judgement:
Appeals Nos. 12 and 13 of 1951.
Appeals from the Judgment and Decree dated the 17th/21st February, 1947, of the High Court of Judicature at Calcutta (Mukherjea and Biswas JJ.) in Appeal from Original Order No. 62 of 1946 with cross objectiou and Civil Revision Case No. 657 of 1946 arising out of Judgment and Order dated the 13th March, 1946, of the Court of the Subordinate Judge, Howrah, in Title Execution Case No. 68 of 1936.
M. C. Setalvad (Attorney General for India) and Purushottam Chatterjee (section N. Mukherjee, with them) for the appellant in Civil Appeal No. 12 of 1951 and respondent in Civil Appeal No. 13 of 1951.
C. K. Daphtary (Solicitor General for India) and N. C. Chatterjee (C. N. Laik and A. C. Mukherjea, with them) for the respondents in Civil Appeal No. 12 of 1951 and appellants in Civil Appeal No. 13 of 1951.
October 30.
The judgment of the Court was delivered by MAHAJAN J.
These are two cross appeals from the decision of the High Court at Calcutta in its appellate jurisdiction dated 17th February, 1947, modifying the order of the Subordinate Judge of Howrah in Title Execution Case No. 68 of 1936.
The litigation culminating in these appeals comnmenced about thirty years ago.
In the year 1923, one Durga Prasad Chamria instituted a suit against the respondents, Radha Kissen Chamria, Motilal Chamria and their mother Anardevi Sethan (since deceased) for specific performance of an agreement, 139 for sale of an immoveable property in Howrah claiming a sum of Rs. 11,03,063 8 3 and other reliefs.
The suit, was eventually decreed compromise the 19th April, 1926.
Under the compromise decree the plaintiff became entitled to a sum of Rs. 8,61,000 from the respondents with interest at 61 per cent.
with yearly rests from the date fixed for payment till realization.
Part of the decretal sum was payable the execution of the solenama and the rest by instalments within eighteen months of that date.
Within fifteen months from the date of the decree a sum of Rs. 10,00,987 15 6 is said to have been paid towards satisfaction of it.
No steps were taken either by the judgment debtors or the decre holder regarding certification of most of those payments within the time prescribed by law.
The judgment debtors after the expiry of a long time made an application for certification but the decree holder vehemently resisted it and declined to 'admit the payments.
The result was that the court only recorded the payment of the last three instalments which had been made within ninety days before the application and the judgmentdebtors had to commence a regular suit against the decree holder for recovery of the amounts paid, and not admitted in the execution proceedings.
In the year 1929 a decree was passed in favour of the judgment debtors for the amount paid by them and not ,certified in the execution.
In the meantime the decree holder had realized further amounts in execution of the decree by taking out execution proceedings two or three occasions.
The amount for which a decree had been passed against the decree holder was also thereafter adjusted towards the amount duo under ' the consent decree.
On the 17th March, 1933, the decree was assigned by Durga Prasad to the appellant Keshardeo Chamria.
The execution proceedings out of which these appeals arise were started by the assignee the 10th October, 1936, for the realization of Rs. 4,20,693 8 9 and interest and costs.
This execution had a chequered career.
To begin with, the judgment debtors raised 140 an objection that the assignee being a mere benamidar of Durga Prasad Chamria had no locus standi to take out execution.
This dispute eventually ended in favour of the assignee after about five years ' fight and it was held that the assignment was bonafide and Keshardeo was not a benamidar of the decree holder.
On the 17th July, 1942, Keshardeo made an application for attachment of various new properties of the judgment debtors and for their arrest.
Another set of objections was filed against this application by Radha Kissen Chamria.
He disputed the correctness of the decretal amount, and contended that a certain payment of Rs. 1,60,000 should be recorded and certified as made the 28th May, 1934, and not the date the sum was actually paid to the decreeholer.
This objection was decided by the Subordinate Judge the 11th September, 1942, and it was held that the judgment debtors were liable to pay interest the sum of Rs. 1,60,000 up to the 12th October, 1936, and not up to the 4th July, 1941, 'as claimed by the assignee.
appeal the High Court by its judgment dated the 22nd June, 1943, upheld the decree holder 's contention, and ruled that the judgment debtors were liable to pay interest up to the 4th July, 1941, this sum of Rs. 1,60,000.
The judgment debtors then applied for leave to appeal to the Privy Council against this decision and leave was granted.
the 13th February, 1945, an application wag made to withdraw the appeals, and with ' drawal was allowed by an order of the court dated the 20th February, 1945.
Thus the resistance offered by the judgment debtors to the decree holder 's application of the 17th July, 1942, ended the 20th February, 1945.
The records of the execution case were then sent back by the High Court and reached the Howrah Court the 28th February, 1945.
The decreeholder 's counsel was informed of the arrival of the records by an order dated the 2nd March, 1945.
The hearing of the case was fixed for the 5th March 1945.
the 5th March, 1945 the court made the following order; 141 Decree holder prays for time to take necessary steps.
The case is adjourned to 10th March, 1945, for order.
Decree holder to take necessary steps by, that date positively.
" The decree holder applied for further adjournment, of the case and the 10th the court passed an order in these terms: "Decree holder prays for time ' again to give necessary instructions to his pleader for taking necessary steps.
The 'petition for time is rejected.
The execution case is dismissed part satisfaction.
" When the decree holder was apprised of this order, he, the 19th March, 1945, made an application under section 151, Civil Procedure Code, for restoration of the execution and for getting aside the order of dismissal.
this application notice was issued to the judgment debtors who raised a number of objections against the decree holder 's petition to revive the execution.
By an order dated the 25th April, 1945, the Subordinate Judge granted the decree holder 's prayer and ordered restoration of the execution.
The operative part of the order is in these terms: " 10th March, 1945, the decree holder again prayed for time for the purpose of giving necessary instructions to his pleader for taking steps.
That petition was rejected by me.
10th March,, 1945, by the same order I mean the order rejecting the petition for adjournment I dismissed the 'execution case part satisfaction.
The learned counsel behalf of the present petitioner wants me to vacate the order by which I have dismissed the execution case part satisfaction.
He has invoked the aid of section 151, Civil Procedure Code,: for cancellation of this order and the consequent restoration of the execution case.
I would discuss at the very outset as to whether I was justified in dismissing the,execution case in the same order,after rejecting the petition of the decree holder for an 142 adjournment without giving him an opportunity to his pleader to make any submission he might have to make after the rejection of the petition for time.
It is clear from the order that the fact that the petition for time 'filed by the decree holder 10th March, 1945, was rejected by me was not brought to the notice of the pleader for the decree holder.
It seems to me that there was denial of justice to the decree holder in the present execution proceeding inasmuch as it was a sad omission my part not to communicate to his pleader the result of this petition he made praying for an adjournment of this execution proceeding and at the same time, to dismiss the execution case part satisfaction which has brought about consequences highly prejudicial to the interest of the decree holder.
I think section 151, Civil Procedure Code, is the only section which.
empowers me to rectify the said omission I have made in not com municating to the pleader for the decree holder as to the fate of his application for an adjournment of the execution case and as such I would vacate the order passed by me dismissing the execution case part satisfaction.
The ends of justice for which the court exists demand such rectification and I would do it.
The learned Advocate General behalf of the judgment debtor Radha Kissen has argued before me that this court has no jurisdiction to vacate the order passed by me 10th March, 1945, dismissing the execution case part satisfaction.
His argument is that section 48, Civil Procedure Code, stands in my way inasmuch as the law of limitation as provided in the above section debars the relief as sought for by the decree holder in the present application.
I do not question the soundness of this argument advanced by the learned Advocate General.
The facts of this case bring home the fact that in the present case I am rectifying a sad omission made by me which brought about practically a denial of justice to the decree holder and as such the operation of section 48, Civil Procedure Code, does not come to the assistance of the judgment debtor Radha Kissen," 143 It would have saved considerable expense and trouble to the parties had the dismissal for default chapter been closed for ever by this order of the Judge; the proceedings, however, took a different course.
A serious controversy raged between the parties about the correctness of this obviously just order and after seven years it is now before us.
An appeal and a revision were preferred to the High Court against this order.
By its judgment dated 24th August, 1945, the High Court held that no appeal lay against it as the question involved did not fall within the ambit of section 47, Civil Procedure Code.
It, however, entertained the revision application and allowed it, and remanded the case to the Subordinate Judge for reconsideration and disposal in accordance with the observations made in the order.
The High Court took the view that the Subordinate Judge was in error in restoring the execution without taking into consideration the point whether the decree holder 's pleader could really take any step in aid of the execution if he had been apprised of the order of the court dismissing the adjournment application.
This is what the High Court said: "The ground put forward by the Subordinate Judge in support of his order for restoration is that the order rejecting the adjournment petition should have been communicated to the pleader for the decree holder but this was not done.
We will assume that this was an omission the part of the court.
The question now is whether it was possible for the decree holder to take any further steps in connection with the execution of the decree and thereby prevent the execution case from being dismissed for default.
No evidence was taken by the learned Subordienate Judge this point and even the pleader who was in charge of the execution case behalf of the decree holder was not examined. .
