judgement:
N: Criminal Appeal Nos. 170 and 171 of 1977 From the Judgment and Order dated 29th May, 1975 of the Calcutta High Court in Criminal Appeal No. 308 of 1972 and Govt.
Appeal No. 5 of 1973.
116 D.P. Mukherjee and G.S. Chatterjee for the Appellant.
Rathin Dass and Pankaj Kalra for the Respondents.
The Judgment of the Court was delivered by THAKKAR, J.
The validity of the trial of three Army Officers is in question.
The High Court has taken the view that the learned Judge presiding over the Special Court had acted without jurisdiction in taking cognizance of the case and proceeding with the trial of three Army Officers resulting in the conviction of one of them, and the acquittal of the remaining two and has quashed the proceedings.
The question which calls for determination in these two allied appeals by special leave preferred by the State of West Bengal is whether the High Court was right in doing so.
The following facts are not in dispute: (1) Three accused persons who were tried by the Judge presiding over the Fourth Addl.
Special Court, Calcutta (hereinafter referred to as the learned Trial Judge for the sake of brevity) were Army Officers.
They were charged with offences in respect of which the ordinary Criminal Court and the Court Martial both had concurrent jurisdiction.
(2) The Learned Trial Judge had failed to follow the procedure prescribed by the Criminal Courts and Court Martial (Adjustment of Jurisdiction) Rules, 1952 (referred to as Rules hereinafter) framed under Section 549 (1) of the Code of Criminal Procedure of 1898 (Cr.
P.C.) The following contentions were urged before the High Court on behalf of the State with a view to substantiate the contention that the learned Trial Judge had jurisdiction to take cognizance of the case and that the trial was not null and void notwithstanding the fact that the procedure prescribed by the Rules had not been followed.
(1) The rules framed under Section 549(1) of Cr.
P.C. 117 were not attracted inasmuch as the rules applied to Magistrates and not to a Judge presiding over a Special Court.
(2) Having regard to the provision contained in section 122 of the , which prescribes a period of limitation of three years, which period had already elapsed during the pendency of the proceedings in the High Court, the Court Martial would have no jurisdiction to try the accused and that the trial held by the learned Trial Judge could not be said to have been vitiated in view of this circumstance.
(3) In view of a letter addressed by the Brigadier of the Division concerned to the Police Officer for investigating the offences, it can be said by necessary implication that the Army authorities had opted for the trial of the case by the ordinary Civil Court.
The High Court repelled all the three contentions, allowed the appeal of the officer who was convicted, and dismissed the appeal of the State calling into question the acquittal of the remaining two.
Besides reiterating the same three contentions before this Court, learned counsel for the appellant has raised a new point which was not urged before the High Court.
We propose to deal with the submissions which were urged in the High Court before coming to grips with the new point sought to be raised by the learned counsel for the appellant State.
For a proper appreciation of the first point, a quick look at the statutory provisions and the position emerging therefrom is called for.
In regard to the offences which fall within the purview of Section 70 of the of 1950, an offender can be tried only by Court Martial whereas in regard to offences falling within the purview of Section 52 of the said Act, the offences can be tried both by the ordinary criminal court as also by the Court Martial both of which have concurrent jurisdiction.
The offences with which the concerned accused were charged before the learned Trial Judge were offences which fell within the scope of Section 52 of the of 1950 and accordingly the ordinary criminal court as also the Court Martial had concurrent jurisdiction.
In order to avoid any conflict of jurisdiction between the 118 criminal court and the court martial in regard to offenders who are charged with having committed offences which fall under the purview of Section 52 of the , Section 549(1)1 of Cr.
P.C. provides that Central Government may make Rules consistent with Cr.
P.C. and the .
In pursuance of this provision contained in Section 549(1) Cr.
P.C. the Central Government has framed Rules known as Criminal Courts and Court Martial (Adjustment of Jurisdiction) Rules, 1952.
Rule 3 of the said Rules requires that when person subject to military, Naval or Air Force law is brought before a Magistrate on accusation of an offence for which he is liable to be tried by Court Martial also the magistrate shall not proceed with the case unless he is requested to do so by the appropriate military authority.
On a combined reading of rules 3 and 4/2, it is evident that in case the Megistrate is of the opinion that he should proceed with the case without there being any such request from the appropriate military authority, the concerned Magistrate is enjoined to give notice to the commanding officer in this behalf.
Till the expiry of seven days from the service of such notice on the commanding officer, the Magistrate is prohibited from making any order of conviction or acquittal or framing any charges or committing the accused.
1 "The Central Government may make rules, consistant with this Code and the , the Naval Discipline Act and the Indian Navy (Discipline) Act, 1934 and the Air Force Act and any similar law for the time being in force, as to the cases in which persons subject to military, naval or air force law shall be tried by a Court to which this Code applies, or by court martial; and when any person is brought before a Magistrate and charged with an offence for which he is liable to be tried either by a Court to which this Code applies, or by a court martial, such Magistrate shall have regard to such rules, and shall in proper cases deliver him, together with a statement of the offence of which he is accused, to the commanding officer of the regiment, corps, ship or detachment to which he belongs, or to the commanding officer of the nearest military, naval, or air force station, as the case may be for the purpose of being tried by the Court Martial." ________________________________ 2.
Where a person subject to military, naval or Air Force law is brought before a Magistrate and charged with an offence for which he is liable to be tried by a court martial, such magistrate shall not proceed to try such person or to issue orders for his case to be referred to a Bench, or to inquire with a view to his commitment for trial by the Court of Sessions or the High Court for any offence triable by such Court, unless (a) he is of opinion, for reasons to be recorded, that he should so proceed without being moved thereto by competent military, naval or Air Force Authority, or (b) he is moved thereto by such authority.
119 It is in the background of these provisions that the High Court has taken the view that compliance with the procedure prescribed by the Rules is a mandatory requirement and that any proceedings undertaken by the learned Trial Judge without compliance with the aforesaid mandatory procedure would vitiate the trial before the ordinary criminal court and the entire proceedings would be rendered null and void.
Faced with this situation, counsel for the State contended before the High Court that the procedure embodied in Section 549(1) of the Cr.
P.C. and Rules framed thereunder were applicable only to the court presided over by a magistrate and not to a Judge presiding over a Special Court.
This contention was negatived by the High Court.
And it has now been reiterated before us, it being an admitted position that the prescribed procedure has not been followed by the learned trial judge in the case giving rise to the present appeals.
This argument was possibly inspired by a point debated in Major E.G. Barsay vs The State of Bombay.
; The view was taken therein that inasmuch as the aforesaid Rules refer to a Magistrate the Rules were not attracted with regard to a trial before a Special Judge.
It was presumably on accout of this decision that the Criminal Law (Amendment) Act of 1952 was amended by incorporating Sections 8 (3A) and 11, reading as under: Section 8(3A): In particular, and without prejudice to the generality of the provisions contained in sub section (3), the provisions of Sections 350 and 549 of the Code of Criminal Procedure, 1898 shall, so far as may be, apply to the proceedings before a Special Judge, and for the purposes of the said provisions a Special Judge shall be deemed to be a Magistrate.
Section 11: Military, naval and air force laws not to be affected 4.
Before proceeding under clause (a) of rule 3 the Magistrate shall give written notice to the Commanding Officer of the accused and until the expiry of a period of seven days from the date of the service of such notice he shall not (a) Convict or acquit the accused under sections 243, 245, 247 or 248 of the Code of Criminal Procedure, 1898(V of 1898), or hear him in his defence under section 244 of the said Code, or (b) frame in writing a charge against the accused under section 254 of the said Code; or (c) make an order committing the accused for trial by the High Court or the Court of Sessions under section 213 of the said Code.
" 120 (1) Nothing in this Act shall affect the jurisdiction exercisable by, or the procedure applicable to, any Court or other authority under any military, naval or air force law.
This amendement was effected by virtue of Central Act XXII of 1966.
Having regard to the provision contained in Section 8 (3A) of the Criminal Law (Amendment) Act of 1952 as it now stands it is clear that a Sepcial Judge is deemed to be a Megistrate for the purposes of the Rules framed under Section 549 (1) of the Code of Criminal Procedure with the end in view to eschew the conflict between Court Martial on the one hand and the ordinary criminal courts on the other.
The High Court was therefore perfectly justified in repelling this contention urged on behalf of the appellant State, albeit on a reasoning which is somewhat obscure.
Confronted by this situation counsel for the appellant State has raised a new point to which a reference was made in the earlier part of the judgment.
The new point which has been so raised is that Sections 8(3A) and 11 quoted hereinabove which were incorporated by Central Act 11 of 1958 as further amended by Central Act XXII of 1966 were not applicable to the State of West Bengal from where the matter giving rise to the present appeals stems.
Since no such argument was advanced before the High Court, initially, we were reluctant to permit counsel to raise this new point.
But having regard to the fact that it goes to the root of the matter we have permitted counsel to urge this contention.
We will however deal with it after exhausting all the points which were urged before the High Court.
The next point which was unsuccessfully urged before the High Court was in the context of Section 122 of the of 1950 which prescribes a period of limitation of three years.
The High Court did not accede to the submission in this behalf having regard to the law enunciated by this Court in Delhi Police Establishment, New Delhi vs Lt. Col. Loraiya.
; We are of the opinion that the High Court was right.
