either that "Registered stockholders " were wholly outside the class of dealers governed by the notification or that they were intended to be included in the residuary class in column III.
On these premises learned Counsel urged that if " registered stockholders " like the second appellant were not within the notification, the prosecution must fail because the maximum prices chargeable by her had not been fixed.
If on the other hand such dealers had been separated from " Controlled stockholders " and included in the residual category, such a classification was not countenanced by cl.
11 B(1) and was therefore ultra vires.
We consider that these submissions are wholly without any substance.
Before the argument that " producers " other than " registered producers " had not been included in the notification can be accepted, it has to be established that there is any such producer.
There is a list of " registered producers " appended to the notification and learned Counsel admitted that he could not say that there were any besides these, who were "Producers" of iron and steel within the meaning of the Control Order.
If therefore, every " producer " was registered, there is no scope for the argument that 573 any persons had been left out and permitted to sell at prices of their choice.
The other part of learned Counsel 's argument that registered stockholders " were not governed by the notification because they were not included in column II thereof and that dealings by them were not subjected to the maxima of prices fixed by it, has only to be stated to be rejected.
The heading of the last column shows that all categories of dealers other than "registered producers.," and " controlled stockholders " were included in the residuary category.
The related contention that the Controller acted outside his powers in differentiating between " controlled stockholders " and " registered stockholders " and in fixing different maxima of prices that could be charged by the two categories of dealers, does not deserve serious consideration either.
If we understand the classification aright, it is like one between wholesale dealers and retailers and it is on this basis that the maximum price that could be charged by the " Registered Stockholders " who fall under column III is fixed at Rs. 20/ per ton above that permissible to " Controlled Stockholders " in respect of the category of steel which we have extracted earlier.
The classification which gives persons in the category of the appellants this advantage is certainly not one regarding which a complaint could be made.
Even when this advantage conferred on registered stock holders by the classification by the Controller was pointed out to learned Counsel for the appellant he persisted in his argument that "registered stock.
holders".
should have been put in column II along with " controlled stockholders " and should have been permitted to sell only at the same maximum prices.
This is sufficient to show that the argument regarding the classification was frivolous and could not have been urged with any seriousness.
This apart, we consider that even on the terms of cl. 11 B (1), the Controller is not prevented from drawing a distinction within the three classes which are specified in it.
The purpose and policy of the enactment is to ensure that an essential commodity like iron and steel is made available, to 574 the consumer at reasonable prices and in the achievement of this objective classification of producers or of other stockholders based upon rational grounds would obviously be within the power of the Controller.
Taking for instance the last class (c) " any other person or class of persons," it cannot be that this group could not be sub classified, if there was any reason or necessity to do so.
If head (c) is susceptible of this interpretation, as it obviously must, we see no reason why head (b) should not be similarly construed.
We have therefore no hesitation in rejecting the contention of learned Counsel, that the notification of the Controller fixing maximum prices is beyond his power, as not warranted by the terms of el.
11 B (1) of the Control Order.
The argument next advanced in challenge of the validity of the notification was, that some of the General Conditions appended to the notification were discriminatory of the class of "registered stockholders" as compared with the " controlled stockholders " invoking for this purpose article 14 of the Constitution.
Learned Counsel did not challenge the legality of the creation of the equalisation fund by the allowances for what is termed as " place extra ".
Learned Counsel, however, urged two matters wherein facilities had been afforded or price increases permitted, to " controlled stockholders" which were denied to " registered stockholders " and that these had been done without any rational basis.
These were: (1) The 3rd of the special conditions for sale by " controlled stockholders " read: "The question of credit facilities will be a matter for negotiation between the customers and the controlled stockholders. " (2) Similarly, Condition 5 also relating to " controlled stockholders" read: ,The base prices are.
for sizes and length available in Size.
Customers requiring material cut to length or size not available in stock will be required to pay cutting and wastage charges agreed between the customers and the stockholders. " Coming now to the special conditions for sale " by persons other than producers and controlled stock holders, " i.e., the conditions which governed sales like those by the second appellant, special condition 1 575 read: " The base rates given in column III above are ex site and apply to sales by all persons other than Producers and Controlled Stockholders. . and are not subject to additional charges for cutting or for credit facilities.
" Neither of these points cutting charges or credit facilities could be held to be discriminatory without a full investigation of the facts and circumstances which led to the imposition of these special conditions.
Differentiation could never per se be discrimination, nor is there any presumption that the adoption of different rules for groups differently situated is unequal treatment violative of article 14.
On the other hand, the presumption is the other way and the party that alleges unjustifiable discrimination should establish it to the satisfaction of the Court.
We consider that there is no material on the basis of which an argument could be sustained that the special conditions to which learned Counsel adverted contained any element of unfair or irrational discrimination to attract article 14.
There was a slight and subsidiary point raised in regard to the allowance of credit facilities and cutting charges.
It was said that these charges were indeterminate and that the Controller having been directed by cl. 11 B (1) to fix definite maximum prices had departed therefrom by permitting increases of undefined amounts.
This argument again has no substance.
The base price for the commodity having been fixed, there are incidentals which by their very nature were incapable of definite quantification, since they were dependent on each individual case.
This contention also we therefore reject.
In passing, we might observe that the matter before this Court in Union of India vs Messrs. Bhana Mal Gulzari Mal (1) related to a prosecution for a contravention of a notification of an earlier date, but in terms identical with the present, except as to the prices, wherein the dealers in the commodity were classified in the same manner as has been done in the notification now before us and with the same general and special conditions.
The respondent then before this Court was " a registered (1) ; 74 576 stockholder " who was being prosecuted for effecting sales in excess of the maximum prices fixed.
The fact that on that occasion no contention was urged challenging the validity of the notification as beyond the powers of the Controller, on the grounds now put forward clearly indicates, that the matters now urged never appeared then, as a possible source of grievance to a party situated similarly as the second appellant.
We hold that the notification fixing the prices together with the conditions appended thereto are valid and enforceable.
The last point that remains to be dealt with, is the contention that the initiation of the prosecution against the appellants was invalid for non compliance with the requirements of section 11 of the Act.
This Section runs : " 11.
Cognizance of offences.
No Court shall take cognizance of any offence punishable under this Act except on report in writing of the facts constituting such offence made by a person who is a public servant as defined in section 21 of the Indian Penal Code (XLV of 1860).
" Learned Counsel for the appellants urged that though two of the conditions specified by the statute, viz., (1) a report in writing, (2) by a public servant were satisfied, the third requisite, viz., that the report should set out the " facts constituting such offence " was lacking and that by reason of this defect the Magistrate could not lawfully take cognizance of the case against the appellants.