If really the decree holder was not in a position to state that day as to what was the amount due under the decree for which he wanted the execution to be levied and if according to him it required elaborate accounting for the purpose 144 of arriving at the proper figure, it was not possible for him to ask the court to issue any process by way of attachment of the property that date.
It seems to us that the learned Judge should have considered this matter properly and he should have found proper material as to whether the decree holder could really take any steps after the application for adjournment was disallowed." In sharp contrast to the opinion contained in the order of remand is the view now expressed by the High Court this point in its final judgment under appeal "One important circumstance which, in our opinion ; tells 'in favour of the decreeholder is the fact we have noticed before, namely, that after the ' petition for time was rejected the court did not call the execution case and otherwise intimate its decision to go with it.
In one sense this,might be regarded as a mere error of procedure the part of the court which it would be wrong to allow the decreeholder to take advantage of, but an, error it was, as was admitted by the learned judge himself who had dealt with the matter, and we do not think his opinion, can be lightly brushed aside.
There can be no doubt that the learned judge was in the best position to speak as regards the actual proceedings in his court % the 10th March, 1945, and if he thought that it amounted to a 'denial of justice ' to have rejected the petition for time and by the same order to dismiss the ,execution case, it is not for us to say that he was not right.
It may well be that even if the case was called the decree holder 's pleader would even then have been absent, but having regard to all the facts and circumstances of the case, we think the court might yet give the decree holder the benefit of doubtin this matter, and assume in his favour that his pleader would have appeared before the learned, judge and tried to avert a peremptory dismissal of the execution case, even though he or his client might not have been fully ready with all necessary materials for continuing the execution proceeding.
145 As we have pointed out before and as the court below has also found, it was possible,for the decreeholder or his pleader to have submitted to the court, some sort,of an account of the decretal dues that date after refusal of the adjournment but even if this could not be done, we still believe that the pleader, if he appeared, could have done something, either by drawing the court 's attention to some of its previous orders or otherwise, by which a dismissal of the case might be prevented.
" It was not difficult to envisage what the counsel would have done when faced with such a dilemma.
He, would.
have straightaway stated that the execution should issue, for an amount,which was roughly known to ' him, and that the court should,issue a process, for the arrest of the judgment debtors.
BY such a statement he would have saved the dismissal without any,detriment to his client: who could later make another application stating the precise amount due and praying for additional reliefs.
After remand the 13th March, 1946, the learned Subordinate Judge restored the execution case in respect of a sum of Rs.92,OOO only and maintained the order of dismissal in other respects.
He held that the decree holder was grossly negligent on the 5th and the 10th March, 1945, and that due to his negligence the execution case was dismissed in default that even if his pleader had been informed of the order rejecting the application for adjournment he could not have taken any steps to prevent the dismissal of the execu tion; that the execution being now barred by limitation the judgment debtors should not be deprived of the valuable rights acquired by them but at the same time they should not be allowed to retain the advantage of an acknowledgment of a debt of Rs, 92,000 made by the decree holder.
Both the decree holder and the judgment debtors were dissatisfied with this order.
The decree holder preferred an appeal to the High Court and also filed an application under section 115, Civil Procedure 146 Code.
The judgment debtors filed cross objections in the appeal and also preferred an alternative application in revision.
The appeal, the cross objections and the two revision 'applications were disposed of together by the High Court by its judgment dated 17th February, 1947.
The order dismissing the execution in default was set aside and the case was restored terms.
The decreeholder was held disentitled to interest the decretal amount from 10th March, 1945, to the date of final ascertainment of the amount of such interest by the executing court and was ordered to pay to the judgment debtors a consolidated sum of Rs. 20,000 by way of compensatory costs.
He was to pay this amount to the judgment debtora within two weeks of the arrival of the records in the executing court or have it certified in the execution.
In default the appeal was to stand dismissed with costs and the cross objections decreed with costs.
An application for leave to appeal to His Majesty in Council against this order was made by the judgment debtors and leave was granted to them 30th May, 1947.
The decree holder also applied for leave and he was granted leave 27th June, 1946.
Both the appeals were consolidated by an order of the court dated 4th December, 1947, and thereafter the appeals were transferred to this court.
On behalf of the decree holder it was contended that the High Court was wrong in allowing the judgment debtors Rs. 20,000 by way of compensation for costs, and that having regard to the terms of the compromise decree it had no jurisdiction to deprive the decree holder of the interest allowed to him by the decree, and that it had neither power nor jurisdiction under section 115, Civil Procedure Code, to set aside the order dated 25th April, 1945, passed by Mr. Chakravarti, Subordinate Judge, under section 151 of the said Code and that the interlocutory remand order of the High Court being without jurisdiction.
, all subsequent proceedings taken thereafter were null and void.
147 The earned counsel for the judgment debtors not only supported the judgment of the High Court to the extent it went in their favour but contended that the High Court should have refused to restore the execution altogether and that the assumption made by it that the decree holder 's pleader could do something to prevent the dismissal of the case or could present some sort of statement to the court was wholly unwarranted and unjustifiable.
It was urged that it ought to have been held that the decree holder was guilty of gross negligence and he was himself responsible for the dismissal of the case, and that it was not necessary to formally call the case after the rejection of the petition for adjournment and that a valuable right having accrued to the judgment debtors by efflux of time, they should not have been deprived of it in the exercise of the inherent powers of the court.
It is unnecessary to consider all the points taken in these appeals because, in our opinions the point canvassed behalf of the decree holder that the order of remand was without jurisdiction and that all the proceedings taken subsequent to the order of the executing court reviving the execution were void, has force.
The sole ground which the Subordinate Judge had ordered restoration of the execution was that he had himself made a sad mistake in dismissing it at the same time that he dismissed the adjournment application without informing the decree holder 's counsel that the request for adjournment had been refused and without calling upon him to state what he wanted done in the matter in those circumstances.
As the Subordinate Judge was correcting his own error in the exercise of his inherent powers, it was not necessary for him to investigate into the correctness of the various allegations and counter allegations made by the parties.
He was the best judge of the procedure that was usually adopted in his court in such cases and there is no reason whatsoever for the supposition that when the Subordinate Judge said that he had not given any opportunity to 148 the decree holder 's pleader to take any steps in execution of the decree after the dismissal of the adjournment application he was not right.
It could not be seriously suggested that such an opportunity was given to the decree holder, the dismissal order of the execution having been made at the same moment of time as the order dismissing the application for adjournment It is quite clear that the interest of justice demanded that the decree holder 's pleader should have been informed that his request for adjournment had been refused, and further given opportunity to state what he wanted done in that situation.
It was wholly unnecessary in such circumstances to speculate what the pleader would have done when faced with that situation.
I The solid fact remains that he was not given that opportunity and that being so, the order dismissing the execution was bad and was rightly corrected by the court its own initiative in the exercise of its inherent powers.
The point for determination then is whether such an order could be set aside by the High Court either in the exercise of its appellate or revisional powers.
It is plain that the High Court bad no jurisdiction in the exercise of its appellate jurisdiction to reverse this decision.
In the remand order itself it was held that it was difficult to say that the order by itself amounted to a final determination of any question relating to execution, discharge or satisfaction of a decree and that being so, it did not fall within the ambit of section 47 Civil Procedure Code.
We are in entire agreement with this observation.
The proceedings that commenced with the decree holder 's application for restoration of the execution and terminated with the order of revival can in no sense be said to relate to the determination of any question concerning the ,execution, discharge or satisfaction of the decree.
Such proceedings are in their nature collateral to the execution and are independent of it.
It was not contended and could not he seriously urged that an order under section 151 simpliciter is 149 appealable.
Under the Code of Civil Procedure certain specific orders mentioned in section 104 and Order XLIII, rule 1, only are appealable and no appeal lies from any other orders.
(Vide section 105, Civil Procedure Code).
An order made under action 151 is not included in the category of appealable orders.
In support of his contention that an order made under section 151 may in certain circumstances be appealable, Mr. Daphtary placed reliance two single Judge judgments of the Madras High Court and a Bench decision of Oudh.
[Vide Akshia Pillai vs Govindarajulu Chetty(1); Govinda Padayachi vs Velu Murugiah Chettiar(2); Noor Mohammad vs Sulaiman Khan(1)].
In all these cases execution sale had been set aside by the court in exercise of inherent powers and it was held that such orders were appealable.
The ratio of the decision in the first Madras case is by no means very clear and the reasoning is somewhat dubious.
In the other two cases the orders were held appealable the ground that they fell within the ambit of section 47, Civil Procedure Code, read with section 151.
It is unnecessary to examine the correctness of these decisions as they have no bearing the point before us, ' there being no analogy between an order setting aside an execution sale and an order setting aside the dismissal of an application.
The High Court was thus right in upholding the preliminary objection that no appeal lay from the order of the Subordinate Judge dated 25th April, 1945.
We now proceed to consider whether a revision was competent against the order of the 25th April, 1945, when no appeal lay.
It seems to us that in this matter really the High Court entertained an appeal in ' the guise of a revision.
The revisional ' jurisdiction of the High Court is set out in the 115th section of the Code of Civil Procedure in these terms: (I) A.I.R. 31924 Mad. 778.
(3) A.I.R. 1943 Oudh 35.
(2) A.I.R. 1933 Mad.