This Court in the aforesaid case has taken the view to the effect that the question being essentially one of the initial jurisdiction of the ordinary criminal court on the one hand and the court martial on the other, unless the procedure prescribed by the rules is complied with the ordinary criminal court would not have initial jurisdiction in regard to the matter, as is evident from the following passage: "It is an admitted fact in this case that the procedure speci 121 fied in rule 3 was not followed by the Special Judge, Gauhati before framing charges against the respondent.
Section 549 (1) Cr.
P.C. and rule 3 are mandatory.
Accordingly the charges framed by the Special Judge against the respondent cannot survive.
But counsel for the appellant has urged before us that in the particular circumstances of this case the respondent is not 'Iiable to be tried ' by a Court martial.
Section 122 (1) of the , provides that no trial by court martial of any person subject to the for any offence shall be commenced after the expiry of the period of three years from the date of the offence.
The offences are alleged to have been committed by the respondent in November December, 1962.
So more than three years have expired from the alleged commission of the offence.
It is claimed that having regard to Sec. 122(1), the respondent is not liable to be tried by court martial.
This argument is built on the phrase "is liable to be tried either by the court to which this Code applies or by a Court martial" in section 549(1).
According to counsel for the appellant this phrase cannotes that the ordinary criminal court as well as the court martial should not only have concurrent initial jurisdiction to take cognizance of the case but should also retain jurisdiction to try him up to the last stage of conviction or acquittal.
We are unable to accept this construction of the phrase.
As regards the trial of offences committed by Army men, the draws a threefold scheme.
Certain offences enumerated in the are exclusively triable by a Court martial; certain other offences are exclusively triable by the ordinary criminal courts; and certain other offences are triable both by the ordinary criminal court and the court martial.
In respect of the last category both the Courts have concurrent jurisdiction.
Section 549 (1) Cr.
P.C. is designed to avoid the conflict of jurisdiction in respect of the last category of offences.
The clauase "for which he is liable to be tried either by the Court to which this Code applies or by a court martial" in our view, qualifies the preceding clause "when any person is charged 122 with an offence" in section 549 (1).
Accordingly the phrase "is liable to be tried either by a court to which this Code applies or a court martial" imports that the offence for which the accused is to be tried should be an offence of which cognizance can be taken by an ordinary criminal court as well as a court martial.
In our opinion, the phrase is intended to refer to the initial jurisdiction of the two courts to take cognizance of the case and not to their jurisdiction to decide it on merits.
It is admitted that both the ordinary criminal court and the court martial have concurrent jurisdiction with respect to the offences for which the respondent has been charged by the Special Judge.
So, section 549 and the rules made thereunder are attracted to the case at hand" Having regard to the enunciation of law to this effect it is evident that the ordinary criminal court would have no jurisdiction to take cognizance of the case and to try the accused in a matter where the procedure prescribed by the Rules has not been complied with.
The initial lack of jurisdiction to take cognizance and try the case would of logical necessity vitiate the trial and the order of conviction and sentence would be liable to be quashed as a result thereof.
We are therefore unable to accede to the submission urged on behalf of the appellant State that even if the rules are applicable, having regard the fact that more than three years have expired from the date of the commission of the alleged offence, the trial is not vitiated.
The last contention raised before the High Court was that having regard to the fact that the investigation which preceded the lodging of the complaint before the learned Trial Judge was commenced in pursuance of a letter written by the Brigadier of the Division, which contained a request for investigation by the Police into alleged offences, it can be said that the Army authorities had opted for the trial of the accused person by the ordinary criminal court.
The argument was that by necessary implication this would follow as a logical corollary.
The High Court brushed aside this contention as untenable, taking into account the contents of the letter in question.
The said letter was in the following terms: "Dear Sir, (1) Please refer to Memo No. 8940 dated August 28, 1963 123 from Shri R.K. Bhattacharyya, Superintendent of Police, D.E.B., Darjeeling.
(2) At appendix 'A ' please find a copy of the investigation that had been carried by us.
We request you to take over the case and submit your detailed report to us at your earliest convenience.
" The High Court relied on the fact that the Army had called for a detailed report by the Police which would show that the Army authorities had not taken any such decision either expressly or by necessary implication.
Counsel for the appellant has not been able to press this point with any vigour for the obvious reason that it relates to the stage of investigation preceding the complaint.
The question regarding exercise of jurisdiction by the court martial would arise only after the investigation was completed and the police report was available.
What is more, it is only after the prescribed procedure under Rules 3 and 4 of the Rules is resorted to by the ordinary criminal court that the question of exercising an option can arise.
In the present matter, admittedly the procedure prescribed by the Rules was not followed.
Under the circumstances it is futile to contend that the Army authorities had voluntarily abandoned their option to try the accused person in the court martial.
There is no substance in the plea and it has been rightly repelled by the High Court.
At long last, we come to the last point, the point which was not urged before the High Court but which we have permitted the learned counsel for the State to raise before us.
It is argued that the Criminal Law (Amendment) Act of 1952 was not applicable to the State of West Bengal inasmuch as the State of West Bengal had enacted an Act of its own known as West Bengal Criminal Law Amendment (Special Courts) Act, 1949 which was in operation throughout the whole of West Bengal.
No doubt it is true that Criminal Law is a subject which falls within the scope of Entry 1 of List III (concurrent list) embodies in 7th Schedule to the Constitution of India.
The Union Government as well as the State Government both can therefore legislate in regard to criminal law.
The contention that the Criminal Law (Amendment) Act, 1952 enacted by the Parliament of India is not applicable to the State of West Bengal is altogether misconceived.
It is necessary to advert to the legislative history for a proper appreciation of the point at issue.
In 1938 the Government of India had enacted the Criminal Law (Amendment) Act of 1938.
In 1949 the State of West Bengal 124 introduced the State legislation being the West Bengal Criminal Law Amendment (Sepcial Courts) Act, 1949 (West Bengal Act).
This Act was further amended after the enforcement of the Constitution of India by incorporating Section 13 in 1953 3.
The said Section 13 has great significance from the stand point of the present argument: "Certain Sections of Act XLVI of 1952, not to apply to West Bengal: 13.
Sections 6, 7, 8, 9 and 10 of the Criminal Law Amendment Act, 1952 shall not apply and shall be deemed never to have applied to West Bengal.
" It will thus be seen that Section 13 of the West Bengal Act in terms accords recognition to the applicability of the Criminal Law (Amendment) Act of 1952 except and save some of the sections namely sections, 6, 7, 8, 9 and 10 thereof which as provided in Section 13 shall not apply and shall be never deemed to have applied to West Bengal.
It is implicit in Section 13 of the West Bengal Act that the Central Act namely Criminal Law (Amendment) Act of 1952 is applicable to the State of West Bengal except and save the aforesaid five sections.
There can be no doubt or debate about this position having regard to the fact that criminal law is a subject which falls under the concurrent list and the Criminal Law (Amendment) Act of 1952 enacted by the Parliament is applicable subject to inconsistency, if any, between the said Act and the West Bengal Act.
So far as the coverage of the present point is concerned, there is no such inconsistency.
The West Bengal Act does not contain any provisions pertaining to personnel governed by the .
It is altogether silent in regard to the matter pertaining to the procedure to be followed in regard to Army personnel from the perspective of Section 549 Cr.
P.C. and the rules framed under the authority thereof.
There is thus no conflict between the Criminal Law (Amendment) Act of 1952 and the West Bengal Act in so far as this matter is concerned.
Such being the position the provisions contained in Criminal Law (Amendment) Act of 1952 with a special eye on the procedure to be followed in Section 8(3A) and Section 11 of the Criminal Law (Amendment) Act of 1952 will operate in this sphere without any let or hindrance.
And inasmuch as Section 8(3A) in terms provides that the provision of Section 549 Cr.
P.C. shall so far as may be applied to the proceeding before the Special Judge 3.
This section was added by Section 3 of the West Bengal Criminal Law Amendment (Special Courts) Amending Act of 1953 (West Bengal Act of 1953).
125 and that for the purposes of that provision a Special Judge shall be deemed to be a Magistrate, the said provisions remain fully alive and uneffected by the West Bengal Act.
In view of this provision the procedure prescribed by Section 549 Cr.
P.C. read with the rules framed thereunder which have been quoted in the earlier part of the judgment will be applicable to a proceeding before a Special Judge in West Bengal as well.
In so far as the Army personnel are concerned therefore the law governing them and the procedure required to be followed in their case would be the same in West Bengal as elsewhere in India as it should be.
It may incidentally be mentioned that in the West Bengal Act also the Judge presiding over the Special Court is called a Special Judge (vide Schedule to the West Bengal Act).
He would therefore deemed to be a Magistrate for the Purposes of the Rules in view of Section 8(3A) of the Criminal Law (Amendment) Act of 1952.
The mandatory procedure prescribed by the Rules is accordingly obligatory even in respect of proceedings before a Special Court under the West Bengal Act.
There is thus no substance in this point.
We are of the opinion that this feeble and faint hearted attempt is born out of desperation and deserves no more consideration.
We have therefore no hesitation in negativing this plea.
No other point has been urged.
The appeal must therefore fail.
But before we write 'finis ' it may be made clear that the acquittal rendered by the High Court is on the ground of lack of jurisdiction on the part of the learned Special Judge who tried the case in the Special Court and not on merits.
The expression 'acquitted ' has been employed by the High Court though it was sufficient to say no more than this, that the order of conviction and sentence was without jurisdiction and was therefore being quashed.