In elaboration of this point learned Counsel pointed out that the report did not specify: (a) the date when the alleged sales took place, (b) the quantity sold, (c) the person in question who was the buyer and who paid the excess over the controlled price, (d) the class or category of iron and steel which was the subject of the sale by the appellants, (e) the precise maximum price which had been fixed for such variety, (f) the amount which the appellants were alleged to have received in excess.
The learned Judge of the High Court rejected this contention and, in our opinion, correctly.
In the report which we have already extracted the provision 577 of the law which the appellants were stated to have contravened was set out, and it was there stated that being " registered stockholders " they had sold the goods above the price notified and that they had further, in order to conceal their crime, fabricated evidence.
It is to be noticed that the report is required to contain only " a statement of facts constituting the offence " and its function is not to serve as a chargesheet against the accused.
The function or purpose of the second of the above three requirements of section 11 is to eliminate private individuals such as rival traders or the general public from initiating a prosecution and for this purpose before cognizance is taken the complaint is required to emanate from " a public servant ".
The two further requirements, viz., that the report should be in writing and regarding the contents of the report, are to ensure that there shall be a record that the public servant is satisfied that a contravention of the law has taken place.
If the contravention in question is sufficiently designated in the report, and in the present case that cannot be disputed, since besides a reference to the notification stated to have been contravened, the report states that the accused had effected sales above the maximum prices specified in the notification, the requirements of the section are satisfied.
The details which would be necessary to be proved to bring home the guilt to the accused and which comprised the several matters enumerated by learned Counsel which we have set out, will be details which would emerge at a later stage, when after notice to the accused a charge is framed against them, and of course at the stage of the trial.
They would all be matters of evidence and section 11 does not require the report to be or to contain either the charge sheet or the evidence in support of the charge, its function being merely to afford a basis for enabling the magistrate to take cognizance of the case.
In support of his submission regarding the construction of section 11 reliance was placed on two decisions: Dr. N. G. Chatterji vs Emperor (1) and Rachpal Singh vs (1) 578 Rex (1).
Both these were cited before the learned Judge and we agree with the manner in which he has dealt with and distinguished them.
No doubt, in both these cases it was held that the requirement of r. 130 (1) of the Defence of India Rules (whose language was similar to is.
11 of the Act) as to the Statement of " facts constituting the contravention " was not complied with, but the " reports " dealt with in them, bear no resemblance to the report in the case before us.
In the first of these decisions, the recital in the report was that the accused was guilty of a " prejudicial act to the interest of the public " and " had prejudiced the success of financial measures with a view to the efficient prosecution of the war ".
These words were held to be absolutely vague, even the particular rule or provision of law which was said to have been contravened, not even being mentioned in the report.
The other decision in 50 Criminal Law Journal does not bear any analogy to the present case either.
The report there in question ran: "On the statement of the informant an offence under section 81(2), Defence of India Rules, has been committed for which the charge sheet is being submitted." On this it was held that the facts alleged to constitute the contravention were not set out in the report and that the Magistrate had therefore no jurisdiction to take cognizance of the case.
Obviously this case could not assist the learned Counsel to sustain a contention that the report in the present case was defective.
We consider that the report on which the prosecution was launched satisfied the requirements of section 11 of the Act.
In the result the appeal fails and is dismissed.
Appeal dismissed.

summary:
A police officer made a report under section 11 of the Essential Supplies (Temporary Powers) Act, 1946, regarding a contravention of cl. 11 B(III), Iron and Steel (Control of Production and Distribution) Order, 1941, read with section 8 of the Essential Commodities Ordinance, 1955, to the Magistrate against the appellants who were registered stockholders that they had sold iron bars at prices higher than the controlled rate.
After enquiry the Magistrate framed a charge against the appellant under section 7, Essential Supplies (Temporary Powers) Act, 1946, read with cl. 11 B(III) of the Control Order.
The appellants contended that the charge ought to be quashed on the grounds, (i) that the notification of the Controller fixing the maximum sale price of the several categories of iron and steel was ultra vires the rule making power in cl.
11 B(i) of the Control Order, (ii) that the notification was discriminatory and violated article 14, and (iii) that the complaint could not be taken cognisance of by the Magistrate because the report of the police officer did not set out the facts constituting the offence as required by section II of the Act.
The first two grounds were raised for the first time before the Supreme Court.
Held, that the notification fixing the rates was intra vires cl.
11 B(i) of the Control Order.
The notification did not omit any class mentioned in cl.
11 B(1) from its purview; it included 564 "registered producers" and it was not shown that there were any "producers " other than " registered producers " enumerated in the notification.
The notification governed " registered stockholders " also as they were included in the residuary category of persons other than " registered producers " and " controlled stockholders ".
The notification was not discriminatory and did not offend article 14 of the Constitution.
The notification no doubt permitted the grant of credit facilities and the right to charge for cutting and wastage in sales to " controlled stockholders " but not to " registered stockholders " in regard to sales by them.
Differentiation was not per se discrimination.
There was no material to show that there was any unfair or irrational discrimination which could attract article 14.
Held, further, that the police report on which the prosecu tion was launched satisfied the requirements of section II of the Act.
The purpose of section II was to eliminate private persons from initiating prosecutions and to confine it to public servants.
The requirement of the section that the report should be in writing and should set out the facts constituting the offence was to ensure that there was a record that the public servant was satisfied that a contravention of the law had taken place.
If the contravention was sufficiently designated in the report the requirements of the section were satisfied.
Section II did not require the mention in the report of details which would be necessary to be proved to bring home the guilt to the accused.
Dr. N. G. Chatterji vs Emperor and Rachpal Singh vs Rex , not applicable.
Additional grounds, other than those urged before the High Court, would not be permitted to be raised before the Supreme Court as a matter of course, but only, in exceptional circumstances like cases of subsequent legislation or where questions of fundamental and general importance were raised.


judgement:
Appeal No. 18 of 1952.
Appeal from the Judgment and Order dated December 12, 1949, of the High Court of Judicature at Bombay (Weston and Shah JJ.) in First Appeal No. 456 of 1949, arising out of Judg ment and Decree dated January 24, 1949, of the 186 Bombay City Civil Court in Civil Suit No. 106 of 1948.
M.C. Setalvad, Attorney General for India, (S.B.Jatharwith him) for the appellant.
N. P. Engineer (E. H. Bhaba with him) for the respondent.
November 5.
The Judgment of the Court was delivered by DAS J.
This is an appeal filed with the special leave of this Court.
It is directed against the judgment and decree passed December 2, 1949, by a Division Bench (Weston and Shah JJ.) of the Bombay High Court reversing, the ground of absence of jurisdiction, the judgment and decree for possession passed January 24, 1949, by the Bombay City Civil Court and directing the return of the plaint for presentation to the proper Court.