399 20 150 "The High Court may call for the record of any case which has been decided by any court subordinate to such High Court and in which appeallies thereto, and if such subordinate court appears: (a) to have exercised a jurisdiction not vested in it by law, or (b) to have failed to exercise a jurisdiction so vested, or (e) to have acted in the exercise of its jurisdiction illegally or with material irregularity, the High Court may make 'such order in the case as it thinks fit.,, A large number of cases have been collected in the fourth edition of Chitaley & Rao 's Code of Civil Procedure (Vol.
I), which only serve to show that the High Courts have not always appreciated the limits of the jurisdiction conferred by this section.
In Mohunt Bhagwan Ramanuj Das vs Khetter Moni Dassi(1), the High Court of Calcutta expressed the opinion that sub clause (c.) of section 115, Civil Pro cedure Code, was intended to authorize the High Courts to interfere.
and correct gross and palpable errors of subordinate courts, so as to prevent grave injustice in non appealable cases.
This decision was, however, dissented from by the same High Court in Enat Mondul vs Baloram Dey(2), but was cited with approval by Lort Williams J., in Gulabohand Bangur vs Kabiruddin Ahmed(1).
In these circumstances it is worthwhile recalling again to mind the decisions ,of the Privy Council this subject and the limits stated therein for the exercise of jurisdiction conferred by this section the High Courts.
As long ago as 1894, in Hajah Amir Has8an Khan 'vs Sheo Baksh Singh(1), the Privy Council made the following observations section 622 of the former Code of Civil Procedure, which was replaced by section 115 of the Code of 1908: "The question then is, did the Judges of the lower courts in this case, in the exercise of their (I) (1897) I C.W.N. 617.
(3) Cal.
(a) (4) (1883 84) L.R. xi I.A. 237.
151 jurisdiction, act illegally or with material irregularity.
It appears that they had perfect jurisdiction to decide the case, and even if they decided wrongly, they did not exercise their jurisdiction illegally or with material irregularity." In 1917 again in Balakrishna Udayar vs Vasudeva Aiyar(1), the Board observed: "It will be observed that the section applies to jurisdiction alone, the irregular exercise or nonexercise of it, or the illegal assumption of it.
The section is not directed against conclusions of law or fact in which the question of jurisdiction is not involved.
" In 1949 in Venkatagiri Ayyangar vs Hindu Religious Endowments Board, Madras(1), the Privy Council again examined the scope of section 115 and observed that they could see no justification for the view that the section was intended to authorize the High Court to interfere and correct gross and palpable errors of subordinate courts so as to prevent grave injustice in non appealable cases and that it would be difficult to formulate any standard by which the degree of err or of subordinate courts could be measured.
It was said " Section 115 applies only to cases in which no appeal lies, and, where the legislature has provided no right of appeal, the manifest intention is that the order of the trial Court, right or wrong, shall be final.
The section empowers the High Court to satisfy itself three matters, (a) that the order of the subordinate court is within its jurisdiction ; (b) that the case is one in which the court ought to exercise jurisdiction; and (c) that in exercising jurisdiction the court has not acted illegally, that is, in breach of some provision of law, or with material irregularity, that is, by committing some error of procedure in the course of the trial which is material in that it may have affected the ultimate decision.
If the High Court is satisfied those three matters,, it has no (1) (1917) L.R. 44 I,A. 26i.
(2) (1949) L.R. 76 I.A. 67.
power to interfere because it differs, however profoundly, from the conclusions of the subordinate court questions of fact or law.
" Later in the same year in Joy Chand Lal Babu vs Kamalaksha Choudhury(1), their Lordships had again adverted to this matter and reiterated what they had said in their earlier decision.
They pointed out "There have been a very large number of decisions of Indian High Courts section 115 to many of which their Lordships have been referred.
Some of such decisions prompt the observation that High Courts have not always appreciated that although error in a decision of a subordinate court does not by itself involve that the subordinate court has acted illegally or with material irregularity so as to justify interference in revision under sub section (c), nevertheless, if the erroneous decision results in the sub ordinate court exercising a jurisdiction not vested in it by law, or failing to exercise a jurisdiction so, vested, a case for revision arises under subsection (a) or subsection (b) and sub section (c) can be ignored.
" Reference may also be made to the observations of Bose J. in his order of reference in Narayan Sonaji vs Sheshrao Vithoba(2) wherein it was said that the words "illegally" and "material irregularity" do not cover either errors of fact or law.
They do not refer to the decision arrived at but to the manner in which it is reached.
The errors contemplated relate to material defects of procedure and not to errors of either law or fact after the formalities which the law prescribes have been complied with.
We are therefore of the opinion that in reversing the order of the executing court dated the 25th April, 1945, reviving the execution, the High Court exercised jurisdiction not conferred it by section 116 of the Code.
It is plain that the order of the Subordinate Judge dated the 25th April, .
1945, was one that he had jurisdiction to make, that in making that order he neither acted in excess, of his jurisdiction (I) (I949) T .R .
76 J. A. 131.
(2) A.I.R. 1948 Nag.
153 nor did he assume jurisdiction which he did not possess.
It could not be said that in the exercise of it he acted with material irregularity or committed any breach of the procedure laid down for reaching the result.
All that happened was that he felt that be had committed an error, in dismissing the main execution while he was merely dealing with an adjournment application.
It cannot be said that his omission in not taking into consideration what the decree holder 's pleader would have done had he been given the opportunity to make his submission amounts to material irregularity in the exercise of jurisdiction.
This speculation was hardly relevant in the view of the case that he took.
The Judge had jurisdiction to correct his own error without entering into 'a discussion of the grounds taken by the decree holder or the objections raised by the judgment debtors.
We are satisfied therefore that the High Court acted in excess of its jurisdiction when it entertained an application in revision against the order of the Subordinate Judge dated the 25th April, 1945, and set it aside in exercise of that jurisdiction and remanded the case for further enquiry.
The result therefore is that Appeal No. 12 of 1951 is allowed, as the interlocutory remand order of the High Court was one without jurisdiction and that being so, the subsequent proceedings taken in consequence of it, viz., the order of the Subordinate Judge restoring the application for execution to the extent of Rs. 92,000, and the further order of the High Court appeal restoring the execution case terms, are null and void and have to be set aside and the order of the executing court dated the 25th April, 1945, restored.
We order accordingly.
Appeal No. 13 of 1951 is dismissed.
In the peculiar circumstances of this case we direct that the parties be left to bear their own costs throughout, that is, those incurred by them in the High Court in the proceedings which terminated with the remand order, the costs incurred in the subordinate court after the remand order, and the costs there after 154 incurred in the High Court and those incurred in this court i n these appeals.
Appeal No. 12 allowed.
Appeal No. 13 dismissed.
I Agent for the appellant in C. A. No. 12 and respondent in C.A. No. 12: P. K. Chatterjee.
Agent for the respondents in C. A. No. 12 and appellants in C. A. No. 13: Sukumar Ghose.

summary:
A Subordinate Judge dismissed an application by a decree holder for adjournment of an execution case and by the same order dismissed the execution case itself without informing the decree.
holder 's pleader that the application for adjournment had been dismissed and asking him whether be had to make any submission in 137 the matter of the execution case, and an application for restoration of the execution case setting aside the order of dismissal, the Subordinate Judge, finding that he had committed an error which had resulted in denial of justice restored the execution case in the exercise of the inherent powers of the court under section 151, Civil Procedure Code.
The judgment debtor preferred an appeal and an application, for revision to the High Court against this order.
The High Court held that the appeal was not maintainable but set aside the order of the Subordinate Judge in the exercise of its revisional powers and remanded the case to the Subordinate Judge for fresh disposal after considering whether it would have been possible for the decree holder to take any further steps in connection with the execution application after the dismissal of the application for adjournment: Held, (i) that the order of the Subordinate Judge dismissing the execution case without giving an opportunity to the decree holder 's pleader to state what he had to say the case itself was bad and was rightly set aside by the court its own initiative in exercise of its inherent powers.
(ii)The High Court had no jurisdiction in the exercise of its appellate powers to reverse the order of restoration as that order by itself did not amount to a final determination of any question relating to execution, discharge or satisfaction of a decree within the meaning of section 47, Criminal Procedure Code, and an order made under section 151, Criminal Procedure Code, simpliciter is not an appealable order.
Akshia Pillai vs Govindarajulu Chetty (A.I.R. 1924 Mad.
778), Govinda Padayachi vs Velu Murugiah Chettiar (A.I.R. and Noor Mohammad vs Sulaiman Khan (A.I.R. 1943 Oudh 35) distinguished.
(iii)As the order of the Subordinate Judge was one that he had jurisdiction to make, and as he had, in making that order, neither acted in excess of his jurisdiction or with material irregularity nor committed any breach of procedure, the High Court acted in excess of its revisional jurisdiction under section 115, Civil Procedure Code, and the order of remand and all proceedings taken subsequent to that order were illegal.
Section 115, Civil Procedure Code, applies to matters of jurisdiction alone, the irregular exercise or non exercise of it or the illegal assumption of it, and if a subordinate court had jurisdiction to make the order it has made and has not acted in breach of any provision of law or committed any error of procedure which is material and may have affected the ultimate decision, the High Court has no power to interfere, however profoundly it may differ from the conclusions of that court questions of fact or law.