In the eye of law, it is not an acquittal since it is not on merits.
It is thereore for the competent authority to decide whether or not to subject the accused to a fresh trial after following the procedure prescribed by the Rules.
With these observations, we dismiss the appeal.
M.L.A. Appeal dismissd.

summary:
The three respondents accused were charged with offences which fell within the scope of section 52 of the of 1950.
The ordinary criminal court and the Court Martial both had concurrent jurisdiction to try the said offences.
They were tried by the Judge presiding over the Fourth Addl.
Special Court, Calcutta.
The learned Trial Judge, while convicting one of the respondents and acquitting the remaining two, failed to follow the procedure prescribed by the Criminal Courts and Court Martial (Adjustment of Jurisdiction) Rules, 1952 framed under Section 549(1) of the Code of Criminal Procedure of 1898.
The High Court, in appeal, took the view that the learned Judge presiding over the Special Court had acted without jurisdiction in taking cognizance of the case and proceeding with the trial of three Army officers resulting in the conviction of one of them, and the acquittal of the remaining two and quashed the proceedings.
Dismissing the appeals, by the State, ^ HELD: 1.
The High Court was right in allowing the appeal of the officer who was convicted and dismissing the appeal of the State calling into question the acquittal of the remaining two.
However, the acquittal rendered by the High Court is on the ground of lack of jurisdiction on 114 the part of the learned Special Judge who tried the case in the Special Court and not on merits.
The expression 'acquitted ' has been employed by the High Court though it was sufficient to say no more than this, 'that the order of conviction and sentence was without jurisdiction and was therefore being quashed '.
In the eye of law, it is not an acquittal since it is not on merits.
It is, therefore, for the competent authority to decide whether or not to subject the accused to a fresh trial after following the procedure prescribed by the Rules.
[125D F] 2.1 In order to avoid any conflict of jurisdiction between the criminal court and the court martial in regard to offenders who are charged with having committed offences which fall under the purview of Section 52 of the , Section 549(1) of Cr.
P.C. provides that Central Government may make Rules consistent with Cr.
P.C. and the .
In pursuance of this provision contained in Section 549(1), Cr.
P.C., the Central Government has framed Rules known as Criminal Courts and Court Martial (Adjustment of Jurisdiction) Rules 1952.
[117H; 118A B] 2.2 Rule 3 of the Rules requires that when a person subject to military, Naval or Air Force law is brought before a Magistrate on accusation of an offence for which he is liable to be tried by Court Martial also, the magistrate shall not proceed with the case unless he is requested to do so by the appropriate military authority.
A combined reading of rules 3 and 4 shows that in case the Magistrate is of the opinion that he should proceed with the case without there being any such request from the appropriate military authority, the concerned Magistrate is enjoined to give notice to the commanding officer in this behalf.
Till the expiry of seven days from the service of such notice on the commanding officer, the Magistrate is prohibited from making any order of conviction or acquittal or framing any charges or committing the accused.
Therefore, the ordinary criminal court would have no jurisdiction to take cognizance of the case and to try the accused in a matter where the procedure prescribed by the Rules has not been complied with.
The initial lack of jurisdiction to take cognizance and try the case would, of logical necessity, vitiate the trial and the order of conviction and sentence would be liable to be quashed as a result thereof.
[118B F] In the instant case, admittedly the procedure prescribed by the Rules was not followed.
Under the circumstances it is futile to contend that the Army authorities had voluntarily abandoned their option to try the accused person in the court martial.
There is no substance in the plea and it has been rightly repelled by the High Court.[123D E] 115 Delhi Police Establishment, New Delhi vs Lt. Col. S.K. Loraiya.
[1973] (1)SCR 1010 relied upon.
Major E.G. Barsay vs The State of Bombay ; referred.
3.1 Section 13 of the West Bengal Criminal Law Amendment (Special Courts) Act, 1949 in terms accords recognition to the applicability of the Criminal Law (Amendment) Act of 1952 enacted by the Parliament except and save some of the sections, namely, sections 6,7,8,9 and 10 thereof which, as provided in Section 13, shall not apply and shall be never deemed to have applied to West Bengal.
It is implicit in Section 13 of the West Bengal Act that the Central Act, namely, Criminal Law (Amendment) Act of 1952 is applicable to the State of West Bengal except and save the aforesaid five sections.
There can be no doubt or debate about this position having regard to the fact that criminal law is a subject which falls under the concurrent list and the Criminal Law (Amendment) Act of 1952 enacted by the Parliament is applicable subject to inconsistency, if any, between the said Act and the West Bengal Act.
Moreover, the West Bengal Act does not contain any provision pertaining to personnel governed by the .
It is altogether silent in regard to the matter pertaining to the procedure to be followed in regard to Army personnel from the perspective of Section 549 Cr.
P.C. and the rules framed under the authority thereof.
There is thus no conflict between the Criminal Law (Amendment) Act of 1952 and the West Bengal Act in so far as this matter is concerned.
Such being the position the provision contained in Criminal Law (Amendment) Act of 1952 with a special eye on the procedure to be followed in Section 8(3A) and Section 11 of the Criminal Law (Amendment) Act of 1952 will operate in this sphere without any let or hindrance.
And inasmuch as Section 8(3A) in terms provides that the provision of Section 549 Cr.
P.C. shall so for as may be applied to the proceeding before the Special Judge and that for the purposes of that provision a Special Judge shall be deemed to be a Magistrate, the said provisions remain fully alive and unaffected by the West Bengal Act.
[124C H; 125A]


judgement:
Civil Appeal No. 1613 (NT) of 1974 From the Judgment and Order dated 26th April, 1973 of the Allahabad High Court in Misc.
Case No. 202 of 1971.
B.B. Ahuja and Miss A. Subhashini for the Appellant.
P.K. Mukharjee and A.K. Sengupta for the Respondent.
The Judgment of the Court was delivered by 216 PATHAK J.
This appeal by special leave is directed against the judgment of the High Court of Allahabad pronouncing on the meaning of the expression 'reserves ' in the Second Schedule to the .
For the assessment years 1961 62 and 1962 63 the assessee had debited an amount of Rs.5,40,000 and an amount of Rs.2,76,000 to its profit and loss accounts of the relevant previous years respectively.
The amounts were debited on the ground that they represented the assessee 's liability of the relevant years for the additional cane price payable to cane growers in terms of a price linking formula to be fixed by the Competent Authority under the Sugarcane Price Control Order 1955.
Accordingly an item of Rs.8,16,000 being the sum of the two amounts, was shown in the Balance Sheet of the assessee as on September 30, 1962.
The item was shown under the head "Current liabilities and provisions".
In assessment proceedings under the for the assessment year 1963 64, the Income tax Officer did not include the amount of Rs.8,16,000 in the capital computation of the assessee.
Dismissing the assessee 's appeal, the Appellate Assistant Commissioner affirmed the view taken by the Income tax Officer.
The Appellate Assistant Commissioner held that the amount did not qualify as a 'reserve ' inasmuch as the assessee had itself shown it as a 'provision ' in its Balance Sheet.
On second appeal, the Appellate Tribunal noted that the liability had not been allowed as a deduction on revenue account by the Income tax authorities and that the decision was accepted by the assessee.
It also observed that in the subsequent accounting year ending September 1963, the assessee had credited its profits by the said amount by reversing the entries, and further that the assessee had not made any such provision in the subsequent years.
It was also not disputed that no such payment was ever actually made by the assessee.
In the circumstances, the Appellate Tribunal held that the liability for which the 'provision ' was made was at the best unreal and imagined or the mere possibility of a liability.
The Appellate Tribunal was unimpressed by the description of the item as a 'provision ' by the assessee in its Balance Sheet.
The Appellate Tribunal held that the amount represented a 'reserve ' and should have been included in the capital computation of the assessee.
At the instance of the Revenue the Appellate Tribunal referred the case to the High Court of Allahabad for its opinion on the following question: 217 "Whether on the facts and in the circumstances of the case the provision for additional cane price amounting to Rs.8,16,000 was rightly treated as a 'reserve ' forming part of the assessee 's capital for the purposes of assessment to Super Profits Tax for the year under consideration?" The High Court answered the question in the affirmative by its judgment dated April 26, 1973.
We are of opinion that the High Court is right.
Section 4 of the levies super profits tax on every company in respect of so much of its chargeable profits of the previous year as exceed the standard deduction.
The expression 'standard deduction ' is defined by sub section
(9) of section 2 of the Act to mean an amount equal to six per cent of the capital of the company as computed in accordance with the provisions of the Second Schedule, or an amount of fifty thousand rupees, whichever is greater.
The Rules provide for computing the capital of a company for the purposes of super profits tax.
A perusal of rule 1 of the Second Schedule will show that for the purposes of that rule the capital of a company includes the reserve created under some of the provisions of the Indian Income tax Act and "its other reserves in so far as the amounts credited to such other reserves have not been allowed in conputing its profits" for the purposes of the Income tax Act.
The concept embodied in the word "reserves" used in that rule has been examined by this Court in the context of the and the analogous enactment, the Companies (Profits) Super Tax Act, 1964.
In a recent decision, Vazir Sultan Tobacco Co. Ltd. vs Commissioner of Income tax, A.P.,[1981] , this Court had occasion to examine the significance and scope of the concept.
In doing so it referred to the earlier pronouncement of the Court in Metal Box Co. of India Ltd. vs Their Workmen, "The distinction between a provision and a reserve is in commercial accountancy fairly well known.