There is no dispute as to the facts material for the purposes of this appeal.
or about April 15, 1908, the Board of Trustees for the Improvement of the City of Bombay put up to auction plots Nos. 16, 17 and 18 of new survey Nos. 8234, 8235 and 8244 situate the Princess Street Estate of the Board containing an area of 2235 square yards for being let certain conditions.
One Sitaram Luxman was the highest bidder and was declared the tenant at an annual rent per square yard to be calculated at the rate of 41/2 per cent of Rs. 29 per square yard and he signed the memorandum of agreement incorporating the conditions upon which the auction was held and by which he agreed to be bound.
He deposited the moneys in terms of clause 3 of the conditions, and upon such payment entered into possession of the plots.
By clause 7 Sitaram Luxman agreed, within the time specified therein, to build and complete at a cost of not less than Rs. 50,000 a building consisting of 5 floors with suitable offices, drains etc.
according to plans and specifications to be made by an approved architect and approvedby the Board By clause 17 187 he agreed, so soon as the main building should be roofed in, to insure in the joint names of the Board and of himself and, until the granting of the lease thereinafter provided, keep insured the buildings and works the plots for the full value thereof.
Clause 18 of the conditions was as follows: "18.
The lease.
Immediately after the completion within the time limited by condition 7 of the said buildings and works to the satisfaction of the Trust Engineer testified by his certificate the Trustees will if the contract has not previously been determined grant to the tenant or his approved nominee who shall accept the same a lease of the said plot with buildings thereon for the term of 999 years from the date of the auction at the yearly rent calculated in accordance with the accepted bidding for the plot.
" Clause 25 gave power to the Board, if the buildings were not completely finished within the stipulated time and certain other contingencies, to forfeit the deposit and to enter upon and retain possession of the plots and all buildings and works then standing thereon.
Pursuant to this agreement the said Sitaram Luxman erected those plots a building which has since come to be known as the New Sitaram Building.
the completion of the building, by an Indenture of lease made April 19, 1916, between, the Trustees for the Improvement of the City of Bombay and one Rustomji Dhunjibhoy Sethna the receiver of the estate of Sitaram Luxman appointed by the High Court in Suit No. 720 of 1913, the Trustees, pursuant to the said agreement and in consideration of the monies which had been expended in the erection of the buildings and of the rent and the covenants thereinafter reserved and contained, demised unto the lessee all that piece of land situate their Princess Street estate together with the buildings erected thereon to hold the same for 999 years from April 15, 1908, paying therefor up to January, 15, 1909, the rent of Re. I and during the remainder of 188 the term the yearly rent of Rs. 2,916 by equal quarterly payments.
By the said Indenture the lessee covenanted to pay all rates and taxes, not to use or to permit to be used, without the lessor 's consent, the portion of land not built upon except as open space, not to pull down, add to or alter the buildings without such consent, to keep in repair all drains sewers etc., to repair, pave, cleanse and paint and amend all the buildings, walls etc., to permit the lessors and their employees to enter upon the premises to inspect the conditions thereof 48 hours ' notice, to use the demised premises for residential purposes or as offices and schools only and not as a public house or liquor shop or for any business or trade, throughout the term to keep the buildings insured against fire in the joint names of the lessor and the lessee and to rebuild or reinstate and repair the building if destroyed or damaged by fire or otherwise.
There was a proviso for re entry for nonpayment of rent for 30 days or for breach of any of the lessee 's covenants.
In 1925 all the properties of the Trustees for the Improvement of the City of Bombay vested in the Bombay Municipality under and by virtue of Bombay Act XVI of 1925.
By a deed of assignment made April 26, 1948, Shri Bhatia Co operative Housing Society Limited, a society registered under the Bombay Co operative Societies Act, VII of 1921, the appellant before us, acquired the lessee 's interest in the demised premises.
June 29, 1948, the appellant served a notice the respondent before us who was a monthly tenant in occupation of Block No. B/2 the ground floor of the New Sitaram Building at a monthly rental of Rs. 52 5 9 to quit and vacate the same July 31, 1948.
By his advocate 's reply the respondent maintained that he had been paying the rent regularly and otherwise performing the terms of his tenancy and claimed the protection of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 (Act LVII of 1947); 189 The respondent not having vacated the block under his occupation the expiry of the notice to quit, the appellant filed summary Suit No. 106 of 1948 against the respondent in the City Civil Court at Bombay for vacant possession of the said Block No. B/2 the ground floor of the said New Sitaram Buildings and mesne profits from August 1, 1948, until delivery of possession.
After stating the material facts, the appellant submitted that the Bombay Act LVII of 1947 did not apply to the demised premises.
The respondent filed his written statement maintaining that under section 28 of the Bombay Act the CityCivil Court had no jurisdiction to entertain the suit.
He averred that he had performed and observed all the conditions of his tenancy and was ready and willing to do so, that the New Sitaram Building had been constructed at the expense of the appellant 's predecessor in title and that the premises belonged to the appellant and not to the Government or a local authority and that the respondent was entitled to the protection of the Bombay Act LVII of 1947.
Leaving out the issue as to whether the appellant was entitled to any compensation, there were 4 issues raising in effect two points, namely, (1) whether the Court had jurisdiction and (2) whether the Bombay Act LVII of 1947 applied to the premises in suit.
The learned City Civil Court Judge in a well considered and careful judgment answered the issues in favour of the appellant and decreed the suit.
The respondent appealed to the High Court.
The High Court reversed the decision of the trial Judge and holding that the Bombay Act LVII of 1947 did apply to the premises and consequently that the City Civil Court, by virtue of section 28 of that Act, had no jurisdiction to entertain the suit, directed that the plaint, be returned to the appellant for being filed in the proper Court.
The High Court having declined to grant leave to the appellant to appeal to this Court, the appellant applied for and obtained special leave 190 of this Court to prefer this appeal and filed this appeal pursuant to such leave.
Learned counsel for the respondent took a preli minary objection, founded the provisions of section 28 of the Bombay Act, that the City Civil Court had no jurisdiction to entertain the suit, for that section clearly states that in Greater Bombay the Court of Small Causes alone shall have jurisdiction to entertain and try any suit between a landlord and a tenant relating to the recovery of rent or possession of any premises to which any of the provisions of that Part of the Act applied and to decide any application made under the Act and to deal with any claim or question arising out of the Act and no other Court should have jurisdiction to entertain any suit or proceeding or to deal with such claim or question.
If, as contended for by the appellant, the Act does not apply to the premises, then section 28 which is an integral part of the Act and takes away the jurisdiction of all Courts other than the Small Causes Court in Greater Bombay cannot obviously be invoked by the respondent.