Rajah Amir Hassan Khan vs Sheo Baksh Singh (1883 83) 11 I.A. 237, Bala Krishna Udayar vs Vasudeva Aiyar (1917) 44 IA.
261, Venkatagiri Ayyangar vs Hindu Religious Endowments Board 138 1949) 76 I.A. 67, Joy Chand Lal Babu vs Kamalaksha Chowdhury 1949)76 I.A.131 and Narayan Sonaji vs Sheshrao Vithoba (I.L.R. referred to.
Mohunt Bhagwan Ramanuj Das vs Khettar Moni Dassi and Gulab Chand Bargur vs Kabiruddin Ahmed , dissented from.


judgement:
Appeal No. 327 of 1959.
Appeal from the order dated June 28, 1956, of the Bombay High Court at Nagpur in Misc.
First Appeal No. 15 of 1954.
98 774 A. V. Viswanatha Sastri, Shankar Anand and A. G. Batnaparkhi, for the appellant.
K. N. Rajagopal Sastri, as amicus curiae.
November 29.
The Judgment of the Court was delivered by SHAH, J.
Ramachandra Dhondo Datar hereinafter referred to as the respondent was employed by the appellant company in its publications branch.
By agreement dated March 23, 1943, the appellant company agreed to pay to the respondent as from April 1, 1943, remuneration per annum equal to 3 1/2% of the gross sales or Rs. 12,000 whichever was greater.
The agreement was to remain in operation for ten years from April 1, 1943, in the first instance and was renewable at the option of the respondent for such period as he desired.
By notice dated April 19, 1948, served on the respondent on April 22, 1948, the appellant company terminated the employment of the respondent.
The respondent then filed a civil suit in the court of the Fifth Additional District Judge, Nagpur, for a decree for Rs. 1,30,000 being the amount of compensation for wrongful termination of employment, arrears of salary and interest.
On July 17, 1953, the court after giving credit for the amount received by the respondent passed a decree for Rs. 42,359 (which was inclusive of Rs. 36,000 as compensation for termination of employment and Rs. 6,000 as salary in lieu of six months notice and interest) and costs and interest on judgment.
The respondent then applied for execution of the decree and claimed Rs. 54,893 12 0 less Rs. 18,501 10 0 decreed against him in a cross suit filed by the appellant company.
The Income Tax Officer, Nagpur, served a notice under section 46 of the Indian Income Tax Act upon the respondent and also gave intimation to the District Judge, Nagpur, that the appellant company be permitted to deduct at source and to pay into the Government Treasury Rs. 15,95613 0 as income tax, surcharge and super tax due on the sum of Rs. 50,972 2 0 awarded to the respondent.
The appellant company also applied that the 775 executing Court do declare that the appellant company was entitled and in law bound to deduct the tax due on the amount.
The learned Judge directed the appellant company to pay to the Income Tax Department Rs. 15,956 13 0 on account of income tax and super tax on the amount due to the respondent and directed it to pay the balance in court after filing a receipt for payment of tax from the Income Tax department.
In appeal to the High Court of Judicature at Nagpur, the order passed by the District Judge was reversed and execution as claimed by the respondent was directed.
The appellant company contends that under section 18(2) of the Income Tax Act, it was bound to deduct the tax computed at the appropriate rate on the salary payable to the respondent as the amount due under the decree represented salary.
Section 18 sub section
(2) of the Income Tax Act in so far as it is material provides that any person paying any amount chargeable under the head "salaries" shall at the time of payment deduct income tax and super tax at the rate representing the average of the rates applicable to the estimated total income of the assessee under the head "salary".
Sub section
(7) declares that a person failing to deduct the taxes required by the section shall be deemed to be an assessee in default in respect of such tax.
The Legislature has, it is manifest, imposed upon the employer the duty to deduct tax at the appropriate rate on salary payable to the employee and if he fails to do so, the tax not deducted may be recovered from him.
But the liability to deduct arises in law, if the amount is due and payable as salary.
In this case, there has been no assessment of tax due by the Income Tax Officer on the amount payable to the respondent.
Under section 46(5), any person paying salary to an assessee may be required by the Income Tax Officer to deduct arrears of tax due from the latter and the employer is bound to comply with such a requisition and to pay the amount deducted to the credit of the Government.
But this order can only be passed if income tax has been assessed and has remained unpaid.
It is undisputed that at the, material 776 time, no tax was assessed against the respondent; the Income Tax Officer had accordingly no authority to issue a notice under section 46(5).
Nor could the Income Tax Officer claim to recover tax due by a proceeding in the nature of a garnishee proceeding by applying to the civil court to attach the Judgment debt payable by the company.
The application submitted by the Income Tax Officer must therefore be ignored.
Undoubtedly, the employer is by section 18 of the Act liable to deduct from the salary payable by him to his employee the amount of tax at the average rate appli cable to the estimated total income; but can it be said that as between the appellant company and the respondent the decretal amount represented salary? The respondent had filed a suit for a decree for arrears of salary, compensation for wrongful termination of employment and interest.
The court having passed a decree on that claim, it became a judgment debt.
It may have been open to the appellant company in the suit to apply to the court for making a provision in the decree for payment of income tax due by the respondent, but no such provision was made.
We are not concerned to decide in this appeal whether in the hands of the respondent the amount due to him under the decree, when paid, will be liable to tax; that question does not fall to be determined in this appeal.
The question to be determined is whether as between the appellant company and the respondent the amount decreed is due as salary payment of which attracts the statutory liability imposed by section 18.
The claim decreed by the civil court was for compen sation, for wrongful termination of employment, arrears of salary, salary due for the period of notice and interest and costs, less withdrawals on salary account.
The amount for which execution was sought to be levied was the amount decreed against which was set off the claim under the cross decree.
A substantial part of the claim decreed represented compensation fir wrongful termination of employment and it would be difficult to predicate of the claim sought to be enforced what part thereof if any represented salary due.
Granting that compensation payable to an 777 employee by an employer for wrongful termination of employment be regarded as in the nature of salary, when the claim is merged in the decree of the court, ' the claim assumes the character of a judgment debt and to judgment debts section 18 has not been made applicable.
The decree passed by the civil court must be executed subject to the deductions and adjustments permissible under the Code of Civil Procedure.
The judgment debtor may, if he has a cross decree for money, claim to set off the amount due thereunder.
If there be any adjustment of the decree, the decree may be executed for the amount due as a result of the adjustment.
A third person who has obtained a decree against the judgment creditor may apply for attachment of the decree and such decree may be executed subject to the claim of the third person: but the judgment debtor cannot claim to satisfy, in the absence of a direction in the decree to that effect the claim of a third person against the judgment creditor, and pay only the balance.
The rule that the decree must be executed according to its tenor may be modified by a statutory provision.
But there is nothing in the Income Tax Act which supports the plea that in respect of the amount payable under a judgment debt of the nature sought to be enforced, the debtor is entitled to deduct income tax which may become due and payable by the judgment creditor on the plea that the cause of action on which the decree was passed was the contract of employment and a part of the claim decreed represented amount due to the employee as salary or damages in lieu of salary.
Counsel for the appellant company strongly relied upon the decision of the House of Lords in Westminster Bank Ltd. vs Riches (1).
That was a case in which in an action brought by one R against the Westminster Bank trustee of the estate of one X R was awarded a decree for pound 36,255 principal and pound 10,028 as interest.
The Bank thereafter brought an action for a declaration that it had satisfied the judg ment in the action by R by paying him the amount (1) 18 Tax Cases 159.
778 due less pound 5,014, the latter sum representing income tax on the interest awarded by the judgment.
It was held by the House of Lords that pound 10,028 was "interest of money" within Schedule D and General Rule 21 of the Income Tax Act, 1918, and that income tax was deductible therefrom.
In that case, the only argument advanced on behalf of the Bank is set out in the speech of Viscount Simon, L. C. at p. 187: "The appellant contends that the additional sum of pound 10,028 though awarded under a power to add interest to the amount of the debt, and though called interest in the judgment, is not really interest such as attracts Income Tax, but is damages.
The short answer to this is that there is no essential incompatibility between the two conceptions.
The real question, for the purposes of deciding whether the Income Tax Acts apply, is whether the added sum is capital or income, not whether the sum is damages or interest." The House of Lords in that case by a majority held that pound 10,028 awarded under the judgment represented not capital but interest and was liable to tax.
In our view, ' this case has no application to the facts of the present case.
In the case before us, there is a decree passed in favour of the respondent: under the scheme of the Civil Procedure Code, that decree has to be executed as it stands, subject to such deductions or adjustments as are permissible under the Code.
There was no tax liability which the respondent was assessed to pay in respect of this amount till the date on which the appellant company sought to satisfy the alleged tax liability of the respondent.
As between the appellant company and the respondent, the amount did not represent salary; it represented a judgment debt and for payment of income tax thereon, no provision was made in the decree.
The Civil Procedure Code bars an action of the nature which was filed in Westminster Bank 's case (supra).
The defence to the execution if any must be raised in the execution proceeding and not by a separate action.
The amount payable by the appellant company to the respondent was not salary but a judgment debt, and before paying that debt the appellant company could not claim 779 to deduct at source tax payable by the respondent.
Nor could the appellant company seek to justify its plea on the ground that the judgment creditor was indebted to a third person.