Provisions made against anticipated losses and contingencies are charges against profits and, therefore, to be taken into account against gross receipts in the Profit and Loss Account and the Balance Sheet.
On the other hand, reserves are appropriations of profits, the assets by which they are represented being retained to form part of the capital employed in the business.
Provisions are usually shown in the Balance Sheet by way of deductions from the 218 assets in respect of which they are made, whereas general reserves and reserve funds are shown as part of the proprietor 's interest.
(See Spicer and Pegler 's Book Keeping and Accounts, 15th Edn., p. 42)".
Regard was had by the court to the relevant provisions of the including the form set out in , Schedule VI thereof where both expressions "Reserves and Surpluses" and "Current Liabilities and Provisions" have been used.
It is not necessary, we think, to embark upon a detailed discussion of the distinction between a 'provision ' and a 'reserve '.
It is sufficient for us to point out that in determining whether an item is a 'provision ' or a 'reserve ' the true nature and character of the sum so retained or appropriated must be determined and its mere description by the assessee in its Balance Sheet is not conclusive of its true nature.
It is now settled that a 'provision ' is a charge against the profits, being made against anticipated losses and contingencies.
A 'reserve ', on the contrary, is an appropriation of profits, the assets by which it is represented being retained to form part of the capital employed in the business.
Unlike a 'provision ' which is a present charge against the profits, the assessee continues to enjoy a proprietor 's interest in the 'reserve '.
In the present case, when the evidence clearly discloses that there was no liability at all on the assessee requiring it to set apart a sum as a charge against its profits and there was never any intention to make payments to the cane growers nor was payment ever made but, on the contrary, the assessee reversed the entries in a subsequent year in its books, it is apparent that the amount can not be described as a 'provision '.
It can only be described as a 'reserve '.
It was part of the capital which fell for computation under rule 1 of the Second Schedule.
The appeal fails and is dismissed with costs.
M.L.A. Appeal dismissed.

dataset_name: IN-Abs

summary:
For the assessment years 1961 62 and 1962 63, the respondent assessee had debited an amount of Rs.5,40,000 and an amount of Rs.2,76,000 to its profit and loss account of the relevant previous years respectively.
The amounts were debited on the ground that they represented the assessee 's liability of the relevant years for the additional cane price payable to cane growers under the Sugarcane Price Control Order, 1955 and were shown in the balance sheet under the head "Current liabilities and provisions".
However, in the subsequent accounting year ending September 1963, the assessee had credited its profits by the said amounts by reversing the entries, and had not made any such provision in the subsequent years.
In assessment proceedings under the for the assessment year 1963 64, the Income tax Officer did not include both the aforesaid amounts in the capital computation of the assessee.
The Appellate Assistant Commissioner affirmed the view taken by the Income tax Officer.
But, on second appeal, the Appellate Tribunal held that the amount represented a "reserved" and should have been included in the capital computation of the assessee.
The High Court also agreed with the Tribunal.
Dismissing the appeal by the Revenue, ^ HELD: 1.
The Rules made under the provide for computing the capital of a company for the purpose of super 215 profits tax.
A perusal of Rule 1 of the Second Schedule will show that for the purposes of that rule the capital of a company includes the reserve created under some of the provisions of the Indian Income tax Act and its other reserves in so far as the amount credited to such other reserves has not been allowed in computing its profits for the purposes of the Income tax Act.
[217D E] 2.
In determining whether an item is a "provision" or a "reserve" the true nature and character of the sum so retained or appropriated must be determined and its mere description by the assessee in its Balance Sheet is not conclusive of its true nature.
A provision is a charge against the profits, being made against anticipated losses and contingencies.
A "reserve", on the contrary, is an appropriation of profits, the assets by which it is represented being retained to form part of the capital employed in the business.
Unlike a "provision" which is a present charge against the profits, the assessee continues to enjoy a proprietor 's interest in the "reserve" [218C E] In the instant case, the evidence clearly disclosed that there was no liability at all on the assessee requiring it to set apart a sum as a charge against its profits and there was never any intention to make payments to the cane growers nor was payment ever made but, on the contrary, the assessee reversed the entries in a subsequent year in its books.
It is apparent that the amount cannot be described as a "provision".
It can only be described as a "reserve".
It was part of the capital which fell for computation under Rule 1 of the Second Schedule.
[218E F] Vazir Sultan Tobacco Co. Ltd. vs Commissioner of Income tax, A.P., ; and Metal Box Co. of India Ltd. vs Their Workmen, relied upon.


judgement:
Civil Appeal No.1396 of 1974 From the Judgment and order dated 28.2.1973 of the Kerala High Court in I.T. Reference No. 84 of 1971.
T.S. Krishnamurthy Iyer, V.J. Francis and N.M. Popli for the Appellant.
S.Balakrishnan for the Respondent.
The Judgment of the Court was delivered by PATHAK J.
This appeal by special leave is directed against the judgment of the High Court of Kerala disposing of an Agricultural 163 Income tax Reference and answering the following question in favour of the assessee and against the Revenue: "Whether on the facts and circumstances of the case the Tribunal was justified in holding that the amount of Rs.33,747.09 is not agricultural income for the assessment year 1964 65." The assessees Kerala Estate Mooriad Chalapuram, is a broad description of seven persons possessing the status of tenants in common under the Kerala Agricultural Income tax Act, 1950.
They owned an estate from which they derived agricultural income liable to be assessed in the year 1963 64.
The assessees followed the mercantile system of accounting.
In assessment proceedings for the year 1963 64, the assessees claimed a deduction of Rs.33,747.09 from their agricultural income on the ground that it was payable towards interest on a loan of Rs.4,00,000 taken by them from M/s. Associated Planters Ltd., Calicut.
The deduction was allowed.
During the accounting period relating to the assessment year 1964 65 M/s. Associated Planters Ltd.waived payment of the interest of Rs.33,747.09, and accordingly the amount was credited to the revenue accounts of the assessees.
The assessing authority brought the amount to tax.
The case was ultimately carried in second appeal to the Tribunal on the question whether the sum of Rs.33,747.09 credited in the relevant previous year could be assessed to tax for the year 1964 65.
The Tribunal, by majority, held that it was not agricultural income.
As the instance of the Commissioner of Agricultural Income tax, Kerala, a reference was made to the High Court of Kerala under sub section
(2) of section 60 of the Kerala Agricultural Income tax Act on the question of law set forth earlier, and the High Court has answered the question in the affirmative.
The High Court has taken the view that it was immaterial that the assessees followed the mercantile system of accounting, because the case was not one of an actual or constructive receipt or any receipt at all but only one of remission.
According to the High Court a remission could not give rise to a credit item in the accounts of the assessees, and that what had been given up by the creditor in favour of the assessees or returned to them could not constitute the income of the assessees.
The High Court observed that what was returned to the assessees had nothing to do with the activities of the assessees, and that it did not arise from the agricultural operations carried on by the assessees.
The Kerala Agricultural Income tax Act, 1950 provides for the 164 levy of tax on agricultural income in the State of Kerala.
Section 3 of the Act provides that agricultural income shall be charged for each financial year on the total agricultural income of the previous year of every person at the rates specified in the Schedule.
Section 4 defines what 'total agricultural income ' is, and s.5 details the deductions to be made in computing the agricultural income.
Clauses (e), (g), (h), and (i) of section 5 refer to interest paid by an assessee in different kinds of cases.
The interest in all these cases has to be deducted from the agricultural income of a person before the levy is imposed.
It is not disputed that the interest allowed to be deducted in the assessment of the present assessees falls under one of those clauses and was, therefore, rightly deducted in computing their agricultural income.
The question is whether the interest waived by M/s. Associated Planters Ltd. and credited to the revenue accounts of the assessees can be regarded as their agricultural income.
There has been serious controversy through the years on the question whether an amount refunded or remitted constitutes the income of an assessee.
In Commissioner of Income tax, Mysore vs Lakshmama, the Mysore High Court took the view that a refund received by the assessee in respect of excise fees payable by him amounted to a revenue receipt liable to tax.
In that case, however, the High Court specifically made a distinction between cases of refund and cases of remission, and it appears to have taken the position that an amount received as remission of duty could not be treated as a revenue receipt, while an amount received by way of refund could be.
In the judgment under appeal, the High Court of Kerala noticed that decision and after exhaustively surveying several decisions came to the conclusion that the remission in the present case could not amount to agricultural income.
We think that the view taken by the High Court in the case before us is right.
The remission cannot, in our opinion, be considered as amounting to the receipt of agricultural income.
What was allowed to be deducted from the total agricultural income of the assessees was interest pursuant to s.5 of the Act.
It was a deduction made permissible by the Act.
To be regarded as taxable in the hands of the assessees the amount which was the subject of remission must be capable of being described as agricultural income.
As the High Court has observed in the present case "what was returned to the assessee has nothing to do with the activities of the assessee, it does not arise from business nor does it arise from agricultural operations when the assessee is an agriculturist.
" 165 In order to eliminate such a controversy in cases falling under the Indian Income tax Act, 1922 sub section
(2A) was added in section 10 of that Act, whereby a receipt such as this was expressly made liable to tax by legal fiction as profits and gains of business, profession or vocation.
Sub section (2A) was inserted in s.10 in 1955.