The crucial point, therefore, in order to determine the question of the jurisdiction of the City Civil Court to entertain the suit, is to ascertain whether, in view of section 4 of the Act, the Act applies to the premises at all.
If it does, the City Civil Court has no jurisdiction but if it does not, then it has such jurisdiction.
The question at once arises as to who is to decide this point in controversy.
It is well settled that a Civil Court has inherent power to decide the question of its own jurisdiction, although, as a result of its enquiry, it may turn out that it has no jurisdiction over the suit.
Accordingly we think, in agreement with the High Court, that this preliminary objection is not well founded in principle or authority and should be rejected.
The main controversy between the parties is as to whether the Act applies to the demised premises.
The solution of that controversy depends upon a true construction of section 4 (1) of the Bombay Act LVII of 1947, Which runs as follows: 191 "4.
(1) This Act shall not apply to any promises belonging to the Government or a local authority or apply as against the Government to any tenancy or other like relationship created by a grant from the$ Government in respect of premises,taken lease or requisitioned by the Government; but it shall apply in respect of premises let to the Government or a local authority.
" It is clear that the above sub section has three parts, namely (1) This Act shall not apply to premises belonging to the Government or a local authority, (2) This Act shall not apply as against the Government to any tenancy or other like relationship created by grant from the Government in respect of premises taken lease or requisitioned by the Government, (3) This Act shall apply in respect of premises lot out to the Government or a local authority.
The contention of the appellant Society is that the demised premises belonged to the Trustees for the improvement of the City of Bombay and now belong to the Bombay Municipality both of which bodies are local authorities and, therefore, the Act does not apply to the demised premises.
Learned counsel for the respondent, however, urges that the object of the Act, as recited in the preamble, is inter alia, to control rent.
It follows, therefore, that the object of the legislation was that the provisions of the Act would be applicable only as between the landlord and tenant.
Section 4 (1) provides for an exemption from or exception to that general object.
The purpose of the; first two parts of section 4 (1) is to exempt two cases of relationship of landlord and tenant from the operation of the Act, namely, (1) where the Government or a local authority lets out premises belonging to it, and (2) where the Government lets out premises taken on lease or requisitioned by it.
It will be observed that the second part of section 4 (1) quite clearly exempts "any tenancy or other like relationship" created by the Government but the first part makes no 192 reference to Any tenancy or other like relationship at all but exempts the premises belonging to the Government or a local authority.
If the intention of the first #part were as formulated in item (1), then the first part of section 4 (1), like the second part, would have run thus: This Act shall not apply to any tenancy or other like relationship created by Government or local authority in respect of premises belonging to it.
The Legislature was familiar with this form of expression, for it adopted it in the second part and yet it did not use that form in the first.
The conclusion is, therefore, irresistible that the Legislature did not by the first part intend to exempt the relationship of landlord and tenant but intended to confer the premises belonging to Government an immunity from the operation of the Act.
Learned counsel for the respondent next contends that the immunity given by the first part should be held to be available only to the Government or a local authority to which the premises belong.
If that were the intention then the Legislature would have used phraseology similar to what it did in the second part, namely, it would have expressly made the Act inapplicable "as against the Government or a local authority".
This it did not do and the only inference that can be drawn from this circumstance is that this departure was made deliberately with a view to exempt the premises itself.
It is said that if the first part of the section is so construed as to exempt the premises from the operation of the Act, not only as between the Government or a local authority the one hand and its lessee the other, but also as between that lessee and his subtenant, then the whole purpose of the Act will be frustrated, for it is well known that most of the lands in Greater Bombay belong to the Government or one or other local authority, e.g., Bombay Port Trust and Bombay Municipality and the greater number of tenants will not be able to avail themselves of the benefit and protection of the Act.
In the first place, the 193 preamble to the Act clearly shows that the object of the Act was to consolidate the law relating to the control of rents and repairs of certain premises and not of all premises.
The Legislature may well have thought that an immunity given to premises belonging to the Government or a local authority will facilitate the speedy development of its lands by inducing lessees to take up building leases terms advantageous to the Government or a local authority.
Further, as pointed out by Romer L. J. in Clark vs Downes(1), which case was approved by Lord Goddard C.J. in Rudler vs Franks(1) such immunity will increase the value of the right of reversion belonging to the Government or a local authority.
The fact that the Government or a local authority may be trusted to act fairly and reasonably may have induced the Legislature all the more readily to give such immunity to premises belonging to the Government or a local authority but it cannot be overlooked that the primary object of giving this immunity was to protect the interests of the Government or a local authority.
This protection requires that the immunity should be held to attach to the premises itself and the benefit of it should be available not only to the Government or a local authority but also to the lessee deriving title from it.
If the benefit of the immunity was given only to the Government or a local authority and not to its lessee as suggested by learned counsel for the respondent and the Act applied to the premises as against the lessee, then it must follow that under section 15 of the Act it will not be lawful for the lessee to sublet the premises or any part of it.
If such were the consequences, nobody will take a building lease from the Government or a local authority and the immunity given to the Government or a local authority will, for all practical purposes and in so far at any rate as the building leases are concerned, be wholly illusory and worthless and the underlying purpose for bestowing such immunity will be rendered wholly ineffective.
In our opinion, therefore, the consideration of the (I) (2) 194 protection of the interests of the sub tenants in premises belonging to the Government or a local authority cannot override the plain meaning of the preamble or the first part of section 4 (1) and frustrate the real purpose of protecting and furthering the interests of the Government or a local authority by conf erring its property an immunity from the operation of the Act.
Finally, learned counsel for the respondent urges that the words "belonging to" have not been used in a technical sense and should be read in their popular sense.
It is pointed out that it was the lessee who erected the building at his own cost, he is to hold it for 999 years, he has the right of subletting the building in whole or in part rent and terms to be fixed by him, of ejecting sub tenants, and of assigning the lease.
Therefore, it may fairly be said that the premises or, at any rate, the building belongs to the lessee and the rights reserved by the lease to the lessor are only by way of security for the preservation of the building which, the expiry or sooner determination of the lease, will vest in the lessor.
This line of reasoning has found favour with the High Court which has held that although in form the building belongs to the Bombay Municipality who are the successors in interest of the lessors, in substance the building belongs to the appellant, the assignee of the lessee, and not to the Bombay Municipality.
We are unable to accept this reasoning, for we see no reason to hold, in the circumstances of this case, that the substance does not follow the form.
By the opera tive part of the lease the demise is not only of the land but also of the building standing thereon.
This demise is 'certainly an act of ownership exercised by the lessor over the land as well as the buildings.
Under section 105 of the Transfer of Property Act a lease is a transfer only of a right to enjoy the demised, premises, but there is no transfer of ownership or interest in the demised promises to the lessee such as there is in a sale (section 54) or a mortgage (section 58).