The principle of the case in Manickam Chettiar vs Income Tax Officer, Madura (1), on which reliance was also sought to be placed by the appellant company has no application to this case.
In Manickam Chettiar 's case (1), in execution of a money decree certain properties belonging to a judgment debtor were attached and sold and the sale proceeds were received by the court.
The Income Tax Officer who had assessed the decree holder to tax payable by him on his other income applied to the court for an order directing payment to him out of the sale proceeds the amount of income tax due by the decree holder.
It was held that the claim for income tax was entitled to priority in payment and the court had inherent power to make an order on the application for payment of money due as income tax.
Tax had admittedly been assessed, and proceedings substantially for recovery of the tax so assessed were adopted by the Income Tax Officer.
It was held in the circumstances that the court had jurisdiction to direct recovery of tax out of the amount standing to the credit of the decree holder.
The principle of that case can have no application to the facts of the present case.
The respondent had not appeared before us, but we have been assisted by Mr. Rajagopala Sastri and we are indebted to him for placing the evidence and the various aspects of the case on a true appreciation of which the question in issue fell to be determined.
The appeal fails and is dismissed.
As there was no appearance for the respondent, there will be no order for costs.
Appeal dismissed.
(1) VI I.T. R. 180.

dataset_name: IN-Abs

summary:
In a civil suit the respondent obtained a decree against his employer the appellant company for a sum which included com pensation for wrongful termination of his service, arrears of salary, interest and costs of the suit, and then applied for execution of the decree.
The Income tax Officer served a notice upon the respondent under section 46 of the Indian Income tax Act and applied to the District Judge that the appellant be permitted to deduct at source the income tax, surcharge and super tax on the sum awarded to the respondent and pay the same in the Government Treasury.
The appellant company also moved the executing court for a declaration that they were entitled and bound to deduct the tax due on the amount.
The District judge directed the appellant company to pay the income tax and super tax to the Income Tax Department and pay the balance in Court together with a receipt for the income tax paid.
In appeal the High Court reversed the order of the District judge and directed the execution of the decree as claimed by the respondent.
On appeal by the appellant company, Held, that as no tax was assessed against the respondent the Income Tax Officer could not issue a notice under section 46(5) requiring the appellant company to deduct tax from the decretal amount.
A substantial part of the decretal amount did not represent salary" of the respondent: it consisted of compensation for wrongful termination of the respondent 's service, salary in lieu of six months ' notice, interest and costs of the suit.
It was a judgment debt and no provision for payment of income tax was made in the decree which was liable to be executed as prayed by the respondent.
The appellant company was not therefore entitled or bound to deduct income tax under section 18 sub section
(2) of the Act.


judgement:
Appeals Nos. 776 and 777 of 1957.
Appeals by special leave from the judgment and order dated September 25, 1956, of the Bombay High Court in Income tax Application No. 48 of 1956; and from the judgment and order dated March 17,1954, of the Income tax Appellate Tribunal, Bombay, in E.P.T.A. Nos. 757, 903 and 944 of 1948 49, respectively.
A. V. Viswanatha Sastri and G. Gopalakrishnan, for the appellants.
A. N. Kripal and D. Gupta.
for the respondent.
November 30.
The Judgment of the Court was delivered by HIDAYATULLAH, J.
These are two appeals, with special leave, against an order of the High Court of Bombay rejecting a petition under section 66(2) of the Indian Income tax Act and the order of the Income tax Appellate Tribunal, Bombay, in respect of which the petition to the High Court was made.
Messrs. section C. Cambatta & Co. (Private) Ltd., Bombay, have filed these appeals, and the Commissioner of Excess Profits Tax, Bombay, is the respondent.
We are concerned in these appeals with three chargeable accounting periods, each ending respectively on December 31, beginning with the year, 1943 and ending with the year, 1945.
807 The appellants carry on various businesses, and one such business was the running of a theatre and restaurant, called the Eros Theatre and Restaurant.
In October, 1943, a subsidiary Company called the Eros Theatre and Restaurant, Ltd. was formed.
The paid up capital of the subsidiary Company was Rs. 7,91,100 divided into 7,911 shares of Rs. 100 each.
7,901 shares were allotted to the appellant Company as consideration for assets, goodwill, stock in trade and book debts which were taken over by the subsidiary Company, and the remaining 10 shares were held by the Cam batta family.
The assets which were transferred were as follows: Assets: Assets transferred.
Rs.1,28,968 Stock in trade.
Rs.40,000 Book debts. .
Rs.100 Rs.1,69,068 They together with the capital reserve of Rs. 6,21,032 made up the amount of Rs. 7,90,100.
In the books of the subsidiary Company, the share capital account was shown separately as follows: Rs. 2,50,000 debited to the various assets account.
Rs. 5,00,000 debited to the goodwill account.
Rs. 40,000 debited to the stock in trade account.
Rs. 100 debited to the book debts account.
It will thus appear that goodwill was not shown separately in the appellants ' account books, but only in the accounts of the subsidiary Company.
In working out the capital of the two Companies for excess profits tax, a sum of Rs. 5,00,000 was claimed as goodwill as part of the capital of the subsidiary Company.
Both the Department as well as the Tribunal held that section 8(3) of the Excess Profits Tax Act applied; and the goodwill was not taken into account in working out the capital.
The Tribunal declined to state a case, but the High Court directed that a reference be made on two questions, which were framed as follows: 808 "(1) Whether on the facts of the case, the Appellate Tribunal was right in applying section 8(3) of the Excess Profits Tax Act? (2).
Whether in the computation of the capital employed. in the business of the assessee, the Tribunal erred in. not including the value of the goodwill or any "portion thereof?" The High Court by its judgment and order answered the first question in the negative and the second, in the affirmative.
It held that sub section
(5) and not sub section
(3) of section 8 of the Excess Profits Tax Act was applicable.
It, therefore, held that "the Tribunal should have allowed for the value of the goodwill whatever it thought was reasonable at the date of the transfer.
" When the matter went before the Tribunal again, three affidavits and a valuation report by a firm of architects were filed.
The goodwill, according to the report of the architects, amounted to Rs. 25 lakhs.
It may be mentioned here that the subsidiary Company was using the premises under a lease granted on November 20, 1944, for three years beginning from April 1, 1944, on a rental of Rs. 9,500 per month.
The Tribunal came to the conclusion that no goodwill had been acquired by the business of the Theatre as such, and that whatever goodwill there was, related to the site and building itself.
They then proceeded to consider what value should be set upon the goodwill on the date of the transfer of the subsidiary Company as directed by the High Court.
They took into account certain factors in reaching their conclusions.
They first considered the earning capacity of the business, and held that prior to 1942 the business had not made profits, and that the name of Eros Theatre and Restaurant thus by itself had no goodwill at all.
They, therefore, considered that the only goodwill which had been acquired attached to the lease, which the trustees had given to the Eros ;Theatre and Restaurant Ltd., and computing the goodwill as the value of the lease to the subsidiary Company, they felt that Rs. 2 lakhs was a liberal estimate of the value of the goodwill in the hands of Eros Theatre and Restaurant, Ltd. at the material time.
809 Petitions under sections 66(1) and 66(2) read with a. 21 of the Excess Profits Tax Act were respectively rejected by the Tribunal and the High Court; but the appellants obtained special leave from this Court, and filed these appeals.
In our opinion, a question of law did arise in the case whether the goodwill of the Eros Theatre and ' Restaurant, Ltd., was calculated in accordance with law.
The Tribunal seems to have taken into account only the value of the leasehold of the site to the subsidiary Company, and rejected other considerations which go to make up the goodwill of a business.
No doubt, in Cruttwell vs Lye(1), Lord Eldon, L. C. observed that goodwill was "nothing more than the probability that the old customers would resort to the old place".
The description given by Lord Eldon has been considered always to be exceedingly narrow.
The matter has to be considered from the nature of the business, because the goodwill of a public inn and the goodwill of a huge departmental stores cannot be calculated on identical principles.
The matter has been considered in two cases by the House of Lords.
The first case is Trego vs Hunt (2), where all the definitions previously given were considered, and Lord Macnaghten observed that goodwill is "the whole advantage, whatever it may be of the reputation and connection of the firm, which may have been built up by years of honest work or gained by lavish expenditure of money".
In a subsequent case reported in Inland Revenue Commissioners vs Muller & Co.s.
Margarin, Ltd. (3), Lord Macnaghten at pp.
223 and 224 made the following observations:.
"What is goodwill? It is a thing very easy to describe, very difficult to define.
It is the benefit and advantage of the good name, reputation, and connection of a business.
It is the attractive force which brings in custom.
It is the one thing which distinguishes an old established business from a new business at its first start. . .
If there is one attribute common to all cases of goodwill in it is the attribute (1) 346.
(2) (3) 810 of locality.
For goodwill has no independent existence.
It cannot subsist by itself. 'It must be attached to a business.
Destroy the business, and the goodwill perishes with it, though elements remain which may perhaps be gathered up and be revived again".
These two cases and others were considered in two 'Australian cases.
The first is Daniell vs Federal Com missioner of Taxation (1), where, Knox, C. J. observed: "My opinion is that while it cannot be said to be absolutely and necessarily inseparable from the premises or to have no separate value, prima facie at any rate it may be treated as attached to the premises and whatever its value may be, should be treated as an enhancement of the value of the premises".