Before that Chagla, C.J., speaking for the Court in Mohsin Rehan Penkar vs Commissioner of Income tax, Bombay City, had observed: "It is impossible to see how a mere remission which leads to the discharge of the liability of the debtor can ever become income for the purposes of taxation".
This observation was noted by the Mysore High Court in C.I.T. vs Lakshmamma (supra), and appears from what was said by them to have received that tacit approval of the learned Judges.
It was made the basis of distinguishing the case before them from that decided by the Bombay High Court.
We may point out in regard to sub section
(2A) of section 10 of the Indian Income Tax Act, 1922 that it has been replaced by an even wider provision as sub section
(1) of section 41 of the Income Tax Act, 1961.
No provision of that nature finds place in the Kerala Agricultural Income Tax Act.
The appeal fails and is dismissed with costs.
M.L.A. Appeal dismissed.

summary:
The Kerala Agricultural Income Tax Act, 1950 provides for the levy of tax on agricultural income in the State of Kerala.
Section 5 details the deductions to be made in computing the agricultural income.
Clauses (e), (g), (h) and (i) refer to interest paid by the assessee in different kinds of cases.
The interest in all these cases, has to be deducted from the agricultural income of a person before the levy is imposed.
The respondents assessees claimed a deduction of Rs.33,747.09 from their agricultural income under section 5 of the Kerala Agricultural Income Tax Act 1950 towards interest on a loan of Rs.4 lakhs taken from a creditor.
The deduction was allowed.
However, in the next accounting period relating to the assessment year 1964 65, the said creditor waived payment of the interest of Rs.33,747,09 and accordingly the amount was credited to the revenue accounts of the respondents assessees.
The Assessing Authority brought the amount to tax.
But, the Tribunal as well as the High Court took the view that the case was not one of an actual or constructive receipt or any receipt at all but only one of remission and a remission could not give rise to a credit item in the accounts of the assessees and that what had been given by the creditor in favour of the assessees or returned to them could not constitute the income of the assessees.
Dismissing the appeal of the Revenue, ^ HELD: (1) The view taken by the High Court is right.
The remis 162 sion cannot be considered as amounting to the receipt of agricultural income.
What was allowed to be deducted from the total agricultural income of the assesses was interest pursuant to section 5 of the Act.
It was a deduction made permissible by the Act.
To be regarded as taxable in the hands of the assessee, the amount which was the subject of remission must be capable of being described as agricultural income.
[164F G] In the instant case, what was returned to the assessees has nothing to do with the activities of the assessees; it does not arise from business nor does it arise from agricultural operations when the assessee is an agriculturist.
[164G H] Commissioner of Income tax, Mysore vs Lakshmamma,[1964] , approved.
Mohsin Rehman Penkar vs Commissioner of Income tax, Bombay City,[1948] , referred to.
(2) In order to eliminate such a controversy in cases falling under the Indian Income tax Act, 1922, sub s.(2A) was added in section 10 of that Act, whereby a receipt such as this was expressly made liable to tax by legal fiction as profits and gains of business, profession or vocation.
Sub.s.(2A) of s.10 of the Indian Income Tax Act, 1922 has been replaced by an even wider provision as sub section
(1) of section 41 of the Income Tax Act, 1961.
No provision of that nature finds place in the Kerala Agricultural Income Tax Act.
[165A B;D]


judgement:
ivil Appeals Nos.
1338 & 1340 of 1974 From the Judgment and Order dated 24.4.1972 of the High Court of Judicature at Bombay in S.C.A. No. 433 of 1972.
V. Rajgopal, Vinod Bonde, A.K. Verma and P Rajagopal for the Appellant.
Dr. V. Gauri Shankar and Ms A. Subhashini for the Respondents.
The Judgment of the Court was delivered by PATHAK, J.
These appeals by special leave are directed against the judgments and orders of the Bombay High Court at its Nagpur Bench dismissing two writ petitions filed by the appellant.
The appellant is a sterling company which exports manganese 143 extracted from its manganese mines situated in the States of Maharashtra and Madhya Pradesh.
It held these manganese mines up to June 30, 1962.
On June 8, 1962 it entered into an agreement with the Government of India under which all the manganese mines except one were transferred to a new company, the Manganese Ore (India) Limited, Nagpur in which the Central Government, the Governments of Maharashtra and Madhya Pradesh and the appellant had shares.
The appellant was assessed to income tax for the assessment year 1967 68, the relevant previous year being the year ended December 31, 1966.
Interest under sub sec.
(8) of sec.
139 of the Income tax Act, 1961 amounting to Rs.56, 391 and interest under sec.
215 of that Act amounting to Rs.9,42,336, subsequently reduced to Rs.5,07,880 were levied against the appellant.
According to the appellant there was ample and clear justification for the delay in furnishing the return under sec.
139 and for the payment of advance tax under Sec. 212 at a figure less than 75 per cent of the assessed tax.
On March 22, 1971 the appellant preferred an appeal under cl.
(c) of section 246 of the Act before the Appellate Assistant Commissioner of Income tax, Nagpur raising objection to the total income assessed and also including grounds objecting to the interest charged under sections 139 and 215 of the Act.
On being advised thereafter that the grounds objecting to the charge of interest were infructuous inasmuch as orders under sections 139 and 215 of the Act were not appealable, the appellant filed two revision petitions before the Commissioner of Income tax under section 264 of the Act, one objecting to the levy of interest under sub section
(8) of section 139 and the other to the interest levied under section 215.
In the two revision petitions the appellant explained the circumstances accounting for the delay in filing the return and in underestimating the advance tax.
It was mentioned in the revision petitions that an appeal had been filed before the Appellate Assistant Commissioner, and that notwithstanding its pendency the revisional jurisdiction of the Commissioner of Income tax was being invoked.
The Commissioner informed the appellant that by reason of clause (b) of sub section (4) of section 264 of the Act, which specifically directs that the Commissioner shall not revise any order under section 264 where that order is pending on an appeal before the Appellate Assistant Commissioner, he was powerless to interfere so long as the appeal was not withdrawn.
Thereafter, a few days later, the appellant made an application to the Appellant Assistant Commissioner in the appeal filed by it referring to the revision petitions preferred before the Commissioner of Income tax on the question of interest levied under section 139 and section 215 of the Act and requesting permission to 144 withdraw the grounds relating to the levy of interest specially as those grounds could not be taken in the appeal and the orders levying interest were not appealable.
It does not appear that any order was made specifically by the Appellate Assistant Commissioner on that application, but it is apparent from the appellate order passed by him disposing of the appeal that he did not consider the grounds relating to the levy of interest.
On October 15, 1971 the Commissioner of Income tax dismissed both revision petitions.
He proceeded on the view that it was not sufficient for the appellant to withdraw only those grounds raised in the appeal which related to the levy of interest, and that the appellant should have withdrawn the entire appeal pending before the Appellate Assistant Commissioner.
The acceptance of Commissioner 's view would have meant that in order to maintain its revision petitions challenging the levy of interest the appellant would have been obliged to abandon also the challenge to the assessment of its income.
The appellant filed writ petitions in the Bombay High Court at its Nagpur Bench assailing the orders of the Commissioner of Income tax rejecting its revision petitions, and on April 24, 1972 the High Court rejected the Writ Petitions in limine.
At the relevant time the pertinent portion of sub section
(8) of section 139 provided: "Where the return under sub section (1) or sub section (2) or sub section (4) for an assessment year is furnished after the 30th day of September of the assessment year, or is not furnished, then (whether or not the Income tax Officer has extended the date for furnishing the return under sub section (1) or sub section (2), the assessee shall be liable to pay simple interest at nine per cent per annum, reckoned from the 1st day of October of the assessment year to the date of the furnishing of the return or, where no return has been furnished, the date of completion of the assessment under section 144, on the amount of the tax payable on the total income as determined on regular assessment, as reduced by the advance tax, if any, paid and any tax deducted at source: Provided that in the case of any person whose total income includes any income from business or profession, the previous year in respect of which expired after the 31st day of December of the year immediately preceding the asessment year, such interest shall be reckoned from the 1st day of January instead of 1st day of October of the assessment year: 145 Provided further that the Income tax Officer may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any person under this sub section.
" It is clear that under the substantive portion of sub section (8) of section 139 the statute requires the levy of interest on the assessee where he fails to furnish an income tax return within the prescribed period or does not furnish it at all.
The second proviso to sub section
(8) empowers the Income tax Officer to reduce or waive the interest payable by any person under the sub section in such cases and under such circumstances as may be prescribed.
Rule 117A of the Income tax Rules 1962 sets forth the cases and the circumstances in which the Income Tax Officer may reduce or waive the interest payable under section 139 .
Among the clauses of rule 117A is clause (v) which speaks of: "(v) any case in which the assessee produces evidence to the satisfaction of the Income tax Officer that he was prevented by sufficient cause from furnishing the return within time.
" As has been mentioned earlier, interest was also levied under section 215 on the assessee.
The relevant sub sections of section 215 are: "215(1) Where in any financial year an assessee has paid advance tax under section 212 on the basis of his own estimate, and the advance tax so paid is less than seventy five per cent of the tax determined on the basis of the regular assessment (reduced by the amount of tax deductible in accordance with the provisions of sections 192 to 194, section 194A and section 195) so far as such tax relates to income subject to advance tax and so far as it is not due to variations in the rates of tax made by the Finance Act enacted for the year for which the regular assessment is made, simple interest at the rate of nine per cent per annum from the 1st day of April next following the said financial year up to the date of the said regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short of the said seventy five per cent.
xxx xxx xxx (4) In such cases and under such circumstances as may be prescribed, the Income tax Officer may reduce or waive the interest payable by the assessee under this section.