In the present case, the lessee cannot, his 195 own covenant, use the buildings in any way he likes.
He has to use the game only as offices or schools or for residential purposes and cannot, without the lessor 's consent, use them for purposes of any trade or, business.
He cannot pull down the buildings or make any additions or alterations without the lessor 's consent.
He cannot build upon the open space.
He must, if the premises are destroyed by fire or otherwise, reinstate it.
The lessor has the right to enter upon and inspect the premises at any time giving 48 hours ' notice.
All these covenants clearly indicate that the lessor ha$ the dominant voice and the real ownership.
What are called attributes of ownership of the lessee are only the rights of enjoyment which are common to all lessees under well drawn leases, but the ownership, in the land and in the building is in the lessor.
It is true that the lessee erected the building a this own cost but he did so for the lessor and the lessor 's land agreed terms.
The fact that the lessee incurred expenses in putting up the building is precisely the consideration for the lessor granting him a lease for 999 years not only of the building but of the land as well at what may, for all we know, be a cheap rent which the lessor may not have otherwise agreed to do.
By the agreement the building became the property of the lessor and the lessor demised the land and the building which, in the circumstances, in law and in fact belonged to the lessor.
The law of fixtures under section 108 of the Transfer of Property Act may be different from the English law, but section 108 is subject to any agreement that the parties may choose to make.
Here, by the agreement the building became part of the land and the property of the lessor and the lessee took a lease that footing.
The lessee or a person claiming title through him cannot now be heard to say that the building does not belong to the lessor.
Forfeiture does not, for the first time, give title to the lessor.
forfeiture he re enters upon what has all along been his own property.
Said Lord Macnaghten in Heritable Reversionary Company vs Mullar(1): (I) (1892] A.C. 598 at 021, 196 "The words 'Property ' and 'belonging to ' are not technical words in the law of Scotland.
They are to be understood, I think, in their ordinary signification.
They are infact convertible terms; you can hardly explain the one except by using the other.
A man 's property is that which is his own, that which belongs to him.
What belongs to him is his pro perty.
" In our opinion the interest of the lessor in the demised premises cannot possibly be described as a contingent interest which will become vested the expiry or sooner determination of the lease, for then the lessor could not have demised the premises including the building as he did or before the determination, of the lease exercise any act of ownership or any control over it as he obviously has the right to do under the covenants referred to above.
The truth is that the lessor, after the building was erected, became the owner of it and all the time thereafter the demised premises which include the building have belonged to him subject to the right of enjoyment of the lessee in terms of the lease.
If it were to be held that the building belonged to the lessee by reason of his having put it up at his own cost and by reason of the attributes of ownership relied by learned counsel, then as between the local authority (the lessor) and the lessee also the building must for the same reason founded what,have been called the attributes of ownership be held to belong to the lessee and the Act will apply.
Surely that could not possibly be the case, for it would mean that the Government or a local authority will always be bound by the Act in respect of the building put up by the lessee under building leases granted by it in respect of land belonging to it.
In that case the immunity given to the Government or a local authority will be wholly illusory and worthless.
In ' our view in the case before us the demised premises including the building belong to a local authority and are outside the operation of the Act.
This Act being out of the way, the appellants were well within their 197 rights to file the suit in ejectment in the City Civil Court and that Court had jurisdiction to entertain the suit and to pass the decree that it did.
I The result, therefore, is that we allow this appeal, set aside the judgment and decree of the High Court and restore the decree passed by the City Civil Court.
The appellant will be entitled to costs throughout in all Courts.
Appeal allowed.

dataset_name: IN-Abs

summary:
Section 4 of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, which provides that the Act shall not apply to premises belonging to the Government or a local authority applies not only to suits between the Government or a local authority as a landlord against the lessee, but also to suits by a lessee of the Government or a local authority against his sublessee.
The indemnity conferred is in respect of premises belonging to the Government or a local authority.
A building site was auctioned to a person by the City Im provement Trust of Bombay with a condition that the bidder Was to put up a building of a certain description at a cost of not less than Rs. 50,000 and after the Completion of the building, the site and the building were to be leased to the bidder for a period of 999 years at a fixed yearly rent.
Held, a construction of the lease deed that the building put up by the bidder belonged to the Trust and not to the bidder and a suit by the lessee against his sub lessee was not governed by the Bombay Rents, Hotels and.
Lodging House Rates Control Act, 1947, as the premises belonged to a local authority within the meaning of section 4 (1) of the Act, and the suit could accordingly be instituted in the City Civil Court of Bombay.
A civil Court has inherent jurisdiction to decide the question of its own jurisdiction and to entertain a suit although as a result of the inquiry it may turn out that it has no jurisdiction.


judgement:
Appeal No. 84 of 1958.
Appeal by special leave from the judgment and order dated December 22/23, 1955, of the Calcutta High Court in I.T.R. No. 24 of 1953.
N. C. Chatterjee, D. P. Pal and D. N. Mukherjee for the appellant.
Hardayal Hardy and D. Gupta, for the respondent.
January 17.
The Judgment of the Court was delivered by SHAH, J.
Messrs.
National Cement Mines Industries Ltd. hereinafter referred to as the appellants are a public limited company incorporated to " carry on the 65 504 business of cement and lime manufacture and also of limestone supply and for the purposes of such businesses to acquire rights and concessions pertaining to limestone, coal and surface lands from the Dewar khand Karanpura Mines and Industries Ltd." and also to " work mines or quarries and to find, win, get, work, etc. or otherwise deal with clay and bauxite." Dewarkhand Karanpura Mines and Industries Ltd. hereinafter called the " Karanpura Company " had obtained three leases on November 29, 1930, first for mining limestone from Maharaja Pratap Narain Udai Nath Shah Deo from limestone beds in certain villages in Dewarkhand, second from Maharaj Kumar Nand Kishore Nath Shah Deo of the surface rights neces.
sary to exercise the powers and privileges in respect of the first lease and the third from Maharaj Kumar Raj Kishore Nath Shah Deo of surface rights in respect of Hoyer village.
The period in each of the three leases was thirty years.
On March 17, 1932, the Karanpura Company conveyed the rights and options under the three leases to the appellants.
On September 30, 1934, the appellants acquired the limestone and surface rights in respect of limestone beds in village Umedanda for 95 years from Maharaja Pratap Narain Uday Nath Shah Deo and Maharaj Kumar Raj Kishore Nath Shah Deo.
On the same date, the appellants entered into two agreements, one with Maharaja Pratap Narain Uday Nath Shah Deo which is called the ,bauxite option agreement " thereby acquiring the first option to take a lease or leases of any area or areas of bauxite deposits in certain villages, and another from the said Maharaja for the first option to take a lease or leases of limestone beds in the Tori District.