In the second case reported in Federal Commissioner of Taxation vs Williamson (2), Rich, J., observed at p. 564 as follows: "Hence to determine the nature of the goodwill in any given case, it is necessary to consider the type of business and the type of customer which such a business is inherently likely to attract as well as the surrounding circumstances. .
The goodwill of a business is a composite thing referable in part to its locality, in part to the way in which it is conducted and the personality of those who conduct it, and in part to the likelihood of competition, many customers being no doubt actuated by mixed motives in conferring their custom".
In Earl Jowitt 's Dictionary of English Law, 1959 Edn., "goodwill" is defined thus: "The goodwill of a business is the benefit which arises from its having been carried on for some time in a particular house, or by a particular person or firm, or from the use of a particular trade mark or trade name" It will thus be seen that the goowill of a business depends upon a variety of circumstances or a combination of them.
The location, the service, the standing of the business, the honesty of those who run it, and the lack of competition and many other factors go individually or together to make up the goodwill, (1) ; (2) ; 811 though locality always plays a considerable part.
Shift the locality, and the goodwill may be lost.
At the same time, locality is not everything.
The power to attract custom depends on one or more of the other factors as well.
In the case of a theatre or restaurant, what is catered, how the service is run and what the competition is, contribute also to the goodwill.
From the above, it is manifest that the matter of goodwill needs to be considered in a much broader way than what the Tribunal has done.
A question of law did arise in the case, and, in our opinion, the High Court should have directed the Tribunal to state a case upon it.
Civil Appeal No. 776 of 1957 is allowed.
The High Court will frame a suitable question, and ask for a statement of the case from the Tribunal, and decide the question in accordance with law.
The costs of this appeal shall be borne by the respondent; but the costs in the High Court shall abide the result.
There will be no order in Civil Appeal No. 777 of 1957.
C. A. No. 776 of 1957 allowed.

summary:
The appellant carried on various businesses and one such was the running of a Theatre and Restaurant.
In October, 1943, a subsidiary company was formed which was using the premises of the Theatre under a lease granted to it from April, 1944.
In working out the capital of the two companies for excess profits tax, a claim of rupees five lakhs for goodwill as part of the capital of the subsidiary company was not taken into account.
On reference to the High Court it held that the Tribunal should have allowed the value of the goodwill whatever it thought was reasonable at the date of transfer.
Thereafter the Tribunal took into account only the value lease hold of the site to the subsidiary company and came to the conclusion that no goodwill had been acquired by the business of the Theatre as such and whatever goodwill there was related to the site of building itself, and estimated the value of goodwill at rupees two lakhs.
Petition under sections 66(1) and 66(2) read with section 21 of the Excess Profits Tax Act being rejected by the Tribunal and the High Court, the appellants came appeal by special leave.
Held, that the goodwill of a business needed to be considered in a broader way.
It depended upon a variety of circumstances or a combination of them.
The nature, the location, the (1) 102 806 service, the standing of the business, the honesty of those who run it, and the lack of competition and many other factors went individually or together to make up the goodwill, though the locality always played a considerable part.
Shift the locality, and the goodwill may be lost but it was not everything.
The power to attract custom depended on one or more of the other factors as well.
In the instant case a question of law did arise, whether the goodwill of the Eros Theatre and Restaurant Ltd. was calculated in accordance with law.
Cruttwell vs Lye, (1810) 17 ves.
335, Trego vs Hunt, L.), Inland Revenue Commissioners vs Muller & Co. 's Margarin, Ltd., 9101 A. C. 217 (H. L.), Daniell vs Federal Commissioner of Taxation; , and Federal Commissioner of Taxation vs Williamson, ; , discussed.


judgement:
Appeals Nos. 187 and 190 of 1960.
Appeals from the judgment dated 22nd January, 1957, of the Punjab High Court (Circuit Bench), Delhi, in Civil Reference No. 6 of 1953.
Veda Vyasa, section K. Kapur and K. K. Jain, for the appellant.
B. Ganapathi Iyer and D. Gupta, for the respondent.
November 30.
The Judgment of the Court was delivered by KAPUR, J.
These appeals are brought by the assessee company against a common judgment and order of the Punjab High Court by which four appeals were decided in Civil Reference No. 6 of 1953.
The appeals relate to four assessment years, 1947 48, 1948 49, 1949 50 and 1950 51.
Two of these assessments, i.e., for the years 1947 48 and 1948 49 were made on the 800 appellant as successor to the two limited companies hereinafter mentioned.
Briefly stated the facts of the case are that the appellant company was incorporated in the year 1947.
Its objects inter alia were to acquire as a going concern activities, functions and business of the Delhi Stock & Share Exchange Limited and the Delhi Stock and Share Brokers Association Limited and to promote and regulate the business of exchange of stocks and shares, debentures and debenture stocks, Government securities, bonds and equities of any description and with a view thereto, to establish and conduct Stock Exchange in Delhi and/or elsewhere.
Its capital is Rs. 5,00,000 divided into 250 shares of Rs. 2,000 each on which dividend could be earned.
The appellant company provided a building and a hall wherein the business was to be transacted under the supervision and control of the appellant.
The appellant company also made rules for the conduct of business of sale and purchase of shares in the Exchange premises.
The total income for the year 1947 48 was Rs. 29,363 out of which a sum of Rs. 15,975 shown as admission fees was deducted and the income returned was Rs. 13,388.
In the profit and loss account of that year Members ' admission fees were shown as Rs. 9,000 and on account of Authorised Assistants admission fees Rs. 6,875.
The Income tax Officer who made the assessment for the year 1947 48 disallowed this deduction.
The return for the following year also was made on a similar basis but the return for the years 1949 50 and 1950 51 did not take into account the admission fees received but in the Director 's report the amounts so received were shown as having been taken directly into the balance sheet.
The Income tax Officer, however, disallowed and added back the amount so received to the income returned by the appellant.
Against these orders appeals were taken to the Appellate Assistant Commissioner who set aside the additional assessments made under section 34 in regard to the assessment years 1947 48, 1948 49 and 1949 50 and the 4th appeal in regard to the year 1950 51 was decided against the appellant.
Both sides appealed 801 to the Income tax Appellate Tribunal against the respective orders of the Appellate Assistant Commissioner and the Tribunal decided all the appeals in favour of the appellant.
It was held by one of the members of the Tribunal that the amounts received as entrance fees were intended to be and were in fact treated as capital receipts and were therefore excluded from assessment and by the other that as there was no requisite periodicity, those amounts were not taxable.
At the instance of the respondent a case was stated to the High Court on the following question: "Whether the admission fees of Members or Authorised Assistants received by the assessee is taxable income in its hands?" The High Court answered the question in favour of the respondent.
The High Court held that the appellant was not a mutual society and therefore was not exempt from the payment of income tax; that it had a share capital on which dividend could be earned and any person could become a shareholder of the company by purchasing a share but every shareholder could not become a member unless he was enrolled, admitted or elected as a member and paid a sum of Rs. 250 as admission fee.
On becoming a member he was entitled to exercise all rights and privileges of membership.
It also found that the real object of the company was to carry on business as a Stock Exchange and the earning of profits.
It was held therefore that the admission fees fell within the ambit of the expression "profits and gains of business, profession or vocation".
The further alternative argument which was raised, i.e., that the income fell under section 10(6) of the Act, was therefore not decided.
Mr. Veda Vyasa contended on behalf of the appellant that there were only 250 members of the appellant company; that the amount received as membership fees was shown as capital in the books of the company and there was no periodicity and therefore the amounts which had been treated as income should have been treated as capital receipts and therefore exempt from assessment.
It was firstly contended that the question did not arise out of the order of the 802 Tribunal and that a new question had been raised but the objection is futile not only because of the absence of any such objection at the stage of the drawing up the statement of the case but also because of failure to object in the High Court; nor do we see any validity in the objection raised.
That was the only matter in controversy requiring the decision of the court and was properly referred by the Tribunal.
It was then contended that the question had to be answered in the light of facts admitted or found by the Tribunal and that the nature of the appellant 's business or the rules in regard to membership could not be taken into consideration in answering the question.
That again is an unsustainable argument.
The statement of the case itself shows that all these matters were taken into consideration by one of the members of the Tribunal and the learned judges of the High Court also decided the matter on that material which had been placed before the Income tax authorities and which was expressly referred to in their orders and which again was placed before the High Court in the argument presented there on behalf of the appellant company.
It is wholly immaterial in the circumstances of the present case to take into consideration as to how the appellant treated the amounts in question.
It is not how an assessee treats any monies received but what is the nature of the receipts which is decisive of its being taxable.
These amounts were received by the appellant as membership admission fees and as admission fees paid by the members on account of Authorised Assistants.
As far as the latter payment is concerned that would fall within the decision of this Court in Commissioner of Income tax.
vs Calcutta Stock Exchange Association Ltd. (1) and therefore is taxable income.
The former, i.e., members admission fees has to be decided in accordance with the nature of the business of the appellant company, its Memorandum and Articles of Association and the Rules made for the conduct of business.
The appellant company was an association which carried on a trade and its profits were divisible as dividend amongst the shareholders.