" 146 The related rule is 40 which details the cases and the circumstances in which the interest payable under section 215 may be reduced or waived by the Income tax Officer.
Sub rules (1) and (5) of rule 40 of the Income tax Rules refer to: "(1) When the relevant assessment is completed more than one year after the submission of the return, the delay in assessment not being attributable to the assessee.
(5) Any case in which the Inspecting Assistant Commissioner considers that the circumstances are such that a reduction or waiver of the interest payable under section 215 or section 217 is justified.
" At the very outset, it is necessary to consider the nature of the levy of interest under sub section
(8) of section 139 and under section 215.
It is not correct to refer to the levy of such interest as a penalty.
The expression 'penal interest ' has acquired usage, but is in fact an inaccurate description of the levy.
Having regard to the reason for the levy and the circumstances in which it is imposed it is clear that interest is levied by way of compensation and not by way of penalty.
The Income tax Act makes a clear distinction between the levy of a penalty and other levies under that statute.
Interest is levied under sub section
(8) of section 139 and under section 215 because by reason of the omission or default mentioned in the relevant provision the Revenue is deprived of the benefit of the tax for the period during which it has remained unpaid.
The very period for which interest is levied under the relevent provision points to the nature of the levy.
If that is borne in mind, it will be apparent that the levy of interest is part of the process of assessment.
Although section 143 and section 144 do not specifically provide for the levy of interest and the levy is in fact attributable to sub section
(8) of section 139 or section 215, it is nevertheless a part of the process of assessing the tax liability of the assessee.
Where the Income tax Officer considers that there is a case for levying interest under sub section
(8) of section 139 or under section 215, what he does in practice, is to make an order levying such interest after completing the assessment of the assessee 's total income and the tax payable by him.
Now the question is whether orders levying interest under sub section
(8) of section 139 and under section 215 are appealable under section 246 of the Income tax Act.
(c) of section 246 provides an appeal against an order where the assessee denies his liability to be assessed under the Act or 147 against any assessment order under sub section
(3) of section 143 or section 144, where the assessee objects to the amount of income assessed or to the amount of tax determined or to the amount of loss computed or to the status under which he is assessed.
Inasmuch as the levy of interest is a part of the process of assessment, it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all.
In this connection we may usefully refer to the decision of the Karnataka High Court where in a judgment in National Products vs Commissioner of Income tax, Mysore, Govind Bhat, C.J., explained the position in regard to the levy of interest under section 139 and under section 215.
After referring to the earlier cases on the point he observed: "All decided cases except one have uniformly taken the view that levy of interets under section 18A(6) or section 18A(8) of the 1922 Act or levy of interest under section 215 of the Act is not appealable but in the appeal against a regular assessment, it is open to the assessee to take every contention which, if accepted, must result in the Income tax Officer holding that there was no liability to pay advance tax and, therefore, there was no liability to pay penal interest.
In other words, it is open to an assessee to contend in the appeal against an order of assessment that he is not liable to pay any advance tax at all or the amount of advance tax determined as payable by the Income tax Officer is not correct; but if the assesee does not dispute the amount of advance tax determined as payable by the Income tax Officer, he merely cannot object to the levy of penal interest or question its quantum.
xx xxx xxx xx The levy of penal interest under section 139 or section 215 is made in the regular assessment order; the demand issued pursuant to the assessment order is for the total amount of liability imposed inclusive of tax and interest.
While levy of penal interest under section 18A of the 1922 Act up to 1st April 1952, was automatic as was noticed by Chagla, C.J. in Ramnath 's case , under the Act such levy is not automatic; discretion is vested in the Income tax Officer to waive or reduce penal interest in the cases and circumstances mentioned in rule 117A and rule 40 of the Income tax Rules, 1962.
If the case of the assessee falls within the scope of the 148 said Rules, the Income tax Officer is bound in law to consider whether the assessee was entitled to waiver or reduction of interest.
It is, therefore, clear that levy of penal interest under sections 139 and 215 is part of assessment.
When such penal interest is levied the assessee is "assessed", meaning thereby, he is subjected to the procedure for ascertaining and imposing liability on him.
If the assessee denies his liability to be assessed under the Act, he has a right of appeal to the Appellate Assistant Commissioner against the order of assessment.
Where penal interest is levied under section 215 by the order or assessment, the assessee may altogther deny his liability to pay such interest on the ground that he was not liable to pay advance tax at all or that the amount of advance tax determined by the Income tax Officer as payable ought to be reduced.
In either case he denies his liability, wholly or partially, to be assessed.
Similarly, where interest is levied under section 139 of the Act, the assessee may deny his liability to pay such interest on the ground that the return was not belated or that the penal provision was not attracted at all to his case.
In such a case also he denies his liability to be assessed to interest.
" The decision was noted with approval by the Gujarat High Court in Bhikhoobhai N. Shah vs Comissioner of Income tax, Gujarat V, The only dissent expressed in the matter by the Gujarat High Court arose on the question whether the assessee could challenge in appeal his partial liability to be assessed to interest.
In this area of dissent we need not enter.
But we have no hesitation in endorsing the legal position which has commonly found favour with the two High Courts.
We hold that the question whether a case is made out for waiver or reduction of the interest levied under sub section
(8) of section 139 or under section 215 cannot be the subject of an appeal under clause (c) of section 246 of the Income tax Act.
That is a matter which can more appropriately be dealt with by the Commissioner of Income tax in the exercise of his revisional jurisdiction.
But before the revisional jurisdiction of the Commissioner of Income tax can be invoked in such a case, it is obviously necessary for the assessee to demonstrate before the Income tax Officer that there is a case for waiving or reducing the levy of interest.
We do not find from the record before us that any such attempt was made by the assessee.
Since the statute provides for the waiver or reduction of interest it is 149 open to the Income tax Officer before imposing a levy under sub section
(8) of section 139 and to the Inspecting Assistant Commissioner before doing so under section 215 to issue notice to the assessee and hear him in the matter.
In cases where the jurisdictional fact attracting the levy cannot be disputed, for example that the return has been furnished under section 139 with delay, it will be a question merely of satisfying the relevant authority that there are circumstances calling for a reduction or waiver of the interest.
If an opportunity to do so has not been made available to the assessee before the order levying interest is made, it will be open to the assessee to apply to the Income tax Officer after such order has been made to show that a reduction or waiver of interest is justified.
We have been referred to the judgment by one of us (Sabyasachi Mukharji, J.) in Premchand Sitanath Roy vs Addl.
Commissioner of Income tax, West Bengal III, In that case the question was a very different one.
The question was whether a right of appeal was available in regard to the improper exercise of discretion under sub section
(8) of section 139.
We think that in holding that no right of appeal lay in such a case the High Court was plainly right.
As the assessee has made no application to the Income tax Officer for reduction or waiver of the interest under sub section
(8) of section 139 or under section 215 no question arises of the relevant authority having denied improperly a reduction or waiver of the interest and that being so, no revision petition can be maintained in that regard by the assessee before the Commissioner of Income tax.
In the result we affirm the orders of the Commissioner of Income tax rejecting the revision petitions but on grounds different from those adopted by the Commissioner.
We leave it open to the assessee to apply to the Income tax Officer for waiver or reduction of interest under sub section
(8) of section 139 and under section 215 of the Income Tax Act.
If the assessee does so within six weeks from today, the Income tax Officer will dispose of the applications on the merits expeditiously.
Subject to the aforesaid observations the appeals are dismissed.
In the circumstances there is no order as to costs.
P.S.S. Appeals dismissed.

summary:
Where an assessee failed to furnish the income tax return within the prescribed period or did not furnish it at all, sub section
(8) of section 139 of the Income tax Act, 1961 as it stood at the relevant time, provided for levy of interest on him.
The second proviso to that sub section empowered the Income tax Officer to reduce or waive the interest payable.
Where the advance tax paid by the assessee under section 212 on the basis of his own estimate was less than seventy five per cent of the tax determined on the basis of regular assessment, sub section
(1) of section 215, as it then stood, provided for levy of interest, while sub section
(4) thereof provided for reduction or waiver of interest payable by the assessee, under certain circumstances.
Clause (c) of section 246 provides an appeal against an order where the assessee denies his liability to be assessed under the Act or against any assessment order under sub section
(3) of section 143 or section 144, where the assessee objects to the amount of income assessed or to the amount of tax determined or to the amount of loss computed or to the status under which he is assessed.
Clause (b) of sub section
(4) of section 264 specifically directs that the Commissioner shall not revise any order under section 264 where that order is pending on an appeal before the Appellate Assistant Commissioner.
Interest was levied against the appellant assessee under sub section
(8) of section 139 for delay in furnishing its return, and under section 215 for making payment of advance tax under section 212 at a figure less than 75 per cent of the assessed tax.
It preferred an appeal under cl.
(c) of section 246 before the Appellate Assistant Commissioner raising objection to the total income assessed and also including grounds objecting to the interest charged under sections 139 and 215.
On being advised that orders under sections 139 and 141 215 were not appealable, it filed two revision petitions before the Commissioner under section 264 objecting to the levy of interest under section 139(8) and section 215 respectively.
On being informed that by reason of cl.