By a fourth agreement also dated September 30,1934, between the Karanpura Company, Maharaja Pratap Narain Udai Nath Shah Deo acting with the consent of Maharaj Kumars Raj Kishore Nath Shah Deo and Nand Kishore Nath Shah Deo, the royalties reserved under the original deeds dated November 29, 1930, were reduced and the periods of the leases were extended to 99 years from the date of the original leases, 505 By deed dated May 7,1935, the appellants conveyed to Dewarkhand Cement Company Ltd. (which later came to be known as Associated Cement Ltd. and will be referred to hereinafter by that name) the benefits of the four leases and the two agreements for the unexpired periods.
By this deed, for a present consideration of Rs. 25,000 " for trouble and expenses in obtaining the leases and agreements " and for further payment under several covenants which will be presently set out, the appellants conveyed the rights vested in them subject to certain reservations.
In the year of account June 1, 1944, to May 31, 1945, the appellants received from the Associated Cement Ltd. under the first covenant of the deed, Rs. 77,820 being the amount computed at the rate of 0 13 As.
per ton of cement manufactured from limestone won from the lands and sold by the company.
The Income tax Officer, Companies District 1, Calcutta, included this amount in the total assessable income of the appellants in the assessment year 1946 47.
This order was confirmed in appeal by the Appellate Assistant Commissioner and by the Income tax Appellate Tribunal.
At the instance of the appellants, the Tribunal referred the following question with another not material for this appeal to the High Court of Judicature at Calcutta: " Whether on a proper construction of the Deed of Assignment dated 7th of May, 1935, and on the facts and in the circumstances of this case, the Tribunal was right in holding that, the sum of Rs. 77,820 represented a receipt of a revenue nature in the hands of the Applicant and assessable as such The following facts were held proved by the Tribunal.
The principal objects of incorporation of the appellants were to carry on the business of manufacturing cement and lime and sale of limestone and the appellants were formed with the object of acquiring the rights and concessions of the Karanpura Company.
By their Memorandum of Association, the appellants were authorised to sell or dispose of the undertakings or any part thereof as they thought fit, 506 and to sell, lease, mortgage, dispose of, turn to account or otherwise deal with all or any part of their property and rights and in pursuance of these objects the rights and concessions of the Karanpura Company were acquired and extension of leases and concessions were obtained and were transferred to the Associated Cement Ltd. The appellants were therefore carrying on in the year of account 1944 45 the business for which they were incorporated.
After reciting the prefatory clauses, it was stated in the deed: "WHEREAS it was agreed inter alia that the Purchaser should pay to the Vendor the sum of Rupees twenty five thousand for trouble and expenses in obtaining the leases and agreements dated the thirtieth day of September one thousand nine hundred and thirty four hereinbefore recited and hereinafter expressed to be hereby transferred and Whereas the Purchaser hath paid to the Vendor the said sum of rupees twenty five thousand as the Vendor doth hereby acknowledge NOW THIS INDENTURE WITNESSETH that in con.
sideration of the covenants on the part of the Purchaser hereinafter contained the Vendor hereby grants assigns and transfers unto the Purchaser and the Karanpura Company at the request and by the direction of the Vendor hereby grants assigns transfers and confirms unto the Purchaser:".
The deed then proceeds to set out the description of the various leases and concessions and agreements and the covenants which the Associated Cement Ltd. undertook in favour of the appellants.
These covenants are: (1) That it will pay to the Vendor a sum equal to thirteen annas in respect of every ton of cement sold by it which shall have been manufactured from the limestone won by it from the lands hereby transferred and comprised in the hereinbefore recited leases and agreements.
(2) That it will not sell any Fluxstone won by it from the said lands to the Tata Iron and Steel Company Ltd., at a price less than Rupees one and annas 507 fourteen per ton F. O. R. the siding nearest to the quarry or place from which it shall be won without the consent of the Vendor.
(3) That it shall pay to the Vendor one half the profit( if any) which it shall make by selling Fluxstone to the Tata Iron & Steel Company Ltd.,or to any other person such profits to be ascertained after deduction from the price received all costs, charges and expenses including the royalty payable to the Maharaja in respect thereof but before educting overhead charges.
Such accounts to be closed and adjusted on the thirtieth day of June and the thirty first day of December in each and every year.
(4) That it will not grant to the Tata Iron & Steel Company Ltd., the right to quarry and remove Fluxstone from the lands hereby transferred at a royalty of less than ten annas per ton, and will pay to the Vendor one half of any royalty so charged and received.
(5) That in the event of the payments made under clauses one, three and four above in any one year not amounting to the minimum hereinafter set out the Purchaser shall pay in lieu and in full discharge there for the following minimum: (a) During the first year to be computed from the first day of January one thousand nine hundred and thirty five, rupees ten thousand.
(b) During the second year rupees thirty thousand.
(c) During every subsequent year rupees fifty thousand.
Out of the above minimum payment of rupees fifty thousand per year for the purposes of account, the sum of rupees twenty thousand shall be deemed to have been paid in respect of payment under clause three above.
(6) That the Purchaser or the persons deriving title under the Purchaser will at all times from the date hereof duly pay all rents, royalties and payments becoming due under the (four) hereinbefore recited Indenture of Lease (,subject as regards the Limestone lease to the modifications effected by the agreement for 508 reduction of royalty dated the thirtieth day of September one thousand nine hundred and thirty four hereinabove recited) in respect of the premises agreements options rights or benefits hereby assigned and transferred and observe and perform the covenants agreements stipulations and conditions therein contained and henceforth on the part of the Lessee or grantee to be observed and performed in respect of the aforesaid premises or under the said Bauxite agreement or under the said Tori Option agreement or under the said agreement for reduction of royalty And also will at all times from the date hereof save harmless and keep indemnified the Vendor its successors and assigns from and against all proceedings costs claims and expenses on account of any omission to pay the said rent, royalty or payments or any breach of any of the said covenants agreements stipulations and conditions.
(7) That the Purchaser will not work raise remove or use stone or clay in the properties comprised in the leases and agreements hereby transferred to it for making lime.
(8) That the Purchaser shall not by any of its actions or omissions cause leases and agreements, mentioned above and in respect of properties hereby transferred, to be determined, or the rights thereunder, including the right of renewal, to be prejudiced.
(9) That in areas comprised in the leases and agree.
ments hereinabove expressed to be hereby assigned and not containing limestone the Vendor 's rights under leases and agreements from the Maharaja of Chotanagpur or Maharaj Kumar Nand Kishore Nath Shah ' Deo other than the leases and agreements above referred to shall not be jeopardised or affected by this Indenture.