(1) 803 The object with which the company was formed was to promote and regulate the business in shares, stocks and securities etc., and to establish and conduct the business of a Stock Exchange in Delhi and to facilitate the transaction of such business.
The business was more like that in Liverpool Corn Trade Association vs Monks (1).
In that case an association was formed with the object of promoting the interest of corn trade with a share capital upon which the association was empowered to declare a dividend.
The Association provided a Corn Exchange market, newsroom and facilities for carrying on business and membership was confined to persons engaged in the corn trade and every member was required to be a shareholder and had to pay an entrance fee.
The Association also charged the members and every person making use of facilities a subscription which varied according to the use made by them.
The bulk of the receipts of the Association was derived from entrance fees and subscriptions.
It was therefore contended that the Association did not carry on a trade and that it was a mutual association and entrance fees and subscriptions should be disregarded in computing assessment of the assessable profits.
It was held that it was not a mutual association whose transactions were inca pable of producing a profit; that it carried on a trade and the entrance fee paid by members ought to be included in the associations receipts for purposes of computing the profit.
Rowlatt, J. said at p. 121: "I do not see why that amount is not a profit.
The company has a capital upon which dividends may be earned, and the company has assets which can be used for the purpose of obtaining payments from its 'members for the advantages of such use, and one is tempted to ask why a profit is not so made exactly on the same footing as a profit is made by a railway company who issues a traveling ticket at a price to one of its own shareholders, or at any rate as much a profit as a profit made by a company from a dealing with its own shareholders in a line of business which is restricted to the shareholders." (1) 804 In Commissioner of Income tax, Bombay City vs Royal Western India Turf Club Ltd. (1) this Court rejected the applicability of the principle of mutuality because there was no mutual dealing between members inter se.
There was no putting up a common fund for discharging a common obligation undertaken by the contributors for their mutual benefit and for this reason the case decided by the House of Lords in Styles V. New York Life Insurance Company (2) was held not applicable.
In the present case the Memorandum of Association shows that the object with which the company was formed was to promote and regulate the business of exchange of stocks, shares, debentures, debenture stocks etc.
The income, if any, which accrued from the business of the appellant company was distributable amongst the shareholders like in every joint stock company.
According to the Articles of Association the members included shareholders and members of the Exchange and according to the rules and bye laws of the appellant company 'member ' means an individual, body of individuals, firms, companies, corporations or any corporate body as may be on the list of working members of the Stock Exchange for the time being.
In the Articles of Association cls.
7 & 8, provision was made for the election of members by the Board of Directors and Rules 9 & 10 laid down the procedure for the election of these members.
The entrance fees were payable by the trading members elected under the Rules and Bylaws of the Association, who alone with their Associates, could transact business in stocks and shares in the Association.
Therefore, the body of trading members who paid the entrance fees, and the shareholders among whom the profits were distributed were not identical and thus the element of mutuality was lacking.
It is the nature of the business of the company and the profits and the distribution thereof which are the determining factors and in this case it has not been shown that the appellants business was in any way different from that which was carried on in the (1) ; , 308.
(2) ; 805 case reported as Liverpool Corn Trade Association vs Monks (1).
In our opinion the judgment of the High Court is right and the appeals are therefore dismissed with costs.
One hearing fee.
Appeals dismissed.

summary:
The object with which the appellant company was formed was to promote and regulate the business in shares, stocks and securities etc., and to establish and conduct a Stock Exchange in order to facilitate the transaction of such business.
Its capital was divided into shares on which dividend could be earned.
it provided a building wherein business was to be transacted under its supervision and control.
It made rules for the conduct of business of sale and purchase of shares in the Exchange premises.
During the assessment year in question the company 's receipts consisted of certain amounts received as admission fee from Members and Authorised Assistants and the question stated to the High Court for its opinion was whether these fees in the hands of the appellant were taxable income.
The High Court answered the question in the affirmative.
It held that the appellant was not a mutual society, that dividends could be earned on its share capital, that any person could become a share holder but every share holder was not a member unless he paid the admission fee and the real object of the company was to carry on business of exchange of stocks and earn profits.
The case of the appellant, inter alia, was that as the amount received as membership fee was shown as capital in the books of the company and there was no periodicity, it should be treated as capital receipt exempt from assessment.
799 Held, that the High Court was right in its decision and the appeals must be dismissed.
It was wholly immaterial how the appellant treated the amounts in question.
It is the nature of the receipt and not how the assessee treated it that must determine its taxability.
AS: Since the fee received on account of Authorised Assisstants fall within the decision of this Court in Commissioner of Income tax vs Calcutta Stock Exchange Association Ltd., , it must be held to be taxable income.
The question as to whether the Members ' admission fee was taxable income was to be determined by the nature of the business of the company, its profits and the distribution thereof as disclosed by its Memorandum and Articles of Association and the rules made for the conduct of business.
They showed that the income of the company was distributable amongst its shareholders ;is in any other joint stock company, and the body of trading members who paid the entrance fees and share holders were not identical.
The element of mutuality was, therefore, lacking.
Liverpool Corn Trade Association vs Monks, (1926) 2 K. B. 110, applied.
Commissioner of Income tax, Bombay City vs Royal Western India Turf Club Ltd., ; and Styles vs New York Life Insurance Co., ; , referred to.


judgement:
Appeal No.424 of 1957.
Appeal by special leave from the judgment and order dated January 25, 1955, of the Patna High Court in Misc.
Judicial Case No. 621 of 1953.
N. C. Chatterjee and R. C. Prasad, for the appellant.
K. N. Rajagopal Sastri and D. Gupta, for the respondent.
791 1960.
November 30.
The Judgment of the Court was delivered by KAPUR, J.
This is an appeal by special leave ' against the judgment and order of the High Court at Patna answering the question referred to it by the Income tax Appellate Tribunal against the assessee who is the appellant before us.
The appeal relates to three assessments made on the appellant for the respective assessment years 1945 46, 1946 47 and 1947 48.
The appellant is a Zamindar and owns considerable properties.
In the accounting years he granted licences to different parties to prospect for Bauxite.
The particulars of the licences are: Received from Date of the Period of Assess Amount Licence Licence ment year Received.
Rs. 1.Aluminium Corporation ofIndia Ltd. 20 1 1945 6 months 1945/46 15,290/ .
2.Indian Aluminium Co.Ltd. 26 5 945 1 year 1946/47 1,24,789/ .
3.Dayanand Modi.
7 5 1945 6 months 1947/48 1,500/ .
4.Indian Aluminium Co.Ltd.
14 8 1945 1 year 1947/48 70,146/ .
The Income tax Officer held that these amounts were received as revenue payments and were therefore taxable.
On appeal to the Appellate Assistant Commissioner the amounts were held to be capital receipts but this order was set aside by the Income tax Appellate Tribunal which held the amounts to be revenue receipts and taxable as such.
At the instance of the appellant the case was referred to the High Court under section 66(1) of the Income tax Act and the following question was stated for the opinion of the Court: "Whether in the facts and circumstances of these cases the sums of Rs. 15,209, Rs. 1,24,789, Rs. 1,500 and Rs. 70,146 received by the assessee are income assessable to tax under the Indian Income tax Act?" 792 The question was answered in the affirmative and the High Court held that there was material to support the finding of the Tribunal, and it was a finding of fact; that the amounts received by the appellant were revenue receipts and not capital receipts.
Against this judgment the appellant has come in appeal to this court by special leave.
The question that falls for decision is whether the amounts received by the assessee are capital or revenue receipts and for that purpose it is necessary to investigate the nature of the grants made by the appellant.
Under the licence the licensee was granted the sole and exclusive right and liberty to (a) to enter into and upon, to prospect, search for, mine quarry, bore, dig and prove all Bauxite lying and being in, under or within the said lands.
(b) For the purposes aforesaid and all other purposes incidental thereto dig, drive, make and maintain such pits, shafts, borings, inclines, admits levels, drifts, air courses drains, water courses, roads and ways and to set up, erect and construct such temporary engines, machinery sheds and things as may be reasonably necessary for effectually carrying on the prospecting operations hereby licenced.
(c) To remove, take away and appropriate samples and specimens of Bauxite of every quality, kind and description and in reasonable quantities not exceeding one hundred tons in all during the terms of this grant.
(d) For the purposes aforesaid to clear undergrowth brushwood and to make use of any drains or water courses on the lands or for clearing sites of working from any water which may flow or accumulate thereon or therein.
The periods of the licences were comparatively short 6 months in two cases and a year each in the other two.
Under the covenants the licensees were to cause as little damage as possible to the surface of the land.
They were to give full information regarding the progress of the operations and true copies of all borings to the licensor.
The licensees were also 793 required to plug all holes made by them.
The licensor convenanted to give a reasonable right of passage through and over the adjoining lands and properties and in consideration of the premium paid, the licensees could, at their option, after giving necessary notice and on payment of a further sum, get a mining The lease for a term of thirty years on the terms and conditions set out in the indenture attached as schedule 2 to the licence.
The Income tax Appellate Tribunal found that the licensees were not granted any interest in land and the amounts received were revenue receipts and therefore, assessable to income tax A reference to some of the cases would assist in determining the nature of the transaction which was evidenced by the documents placed on the record.