(b) of sub section
(4) of section 264 the Commissioner was powerless to interfere so long as the appeal was not withdrawn, the appellant made an application to the Appellate Assistant Commissioner requesting permission to with draw the grounds relating to levy of interest.
Subsequently the Commissioner dismissed both revision petitions on the view that it was not sufficient for the appellant to withdraw only those grounds raised in the appeal which related to the levy of interest, and that the appellant should have withdrawn the entire appeal.
Writ petitions filed by the appellant in the High Court assailing the orders of the Commissioner were rejected in limine.
On the question: Whether orders levying interest under sub section
(8) of section 139 and under section 215 are appealable under section 246 of the Act.
Dismissing the appeals by special leave, the Court, ^ HELD: 1.1 Inasmuch as the levy of interest is a part of the process of assessment, it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all.
[147A B] 1.2 The levy of interest under sub section
(8) of section 139 and under section 215 is not in the nature of a penalty.
It is levied by way of compensation because by reason of the omission or default the Revenue is deprived of the benefit of the tax for the period during which it has remained unpaid.
Although section 143 and section 144 do not specifically provide for the levy of interest and the levy is in fact attributable to sub section
(8) of section 139 or section 215, it is nevertheless a part of the process of assessing the tax liability of the assessee.
[146D G] 2.1 The question whether a case is made out for waiver or reduction of the interest levied under sub section
(8) of section 139 or under section 215 cannot be the subject of an appeal under cl.
(c) of section 246 of the Income tax Act.
That is a matter which can more appropriately be dealt with by the Commissioner of Income tax in the exercise of his revisional jurisdiction.
But before the revisional jurisdiction of the Commissioner can be invoked, it is necessary for the assessee to demonstrate before the Income tax Officer that there is a case for waiving or reducing the levy of interest.
[148F H] 142 2.2 Since the statute provides for the waiver or reduction of interest it is open to the Income tax Officer before imposing a levy under sub section
(8) of section 139 and to the Inspecting Assistant Commissioner before doing so under section 215 to issue notice to the assessee and hear him in the matter.
If such an opportunity has not been made available to the assessee before the order levying interest is made it will be open to the assessee to apply to the Income tax Officer after such order has been made to show that a reduction or waiver of interest is justified.
[148H; 149A C] In the instant case, the assessee having made no application to the Income tax Officer for reduction or waiver of interest under sub section
(8) of section 139 or under section 215 no question arises of the relevant authority having denied improperly a reduction or waiver of the interest and that being so, no revision petition can be maintained in that regard by the assessee before the Commissioner of Income tax.
[149D E] National Products vs Commissioner of Income tax, Mysore, , Bhikhoobhai N. Shah vs Commissioner of Income tax, Gujarat V, referred to.
Premchand Sitanath Roy vs Addl.
Commissioner of Income tax.
West Bengal III, distinguished.


judgement:
Civil Appeal No. 1348 (NT) of 1974 From the Judgment and order dated 7.1.1974 of the Allanabad High Court in I.T.R. No. 364 of 1971.
S.C. Manchanda, V.J. Francis, N.M. Popli and Ujjal Singh for the Appellant.
V. Gouri Shankar and Miss A. Subhashini for the Respondent.
The Judgment of the Court was delivered by PATHAK, J.
This appeal is directed against the judgment of the Allahabad High Court answering the following question in the negative: "1.
Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provisions of sections 10(2) (vii) of the Income tax Act, 1922 were not attracted? 2.
Whether on the facts and in the circumstances of the 201 case, the Tribunal was justified in holding that the sale had taken place before 1.4.1956 and, therefore, the provisions of section 12B of the Income tax Act 1922 were not attracted?" The assessee, a public limited company, was put into liquidation under the orders of the Allahabad High Court.
An amount of Rs. 8,58,893/5/6 was payable by the assessee to the State of Uttar Pradesh on account of arrears of cane cess.
In proceedings for recovery of that amount as arrears of land revenue, the Collector of Deoria attached the assessees mills and put them to auction sale on November 10, 1955.
The land, building, machinery and parking grounds were sold for Rs. 24,00,000 while the moveable properties including mill stores, spare parts, tools and equipment were sold for Rs. 1,80,000.
All the properties were purchased by the Kanpur Sugar Works (P) Ltd., Although the sale was held on November 10, 1955, the sale certificate under rule 285 M of the U.P. Zamindari Abolition and Land Reforms Rules, 1952 could not be issued till July 4, 1956 on account of objections raised by the assessee, in spite of the fact that the entire amount of purchase money of Rs.25,80,000 had been paid by the purchasers on December 8, 1955.
During the period in which the objections were pending, i.e., November 10, 1955 to July 2, 1956, the Government of India appointed an Authorised Controller to run the sugar mills by a notification dated November 25, 1955.
After possession of the mills was given to the purchasers, a suit was filed by them against the assessee claiming damages for loss of profits on account of the possession of the mills not having been delivered to them immediately after the auction sale.
In the suit the purchasers claimed, in the alternative, compensation for loss of interest on Rs.25,80,000 from the date of deposit of the sale price to the date of delivery of the mills.
The claim of the purchasers was ultimately settled by compromise for a sum of Rs.1,25,000.
In assessment proceedings for the assessment year 1957 58, the relevant accounting period being the year ended October 31, 1956, the Income tax Officer called upon the assessee to explain why the excess amount which the assessee had received on sale of the building, machinery and plant over the difference between the original and the written down value should not be subjected to tax under cl.
(vii) of sub section
(2) of section 10 and under section 12B of the Indian Income Tax Act, 1922.
The assessee replied stating that (1) simultaneous computation 202 of income under cl.
(vii) of sub section
(2) of section 10 and of capital gains under section 12B amounted to double taxation and was against the principles of natural justice and the legislative intention; (2) the sale being a compulsory sale was not a sale within the meaning of cl.
(vii) of sub section
(2) of section 10; (3) moveable property was exempt from capital gains tax; and (4) as the sale was complete before April 1, 1956 it did not attract the provisions relating to capital gains which became effective from April 1, 1956 only.
Alternatively, it was claimed that the value of the mills as on January 1, 1954 was much higher than that determined and the assessee was not liable to tax on capital gains.
The Income tax Officer rejected the contentions raised by the assessee, and completed the assessment under sub section
(3) of section 23 read with sub section
(1A) of section 34 of the Indian Income tax Act, 1922 on March 29, 1965, computing the profits under cl.
(vii) of sub section
(2) of section 10 at Rs. 10,07,000 and the capital gains at Rs. 10,23,210.
The Income tax Officer did not find any substance in the assessee 's contention that the value of the fixed assets of the mills was Rs. 18,50,000 as on January 1, 1954 and that there was no justification for initiating the assessment proceedings under sub section
(1A) of section 34 of the Indian Income tax Act, 1922.
On appeal by the assessee the Appellate Assistant Commissioner, by his order dated May 1, 1968, agreed with the Income tax Officer that the sale attracted cl.
(vii) of sub section
(2) of section 10, that it took place on July 4, 1956 and that the assessee was, therefore, liable to capital gains under section 12B.
But contrary to the view taken by the Income tax Officer, the Appellate Assistant Commissioner held that the assessee was entitled to substitute the market value of the machinery as on January 1, 1954 in place of its cost price under cl.
(iii) of section 12B, and accordingly reduced the capital gains from Rs. 10,23,210 to Rs.4,89,343.
Both the Revenue and the assessee filed appeals before the Income tax Appellate Tribunal.
Before the Appellate Tribunal it was the case of the assessee that while an auction sale may be a sale within the meaning of section 12B it was not a sale as contemplated under cl.
(vii) of sub section
(2) of section 10.
It was urged that a compulsory sale was not a sale for the purposes of cl.
(vii) of sub section
(2) of section 10.
It was also urged that as the auction sale had taken place prior to March 31, 1956 the assessee was not liable to tax on capital gains at all.
The Appellate Tribunal by its order dated January 31, 1970 allowed the assessee 's appeal and dismissed the Revenue appeal.
It accepted both the contentions of the assessee and did not find it necessary to go into the question whether 203 the Appellate Assistant Commissioner was right in substituting the market value of the machinery as on January 1, 1954 in place of its cost price under cl.
(iii) of section 12B.
At the instance of the Commissioner of Income tax, Lucknow the Appellate Tribunal referred the two questions of law set out earlier to the High Court for its opinion.
On January 7, 1974, the High Court pronounced judgment in the reference in favour of the Revenue.
And now this appeal.
Shri S.C. Manchanda, appearing for the assessee, has raised two points before us.
The first contention is that cl.
(vii) of sub section
(2) of section 10 of the Indian Income tax Act 1922 has no application because a sale effected for recovering arrears of cane cess as an arrear of land revenue is not a voluntary sale and does not fall within the terms of the relevant statutory provisions.
The second contention is that the sale must be regarded as having taken place on November 10, 1955 when the auction was held and not on July 4, 1956 when the sale certificate was issued, and that being so section 12B which took effect from April 1, 1956 does not extend to the sale.
These are the only two contentions before us, and in our opinion, they can be disposed of shortly.