(10) That the clay and shales lying within areas, which do not contain Limestone, can be removed and utilised by the Vendor for all purposes except that of cement manufacture.
The deed then proceeded after setting out certain other covenants: 509 " AND IT IS HEREBY EXPRESSLY AGREED AND DECLARED that if the Limestone within the areas comprised in the Leases hereby transferred available for manufacturing cement is exhausted the Purchaser will be entitled to determine this Indenture on giving to the Vendor six months ' notice in writing in which case the Purchaser, if so required, will retransfer the leases and agreements aforesaid.
" By clauses (1), (3) and (4), the Associated Cement Ltd. undertook to make certain payments to the appellants.
By cl.
(1) they agreed to pay 0 13 As.
for every ton of cement manufactured from the limestone won from the lands and sold; by el.
(3), the Associated Cement Ltd. agreed to pay half the profits which they made by selling Fluxstone to the Tata Iron & Steel Co., or to any other person; and by el.
(4), they agreed to pay half the royalty received from the Tata Iron & Steel Company for the right to quarry and remove fluxstone from the lands.
By clause (5), provision was made for minimum payment in the event of the aggregate under cis.
(1), (3) and (4) not reaching the sums specified therein.
Clauses (2), (4), (7), (8) and (9) were in the nature of restrictive covenants.
By cl.
(2), the Associated Cement Ltd. were prohibited from selling any fluxstone won from the lands to the Tata Iron & Steel Company for less than Re.
1 14 As.
per ton F. O. R. By cl.
(4), an obligation not to convey the right to quarry and remove fluxstone for royalty less than 0 10 As.
per ton was imposed.
By el.
(7) the Associated Cement Ltd. undertook not to remove or use or allow any one to raise work, remove or use stone or clay in the lands.
By cl.
(8), the Associated Cement Ltd. undertook not to do any acts or omissions causing the leases and agreements to be determined or the rights thereunder to be prejudiced.
By cl.
(9), rights of other persons under leases and agreements in lands not containing limestone were not to be affected.
By el.
(10), the right of the appellants to utilise clay and shale lying within the areas not containing limestone except for the purpose of manufacturing cement was retained, There were certain exceptions 510 to this and the ninth clause whereby the Associated Cement Ltd. were entitled to excavate, use or remove all kinds of clays in and from the areas within the boundary lines marked in the plan and they were also authorised to make permanent structures and use certain strips of lands.
By el.
(6) the Associated Cement Ltd. agreed to pay rent stipulated under the original leases and agreements and also undertook to keep indemnified the appellants from and against all proceedings, costs, claims and expenses on account of any omission to pay the rent royalty or payments or any breach of any of the covenants agreements and the leases.
There was also the covenant authorising the Associated Cement Ltd. to terminate the deed in the event of limestone in the land comprised in the leases being exhausted.
The appellants undoubtedly did not part with all their rights in favour of the Associated Cement Ltd. by this deed dated May 7, 1935.
The consideration under the deed consisted of a fixed component and annual payments fluctuating with the business activity of the Associated Cement Ltd. A fixed amount of Rs. 25,000 was paid " for trouble and expenses in obtaining the leases and agreements " and additional payments were to be made under cls.
(1), (3) and (4) subject to the minimum prescribed by el.
It is difficult to categorise a transaction of this character.
It is not a conveyance of all the rights of the appellants nor can it be regarded as a sale even of the rights which were conveyed.
Numerous restrictions were imposed by the deed upon the rights of the transferee which were inconsistent in their very nature with the character of a sale, and the covenant authorising termination of the deed in the event of the limestone being exhausted removes all doubt in that behalf.
Nor is it a lease : it is not a transfer of a right to enjoy property for a certain time in consideration of periodical payments.
It also does not evidence a transaction in the nature of a joint venture between the appellants and the Associated Cement Ltd. Cement was to be manufactured by the Associated Cement Ltd, out of limestone to be won from the lands 511 and in consideration of the rights conveyed, payments at specified rates were agreed to be made out of the price to be obtained by sale of cement, fluxstone and limestone.
The appellants had no control over the production of limestone and manufacture of cement, or on the sale of fluxstone and limestone.
But in assessing the true character of the receipt for the purpose of the Income tax Act, inability to ascribe to the transaction a definite category is of little consequence.
It is not the nature of the receipt under the general law but in commerce that is material.
It is often difficult to distinguish whether an agreement is for payment of a debt by instalments or for making annual payments in the nature of income.
The court has, on an appraisal of all the facts, to assess whether a transaction is commercial in character yielding income or is one in consideration of parting with property for repayment of capital in instalments.
No single test of universal application can be discovered for solution of the problem.
The name which the parties may give to the transaction which is the source of the receipt and the characterization of the receipt by them are of little moment, and the true nature and character of the transaction have to be ascertained from the covenants of the contract in the light of the surrounding circumstances.
The decision of the question is however not left to the application of any arbitrary standards.
There are certain broad principles which guide the determination of the character of the receipt.
The distinction between a capital receipt and revenue receipt though fine is real.
The dividing line may be thin, and often at first sight imperceptible.
Where capital is repaid in instalments, it is not liable to income tax; for instance when a person sells his property and agrees to receive the price stipulated in instalments, by whatever name such instalments are called, they are not liable to income tax see Foley vs Fletcher (1), Secretary of State in Council of India vs Andrew Scoble (2), Oswald vs Kirkcaldy Magistrates and Commissioners of Inland Revenue vs Ramsay (4).
(1) ; (2) ; (3) (4) 66 512 But where property is conveyed in consideration of what in truth is annuity payable for a definite or a definable period, the annuity is not payment on capital account and is taxable see State of Bihar vs Sir Kameshwar Singh (1), Captain Maharajkumar Gopal Saran vs Commissioner of Income tax, Bihar and Orissa (2), Chadwick vs Pearl Life Assurance Co. (3).
Again, if property is conveyed in consideration of periodical payments, the payment being a share of profits of a business or profession (William John) Jones vs Commissioners of Inland Revenue(4), or a mineral royalty depending upon the quantity of minerals raised Raja Bahadur Kamakshya Narain Singh of Ramgarh vs Commissioner of Income tax, Bihar and Orissa (5), or computed on sales of manufactured articles Commissioners of Inland Revenue vs 36149 Holdings, Ltd. (6), or a percentage of gross profits made in the exploitation of a secret process Delage vs Nugget Polish Co., Ltd. (7), is income and taxable.
Counsel for the appellants submitted that the receipt under clause (1) of the terms of the deed dated May 7, 1935, was in the nature of capital payment and relied upon certain decisions in support of that submission.