In Raja Bahadur Kamakshya Narain Singh of Ramgarh vs Commissioner of Income tax, Bihar & Orissa (1) the payments by way of premium were held to be capital receipts.
In that case large payments by way of royalty for granting various mining leases were received by the assessee.
The leases were for a period of 999 years for mining coal with liberty to search for, work, make merchantable and carry away the coal there found and with power to dig and sink pits.
In consideration of these rights the lessees paid a sum by way of salami (premium) and an annual sum as royalty on the amount of coal raised subject to minimum annual royalty.
The lessor had the right to reenter in case of failure to pay the royalty.
It was contended by the assessee there that the sums received as salami and royalty were capital receipts representing the price of the minerals removed.
It was held that salami was a single payment paid for the acquisition of the right to enjoy the benefits granted by the lease and was a capital asset and that the two other forms of royalty both minimum and per ton flowing from the covenants in the lease were not on capital account and fell within the meaning of other income under s.12 of the Act.
Lord Wright said at p. 190: "The salami, has been, rightly in their Lordships ' opinion, treated as a capital receipt.
It is a single (1) (1943), L.R. 70 I.A. 186.
794 payment made for the acquisition of the right of the lessees to enjoy the benefits granted to them by the lease.
That general right may properly be regarded as a capital asset, and the money paid to purchase it may properly be held to be a payment on capital account.
But the royalties are on a different footing.
" This case was sought to be distinguished by counsel for the respondent on the ground that the lease was for a long period of 999 years but the observations above quoted were not based on this consideration but on the nature of the right which was conveyed.
In Commissioner of Income tax, Bihar & Orissa vs Raja Bahadur Kamakshya Narain Singh (1) a coal company had been given by the Court of Wards a prospecting licence in respect of certain coal bearing lands with the option of renewal and also to take a mining lease on certain terms and conditions.
The prospecting licence was subsequently extended on four occasions.
When the assessee attained majority he claimed that the giving of the licence was ultra vires the Court of Wards but there was a settlement between the licencee and the assessee by which the latter agreed to accept the various prospecting licences, their extensions and leases in consideration of which he received by way of salami Rs. 5,25,000 and capital lump sum of Rs. 40,000 and some other payments in lieu of cesses.
The question arose whether the amounts were capital or revenue and it was held that the amount of Rs. 5,25,000 received as salami and the amounts received as cesses were capital receipts and therefore not taxable.
Manohar Lal, A. C. J., held that the amount was received by way of settlement and not by way of salami but section K. Das, J. (as he then was) held that salami was a lump sum payment for rights which were being given to the licensee, namely, the right to prospect for a certain number of years and also the right to get mining leases and therefore salami in question was undoubtedly a capital receipt.
In The Province of Bihar vs Maharaja Pratap Udai Nath Sahi Deo of Ratugarh (2) it was contended that payments in the nature of premium or salami were (1) [1946) (2) 795 not part of the income of the assessee and were therefore not taxable and it was held that salami may, in certain cases, be regarded as a payment of rent in advance and it would in those cases be regarded as income but where it could not be so regarded it would not be income and therefore not taxable.
It was also held that prima facie salami is not income.
In The Member for the Board of Agricultural Income Tax, Assam vs Smt.
Sindurani Chaudhurani (1) this Court defined as salami as follows: The indicia of salami are (1) its single non recurring character and (2) payment prior to the creation of the tenancy.
It is the consideration paid by the tenant for being let into possession and can be neither rent nor revenue but is a capital receipt in the hands of the landlord.
Thus if it is a consideration paid by the tenant or the licensee for being let into possession with the object of obtaining a tenancy or as in this case with the object of obtaining a right to remove minerals, it cannot be termed rent or revenue but is a capital receipt.
In Sindurani 's case (1) salami was a lump sum payment as consideration for what the landlord was transferring to the tenant, i.e., parting with his right, under the lease, of a holding.
In the instant case the terms of the covenant quoted above show that the payment has a close analogy to the payment in Sindhurani 's case(1).
That case was sought to be distinguished by the respondent on the ground that there was a transfer of a tenancy which was capable of ripening into an occupancy holding but that was not the ground on which this court decided the case of salami.
The definition of salami was agener alone, in that it was a consideration paid by a tenant for being let into possession for the purpose of creating a new tenancy.
In Raja Bahadur Kamakshya Narain Singh 's case (2) also the Privy Council laid the definition of salami in general terms and described the characteristics of a payment by way of salami without any reference to the nature of the lease.
In reply to the argument of counsel for the appellant, Mr. Rajagopal Sastri for the respondent argued (1) ; (2) (1943) L.R. 70 I.A. 180.
796 that the question was whether the licensor had allowed the licensee to take his capital or he had allowed him to use the capital.
If it was the former, the receipts were in the nature of capital receipts and if latter they were in the nature of revenue.
His contention was that it wag really the latter because all that the licensee was allowed to do was to enter on the lands and make use of the assets belonging to the appellant.
This, in our opinion, is not a correct approach to the question.
What the licence gave to the licensee was the right to enter upon the land to pros pect, search and mine quarry, bore, dig and prove all Bauxite lying in or within the land and for that purpose the licensee had the right to dig pits, shafts, borings and to remove, take away and appropriate samples and specimens of Bauxite in reasonable quantities not exceeding 100 tons in the aggregate.
It cannot be said that this amounts merely to a grant of the use of the capital of the licensor but it was really a grant of a right to a portion of the capital in the shape of a general right to the capital asset.
In support of this distinction between the use of capital and the taking away of capital, counsel relied upon the following observation of Lawrence, J., in Greyhound 's case(3): "The question as to what receipts are revenue and what are capital has given rise to much difference of opinion; but it is clear, in my opinion, that, if the sum in question is received for what is in truth the user of capital assets and not for their realisation, it is a revenue receipt, not capital.
" That may be so but the question has to be decided on the nature of the grant.
The terms of the covenant in the present case which have been quoted above show that the transaction was not one merely of the user of capital assets but of their realisation, By this test therefore the receipts were on capital account and not revenue.
Counsel then referred to a judgment of the Patna High Court in R. B. H. P. Bannerji vs Commissioner of Income tax, Bihar & Orissa (2) where it was held that compensation received by the assessee (1) (2) 797 for use by the military of his lands for a short period was a revenue receipt.
In that case the assessee purchased 13 bighas of land for purposes of setting up a market.
That plot was requisitioned by the military A authorities under the Defence of India Rules and the assessee received compensation for the use of the The land.
It was held to be a revenue receipt because it was really profit derived from the land for the use of a capital asset.
Another case upon which counsel for the respondent placed reliance is Smethurst vs Davy (1).
That was a case which was decided on the wording of section 31(1)(d) of the Finance Act of 1948, and therefore is not of much assistance.
Reference was also made to Stow Bardolph Gravel Co., Ltd. vs Poole (2).
There the assessee company, which carried on business in sand and gravel, purchased two un worked deposits.
The company contended that the payments made to acquire the deposits were deductible being expenditure which was incurred in the acquisition of trading stock or otherwise of revenue character.
It was held that the company had acquired a capital asset and not stock in trade.
The case turned upon a finding by the Special Commissioners and is not helpful.
Reliance was also placed on Rajah Nanyam Meenakshamma vs Commissioner of Income tax, Hyderabad (3).
In that case certain fixed sums of money were paid as royalty for the whole period of the lease which were held to be revenue receipts as consolidated advance payments of the amount which would otherwise have been payable periodically.
None of these cases is of any assistance to the respondent 's case.
The question which has to be decided is what was the nature of the transaction.
The covenants in the licence show that the licensee had a right to enter upon the land and take away and appropriate samples of all Bauxite of every kind up to 100 tons and therefore there was a transfer of the right the consideration for which would be a capital payment.
(1) (2) (3) 101 798 In our opinion the High Court was in error and the question referred should have been decided in favour of the appellant.
We therefore allow the appeal, set aside the judgment and order of the High Court and answer the question in favour of the appellant who will have his costs in this Court and the High Court.
Appeal allowed.

summary:
In 1945 the appellant who was a Zamindar granted licences to different parties to prospect bauxite.
Under the licence the licensee had the right to enter upon the land to prospect, dig and prove all bauxite lying in or within the land and to take away and appropriate samples of bauxite in reasonable quantities not exceeding 100 tons in the aggregate.
In consideration of the premium paid, the licensees could, at their option, after giving necessary notice and on payment of a further sum, get a mining lease for a term of thirty years.
The income tax authorities were of the view that the licensees were not granted any interest in land and that the amounts received by the appellant from the licensees were revenue receipts and, therefore, assess able to income tax.
Held, that on its true construction the transaction of 1945 did not amount merely to a grant of the use of the capital of the licensor but was really a grant of a right to a portion of the capital.
Accordingly, the amounts received by the appellant were capital receipts and, therefore, not liable to income tax.
Raja Bahadur Kamakshya Narain Singh of Ramgarh vs Com missioner of Income tax, Bihar and Orissa, (1943) L.R. 70 I.A. 180,The Member for the Board of Agricultural Income tax, Assam vs Smt.
Sindurani Chaudhurani, [1957] S C.R. 1019 and Commissioner of Income tax, Bihar and Orissa vs Raja Bahadur Kamakshya Narain Singh, , considered.