Clause (vii) of sub section
(2) of section 10 of the Indian Income tax Act, 1922 provides for the computation of profits and gains chargeable to tax under the head 'business ' after making the following allowances: "(vii) in respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed, the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually sold or its scrap value: Provided that such amount is actually written off in the books of the assessee: Provided further that where the amount for which any such building, machinery or plant is sold, whether during the continuance of the business or after the cessation thereof, exceeds the written down value, so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be 204 profits of the previous year in which the sale took place: xxx xxxx xxxxx" The argument for the assessee is that the word "sold" in the clause refers to a sale transaction affected on the free volition of the seller and not where it is in the nature of a compulsory transfer for recovering an arrear of land revenue.
Reliance is placed on Calcutta Electric Supply Corporation Ltd. vs Commissioner of Income tax, West Bengal, , where the Calcutta High Court laid down that the word "sale" in its ordinary meaning, was a transaction entered into voluntarily between two persons, the buyer and the seller, and that, therefore, the requisition of an electricity generating plant by the Government under sub rule (1) of rule 83 of the Defence of India Rules, not being a voluntary sale, did not fall within the mischief of cl.
(vii) of sub section
(2) of section 10.
Our attention has also been drawn to Indian Steel & Wire Products Ltd vs State of Madras, ; In that case this Court was called upon to consider whether the supplies by the appellant of certain steel products to various persons in the State of Madras under the Iron and Steel (Control of Production and Distribution) Order, 1941 could be regarded as sales for the purposes of the Madras General Sales Tax Act.
The Court observed that the transactions must be treated as sales because the element of mutual assent was not excluded altogether from the transactions.
Learned counsel seeks support from that case in support of his submission that the element of consent is essential to the character of a sale.
A third case, R.B. Lachman Das Mohanlal & Sons vs Commissioner of Income tax, U.P., has been placed before us but nothing said therein is truly apposite to the limited question before us.
We have given the matter careful consideration and we think, for the reasons which follow, that there is no escape from the conclusion that the transaction in this case constitutes a sale for the purposes of cl.
(vii) of sub section
(2) of section 10.
The levy of cane cess was imposed under a statute in respect of an activity carried on voluntarily by the assessee.
When entering upon and carrying out that activity the assessee was fully conscious that he did so subject to the provisions of the statute.
The statute provided for the levy of cane cess and its recovery, in the event of default of payment, as arrears of land revenue.
What was done in the present case 205 was to recover the arrears of cane cess as arrears of land revenue.
All along, therefore, the assessee was aware that when it entered upon and carried out an activity attracting cane cess it was exposing itself to recovery proceedings as arrears of land revenue.
The assessee was aware that recovery could be affected by an auction sale of its properties.
It can be inferred from the circumstance that by embarking upon the activity which attracted cane cess the assessee agreed to be bound by the structural framework imposed by the statute around that activity, and, therefore, agreed to an auction sale of its properties as arrears of land revenue in the event of its failure to pay the cane cess.
We are not satisfied that the element of consent is absent altogether from the transactions considered in this case.
We are clearly of opinion that the sale of the properties of the assessee fall within the scope of cl.
(vii) of sub section
(2) of section 10 of the Indian Income tax Act, 1922 and therefore, the first contention must be rejected.
Turning to the second contention, the question is whether the sale can be said to have taken place when the properties were auctioned or on the date when the sale certificate was issued.
The recovery of an arrear of land revenue in Uttar Pradesh is governed by the provisions of the U.P. Zamindari Abolition and Land Reforms Act and the Rules made thereunder.
We have been taken through the pertinent provisions, of that Act and its Rules.
The High Court, in the judgment under appeal, has made detailed reference to them and, in an admirable exposition of the law, has demonstrated that the date on which the sale certificate was issued is the date on which the sale must be regarded as having taken place.
We have no hesitation in endorsing that view.
Section 279 of the U.P. Zamindari Abolition and Land Reforms Act specifies the modes for the recovery of an arrear of Land revenue, and section 282 prescribes the procedure for the attachment and sale of moveable property.
Section 286 empowers the Collector to proceed against other immoveable property belonging to the defaulter.
Rule 281 authorises the Collecter to sell immovable property and upon the property being auctioned under the Rules, and the objections, if any, thereto having been considered and disposed of, provides for confirmation of the sale by an order of the Commissioner.
Rule 285 M provides that the Collector shall thereupon put the person declared to be the purchaser into possession of the property, and shall grant him a certificate to the effect that he has purchased the property to which the certificate refers, and that such certificate shall be deemed to be a valid transfer of such property.
It is apparent that it is only after the sale is confirmed and a certificate is granted that the 206 property stands transferred and the purchaser becomes the owner of the property.
Rule 285 M is explicit.
The certificate operates as a transfer of the property.
As before the High Court, learned counsel for the assessee relies on section 65 of the Code of Civil Procedure in support of his submission that the property shall be deemed to have vested in the purchaser from the time when the property is sold and not from the time when the sale becomes absolute.
The application of section 65 turns upon the scope of section 341 of the U.P. Zamindari Abolition and Land Reforms Act, which applies the provisions of the Code of Civil Procedure to the proceedings taken under that Act.
section 341, however, applies the Code only so far as it can be applied consistently with the Act and not in derogation of it.
As is clear, the procedure incorporated in the U.P. Zamindari Abolition and Land Reforms Act and the Rules made under it specifically exclude the operation of section 65.
When the sale certificate itself operates as effecting the transfer of the property, no question arises of relating the transfer back to the date of auction.
It is true that the order of the Commissioner confirming the sale refers back to the auction which has already taken place, but that is hardly of any moment in view of the terms of Rule 285M.
We see no force in the second contention.
In the result the appeal fails and is dismissed with costs.
P.S.S. Appeal dismissed.

summary:
Section 279 of the U.P. Zamindari Abolition and Land Reforms Act specifies the modes for the recovery of an arrear of land revenue.
Rule 281 of the Rules framed under the Act, authorises the Collector to sell the attached immovable property of a defaulter by auction, and provides for confirmation of the sale by an order of the Commissioner.
Rule 285 M requires the Collector to grant the purchaser a certificate that he has purchased the property and provides that such certificate shall be deemed to be a valid transfer of such property.
A certain amount was payable by the assessee to the State on account of arrears of cane cess which was recoverable as arrears of land revenue.
In proceedings for its recovery the Collector attached the assesse 's mills and put them to auction sale on November 10, 1955.
The entire amount of purchase money had been paid on December 8, 1955.
However, the requisite sale certificate under r. 285 M could not be issued till July 4, 1956 on account of the objections raised by the assessee.
In assessment proceedings for the assessment year 1957 58, the 199 Income tax officer called upon the assessee to explain why the excess amount which he had received on sale of the buildings, machinery and plant over the difference between the original and the written down value should not be subjected to tax under cl.
(vii) of sub section
(2) of section 10 and under section 12B of the Indian Income tax Act, 1922.
The assessee contended (i) that an auction sale being a compulsory sale was not a sale within the meaning of cl.
(vii) of sub section
(2) of section 10; and (ii) that the sale having been completed prior to March 31, 1956, it did not attract the provisions of section 12B relating to capital gains, which became effective from April 1, 1956 only.
The Income tax officer rejected the aforesaid contentions and computed the profits under section 10 (2) (vii) at Rs.10,07,000 and the capital gains under section 12B at R.S. 10, 23, 210.
The matter ultimately went before the High Court which decided in favour of the Revenue.
In the assessee 's appeal to this Court it was contended (i) that cl.
(vii) of sub section
(2) of section 10 of the Income tax Act, 1922 had no application because an auction sale was not a voluntary sale; and (ii) that the sale must be regarded as having taken place on November 10, 1985 when the auction was held and not on July 4, 1956 when the sale certificate was issued, for the property should be deemed to have vested in the purchaser from the time when it was sold and not from the time when the sale became absolute and that being so, section 12B did not extend to the sale.
Dismissing the appeal, the Court ^ HELD: 1.
The sale of the properties of the assessee falls within the scope of cl.
(vii) of sub section
(2) of section 10 of the Indian Income tax Act, 1322.
it cannot be said that the element of consent essential to the character of a sale was absent altogether from the transaction.
The levy of cane cess was imposed under a statute in respect of an activity carried on voluntarily by the assessee.
When entering upon and carrying out that activity the assessee was fully conscious that he did so subject to the provisions of the statute, and that in the event of default of payment of cane cess it was exposing itself to recovery proceedings as arrears of land revenue.
The assessee was also aware that recovery could be affected by an auction sale of its property.
The assessee thereby agreed to be bound by the structural framework imposed by the statute around the activity.
and, therefore, agreed to an auction sale of its properties in the event of its failure to pay the cane cess.
[205C ; 204G H; 205A C] Calcutta Electric Supply Corporation Ltd. vs Commissioner of 200 Income tax, West Bengal, ; Indian Steel & Wire Products Ltd. vs State of Madras, ; ; and R.B. Lachman Das Mohanlal & Sons vs Commissioner of Income tax, U.P., , referred to 2.
The date on which the sale certificate was issued should be the date on which the sale must be regarded as having taken place.
It is only when the property is transferred that it can be deemed to nave vested in the purchaser.
Rule 285 M of the U.P. Zanmindari Abolition and Land Reforms Act, is explicit in its terms.
When the sale certificate itself operates as effecting the transfer of the property, no question arises of relating the transfer back to the date of auction.
[205E; 260A B] The procedure incorporated in the U.P. Zamindari Abolition and Land Reforms Act, and the Rules made under it, specifically exclude the operation of section 65 of the Code of Civil Procedure.
Section 341 of that Act applies the Code only so far it is consistent with the provisions of the Act and not in derogation of it.
[206B C]