In Minister of National Revenue vs Catherine Spooner(8), decided by the Judicial Committee of the Privy Council in an appeal from the Supreme Court of Canada, the respondent Catherine Spooner had sold her rights, title and interest in land owned by her in freehold to a company in consideration of a certain sum in cash, besides shares of the company, and an agreement to deliver 10% of oil produced from the land on which the company covenanted to carry out drilling and, if oil was found, pumping operations.
These were described as royalties.
Oil was struck in the lands and the respondent was paid 10 of the gross proceeds of the oil produced in lieu of oil.
The (1) (5) (1943) L.R. 70 I.A. 180.
(2) (6) (3) (7) (1906) 2r Times Law Reports 454.
(4) 10 (8) , 513 Supreme Court of Canada held that the sum so received was not an annual profit or gain within the meaning of section 3 of the Income War Tax Act, but a receipt of a capital nature and therefore not chargeable to tax.
According to the Judicial Committee, there was between the respondent and the company no relation of lessor or lessee: the transaction was one of sale and purchase, and the transaction had taken the form which it did because of the uncertainty whether oil would be found by the purchaser.
As the value of the land depended on this contingency, the price, not unnaturally was made to depend in part on the event of oil being struck.
The judgment lays down no new principle; it proceeded merely upon interpretation of the document in the light of the circumstances.
In Trustees of Earl Haig vs Commissioners of Inland Revenue (1), the question which fell to be determined was whether a share of the royalties received in consideration of allowing the use of the diaries of the late Earl Haig for writing his biography were, in the hands of the trustees under the will of Earl Haig, capital receipts.
That was undoubtedly a case in which payments received by the trustees were dependent upon the professional activities of the author and the proceeds derived from the sales of the biography he wrote.
By the agreement, the author was authorised to extract and publish from the diaries what he thought fit.
The diaries were undoubtedly an asset, and after they were used by the author for publication of the biography, their value as an asset was, if not wholly, largely exhausted and their future value was negligible.
The agreement was therefore regarded as conveying an asset in its entirety to the author in consideration of a share in the royalties and the receipt of this share was regarded as receipt of capital.
That decision proceeded upon the special character of the agreement and the nature of the asset transferred and did not seek to lay down any general principle.
In Nethersole vs Withers (2), N who had acquired under an agreement the exclusive right to dramatise (1) (2) 514 a novel of Rudyard Kipling received under an agreement with the widow of the author, a third share of a lump sum for which the sound and film rights were granted exclusively to a film company for a period of ten years.
The film right of a comprehensive character having been granted by the legal representative of the author against payment of the sum stipulated, the question arose whether the payment received by N was taxable under the Income Tax Act under Case II of Schedule D or under case VI of Schedule D.
It was held that N having ceased to be the owner of the portion of the copyright she had assigned, the proceeds were not annual profits or gains within the meaning of Schedule D, Case VI.
That was a case in which N had wholly sold and disposed of a part of the property and the amount received by her was the price paid in lump and was not in the nature of income.
That case also proceeded upon the special character of the transaction.
The case of The Commissioners of Inland Revenue vs The Marine Steam Turbine Co., Ltd. (1) on which reliance was sought to be placed by counsel for the appellants needs no detailed consideration.
In that case, a company which was on the facts found not carrying on a trade or business was held not assessable to Excess Profits Duty, because the condition of liability was the carrying on of trade or business.
The appellants had however not sold the entirety of the rights acquired by them from the Karanpura Company.
The conveyance was subject to several restrictions and the appellants retained in part rights in the land conveyed.
The transaction was substantially a commercial transaction for sharing the profits of the commercial activities of the Associated Cement Ltd. The High Court was therefore right in holding that the transaction dated May 7, 1935, was a commercial transaction and the payment under cl.
(1) thereof at the rate of 0 13 as. 'per ton of cement sold was of the nature of income and not capital.
In that view of the case, the appeal fails and is dismissed with costs.
Appeal dismissed.
(1) ; [1920] I K.B. 193.

summary:
The appellants were carrying on the business of cement and lime manufacture and supply thereof.
By a deed dated May 7 ' 1935, the appellants conveyed to the Associated Cement Ltd. the rights which had vested in them under an earlier conveyance made in their favour by a company known as Karanpura Cod Under the deed the appellants reserved to themselves the right to receive from the Associated Cement Company a sum equal to thirteen annas in respect of every ton of cement sold by it which shall have been manufactured from the limestone won by it from the lands transferred and comprised in the leases and agreements.
Pursuant to this stipulation in the year of account, the appellants I received from the Associated Cement Ltd. Rs. 77,820.
The Income tax Officer included this amount in the total assessable income of the appellants in the assesment year and his order was confirmed by the Appellate Assistant Commissioner and by the Income tax Appellate Tribunal.
The contention of the appellants before the High Court in a reference under section 66 of the Indian Income tax Act that on a proper construction of the deed and on the facts and circumstances of the case the sum of Rs ' 77,820 did not represent receipt of a revenue nature in the hands of the appellants and was not assessable as such, was negatived.
Held, that the deed did not incorporate a transaction of either sale or lease.
The conveyance was subject to several restrictions and the appellants retained in part, rights in the land conveyed.
The transaction was substantially a transaction for sharing the profits of the commercial activities of the Associated Cement Ltd. and the receipt under cl. 1 of the deed was of the nature of income and not capital and as such assessable to tax.
503 Foley vs Fletcher, ; , Secretary of State in Council of India vs Andrew Scoble, ; , Oswald vs Kirkcaldy Magistrates, , Commissioners of Inland Revenue vs N Ramsay, (1935) 20 T.C. 79, State of Bihar vs Sir Kameshwar Singh, [1952] 21 I.T.R. 382, Captain Maharajkumar Gopal Saran vs Commissioner of Income tax, Bihar & Orissa, and Chadwick vs Pearl Life Assurance CO., , considered and applied.
In assessing the true character of the receipt for the purpose of the Income tax Act, inability to ascribe to the transaction a definite category is of little consequence.
It is not the nature of the receipt under the general law but in commerce that is material.
It is often difficult to distinguish whether an agreement is for payment of a debt by instalments or for making annual payments in the nature of income.
The court has, on an appraisal of all the facts, to assess whether a transaction is commercial in character yielding income or is one in consideration of parting with property for repayment of capital in instalments.
No single test of universal application can be discovered for solution of the problem.
The name which the parties may give to the transaction which is the source of the receipt and the characterization of the receipt by them are of little moment, and the true nature and character of the transaction have to be ascertained from the covenants of the contract in the light of the surrounding circumstances.
The decision of the question is however not left to the application of any arbitrary standards.
There are certain broad principles which guide the determination of the character of the receipt.
The distinction between a capital receipt and revenue receipt though fine is real.
The dividing line may be thin, and often at first sight imperceptible.